UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Q Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: December 31, ~~2009~~2011

£ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to_______

Commission File No. 000-49470

HOME SYSTEM GROUP

(Name of small business issuer in its charter)

Nevada	43-1954776
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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)

347-624-5699
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No Q

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

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 past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Q £ No £Q

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Q

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 £ Non-Accelerated Filer £ Accelerated Filer £ Smaller Reporting Company Q

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ended June 3029, ~~2009~~2011 was $484,~~165~~831,~~539~~067.

There were a total of 6267,~~477~~490,~~949~~166 shares of the registrant’s common stock outstanding as of ~~March~~December 1931, ~~2010~~2012.

HOME SYSTEM GROUP

FO FORM RM 10-K

For the Fiscal Year Ended December 31, ~~2009~~2011

		Page	~~Page~~
PART I
Item 1.	Business	1	1
Item 1A.	Risk Factors	8	7
Item 2.	Properties	21	16
Item 3.	Legal Proceedings	21	16
Item 4.	~~Submission~~Mine ofSafety ~~Matters to a Vote of Security Holders~~Disclosures	21	16
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22	17
Item 6.	Selected Financial Data	24	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operation	24	18
Item 8.	Financial Statements and Supplementary Data	33	26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33	26
Item 9A(T).	Controls and Procedures		26
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	35	27
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	36	28
Item 11.	Executive Compensation	37	30
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	38	33
Item 13.	Certain Relationships and Related Transactions	39	34
Item 14.	Principal Accountant Fees and Services	40	34
Item 15.	Exhibits and Financial Statements Schedule	41	35
Index to Consolidated Financial Statements		F-1	~~F-1~~

~~SPECIAL NOTES~~Table ~~REGARDING~~of ~~FORWARD-LOOKING STATEMENTS~~Contents

~~This report~~SPECIAL ~~contains~~NOTE ~~forward-looking~~REGARDING ~~statements. The forward~~FORWARD-~~looking~~LOOKING statements are contained principally in the section entitled “Management’s Discussion and Analysis or of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the Item 1A captioned “Risk Related to Our Business” elsewhere in this report. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:STATEMENTS

lThis ~~our~~report ~~expectations~~contains ~~regarding~~forward-looking statements. The forward-looking statements are contained principally in the ~~market~~section ~~for~~entitled ~~household~~“Management’s ~~appliances~~Discussion and Analysis of Financial Condition and Results of Operation.” These statements involve known and unknown risks, ~~fans~~uncertainties and ~~gas~~other ~~grills;~~factors lwhich may cause our ~~expectations~~actual ~~regarding~~results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the ~~continued~~forward-looking ~~growth~~statements. The ofrisks and uncertainties include, but are not limited to the ~~household~~factors ~~appliance~~described in Item 1A captioned “Risk Factors” elsewhere in this report. In some cases, ~~fans~~you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and ~~grills~~similar ~~industry;~~expressions intended to identify forward-looking statements. The forward-looking statements contained in this report reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements include, among other things, statements relating to:

l our ~~beliefs~~expectations regarding the ~~competitiveness~~market offor ~~our~~household ~~products;~~appliances, lfans ~~our~~and ~~expectations~~gas ~~regarding the expansion of our manufacturing capacity~~grills;

l our expectations ~~with~~regarding ~~respect~~the tocontinued ~~increased revenue~~ growth ~~and~~of ~~our~~the ~~ability~~household ~~to achieve profitability resulting from increases in our production volumes; l our future business development~~appliance, ~~results~~fans ~~of operations~~ and ~~financial~~grills ~~condition~~industry; ~~and~~

our beliefs regarding the competitiveness of our products;

our expectations regarding the expansion of our manufacturing capacity;

our expectations with respect to increased revenue growth and our ability to achieve profitability resulting from increases in our production volumes;

our future business development, results of operations and financial condition; and

competition from other manufacturers of small household appliance products.

Also, the forward-looking statements contained in this report represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

USE OF CERTAIN DEFINED TERMS

Except as otherwise indicated by the context, references in this report to:

· “Home System,” “we,” “us,” “group” or “our,” are references to the combined business of Home System Group and its direct and indirect subsidiaries: Home System Group, Inc., a BVI company, or ~~HSG~~“HSGI”; Holy (HK) Limited, a Hong Kong holding company, or “Holy HK”; Oceanic International (Hong Kong), Ltd., a Hong Kong company, or “OCIL”; Oceanic Well Profit, Inc., a Chinese operating company, or “Well Profit”; Asia Forever Investment Limited, a Hong Kong holding company, or “Asia Forever”; and Zhongshan City Weihe Appliances Co., Ltd., a Chinese operating company, or “Weihe.”;

· “BVI” are to the British Virgin Islands;

· “China” and “PRC” are to the People’s Republic of China;

· “RMB” are to Renminbi, the legal currency of China;

· “U.S. dollar,” “$” and “US$” are to the legal currency of the United States;

· the “SEC” are to the United States Securities and Exchange Commission;

· the “Securities Act” are to Securities Act of 1933, as amended; and the “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Table of Contents

PART I

ITEM 1. OUR BUSINESS

Overview

Home System Group (the “Company”) is a Nevada holding company which has its ~~operations~~ ~~based~~ operations exclusively in China. These operations are primarily ~~engaged~~ in the production of a variety of household ~~appliances~~products, including ceiling fans and lighting fixtures, stainless steel gas grills and ~~ovens,~~tool ~~ceiling~~storage ~~and~~boxes ~~table fans~~ and ~~decorative lamps~~cabinets. Our products are sold through ~~distributors to~~ retailers in America, Europe, Australia and Asia. Most of our products are original equipment manufacturer ("OEM") products, meaning they are designed and manufactured to specifications supplied by end retailers and sold by retailers under their brand names.

We have three operating subsidiaries: Oceanic International (HK) Limited (“OCIL”), . Oceanic Well Profit, Inc. (“Well Profit”) and Zhongshan City Weihe Appliances Co., Ltd (“Weihe”) ~~as of December 31, 2009~~. Our products are ~~mainly~~ manufactured ~~through~~ by Well Profit and Weihe, ~~which~~each ~~have~~of ~~several~~which ~~different~~has ~~facilities~~a ~~located~~manufacturing facility in Zhongshan City, Guangdong Province, China.

Well Profit was incorporated in the People’s Republic of China (“PRC”) on April 5, 2006 for the purpose of manufacturing gas grills and other home electronic appliances ~~such as coffee pots~~. It is located on ~~over~~approximately ~~376~~377,~~869~~000 square feet of land in Oceanic Industry Park, Zhongshan City, China and currently operates five barbeque production lines, with ~~a maximum~~ annual production capacity of approximately 650,000 ~~such~~grills, ~~units~~ and two skateboard production lines, with a total annual production capacity of approximately 1,000,000 ~~such units~~skateboards. ~~Manufacturing facilities operate efficiency while maintaining high workplace safety and environmental compliance standards. There are 459 employees as of December 31, 2009.~~

Weihe was established in October 1998, and is engaged in the manufacture, processing and export of ~~home~~household ~~appliance products~~appliances, ~~which~~ including ~~European style~~ decorative ceiling fans, ~~decorative lamps~~ and ~~energy-saving~~lighting ~~lamps~~fixtures. ~~Weihe~~ ~~is an export oriented manufacturer.~~ The total ~~combined~~ square footage of Weihe’s ~~eight~~ manufacturing ~~plants~~plant is approximately 427,000 square feet ~~and its shares plants with other manufacturers with a combined square footage of approximately 323,000 square feet~~. Weihe’s ismanufacturing lines are equipped with inspection equipment, ~~several~~ electrostatic spraying production lines, semi-automatic pipelines and high-~~speedy~~speed punching machines. ~~There are 699 employees including engineers and administrative staff as of December 31, 2009.~~

Our sales revenue and net income was $61,828,792 and $9,326,032, respectively, during the fiscal year ended December 31, 2009, and $51,926,205 and $4,067,665, respectively, during the same period in 2008.

Our Corporate History

The Company, formerly named Supreme Realty Investments, Inc. (“Supreme”), is was incorporated in the State of Nevada. On August 4, 2006, Supreme was a public ~~shell~~ company with no operations and nominal assets, 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 June 30, 2006 when HSGI acquired all the outstanding stock of OCIL. OCIL is an operating company, organized under the laws of Hong Kong on June 23, 2004 for the purpose of manufacturing and distributing gas grills, home electronic appliances and bin racks. Since the ownership of HSGI and OCIL was the same, ~~the~~their merger was accounted for as a transaction between entities under common control, whereby HSGI recognized OCIL’s assets and liabilities transferred at ~~their~~OCIL carrying amounts. Under the terms of the merger agreement between Supreme and HSGI, the stockholders of HSGI received 8,000,000 (post reverse stock split) shares of Supreme’s common stock, or 54% of our shares outstanding after giving effect to the merger, 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~~merger accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Supreme, are those of the legal acquiree, HSGI, which is ~~considered to be~~ the accounting acquirer~~, HSGI~~. Shares outstanding and per share amounts ~~stated have been~~ were adjusted to reflect the merger.

1Table of Contents

On On January 31, 2007, the Company acquired Holy (HK) and its wholly-owned subsidiary, Well Profit. Holy (HK) Limited (“Holy HK”) was incorporated in Hong Kong on September 26, 2006 ~~for~~to ~~the~~be ~~purpose of being~~ a holding company. Holy HK was inactive until October 26, 2006 when ~~Holy~~it acquired all the issued and outstanding stock of Well Profit. Since the stockholders of Holy HK 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 HK recognized Well Profit’s assets and liabilities transferred at their carrying amounts. ~~The~~ Under ~~consolidated financial statements combine~~ the ~~historical financial~~terms ~~statements~~ of ~~Holy and Well Profit as if~~ the merger ~~occurred~~agreement atbetween the ~~beginning~~ ofCompany ~~the~~and ~~periods~~Holy ~~presented. Under the terms of the merger agreement~~HK, the stockholders of Holy HK received $3,000,000 and 42,500,000 shares of voting common stock of the Company ~~in exchange~~ for 100% of Holy HK’s outstanding common stock. For accounting purposes, ~~the~~this ~~acquisition~~merger ~~has~~was ~~been~~ treated as an acquisition of HSGI by Holy HK and as a recapitalization of Holy. ~~The historical financial statements prior to January 31, 2007 are those of Holy~~HK. ~~Share and per share amounts have been retroactively adjusted to reflect the acquisition.~~

~~On October~~According 1,to ~~2008~~PRC laws and regulations, ~~the~~a ~~Company~~company ~~purchased~~is required to receive a Certificate of Approval from the ~~shareholders~~Bureau of ~~Asia~~Foreign ~~Forever Investment~~Trade ~~Limited~~and Economic Cooperation (“~~Asia Forever~~BOFTEC”) ~~all~~when ofit ~~Asia~~become a ~~Forever’s~~foreign ~~outstanding~~– ~~stock~~invested ~~for approximately $39~~enterprise.5 ~~million. Asia~~Well ~~Forever~~Profit ~~had~~was ~~been~~founded ~~incorporated~~on April 5, 2006 as a ~~limited~~ ~~liability~~domestic – invested company. onOn ~~April~~October 126, ~~2008~~2006, inall of the former shareholders of Well Profit agreed to transfer 100% of the equity of Well Profit to Holy HK, a Hong Kong ~~Special Administrative~~Limited ~~Region~~Liability Company. This transfer required a Certificate of Approval for the establishment of an enterprise with investment from Taiwan, Hong Kong, Macao and overseas companies (“Certificate of Approval”). Well Profit applied for the Certificate of Approval in November 2006 and received it ~~has~~on ~~100%~~December ~~ownership~~4, ~~interest~~2006. With the Certificate of ~~Weihe~~Approval, Well Profit, which was registered with the local Administration of Industry and Commerce, updated its business license and completed the transfer, formally becoming a wholly owned foreign enterprise (“WFOE”) on July 6, 2007.

~~The following~~On ~~chart~~October ~~reflects~~1, ~~our~~2008, ~~organizational~~the ~~structure~~Company purchased from the shareholders of Asia Forever Investment Limited (“Asia Forever”), all of Asia Forever’s outstanding stock for approximately $39.5 million, which was discounted for financial statement purposes to $29.9 million. Asia Forever had been incorporated as a limited liability company on April 1, 2008 in Hong Kong, and it had 100% ownership interest of Weihe. Weihe was founded as a domestic – invested company on August 3, 1998. On August 20, 2008, all of the ~~date~~former shareholders of ~~this Report~~Weihe agreed to transfer their equity interests in Weihe to Asia Forever. Weihe applied for a Certificate of Approval in June 2008 and received it on July 23, 2008. With the Certificate of Approval, Weihe which was registered with the local Administration of Industry and Commerce, updated its business license and completed the transfer, formally becoming a WFOE on September 1, 2008.

On January 10, 2012, Asia Forever transferred 100% of the equity of Weihe to Oceanic and Holy HK transferred 100% of the equity of Well Profit to Oceanic. As a consequence of these transfers, Asia Forever and Holy HK have no operating activities.

On February 16, 2012, the Board of Directors of the Company approved the merger of Well Profit with and into Weihe, whereby Weihe was the surviving company. The Company is currently completing the merger and expects it will be completed in the first half of 2013.

The following chart reflects our organizational structure as of the date of this Report:

Table of Contents

Our Products

We are primarily engaged in the production and distribution of a variety of household ~~appliances~~ products, ~~stainless~~such ~~steel~~as ~~gas~~fans, ~~grills~~lighting ~~and ovens~~fixtures, ~~ceiling fans~~skateboards, ~~lamps~~stainless ~~and skateboards~~steel togas ~~distributors~~grills, ~~who~~and ~~channel~~stainless ~~them~~steel tool containers to large retailers in the United States (“US”), Europe and Australia.

~~Our barbeque~~Decorative ~~grills~~ceiling ~~are~~fans ~~made of stainless steel~~ and ~~other~~lighting ~~durable~~fixtures ~~material~~became ~~and~~our ~~use either~~feature ~~natural~~products ~~gas~~upon asour ~~fuel.~~acquisition ~~Our~~of ~~barbeque~~Weihe ~~grills are sold to distributors who sell them mainly to retailers~~ in ~~the~~late ~~United States~~2008. We ~~design~~can ~~the~~produce ~~burners~~up ~~in order~~ to ~~have~~4.6 ~~safe~~million units ~~combustion~~of ~~and~~decorative ~~save~~ceiling ~~gas.~~fans Weper ~~believe~~year. ~~that~~In ~~our grills are stylish~~2011, ~~elegant~~our ~~and~~sales ~~are~~of ~~convenient~~decorative toceiling ~~use.~~fans ~~For~~and ~~the~~lighting ~~fiscal~~fixture ~~years~~were ~~ended December 31~~$59, ~~2009 and 2008~~624,166, ~~23.6~~or 64% ~~and 17.6%~~ of our sales ~~revenue, respectively, came from this product~~.

~~Decorative ceiling~~Our ~~fans~~barbeque ~~and~~grills ~~lamps~~are ~~also~~made ~~became~~of ~~our~~stainless ~~feature~~steel ~~products,~~and ~~when~~use wenatural ~~acquired~~gas ~~Weihe in~~as ~~Octorber,~~fuel. ~~2008,~~Our ~~which~~barbeque isgrills anare ~~exported-oriented~~sold ~~manufacture~~to ~~and~~distributors ~~distributor~~which ~~of small~~sell ~~household~~them ~~appliances.~~mainly Weto ~~can~~retailers ~~produce~~in upthe toUS. ~~four~~We ~~million~~believe our ~~units~~grills ~~of decorative~~are ~~ceiling~~stylish, ~~fans~~elegant and ~~six~~convenient ~~million~~to ~~units of lamps per year~~use. ~~In 2009~~For fiscal 2011, ~~the sales from fans and lamps were $37,543,116, it contributing 60.7~~6% of our sales ~~revenue~~ came from this product.

Manufacturing

Our products are manufactured in atwo ~~total~~facilities in ~~742~~Zhongshan City,~~000~~ ~~square feet of plant facilities in~~ Guangdong Province, China. Our ~~plant has eight departments, including purchasing, technology, quality control and~~ production, ~~and three workshops for assembling, welding and stamping. Our production~~ facilities have over 300 ~~units~~ pieces of imported and domestic ~~advanced~~ production and testing equipment, including ~~the~~an ~~more~~ advanced electrostatic spraying production line and ~~the~~ a semi-automatic routine assembly line. We ~~currently~~can ~~operate~~produce ~~five~~up ~~barbeque production~~to ~~lines,~~approximately ~~with~~4.6 amillion ~~total~~fans ~~annual~~with ~~production~~lighting ~~capacity~~fixtures, of1 ~~approximately~~ million skateboards, 650,000 ~~such~~gas ~~units;~~grills ~~two~~and ~~skateboard production lines~~100,000 ~~with~~tool astorage ~~total~~units ~~annual production~~per ~~capacity~~year. ofOur ~~approximately 1,000,000 such units; our~~ manufacturing facilities are designed to operate efficiently while maintaining workplace safety and ~~environmental~~being in compliance ~~standards~~with environmental regulations.

We closely monitor and test the quality of our raw materials. We have established inspection points at key production stages to identify product defects during the production process and our finished products are inspected and tested according to standardized procedures. We provide regular training and specific guidelines to our operators to ensure that our internal production processes meet quality standards.

Our distributors also require that our products carry a UL Mark (Underwriters Laboratory) or a CE (mandatory conformity) Mark, respectively. Underwriters Laboratories, Inc. evaluates products, components, materials and systems for compliance to specific requirements, and permits acceptable products to carry the UL (certification) Mark, as long as they remain compliant with such standards. All our products are UL or CE certified.

Our Suppliers of Raw Materials

The primary raw materials used in our products include stainless steel, iron, plastic, metal and glass. The prices of these raw materials are determined based upon prevailing market conditions including supply and demand.

We utilize local suppliers in close proximity to us, typically within 20 kilometers of our manufacturing facilities, in order to closely supervise their activities, monitor quality, provide technical training and collaborate on technical improvements. If geographically proximate suppliers continue to be able to provide high quality raw materials to us, we intend to continue source our raw materials from them in order to take advantage of lower shipping costs, time to transport and favorable quality control capabilities.

~~Our~~Table ~~top five~~of ~~major suppliers are:~~Contents

	Name	Raw Material	% of Annual Total Raw Material Purchased
1	Oceanic International (Zhongshan) Company Limited	Metal plate	13%
2	Hubei Xin Cheng Industry & Trade Company Limited	Metal plate	11%
3	Waiyi (HK) Company Limited	Copper wire	10.8%
4	Heshan Zhongsheng Plastic & Hardware Company	Hardware & Plastic	3.7%
5	Foshan Nanhai Jiujiang Jinlingfeng Appliance Co. Ltd.	Appliance accessories	3.1%

We closely monitor and test the quality of our raw materials. We have inspection points at key production stages to identify product defects during the production process and our finished products are inspected and tested according to standardized procedures. We provide regular training and specific guidelines to our operators to ensure that our internal production processes meet quality standards.

Our products carry a UL Mark (Underwriters Laboratories) or a CE (a mandatory conformity marking for products placed on the market in the European Economic Area) Mark, respectively. Underwriters Laboratories evaluates products, components, materials and systems for compliance with standards it establishes, and permits qualified products to carry the UL (certification) Mark, as long as they remain compliant with such standards.

Raw Materials

The raw materials used in our products are predominately steel, iron, plastic, metal and glass. The prices of these raw materials are based upon prevailing market conditions including supply and demand.

We utilize local suppliers, typically located within 20 kilometers of our manufacturing facilities, to enable us to closely supervise their activities, monitor quality, provide technical training and collaborate on technical improvements. If geographically proximate suppliers continue to be able to provide high quality raw materials to us, we intend to continue to source our raw materials from them to take advantage of lower shipping costs, minimal time in transit and ease of coordinating activities.

Below are our major suppliers in 2011 and 2010:

	Percentage of raw material total purchases in 2011	Percentage of raw material total purchases in 2010
Huibei Xin Cheng Industry & Trade Co., Ltd.	13%	-
Zhongshan City PL Electric Co., Ltd	11%	16%
Zhongshan Xiaolan Town Jingyi Brass Co., Ltd.	4%	13%

Our Major Customers

We sell products predominantly to consumer products distributors ~~who~~which in turn sell the products to ~~worldwide~~ large retailers such as Home Depot, Lowe’s, and Costco. Two of our largest ~~customers~~distributors, Zhongshan City Heng Bao Trading Co., Ltd and Waiyi (HK) Limited accounted for approximately 6235% and 3253% of our annual sales, respectively, during ~~2009~~2011, and 50% and 30% respectively, during 2010. We are an original equipment manufacturer (“OEM”) as most of our products are custom designed, produced and labeled for the recipient retailers.

~~Our Major Competitors~~Competition

We are an exported-oriented ~~manufacture~~manufacturer, ~~which~~focused ~~focuses~~ on North ~~America~~American and ~~Europe~~ European markets. Since our main products do not have significant ~~entry~~ barriers of entry, we have experienced increased competition from other ~~original~~OEM ~~equipment manufacturers~~ which are mostly ~~located~~ in China. Competition is based on price and quality, as well as access to retail shelf space, product design, brand names, new product introductions, marketing support and distribution strategies. We compete with various domestic and international manufacturers, some of which have substantially greater financial and other resources than we currently have.

Weihe’s major competitors:

	Name	Product	Annual Output (Estimated)
1	Zhongshan Kong Luen Wah Hoi Electrical Appliance Co., Ltd	Fans	2,000,000 units
2	Zhongshan Jianlun Electrical Appliance Co., Ltd	Fans	1,500,000 units
3	Shunde Xianhua Fan Manufacturer Company	Fans	1,200,000 units
4	Zhongshan Xinfeng Electrical Appliance Co.,Ltd	Fans	1,000,000 units

~~Well Profit’s~~Table ~~major~~of ~~competitors:~~Contents

	Name	Product	Annual Output (Estimated)
1	Taishan Guanrong Metal Products Co., Ltd	Grills	400,000
2	Yangjiang Xinli Company Limited	Grills	300,000
3	Shunde Kangbao Company Limited	Grills	150,000

We have two major competitors: Zhongshan Kong Luen Wah Hoi Electrical Appliance Co., Ltd. and Singfun Electric Group Co., Ltd., which we believe have annual production capacities of 3 million fans and 1.5 million fans, respectively.

We ~~believe~~ ~~that~~ believe our future success will depend upon our ability to develop, manufacture and distribute reliable products that incorporate developments in technology and satisfy customer tastes with respect to style and design in a cost effective profitable manner. It will also depend on our ability to market a broad and innovative ~~offering~~line of products in each category at competitive prices.

We plan to broaden our product offerings, perhaps by acquiring new companies and product lines that are complementary to our existing products, or related to technologies and know-how developed and used in our existing core product family.

Our Competitive Strengths

We believe that the following competitive strengths enable us to compete effectively:

· Low Cost Manufacturing. We focus on executing manufacturing programs involving large volumes produced efficiently, at low cost and with high quality. We organize ~~the~~ production runs inon our ~~business segments’ product~~ lines to minimize the number of manufacturing functions and the frequency of material handling. We also utilize, where practical, a flexible process which uses cellular manufacturing principles to allow a continuous flow of parts with minimal set up time. We believe ~~that~~ our ~~efficient and~~ automated manufacturing operations enable us to provide products for retail distribution with reduced labor costs. We also utilize ana ~~efficient outsourced manufacturing~~ network of suppliers for certain of our products. ~~Many of~~These ~~these~~ relationships ~~are~~give ~~long-term, affording~~ us increased flexibility and stability in our operations. This diverse network allows us to maintain multiple sources of quality products while keeping our ~~price points~~ prices competitive. We continuously implement cost-saving initiatives that have rationalized our operating and manufacturing facilities for products, asand ~~well~~have asoutsourced ~~increased~~certain ~~outsourcing~~portions of ~~certain~~ of our ~~products~~production processes where more ~~it is most~~ cost effective.

· Established ~~Distributor Relationships~~Stable Relationship with Major Retailers. Historically, ~~Our customer are trusted distributors who sell~~ our ~~high quality~~ products towere ~~major~~sold ~~retailors. As~~through atwo ~~result,~~distributors ~~our products~~to ~~are~~international ~~sold in~~ well-known ~~international~~distributors ~~manufacturers~~ and retailers such as ~~Wal-Mart~~Hunter, Home Depot, Lowe’s, Whalen Storage, Lightdecor, Costco, Street-Surfing, Target and Leroy Merlin. ~~Due~~ toAs means of communication have improved in China, we have had more direct communications with our ~~close~~retailers. Thus, although we continue to utilize distributors to facilitate export arrangements and to bring us new customers, we believe we have direct relationships with our current retailers which enable us to be less dependent upon our Chinese distributors. Most of our products are OEM products, custom designed and produced to the end retailer’s specifications and embossed with the trade name provided by each retailer. Before production commences, there are very extensive and detailed communications between the retailer and us regarding specifications, quantities, and delivery dates. These orders generally are followed by an extensive acceptance procedure by the retailers, who frequently visit our facilities before placing an order to ensure we are capable of producing the quantity and quality of product needed, and during production to test the quality of the products manufactured. As the level of direct communications between the Company and the retailers grew, we developed deep stable business relationships with end retailers. As a result, we expect our arrangements with our distributors as well as the end retailers to continue for the foreseeable future.

· ~~Distinctive~~A Location Advantage. Our production facilities are ~~located~~ in Zhongshan, an important manufacturing base in China with stable regional policies and a healthy economic environment. ItZhongshan ~~also~~ provides us ~~with~~ a stable and high quality labor pool which ~~enables~~has ~~the~~enabled ~~Company~~us to grow and expand without concerns of increasing labor cost and shortage of qualified ~~personel~~personnel.

Environmental Matters

China’s environmental laws require all manufacturing enterprises to submit an environmental impact report to the relevant environmental protection authority before starting production operations. In addition, manufacturing enterprises must engage professional environmental organizations to monitor and report on pollutants emission regularly. We do not believe that our facilities are impacted by the various pollution control regulations with respect to noise and air pollution and the disposal of waste and hazardous materials because our production process does not generate industrial pollutants. Our production process primarily involves the forming of steel and assembly of product. We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws.

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Environmental Matters

China’s environmental laws require all manufacturing enterprises to submit an environmental impact report to the relevant environmental protection authority before starting operations. In addition, manufacturing enterprises must engage professional environmental organizations to monitor and periodically report on pollutant emissions. We do not believe our facilities are impacted by the various pollution control regulations with respect to noise and air pollution and the disposal of waste and hazardous materials because our production process does not generate items generally considered to be industrial pollutants. Our production process primarily involves the forming of steel and assembly of products. We are not currently subject to any pending actions alleging violations of applicable PRC environmental laws.

Regulation

Because our operating subsidiaries are ~~located~~ in the PRC, we are ~~regulated~~subject byto its national and local laws. We do not currently face any significant government ~~regulation~~regulations in connection with the production of our products and we do not require any special government permits to produce our products other than those permits that are required of all corporations in China.

We are subject to PRC’s foreign currency regulations. The PRC government has controlled Renminbi reserves primarily through ~~direct~~ regulation of the conversion of Renminbi into other foreign currencies. Although foreign currencies, which are required for “current account” transactions, can be bought freely at authorized PRC banks, the ~~proper~~ procedural requirements prescribed by PRC law must be met. AtAlso ~~the same time,~~ PRC companies are ~~also~~ required to sell their foreign ~~exchange~~currencies ~~earnings~~ to authorized PRC banks and the purchase of foreign currencies for capital account transactions ~~still~~ requires prior approval of the PRC government.

~~Home System~~Weihe isand aWell Profit, are Foreign Invested ~~Enterprise~~Enterprises (“~~FIE~~FIEs”). Under current PRC laws and regulations, ~~FIE~~FIEs may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, ~~FIEs~~a inFIE ~~China~~is ~~are~~ required to set aside at least 10% of ~~their~~its after-tax profit based on PRC accounting standards each year to a general reserve until the cumulative amount of such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a FIE has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation. Each of Weihe and Well Profit have been setting aside at least 10% of their after-tax profits each year to a general fund until the cumulative amount of such reserves have reached 50% of their respective registered capital.

AsEffective ~~a manufacturer~~on ofJanuary ~~consumer products that are distributed to consumers located in the United States~~1, ~~we are also subject to the US Consumer Products Safety Act~~2008, ~~which~~ ~~empowers~~ the ~~Consumer~~PRC ~~Products~~Enterprise ~~Safety~~Income ~~Commission~~Tax to(“EIT”) ~~exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances~~Law, ~~the~~and ~~Consumer~~Implementing ~~Products~~Rules ~~Safety~~(“PRC ~~Commission~~EIT ~~could~~Law ~~require~~2008”) usimposed ~~to repurchase~~a orunified ~~recall~~enterprise ~~one~~income ortax ~~more~~rate of ~~our~~25% ~~products. To~~on ~~date~~all ~~our~~domestic-invested ~~products have~~resident ~~not~~enterprises ~~been~~and ~~subject~~foreign-invested toresident ~~any~~enterprises ~~product~~in ~~recalls~~China, ~~initiated~~unless by the ~~Consumer~~enterprise ~~Products Safety~~qualified ~~Commission~~under certain limited exceptions.

