UNITED STATES SECURITIES AND EXCHANGE
COMMISSIONWashington, D.C. 20549

FORM 10-K/A(Amendment No.1)

Q

£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
      TownZhongshan City, Guangdong People's Republic of China,
      528447
|(Address of Principal Executive Offices)                                                                                      
|                                                                                                                              
|+86-755-83570142                                                                                                              
|(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 £

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 definition for 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 12,617,499 shares of voting and
non-voting common equity stock held by non-affiliates of the registrant was
$56,526,411 million as of June 29, 2007, the last business day of registrants
most recently completed second fiscal quarter, based on the last sale price of
the registrants common stock on such date of $4.48 per share, as reported by
QuoteMedia, Inc.

There were a total of 62,477,949 shares of the
registrants common stock outstanding as of March 28, 2008.

Documents Incorporated by Reference:None

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HOME SYSTEM GROUPFORM 10-KFor the Fiscal
Year Ended December 31, 2007

|Number                                     |                                                                                                                    | Page
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | ----
|                                           |                                                                                                                    |     
|PART I                                     |                                                                                                                    |     
|                                           |                                                                                                                    |     
|Item 1.                                    | Business                                                                                                           |     
|                                           |                                                                                                                    |     
|Item 1A.                                   | Risk Factors                                                                                                       |     
|                                           |                                                                                                                    |     
|Item 2.                                    | Properties                                                                                                         |     
|                                           |                                                                                                                    |     
|Item 3.                                    | Legal Proceedings                                                                                                  |     
|                                           |                                                                                                                    |     
|Item 4.                                    | Submission of Matters to a Vote of Security Holders                                                                |     
|                                           |                                                                                                                    |     
|PART II                                    |                                                                                                                    |     
|                                           |                                                                                                                    |     
|Item 5.                                    | Market for registrants Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities |     
|                                           |                                                                                                                    |     
|Item 6.                                    | Selected Financial Data                                                                                            |     
|                                           |                                                                                                                    |     
|Item 7.                                    | Managements Discussion and Analysis of Financial
      Condition and Results of Operation                         |     
|                                           |                                                                                                                    |     
|Item 8.                                    | Financial Statements and Supplementary Data                                                                        |     
|                                           |                                                                                                                    |     
|Item 9.                                    | Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure                         |     
|                                           |                                                                                                                    |     
|Item 9A.                                   | Controls and Procedures                                                                                            |     
|                                           |                                                                                                                    |     
|Item 9B.                                   | Other Information                                                                                                  |     
|                                           |                                                                                                                    |     
|PART III                                   |                                                                                                                    |     
|                                           |                                                                                                                    |     
|Item 10.                                   | Directors, Executive Officers and Corporate
Governance                                                             |     
|                                           |                                                                                                                    |     
|Item 11.                                   | Executive Compensation                                                                                             |     
|                                           |                                                                                                                    |     
|Item 12.                                   | Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters               |     
|                                           |                                                                                                                    |     
|Item 13.                                   | Certain Relationships and Related Transactions                                                                     |     
|                                           |                                                                                                                    |     
|Item 14.                                   | Principal Accountant Fees and Services                                                                             |     
|                                           |                                                                                                                    |     
|PART IV                                    |                                                                                                                    |     
|                                           |                                                                                                                    |     
|Item 15.                                   | Exhibits and Financial Statement Schedules                                                                         |     
|                                           |                                                                                                                    |     
|Index to Consolidated Financial Statements |                                                                                                                    | F-1 

2

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EXPLANATORY NOTES

This Form 10KSB/A is being filed to amend the Home
System Group ( the "Company") Annual Report on Form 10-KSB/A for the period
ended December 31, 2007 in order to reflect the restatement to respond the SEC
comments. We have included the prior auditor report of the financial statements
of the accounting acquirer, Holly (KH) Limited for the fiscal year ended
December 31, 2006 and disclosed the nature of the acquisition deposits and all
other pertinent information with respect to the acquisition deposits. In
accordance with SFAS 141 and following the accounting interpretation and
guidance issued by the SEC staff on reverse acquisition, we have accounted for
the merger with Holy and its wholly-owned subsidiary using the purchase method
of accounting. We also disclose the calculation of the cost of the acquisition
of HSG; present a condensed balance sheet disclosing the amount assigned to each
major asset and liability caption of HSG at the acquisition date; disclose the
pro forma financial information required by paragraph 54 of SFAS 141; and
disclose the information required by paragraph 52 about the information of
intangible asset and good will.