~~Throughout~~ Under the ~~world,~~PRC ~~most~~EIT ~~federal,~~Law ~~state~~2008, ~~provincial~~a ~~and~~“resident ~~local~~enterprise” ~~authorities~~is an ~~require~~enterprise ~~safety regulation~~lawfully ~~certification~~established ~~prior to marketing electrical appliances~~ in ~~those jurisdictions~~the ~~and~~PRC as(“Domestic-Registered aResident ~~result,~~Enterprise”) ~~our~~or ~~distributors~~an ~~require~~enterprise ~~that~~established ~~our~~in ~~products~~accordance ~~carry a~~with ULany orforeign CElaw ~~mark.~~by WePRC ~~endeavor~~enterprises towith ~~have~~its ~~our~~effective ~~products~~management ~~designed to meet the certification requirements of,~~ and tofinancial becontrols ~~certified~~located in, ~~each of~~ the ~~jurisdictions in~~PRC ~~which~~(“Foreign-Registered ~~they~~Resident ~~are sold~~Enterprise”). ~~Laws~~ ~~regulating~~We ~~certain~~believe ~~consumer~~our ~~products~~PRC ~~also exist~~subsidiaries inWell ~~some~~Profit ~~cities~~ and ~~states,~~Weihe asare ~~well~~Domestic-Registered asResident inEnterprises, ~~other~~and ~~countries in which we sell our products. We believe that we~~ are in ~~material~~ compliance with ~~all of~~ the ~~laws and~~PRC ~~regulations~~EIT ~~applicable~~Law ~~to us~~2008.

The Company’s PRC subsidiary, Well Profit, has been classified as a FIE within the PRC since it was acquired by Holy HK in 2006, prior to the effective date of the PRC EIT Law 2008, and thus, starting from its first profitable year, is entitled to 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 fiscal 2007 and 2008. For the following three fiscal years from 2009 to 2011, Well Profit was subject to enterprise income tax at a rate of 12.5%. According to the State Council Circular on the Implementation of the Transitional Preferential Policies of Enterprise Income Tax, the above mentioned Tax Holiday is not affected by the PRC EIT Law 2008. However, when the Tax Holiday expires, beginning in 2012, Well Profit is subject to the EIT rate of 25% in accordance with PRC EIT Law 2008.

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Our PRC subsidiary, Weihe, was classified as a FIE in 2008, after the effective date of the PRC EIT Law 2008. As a result, Weihe has no Tax Holiday and has been subject to the EIT rate of 25% in accordance with the PRC EIT Law 2008.

Management does not believe our parent company, Home System Group, incorporated in Nevada, is a “Foreign-Registered Resident Enterprise” and in practice, it has not been classified as a “resident enterprise” by the relevant PRC tax authorities. If in the future it is classified as a “Foreign-Registered Resident Enterprise” by relevant PRC tax authorities, there will be two impacts: One is that the dividend, bonus and equity investment proceeds we receive from our PRC subsidiaries, Well Profit and Weihe, could be exempted from PRC EIT. The other impact is that revenues we receive outside the PRC will be subject to PRC EIT, but the income tax that is paid outside the PRC in respect of the revenues received outside the PRC could be used to offset the income tax payable in PRC. However, since our operating subsidiaries are all located in the PRC and all of our revenues are from our PRC subsidiaries and already subject to the 25% PRC EIT (subject to Well Profit’s Tax Holiday reduction), our management does not believe such classification will cause any material impact to the Company.

As a manufacturer of consumer products that are distributed to consumers in the US, we are also subject to the US Consumer Products Safety Act, which empowers the Consumer Products Safety Commission (“CPSC”) to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the CPSC could require us to repurchase or recall one or more of our products. To date our products have not been subject to any product recalls initiated by the CPSC .

Throughout the world, most federal, state, provincial and local authorities require safety regulation certification prior to marketing electrical appliances in the territories subject to their jurisdiction and, as a result, our distributors require our products carry a UL or CE mark. We endeavor to have our products designed to meet the certification requirements of, and to be certified in, each of the jurisdictions in which they are sold. We believe we are in material compliance with the laws and regulations applicable to us.

Our Employees

As of December 31, ~~2009~~2012, we ~~have~~had ~~1158~~778 full-time employees. in the following categories:

Departments	~~As of December 31, 2009~~	Number
Manufacturing and engineering	~~902~~	543
General and administration	~~182~~	184
Marketing and sales	26	19
Research and development	48	32

As required by ~~applicable~~ PRC law, we have ~~entered~~ into employment contracts with most of our officers, managers and employees to enable them to receive social benefits from the State. We are working towards entering into employment contracts with those of our employees who do not currently have employment contracts with us. We believe ~~that~~ we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

Our employees in China participate in a state pension scheme organized by PRC municipal and provincial governments. According to the regulation, the Company contributes 20% of employee’s actual monthly salary to the employee’s pension account if the salary is below three times of local average salary; if the employee’s salary is over three times of the local average salary, the Company contributes 20% of three times of local average salary to the employee’s pension account. In addition, we are required by PRC law to cover employees in China with various types of social insurance and believe that we are in material compliance with the relevant PRC laws.7

~~Home System~~Table ~~Group~~of maintains strong ties with its employees and staff and retention is stable. Employee contracts adhere to both State and Provincial employment regulations and all social security regulations. All compensation including social insurance is paid in a timely manner to authorities and employees. There have been no disputes and there are no collective bargaining agreements.Contents

~~ITEM 1A~~Our employees in China participate in a state pension scheme organized by PRC municipal and provincial governments. R We ~~ISK~~must ~~FACTORS~~contribute 20% of an employee’s actual monthly salary to his pension account if his salary is less than three times the local average salary; if an employee’s salary is three times that of the local average salary or more, we contributes 20% of three times the local average salary to the employee’s pension account. In addition, we are required by PRC law to cover employees in China with various types of social insurance and believe we are in material compliance with the relevant PRC laws.

Home System Group maintains strong ties with its employees and staff and retention is stable. Employee contracts adhere to both State and Provincial employment regulations and all social security regulations. All compensation including social insurance is paid in a timely manner to authorities and employees. We have no disputes and no collective bargaining agreements with our employees.

ITEM 1A. RISK FACTORS

RISKS RELATED TO OUR BUSINESS

We are ~~susceptible~~dependent toupon a ~~material~~limited ~~decrease~~number ~~in business if end-users~~ of ~~our~~retailers ~~products decide~~and ~~not~~distributors tofor ~~utilize~~ our ~~distributors.~~revenues

~~The customers~~Our ofproducts are sold by our distributors ~~might~~to ~~utilize~~a ~~the~~limited number of large well known retailers. If any of these retailers were to determine to not carry our products, to utilize services of a different distributor or ~~they~~to ~~might~~source products or directly import ~~the~~ products ~~themselves~~ from other manufacturers our revenues could decline. If our ~~distributors~~revenues were to ~~lose~~decline ~~one~~as a result of ~~their~~a ~~major customers,~~decision by a retailer to no longer distribute our ~~revenues~~products, ~~will~~it could materially ~~decrease~~and adversely impact our results of operation and financial condition.

We rely on two distributors for the majority of our sales revenues and should their relationship with us terminate, our business and operations would be adversely affected.

We sell our products to international retailers through two distributors: Zhongshan City HengBao Trading Co., Ltd. and Waiyi (HK) Company Limited. During fiscal 2011 and 2010, these two companies were responsible for 35% and 53%, and 50% and 30% of our net sales, respectively. Although we believe we have relationships with many of the retailers which purchase our products as a result of consultation regarding product development and features, if our relationship with either of the two distributors ceased, we would suffer a meaningful reduction in our sales which would materially and adversely impact our results of operations and financial condition.

Our business could be adversely affected by retailer inventory management.

Changes in retailer inventory management strategies could adversely impact our sales and ~~our~~ production schedules. As a result of the desire of retailers to more closely manage inventory levels, there ishas been a ~~growing~~ trend among retailers to purchase ~~make purchases~~ on a “just-in-time” basis. This requires us to shorten ~~our~~ lead ~~time~~ times for production in certain cases and more closely anticipate demand, which, ~~could~~ in the future, could require ~~the~~ carrying of additional inventories or require us to incur additional expenses to expedite delivery. If our customers significantly change their inventory management strategies or if they or we fail to forecast consumer demand accurately, we may encounter difficulties in filling ~~the~~ product orders ~~placed by our distributors~~ or ~~need to liquidate excess inventories, or~~ may find that customers are canceling orders ~~or returning products~~. Distribution difficulties may have an adverse effect on our business by increasing the amount of inventory and the cost of warehousing inventory. Any of these results could have a material adverse effect on us our results of operations and financial condition.

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We rely on only a few suppliers for the bulk of our raw materials and their non-performance would adversely affect our operations.

We obtain a majority of our ~~products~~raw materials from ~~only~~ a few suppliers whose nonperformance would have a near-term severe impact on our operations. During ~~2009~~2011, we ~~purchase~~ purchased 13% and 11% of our raw ~~material~~materials from ~~Oceanic~~Hubei ~~International~~Xin ~~(Zhongshan)~~Cheng Industry & Trade Company Limited and 11Zhongshan City PL Electric Co., Ltd., respectively. During 2010, we purchased 16% and 13% of our raw ~~material~~materials from ~~Hubei~~Zhongshan ~~Xin~~City ~~Cheng~~PL ~~Industry~~Electric &Co., ~~Trade~~Ltd. ~~Company Limited~~and Zhongshan Xiaolan Town Jingyi Brass Co,, Ltd., respectively. This concentration makes ~~the~~us ~~Company~~ vulnerable to a near-term severe impact, should the ~~relationships~~relationship with any of our suppliers be terminated. Such failure could cause us to experience serious delivery delays or failures caused by production issues or could cause us to deliver non-conforming products which would have a materially adverse impact on our financial condition and results of operations.

We rely on two customers for the majority of our sales revenues and should their orders decrease or their relationship with us be terminated, our business and operations would be adversely affected.

Well Profit sells a majority of its products to Zhongshan Hengbao Trading Co., Ltd, its exclusive distributor. Weihe sells a majority of its products to Waiyi (HK) Company Limited. During the fiscal year ended December 31, 2009, these two companies were responsible for 62% and 32% of our net sales, respectively.

Economic slowdown in US & European markets

In ~~2009~~2011, the majority of the Company’s products were sold to consumers outside of China , with approximately 8580% of these sales made in North ~~American~~America and ~~European~~Europe. As such, any weakening economic conditions in these markets could negatively impact the Company’s operating results and financial condition.

Consolidation could have a material adverse impact on our success.

Over the past several years, the gas ~~grills~~grill and ~~fans~~fan industries have undergone substantial consolidation as distributors and retailers sought to limit the number of suppliers they deal with, especially due to the 2008 financial crisis. Many smaller manufacturers ~~couldn’t~~have been unable to survive due to ~~shortage~~shortages of cash ~~flow~~ and ~~some~~ reductions in demand from manufacturers ~~who~~which produce high-end/luxury ~~series of~~ fans and grills ~~experienced shrinking demand due to the global economic downturn~~. The gas ~~grills~~grill and ~~fans industry~~fan industries could eventually ~~largely~~ consist of a limited number of manufacturers and distributors as manufacturers continue to limit the number of suppliers with which they do business. ToIn order to thrive, we will need to update our systems to meet the ~~extent~~demands ~~that~~of the larger retailers and distributors. To the extent we do not continue to be a major participant in the industries, our ability to survive or compete effectively ~~with~~ ~~these larger producers~~ could be negatively impacted. As a result, our results of operations and financial condition could be materially adversely affected.

~~Fluctuation~~ Changes in the RMB exchange rate could adversely affect our business

As the majority of the Company’s products are currently sold to retailers in North America and European markets, ~~fluctuations perhaps~~ an increase in the ~~RMB~~value ~~foreign exchange rate could affect our business. In order to limit exposure to negative impact~~ of ~~the~~ ~~fluctuation,~~RMB ~~the~~relative Company takes active measures. When we receive orders, we usually enter into fixed exchange rate agreement with our clients, which lock the currency rate on a level based on the expectation fluctuation of future exchange rate in the coming three to ~~six~~other ~~months.~~currencies ~~However,~~could ~~this~~adversely ~~activity~~affect ~~is effective only in the short term and may not be able to successfully hedge~~ our ~~exposure~~ ~~at all in the future~~business.

8Our profitability maybe affected by inflation in China.

Inflationary factors, such as increases in the costs of our raw materials, labor and overhead, could impair our operating results. A high rate of inflation may have an adverse effect on our ability to maintain our gross margins and selling , general and administrative expenses may increase as a percentage of sales revenue if the selling prices of our products are not able to be increased at the same rate as our costs. If our gross margin for a product line was to decrease substantially, we might stop accepting orders for that product as we have done in the past.

~~Our profitability maybe affected by high inflation in China.~~9

~~Inflationary factors,~~Table ~~such as increases in the cost~~ of our raw materials, labor and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a higher rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of sales revenue if the selling prices of our products are not able to increase at the same rate as these costs.Contents

Competition may materially adversely affect our results of operations.

~~The~~There are no significant barriers to entry into the manufacture of gas grills, fans, ~~and~~skateboards, ~~lamps~~lighting dofixtures ~~not~~and ~~have~~other ~~significant~~products ~~entry~~produced ~~barriers~~by us. As a result, we compete with a variety of manufacturers and distributors of ~~household~~ such products. Additional competitors may ~~also~~ enter this market and cause competition to intensify. While we believe ~~that~~ our ~~competition~~competitive advantages are based upon several factors, including product design and innovation, quality, price, and product features, ~~merchandising, promotion and warranty,~~ if we fail to compete effectively with these manufacturers and distributors, our results of operations could be materially adversely affected.

We ~~also~~ compete with established companies, a number of which have substantially greater facilities, personnel, financial and other resources than ~~we have~~us. In addition, some of our retail customers may use other private label brands, obtained from exporters and manufacturers of unbranded products. Some competitors may be willing to reduce prices and accept lower profit margins to compete with us. As a result of this competition, we could lose market share and sales, or be forced to reduce our prices to meet competition.

We depend on consumer spending, which fluctuates for a variety of reasons, including seasonality.

Sales of our products are generally related to consumer spending. Any downturn in the general economy or a shift in consumer spending away from ~~some of~~ our products ~~such as gas grills, decorative fans and lightings~~ would adversely affect our business. In addition, the market for small electric household appliances is highly ~~seasonal~~ ~~in nature~~seasonal. We often recognize a substantial portion of our sales during the third and fourth quarters of the year due to increased demand by consumers in late summer and fall for the Holiday season. Any economic downturn, decrease in consumer spending or a shift in consumer spending away from small electric household appliances could materially adversely impact our results of operations.

The failure of our business strategy could have a materially adverse effect on our business.

As part of our business strategy, we plan to:

continue cost reductions throughout the entire company and at our suppliers;

l ~~maintain minimal product returns and~~ improve the quality of our products;

pursue innovation in our product categories through our ability to research, design and test new product concepts;

develop and sustain industry-leading sales, marketing and branding programs in our industry.

Our strategic objectives may not be realized or, if realized, may not result in increased revenue, profitability or market presence. Executing our strategy may also place a strain on our suppliers, information technology systems and other resources. To manage growth effectively, we must maintain a high level of quality, properly manage our third-party suppliers, continue to enhance our operational, financial and management systems and thus reduce costs, and expand, train and manage our employee base. We may not be able to effectively manage our growth in any one or more of these areas, which could have a materially adverse effect on our business.

Our future success depends on our ability to develop new and innovative products on a consistent basis in order to increase revenues.

We ~~believe~~ ~~that~~ believe our future success is ~~heavily~~ dependent upon our ability to continue to make innovations in our existing products and to develop, source and market new products~~, which generally carry higher margins~~. We may not be successful in the introduction, marketing and sourcing of any new products or product innovations and we may not be able to develop and introduce in a timely and profitable manner innovations to our existing products that satisfy customer needs or achieve market acceptance.

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Our business can be adversely affected by problems associated with newly acquired businesses or product lines.

We ~~expect to~~may ~~continue to~~ acquire partial or full ownership in businesses and may acquire rights to market and distribute particular products or lines of products. The acquisition of a business or of the rights to market specific products or use specific product names ~~usually~~would likely involve a financial commitment by us, either in the form of cash or stock consideration. In the case of a new license, such commitments are usually in the form of prepaid royalties and future minimum royalty payments. We may not be able to acquire businesses and develop products that will contribute ~~positively~~ to our earnings. Anticipated synergies may not materialize, cost savings may be less than expected, sales of products may not meet expectations and acquired businesses may carry unexpected liabilities.

The unsuccessful integration of a business or business segment we acquire could have a material adverse effect on our results.

As part of our business strategy, we expect to acquire assets and businesses relating to or complementary to our operations. These acquisitions will involve risks commonly encountered in acquisitions. These risks include, among other things, the inability to complete an acquisition after spending significant amounts including the loss of any down payment, exposure to unknown liabilities of the acquired companies, additional acquisition costs and unanticipated expenses. We may also experience difficulties in assimilating the operations and personnel of acquired businesses. Our ongoing business may be disrupted and our management's time and attention diverted from existing operations. Any acquisition will likely require additional debt or equity financing, resulting in additional leverage or dilution of ownership. We cannot assure you that any future acquisition will be consummated, or that if consummated, that we will be able to integrate such acquisition successfully.

Government regulations and our ability to comply with them could adversely impact our operations.

Throughout the world, electrical appliances are subject to various mandatory and voluntary safety standards, including requirements in certain jurisdictions that products be listed by Underwriters Laboratories, Inc. or other ~~such~~ recognized laboratories. Many foreign, federal, state and local governments also have enacted laws and regulations that govern the labeling and packaging of products and limit the sale of product containing certain materials deemed to be environmentally sensitive. Our products may be found to be noncompliant. A ~~determination~~ ~~that~~ determination we are not in compliance with such rules, regulations or standards could result in the imposition of fines or an award of damages to private litigants.

Environmental regulations impose substantial costs and limitations on our operations.

We ~~maybe~~ may be subject to various national and local environmental laws and regulations in China concerning air emissions, wastewater discharges, and solid waste management and disposal. These laws and regulations can restrict or limit our operations and expose us to liability and penalties for non-compliance. While we believe ~~that~~ our facilities are in material compliance with all applicable environmental laws and regulations, the risks of substantial unanticipated costs and liabilities related to compliance with these laws and regulations are an inherent part of our business. It is possible that future conditions or future revisions to these regulations may develop, arise or be discovered that create new environmental compliance or remediation liabilities and costs.

Our business involves the potential for product recalls and product liability claims.

As ~~distributors~~ a manufacturer of consumer products to consumers in the ~~United States~~US, we are subject to the Consumer Products Safety Act, which empowers the U.S. ~~Consumer Products~~CPSC ~~Safety Commission~~ to exclude from the market products that are found to be unsafe or hazardous. Under certain circumstances, the U.S. ~~Consumer~~CPSC ~~Products Safety Commission~~ could require us to repair, replace or refund the purchase price of one or more of our products, or we may voluntarily do so. If we were required to remove, or we voluntarily remove, our products from the market, our reputation orrelationships with retail distributors and our brands could be tarnished and we might have large quantities of finished products that could not be sold. Furthermore, failure to timely notify the U.S. ~~Consumer~~CPSC ~~Product Safety Commission~~ of a potential safety hazard can result in fines being assessed against us. Additionally, laws regulating certain consumer products exist in some states, as well as in other countries in which we sell our products, and more restrictive laws and regulations may be adopted in the future. We also face exposure to product liability claims if one of our products is alleged to have caused property damage, bodily injury or other adverse effects.

Our results of operations are also susceptible to adverse publicity regarding the quality and safety of our products. In particular, product recalls or product liability claims challenging the safety of our products may result in a decline in sales for a particular product. This could be true even if the claims themselves are ultimately settled for immaterial amounts. This type of adverse publicity could occur and product liability claims could be made in the future.

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RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC government could impact our operations, reduce the demand for our products and damage our business.

We conduct substantially all of our operations in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:

· the higher level of government involvement;

· the early stage of development of the market-oriented sector of the economy;

· the rapid growth rate;

· the higher level of control over foreign exchange; and

· the process by which resources are allocated.

As the PRC economy has been transitioning from a planned economy to a more market-oriented economy, the PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. While these measures may benefit the overall PRC economy, they may also have a negative effect on us.

Although the PRC government has in recent years implemented measures emphasizing the utilization of market forces for economic reform, the PRC government continues to exercise significant control over economic growth in China through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and imposing policies that impact particular industries or companies in different ways.

Any adverse change in the economic conditions or government policies in China could have a material adverse effect on the overall economic growth and consequently may have a material adverse effect on our operations.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.

We conduct substantially all of our business through our operating subsidiaries in the PRC. Our operating subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign- invested ~~enterprises~~enterprise, or FIEs. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations ~~have~~ ~~significantly~~ have enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules ~~involve~~ involves uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. In addition, all of our executive officers and directors are residents of China and not of the ~~United States~~US, and substantially all the assets of these persons are located outside the ~~United States~~US. As a result, it could be difficult for investors to affect service of process in the ~~United~~US ~~States~~ or to enforce a judgment obtained in the ~~United~~US ~~States~~ against our Chinese operations and subsidiaries.

The PRC government exerts substantial influence over the manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. We believe ~~that~~ our operations in China are in ~~material~~ compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.

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Accordingly, government actions in the future, including any decision not to continue to support recent economic reform, a return to a more centrally planned economy, or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

Most of our revenues and expenses are denominated in RMB, although most of our products are eventually purchased by customers in dollars. Under PRC law, the RMB is currently convertible under the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the State Administration of Foreign Exchange, (“SAFE”), by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future.

Foreign exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to ~~significant~~ foreign exchange controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if our PRC operating subsidiaries borrow foreign currency funds, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional dollar capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce, or MOFCOM, or their respective local counterparts. These limitations could affect their ability to obtain foreign exchange through debt or equity financing.

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us or otherwise materially adversely affect us.

In October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (i) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (ii) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (iii) covering the use of existing offshore entities for offshore financings; (iv) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (v) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also ~~required~~ ~~that~~ required the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

We believe our stockholders who are PRC residents as defined in Circular 75 have registered with the relevant branch of SAFE, as currently required, in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. However, we cannot provide any assurances that their existing registrations have fully complied with, and they have made all necessary amendments to their registration to fully comply with, all applicable registrations or approvals required by Circular 75. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries’ ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 by our PRC resident beneficial holders. In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

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We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006. This new regulation, among other things, governs the approval process by which a PRC company may participate in an acquisition of assets or equity interests. Depending on the structure of the transaction, the new regulation will require the PRC parties to make a series of applications and supplemental applications to ~~the~~ government agencies. In some instances, the application process may require the presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Government approvals will have expiration dates by which a transaction must be completed and reported to the government agencies. Compliance with the new regulations is likely to be more time consuming and expensive than in the past and the government can now exert more control over the combination of two businesses. Accordingly, due to the new regulation, our ability to engage in business combination transactions has become significantly more complicated, time consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our stockholders or sufficiently protect their interests in a transaction.

The new regulation allows PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the Ministry of Commerce and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The regulations also prohibit a transaction at an acquisition price obviously lower than the appraised value of the PRC business or assets and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. The regulation also limits our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock could be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in RMB, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms, before giving effect to any underlying change in our business or results of operations. Also as most of our products are eventually sold to customers in US dollars and most of our costs are based on RMB, currency fluctuations may adversely affect our profitability. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue as it is exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Currently, most of our cost is based in RMB. In the event that the RMB appreciates against the US dollar, our costs as measured in dollars will increase. If we cannot pass the resulting cost increases on to the ultimate consumers of our products, most of who are in the United States, our profitability and operating results will suffer.

Since July 2005, the RMB has no longer been officially pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

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Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock could be affected by the foreign exchange rate between the US dollar and RMB and between those currencies and other currencies in which our sales may be denominated. Because substantially all of our earnings and cash assets are denominated in RMB, appreciation or depreciation in the value of the RMB relative to the US. dollar would affect our financial results reported in US. dollar terms, before giving effect to any underlying change in our business or results of operations. Also as most of our products are eventually sold to customers in US dollars and most of our costs are based on RMB, currency fluctuations may adversely affect our profitability. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue as it is exchanged into US dollars and earnings from, and the value of, any US dollar-denominated investments we make in the future.

Currently, most of our cost is based in RMB. In the event the RMB appreciates against the US dollar, our costs as measured in dollars will increase. If we cannot pass the resulting cost increases on to the ultimate consumers of our products, most of who are in the US, our profitability and operating results will suffer.

Since July 2005, the RMB has no longer been officially pegged to the US dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the US dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses.

Practically all of our revenues are earned by our PRC subsidiaries. PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries also are required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of their respective registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

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Under the EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.

Under the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, an enterprise established outside China with “de facto management bodies” within China is considered a “resident enterprise,” meaning it can be treated similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. On April 22, 2009, the Chinese State Administration of Taxation (“SAT”) issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to a non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often reside in China. If the PRC tax authorities determine we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiary would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholders and with respect to gains derived by our non-PRC shareholders from transferring our shares.

If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax and our U.S. tax may not be creditable against our PRC tax.

We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer, or Circular 698, released in December 2009 with retroactive effect from January 1, 2008.

SAT released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfer. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abusive form of organization and there are no reasonable commercial purposes to the organization and the corporate income tax liability is avoided, the PRC tax authority may re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. It is also unclear, an offshore holding company is treated as a domestically incorporated resident enterprise, whether Circular 698 would still be applicable to a transfer of shares in such offshore holding company. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are no formal declarations with regard to how to decide what is an “abuse of form of organization” or a “reasonable commercial purpose,” which can be utilized by us to determine if our Company complies with Circular 698. If Circular 698 is determined to be applicable to us based on the facts and circumstances, we or those that transfer our shares may become at risk of being taxed under Circular 698 and we or those that transfer our shares may be required to expend valuable resources to comply with Circular 698 or to establish that we or they should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations. Moreover, if it is determined that Circular 698 is applicable to transfers of our shares, the price of our shares may be adversely affected if individuals who might otherwise purchase our shares determine not to do so due to the threat of having to comply with or pay taxes pursuant to Circular 698.

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You may have difficulty enforcing judgments against us.

We are a Delaware holding company, but our principal operating subsidiaries are in the PRC. Most of our assets are located outside the US and most of our current operations are conducted in the PRC. In addition, our directors and officers are nationals and residents of countries other than the US. A substantial portion of the assets of these persons is located outside the US. As a result, it may be difficult for you to effect service of process within the US upon these persons. It may also be difficult for you to enforce in the US courts judgments predicated on the civil liability provisions of the US federal securities laws against us and our officers and directors, who are not residents of the US and the substantial majority of whose assets are located outside the US. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of US courts. The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the US. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security or the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the US.

Certain of our stockholders have substantial influence over our company, and their interests may not be aligned with the interests of our other stockholders.

Mr. Weiqiu Li, our Chairman, owns approximately 17.3% of our outstanding shares of common stock, and Kinwai Cheung, the other member of our Board of Directors, owns approximately 14.6% of our outstanding shares of common stock and three other shareholders of our Company own in the aggregate approximately 20.5% of our outstanding shares of common stock. As a result, Messrs. Li, Cheung and the other three shareholders have significant influence over our business, including decisions regarding mergers, consolidations, the sale of all or substantially all of our assets, election of directors and other significant corporate actions. As a result of this concentration of ownership, you and our other shareholders, acting alone, do not have the ability to determine the outcome of matters requiring shareholder approval, including the election of our directors or significant corporate transactions. In addition, this concentration of ownership, which is not subject to any voting restrictions, may discourage, delay or thwart efforts by third parties to take-over or effect a change in control of our company which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company, and may limit the price that investors are willing to pay for our common stock.

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Our management is not familiar with the United States securities laws.

Our management is generally unfamiliar with the requirements of the US securities laws and may not appreciate the need to devote the resources necessary to comply with such laws. A failure to adequately respond to applicable securities laws could lead to investigations by the Securities and Exchange Commission (“SEC”) and other regulatory authorities that could be costly, divert management's attention and disrupt our business.

Our accounting personnel who are primarily responsible for the preparation and supervision of the preparation of our financial statements under generally accepted accounting principles in the US have had no education or training in US GAAP and SEC rules and regulations pertaining to financial reporting, which could impact our ability to prepare our financial statements and convert our books and records to US GAAP.

We maintain our books and records in accordance with generally accepted accounting principles in the PRC, or PRC GAAP. Our accounting personnel in the PRC who have the primary responsibilities of preparing and supervising the preparation of financial statements under US GAAP have had no education or training in US GAAP and related SEC rules and regulations. As such, they may be unable to identify potential accounting and disclosure issues that may arise upon the conversion of our books and records from PRC GAAP to US GAAP, which could affect our ability to prepare our financial statements in accordance with US GAAP. We have taken steps to ensure that our financial statements are in accordance with US GAAP, including our hiring of a US accounting firm to work with our PRC accounting personnel and management to convert our books and records to US GAAP and prepare our financial statements. However, the measures we have taken may not be sufficient to mitigate the foregoing risks. Furthermore, the need to comply with US GAAP may require us to expend substantial amounts of resources and time that could divert our management’s attention and disrupt our business.

We incurred significant costs as a result of operating as a public company, and our management is required to devote substantial time to new compliance requirements, including establishing and maintaining internal controls over financial reporting, and we may be exposed to potential risks if we are unable to comply with these requirements.

As a public company we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), together with rules implemented by the SEC and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel need to devote a substantial amount of time to these requirements. These rules increase our legal and financial costs and make some activities more time-consuming and costly. PRC companies have historically not adopted a Western style of management and financial reporting concepts and practices, which include strong corporate governance, internal controls and, computer, financial and other control systems. Most of our middle and top management staff are not educated and trained in the Western system, and we may have difficulty hiring new employees in the PRC with such training. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. Among other weaknesses, the lack of familiarity of our accounting staff with US GAAP constitutes a material weakness in our controls for financial reporting. We have taken steps to rectify this weakness, including hiring a US accounting firm to work with our management and accounting personnel. There is no assurance, however, that the steps taken to date will be sufficient to rectify this material weakness. If we fail to remedy the weaknesses in our controls over financial reporting and adopt appropriate disclosure controls and procedures, our financial reporting may be deficient and we may fail to comply with the reporting requirements of the Securities Exchange Act and other US securities laws, in which event, the market price of our common stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

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We may, in the future, issue additional shares of our common stock, which would reduce investors' ownership and may dilute our share value.

Our Certificate of Incorporation authorizes the issuance of 200 million shares of common stock, of which 67,490,166 have been issued and are outstanding. The future issuance of common stock may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

The price of our common stock may be adversely impacted by developments applicable to other Chinese companies.

There has been substantial press regarding certain Chinese companies that have apparently engaged in frauds and deceptive practices resulting in significant losses to investors. Such activities and the resulting negative press have had a negative impact on the prices of the stocks of Chinese companies generally. There is no guarantee that such t activities will not continue causing investors to avoid buying our stock. Such activities could have a depressive impact on the price of our common stock.

Increased scrutiny of Chinese companies by short-sellers.

The fraudulent activities of certain Chinese issuers have encouraged analysts to investigate Chinese companies to discredit the disclosures in their public filings or otherwise uncover deceptive practices. If such analysts elect to investigate a company they will often short the stock and release materials disparaging the issuer or questioning the accuracy of its public disclosures. Given the current environment for Chinese stocks, if an analyst were to publish a negative article about us, it could cause an immediate and substantial decline in the price of our stock, regardless of the accuracy of its claims.

We are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. We are subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by the Penny Stock Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

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There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

The market price of our common stock has been volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

	·	our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
	·	changes in financial estimates by us or by any securities analyst who might cover our stock;

	·	speculation about our business in the press or the investment community;
	·	significant developments relating to our relationships with our customers or suppliers;

	·	stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the small household appliance industry;
	·	customer demand for our products;

	·	investor perceptions of the household appliance industry in general and our company in particular;
	·	the operating and stock performance of comparable companies;

	·	general economic conditions and trends;
	·	announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;

	·	changes in accounting standards, policies, guidance, interpretation or principles;
	·	loss of external funding sources;

	·	sales of our common stock, including sales by our directors, officers or significant stockholders; and
	·	additions or departures of key personnel.

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.

Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.

We do not intend to pay dividends on shares of our common stock for the foreseeable future, but if we intend to do so our holding company structure may limit the payment of dividends to our stockholders.

While we have no current intention of paying dividends, should we decide ~~in the future~~ to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and ~~investments~~investment. In addition, our operating subsidiaries~~, from time to time,~~ may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into ~~U.S.~~US dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into UUS.S. dollars may reduce the amount received by ~~U.S.~~US stockholders upon conversion of the dividend payment into ~~U.S.~~ US dollars.

Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.20

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~~ITEM 2~~Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. P Our ~~ROPERTIES~~subsidiaries in China have been required to set aside 10% of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.

~~There~~ITEM ~~is no private ownership of land in China and all land ownership is held by the government of the PRC, its agencies and collectives~~2. ~~Individuals and companies are permitted to acquire land use rights for specific purposes~~PROPERTIES. Upon payment of a land grant fee, land use rights can be obtained from the government for a period up to 50 years in the case of industrial land, and are typically renewable. Our manufacturing facilities are located in Guangdong Province, PRC.

~~Our production~~There ~~facilities~~is ofno ~~Well~~private ~~Profit~~ownership ~~are~~of ~~located~~land in ~~five~~China ~~leased~~and ~~buildings totaling~~all ~~376,869~~land ~~square~~is ~~feet,~~owned inby ~~Zhongshan~~the ~~Gang~~government ~~Kou~~of ~~Town~~the ~~Oceanic Industrial Area~~PRC, ~~China~~its ~~for~~agencies ~~$51,258~~and ~~per~~collectives. Individuals ~~month,~~and ~~subject~~companies toare apermitted ~~five-year~~to ~~scheduled~~acquire toland ~~expire~~use ~~on June~~rights ~~30,~~for ~~2011~~specific purposes. Upon Wepayment ~~also~~of ~~lease~~a anland ~~additional~~grant 71fee,~~182~~ ~~square~~land ~~meters~~use ofrights ~~production space~~can inbe obtained from the ~~Zhongshan~~government ~~Gang~~for up ~~Kou~~to ~~Town~~50 ~~Oceanic~~years ~~Industrial~~in ~~Area,~~the ~~for~~case ~~$9,682~~of ~~per month~~industrial land, ~~subject~~and toare atypically ~~five-year~~renewable. ~~lease~~Our ~~that~~manufacturing ~~will~~facilities ~~expire~~are onlocated ~~May~~in 31Guangdong Province, ~~2012~~ PRC.

We ~~also~~ lease 23four factory buildings totaling 28,~~034~~284 square ~~feet~~meters, ofin ~~facilities~~Zhongshan ~~for~~Gang ~~employees~~Kou toTown ~~use~~Oceanic asIndustrial ~~living quarters~~Area, ~~for~~ aChina ~~monthly~~for ~~payment~~approximately of $145,~~825.~~000 ~~These~~(RMB ~~facilities~~282,840) ~~are~~per ~~offered~~month, assubject ~~an added free benefit~~ to ~~our~~a ~~employees,~~five-year ~~many~~lease ofscheduled ~~whom would have~~ to ~~travel~~expire ~~great~~on ~~distances~~August ~~to come~~31, ~~to work each day~~2013.

AsWe ~~a result~~also oflease ~~transfer~~2,140 ofsquare ~~our~~meters ~~property to former shareholders~~ of ~~Asia~~buildings ~~Forever in return~~ for ~~the~~employees ~~reduction~~to ofuse ~~the~~as ~~Company’s debt to them~~dormitory, wefor ~~entered~~a ~~into~~monthly ~~an operating~~payment ~~lease~~of ~~started~~approximately at$2,700 ~~July~~(RMB 117,100) ~~2009~~and ~~for~~office ~~three~~space ~~years.~~of We223 ~~pay~~square ~~$34,091~~meters for ~~442,045~~ ~~square~~a ~~feet~~monthly payment of ~~buildings~~approximately ~~and~~$950 ~~plants~~(RMB 6,000).

~~We believe~~As ~~that~~a ~~all~~result of the transfer of our ~~properties~~property ~~have~~to ~~been~~former ~~adequately~~shareholders ~~maintained,~~of ~~are~~Asia ~~generally~~ Forever in ~~good~~return ~~condition~~for a reduction of the Company’s debt to them, ~~and~~we ~~are~~entered ~~suitable~~into ~~and~~an ~~adequate~~operating lease started at July 1, 2009 for ~~our~~three ~~business~~years. We paid approximately $37,000 (RMB 232,864) for 41,066 square meters of buildings and plants.

~~ITEM 3.~~We LE believe all ~~GAL~~our ~~PROCEEDINGS~~properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings in the ordinary course of our business. We are currently not aware of any legal proceedings the ultimate outcome of which, in our judgment based on information currently available, would have a material adverse affect on our business, financial condition or operating results.

ITEM 4. MINE ~~SUB~~ SAFETY ~~MISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~DISCLOSURES.

~~There were~~Not ~~no matters that were submitted during the fourth quarter of 2009 to a vote of security holders~~applicable.

1621

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PART II

ITEM 5. M MARKET ~~ARKET~~ FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information

Our common stock is quoted under the symbol “HSYT.OBPK” on the ~~Electronic~~OTC ~~Bulletin Board maintained by the Financial Industry Regulatory Authority~~Pink. ~~The CUSIP number is 43737T106~~.

The following table sets forth, for the periods indicated, the high and low bid prices of our common stock. These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

	Closing Prices (1)
	High	Low
Year Ended December 31, 2009
Year Ended December 31, 2012
1st Quarter	$0.85	$0.10
2nd Quarter	$1.50	$0.25
3rd Quarter	$2.96	$0.49
4th Quarter	$4.08	$1.01

Year Ended December 31, 2008
1st Quarter	$0.16	$0.03
1st Quarter	$1.05	$0.22
2nd Quarter	$0.25	$0.11
2nd Quarter	$0.45	$0.17
3rd Quarter	$0.16	$0.07
3rd Quarter	$0.30	$0.10
4th Quarter	$0.10	$0.03
4th Quarter	$0.30	$0.06

	Closing Prices (1)
	High	Low
Year Ended December 31, 2011

1st Quarter	$2.60	$0.13
2nd Quarter	$0.26	$0.10
3rd Quarter	$0.16	$0.07
4th Quarter	$0.10	$0.02

	Closing Prices (1)
	High	Low
Year Ended December 31, 2010
1st Quarter	$4.60	$2.48
2nd Quarter	$4.83	$3.00
3rd Quarter	$4.70	$3.05
4th Quarter	$3.50	$1.24

______________________

(1) The above tables set forth the range of high and low closing prices per share of our common stock as reported by finance.google.com for the periods indicated.

Holders

On December 31, ~~2009~~2012, there were approximately ~~417~~437 stockholders of record of our common stock. The number of record holders does not include persons who held our common stock in nominee or “street name” accounts through brokers.

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Dividend Policy

We have never declared ~~dividends~~ or paid cash dividends. Our board of directors (“BOD”) will make any future decisions regarding dividends. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future.

Our ~~board of~~BOD ~~directors~~ has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our ~~board~~BOD ~~of directors~~ decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

17While we have no current intention of paying dividends, should we decide to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into US dollars or other hard currency and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for the conversion of RMB into US dollars may reduce the amount received by US stockholders upon conversion of the dividend payment into US dollars.

Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations.

Our subsidiaries in China have been required to set aside 10% of their after tax profits according to Chinese accounting standards and regulations to fund certain reserve funds. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to first fund certain reserve funds as required by Chinese accounting standards, we will be unable to pay any dividends.

Penny Stock Regulations

The SEC has regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

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Securities Authorized for Issuance Under Equity Compensation Plans

None.

Recent Sales of Unregistered Securities~~; Use of Proceeds from Registered Securities~~

None.

Purchases of Our Equity Securities

No repurchases of our common stock were made during the fourth quarter of our ~~fiscal~~ ~~year ended December 31, 2009~~fiscal 2011.

ITEM 6. S SELECTED ~~ELECTED~~ FINANCIAL DATA

Not required.

ITEM 7. ~~M ANAGEMENT~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~OPERATION

The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this 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 December 31, ~~2009~~2011 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's ~~is a Nevada holding company which has its~~ operations ~~based~~ are exclusively in China. These operations ~~are~~consist primarily ~~engaged~~of in the production of a variety of household appliances, fans and decorative lightings, stainless steel gas grills ~~and ovens~~, ~~ceiling~~skateboards and ~~table~~tool ~~fans and decorative lamps~~storages. Our products are sold ~~through~~ to distributors which sell them to retailers in North America, Europe, Australia and Asia.

Results of Operation

All amounts, other than percentages, are in ~~U.S.~~US dollars

	Year ended December 31, 2009		Year ended December 31, 2008		Increase (Decrease)		Percentage Increase (Decrease)
Net sales	$	61,828,792	$	51,926,205	$	9,902,587		19.1%
Costs of sales		45,875,295		43,491,550		2,383,745		5.5%
Gross profit		15,953,497		8,434,655		7,518,842		89.1%
General selling and administrative expenses		5,437,139		3,645,135		1,792,004		49.2%
Income from operations		10,176,978		4,704,675		5,472,303		116%
Other income		4,369,287		69,880		4,299,407		N/A
Interest income (expense), net		(2,242,517)		12,692		(2,255,609)		N/A
Income before taxes		12,303,748		4,788,421		7,515,327		157%
Income taxes		(2,977,716)		(720,756)		(2,256,960)		N/A
Net income (loss)	$	9,326,032	$	4,067,665	$	5,258,367		129.3%

Comparison of Results of Operations for the Years Ended December 31, 2011 & 2010:

Sales Revenue

	2011			2010			Increase (Decrease)			Percentage Increase (Decrease)
Net sales	$	94,128,083		$	104,496,008		$	(10,367,925	)		(9.9	)%
Cost of sales		(82,245,535	)		(81,964,746	)		280,789			0.3	%
Gross profit		11,882,548			22,531,262			(10,648,714	)		(47.3	)%
General selling and administrative expenses		(6,835,085	)		(7,234,333	)		(399,248	)		(5.5	)%
Bad debt expense		(2,676,764	)		(1,270,612	)		1,406,152			110.6	%
Income from operations		2,370,699			14,026,317			(11,655,618	)		(83.0	)%
Loss on debt conversion		-			(1,747,762	)		(1,747,762	)		N/M
Loss on investments		-			(4,320,000	)		(4,320,000	)		N/M
Other income		75,999			914,151			(838,152	)		(91.7	)%
Interest expense, net		(795,308	)		(1,130,187	)		(363,975	)		(29.6	)%
Income before taxes		1,651,391			7,742,519			(6,091,128	)		(78.7	)%
Income taxes		(513,370	)		(3,181,466	)		(2,668,096	)		(83.7	)%
Net income	$	1,138,021		$	4,561,053		$	(3,423,607	)		(75.0	)%

Total consolidated sales for the year ended December 31, 2009 increased by $9,902,587 as compared to year ended December 31, 2008. The increase was driven by the higher sales of fans and lamps of $25,347,020 over the comparable period of 2008 due to the acquisition of Weihe, which occured in October, 2008. These increased sales are partially offset by a decrease of $18,178,897 of Well Profit’s revenue which was due to approximately $10 million of sales in 2008 of raw material recorded in 2008 which did not repeated in 2009 and an decrease of $5,556,149 in the sales of skateboards.24

	Net revenue by Segment
	Year ended December 31, 2009			Year ended December 31, 2008
Segment			Percent of total			Percent of total
Barbeque sets	$	14,566,946	23.6%	$	9,150,319	17.6%
Skateboards		3,098,987	5%		8,655,136	16.7%
Other home appliances		44,162,859	71.4%		34,120,749	65.7%
Total	$	61,828,792	100%	$	51,926,204	100%

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19Net Sales

	Year ended December 31, 2009 vs. 2008
Segment	Percent increase of net revenue
Barbeque sets		60%
Skateboards		(64)%
Other home appliances		29%

Net sales for 2011 were $94,128,083, a decrease of $10,367,925 or 9.9% compared to $104,496,008 for 2010. This decrease was primarily due to the decrease of $12,314,373 in sales of the Industrial Fans & Gas Grills segment, partially offset by an increase of $3,927,344 in sales of the Ceiling Fans & Lightings segment.

The reasons for revenue for each segment is as follows:

	Net sales by Segment
	Year ended December 31, 2011						Year ended December 31, 2010					Increase (Decrease)			% Increase (Decrease)
Segment				Percent of total					Percent of total
Ceiling Fans & Lightings		$	59,624,166		63.3	%	$	55,696,822		53.3	%	$	3,927,344			7.1	%
Industrial Fans & Gas Grills			32,473,702		34.5	%		44,788,075		42.9	%		(12,314,373	)		(27.5	)%
Other Trading			2,030,215		2.2	%		4,011,111		3.8	%		(1,980,896	)		(49.4	)%
Total sales		$	94,128,083		100	%	$	104,496,008		100	%	$	(10,367,925	)		(9.9	)%

~~Barbeque sets~~The ~~–In~~reasons ~~2008,~~for ~~due to~~ the ~~downturn~~major ofrevenue ~~international~~variances ~~economy, the orders from international customers~~ for ~~barbeques~~each ~~grills~~segment ~~decreased~~are ~~dramatically. Also,~~ as a result of the high raw material price level, production of barbeque grills experienced operating losses and the sales were deemphasized. In response the Company increased the sales of other products, such as skateboards, in order to offset the adverse impact of the lower sales of barbeques. In 2009, with the recovery of global economy and decrease costs of raw material, production of barbeque grills regained profitability and the Company’s management decided to refocused on the production of barbeque grills.follows:

~~Skateboards~~ Ceiling Fans & Lightings –As ~~per~~Ceiling ~~above,~~Fans & Lightings first became the Company’s major segment as a result of the acquisition of Weihe in late 2008. The major products that Weihe produces are ceiling fans, and ceiling and wall lighting fixtures. For the ~~Company~~year ~~promoted~~ended ~~orders~~December 31, 2011, sales of ~~skateboards~~ceiling fans and lighting fixtures increased approximately $2.8 million (6%) and $1.1 million (14%), respectively, compared to their 2010 sales, due to a shift in the product mix that resulted in a higher average price per unit.

~~Other home~~Industrial ~~appliances~~Fans & Gas Grills – ~~the~~The Company recorded revenue isof ~~from~~$32,473,702 ~~small~~in ~~home~~the ~~appliances,~~Industrial ~~lightings~~Fans ~~and~~& ~~lamps which~~Gas ~~are~~Grills ~~produced~~segment byfor 2011, ~~Weihe.~~a Indecrease ~~2009~~of $12,314,373 ~~this~~compared ~~segment~~to ~~benefited~~2010, ~~from~~primarily ~~the~~due ~~full~~to ~~year effect~~lower sales of ~~Weihe~~industrial fans and skateboards, which ~~was~~decreased ~~acquired~~by in$11,959,069 ~~October~~(40%) and $4,121,819 ~~2008.~~(49%), ~~This~~respectively, ~~resulted~~for 2011, partially offset by increases in ~~higher~~ sales of ~~Weihe~~$4,028,547 (255%) of gas grills and $252,~~347~~290,~~020~~129 ~~over~~(214%) ~~the~~in ~~comparable~~sales ~~period~~of ~~2008,~~tool ~~partially~~storage ~~offset by~~bins. ~~the~~The ~~approximately~~decrease ~~$10~~in ~~million~~ sales of ~~raw~~industrial ~~material~~fans inresulted ~~2008~~from ~~but~~the ~~not~~general ~~repeated in~~weakness ~~2009~~of the market and ~~other~~the ~~general~~fact ~~weakness~~that inorders for industrial fans decreased below levels felt necessary to provide adequate profit margins, thus causing the ~~sales~~Company ofto ~~some~~decline ~~home appliances~~these orders.

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Other Trading – This segment consists of the Company’s periodic purchases of small home appliances from manufacturers in China, and exporting these goods to international retailers. The Company enters into these purchase agreements, depending on market conditions and purchase terms made available. The sales for year ended December 31, 2011 were $2,030,215, a decrease of 49.4% compared to 2010, reflecting the reduction of attractive purchase opportunities.

Costs of Sales and Gross Profit

	Year ended December 31,
			2009	% of Sales Revenue		2008	% of Sales Revenue
			2011	% of Sales Revenue		2010	% of Sales Revenue
Cost of Sales		$	4582,~~875~~245,~~295~~535	7487.24%	$	4381,~~491~~964,~~550~~746	8378.84%
Gross Profit		$	1511,~~953~~882,~~497~~548	2512.86%	$	822,~~434~~531,~~655~~262	1621.36%

The Company’s ~~reported~~ cost of sales of were $4582,~~875~~245,~~295~~ 535 for the year ended December 31, ~~2009~~ 2011, an increase of $2280,~~383,745~~789 (0.3%) from the corresponding ~~2008~~ 2010 level~~. This~~, ~~increase~~despite ~~was primarily~~ the ~~result~~decrease of ~~the~~sales ~~full~~in ~~year effect of the October~~2011, ~~2008 acquisition of Weihe,~~ which ~~had~~resulting ~~$26,683,729 cost of sales~~ in the ~~year~~Company’s ofprofit ~~2009~~margin ~~compared~~decreasing tofrom ~~$8,637,783~~21.6% infor ~~2008,~~the ~~offset~~year byended ~~lower~~December ~~cost of sales of skateboards and raw materials of $ 18~~31,~~393,490~~ ~~due~~2010 to ~~its lower revenue over the comparable 2008 period and lower cost of sales, as a percentage of revenue~~12.6% ~~Cost of sales as a percentage of revenue~~ for the year ended December 31, ~~2009 decreased to 74~~2011.2% ~~from~~The ~~the~~decrease ~~83.8%~~ in the ~~prior~~gross ~~fiscal~~profit ~~year,~~margin ~~largely~~resulted ~~as a~~primarily ~~result~~from the appreciation of the ~~full~~RMB ~~year~~and ~~benefit~~the ~~of Weihe~~Company’s ~~lower~~inability ~~cost~~to ofincrease the sales asprices ~~a percentage~~ of ~~revenue~~its products, which ~~was~~are ~~71.1%~~usually based in ~~2009.~~dollars, ~~The~~to ~~Company’s~~fully ~~other~~offset ~~operations,~~adverse ~~had~~effects ~~a lower cost~~ of ~~sales~~the ashigher ~~percentage~~RMB, ofwhich ~~revenue~~increased ~~for~~ the ~~year~~dollar value of ~~2009~~our ofproduct ~~78.1%,~~costs ~~compared to~~and ~~88.2%~~thus ~~during~~resulted in the ~~prior~~reduced ~~year~~profit margin. ~~This~~Also, ~~improvement~~higher ~~was~~costs ~~largely~~for ~~due~~labor toand ~~decreased cost~~major of raw materials, such as steel, ~~in part~~ due to ~~increased~~higher ~~volumes~~commodity ~~purchased due~~prices toand ~~the~~higher ~~Weihe~~material ~~acquisition~~requirements ~~and~~from ~~the~~our ~~increasing~~customers, ~~efficiency~~raised inthe ~~our~~costs of production ~~scheduling~~ ~~and~~which ~~material~~could ~~handling~~not be recouped by raising prices.

General Selling and Administrative Expenses

The Company’s ~~generals~~ general selling and administrative expenses ~~increased~~were by $16,~~792~~835,~~004~~085 for 2011, ~~the~~a ~~year~~decrease ~~ended December~~of 31$399,248 ~~2009,~~from asthe ~~compared~~corresponding to2010 ~~the~~amount, ~~prior~~which ~~year~~was ~~2008~~$7,234,333. ~~This~~The ~~amount~~reduction ~~higher~~ was ~~primarily~~ due to ~~the~~a ~~full~~decrease ~~year~~in ~~effect~~US ofprofessional ~~Weihe’s selling and administrative costs~~fees, ~~which~~partially ~~were~~offset ~~$1,670,523~~by a higher ~~than~~payroll inexpense ~~2008~~of ~~due~~approximately ~~to its acquisition in October~~$300, ~~2008.~~000,

Bad Debt Expense

The Company increased its reserve for bad debts by $1,930,374 and $156,623 for 2011 and 2010, respectively, due to higher delinquency of payments for certain products that had been sold to one distributor.

For 2010, the Company recorded a $974,784 bad debt expense on accounts receivable of the Other Trading segment past due one year, which it believed would be difficult to collect.

Furthermore, the Company recorded bad debt expenses of $746,390 and $139,205 on certain notes receivable for 2011 and 2010 due to collectability issues.

Income from Operations

Income from operations ~~increased~~decreased by $511,~~472~~655,~~303~~618 (83.0%) for the year ended December 31, ~~2009~~2011, as compared to ~~year ended December 31~~2010, ~~2008,~~ largely due to the ~~increased~~lower ~~revenue and~~level ~~operating~~of ~~profit resulted from the Weihe acquisition~~sales, ~~and~~ the ~~lower~~higher product cost ~~of raw materials~~ and ~~increasing~~higher ~~efficiency~~bad indebt ~~our~~expenses ~~production~~as ~~operation~~discussed ~~which benefited the Company’s gross profit~~above.

~~Other Income~~26

~~Other income~~Table ~~increased by $4,299,467 for the year ended December 31, 2009 as compared the comparable periods in 2008, largely due to the $2,356,327~~ of gain on transfer of fixed assets that reduced the level of debt incurred by the Company due to Weihe acquisition in 2008. In August 2009, the Company transferred certain building assets and land use right to former shareholders of Asia Forever, the previous owner of Weihe. These assets were valued at the time of their transfer at $6,087,312, and the outstanding balance of the Notes due was reduced by this amount. There also was a gain of $1,372,121due to a reduction in the Company’s rent expense accrual resulting from the Chinese government’s stimulus plan, in which the landlord Oceanic International (Zhongshan) received free land use right from the government and tax rebate to stimulate regional economic development.Contents

~~Interest Expense,~~Operating ~~Net~~Income (loss) by Segment:

Net interest expense increased by $2,255,209 for the year ended December 31, 2009 as compared to the prior year 2008, reflected the costs of the amortization of deferred finance cost pertaining to the Weihe acquisition and the higher bank borrowings, which supported the Company’s increased level of business operations resulting from that acquisiton.

	Year ended December 31, 2011						Year ended December 31, 2010
Segment:	Operating Income (Loss)			Percent of Income			Operating Income (Loss)			Percent of Income
Ceiling Fans & Lightings	$	1,781,334			75.1	%	$	9,512,444			67.8	%
Industrial Fans & Gas Grills		577,204			24.3	%		5,724,880			40.8	%
Other Trading		14,626			0.6	%		(546,186	)		(3.9	)%
Corporate		(2,465	)		-	%		(664,821	)		(4.7	)%
Total	$	2,370,699			100	%	$	14,026,317			100	%

~~Net~~ Income ~~before~~from ~~Income~~operations ~~Taxes~~from Ceiling Fans & Lighting Fixtures decreased by $7,731,110 during the year ended December 31, 2011, as the result of lower gross profit margin resulting from the appreciation of the RMB and higher costs of production as discussed above and the increased bad debt reserve of $1,930,374, which more than offset the higher level of revenues in that segment.

~~The Company~~Income ~~reported~~from ~~net~~operations ~~income before taxes~~ of ~~$12,303,748~~Industrial ~~for~~Fans ~~the~~& ~~year~~Gas ofGrills ~~2009, representing~~was ~~an increase of~~ $7577,~~515~~204 for 2011,~~327~~ ~~from~~a ~~the~~decrease ~~pre-tax gain~~ of $45,~~788~~147,~~421 recorded~~676 ~~during~~compared ~~year~~to ~~of 2008~~2010. ~~These~~The ~~increases~~decrease ~~were~~is primarily ~~driven~~due byto ~~the higher~~lower ~~operating~~revenue ~~profits~~of ~~resulting from the Weihe acquisition~~$12,314,373 ~~improved gross profit~~ and ~~other~~lower ~~income~~gross profit as discussed above.

21Income from operations of Other Trading was $14,626 for 2011 due to low gross profit of the products sold. The loss in 2010 of $546,186 was the result of a bad debt expense of $974,784.

	Net Income before Taxes
	Year ended December 31, 2009			Year ended December 31, 2008
Segment			Percent of total net income before taxes			Percent of total net income before taxes
Barbeque sets	$	1,145,992	9.3%	$	(1,605,649)	(33.5)%
Skateboards		563,917	4.6%		744,543	15.5%
Other home appliances		8,878,445	72.2%		6,546,162	136.7%
Corporate		1,715,394	13.9%		(896,635)	(18.7)%
Total	$	12,303,748	100%	$	4,788,421	100%

Loss from operations of Corporate Overhead was just $2,465 for 2011 as the Company had no operations in the US in 2011, while in 2010, we incurred $664,821 in US professional fees.

~~Net income~~Loss ~~before~~on ~~taxes~~Debt of barbeque grills improved to $1,145,992 in 2009 from the net loss in 2008, primarily from the higher revenue of $5.4 million and improved gross profit margin due to lower raw material cost improved production efficiency as discussed above.Conversion

~~Net income~~On ~~before~~April ~~taxes~~1, 2010, the Company and some of ~~skateboards~~its ~~decreased~~debt toholders ~~$563~~entered into Note Conversion Agreements,~~917~~ which resulted in ~~2009~~the debt holders converting $17,542,774 of debt into 5,012,217 shares of the Company’s common stock. This resulted ~~from~~ in a $1,747,762 debt extinguishment loss being recorded in 2010, as the $3.50 per share conversion rate was lower ~~revenue~~than as$3.86, ~~discussed~~which ~~above~~was the average price of the common stock over the 30 trading days prior to the conversion."

~~Net income~~Loss ~~before~~on taxes of other home appliances was $8,878,445 in 2009, an increase of $1,082,366 as compared to the same period of 2008. This primarily resulted from the net increase in revenue of $10 million as discussed above.Investment

~~Net income~~For 2010, ~~before~~the ~~taxes~~Company ofrecorded ~~Corporate segment was~~ $14,~~715~~320,~~394,~~000 anas ~~increased~~a ~~of $2,612,029~~Loss ~~from~~on ~~the~~investment ~~loss~~pertaining ~~in 2008 due~~ to the ~~other~~planned ~~income~~acquisitions ~~including gain~~ of ~~transfer~~ ofSanfan ~~the~~and ~~building~~Jinxinglong ~~$2,356,237~~as ~~and~~these ~~income~~pending onacquisitions ~~reversal~~were ofcancelled by the ~~rent~~Company ~~of $1,372,121~~due asto ~~discussed~~issues ~~above,~~that ~~partially~~arose ~~offset~~subsequent byto the ~~expense~~date ~~for~~of ~~professional services~~the ~~rendered~~agreements. inAs ~~United~~a ~~States~~result asof ~~well~~negotiations aswith the ~~deferred~~sellers, ~~interest~~the ~~expense~~Company obtained refunds of $16,~~249~~480,~~917~~000 ~~recognnized~~of on the ~~Notes~~$10,800,000 ~~payable~~it ~~pertaining~~had paid to the ~~acquisition of Weihe.~~sellers

Other Income (Expense)

Other income was $75,999 in 2011, compared to other income of $914,151 for 2010. The 2010 other income benefited from the Company’s profitable sales of its extra steel plate to other manufacturers, which did not reoccur in 2011.

Income before Income Taxes

The Company reported income before taxes of $1,651,391 for 2011, a decrease of $6,091,128 from the 2010 income before taxes of $7,742,519. This resulted from the fact that 2011’s income from operations of $2,370,699 was $11,655,618 lower than 2010’s income from operations due to lower sales, the reduced gross profit and higher bad debt expense in 2011 as mentioned above, partially offset by the non-recurrence of the Loss on investment of $4,320,000 and the Loss on debt conversion of $1,747,762, both of which were recorded in 2010.