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements.
 The forward-looking statements are contained principally in the section
entitled Managements Discussion and Analysis or Plan of Operation. 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 section captioned
Risk Factors Associated With Our Business in our Annual Report on Form 10-K
for the year ended December 31, 2007.  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:

- our expectations regarding the market for small
  household appliances;
- \our expectations regarding the continued growth of
  the small household appliance industry;
- 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, forward-looking statements 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.

3

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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, 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 HSGI; Holy (HK) Limited, a Hong Kong
  holding company, or Holy HK; Oceanic International (Hong Kong), Ltd., a Hong
  Kong company, or OCIL; and Oceanic Well Profit, Inc., a Chinese operating
  company, or Well Profit.
- Oceanic PRC are to Zhongshang Oceanic International Co. Ltd., a
  Chinese operating company;
- 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 Untied 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.

PART I

ITEM 1. OUR BUSINESS

Overview

Home System Group is a Nevada holding company whose China-based operating
subsidiaries, OCIL and Well Profit, are primarily engaged in the production of a
variety of small household appliances, including stainless steel gas grills and
ovens, gas and electric heaters and residential water pumps.  Our products
are sold through distributors to retailers in the United States, Europe,
Australia and China.

Our products are primarily manufacturedin
Well Profits facilities which are located on over 82.5 acres of land in Oceanic
Industry Park, Sha Gang Highway, Gang Kou Town, Zhongshan, Guangdong Province,
China.  Well Profit currently has five (5) assembly lines of stainless
steel BBQ grills with a total annual production capacity of approximately
710,000 units of BBQ grills, and two (2) skateboard production lines with a
total annual production capacity of approximately 100,000 units.  Our
current annual production output is approximately 220,000 BBQ grills, 100,000
sets of shelves, and 20 million pump units.

Our sales revenue and net income was $41,156,857.25
and $41,156,857.25, respectively, during the fiscal year ended December 31,
2007, and $3,938,562 and $118,249, respectively, during the same period in 2006.
 During the fiscal year ended December 31, 2007, our sales revenue
generated from sales of our grills and ovens was $31,257,801.05 million,
constituting 76% of our sales revenue.

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Our Corporate History

We were organized February 9, 2000, under the laws of
the State of Nevada with the name of Coronation Acquisition Corp. (the
Company). In March 31, 2003, the Company entered into an Agreement and Plan of
Exchange and Reorganization with Supreme Property, Inc, an Illinois corporation,
and began to operate under the name of Supreme Realty Investment, Inc.
(Supreme). On August 4, 2006, Supreme acquired Home System Group, Inc.
(HSGI) and its wholly owned operating subsidiary, Oceanic International (HK)
Limited (Oceanic or OCIL), a company organized under the law of Hong Kong.
On September 28, 2006, we filed a certificate of amendment to our articles of
incorporation with the Nevada Secretary of State to Change our name from
Supreme Realty Investment, Inc. to Home System Group.  Through Oceanic,
the Company distributes home appliance products such as grills, home use water
pumps, blenders, electric fans, heaters, laser printers and other electronic
products.

On April 11, 2006, Supreme entered into a stock
purchase agreement (the Stock Purchase Agreement) with Thomas Elliot, Jean
LeRoy, Jimmy Harvey and Zujun Xu. Pursuant to the terms and conditions of the
Stock Purchase Agreement, Zujun Xu acquired from Thomas Elliot, Jean LeRoy, and
Jimmy Harvey approximately 70.6% of the issued and outstanding shares of common
stock of Supreme.