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Taxes

The Company recorded a tax provision in 2011 of $2513,~~997~~370,~~716,~~ representing ~~24.2~~31% of its pre-tax income. This rate is anhigher ~~increase~~than ~~over~~the Chinese statutory rate of 25% largely due to the ~~2008~~inability of the Company to record a tax ~~provision~~benefit pertaining to the operating loss of one of its PRC subsidiaries. In 2010 the tax provision was $~~720~~3,~~756~~181,466, or ~~15.1~~41% of 2010 pre-tax income,. This rate was higher than the 25% statutory rate largely due to the ~~$7,515,327~~inability ~~increase~~to inrecord ~~the~~a ~~2009 pre-~~tax ~~income,~~benefit ~~and~~on the ~~effect~~Loss on investment of ~~the~~$4,320,000 ~~amortization~~and ~~deferred~~the ~~finance~~Loss ~~cost~~on ~~not being~~debt ~~deductible~~conversion of $~~331~~1,~~422 pertain to Weihe’s acquisition~~747,762.

Net Income

AsThe ~~a result~~Company ofrecorded ~~the increased level of~~ net income ~~before taxes, the Company realized net income~~ of $91,~~326~~138,~~032~~021 for ~~the year ended December 31~~ 2011, ~~2009,~~a andecrease ~~increase~~ of $53,~~258~~423,~~367~~607 from ~~the~~2010 ~~prior~~due ~~year.~~to ~~This improvement reflects~~ the ~~increased~~reasons ~~revenue and improved gross margin~~ discussed above~~, plus the gains realized on the transfer of assets and the rent reversal~~.

Liquidity and Capital Resources

As of December 31, ~~2009~~2011, cash and ~~cash~~ equivalents were $35,~~985~~501,~~782~~248 as compared to $12,~~609~~461,~~540~~453 as of December 31, ~~2008~~2010. The components of this increase of $23,~~376~~039,~~242~~795 are reflected below.

Cash Flow

	Year Ended December 31,
	2009		2008
	2011		2010
Net cash provided by (used in) operating activities	$	12,605,750	$	(17,406,207)
Net cash provided by operating activities	$	6,024,326	$	5,121,189
Net cash used in investing activities		(1,682,718)		(936,978)
Net cash provided by (used in) investing activities		5,274,533		(11,690,403)
Net cash provided by (used in) financing activities		(8,~~582~~372,~~967~~926)		195,~~107~~358,~~419~~212
Exchange rate effect on cash		36113,~~177~~862		24(313,~~232~~327)
Net cash inflow (outflow)	$	23,~~376~~039,~~242~~795	$	~~788~~(1,~~466~~524,329)

Net cash provided by operating activities

~~Cash has historically been generated from operations and short-term borrowings.~~ The ~~positive~~ cash ~~flows~~flow from operating activities ~~were~~in 2011 was principally attributed to ~~the net~~an ~~income~~increase ~~generated~~of ~~during~~accounts ~~the~~payable ~~year~~due ~~ended~~to ~~December~~delays ~~31,~~in ~~2009,~~payments ~~which~~to ~~was $9,326,032,~~certain ~~and~~vendors ~~also~~resulting ~~the~~in ~~decrease~~higher ofbills $9payable,~~004,749~~ inpartially ~~receivables~~offset ~~because~~by ~~there~~an ~~was a~~increase ~~large order shipped in fourth quarter~~ of ~~2008~~$10,072,608 ~~was not repeated~~ in ~~corresponding~~ ~~2009~~accounts ~~period.~~receivable ~~These~~due ~~benefits~~to ~~were~~slowing ~~partially~~payments ~~offset~~ by ~~reduced levels~~one of ~~bills~~our ~~payable,~~major ~~accounts payable and restricted cash, totaling $6,746,486~~distributors.

Net cash provided by (used in) investing activities

In Net ~~the fourth~~cash ~~quarter~~provided ofby ~~2009,~~investing ~~the~~activities ~~Company~~in ~~spent~~2011 was $25,~~416~~274,~~218~~533 onprimarily due to the ~~purchase~~acquisition ofdeposit ~~metal fabrication~~refund ~~machines~~received ~~for~~from ~~manufacture~~the ~~purpose.~~shareholders ~~Combined~~of ~~with~~Jinxinglong and Sanfan due to the ~~refund~~cancellation of ~~acquisition~~ ~~deposit~~those ofacquisitions. ~~$733,500,~~In ~~net~~2010 ~~cash~~there ~~used~~was inan ~~investing~~initial ~~activities~~payment ~~was~~ totaling $110,~~682~~800,~~718~~000 made for these then contemplated acquisitions.

23Net cash provided by (used in) financing activities

~~Net~~ For 2011, the net cash used in financing activities was $8,372,926 which primarily resulted from the net increase in notes receivable due from Oceanic International Zhongshan, which jointly obtained bank loans with Weihe.

As of December 31, 2009, the net cash used in financing activities was 8,582,967, primarily due to the $15,419,051 for repayment of notes payable, partially offset by the net increases in bank loans of $2,688,108 and advances from stockholder of $3,174,756.28

~~Working capital~~Table ~~at December 31, 2009 was approximately $(1,242,215) as compared to $(10,028,127) at December 31, 2008, reflecting the reduced level~~ of ~~receivables of $9,004,749, and notes payable current portion of $14,961,763 partially offset by lower accounts and bills payables of $8,416,439.~~Contents

~~We believe~~Working ~~that~~capital ~~our~~at ~~available~~December ~~funds~~31, ~~and~~2011 ~~cash~~was ~~flows~~$8,502,663 ~~generated~~as ~~from~~compared ~~operations and short term borrowings will be sufficient~~ to ~~meet~~$8,033,495 ~~our~~at ~~anticipated~~December ~~ongoing operating~~31, ~~needs for the next twelve months~~2010. ~~However~~This itworking iscapital ~~possible~~reflects ~~that~~ the ~~Company~~ ~~might~~increase ~~need~~of toaccounts ~~raise~~payable ~~additional~~of ~~capital~~$9,461,112 ~~in order to fund the Company’s debt schedule~~ and~~/or~~ ~~expansion.~~bills ~~There~~payable ~~can~~of be$8,762,177, noall ~~guarantee~~partially ~~that~~offset weby ~~will~~higher beaccounts ~~able to~~receivable ~~obtain such funding, whether through the issuance~~ of ~~debt or equity~~$5,433,650 ~~on terms satisfactory to management~~ and ~~our~~notes ~~Board~~receivable of ~~Directors~~$15,800,237.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of our most significant obligations.

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The following tables reflect the Company’s short-term and long-term bank loans as of December 31, 2011 and 2010:

	2011		2010
Loan from China Construction Bank Zhongshan Branch (“CCBZB”), interest from 2.77% to 4.94%, to be paid within 180 days of the origination date of the loan, due from January 9 to July 7, 2012, secured by customer receivables	$	7,598,768	$	4,676,992

Loans from CCBZB, interest at 5.31%, due on July 1, 2011, secured by customer receivables		-		3,019,916

Loans from CCBZB, interest at 6.31%, due on June 22, 2012, secured by customer receivables		2,539,320		-

Loans from Industrial and Commercial Bank of China (“ICBC”), at interest from 3.01% to 4.04%, to be paid within 180 days of the origination date of the loan and due from January 25 to March 29, 2012, secured by the Company’s customer receivables		8,100,214		5,870,581

Loans from ICBC, interest at 13%, due through March 19, 2012, secured by the Company’s customer receivables		2,380,612		-

Loans from ICBC, interest at 4.25%, due through May 31, 2011, secured by the Company’s customer receivables		-		1,509,958

Loans from ICBC, interest at 5.85%, due through May 18, 2012, secured by the Company’s customer receivables		1,587,075		-

Loans from ICBC, interest at 5.85%, due through May 15, 2012, secured by the Company’s customer receivables		1,110,952		-

Loans from ICBC, interest at 4.25%, due through May 25, 2011, secured by the Company’s customer receivables		-		1,509,958

Loans from ICBC, interest at 4.5%, due through May 16, 2011, secured by the Company’s customer receivables		-		1,509,958

Loan from Shiqi Micro Credit Bank, interest at 20%, payments due through October 9, 2012, guaranteed by Li Weiqiu, the chairman of HSG		793,537		-

Loans from CITIC Bank, interest at 7.22%, payments due through August 10, 2012, guaranteed by Li Weiqiu, the chairman of HSG		2,380,614		-

Loans from CITIC Bank, interest at 5.84%, payments due through August 25, 2011, guaranteed by Li Weiqiu, the chairman of HSG		-		3,170,912

Total Short term bank loans	$	26,491,091	$	21,268,275

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	December 31, 2011		December 31, 2010
Loan from ICBC, interest at 4.05%, due on January 3, 2013, secured by the Company’s customer receivables	$	144,280	$	686,345
Loans from ICBC, interest at 4.5%, due through January 3, 2013, secured by the Company’s customer receivables	$	577,118	$	549,076
Total Long term bank loans	$	721,398	$	1,235,421

As of December 31, 2011 and 2010, the Company owed to individual stockholders and related parties as follows:

	December 31, 2011			December 31, 2010
Due to stockholder, payable on demand and no interest	$	1,262,379		$	1,262,379
Due to a related party - Cheung Kinwai		692,350			682,385
Due to a related party – Li Weiqiu		666,667			666,667
Due to a related party (Cheung Kinwai) with interest of 7.844%		836,035			1,083,039
Due to a related party (Li Weiqiu) with floating interest rate		793,537			754,979
		4,250,968			4,449,449
Less: Current portion		(2,948,299	)		(2,899,058	)
Due to stockholder & related parties under non-current liabilities	$	1,302,669		$	1,550,391

The Company owed $1,262,379 to a former stockholder, Simple Hong Kong Investment Limited ("Simple Hong Kong"), as of December 31, 2011 and 2010, which is payable on demand. Simple Hong Kong was incorporated in Hong Kong as a limited liability company, and primarily engages in investment and consulting services to small to medium size private or public enterprises located in Hong Kong or mainland China. Simple Hong Kong and its affiliates have no current relationship with the Company and its affiliates, however Simple Hong Kong had provided loans to the Company and Simple Hong Kong was a shareholder of the Company. Pursuant to arms’ length negotiations between the Company’s management and Simple Hong Kong, the Company borrowed funds from Simple Hong Kong to fund the Company’s operation and has signed non-interest bearing Promissory Notes (“Promissory Notes”) payable to Simple Hong Kong with due dates of March 31, 2011. As of the date of this report, the amount of $1,262,379 is past due and unsecured.

As of December 31, 2011, the Company owed $666,667 to a related party, Li Weiqiu, and $692,350 to another related party, the Company's director and principal shareholder, Cheung Kinwai. These were unsecured, did not bear interest and are payable on demand.

On May 14, 2009, the Company received a loan of $1,571,429 from Cheung Kinwai, a shareholder and director of the Company, with interest of 7.844%, due on May 14, 2014. The Company is required to make monthly payments of approximately $31,700 for principal and interest. As of December 31, 2011, the amount due was $836,035, with principal of $326,903 due within 12 months.

On June 9, 2010, the Company received a loan, which as of December 31, 2011 had a balance of $793,537, from Li Weiqiu, a principal shareholder and the Chairman of the Company’s BOD, with interest of 6.73%, which was 120% of the floating interest rate benchmark lending rate set by The People’s Bank of China. The Company pays interest of $4,451 per month and the principal will be paid off on June 9, 2015, the loan maturity date. As of December 31, 2011, the amount due to Li Weiqiu was $793,537.

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We believe our available funds and cash flows from operations and short term borrowings will be sufficient to meet our anticipated ongoing operating needs for the next 12 months. However, in the future the Company may periodically access funding from third parties and its shareholders or directors, if such funds are made available, to fund its growth. It is possible the Company might need to raise additional capital to fund repayment of the Company’s debt and/or expansion. There can be no guarantee we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our BOD. There is no guarantee the shareholders or related parties will continue to provide loans to the Company. Any repayment of these loans with the Company’s equity will result in dilution to investors.

There are no direct restrictions on our ability to use cash outside of the PRC from our PRC subsidiaries, but some procedural requirements need to be met and regulatory approvals have to be obtained. Our income after taxes, reserves and deductions can be used for expenses such as operating fees and payroll expenses outside of the PRC. Certain documents are needed to be submitted to, and examined by, commercial banks authorized by the State Administration of Foreign Exchange (“SAFE”) before the funds can be converted into foreign currency and be remitted abroad. Similarly, obtaining the approval from local SAFE authorities is a prerequisite for the currency conversion and remittance abroad of the proceeds received from any liquidation of our PRC subsidiaries. However, there are no direct restrictions on the use of such proceeds. Thus, such proceeds could be used outside the PRC and could be remitted to investors who are not PRC nationals upon receiving the necessary approvals.

Effective on January 1, 2008, the PRC Enterprise Income Tax (“EIT”) Law and Implementing Rules (“PRC EIT Law 2008”) imposed a unified enterprise income tax rate of 25% on all domestic-invested resident enterprises and foreign-invested resident enterprises in China, unless they qualify under certain limited exceptions. Under the PRC EIT Law 2008, the “resident enterprise” refers to an enterprise lawfully established in the PRC (“Domestic-Registered Resident Enterprise”) or an enterprise established in accordance with any foreign law and by PRC enterprises with its effective management and financial controls located in the PRC (“Foreign-Registered Resident Enterprise”). We believe our PRC subsidiaries Well Profit and Weihe are Domestic-Registered Resident Enterprises, and are fully in compliance with the PRC EIT Law 2008.

One of the Company’s PRC subsidiaries, Well Profit, has been classified as a FIE within the PRC since it was acquired by Holy in 2006, prior to the effective date of the PRC EIT Law 2008, and thus, starting from the first profitable year, is entitled to 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 2007 and 2008, and for 2009 to 2011, Well Profit was subject to enterprise income tax at 12.5%. According to the State Council Circular on the Implementation of the Transitional Preferential Policies of Enterprise Income Tax, the above mentioned Tax Holiday is not affected by the PRC EIT Law 2008. However, when the Tax Holiday expires on January 1, 2012, Well Profit will be subject to the EIT rate of 25% in accordance with the PRC EIT Law 2008.

The Company’s other PRC subsidiary, Weihe, was classified as a FIE in 2008, after the effective date of the PRC EIT Law 2008. As a result, Weihe had no Tax Holiday and has been subject to the EIT rate of 25% in accordance with the PRC EIT Law 2008.

Management does not believe our parent company, Home System Group, which is incorporated in Nevada, is a “Foreign-Registered Resident Enterprise” and in practice, it has not been classified as a “resident enterprise” by the relevant PRC tax authorities. If it is classified in the future as a “Foreign-Registered Resident Enterprise” by relevant PRC tax authorities, there will be two possible impacts: One is that any dividend, equity investment proceeds or other proceeds that we receive from our PRC subsidiaries, Well Profit and Weihe, could be exempted from PRC EIT. The other potential impact is that the funds that the Company receives outside the PRC are subject to PRC EIT, but the income tax that is paid pertaining to funds received outside PRC could offset the income tax payable by the Company’s subsidiaries in the PRC. However, since currently our main operating subsidiaries are located in PRC and their income is already subject to the 25% PRC EIT, the management does not believe such classification will cause any material impact to the Company.

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Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during 2011 ~~the year ended December 31, 2009~~ that have, or are reasonably likely to have, a current or future affect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Recent Accounting Pronouncements

In ~~February~~ ~~2007~~May 2011, the FASB issued ~~ASC~~ASU ~~Topic~~2011-04 ~~825,~~which ~~“Financial~~was ~~Instruments”~~issued ~~which permits~~to ~~entities~~provide toa ~~choose~~consistent todefinition ~~measure~~of ~~many~~Fair ~~financial~~Value ~~instruments~~("FV") and ~~certain other~~ensure ~~items~~that atthe fair value. ~~The~~measurement ~~objective~~and ofdisclosure ~~this~~requirements ~~standard~~are issimilar tobetween ~~improve financial~~US ~~reporting~~GAAP byand ~~providing~~IFRS. ~~entities~~ASU ~~with~~2011-04 ~~the~~changes ~~opportunity~~certain toFV ~~mitigate volatility~~measurement inprinciples ~~reported~~and ~~earnings~~enhances ~~caused~~the bydisclosure ~~measuring~~requirements ~~related~~particularly ~~assets~~for ~~and liabilities~~Level ~~differently~~3 ~~without~~FV ~~having~~measurements. This toguidance ~~apply~~is ~~complex~~effective ~~hedge~~for ~~accounting provisions.~~the ~~The~~ Company ~~adopted~~beginning ~~this standard~~ on January 1, ~~2008,~~2012. The ~~and~~adoption ~~the implementation~~ of ~~this~~ASU ~~standard~~2011-04 ~~did~~is not ~~have~~expected ato ~~significant~~significantly impact on the Company’s consolidated financial ~~position or results of operations~~statements.

In ~~December~~ ~~2007~~June 2011, the FASB issued ~~ASC~~ASU ~~Topic 805~~2011-05, “~~Business~~Presentation ~~Combinations~~of Comprehensive Income”,. ~~to establish~~ASU ~~principles~~2011-05 ~~and~~revises ~~requirements~~the ~~for~~manner ~~how~~in anwhich ~~acquirer~~entities ~~recognizes~~present ~~and measures~~comprehensive income in ~~its~~their financial statements. The new guidance removes the ~~identifiable~~presentation ~~assets~~options ~~acquired~~in ASC 220, ~~the liabilities~~“Comprehensive ~~assumed~~Income”, ~~any~~and ~~noncontrolling~~requires ~~interest~~entities to report components of comprehensive income in ~~the~~either ~~acquiree~~(1) ~~and~~a ~~the goodwill~~continuous ~~acquired~~statement of comprehensive income or (2) two separate but consecutive statements. The ~~standard~~ASU ~~also~~does ~~establishes~~not ~~disclosure~~change ~~requirements~~the ~~to enable~~items that must be reported in other comprehensive income. In December 2011, the ~~evaluation~~FASB ofissued ASU 2011-12 which deferred the ~~nature~~requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and ~~financial~~other ~~effects~~comprehensive income on the face of the ~~business combination~~financial statements. ~~This~~ASU ~~statement~~2011-05 ~~was~~is effective for ~~the~~fiscal ~~Company~~years and interim reporting periods within those years beginning ~~January 1~~ after December 15, ~~2009~~2011, with early adoption permitted. The adoption of ASU 2011-05, as amended by ASU 2011-12, is not expected to significantly impact the Company’s consolidated financial statements.

In ~~December~~ ~~2007~~September 2011, the FASB issued ~~ASC~~ASU ~~Topic~~2011-08 ~~810,~~which ~~“Consolidation”,~~provides toan ~~establish accounting~~entity ~~and~~the ~~reporting~~option ~~standards~~to ~~for~~first ~~ownership~~assess ~~interests~~qualitative infactors ~~subsidiaries~~to ~~held by~~determine ~~parties~~whether ~~other~~it ~~than~~is ~~the~~necessary ~~parent,~~to perform the ~~amount~~current oftwo-step ~~consolidated~~test ~~net~~for ~~income attributable~~goodwill toimpairment. If ~~the~~an ~~parent~~entity ~~and~~believes, toas ~~the~~a ~~noncontrolling~~result ~~interest,~~of ~~changes~~its inqualitative ~~a parent’s ownership interest~~assessment, ~~and~~that ~~the~~it ~~valuation~~is ofmore-likely-than-not ~~retained~~that ~~noncontrolling~~the ~~equity investments~~FV ~~when~~of a ~~subsidiary~~reporting unit is ~~deconsolidated.~~less Itthan ~~also~~its ~~establishes~~carrying ~~disclosure requirements~~amount, ~~that clearly identify and distinguish between~~ the ~~interests~~quantitative ofimpairment ~~the parent~~test ~~and~~is ~~the~~required. Otherwise, ~~interests~~no offurther ~~the~~testing ~~noncontrolling~~is ~~owners~~required. ~~This~~ The revised standard is effective for the Company ~~beginning~~for ~~January 1,~~its ~~2009. The~~annual ~~Company~~and ~~adopted~~interim ~~the~~goodwill ~~new~~impairment ~~standard~~tests onperformed ~~January~~for 1,fiscal ~~2009~~years beginning after December 15, ~~and~~2011. The ~~the~~adoption ~~implementation~~ of ~~the~~ASU ~~new~~2011-08 ~~standard~~is ~~did~~ not ~~have~~expected ato ~~significant~~significantly impact on the Company’s consolidated financial ~~position~~ ~~or results of operations~~statements.

24ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

In April 2008, the FASB issued ASC Topic 350, “Intangibles-Goodwill and Other”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this standard did not have a significant impact on the Company’s financial statements.

In May 2008, the FASB issued ASC Topic 470, “Debt”, which is effective for financial statements issued for fiscal years beginning after December 15, 2008. This standard includes guidance that convertible debt instruments that may be settled in cash upon conversion should be separated between the liability and equity components, with each component being accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. This standard is not currently applicable to the Company since the Company does not have convertible debt.

In June 2008, the FASB issued ASC Topic 260, “Earnings per Share”, regarding determining whether instruments granted in share-based payment transactions are participating securities. This provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company does not currently have any share-based awards that would qualify as participating securities. Therefore, application of this is not expected to have an effect on the Company’s financial reporting.

In April 2009, the FASB issued ASC Topic 820, “Fair Value Measurements and Disclosures”, which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in the standard. The scope of this standard does not include assets and liabilities measured under Level 1 inputs (quoted prices in active markets for identical assets). The standard is applied prospectively to all fair value measurements where appropriate and is effective for the Company’s interim and annual periods beginning in the second quarter of fiscal year 2009. The Company’s adoption of this above standard did not have a material impact on the Consolidated Financial Statements.

In May 2009, the FASB issued ASC Topic 855, “Subsequent Events”, that established general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable generally accepted accounting principles. This standard, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted this standard effective with the fiscal quarter ending June 30, 2009.

In July 2009, the FASB issued standards that established the ASC Accounting Standards Codification as the single source of authoritative US GAAP for nongovernmental entities. The ASC supersedes all non-SEC accounting and reporting standards that existed at the ASC’s effective date, including FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. The FASB uses Accounting Standards Updates (“ASU”) to amend the ASC. The Codification was effective for interim and annual periods ending after September 15, 2009 (i.e., the year ended December 31, 2009 for the Company).

ITEM 8. FI NANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements

The financial statements required by this item begin on page F-1 hereof.

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

~~None~~(a) Resignation of Principal Accountants.

~~ITEM 9A~~By letter dated December 13, 2011, Acquavella, Chiarelli, Shuster, Berkower & Co., LLP (T“ACSB”). CO resigned ~~NTROLS~~as ~~AND~~independent ~~PROCEDURES~~registered public accounting firm of the Company.

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ACSB reported on the Company's consolidated financial statements for the year ended December 31, 2009 and reviewed the Company’s unaudited consolidated financial statements for the periods ended March 31, 2010, June 30, 2010 and September 30, 2010. For these periods and up to March 14, 2012, the date of the Company’s Current Report on Form 8-K reporting the resignation (the “Form 8-K”), there were no disagreements with ACSB on any matter of accounting principle or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of ACSB, would have caused it to make reference thereto in its report on the financial statements for such year. During such periods, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

The report of ACSB on the financial statements of the Company for the fiscal year ended December 31, 2009 did not contain any adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.

The Company provided ACSB with a copy of the foregoing disclosure and requested that ACSB provide the Company with a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements made by the Company in the Form 8-K. A copy of such letter, dated March 14, 2012, was filed as Exhibit 16.1 to the Form 8-K.

(b) Engagement of Principal Accountants.

On March 8, 2012, the Company engaged Goldman Kurland Mohidin LLP (“GKM”), as its independent registered public accountants for the fiscal years ending December 31, 2011and 2010. The decision to engage GKM was approved by the Board of Directors of the Company on March 8, 2012.

During the Company's two most recent fiscal years ended December 31, 2011 and 2010 and through the date of the Form 8-K, the Company did not consult with GKM on (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that may be rendered on the Company's financial statements, and GKM did not provide either a written report or oral advice to the Company that GKM concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) the subject of any disagreement, as defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions, or a reportable event within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”), its principal executive officer, and Chief Financial Officer (“CFO”), its principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, ~~2009~~2011. Based on that evaluation, the CEO and CFO concluded that there had been substantial improvements of the Company’s disclosure controls and procedures and the manner in which information that is required to be disclosed in Exchange Act report is reported within the time period specified in the SEC’s rule and forms. CEO has concluded that our disclosure controls and procedures were not effective as of December 31, ~~2009~~2011.

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Management’s Report on Internal Control over Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting (“ICFR”).

Management is responsible for establishing and maintaining adequate ~~internal~~ICFR ~~control over financial reporting~~ for the Company. ~~Internal~~ICFR ~~control over financial reporting~~ refers to the process designed by, or under the supervision of Lei Yu, our Chief Executive Officer, and Jianming Xu, our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with ~~U.S.~~ US GAAP, and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with ~~U.S.~~US GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The management designed an evaluation process that meets the needs of its company and that provides reasonable assurance for its assessment based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the ~~Treadway~~Tread way Commission.

In connection with their review of our ~~internal~~ICFR ~~controls over financial reporting~~ for the fiscal year ended December 31, ~~2009~~2011, our ~~management~~Chief Executive Officer and Chief Financial Officer have concluded that since our financial and accounting staff are not familiar with US GAAP and we need to engage an outside consultant to convert our financial statements prepared in ~~2009~~ accordance with PRC GAAP into US GAAP, ~~there~~and ~~are~~because ~~substantial~~of ~~improvements~~certain onother deficiencies in the design or operation of our internal control over financial reporting:, our ICFR were not effective as of December 31, 2011.

~~· We have~~This ~~accounting~~annual ~~personnel~~report ~~with~~does ~~direct~~not ~~oversight~~include ~~responsibility~~an toattestation ~~document~~report ~~and review~~ of ~~financial~~our ~~information,~~registered ~~who~~public ~~analyze~~accounting ~~and~~firm ~~reconciliate~~regarding ofinternal ~~certain accounts~~control onover afinancial ~~periodic~~reporting. ~~basis,~~The ~~and~~rules ~~set~~of upthe ~~accounting~~SEC ~~system~~do tonot ~~provide information~~require ~~related~~an toattestation ~~expenditures~~of onthe aManagement’s ~~project-~~report by~~-project~~ ~~basis;~~our registered public accounting firm in this annual report.

· We finished interview, documentation and provided risk control matrix for improving financial system for timely identification, research and resolution of accounting issues and documentation of consideration of recent accounting pronouncements;

· We hired technical accounting expertise among senior financial staff regarding US GAAP and the requirements of the PCAOB, and regarding the preparation of draft financial statements.

As a result of these improvements, our management concluded that, as of December 31, 2009, our internal control over financial reporting was effective.

This Annual Report on Form 10-K does not, nor is required to, include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Change in Internal Control over Financial Reporting

InThere ~~order to~~have ~~further~~been ~~enhance~~no other changes in our ~~disclosure~~ICFR ~~and~~that ~~internal~~occurred ~~controls,~~during ~~the~~our ~~Company~~fiscal ~~has~~quarter ~~hired financial~~and ~~consultants~~year toended ~~assist~~December ~~management~~31, in2011 ~~evaluating~~that ~~complex~~have ~~accounting issues~~materially onaffected, anor ~~as-needed~~are ~~basis~~reasonable likely to materially affect, ~~and~~our ICFR. Given the ~~implementation~~limitations of ~~systems~~our accounting personnel, we need to ~~improve control~~take ~~and~~additional ~~review~~steps ~~procedures~~to ~~over~~insure ~~all~~that our financial ~~statement~~statements ~~and~~are ~~account balances~~in accordance with US GAAP.

~~ITEM~~ Item 9B. Other ~~O THER INFORMATION~~Information

~~There~~On ~~is no~~December ~~information~~28, ~~required~~2011, toYidong beXiao, ~~disclosed~~Huafeng inChen aand ~~report~~Yiming onZhu ~~Form~~resigned ~~8-K~~as ~~during~~directors ~~the fourth quarter~~ of the ~~year covered by this Form 10-K but not reported~~Company.

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PART III

ITEM 10. ~~DI RECTORS~~DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE ~~COMPLIANCE WITH SECTION 16(A) OF THE ACT~~

Directors and Executive Officers

The following table sets forth our directors and executive officers, and their ages and titles as of December 31, ~~2009~~2011.

Name	Age	Position
Lei Yu	4648	Chief Executive Officer
Jianming Xu	3537	Chief Financial Officer
Jing Liu	3739	Secretary
Weiqiu Li	5052	Chairman of Board of Directors
Kinwai Cheung	4749	Director
Yiming Zhu	47	Independent Director
Huafeng Chen	35	Independent Director
Yidong Xiao	34	Independent Director

Lei Yu ~~Mr.~~ has ~~Yu,~~served ~~age 46,~~as ~~graduated~~our ~~from~~Chief ~~Zhejiang~~Executive ~~University~~Officer ofsince ~~Technology~~October ~~with a B.S. degree in Mechanical Engineering in 1983. In 2002~~13, ~~he received a MBA degree from Xiamen University~~2009. From September, 2007 to August, 2008, he was the Vice President of China Wallink Investment Group (“Wallink”), where he oversaw the operational and financial activities of Wallink’s portfolio companies, and subsequently ~~was pursuing~~completed ~~completing~~ a Doctorate thesis at Wuhan University Law School . From October, 2005 to August, 2007, Mr. Yu was a Senior Vice President of Ever Fortune International Holding Limited (“Ever Fortune”) where he directed its transition to an infrastructure construction company including road, harbor, and bridge construction. He also restructured Ever Fortune’s capital structure. From January, 2001 to September, 2005, Mr. Yu was the director of the investment bank department of China Taisheng Investment Holding Limited (“Taisheng”), where he managed Taisheng’s merger and acquisition activities. During the period from July, 2002 to June, 2003, he was appointed by Taisheng to be the Chief Executive Officer of one of Taisheng’s portfolio companies-Hebei Huda Technology & Education Development Co., Ltd. Mr. Yu graduated from Zhejiang University of Technology with a B.S. degree in Mechanical Engineering in 1983. In 2002, he received a MBA degree from Xiamen University.

Jianming Xu ~~Mr.~~ has ~~Xu, age~~served ~~35, graduated from Hangzhou Dianzi Unniversity with a M.S. degree in Accounting in 1996. Mr. Yu was appointed~~ as our Chief Financial Officer onsince September 24, 2008. ~~Before~~From ~~that~~August 2007 until September 2008, Mr. Xu has served as Assistant to the CEO of the Company. ~~Previously~~From October, 2002 to July, 2007, Mr. Xu also served as Chief Director of Audit of Stone Investment Group. From ~~from~~ October, ~~2002~~1998 to ~~July~~September, ~~2007. Prior~~ ~~to that~~2002, he was an Audit department manager at an international accounting firm (BDO member) ~~from October, 1998 to September, 2002.~~ From September, 1996 to September, 1998, he was the Finance Manager at China's Shaoxing City Textile Group. Mr. Xu graduated from Hangzhou Dianzi University with a M.S. degree in Accounting in 1996.

Jing Liu ~~was~~has ~~appointed~~served as our Secretary onsince August 17, 2006. Ms. Liu ~~has~~ also has served as the Secretary of our subsidiary, Oceanic International Company Limited, since March 2004. ~~Prior~~ From July, 1991 to ~~this~~January, 2004, Ms. Liu served as the Manager in the International Business Department of Zhong Shan Hua Jie Steel Pipe Group, Ltd. ~~from July~~, ~~1991 to January, 2004,~~ where she assisted in the financial management of its subsidiaries. Ms. Liu received a Bachelor degree in International Trade from the Guangdong Foreign Language Institute.

Weiqiu Li has ~~was~~served ~~appointed Chief Executive Officer of the Company on August 17, 2006 and resigned~~ as ~~our CEO on September 24, 2008. He was appointed~~ Chairman of ~~Board~~BOD ofsince ~~Directors on~~ November 30, 2009. ~~Now~~He heserved isas ~~serving~~Chief asExecutive ~~Vice~~Officer ~~President~~of ~~for~~the ~~Zhong~~Company ~~Shan~~from ~~West District~~August ~~Chamber~~17, of2006 ~~Commerce~~to September 24, 2008. Mr. Li received a Bachelor degree in Economic Management from Guangdong Radio & TV University, and studied Automation Control at the South China University of Technology from 1993 to 1995. ~~Mr. Li has more than 20 years’ experience in product design, research and development, production, management and international trade negotiations.~~

2836

~~Kinwai~~Table Cheung was appointed as our Chief Financial Officer on August 17, 2006 and resigned as our CFO on September 24, 2008. He is now serving the company as the director on the board. Since June, 2004, Mr. Cheung has also served as the Administrative Manager of ~~one~~ of our subsidiaries, Oceanic International Company Limited. Prior to this time, Mr. Cheung served as the Chairman and Chief Executive Officer of Kang Teng Trading Company Limited in Zhongshan City, China, from May, 1998 to May, 2004. Mr. Cheung received a Bachelor degree in Business Administration from the Zhongshan City Shunwen College in 1989.Contents

~~Yiming~~Kinwai ~~Zhu,~~Cheung ~~47,~~has isserved aas ~~Chinese Certified Accountant-Senior Level. He graduated from Hangzhou Dianzi University with~~ a ~~degree~~director inof ~~Economics~~the inCompany ~~July,~~since ~~1986~~August ~~and in 1996~~17, he2006. ~~received~~He ~~a Master~~served ~~degree~~as inour ~~Construction~~Chief ~~Management~~Financial Officer from ~~the~~August ~~same school. Since 1988~~17, he2006 ~~has~~to ~~been~~September ~~working~~24, ~~in China Electronic Corporation (“CEC”)~~2008. ~~CEC~~ isSince ~~the~~June, ~~largest state-owned information technology company in China~~2004, ~~with over 60 subsidiaries around the world~~Mr. ~~In September,~~ ~~2008,~~Cheung healso ~~was~~has ~~appointed~~served toas be the ~~President~~Administrative Manager of ~~Amoi Electronics Co., Ltd.,~~ one of ~~the~~our ~~CEC’s~~ subsidiaries, ~~where~~Oceanic heInternational ~~provides~~Company ~~executive leadership for the company’s strategy and operations with full income responsibility~~Limited. From ~~April~~May, ~~2007~~1998 to ~~September~~May, ~~2008~~2004, ~~he was the Vice President of Panda Electronics Group Co~~Mr., ~~Ltd,~~Cheung ~~one~~served ofas the ~~subsidiaries~~Chairman ofand ~~CEC, where~~Chief heExecutive ~~oversaw~~Officer ~~the~~of ~~company’s~~Kang ~~accounting~~Teng ~~department~~Trading ~~and~~Company ~~streamlined~~Limited ~~the accounting~~in ~~and~~Zhongshan ~~billing activities~~City, ~~improving~~China. Mr. ~~efficiency~~Cheung ~~and profitability. From~~received ~~1988~~a toBachelor ~~2007,~~degree ~~Mr.~~in ~~Zhu~~Business ~~worked~~Administration infrom ~~various~~the ~~financial roles~~Zhongshan ofCity ~~increasing~~Shunwen ~~responsibility~~College ~~with~~in ~~CEC~~1989.

Huafeng Chen, 35, is a Chinese Certified Accountant-Medium Level. He graduated from Hunan University with a degree in Accounting in July 1997. Since September, 2004, he has been the director of Internal Control department in China Nepstar Chain Drugstore Ltd., which is listed on NYSE. He is in charge of the management of overall accounting operations and internal control system set up over the financial system. From June, 2002 to February, 2004, he was the director of Internal Control department and also the financial manager in accounting department in China Resources Vanguard Co., Ltd, where he provided leadership in internal control system and financial system management. From April, 2000 to May, 2002, he was a project manager in Huatian Hotel Co., Ltd, where he oversaw projects’ cost management and analysis.

Yidong Xiao, 34, is a Chinese Certified Public Accountant and Certified Tax Agent. He graduated from Hunan University with a degree in Accounting in July, 1996. Since November, 2006, he has been the director of the audit department in Shenzhen Yuanfeng Co., Ltd., a public accounting firm, where he works as an auditor responsible for audits and verification of client companies’ financial statements. Shenzhen Yuanfeng Co., Ltd. does not provide any services to Home System Group. From November, 2000 to November, 2006, Mr. Xiao was a senior manager in accounting department of Hunan Yixin Chuanghui Co., Ltd. From September, 1997 to October, 2000, he worked as a staff accountant in Guangzhou Xinda Industrial Co., Ltd., where he was in charge of general accounting. From July, 1996 to September, 1997, he was an accountant in Hunan Hengyang Secondary Construction Engineering Company Limited.

Except as noted above, there are no other agreements or understandings for any of our executive officers or directors pursuant to which any of them was to be selected as a director or officer (other than with persons acting solely in their capacities as our directors or officers) or to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person. Our current directors hold no directorships in any other reporting companies.

Family Relationships

There are no family relationships among our directors or officers.

~~Audit Committee~~Director Independence

~~On November~~Although ~~30,~~prior ~~2009,~~to ~~the~~December ~~Board~~28, ~~established~~2011, anwe ~~audit~~had ~~committee~~three ~~and~~"independent ~~adopted~~directors" ~~a charter~~within ~~for~~ the ~~governance~~meaning of the ~~Audit~~rules ~~Committee~~ of the ~~Board. The audit~~NYSE ~~committee is responsible for (i) recommending independent accountants to the Board~~MKT, ~~(ii)~~we ~~reviewing~~do ~~our~~not ~~financial~~as ~~statements with management and the independent accountants, (iii) making an appraisal~~ of ~~our audit effort and~~ the ~~effectiveness~~ date of ~~our~~this ~~financial~~report ~~policies~~ and ~~practices~~since ~~and~~December ~~(iv)consulting~~28, ~~with management~~2011 ~~and~~we ~~our~~have ~~independent~~not ~~accountants~~had ~~with~~any ~~regard to the adequacy of internal accounting controls. The Committee is composed of directors from the Board who are “~~"independent” ~~of management of the Company as provided by applicable law and regulations~~directors". ~~The members of the Audit Committee are Messrs. Yidong Xiao, Yiming Zhu and Huafeng Chen. Mr. Xiao has been appointed as the Chairman of the Audit Committee.~~

~~Compensation Committee~~Board Committees

~~We established~~Although aon ~~compensation~~November ~~committee~~30, of2009, ~~the~~we ~~board~~established ~~of directors~~ and adopted a charter for ~~creation~~an ~~and~~Audit ~~governance of the Compensation~~ Committee ~~on November 30~~, 2009. The charter requires that at least two members must be “non-employee directors” and “outside directors” within the meaning of the Exchange Act and the Internal Revenue Code. Employee directors are eligible to serve, in addition to the outside directors. The Board selected two independent directors from to serve on the Compensation ~~Committee. Mr.~~ ~~Weiqiu Li serves as the Chairman of the Compensation~~ Committee and ~~Messrs.~~Nominating ~~Yidong Xiao~~ and ~~Huafeng~~Corporate ~~Chen~~Governance ~~serves~~Committee, asnone ~~members~~ of ~~the Compensation~~these ~~Committee. The compensation~~ committee ~~reviews~~have ~~and~~functioned ~~approves~~since ~~our salary~~we ~~and~~have ~~benefits~~no ~~policies,~~"independent ~~including compensation of executive officers~~directors".

~~Nominating and~~ITEM ~~Corporate~~11. ~~Governance~~EXECUTIVE ~~Committee~~COMPENSATION

On November 30, 2009, the Board established its Nominating Committee and adopted a charter for the governance of the Nominating and Corporate Governance Committee of the Board. Mr. Kinwai Cheung serves as the Chairman of the Nominating and Corporate Governance Committee and Messrs. Yidong Xiao and Huafeng Chen serve as members of the Nominating and Corporate Governance Committee.

Director Compensation

We currently compensate our independent directors Mr. Xiao and Mr. Chen $30,000 per year and Mr. Zhu $50,000 per year. We reimburse our directors for reasonable expenses incurred in connection with their service as directors.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our executive officers and directors and person who own more than 10% of our common stock to file reports regarding ownership of and transactions in our securities with the Commission and to provide us with copies of those filings. Based solely on our review of the copies received by or a written representation from certain reporting persons we believe that during fiscal year ended December 31, 2009, we believe that all eligible persons are in compliance with the requirements of Section 16(a).

ITEM 11. EXE CUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the following persons for services rendered in all capacities during the noted periods: Mr. Weiqiu Li, our former Chief Executive Officers, Kinwai Cheung, our former Chief Financial Officer and Fuying Wang, our former Chief Executive Officer, Lei Yu, ~~Jianming Xu and Jing Liu,~~ our ~~current~~ Chief Executive Officer, ~~Chief~~for ~~Financial~~services ~~Officer~~rendered ~~and~~in ~~Secretary, respectively,~~all oncapacities ~~December~~during ~~31,~~the ~~2009.~~noted periods No executive ~~officers~~officer received total annual salary and bonus compensation in excess of $100,000.

Name and Principal Position	Fiscal Year	Annual Salary		Bonus		Stock Awards		Option Awards			Total
Weiqiu Li Former Chief Exectutive Officer	2009	$	0	$	0	$	0	$	0	$	0
	2008	$	30,000	$	0	$	0	$	0	$	30,000
Kinwai Cheung Former Chief Financial Officer	2009	$	0	$	0	$	0	$	0	$	0
	2008	$	30,000	$	0	$	0	$	0	$	30,000
Fuying Wang Former Chief Executive Officer	2009	$	100,000	$	0	$	0	$	0	$	100,000
	2008	$	100,000	$	0	$	0	$	0	$	100,000
Lei Yu Chief Executive Officer	2009	$	100,000	$	0	$	0	$	0	$	100,000
	2008	$	0	$	0	$	0	$	0	$	0
Jianming Xu Chief Financial Officer	2009	$	80,000	$	0	$	0	$	0	$	80,000
	2008	$	80,000	$	0	$	0	$	0	$	80,000
Jing Liu Secretary of Board	2009	$	15,000	$	0	$	0	$	0	$	15,000
	2008	$	8,800	$	0	$	0	$	0	$	8,800

~~Weiqiu Li~~Table ~~resigned~~of ~~as our Chief Executive Officer on September 24, 2008.~~Contents

Kinwai Cheung resigned as our Chief Financial Officer on September 24, 2008.

Name and Principal Position	Fiscal Year	Annual Salary		Bonus		Stock Awards		Option Awards		Total
Lei Yu	2011	$	100,000	$	0	$	0	$	0	$	100,000
Chief Executive Officer	2010	$	100,000	$	0	$	0	$	0	$	100,000

Fuying Wang was appointed as our Chief Executive Officer on September 24, 2008 and terminated on October 13, 2009.

Lei Yu was appointed as our Chief Executive Officer on October 13, 2009.

Jianming Xu was appointed as our Chief Financial Officer on September 24, 2008.

Outstanding Equity Awards at Fiscal Year End

As of December 31, ~~2009~~2011, there were no outstanding equity awards held by executive officers of our company.

Stock Incentive Plans

We had no stock incentive plan grants during ~~2009~~2011.

On August 7, 2007, we granted Mr. Randall, our audit committee chair at that time, a ten-year option to purchase 100,000 shares of our common stock, at an exercise price of $6.00 per share. One-third of the option vested immediately, with the remaining portion vesting as follows: one-third on July 7, 2008 and one-third on July 7, 2009. The vesting of the option was contingent on continued participation as a member of our Board of Directors. By a resolution of all directors dated April 29 2008, the service agreement with Mr. Randall was terminated. Accordingly, 66,667 option shares not yet vested and were cancelled.

Compensation of Directors

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our directors for services rendered during ~~our last completed fiscal year~~2011.

Name	Positions	Fees Earned or Paid in Cash ($)	Option Awards ($)	Total ($)
Weiqiu Li	Chairman	-	-	-
Kinwai Cheung	Director	-	-	-
Yiming Zhu (1)	Former Independent Director	$450,~~166~~000	-	$450,~~166~~000
Huafeng Chen (1)	Former Independent Director	$230,~~500~~000	-	$230,~~500~~000
Yidong Xiao (1)	Former Independent Director	$230,~~500~~000	-	$230,~~500~~000
Yongzheng Xiao (2)	Former Director	-	-	-
Xinfang Lou (3)	Former Director	-	-	-
Fuying Wang (4)	Former Director	-	-	-
Jianming Xu (5)	Former Director	-	-	-
Jiang Zhang (6)	Former Director	-	-	-

(1) ~~Elected~~ toResigned from our Board of Directors on ~~November~~December 3028, ~~2009~~2011.

~~(2) Elected~~ITEM to12. ~~our~~SECURITY ~~Board~~OWNERSHIP ofOF ~~Directors~~CERTAIN onBENEFICIAL ~~August~~OWNERS ~~31,~~AND ~~2009~~MANAGEMENT ~~and~~AND ~~resigned~~RELATED ~~from~~STOCKHOLDER ~~our Board of Directors on November 30, 2009.~~MATTERS

(3) Elected to our Board of Directors on August 31, 2009 and resigned from our Board of Directors on October 30, 2009.

(4) Resigned from our Board of Director on August 31, 2009.

(5) Resigned from our Board of Directors on August 31, 2009.

(6) Resigned from our Board of Directors on November 30, 2009.

Narrative to Director Compensation Table

We entered into independent director’s contracts and indemnification agreements with each of our independent directors. Under the terms of the independent director’s contracts, Mr. Yiming Zhu is entitled to an annual fee of $50,000, and Messrs. Huafeng Chen and Yidong Xiao are each entitled to annual fee of $30,000 for the services to be provided by them as independent directors, and as chairpersons of various board committees, as applicable. Under the terms of the indemnification agreements, we agreed to indemnify the independent directors against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by the independent directors in connection with any proceeding if the independent director acted in good faith and in our best interests. It is our practice to reimburse our directors for reasonable travel expenses related to attendance at board of directors and committee meetings.

Other than as set forth herein, there have been no fees earned or paid in cash for services to our directors. No stock or stock options or other equity incentives were awarded to our directors for their services as directors during the fiscal year ended December 31, 2009.

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

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information regarding beneficial ownership of our common stock as of ~~March~~December 1931, ~~2010~~2012 (i) by each person who is known by us to beneficially own more than 5% of our common stock; (ii) by each of our ~~officers~~ directors and ~~directors~~Lei Yu, our only executive officer named in the executive compensation table in Item 11; and (iii) by all of our ~~officers~~directors and ~~directors~~officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.

~~Unless otherwise~~A ~~specified,~~total ~~the~~of ~~address~~67,490,166 shares of ~~each~~our common stock as of ~~the~~December ~~persons~~31, ~~set~~2012 ~~forth~~are ~~below~~considered isto ~~in care~~be ofoutstanding ~~Home~~pursuant ~~System~~to ~~Group,~~SEC ~~Oceanic~~Rule ~~Industry~~13d-3(d)(1). For ~~Park,~~each ~~Shang~~beneficial ~~Gang~~owner ~~Highway~~above, ~~Gang~~any ~~Kou Town,~~options ~~Zhongshan~~or ~~City,~~warrants ~~Guangdong~~exercisable ~~Province,~~within ~~P.R.~~60 ~~China~~days have been included in the denominator.

Name and Address Beneficial Owner(1)	Office, If Any	Title of Class	Number and Nature of Beneficial Ownership	Percentage of Class
Directors and Officers
Weiqiu Li,	Chairman	Common Stock	12,080,000	19.33%
Kinwai Cheung,	Director	Common Stock	10,260,000	16.42%
All officers and directors as a group (2 persons named above)			22,340,000	35.75%
5% Securities Holders
Total Shine Group Ltd.		Common Stock	5,117,277	8.19%
Arjuno Investment Ltd.		Common Stock	3,349,794	5.36%

~~(1) Unless~~Table ~~otherwise specified, the address~~ of ~~each of the persons set forth below is in care of Home System Group, Oceanic Industry Park, Shang Gang Highway, Gang Kou Town, Zhongshan City, Guangdong Province, P.R. China.~~Contents

~~Beneficial ownership~~Unless isotherwise ~~determined~~specified, inthe ~~accordance~~address ~~with~~of ~~the~~each ~~rules~~ of the ~~SEC~~persons ~~and~~set ~~generally includes~~forth ~~voting~~below oris ~~investment~~in ~~power~~care ~~with respect to securities. Each~~ of ~~the~~ ~~beneficial~~Home ~~owners~~System ~~listed~~Group, ~~above~~Oceanic ~~has~~Industry ~~direct~~Park, ~~ownership~~Sha ofGang ~~and~~Highway, ~~sole~~Gang ~~voting~~Kou ~~power and~~Town, ~~investment~~Zhongshan ~~power~~City, ~~with~~Guangdong ~~respect~~Province, toP.R. ~~the shares of our common stock~~China.

Name and Address Beneficial Owner		Number and Nature of Beneficial Ownership	Percentage of Class
Weiqiu Li,	Chairman	11,650,000	17.3%
Kinwai Cheung,	Director	9,830,000	14.6%
Lei Yu	CEO	-	--
All directors and officers as a group (3 persons)		21,480,000	31.9%

Holders of More than 5% of Shares
Shubo Li		4,793,839	7.1%
Runyuan Xu		4,498,339	6.7%
Weiquan Su		4,493,340	6.7%

A total of 62,447,949 shares of our common stock as of March 17, 2010 are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any options or warrants exercisable within 60 days have been included in the denominator.

Changes in Control

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

ITEM 13. C CERTAIN ~~ERTAIN~~ RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

Under Item 404 of SEC Regulation S-K, a related person transaction is any actual or proposed transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including those involving indebtedness not in the ordinary course of business, since the beginning of our last fiscal year, to which we or our subsidiaries were or are a party, or in which we or our subsidiaries were or are a participant, in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, nominees for director, executive officers, beneficial owners of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.

~~There were~~On noMay ~~transactions~~14, ~~with~~2009, ~~any~~the ~~related~~Company ~~persons~~received ~~(as~~a ~~that~~loan ~~term~~of is$1,571,429 ~~defined~~from ina ~~Item 404~~related inparty, ~~Regulation~~Cheung ~~SK)~~Kinwai, a ~~during~~director ~~the~~and ~~fiscal~~a ~~year~~principal ~~ended~~shareholder ~~2009,~~of orthe ~~any~~Company, ~~currently proposed~~with ~~transaction,~~an ininterest ~~which~~rate weof ~~were~~7.844% orand ~~are~~due toon beMay a14, ~~participant~~2014. ~~and~~The ~~the~~principal amount ~~involved~~ ~~was~~and ininterest ~~excess~~ of approximately $~~120~~31,~~000~~700 ~~and~~(RMB in200,000) ~~which~~are ~~any~~paid ~~related~~each ~~person had a direct or indirect material interest~~month.

~~ITEM 14~~On June 9, 2010, the Company received a loan of $754,979 from Li Weiqiu, the chairman of BOD and a principal shareholder of the Company, with interest rate of 6.73%, ~~PRI~~ which ~~NCIPAL~~was ~~ACCOUNTANT~~the ~~FEES~~floating ~~AND SERVICES~~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 is to be paid on June 9, 2015, the loan maturity date. As of December 31, 2011, the amount due to Li Weiqiu was $793,537.

As of December 31, 2011, the Company received two loans of $666,667 and $692,350 from Li Weiqiu and Cheung Kinwai, respectively. These were unsecured, did not bear interest and were payable on demand.

	December 31, 2011		December 31, 2010
Due to a related party - Cheung Kinwai	$	692,350	$	682,385
Due to a related party – Li Weiqiu		666,667		666,667
Due to a related party (Cheung Kinwai) with interest of 7.844%		836,035		1,083,039
Due to a related party (Li Weiqiu) with floating interest rate		793,537		754,979
Total	$	2,988,589	$	3,187,070

Table of Contents

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Paid to Independent Public Accountants

The firm of ~~Acqavella,~~Goldman ~~Chiarelli,~~Kurland ~~Shuster,~~Mohidin ~~Berkower & Co.,~~ LLP (~~“ACSB”~~"GKM") has been selected by the board of directors as the independent registered certified public accounting firm to audit the books and accounts of our company and its subsidiaries for the fiscal year ending December 31, ~~2009.~~2011 Onand ~~June~~December 3031, ~~2009, Home~~2010. ~~System~~The ~~Group~~aggregate ~~(the~~fees ~~"Company")~~billed ~~appointed~~by ~~the~~Goldman ~~firm~~Kurland ofMohidin ~~Acqavella~~LLP, ~~Chiarelli, Shuster, Berkower & Co., LLP ("New Auditor") as~~ the Company's independent ~~registered~~ ~~public accounting firm upon the resignation of the firm Morgenstern, Svoboda & Baer CPAs, P.C ("Former Auditor"), which had served as the Company's independent~~ registered certified public accounting firm ~~through that date. The public audit section of the Former Auditor~~, ~~which was responsible~~ for ~~overseeing its~~professional ~~audit~~services ofrendered ~~the Company's financial statements, has merged with the New Auditor. The reports of the Former Auditor on the Company's financial statements~~ for the ~~fiscal~~ years ended December 31, ~~2008~~2011 ~~did~~and not contain an adverse opinion, a disclaimer of opinion or any qualifications or modifications related to uncertainty, limitation of audit scope or application of accounting principles. During the fiscal years ending December 31, ~~2008~~2010 ~~and~~are ~~the period from December 31, 2008 to June 30, 2009, the Company did not have any disagreements (within the meaning of Instruction 4 of Item 304 of Regulation S-K) with the Former Auditor~~ as ~~to any matter of accounting principles or practices, financial~~follows: ~~statement disclosure, or auditing scope or procedure and there have been no reportable events (as defined in Item 304 of Regulation S-K).~~

	2011	2010
Audit	$ 85,000	$ 85,000
Audit related	-	-
Others	-	-
Total	$ 85,000	$ 85,000

The aggregate fees billed by Acquavella, for professional services rendered for the audit of our annual financial statements for the year ended December 31, 2009 was $67,000 and for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q during the fiscal year 2009 were $21,000.40

~~The aggregate~~Table ~~fees billed by MS&B for the reviews~~ of ~~the financial statements included in our Quarterly Reports on Form 10-Q during the fiscal year 2009 were $40,000.~~Contents

Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditor

Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our auditors must be approved in advance by our audit committee to assure that such services do not impair the auditors’ independence from us. As our audit committee was formed on November 30, 2009, there was no such pre-approval by our audit committee before ACSB was appointed as our auditor for fiscal 2009.

PART IV

ITEM 15. E EXHIBITS ~~XHIBITS~~ AND FINANCIAL STATEMENT SCHEDULES

Exhibit Number	Exhibit Title
Exhibit
2.1	Agreement and Plan of Exchange and Reorganization, dated as of March 31, 2003, by and among the registrant and Supreme Property, Inc. (Incorporated by reference to Exhibit 2.1 to the registrant’s registration statement on Form S-4/A filed December 8, 2003)
Number		Exhibit Title
2.2	Amending Agreement, by and among the registrant and Supreme Property, Inc. dated as of July 26, 2004. (Incorporated by reference to Exhibit 2.2 to the registrant’s registration statement on Form S-4/A filed July 30, 2004)
2.1		Agreement and Plan of Exchange and Reorganization, dated as of March 31, 2003, by and among the registrant and Supreme Property, Inc. (Incorporated by reference to Exhibit 2.1 to the registrant’s registration statement on Form S-4/A filed December 8, 2003)
2.3	Agreement and Plan of Merger, dated as of August 4, 2006, among the registrant, XY Acquisition Corporation, Home System Group, Inc., Kinwai Cheung, Weiqiu Li, Ye Bo Quan, Li Shu Bo, Value Global International Limited, Simple (Hong Kong) Investment & Management Company Limited, First Capital Limited, Shenzhen Dingyi Investment & Consulting Limited and China US Bridge Capital Limited. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed August 4, 2006)
2.2		Amending Agreement, by and among the registrant and Supreme Property, Inc. dated as of July 26, 2004. (Incorporated by reference to Exhibit 2.2 to the registrant’s registration statement on Form S-4/A filed July 30, 2004)
2.4	Share Exchange Agreement, dated as of December 11, 2006, among the registrant, Holy (H.K.) Limited, Oceanic Well Profit Inc. and the shareholders of Holy (H.K.) Limited. (Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed December 12, 2006)
2.3		Agreement and Plan of Merger, dated as of August 4, 2006, among the registrant, XY Acquisition Corporation, Home System Group, Inc., Kinwai Cheung, Weiqiu Li, Ye Bo Quan, Li Shu Bo, Value Global International Limited, Simple (Hong Kong) Investment & Management Company Limited, First Capital Limited, Shenzhen Dingyi Investment & Consulting Limited and China US Bridge Capital Limited. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed August 4, 2006)
2.5	Share Exchange Agreement, dated as of April 20, 2007, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc., Zhongshan City Juxian Gas Oven Co., Ltd., and the shareholders of Zhongshan City Juxian Gas Oven Co., Ltd. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K, filed on April 23, 2007)
2.4		Share Exchange Agreement, dated as of December 11, 2006, among the registrant, Holy (H.K.) Limited, Oceanic Well Profit Inc. and the shareholders of Holy (H.K.) Limited. (Incorporated by reference to Exhibit 10.3 to the registrant’s current report on Form 8-K filed December 12, 2006)
2.5		Share Exchange Agreement, dated as of April 20, 2007, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc., Zhongshan City Juxian Gas Oven Co., Ltd., and the shareholders of Zhongshan City Juxian Gas Oven Co., Ltd. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K, filed on April 23, 2007)
2.6		Share Exchange Agreement dated as of June 26, 2007, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc, Zhongshan City Weihe Appliances Co., Ltd., and the shareholders of Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to the Current Report on Form 8-K of the Company, filed on June 26, 2007)
2.7		Letter Amendment to Share Exchange Agreement, dated June 29, 2007. (Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K, filed July 2, 200)
3.1		Amended and Restated Articles of Incorporation of the registrant, as filed with the Secretary of State of Nevada on July 20, 2006 (Incorporated by reference to Exhibit 3.1 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
3.2		Certificate of Amendment to Articles of Incorporation of the registrant, as filed with the Secretary of State of Nevada on September 29, 2006 (Incorporated by reference to Exhibit 3.2 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
3.3		Amended and Restated Bylaws, adopted July 31, 2007 by the registrant. (Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K, filed August 6, 2007)
4.1		Home System Group 2006 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form S-8, filed on October 11, 2006)
10.1		Subscription Agreement, dated as of May 4, 2006, among the registrant, Yujiao Xiong, Youming Xiong, Chaohui Wu, Pingxin Liu, Bo Chen, Wei Liu, Juhua Wang, Shaoke Chen, Hanping Lee and Mingtung Chen (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 4, 2006)

3541

2.6	Share Exchange Agreement dated as of June 26, 2007, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc, Zhongshan City Weihe Appliances Co., Ltd., and the shareholders of Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to the Current Report on Form 8-K of the Company, filed on June 26, 2007)
2.7	Letter Amendment to Share Exchange Agreement, dated June 29, 2007. (Incorporated by reference to Exhibit 10.2 to the registrant’s current report on Form 8-K, filed July 2, 200)
3.1	Amended and Restated Articles of Incorporation of the registrant, as filed with the Secretary of State of Nevada on July 20, 2006 (Incorporated by reference to Exhibit 3.1 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
3.2	Certificate of Amendment to Articles of Incorporation of the registrant, as filed with the Secretary of State of Nevada on September 29, 2006 (Incorporated by reference to Exhibit 3.2 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
3.3	Amended and Restated Bylaws, adopted July 31, 2007 by the registrant. (Incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K, filed August 6, 2007)
4.1	Home System Group 2006 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form S-8, filed on October 11, 2006)
10.1	Subscription Agreement, dated as of May 4, 2006, among the registrant, Yujiao Xiong, Youming Xiong, Chaohui Wu, Pingxin Liu, Bo Chen, Wei Liu, Juhua Wang, Shaoke Chen, Hanping Lee and Mingtung Chen (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 4, 2006)
10.2	Subscription Agreement, dated as of May 23, 2007, among Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited and Think Big Trading Limited. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 30, 2007)
10.3	English Translation of Asset Purchase Agreement, dated June 15, 2007, between Oceanic Well Profit, Inc. and Ms. Huiping Cheng. (Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed June 18, 2007)
10.4	Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc., Zhongshan City Juxian Gas Oven Co., Ltd., and the shareholders of Zhongshan City Juxian Gas Oven Co., Ltd. (Incorporated by reference to Exhibit 10.4 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.5	Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc, Zhongshan City Weihe Appliances Co., Ltd., and the shareholders of Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to Exhibit 10.5 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.6	Termination and Release Agreement, dated as of February 7, 2008, by and among the Registrant, Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited, and Think Big Trading Limited (Incorporated by reference to Exhibit 10.6 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.7	Share Purchase Agreement dated as of September 23, 2008, is entered into by and among Home System Group, Holy (HK) Limited, Asia Forever Limited and the shareholders of Asia Forever Limited. (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on From 8-K filed on September 25, 2008)

Table of Contents

10.2		Subscription Agreement, dated as of May 23, 2007, among Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited and Think Big Trading Limited. (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 30, 2007)
10.3		English Translation of Asset Purchase Agreement, dated June 15, 2007, between Oceanic Well Profit, Inc. and Ms. Huiping Cheng. (Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed June 18, 2007)
10.4		Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc., Zhongshan City Juxian Gas Oven Co., Ltd., and the shareholders of Zhongshan City Juxian Gas Oven Co., Ltd. (Incorporated by reference to Exhibit 10.4 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.5		Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc, Zhongshan City Weihe Appliances Co., Ltd., and the shareholders of Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to Exhibit 10.5 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.6		Termination and Release Agreement, dated as of February 7, 2008, by and among the Registrant, Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited, and Think Big Trading Limited (Incorporated by reference to Exhibit 10.6 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)
10.7		Share Purchase Agreement dated as of September 23, 2008, is entered into by and among Home System Group, Holy (HK) Limited, Asia Forever Limited and the shareholders of Asia Forever Limited. (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on From 8-K filed on September 25, 2008)
10.8		Form of Promissory Note dated as of October 1, 2008 (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K, filed on October 2, 2008)
10.9		Property Lease Agreement between Jiao Liming and Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to Exhibit 10.9 of the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2009, filed on December 3, 2010)
10.10		Property Lease Agreement between Oceanic International (Zhongshan) Co., Ltd. and Oceanic Well Profit, Inc. (Incorporated by reference to Exhibit 10.10 of the registrant’s Annual Report on Form 10-K/A for the year ended December 31, 2009, filed on December 3, 2010)
10.11		Loan Agreement dated May 14, 2009, between the Company and Cheung Kinwai
10.12		Payment Agreement dated July 6, 2012, between the Company and Zhongshan City Heng Bao Trading Co., Ltd.
14		Business Ethics Policy and Code of Conduct, adopted July 31, 2007. (Incorporated by reference to Exhibit 14 to the registrant’s current report on Form 8-K filed August 6, 2007)
16.1		Letter from Acquavella, Chiarelli, Shuster, Berkower & Co., LLP dated March 14 , 2012 to the Securities and Exchange Commission (incorporated herein by reference to the Company’s Current Report on Form 8-K filed March 14, 2012)
21.1		List of Subsidiaries(incorporated by reference to Exhibit 21.1 of the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on March 29, 2010)
31.1		Certification of principal executive officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934.
31.2		Certification of principal financial officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934.

10.8	Form of Promissory Note dated as of October 1, 2008 (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K, filed on October 2, 2008)
14	Business Ethics Policy and Code of Conduct, adopted July 31, 2007. (Incorporated by reference to Exhibit 14 to the registrant’s current report on Form 8-K filed August 6, 2007)
21.1*	List of Subsidiaries
31.1*	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*Table ~~Certification~~ of ~~the Chief Financial Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~Contents

* Filed with this Report.

32.1		Certification of principal executive officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2		Certification of principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS*
		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation
101.DEF*		XBRL Taxonomy Extension Definition
101.LAB*		XBRL Taxonomy Extension Label
101.PRE*		XBRL Taxonomy Extension Presentation

37* In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this annual report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

~~S IGNATURES~~43

Table of Contents

SIGNATURES

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

	HOME SYSTEM GROUP
Date: March 29, 2010
Date: March ___, 2013
	/s/ Lei Yu
	Lei Yu
	Chief Executive Officer
	/s/ Jianming Xu
	Jianming Xu Chief Financial Officer

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, as of March 29___, ~~2010~~2013.

SIGNATURE TITLE /s/ Weiqiu Li Chairman Weiqiu Li /s/ Kinwai Cheung Director ~~Kinwai Cheung /s/ Yiming Zhu Independent Director Yiming Zhu /s/ Yidong Xiao Independent Director Yidong Xiao /s/ Huafeng Chen Independent Director Huafeng Chen~~

38Kinwai Cheung

~~HOME SYSTEM GROUP~~44

~~CONSOLIDATED FINANCIAL~~Table ~~STATEMENTS~~of Contents

~~FOR~~HOME ~~THE YEARS~~SYSTEM ~~ENDED~~GROUP AND SUBSIDIARIES

~~DECEMBER 31,~~FINANCIAL ~~2009 AND 2008~~STATEMENTS

CDECEMBER O31, N2011 TAND ~~E N T S~~2010

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

INDEX TO FINANCIAL STATEMENTS

ACSBAcquavella, Chiarelli, Shuster, Berkower & Co., LLP

	PAGE

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-1

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010	F-3

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-4

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010	F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7

~~517 Route~~Table ~~one~~ of Contents

1 Penn Plaza

Iselin, New Jersey, 08830

36the Floor

732.855.9600

New York, NY 10119

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Home system group

We have audited the accompanying consolidated balance sheets of Home system group as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the two-year period ended December 31, 2009. Home system group’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Home system group as of December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

Certified Public Accountants

New York, N.Y.

March 18, 2010

F-1

~~MORGENSTERN,SVOBODA~~Table &of ~~BAER, CPA’s, P.C.~~Contents

~~CERTIFIED PUBLIC~~HOME ~~ACCOUNTANTS~~SYSTEM GROUP AND SUBSIDIARIES

40 Exchange Place, Suite 1820

New York, NY 10005

TEL: (212) 925-9490

FAX: (212) 226-9134

E-Mail: msbcpas@gmail.com

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Home System Group

We have audited the accompanying consolidated balance sheet of Home System Group as of December 31, 2008, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for the year then ended. Home System Group’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Home System Group as of December 31, 2008 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Morgenstern, Svoboda & Baer, CPA’s PC

Certified Public Accountants

New York, NY

April 6, 2009

F-2

HOME SYSTEM GROUP

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2008


	December 31, 2011		December 31, 2010
ASSETS
CURRENT ASSETS
Cash and equivalents	$	5,501,248	$	2,461,453
Accounts receivable – net of allowances		24,292,388		18,858,738
Notes receivable - short term, net of allowances		22,960,475		7,160,238
Deposits and advances		1,290,329		640,168
Prepaid expenses		2,856,661		1,722,036
Inventories, net of allowance		26,907,546		18,289,892
Deferred product costs		11,146,419		10,090,090
Deferred tax asset – current		1,334,491		811,935
Acquisition deposits		-		6,480,000
Other assets		1,469,303		1,603,979
TOTAL CURRENT ASSETS		97,758,861		68,118,529
Accounts receivable – long term, net of allowances		3,957,650		-
Notes receivable – long-term		255,196		3,096,083
Property, plant and equipment, net		8,713,173		8,682,032
Deferred tax asset – long term		421,599		-
Intangible assets, net		1,167,851		1,462,596
Goodwill		27,166,436		25,846,407
TOTAL ASSETS	$	139,440,766	$	107,205,647

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable – trade	$	28,521,060	$	19,059,948
Bills payable		17,610,359		8,848,182
Accrued expenses and other payables		10,518,310		4,723,139
Short term bank loans		26,491,091		21,268,275
Taxes payable		387,970		507,323
Notes payable		2,779,109		2,779,109
Due to stockholders & related parties - current portion		2,948,299		2,899,058
TOTAL CURRENT LIABILITIES		89,256,198		60,085,034

NON-CURRENT LIABILITIES
Due to stockholders & related parties – long term portion		1,302,669		1,550,391
Long term bank loans		721,398		1,235,421
TOTAL LIABILITIES		91,280,265		62,870,846
COMMITMENTS & CONTINGENCIES		-		-

STOCKHOLDERS' EQUITY
COMMON STOCK - $0.001 par value; 200,000,000 shares
authorized, 67,490,166 shares issued and outstanding		67,490		67,490
Additional paid-in capital		25,942,241		25,942,241
Statutory reserve		1,179,791		1,161,643
Retained earnings		15,233,420		1,4113,547
Accumulated other comprehensive income		5,737,559		3,049,880
TOTAL STOCKHOLDERS' EQUITY		48,160,501		44,334,801
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	139,440,766	$	107,205,647

	December 31,
	2009		2008
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,985,782	$	1,609,540
Restricted cash		-		1,617,000
Accounts receivable - trade		23,909,114		31,737,873
Notes receivables-short term		3,704,137		4,880,122
Deposit and advances		989,377		4,632,544
Inventories		18,304,015		15,613,175
Other assets		1,515,750		2,326,563
TOTAL CURRENT ASSETS		52,408,175		62,416,817
Notes receivable-long term		236,334		-
Property, plant and equipment - net		9,027,828		9,518,826
Deferred finance cost-long term portion		-		255, 230
Acquisition deposits		-		733,500
Land use rights - net		-		1,291,852
Intangible assets		1,751,567		2,090,947
Goodwill		25,025,292		25,025,292
TOTAL ASSETS	$	88,449,196	$	101,332,464
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade	$	18,870,277	$	21,166,318
Bills payable		3,478,223		9,598,621
Accrued expenses and other payables		7,109,157		6,096,820
Banks loans		12,548,441		11,324,848
Income taxes payable and other tax payable		1,028,403		1,147,001
Notes payable - current portion		6,575,000		21,536,763
Due to stockholder - current portion		4,040,896		1,574,573
TOTAL CURRENT LIABILITIES		53,650,390		72,444,944
NON-CURRENT LIABILITIES
Due to stockholder		1,308,433		600,000
Long term bank loan		1,464,515		-
Notes payable - long term portion		9,868,421		16,443,421
TOTAL LIABILITIES		66,291,759		89,488,365
STOCKHOLDERS' EQUITY
COMMON STOCK - $0.001 par value; 200,000,000 shares
authorized, 62,477,949 shares issued and outstanding at
December 31, 2009 and 2008		62,478		62,478
Additional paid in capital		6,581,717		6,581,717
Note receivable on stock issuance		-		(900,000	)
Statutory reserves		681,914		29,616
Retained earnings		12,891,560		4,217,826
Other comprehensive income		1,939,768		1,852,462
TOTAL STOCKHOLDERS' EQUITY		22,157,437		11,844,099
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	88,449,196	$	101,332,464

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

~~The accompanying notes are an integral part of these consolidated financial statements~~F-2

~~F-3~~Table of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

~~FOR THE~~ YEARS ENDED DECEMBER 31, ~~2009~~2011 AND ~~2008~~2010

	2009			2008
	2011			2010
NET SALES	$	61,828,792		$	51,926,205
Net Sales	$	94,128,083		$	104,496,008
Cost of sales		45,875,295			43,491,550
Cost of Sales		(82,245,535	)		(81,964,746	)
GROSS PROFIT		1511,~~953~~882,~~497~~548			822,~~434~~531,~~655~~262
OPERATING EXPENSES
General, selling and administrative expenses		(6,835,084	)		(7,234,333	)
General selling and administrative expenses		5,437,139			3,645,135
Bad debt expense		(2,676,764	)		(1,270,612	)
Amortization of intangible assets		339,380			84,845
TOTAL		(9,511,848	)		(8,504,945	)
		5,776,519			3,729,980
INCOME FROM OPERATIONS		2,370,700			14,026,317
INCOME FROM OPERATIONS		10,176,978			4,704,675
OTHER (EXPENSE) INCOME
OTHER INCOME (EXPENSE)
Loss on debt conversion		-			(1,747,762	)
Gain on the transfer of the building		2,356,327			-
Loss on investment		-			(4,320,000	)
Income on the reversal of rent		1,372,121			-
Other income		75,999			914,151
Other income, net		640,839			69,880
Interest expense, net		(795,308	)		(1,130,187	)
Interest expenses		(2,270,374)			(115,859	)
OTHER EXPENSE, NET		(719,309	)		(6,283,798	)
Interest income		27,857			128,551
INCOME BEFORE INCOME TAXES		1,651,391			7,742,519
INCOME BEFORE INCOME TAXES		12,303,748			4,788,421
INCOME TAXES		(513,370	)		(3,181,466	)
INCOME TAXES		(2,977,716)			(720,756	)
NET INCOME	$	1,138,021		$	4,561,053
NET INCOME	$	9,326,032		$	4,067,665
Basic & Diluted Weighted Average Shares		67,490,166			66,254,277
Basic & Diluted Weighted Average Shares		62,477,949			62,477,949
Basic & Diluted Earnings per Share	$	0.02		$	0.07
Basic & Diluted Earnings Per Share	$	0.15		$	0.07
COMPREHENSIVE INCOME
Net Income	$	91,~~326~~138,~~032~~021		$	4,~~067~~561,~~665~~053
Other Comprehensive Income
Foreign Currency Translation Adjustment		2,687,679			1,111,452
Foreign currency translation adjustment		87,306			1,103,451
COMPREHENSIVE INCOME	$	3,825,700		$	5,672,505
TOTAL COMPREHENSIVE INCOME	$	9,413,338		$	5,171,116

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

F-3

Table of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED

DECEMBER 31, 2011 AND 2010

	Shares of Common Stock		Common Stock		Additional Paid-in Capital		Statutory Reserve		Retained Earnings			Other Comprehensive Income		Total
BALANCE AT DECEMBER 31, 2009 – (RESTATED)		62,477,949	$	62,478	$	6,581,717	$	681,914	$	10,032,223		$	1,938,428	$	19,296,760
Effect of the conversion of Debt to Equity		5,012,217		5,012		19,360,524		-		-			-		19,365,536
Foreign currency translation adjustment		-		-		-		-		-			1,111,452		1,111,452
Appropriation to statutory reserve		-		-		-		479,729		(479,729	)		-		-
Net income for 2010		-		-		-		-		4,561,053			-		4,561,053
BALANCE AT DECEMBER 31, 2010		67,490,166		67,490		25,942,241		1,161,643		14,113,547			3,049,880		44,334,801
Foreign currency translation adjustment		-		-		-		-		-			2,687,679		2,687,679
Appropriation to statutory reserve		-		-		-		18,148		(18,148	)		-		-
Net income for 2011		-		-		-		-		1,138,021			-		1,138,021
BALANCE AT December 31, 2011		67,490,166	$	67,490	$	25,942,241	$	1,179,791	$	15,233,420		$	5,737,559	$	48,160,501

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

F-4

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

~~CONSOLIDATED S~~ HOME ~~TATEMENT~~SYSTEM OFGROUP ~~STOCKHOLDERS’ EQUITY~~AND SUBSIDIARIES

~~FOR~~CONSOLIDATED ~~THE YEARS~~STATEMENTS ~~ENDED~~OF ~~DECEMBER~~CASH ~~31, 2009 AND 2008~~FLOWS

	Number of
	Years Ended December 31,
	Shares of								Notes Receivable				Other
	2011				2010
	Common Stock			Common Stock			Paid-in Capital		For Stock Issuance		Statutory Reserve		Comprehensive Income		Retained Earnings		Total
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
BALANCE AT DECEMBER 31, 2007	62,477,949		$	62,478		$	6,615,726	$	(900,000)	$	29,616	$	741,511	$	150,161	$	6,699,492
Net income	$	1,138,021			$	4,561,053
Stock based compensation	-			-			(34,009)		-		-		-		-		(34,009)
Adjustments to reconcile net income
Cumulative translation adjustment	-			-			-		-		-		1,110,951		-		1,110,951
to net cash provided by operating activities:
Net income for 2008	-			-			-		-		-		-		4,067,665		4,067,665
Depreciation		969,594				1,216,373
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
Amortization of intangible assets		360,246				366,635
Cumulative translation adjustment	-			-			-		-		-		87,306		-		87,306
Deferred finance costs amortized		-				255,231
Net income for 2009	-			-			-		-		-		-		9,326,032		9,326,032
Deferred tax benefits		(944,155	)			(158,121	)
Satisfaction of subscription									900,000								900,000
Loss on debt conversion		-				1,747,762
Appropriation to staff welfare	-			-			-		-		25,220		-		(25,220)		-
Loss on investments		-				4,320,000
Appropriation to reserve fund	-			-			-		-		627,078		-		(627,078)		-
Bad debt provision		2,676,764				1,270,612
BALANCE AT DECEMBER 31, 2009	62,477,949		$	62,478		$	6,581,717	$	-	$	681,914	$	1,939,768	$	12,891,560	$	22,157,437
Inventory obsolescence		1,354,113				972,634
Change in assets and liabilities
(Increase) decrease in assets:
Accounts receivable		(10,072,608	)			(10,479,268	)
Deposits and advances		(1,736,862	)			(993,331	)
Inventories		(8,764,188	)			(384,574	)
Deferred product costs		(1,056,329	)			(801,449	)
Other assets		410,836				(659,803	)
Increase (decrease) in liabilities:
Accounts payable		8,276,337				(389,287	)
Bills payable		8,103,355				5,181,600
Accrued expenses and other payables		5,450,848				(2,547,261	)
Taxes payable		(141,646	)			1,642,383
Net cash provided by Operating Activities		6,024,326				5,121,189
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures		(1,205,467	)			(890,403	)
Acquisition deposit refunded (paid)		6,480,000				(10,800,000	)
Net cash provided by (used in) Investing Activities		5,274,533				(11,690,403	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from bank loans		26,491,091				22,503,696
Repayment of bank loans		(21,782,298	)			(14,012,956	)
Increase in notes receivable		(12,883,238	)			(6,186,110	)
Proceeds from stockholder & related parties		(198,481	)			3,053,582
Net cash provided by (used in) Financing Activities		(8,372,926	)			5,358,212
Exchange rate effect on cash		113,862				(313,327	)
Increase (decrease) in cash & equivalents		3,039,795				(1,524,329	)
Cash & equivalents- beginning of year		2,461,453				3,985,782
Cash & equivalents- end of year	$	5,501,248			$	2,461,453
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	1,278,569			$	1,025,410
Income taxes	$	1,478,283			$	3,963,163
Non cash transactions:
Debt conversion value	$	-			$	17,542,774

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

F-5

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

~~CONSOLIDATED ST~~ HOME ~~ATEMENTS~~SYSTEM OFGROUP ~~CASH~~AND ~~FLOWS~~SUBSIDIARIES,

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	Year Ended December 31,
	2009			2008
CASH FLOWS PROVIDED BY(USED IN) OPERATING ACTIVITIES
Net income	$	9,326,032		$	4,067,665
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Gain on transfer of property, after transfer of taxes		(2,356,327)			-
Income benefit due to reversal of rent accrual		(1,372,121)			-
Depreciation		1,981,673			617,940
Amortization of intangible assets		339,380			92,271
Deferred finance costs amortized		1,249,916			-
Provision for stock option costs written back		-			(34,009	)
Change in assets and liabilities:
(Increase) decrease in assets
Restricted cash		1,613,410			(1,614,355)
Accounts receivable		7,820,883			(15,084,087	)
Deposit and advances		3,392,753			(4,961,559	)
Inventories		(2,715,859)			2,178,743
Trade deposits		(354,693)			434,734
Other taxes refundable		168,907			(1,074,885	)
Increase (decrease) in liabilities:
Bills payable per bank acceptance agreement		(6,100,921)			-
Accounts payable		(2,258,975)			(2,664,009	)
Other payables and accrued expenses		2,393,953			(746,154	)
Income taxes payable		(259,714)			1,703,235
Other taxes payable		(262,547)	(321,737			)
Net cash provided by (used in) operating activities		12,605,750			(17,406,207	)
CASH FLOWS USED IN INVESTING ACTIVITIES
Refund (payment) of acquisition deposit		733,500			(732,300	)
Purchase of equipments		(2,416,218)			(204,678	)
Net cash used in investing activities		(1,682,718)			(936,978	)
CASH FLOWS PROVIDED (USED IN) BY FINANCING ACTIVITIES
Cash acquired in acquisition		-			3,085,833
Proceeds of bank loans		30,122,620			5,094,820
Repayment of bank loans		(27,434,512)			(225,869	)
Proceeds from notes payable		-			9,582,918
Repayment of notes payable		(15,419,051)			-
Decrease in notes receivables		973,220			-
Advance from stockholder		3,174,756			1,569,717
Net cash provided (used in) by financing activities		(8,582,967)			19,107,419
Exchange rate effect on cash		36,177			24,232
Net increase in cash		2,376,242			788,466
Cash – beginning of the year		1,609,540			821,074
Cash – end of the year	$	3,985,782		$	1,609,540
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest	$	847,540		$	115,859
Income taxes	$	2,812,452		$	226,984

NONCASH INVESTING AND FINANCING ACTIVITIES:
Asser transfer value	$	6,087,312	$		-
Cost of investment paid by issuance of promissory note	$		$	(37,968,536	)
Issuance of promissory note for settlement of cost of investment	$		$	39,473,683
Satisfaction of subscription		900,000		-
Deferred finance cost for acquisition of the subsidiaries	$	-	$	(1,505,147	)

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

F-6

HOME SYSTEM GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

NOTE 1 – ~~ORGAN~~ ~~IZATION~~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 December 31, ~~2009~~2011.

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 (“LLC”) in the British Virgin Islands on February 28, 2003. HSGI was inactive until ~~June~~ 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~~were adjusted to reflect the merger.

Holy (HK) Limited (“Holy”) was incorporated in Hong Kong on September 26, 2006 ~~for~~to ~~the purpose~~be ~~of being~~ a holding company. Oceanic Well Profit, Inc. (“Well Profit”), was a wholly-owned subsidiary of Holy,. Well Profit 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~~was ~~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~~LLC ~~company~~ on April 1, 2008 in the Hong Kong Special Administrative Region, and it ~~has~~had 100% ownership interest of Zhongshan City Weihe Appliances Co., Ltd (“Weihe”). Weihe had been incorporated as a ~~limited liability~~LLC ~~company~~ on August 3, 1998 in the PRC, and it manufactures ceiling fans and residential lighting. toThe beCompany's products are predominately sold to the ~~international~~ consumer market ~~through various~~located ~~distributors.~~in ~~See~~North ~~Note~~America, 13Europe, ~~for~~Australia ~~further~~and ~~information regarding the purchase of~~ Asia ~~Forever~~. The operations of Asia Forever are included in the consolidated financial statements since October 1, 2008.

As discussed in NOTE 19, on January 10, 2012, Asia Forever transferred 100% of ownership of Weihe to Oceanic and on January 10, 2012, Holy transferred 100% ownership of Well Profit to Oceanic. As a consequence of these transfers, Weihe and Well Profit became wholly-owned subsidiaries of Oceanic.

NOTE 2 – BASIS OF PREPARATION AND CONSOLIDATION

The accompanying financial statements of the Company ~~have~~were ~~been~~ prepared in accordance with generally accepted accounting principles ~~(“GAAP”)~~ in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions ~~have~~were ~~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 December 31, 2009 and December 31, 2008, and for the periods then ended.

F-76

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 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~~Share (“EPS”)”. The Company’s basic ~~earning~~EPS ~~per share~~ is computed using the weighted average number of shares outstanding for the ~~periods~~ years presented.

Diluted ~~earnings~~ ~~per~~EPS ~~share~~ is based on the assumption that ~~all~~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 ~~as if~~ funds thus obtained ~~thereby~~by the Company were assumed to be used to purchase common stock at the average market price during the period. The Company had no potentially dilutive options or warrants outstanding as of December 31, ~~2009~~2011 and December 31, ~~2008 were anti-dilutive and thus were not included in the computation of the Company’s earnings per share~~2010.

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~~the amounts due from customers, net of the allowance for doubtful accounts and for any discount resulting from the computation of the net present value for receivables that, per the terms of an agreement with the customer, were due in excess of one year from the date of sale. 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~~this ~~reserves~~allowance. ~~Reserves~~Allowances are recorded primarily on a specific identification basis, and any accounts that are determined to be uncollectible would be written off against this allowance. The bad debt allowance was $ 161,~~182~~930,374 and $0156,623 as of December 31, ~~2009~~2011 and ~~December 31~~2010, ~~2008~~ respectively.

In 2011, one of the Company’s distributors became increasingly slow in paying for certain products that had been sold to that distributor. As a result, the Company reduced its sales to that distributor in 2011, and in July of 2012, the Company and this distributor entered into an agreement whereby both parties agreed to a schedule of payments from July 2012 to June 2013 for the $14,720,000 that was still outstanding as of that date. The product sales pertaining to receivables included in this agreement, which are to be paid at a date more than one year subsequent to the date of sale, were discounted to a net present value using a 7% interest rate, which the Company feels represents an appropriate discount. As a result of this discount, 2011 revenues were reduced by $1,141,374, and interest income of $379,273 was recorded in 2011 due to the amortization of this discount, with the net discount of $762,313 deducted from the December 31, 2011 receivables.

Notes receivable

As discussed in NOTE 6, periodically the Company enters into an agreement with Oceanic International (Zhongshan) Company Limited (“Zhongshan”), a Chinese company that was a supplier of raw materials and currently a plant lessor to HSG, whereby both companies jointly obtain financing from certain financial institutions. Under this arrangement, the Company enters into a loan agreement with the financial institution, in which certain assets of both companies are used as collateral to secure the loan. 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 or other third parties as requested by Zhongshan, and is evidenced by a note from Zhongshan payable to HSG. These notes make up the predominate amount of the Notes receivable as of December 31, 2011 and 2010 and include interest and maturity dates that coincide with the underlying financing agreements. The bad debt allowance was $885,595 and $139,205 as of December 31, 2011 and 2010, respectively.

F-7

Table of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

Inventory

Inventory is stated at the lower of cost or market value~~. Raw~~ ~~material~~and ~~cost~~ is determined by the weighted average cost method. The cost of work-in-progress and finished goods inventories ~~consist~~consists of raw materials, direct labor and overhead associated with the manufacturing process. Most of our inventory ~~are~~consists of raw materials such as stainless steel plate, metal plate or plastics. As of December 31, 2011 and December 31, 2010, the Company recorded allowance for obsolescence of $2,326,747 and $972,634, respectively.

~~Deferred~~Acquisition ~~finance costs~~deposit receivable

~~Deferred finance~~As ~~costs~~discussed ~~are~~in ~~being~~NOTE ~~amortized~~5, ~~over~~during 2010 the ~~term~~Company ofentered into separate agreements to acquire two companies. Subsequent to entering into those agreements, the ~~non-interest~~Company ~~bearing promissory~~elected ~~notes~~not ~~payable~~to ~~issued~~finalize ~~regarding~~these acquisitions and it negotiated a ~~related~~settlement ~~business~~under which it obtained a refund of a portion of the $10,800,000 it paid concurrent with the signing of these acquisition agreements. The amounts to be refunded are classified as Acquisition deposit receivable and $4,320,000, ~~using~~ the ~~effective~~amount ~~interest~~not ~~method~~recovered, was expensed in 2010 as a “Loss on investment”.

The amounts amortized for the year ended December 31, 2009 and 2008 were $1,249,916 and $0, respectively.

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.

FLong-8Lived assets

HOME SYSTEM GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

For ~~long~~ 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 (“FV”).

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~~FV less costs to sell. There was no impairment of Long-lived assets at as of December 31, ~~2009~~2011 and 2010.

Goodwill

~~The Company~~Goodwill ~~accounts~~represents ~~for~~the ~~Goodwill~~cost inof ~~accordance~~a ~~with~~business ~~the~~acquisition ~~FASB~~over ~~ASC~~the ~~Topic~~fair ~~350,~~ value (“~~Intangible-Goodwill~~FV”) ~~and~~of ~~Other”.~~the Wenet ~~evaluate~~identified ~~Goodwill,~~assets atacquired. In aaccordance ~~minimum~~with U.S. GAAP, onindefinite-life ~~an annual~~identifiable ~~basis~~intangible assets and ~~whenever~~goodwill ~~events~~are ~~and~~not ~~changes~~amortized. inU.S. ~~circumstances~~GAAP ~~suggest~~requires that ~~the carrying~~an ~~amount~~annual ~~may~~impairment ~~not~~test of our goodwill be ~~recoverable~~performed. ~~Impairment~~Goodwill impairment is determined using a two-step process. The first step of ~~Goodwill~~the goodwill impairment test is ~~tested~~used atto ~~the reporting~~identify ~~unit~~potential ~~level~~impairment by comparing the FV of a reporting unit’s, which we define as our business segments, with its net book value or carrying amount, including ~~Goodwill~~goodwill. If the FV of a reporting unit exceeds its carrying amount, togoodwill of the ~~fair~~reporting ~~value~~unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit. ~~The~~exceeds ~~fair~~its ~~values~~FV, the second step of the goodwill impairment test compares the implied FV of the reporting ~~units~~unit’s ~~are~~goodwill ~~estimated~~with ~~using~~the ~~discounted~~carrying ~~projected~~amount ~~cash~~of ~~flows.~~that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds ~~its~~the ~~fair~~implied ~~value~~FV of that goodwill, ~~Goodwill~~an impairment loss is ~~considered~~ ~~impaired~~recognized ~~and~~in aan ~~second~~amount ~~step~~equal to that excess. The implied FV of goodwill is ~~performed~~determined toin ~~measure~~the same manner as the amount of ~~impairment~~ ~~loss,~~goodwill ifrecognized ~~any~~in a business combination. The WeFV ~~conduct~~of ~~our~~the ~~annual~~reporting ~~impairment~~unit ~~test~~is asallocated ofto ~~December~~all 31 of ~~each~~the ~~year,~~assets and ~~determine~~liabilities ifof ~~there~~that isunit including any ~~impairment.~~unrecognized ~~The~~intangible ~~goodwill~~assets ~~was~~as ~~$25,025,292~~if asthe ofreporting ~~December~~unit 31had ofbeen ~~2009 and~~acquired ~~2008~~in ~~respectively~~a business combination and ~~there~~the FV of the reporting unit was nothe ~~impairment~~purchase ofprice ~~Goodwill~~paid atto acquire the reporting unit. As of December 31, ~~2009~~2011 and ~~2008~~2010, ~~respectively~~no impairment of Goodwill was identified.

F-8

Table of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2011 and 2010

Bills payable

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.

Restatement - Change in Accounting for Revenue Recognition

The Company has changed its methodology to recognize revenue from one of its distributors (“Distributor”). The payment terms provided to this Distributor enabled the Distributor to defer payment until it had received payment from its customers. The Company’s revenue recognition policy was changed to record revenue pertaining to product shipped to the Distributor only after the Distributor received payment related to those products from its customers. Such payment to the Distributor typically occurs within 120 days of the date that the Company has shipped product to the Distributor. Previously revenue was recognized when upon shipment of product to this Distributor.

Although the Distributor ships product to its customers concurrently with or shortly after it receives product from the Company, and the Company is not aware of current or prior payment issues between the Distributor and its customers, since there was the possibility that a non-payment to the Distributor could result in the inability of the Company to collect an amount invoiced to the Distributor, the revenue recognition policy was changed to record revenue pertaining to product shipped to the Distributor after the Distributor received payment by its customer.

Revenues pertaining to product sales to the Distributor in 2011 and 2010 were $33,179,820 and $52,581,904, or 35% and 50% of the Company’s 2011 and 2010 product sales, respectively. The cumulative Net income effect of this Change in Accounting of $2,859,337 is reflected as a decrease in Retained earnings as of December 31, 2009.

Revenue recognition

As noted above, the Company revised its revenue recognition policy in regards to its product sales to one of its distributors. The Company’s revenue recognition policies are in compliance with FASB ASC Topic 605, “Revenue Recognition”. ~~Revenue~~Revenues from sales of the Company’s products isto its customers other than the Distributor are recognized when the significant risks and rewards of ownership have been transferred to the buyer at the time ~~when~~ the products are shipped to the Company’s 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~~For ~~returns~~products the Company sells to the ~~Company~~Distributor, ~~were insignificant~~Hengbao, ~~during~~in ~~past~~addition ~~years~~to these requirements, the Distributor must have received payment from its customer. There are no product returns to the Company, and there are no post-shipment obligations, price protection or bill and hold arrangements.

~~Income taxes~~Sales revenue reflects the invoiced value of goods, net of value-added tax (“VAT”). The Company’s products that are sold in the PRC are subject to Chinese value-added tax of 17% of the sales price. The Company’s sales and purchases are recorded net of VAT collected or paid as the Company acts as an agent for the government. The Company records VAT amounts as either a VAT payable or VAT refundable in the balance sheet. The VAT refundable arises from our purchases of raw materials, and are either refunded by the PRC to the Company or offset against the Company’s VAT payables.

The Company ~~accounts~~does ~~for~~not ~~income~~charge ~~taxes~~its incustomers ~~accordance~~for ~~with~~shipping ~~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~~handling. ~~Under~~The ~~this~~Company ~~method,~~classifies ~~deferred~~shipping ~~tax liabilities~~ and ~~assets~~handling ~~are~~costs ~~determined~~as ~~based~~part ~~on the temporary differences between the financial statement and tax bases~~ of ~~assets and liabilities using~~ the ~~tax rates~~Selling ~~presently~~expenses, ~~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~~these ~~for~~were ~~financial~~$1,582,480 ~~accounting~~ and ~~reporting~~$919,022 ~~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~~years ~~sheet~~ended ~~date. There were no deferred tax assets and liabilities as of~~ December 31, ~~2009~~2011 orand ~~December 31~~2010, ~~2008 as there were no differences between the financial statement and the tax base of the Company’s assets or liabilities~~respectively.

~~Reclassifications~~Deferred product costs

~~Certain prior~~As ~~year~~discussed ~~amounts~~ in Revenue recognition, the ~~accompanying~~Company ~~consolidated~~defers ~~financial~~recognition ~~statements~~of ~~have been~~revenue ~~reclassified~~resulting from product sold to ~~conform~~one of its distributors until the Distributor has received payment from its customer. The product costs attributed to product shipped to the ~~current~~Distributor ~~year~~for ~~presentations~~which revenue has not yet been recorded is included in Deferred product costs. The costs from these shipments are recognized in Cost of sales at the time that the related revenue is recognized.

F-9

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~Related parties~~Income taxes

~~Parties are~~The ~~considered~~Company toaccounts befor ~~related~~income iftaxes ~~one~~in ~~party~~accordance ~~has~~with ~~the~~FASB ~~ability~~ASC Topic 740, ~~directly~~“Income ~~or indirectly~~Taxes”, towhich ~~control~~requires recognition of deferred tax assets and liabilities for the ~~other~~expected ~~party~~future tax consequences of events included in the financial statements or ~~exercise~~tax ~~significant~~returns. Under ~~influence~~this ~~over~~ method, deferred tax assets and liabilities are determined based on the ~~other~~temporary ~~party~~differences inbetween ~~making~~the financial statement and ~~operational~~tax ~~decisions~~bases of assets and liabilities using the tax rates presently in effect. Valuation ~~Parties~~allowances are ~~also considered~~established when necessary to bereduce ~~related~~deferred iftax ~~they~~assets ~~are~~to ~~subject~~the amounts expected to ~~common~~be ~~control~~realized. Income ortaxes ~~common significant~~are ~~influence~~provided on an asset and liability approach for financial accounting and reporting of income taxes. Current ~~Related~~tax ~~parties~~is ~~may~~based beon ~~individuals~~the profit or ~~corporate entities~~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 U.S. 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 50% 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 determined 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 years ended December 31, 2011 and 2010.

Fair Value of financial instruments

Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosure (“ASC 820”) for assets and liabilities measured at FV on a recurring basis. ASC 820 establishes a common definition for FV to be applied to existing generally accepted accounting principles that require the use of FV measurements establishes a framework for measuring FV and expands disclosure about such FV measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines FV as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company did not identify any assets and liabilities that are required to be presented on the consolidated balance sheets at FV in accordance with the relevant accounting standards.

The carrying values of cash and equivalents, trade and notes receivables, trade and bills payables, and short-term bank loans and other debts approximate their fair values due to the short maturities of these instruments.

Foreign currency translation

The Company’s operations are based in the ~~People’s Republic of China (“~~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 ~~expenditure~~ expense items are translated at the average rates for each of the ~~years~~periods. ~~Adjustments to translate foreign exchange differences into US dollars are recorded in the Company’s comprehensive income.~~

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 December 31, 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, 2008:
Balance sheet				RMB 6.84 to US$ 1.00
Statement of operations				RMB 6.83 to US$ 1.00

Commencing from July 21, 2005, China has adopted a managed floating exchange rate regime based on market demand and supply with reference to a basket of currencies. Since then, the PBOC administers and regulates the exchange rate of US$ against RMB taking into account demand and supply of RMB, as well as domestic and foreign economic and financial conditions.

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. Actual results could differ from those estimates.

Recently issued accounting pronouncements

In February 2007, the FASB issued ASC Topic 825, “Financial Instruments” which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard 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. The Company adopted this standard on January 1, 2008, and the implementation of this standard did not have a significant impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued ASC Topic 805, “Business Combinations”, to establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The standard also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement was effective for the Company beginning January 1, 2009.

F-10

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~In December~~All ~~2007,~~foreign ~~the~~exchange ~~FASB~~transactions ~~issued~~involving ~~ASC~~RMB ~~Topic~~must ~~810,~~take ~~“Consolidation”,~~place toeither ~~establish accounting~~through ~~and reporting standards for ownership interests in subsidiaries held by parties other than~~ the ~~parent,~~People’s ~~the~~Bank ~~amount~~ of ~~consolidated~~China ~~net~~(the ~~income attributable~~“PBOC”) toor ~~the~~other ~~parent~~institutions ~~and~~authorized to ~~the~~buy ~~noncontrolling interest, changes in a parent’s ownership interest,~~ and ~~the~~sell ~~valuation~~foreign ~~of retained noncontrolling equity investments when a subsidiary is deconsolidated~~exchange. The Itexchange ~~also~~rates ~~establishes~~adopted ~~disclosure requirements~~for ~~that clearly identify and distinguish between~~ the ~~interests~~foreign ofexchange ~~the parent~~transactions ~~and~~are the ~~interests~~rates of ~~the~~exchange ~~noncontrolling~~quoted ~~owners.~~by ~~This standard is effective for~~ the ~~Company beginning January 1, 2009~~PBOC. ~~The~~ ~~Company~~Translation ~~adopted the new standard on January 1, 2009, and the implementation~~ of ~~the~~amounts ~~new~~from ~~standard~~RMB ~~did~~into ~~not~~US ~~have~~dollars ahas ~~significant~~been ~~impact~~made onat the ~~Company’s~~following ~~financial position~~exchange ~~or results of operations.~~rates:

For the year ended December 31, 2011:
Balance sheet	RMB 6.30 to $ 1.00
Statement of operations	RMB 6.46 to $ 1.00
For the year ended December 31, 2010:
Balance sheet	RMB 6.62 to $ 1.00
Statement of operations	RMB 6.73 to $ 1.00

InThe ~~May 2008,~~PBOC ~~the~~administers FASB issued ASC Topic 470, “Debt”, which is effective for financial statements issued for fiscal years beginning after December 15, 2008. This standard includes guidance that convertible debt instruments that may be settled in cash upon conversion should be separated between the liability and ~~equity components,~~regulates ~~with each component being accounted for in a manner that will reflect~~ the ~~entity’s~~exchange ~~nonconvertible debt borrowing~~ rate ~~when~~of ~~interest~~the ~~costs~~RMB ~~are recognized~~relative ~~in subsequent periods. This standard is not currently applicable~~ to ~~the~~ ~~Company since~~ the ~~Company~~US ~~does not have convertible debt~~dollar.

InUse June 2008, the FASB issued ASC Topic 260, “Earnings per Share”, regarding determining whether instruments granted in share-based payment transactions are participating securities. This provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company does not currently have any share-based awards that would qualify as participating securities. Therefore, application of this is not expected to have an effect on the Company’s financial reporting.estimates

~~In April 2009,~~The ~~the~~preparation ~~FASB~~of financial ~~issued~~statements, ~~ASC~~in ~~Topic~~conformity ~~820~~with U.S. GAAP, ~~“Fair~~requires ~~Value~~management ~~Measurements~~to make estimates and ~~Disclosures”,~~ ~~which~~assumptions ~~provides~~that ~~additional~~affect ~~guidance~~the ~~for~~reported ~~estimating~~amounts ~~fair~~of ~~value~~assets ~~when the~~and ~~volume~~liabilities and ~~level~~disclosure of ~~activity~~contingent ~~for~~assets and liabilities as of the ~~asset~~date orof ~~liability~~the ~~have~~financial ~~significantly decreased~~statements and ~~re-emphasizes~~the ~~that~~reported ~~regardless~~amounts of ~~market~~revenues ~~conditions~~and expenses during the ~~fair~~reporting ~~value measurement~~period. isSeveral anareas ~~exit~~require ~~price~~management’s ~~concept~~estimates asrelating ~~defined~~to inuncertainties ~~the~~for ~~standard.~~which ~~The~~it ~~scope~~is ~~of this~~reasonably ~~standard~~possible ~~does~~that ~~not~~there ~~include~~will ~~assets~~be ~~and~~a ~~liabilities~~material ~~measured~~change ~~under~~in ~~Level~~the ~~1 inputs~~near ~~(quoted~~term. ~~prices~~The inmore ~~active~~significant ~~markets~~areas ~~for~~requiring ~~identical~~the ~~assets).~~use ~~The~~of ~~standard~~management ~~is applied~~estimates ~~prospectively~~relate to ~~all~~the ~~fair~~reserves ~~value~~for ~~measurements~~bad ~~where~~debt, ~~appropriate~~allowance ~~and is effective~~ for ~~the~~inventory ~~Company’s~~obsolescence, ~~interim~~valuation ~~and~~of ~~annual~~intangible ~~periods~~assets ~~beginning~~acquired in ~~the~~business ~~second quarter~~acquisitions, ofaccrued ~~fiscal~~liabilities ~~year~~and ~~2009.~~the ~~The~~useful ~~Company’s~~lives ~~adoption~~utilized offor ~~this~~the ~~above~~computation ~~standard~~of ~~did not~~amortization ~~have~~and adepreciation. ~~material~~Actual ~~impact~~results oncould ~~the~~differ ~~Consolidated~~from ~~Financial Statements~~those estimates.

InRecent ~~May 2009, the FASB issued ASC Topic 855, “Subsequent Events”, that established general standards for~~ accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable generally accepted accounting principles. This standard, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted this standard effective with the fiscal quarter ending June 30, 2009.pronouncements

In ~~July 2009~~May 2011, the FASB issued ~~standards~~ASU ~~that~~2011-04 to ~~established~~provide ~~the~~a ~~ASC~~consistent ~~Accounting~~definition ~~Standards Codification as the single source~~ of ~~authoritative~~FV USand ~~GAAP~~ensure ~~for~~that ~~nongovernmental entities.~~the ~~The~~FV ~~ASC~~measurement ~~supersedes all non-SEC accounting~~ and ~~reporting~~disclosure ~~standards~~requirements ~~that existed~~are atsimilar ~~the~~between ~~ASC’s~~U.S. ~~effective~~GAAP ~~date,~~and ~~including~~IFRS. ~~FASB,~~ASU ~~American~~2011-04 ~~Institute~~changes ~~of Certified~~certain ~~Public~~FV ~~Accountants,~~measurement ~~Emerging~~principles ~~Issues Task Force~~ and ~~related~~enhances ~~literature. The~~the ~~FASB~~disclosure ~~uses~~requirements ~~Accounting~~particularly ~~Standards~~for ~~Updates~~Level ~~(“ASU”)~~3 toFV ~~amend the ASC~~measurements. This ~~The Codification~~guidance ~~was~~is effective for ~~interim~~the ~~and~~Company ~~annual~~beginning ~~periods~~on ~~ending~~January ~~after September 15~~1, ~~2009 (i~~2012.~~e.,~~ The ~~the~~adoption ~~year~~of ~~ended~~ASU ~~December~~2011-04 ~~31,~~is ~~2009~~not ~~for~~expected to significantly impact the Company)’s consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income”. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220, “Comprehensive Income”, and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The ASU does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued ASU 2011-12 which deferred the requirement in ASU 2011-05 that companies present reclassification adjustments for each component of accumulated other comprehensive income in both net income and other comprehensive income on the face of the financial statements. ASU 2011-05 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011, with early adoption permitted. The adoption of ASU 2011-05, as amended by ASU 2011-12, is not expected to significantly impact the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the FV of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for the Company for its annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to significantly impact the Company’s consolidated financial statements.

F-11

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~NOTE~~Concentration 4of ~~– RESTRICTED CASH AND BILLS PAYABLE~~risk

AsFinancial ~~of December~~instruments ~~31,~~that ~~2009~~potentially ~~and~~subject ~~December~~the ~~31,~~Company ~~2008,~~to ~~Restricted~~concentrations ~~cash~~of ~~was~~credit $0risk ~~and~~are $1cash,~~617,000, respectively.~~ ~~This~~accounts ~~cash~~receivable, ~~was~~notes ~~restricted~~receivable asand itother isreceivables ~~held~~arising onfrom ~~deposit~~its asnormal tobusiness ~~provide collateral~~activities. ~~for~~The ~~the bills issued by banks to vendors, the~~ Company isplaces ~~periodically requested~~its bycash ~~certain~~in ofwhat ~~its~~it ~~suppliers~~believes to ~~settle~~be ~~amounts~~credit-worthy ~~owed~~financial byinstitutions. ~~the~~However, ~~issuance~~these ~~of bills~~accounts ~~through~~are ~~banks~~not ~~for~~insured ~~which~~by the ~~banks~~Federal ~~undertake~~Deposit toInsurance ~~guarantee~~Corporation. ~~the~~The Company~~’s settlement~~ ofattempts ~~these~~to ~~amounts~~control atrisk ~~maturity.~~related ~~These~~to ~~bills~~receivables ~~are~~through ~~interest-free~~credit ~~with maturity~~approvals, ~~dates~~credit oflimits ~~six~~and ~~months~~monitoring ~~from the date of issuance~~procedures. InThe ~~order~~Company toroutinely ~~provide~~assesses ~~such guarantees for~~ the ~~bills,~~financial ~~the~~strength ~~Company~~of ~~has~~its ~~entered~~customers ~~into~~and, ~~bank~~based ~~acceptance agreements~~upon ~~with~~factors ~~certain~~surrounding ~~banks. Pursuant~~the tocredit ~~a bank’s acceptance agreement~~risk, ~~the~~establishes ~~bank~~an ~~guarantees~~allowance, ~~payment~~if ofrequired, ~~certain~~for ofuncollectible ~~the Company’s payables~~accounts. As ~~security~~ ~~for~~a ~~the banks’ undertakings~~consequence, the Company ~~may~~believes bethat ~~required~~its toreceivables ~~pay~~credit ~~the banks’~~risk ~~charges~~exposure asbeyond ~~well as deposit with~~ such ~~banks~~allowance ~~amounts~~is ~~equal~~limited. toSee ~~10%~~NOTE to16 ~~50%~~for ~~of the~~additional ~~payables~~discussion ~~being~~regarding ~~guaranteed~~concentrations ~~at the time~~ of ~~such issuance~~receivables.

NOTE 54 ~~– NOTES RECEIVABLES~~- DEBT CONVERSION

~~The~~ On April 1, 2010, the Company ~~has~~and ansome ~~arrangement~~of ~~with~~its ~~Oceanic~~debt ~~International~~holders ~~(Zhongshan)~~entered ~~(“Zhongshan”)~~into Note Conversion Agreements, a ~~Chinese~~which ~~company~~resulted ~~that~~in ~~provides~~the ~~raw~~debt ~~material~~holders toconverting ~~Home~~$17,542,774 ~~System~~of debt into 5,012,217 ~~whereby~~shares ~~both companies~~of ~~have~~the ~~agreed~~Company’s tocommon ~~jointly~~stock, ~~obtain~~resulting ~~financing~~in ~~from~~$1,747,762 ~~certain~~debt ~~financial institutions~~extinguishment loss. ~~Under~~ ~~this~~The ~~arrangement,~~closing ~~the~~price of Company’s ~~enters~~shares ~~into~~as aof ~~loan agreement~~April ~~with~~1, ~~the~~2010, ~~financial~~was ~~institution~~$4.40 per share, ~~under~~the ~~which~~conversion ~~Home~~price ~~System,~~used ~~Zhongshan~~to ~~and~~ calculate the ~~financial~~number ~~institutions~~of ~~agree~~shares ~~that~~issued ~~certain~~as ~~assets~~per ofthe ~~both~~note ~~companies~~conversion ~~will~~agreement be was $3.50 per share. The Company used asan ~~collateral~~estimated toprice ~~secure~~of $3.86, the ~~loan. These~~average ~~assets~~price ~~consist~~of the common stock over the 30 trading days prior to the time of ~~Home System’s~~the ~~receivables~~conversion ~~and~~to ~~certain~~calculate ~~property~~loss ~~and~~on ~~buildings~~debt ~~in Zhongshan~~conversion.

~~Once~~NOTE the Company receives the funding, it then enters into an agreement with the Zhongshan under which a portion of the funds will be forwarded to Zhongshan under the terms of a note from Zhongshan that is payable to Home System. These are classified as Notes receivable and include interest and maturity dates that coincide with the underlying financing agreement. As of December 31, 2009, these Notes receivable amounted to $3,704,137, with interest rates that ranged from 2.49% to 5~~.4%,~~ ~~and~~- ~~include maturities less than one year and more than one year.~~ ACQUISITIONS

AOn ~~group of~~May ~~shareholders~~31, ("2010, ~~The~~the ~~Shareholders")~~Company ~~had~~entered ~~owed~~into an ~~aggregate~~agreement ~~of $900,000~~ to ~~Home System~~acquire ~~Group~~90% ~~for~~of ~~the~~ownership ~~shares~~interest ~~previously~~of ~~issued~~Zhongshan inSanfan ~~accordance~~Electrical ~~with~~Appliances ~~the Subscription~~Co., ~~Agreement~~Ltd. ~~signed~~(“Sanfan”) onfor ~~May 4~~$12, ~~2006~~000,000. ~~The~~On ~~Shareholders~~July ~~were~~15, ~~able~~2010, ~~to satisfied~~the ~~this~~Company ~~obligation~~entered ininto ~~the~~another ~~fourth~~agreement ~~quarter~~to acquire 100% of ~~2009~~ownership byinterest ~~arranging~~of ~~with~~Jinxinglong ~~Simple Hong~~Electrical ~~Kong~~Appliances ~~Limited~~Co., Ltd. (~~"Simple"~~“Jinxinglong”), afor ~~shareholder~~$15,000,000. As of December 31, 2010, the Company had paid $6,000,000 to ~~offset~~the ~~this obligation~~shareholders ~~against~~of ~~what~~Jinxinglong ~~the~~and ~~Company~~$4,800,000 ~~owes~~ to ~~Simple~~the shareholders of Sanfan.

~~NOTE~~On 6December ~~– INVENTORIES~~30, 2010, the Board of the Company determined not to complete these acquisitions due to issues that had arisen subsequent to the date of the agreements. As a result, the shareholders of Jinxinglong returned $3,600,000 to the Company as of November, 2011 and the shareholders of Sanfan returned $2,880,000 to the Company as of September, 2011, and the acquisition agreements were cancelled. As a result , as of December 31, 2010 the Company recorded a loss on investment of $4,320,000.

~~Inventories consist~~NOTE of6 ~~the~~- ~~following:~~NOTES RECEIVABLE

	December 31, 2009		December 31, 2008
Finished goods	$	587,864	$	1,017,904
Work in process		3,548,298		5,352,141
Raw materials		14,167,853		9,243,130
Total	$	18,304,015	$	15,613,175

The Company has an arrangement with Oceanic International (Zhongshan) Company Limited (“Zhongshan”), a Chinese company that is a supplier of raw material and leases a plant to HSG, whereby both companies agreed to jointly obtain financing from certain financial institutions. Under this arrangement, the Company enters into a loan agreement with the financial institutions, by which HSG, 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 Zhongshan under which a portion of the funds the Company receives from the financial institutions is provided by the Company to Zhongshan or other third parties requested by Zhongshan, and are evidenced by a note from Zhongshan payable to HSG. As of December 31, 2011 and 2010, these Notes receivable includes non interest bearing bank acceptances of $6.2 million and loans of $8.3 million which bore interest of 4.5% to 13% and due in 2012 and non interest bearing bank acceptances of $0.6 million and loans of $6.04 million which bore interest of 4.05% to 5.4% of which $3.02 million due in 2011 and $3.02 million due in 2012 respectively. The related bank loans were from Industrial and Commercial Bank of China are discussed in NOTE 10 and NOTE 11.

F-12

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

NOTE 7 – ~~PROPERTY, PLANT AND EQUIPMENT, NET~~INVENTORIES

~~Property, plant~~Inventories ~~and~~consisted ~~equipment consist~~ of the following:

	Useful Lives		December 31, 2009			December 31, 2008
		December 31, 2011			December 31, 2010
Plant and machinery	5 to 10 years		$	10,616,935		$	8,253,436
Raw materials		$	24,016,240		$	14,156,215
Buildings	20 years			312,028			2,145,009
Work in process			3,585,711			3,367,627
Furniture, fixtures and equipment	5 to 10 years			200,622			142,525
Finished goods			1,632,342			1,738,684
Motor vehicles	8 to 10 years			12,405			12,405
Allowance for obsolescence			(2,326,747	)		(972,634	)
Total		$	26,907,546	~~10,861,990~~	$	18,289,892	~~10,553,375~~
Less: accumulated depreciation				(1,834,162)			(1,034,549	)
Net book value			$	9,027,828		$	9,518,826

~~During the~~NOTE ~~year~~8 ~~ended~~– ~~December 31~~PROPERTY, ~~2009,~~PLANT ~~depreciation~~AND ~~expense amounted to $1~~EQUIPMENT,~~981,673, among~~ which $1,914,556 and $67,117 were recorded as cost of sales and administrative expense, respectively. During the year ended December 31, 2008, depreciation expense amounted to $617,940, among which $560,497 and $57,443 were recorded as cost of sales and administrative expense, respectively.NET

~~NOTE~~Property, 8plant ~~– ACQUISITION DEPOSIT~~and equipment consisted of the following:

The acquisition deposit was $733,500 as of December 31, 2008 and represented the partial payment the Company made for the cash portion of the consideration for the acquisition of Juxian in September, 2007. However, the delivery of the Company’s stock, which is traded on the OTCBB, was not recognized as a share exchange consideration by the relevant PRC government authority for the purposes of approval of the ownership transfer of Juxian. Thus on February 7, 2008, the acquisition of Juxian was cancelled. The shareholders of Juxian refunded the deposit to the Company in August, 2009.

	Useful Life	December 31, 2011			December 31, 2010
Factory equipment	5 to 10 years	$	11,753,170		$	11,013,322
Buildings	20 years		493,578			373,212
Furniture, fixtures and equipment	5 to 10 years		298,412			204,781
Motor vehicles	8 to 10 years		207,967			161,077
Work in process			25,651			-
Total			12,753,127			11,752,393
Less: accumulated depreciation			(4,039,954	)		(3,070,361	)
Net book value		$	8,713,173		$	8,682,032

~~NOTE~~During 9the ~~– LAND~~years ~~USE~~ended ~~RIGHT~~December 31, 2011 and 2010, depreciation was recorded as follows, ~~NET~~

Land use right consist of the following:

	2011		2010
Cost of sales	$	868,611	$	1,032,129
General, selling & administrative expenses		100,983		184,244
Total	$	969,594	$	1,216,373

	December 31, 2009		December 31, 2008
Land use right	$	-	$	1,299, 172
Less: accumulated amortization		-		(7,320	)
Land use right, net	$	-	$	1,291,852

NOTE 9 – INTANGIBLE ASSETS, NET

~~The Company~~Intangible ~~obtained~~assets ~~the~~consisted ~~right from the relevant PRC land authority for periods~~ of 50 ~~years to use~~ the ~~lands on which the production facilities and warehouses of the Company are situated.~~following:

During year ended December 31, 2009 and 2008, amortization expense amounted to $15,034 and $7,426, respectively. These land use right were transferred to the former shareholders of Asia Forever as part of the Supplemental Agreement discussed in Note 13 and thus are no longer recorded as an asset of the Company.

	December 31, 2011			December 31, 2010
Customer relationships	$	2,209,839		$	2,102,462
Brand name		158,707			150,996
Total		2,368,546			2,253,458
Less: accumulated amortization		(1,200,695	)		(790,862	)
Net book value	$	1,167,851		$	1,462,596

During the years ended December 31, 2011 and 2010, amortizations of intangible assets were $360,246 and $366,635, respectively.

The intangible assets are carried at cost and are amortized over their expected useful lives. Customer relationships are being amortized over expected useful lives of 5.5 years. Brand name is being amortized over its expected useful life of 10 years. All Intangible assets are being amortized on a straight-line basis.

The estimated amortization expenses for the brand name and customer relationships as of December 31, 2011 for the five succeeding years are as follows:

Year	Brand name		Customer relationships
2012	$	15,871	$	353,574
2013	$	15,871	$	353,574
2014	$	15,871	$	353,574
2015	$	15,871	$	-
2016 and thereafter	$	43,645	$	-

F-13

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

NOTE 10 – ~~INTANGIBLE~~ ~~ASSETS, NET~~SHORT TERM BANK LOANS

~~Intangible assets~~The ~~consist~~short ofterm ~~the~~bank ~~following~~loans, denominated in Chinese Renminbi, are as follows:

	December 31, 2009		December 31, 2008
	December 31, 2011		December 31, 2010
Customer relationships	$	2,030,000	$	2,030,000
Loan from China Construction Bank Zhongshan Branch (“CCBZB”), interest ranging from 2.77% to 4.94%, to be paid within 180 days of the origination date of the loan, due from January 9, 2012 to July 7, 2012, secured by customer receivables	$	7,598,768	$	4,676,992
Brand name		145,792		145,792
Loans from CCBZB, interest at 5.31%, due on July 1, 2011, secured by customer receivables		-		3,019,916
Total		2,175,792		2,175,792
Loans from CCBZB, interest at 6.31%, due on June 22, 2012, secured by customer receivables		2,539,320		-
Less: accumulated amortization		(424,225)		(84,845	)
Loans from Industrial and Commercial Bank of China (“ICBC”), at interest ranging from 3.01% to 4.04%, to be paid within 180 days of the origination date of the loan and due from January 25, 2012 to March 29, 2012, secured by the Company’s customer receivables		8,100,214		5,870,581
Total Intangible assets, net	$	1,751,567	$	2,090,947
Loans from ICBC, interest at 13%, due through March 19, 2012, secured by the Company’s customer receivables		2,380,612		-
Loans from ICBC, interest at 4.25%, due through May 31, 2011, secured by the Company’s customer receivables		-		1,509,958
Loans from ICBC, interest at 5.85%, due through May 18, 2012, secured by the Company’s customer receivables		1,587,075		-
Loans from ICBC, interest at 5.85%, due through May 15, 2012, secured by the Company’s customer receivables		1,110,952		-
Loans from ICBC, interest at 4.25%, due through May 25, 2011, secured by the Company’s customer receivables		-		1,509,958
Loans from ICBC, interest at 4.5%, due through May 16, 2011, secured by the Company’s customer receivables		-		1,509,958
Loan from Shiqi Micro Credit Bank, interest at 20%, payments due through October 9, 2012, guaranteed by Li Weiqiu, the chairman of HSG		793,537		-
Loans from CITIC Bank, interest at 7.22%, payments due through August 10, 2012, guaranteed by Li Weiqiu, the chairman of HSG		2,380,614		-
Loans from CITIC Bank, interest at 5.84%, payments due through August 25, 2011, guaranteed by Li Weiqiu, the chairman of HSG		-		3,170,912
Total Short term bank loans	$	26,491,091	$	21,268,275

During the year ended December 31, 2009 and 2008, amortization expenses of intangible assets amounted to $339,380 and $84,845, respectively.

The intangible assets are carried at cost and are amortized over the expected useful lives. Customer relationships is being amortized over its expected useful life of 6.25 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		339,380

F-14

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~NOTE~~Loans 11from ~~– SHORT~~ICBC ~~TERM~~are ~~BANK LOANS~~also collateralized by certain assets of Oceanic International (Zhongshan) Company Limited as discussed in NOTE 6.

~~The~~NOTE ~~Short term~~11– LONG ~~bank~~TERM ~~loans~~BANK ~~that are denominated in Chinese RMB and are presented in US dollars are as follows:~~LOANS

	December 31, 2009		December 31, 2008
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		1,966,759		-
Loan from China Construction Bank Zhongshan Branch, interest rate at 2.49%, due from July 3, 2009 to July 2,2010, secured by accounts receivable held by a major customer		2,896,517		-
Loan 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.		3,194,680		-
Loan from CITIC Bank, interest rate at 5.84%, due from September 11, 2009 to September 10, 2010, guaranteed by Li Weiqiu, a related party.		2,929,030		-
Loan from CITIC Bank, interest rate at 5.84%, due from September 9, 2009 to June 9, 2010 guaranteed by Li Weiqiu, a related party.		1,464,513		-
Loan from CITIC Bank, interest rate at 7.62%, due from October 10, 2008 to October 9, 2009, guaranteed by Li Weiqiu, a related party.		-		2,934,000
Loan from Bank of Communication, interest rate at 10.34% (LIBOR+4.6%), due within 90 days, secured by the Company’s accounts receivable.		-		676,710
Loan from Guangdong Development Bank (Zhongshan Branch), interest rate at 10.34% (LIBOR+4.6%), due within 90 days, secured by accounts receivable held by a major customer.		-		2,312,593
Loan from Standard Chartered Bank, interest rate at 10.74% (LIBOR+5%), due within 90 days, secured by accounts receivable held by a major customer.		-		267,045
Loans from Industrial and Commercial Bank of China, interest rate at 6.21%, due byJanuary 22, 2009, secured by the Company’s accounts receivables.		-		3,667,500
Loans from Industrial and Commercial Bank of China, interest rate at 6.21%, due byJanuary 16, 2009, secured by the Company’s accounts receivables.		-		1,467,000
Total Short term bank loans	$	12,548,441	$	11,324,848

The Long term bank loans are as follows:

	December 31, 2011		December 31, 2010
Loan from ICBC, interest at 4.05%, due on January 3, 2013, secured by the Company’s customer receivables	$	144,280	$	686,345
Loans from ICBC, interest at 4.5%, due through January 3, 2013, secured by the Company’s customer receivables	$	577,118	$	549,076
Total	$	721,398	$	1,235,421

These long term loans are also collateralized by certain assets of Oceanic International (Zhongshan) Company Limited as discussed in NOTE 6.

NOTE 12 – NOTES PAYABLE

On October 1, 2008, the Company issued promissory notes (“Notes”) of $39.4 million to the former shareholders of Asia Forever pertaining to the Company’s acquisition of Asia Forever. The net present value of these Notes payable at October 1, 2008, after a payment in 2008 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 the 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 to be repaid in three equal semi-annual installments beginning on June 30, 2009.

On June 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, $1.8 million, which was past due from December 31, 2008, and $9.87 million, which was due on June 30, 2009, were to be satisfied by: (i) $4.4 million which was paid by the Company as of June 30, 2009; (ii) $1,464,000 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 June 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”), and the Shareholders agreed that the Company could defer the $9.87 million payment originally due on June 30, 2010 to June 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 owed $2,779,109 to the former shareholders of Asia Forever which was due on June 30, 2011and this transaction resulted in a debt conversion loss of $736,607 in 2010. The closing price of Company’s shares as of April 1, 2010, was $4.40 per share, the conversion price used to calculate the number of shares issued was $3.50 per share . The Company used the estimated price of $3.86, the average price of the common stock over the 30 trading days prior to the time of the conversion to calculate loss on debt conversion. The repayment of $2,779,109 was delayed and made in cash in the third quarter of 2012.

F-15

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

NOTE 12 13 – ~~LONG~~ ~~TERM BANK~~DUE ~~LOANS~~TO STOCKHOLDERS & RELATED PARTIES

The ~~Long term~~Company ~~bank~~owed ~~loans~~$1,262,379 to a stockholder as of December 31, ~~2009~~2011 ~~are~~and ~~denominated~~December in31, ~~Chinese~~2010, ~~RMB~~which ~~and~~is ~~are presented~~payable in US dollars ason ~~follows:~~March 31, 2012. As of date of this report, this debt was past due and unsecured.

~~Loan~~On ~~from~~April ~~Industrial~~1, ~~and~~2010, ~~Commercial~~the ~~Bank~~Company ofentered ~~China,~~into ~~interest~~Note ~~rate~~Conversion atAgreement 5with this stockholder.~~40%,~~ ~~due~~The onNote ~~March~~Conversion 9Agreement provided that $3,953,462 ~~2012~~of the $3,979,971 ~~secured~~outstanding byas ~~the~~of December 31, 2009 be converted into Company’s ~~assets~~common stock at $3.50 per share. This transaction resulted in a 2010 debt conversion loss of $410,780. The closing price of Company’s share as of April 1,~~464~~ 2010,~~515~~ was $4.40 per share, the conversion price used to calculate the number of shares issued as per the note conversion agreement was $3.50 per share . The Company used the estimated price of $3.86, the average price of the common stock over the 30 trading days prior to the time of the conversion to calculate loss on debt conversion..

~~There were~~In noMay, ~~Long~~2010, ~~term~~the ~~bank~~Company ~~loans~~received ~~outstanding~~two asloans of ~~December~~$666,667 31each from related parties, ~~2008~~Li Weiqiu and Cheung Kinwai. These were unsecured, did not bear interest and were payable on demand.

As discussed in NOTE 1310, ~~– NOTES~~various ~~PAYABLE~~Bank ~~AND DEFERRED~~loans ~~FINANCE~~made ~~COST~~to the Company have been secured or guaranteed by Li Weiqiu, the Chairman of Board of Directors of the Company, and a principal shareholder of the Company.

On May 23 14, ~~2007~~2009, the Company ~~entered~~received ~~into~~ a ~~Fixed~~loan ~~Price~~of ~~Standby~~$1,571,429 ~~Equity~~from ~~Distribution Agreement~~Cheung ~~(the~~Kinwai, who ~~“Agreement”)~~is ~~with~~a ~~four~~director ~~investors~~and ~~(the~~shareholder ~~“Investors”)~~of ~~who were related parties. Pursuant to~~ the ~~Agreement, the~~ Company ~~could~~, atwith ~~its discretion,~~interest ~~periodically~~of ~~sell~~7.844% toand ~~the~~due ~~Investors~~on upMay to14, 102014. ~~million~~The ~~shares~~monthly ofprincipal ~~the Company’s~~and ~~common~~interest ~~stock~~payment ~~for~~is aapproximately ~~total purchase price of up to~~ $4031,700 ~~million~~ (aRMB ~~per share purchase price of $4.00 per share~~200,000). ~~The~~As ~~Investors’ obligation to purchase shares~~ of ~~common~~December ~~stock~~31, ~~under~~2011, the ~~Agreement~~amount ~~was~~due ~~subject~~ to ~~certain~~Cheung ~~conditions, including~~Kinwai ~~the~~pertaining ~~Company~~to ~~obtaining~~this anloan ~~effective~~was ~~registration statement for the resale of the common stock sold under the Agreement. The Investors paid 16.5% of the purchase price (~~$6836,~~575~~035,~~000)~~ towith ~~the Company. Also~~$326,903 ~~the Investors~~due ~~were~~within to12 ~~deliver to the Company an executed promissory note for the payment of the remaining 83~~months.~~5% of the remaining commitment under this Agreement.~~

On ~~February~~ 7June 9, ~~2008~~2010, the Company ~~cancelled~~received ~~the~~a ~~Agreement~~loan ~~with~~of ~~the~~$754,979 ~~Investors~~from Li Weiqiu, ~~and the~~with ~~amount~~interest of $6.73%,~~575,000~~ ~~that~~which ~~had~~was ~~been~~the ~~received~~floating byinterest ~~the~~rate ~~Company~~of ~~has~~120% ~~been reflected~~of asthe abenchmark ~~non-interest~~lending ~~bearing~~rate ~~Notes~~set ~~payable~~by ~~recorded~~The ~~under~~People’s ~~current liabilities~~Bank ~~and~~of ~~non-current~~China ~~liabilities~~(“PBOC”). atThe Company pays the ~~end~~interest of ~~December~~approximately 31$4,451 ~~2009~~ per month and the principal is to be paid on June 9, 2015, the loan maturity date. As of December 31, ~~2008~~2011, ~~respectively~~the amount due to Li Weiqiu was $793,537.

~~On October~~This 1,is ~~2008,~~summarized 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 ($9.9 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 June 30, 2009.

On June 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 $9.9 million which was due on June 30, 2009 were to be satisfied in total by: (i) $4.4 million in cash which was paid by the Company as of June 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 June 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. See Note 22 for further discussion in the gain recorded on this Transfer.

	December 31, 2011			December 31, 2010
Due to stockholder, payable on demand and no interest	$	1,262,379		$	1,262,379
Due to a related party - Cheung Kinwai		692,350			682,385
Due to a related party – Li Weiqiu		666,667			666,667
Due to a related party (Cheung Kinwai) with interest of 7.844%		836,035			1,083,039
Due to a related party (Li Weiqiu) with floating interest rate		793,537			754,979
		4,250,968			4,449,449
Less: Current portion		(2,948,299	)		(2,899,058	)
Due to stockholder & related parties under non-current liabilities	$	1,302,669		$	1,550,391

~~On December~~The ~~18,~~principal ~~2009,~~amounts ~~the Company executed an amendment to the Notes (the “Amended Note”) to defer the final installment of the payment of the Purchase Price~~ due on ~~June~~as ~~30, 2010 under the Notes that the Shareholders received in the Company’s acquisition~~ of ~~Asia~~December ~~Forever. Pursuant to the Amended Note~~31, ~~the Shareholders~~2011 ~~agreed~~over ~~that~~ the ~~Company~~next ~~could~~four ~~defer~~years ~~the~~are ~~payment~~as ~~$9.9 million that~~follows: ~~was originally due on June 30, 2010 to June 30, 2011.~~

Year
2012	$	2,948,299
2013		390,021
2014		413,606
2015		499,042
	$	4,250,968

F-16

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~Notes payable~~NOTE ~~consist~~14– ofINCOME ~~the following:~~TAXES

	December 31, 2009		December 31, 2008
Notes payable related to the fixed price standby equity distribution agreement	$	6,575,000	$	6,575,000
Notes payable related to acquisition of subsidiary		9,868,421		31,405,184
Total Notes Payable		16,443,421		37,980,184
Less: Current portion		6,575,000		21,536,763
Notes payable – long term portion	$	9,868,421		16,443,421

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 in the U.S. for the 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.

~~Deferred finance~~Oceanic ~~cost~~International ~~consists~~HK, ofis ~~the~~a ~~following:~~company incorporated in HK and is subject to Hong Kong profits tax. Oceanic is subject to Hong Kong taxation on its activities conducted in Hong Kong and income arising in or derived from Hong Kong. No provision for profits tax has been made as Oceanic has no assessable income for 2011 and 2010

	December 31, 2009		December 31, 2008
Deferred interest cost	$	255,230	$	1,505,147
Less: Current portion		255,230		1,249,917
Deferred finance cost-long term portion	$	-	$	255,230

The Company’s operations in China are subject to the income tax laws of PRC. The tax provisions for the years ended December 31, 2011 and 2010 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-owned enterprises and foreign-owned 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 operating subsidiary in China, Weihe, is governed by the EIT Law and subject to 25% income tax rate.

Another operating subsidiary of the Company located in China, Well Profit, has been classified as a foreign owned enterprise within the PRC and thus, starting from its first profitable year, is entitled to a two-year exemption from the EIT followed by a three-year 50% reduction in its EIT tax rate (“Tax Holiday”). As a result, 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, and for 2009 to 2011, Well Profit was subject to Enterprise Income Tax rate of 12.5%.

During the year ended December 31, 2011, Well Profit received no Tax Holiday benefit as it incurred a loss in its 2011 PRC tax filing, and during the year ended December 31, 2010, it received Tax Holiday benefit of $695,341 and a resulting benefit to EPS of $0.01.

The reconciliations of the PRC statutory tax rate to the Company’s effective tax rates for the years ended December 31, 2011 and 2010 are as follows:

	2011			2010
U.S. statutory tax rate		34.0	%		34.0	%
Tax rate difference		(9.0	)%		(11.2	)%
Tax holiday		(1.3	)%		(9.0	)%
No tax benefit on debt conversion loss		-			7.7	%
No tax benefit on loss on investment		-			13.9	%
No tax benefit on loss of one of the Company’s PRC subsidiaries		5.8	%		-
Net operating losses not utilized		0.2	%		1.2	%
Valuation allowance		0.1	%		2.9	%
Others		1.3	%		1.6	%
Effective tax rate		31.1	%		41.1	%

F-17

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~NOTE~~Deferred 14tax ~~– DUE~~assets ~~TO STOCKHOLDER~~consist of the following:

The Company owed $3,979,971 to a stockholder as of December 31, 2009. This is unsecured, bears no interest, and is due before June 30, 2010. See Note 24 for further discussion on this debt.

	2011			2010
Deferred tax asset -current
Deferral of product sales	$	183,970		$	525,817
Inventory reserves		575,846			206,506
Allowance for doubtful accounts		482,868			147,754
Discount recorded on receivables		83,178			-
Tax carry forwards – U.S. NOL’s		794,125			793,287
Tax carry forwards – PRC. NOL’s		96,390			-
Others		8,599			(68,142	)
Less: Valuation allowance – U.S. NOL’s		(794,125	)		(793,287	)
Valuation allowance – PRC NOL’s		(96,360	)		-
Total current deferred tax assets		1,334,491			811,935
Deferred tax assets – non current
Allowance for doubtful accounts		309,386			-
Discount recorded on receivables		112,213			-
Total deferred taxes – non current	$	1,756,090		$	811,935

~~As discussion~~The inaccumulated ~~Note~~NOL’s ~~11, various bank loans made to the Company have been secured or guaranteed by a related party, a shareholder and the Chairman of the Company.~~are:

On May 14, 2009, The Company received a loan from a related party, a shareholder and director of the Company, with an interest rate 7.844%, due on May 14, 2014. The Company is required to make monthly payments of approximately $29,280 for principal amount interest. As of December 31, 2009, the amount due was $1,369,358, with a principal amount of $248,049 due within twelve months.

	As of December 31, 2011
Accumulated U.S. NOL’s	$	2,335,661
Accumulated PRC NOL’s		771,117
Total	$	3,106,778

	December 31, 2009		December 31, 2008
Due to stockholder unsecured and non interest bearing	$	3,979,971	$	2,174,573
Due to stockholder with interest 7.844%		1,369,358		-
		5,349,329		2,174,573
Less: Current portion		4,040,896		1,574,573
Due to stockholder under non-current liabilities	$	1,308,433	$	600,000

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 otherwise recognizable U.S. net deferred tax assets as of December 31, 2011 and December 31, 2010. These NOLs expire from 2027 to 2031. As of December 31, 2011, the Company had a PRC NOL in an amount of approximately $771,117, and this NOL expires in 2016.

~~The payment~~NOTE of15 ~~the~~– ~~principal~~SEGMENT ~~amount for two obligations over the five succeeding years are as follows:~~REPORTING

Year
2010	$	4,040,896
2011		268,209
2012		290,021
2013		313,606
2014		436,597
	$	5,349,329

Accounting Standards Codification 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.

~~NOTE~~During 15the ~~– SHIPPING~~preparation ~~AND~~of ~~HANDLING FEES~~our ~~AND~~2010 ~~COSTS~~financial statements, 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 operations. The Company now has four reportable segments: (1) Ceiling Fans & Lightings (2) Industrial Fans and Gas grills (3) Other trading, and (4) Corporate Overhead.

The Company does not charge its customers for shipping and handling. The Company classifies shipping and handling costs as part of the Cost of sales, and these were $538,374 and $510,495 for the year ended 2009 and 2008, respectively.

NOTE 16 – 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 the adequacy of its recorded warranty liability annually and adjusts the amount as necessary. As of December 31, 2009 the Company was not aware of any material warranty claims. As an original equipment manufacturer (“OEM”), the Company does not usually have an obligation for warranty liability.

NOTE 17– INCOME TAXES

The Company is subject to the Income Tax Laws of PRC. All of the tax provisions for the year ended December 31, 2009 and 2008 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 operating units are subject to this tax.

F-18

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

HOME SYSTEM GROUP AND SUBSIDIARIES,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~DECEMBER~~ December 31, ~~2009~~ 2011 and 2010

~~The Company~~Segment isResults ~~incorporated~~as inof ~~the U.S.~~ and ~~is subject to U.S. tax law. No provisions~~ for ~~U.S. income taxes have been made as~~ the ~~Company~~Years ~~has~~Ended noDecember ~~taxable income~~31, ~~for~~2011 ~~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.~~2010

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%.

		Ceiling Fans & Lightings				Industrial Fans & Gas Grills				Other Trading				Corporate Overhead				Total
		For the years ended				For the years ended				For the years ended				For the years ended				For the years ended
		12/31/11		12/31/10		12/31/11		12/31/10		12/31/11		12/31/10		12/31/11		12/31/10		12/31/11		12/31/10
Net sales	$	59,624,166	$	55,696,822	$	32,473,702	$	44,788,075	$	2,030,215	$	4,011,111	$	-	$	-	$	94,128,083	$	104,496,008
Depreciation and amortization	$	602,090	$	776,344	$	727,656	$	806,439	$	94	$	225	$	-	$	-	$	1,329,840	$	1,583,008
Segment income (loss) from operations	$	1,781,335	$	9,512,444	$	577,204	$	5,724,880	$	14,626	$	(546,186)	$	(2,465)	$	(664,821)	$	2,370,700	$	14,026,317
Total assets	$	104,063,443	$	75,950,183		35,239,492	$	31,119,973		137,829	$	133,024	$	2	$	2,467		139,440,766	$	107,205,647
Capital expenditures	$	891,663	$	875,731	$	109,071	$	14,672	$	-	$	-	$	-	$	-	$	1,000,734	$	890,403

For the fiscal years ended December 31, 2009 and December 31, 2008, the benefit that the Company received from this Tax Holiday was $535,582 and $656,164, respectively.

Due to the uncertainty surrounding the realization of the favorable U.S. tax attributes in future tax returns, we continue to record a full

valuation allowance against our otherwise recognizable U.S. net deferred tax assets as of December 31, 2009 and December 31, 2008.

The Company is present in more than one taxable jurisdiction at a time. The management evaluates the tax positions and establish liabilities for uncertain tax positions that may be challenged by local tax authorities and may not be fully sustained, despite the believe that the underlying tax positions are fully supportable. At December 31, 2009, the Company is unable to make a reasonable estimate of the range of impact on unsustainable positions. Accordingly no estimated provision for estimate liability has been made at December 31, 2009.

The income taxes provided represents the following:

	2009		2008
PRC Enterprise Income Tax
Current	$	2,977,716		720,756
Deferred tax provision		-		-
Income tax expense	$	2,977,716		720,756

The effective income tax expenses differ from that computed by applying the PRC statutory income tax rate of 25% as follows:

	2009		2008
Provision for Income taxes at the Statutory income tax rate – 25% in 2009 and 25% in 2008	$	3,075,937	$	1,197,105
Tax holiday		(535,582)		(656,164	)
Income not subject to tax		-		(44,333	)
Effect of losses from the subsidiaries not being utilized		105,939		224,148
Effect of amortization of deferred financing cost not being utilized		331,422		-
Income tax expense	$	2,977,716	$	720,756

F-19

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

~~NOTES~~NOTE ~~TO CONSOLIDATED~~16– ~~FINANCIAL~~CONCENTRATIONS, ~~STATEMENTS~~RISK AND UNCERTAINTIES

~~DECEMBER 31~~The Company has the following revenue concentrations, ~~2009~~ reflected as a percentage of the Company’s total revenue, with customers constituting greater than 10% of the Company’s sales:

NOTE 18 – SEGMENT REPORTING

	Year ended December 31,
	2011			2010
Zhongshan City HengBao Trading Co., Ltd.		35	%		50	%
WaiYi (HK) Limited		53	%		30	%

~~Accounting Standards~~The ~~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~~has ~~organizes segments within~~ the ~~Company~~following ~~for~~concentration ~~making~~of ~~operating~~accounts ~~decisions and assessing performance. Reportable segments can be based on products and services~~receivable, ~~geography,~~as ~~legal structure, management structure, or any other manner in which management disaggregates~~ a ~~company.~~percentage ~~Reportable segments are components~~ of anits ~~enterprise about~~total ~~which~~accounts ~~separate~~receivable ~~financial~~before ~~information is available~~allowances, ~~that~~constituting isgreater ~~evaluated regularly~~than by10% of the ~~chief operating decision-maker in deciding how to allocate resources and in assessing performance. The~~ Company’s ~~chief~~accounts ~~executive officer~~receivable: 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.

The Company has four reportable segments: (1) Barbeque sets, (2) Skateboards, (3) Other home appliances, and (4) Unallocated Corporate Expenses based on the above criteria. Overhead items that are specifically identifiable to a particular segment are applied to such a segment.

	As of December 31,
	2011			2010
Zhongshan City HengBao Trading Co., Ltd.		55	%		63	%
WaiYi (HK) Limited		27	%		16	%

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:

	Year ended December 31,
	2011			2010
Zhongshan City PL Electric Co., Ltd		11	%		16	%
Zhongshan Xiaolan Town Jingyi Brass Co., Ltd		4	%		13	%
Hubei Xin Cheng Industry & Trade Company Limited		13	%		-

The Company has the following concentration of accounts payable, as a percentage of its total accounts payable, constituting greater than 10% of the Company’s accounts payable:

	Year ended December 31,
	2011		2010
WaiYi Ltd. HK		-		11	%

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 of December 31, 2011 in future years as follows:

Year
2012	$	771,839
2013		370,539
2014		11,427
2015		1,904
Total	$	1,155,709

F-20

~~HOME SYSTEM~~Table ~~GROUP~~of Contents

~~NOTES~~Rental ~~TO CONSOLIDATED~~expenses ~~FINANCIAL~~were ~~STATEMENTS~~$974,166 and $959,582 for the years ended December 31, 2011 and 2010, respectively.

~~DECEMBER~~ Two of the Company’s leases are expiring on August 31, ~~2009~~ 2013 and February 28, 2015.

		Barbeque sets		Skateboards		Other home appliances		Corporate		Total
		For the year ended 12/31/09		For the year ended 12/31/09		For the year ended 12/31/09		For the year ended 12/31/09		For the year ended 12/31/09
Net sales	$	14,566,946	$	3,098,987	$	44,162,859	$	-	$	61,828,792
Depreciation and amortization	$	861,209	$	192,787	$	927,677	$	-	$	1,981,673
Segment Income before income taxes *	$	1,145,992	$	563,917	$	8,878,445	$	1,715,394	$	12,303,748
Capital expenditures	$	1,413,826	$	316,494	$	685,898	$	-	$	2,416,218
Segment assets	$	24,950,512	$	4,891,847	$	45,218,256	$	13,388,581	$	88,449,196

NOTE 18—CAPITAL STOCK

* The ~~Corporate~~ ~~segment~~Company ~~income~~is ~~before~~authorized ~~income~~to ~~taxes~~issue ~~includes~~200,000,000 ~~gain~~shares ~~on the transfer~~ of ~~the~~ ~~building~~common ofstock, $0.001 2par value,~~356,327~~ and ~~income~~as onof ~~the~~December ~~reversal~~31, of2011 ~~rent~~and ~~of $ 1~~2010,~~372~~ 67,~~121~~490,166 shares were issued and outstanding.

		Barbeque sets		Skateboards		Other home appliances		Corporate			Total
		For the year ended 12/31/0		For the year ended 12/31/08		For the year ended 12/31/08		For the year ended 12/31/08			For the year ended 12/31/08
Net sales	$	9,150,319	$	8,655,136	$	34,120,749	$	-		$	51,926,204
Depreciation and amortization	$	141,418	$	56,344	$	370,306	$	57,297		$	625,365
Segment Income (loss) before income taxes	$	(1,605,649)	$	744,543	$	6,546,162	$	(896,635	)	$	4,788,421
Capital expenditures	$	204,677	$	-	$	-	$	-		$	204,677
Segment assets	$	8,425,680	$	7,953,810	$	54,630,189	$	30,322,785		$	101,332,464

As stipulated by the Company Law of the PRC, the net income after taxation of the Company can only be distributed as dividends after appropriation has been made for the following:

	•		Making up cumulative prior years’ losses, if any;
	•		Allocations to the “Statutory reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

	•		Allocations to the discretionary surplus reserve, if approved by the stockholders;
	•		The transfer to these reserves must be made before distribution of any dividend to shareholders. The Statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

In accordance with the Chinese Company Law, during 2011 and 2010, the Company allocated $18,148 and $479,729 of income after tax to statutory reserve, respectively.

NOTE 19 – SUBSEQUENT EVENTS

On January 10, 2012, Asia Forever transferred 100% of ownership of Weihe to Oceanic and on January 10, 2012, Holy transferred 100% ownership of Well Profit to Oceanic. As a consequence of these transfers, Asia Forever and Holy have no operating activities, and Weihe and Well Profit became wholly-owned subsidiaries of Oceanic. Since the Company owned Asia Forever, Holy and Oceanic, the ownership of Weihe and Well Profit were under common control, as a result, the merger of Weihe and Well Profit into Oceanic will be accounted for as a transaction among entities under common control, whereby Oceanic will recognize Weihe’s and Well Profit’s assets and liabilities as being transferred at their carrying amounts.

On February 16, 2012, the Board of Directors of the Company approved the merger of Well Profit with and into Weihe, whereby Weihe will be the continuing entity. Since Oceanic owned both Weihe and Well Profit, the merger of Well Profit into Weihe will be accounted for as a transaction between entities under common control, whereby Weihe will recognize Well Profit’s assets and liabilities as being transferred at their carrying amounts. The Company is currently in the process of completing the merger and expects it can be completed by June, 2013.

On July 6, 2012, the Company entered into a payment agreement with one of its major distributors (Hengbao), in which Hengbao agreed to remit to the Company of RMB 92,758,287 (approximately $14,700,000), which pertained to past due receivables, to the Company in installments through June, 2013 (See Note 3). As of October 31, 2012, we received RMB 25,615,393 (approximately $4,000,000) from Hengbao pertaining to the payment agreement.

F-21

HOME SYSTEM GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE 19 – STOCK OPTIONS

The following table summarizes all Company stock option transactions between January 1, 2008 and December 31, 2009

	Share options under option plan
Balance, January 1, 2008		100,000
Cancelled on termination of services		(66,667	)
Balance, December 31, 2008 and December 31, 2009		33,333

The remaining options are fully vested with an exercise price of $6.00 and a remaining term of 7.5 years.

NOTE 20– CONCENTRATIONS, RISK AND UNCERTAINTIES

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

	2009	2008
Zhongshan City Heng Bao Trading Co., Ltd	62%	70%
WaiYi (HK) Limited	32%	21%

The Company has the following concentrations of accounts receivable constituting greater than 10% of the Company’s accounts receivable as of year end:

	2009	2008
Zhongshan City Heng Bao Trading Co., Ltd	70%	65%
WaiYi (HK) Limited	23%	34%

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

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

	2009	2008
Zhongshan City Oceanic International Company Limited	13%	13%
Hubei Xin Cheng Industry & Trade Company Limited	11%	13%

F-22

HOME SYSTEM GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

NOTE 21 – COMMITMENTS AND CONTINGENCIES

Operating Leases

Year
2010	$	769,124
2011		769,124
2012		666,849
2013		360,027
2014		60,005
	$	2,625,129

Rental expenses were $765,514 and $683,943 for the years ended December 31, 2009 and 2008, respectively.

NOTE 22 - GAIN ON THE TRANSFER OF ASSET

In August 2009, the Company transferred certain building assets and land use rights to the former shareholders of Asia Forever in accordance with the Supplemental Agreement discussed in Note 13. These assets were valued at the time of the transfer at $6,087,312, and the Notes due were reduced in value by this amount. The gain resulting from this transfer of the building assets and land use right is $2,356,327 after business and land appreciation taxes of $405,660. Concurrent with this transfer, the Company and former shareholders entered into a lease agreement, which has a term that expires on June 30, 2012, with a renewal option, under which the Company continues to utilize these production facilities.

F-23

HOME SYSTEM GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

Note 23 – INCOME ON REVERSAL OF RENT

On December 8, 2009, the Company recorded the reversal of a rent accrual in the amount of $1,372,121 pertaining our landlord Oceanic International (Zhongshan) Company Limited for the period from April, 2007 to December, 2008 due to the government stimulus payment received by Oceanic International (Zhongshan) Company Limited.

NOTE 24 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through March 19, 2010, and has determined that there were no subsequent events to recognize or disclose in these financial statements.

F-24

Filing Compare · Home System Group