Private Placement
Transaction

On May 4, 2006, we entered into a private placement
transaction, pursuant to which we issued and sold 55,000,000 shares of our
common stock to certain accredited investors for approximately $1 million in
gross proceeds. As a result of the private placement transaction, the investors
became the controlling shareholders of the Company and, immediately following
the closing of the private placement, (1) Zujun Xu, was appointed to the
Board of Directors and (2) Thomas Elliot tendered an undated resignation
from the Board of Directors, with the understanding that such resignation would
be accepted at a future date, to be determined by Zujun Xu, after the closing of
the Transaction.

On July 26, 2006 we filed a certificate of amendment
to our incorporation with the Nevada Secretary of State to affect a one (1) for
ten (10) reverse stock split.

Reverse Merger Transaction

On August 4, 2006, we completed a reverse acquisition
transaction through a share exchange with HSGI, whereby we issued to the
shareholders of HSGI, 8,000,000 shares of our common stock, in exchange for all
of the issued and outstanding capital stock of HSGI. HSGI thereby became our
wholly owned subsidiary and HSGIs subsidiary, OCIL, became our indirect
subsidiary.  As a result of the merger, on August 16, 2006, Zujun Xu
resigned from all corporate offices and as a Director of the Company and on
August 17, 2006, Mr. Weiqiu Li was appointed Chief Executive Officer, Mr. Kinwai
Cheung was appointed Chief Financial Officer and Ms. Liu Jing was appointed
Secretary. On same day, the Board of Directors appointed Weiqiu Li and Kinwai
Cheung to serve as a member of the Board of Directors of the Company, with
Weiqiu Li serving as Chairman of the Board of Directors.

HSGI was incorporated as a holding company with
limited liability in the British Virgin Islands on February 28, 2003.  OCIL
is a company that has been organized under the laws of Hong Kong since June 23,
2004. OCIL is a distributor of home appliance products, such as grills, home use
water pumps, blenders, electric fans, heaters, laser printers, and other
electronics and environmental protection products. Following the merger, we
filed a certificate of amendment to our articles of incorporation with the
Nevada Secretary of State on September 28, 2006, to change our name from
Supreme Realty Investment, Inc. to Home System Group.

5

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Recent Developments

Acquisition of Holy HK and Well
Profit

On January 31, 2007, we acquired Holy HK, a Hong Kong
holding company, and its wholly-owned subsidiary, Well Profit, pursuant to a
share exchange agreement, dated December 11, 2006, among the Company, Holy HK,
Well Profit and Mr. Kaming Yu, Holy HKs sole shareholder at the time.
 Under the terms of the share exchange agreement, we issued 42,500,000
shares of our common stock  and paid $3,000,000 in cash to Mr. Yu, in
exchange for all the issued and outstanding shares of Holy HK.  As a result
of the share exchange, Holy HK became our wholly owned subsidiary, Holy HKs PRC
subsidiary, Well Profit, became our indirect subsidiary and Mr. Yu became our
controlling shareholder.

Holy HK was organized under the laws of Hong Kong on
September 26, 2006, for the purpose of being a holding company.Well Profit is located in Zhongshan City, Guangdong Province, China
and specializes in producing domestic electronic appliances. The company has a
total area of 82.5 acres which includes a new 864,000-square-foot production
facility with advanced equipment and a staff of 1,200 people. The company
currently has five production lines which produce 450,000 grills, 3 million
water pumps, and 2 million sets of tools and hardware cabinets
annually.

Fixed Price Standby Equity Distribution
Agreement

On May 23, 2007, we entered into a Fixed Price
Standby Equity Distribution Agreement, or Distribution Agreement, with four
Investors, or the Investors.  Pursuant to the Distribution Agreement, we
were required, at our discretion, to periodically sell to the Investors up to 10
million shares of our common stock for a total purchase price of up to $40
million (a per share purchase price of $4.00 per share). The Investors
obligation to purchase shares of common stock under the Distribution Agreement
was subject to certain conditions, including our obtaining an effective
registration statement for the resale of the common stock sold under the
Distribution Agreement.  The Investors delivered 16.5% of the purchase
price payable by wire transfer of immediately available funds to an account that
we designated in writing to each investor prior to the closing date of the
transactions.  Also, the Investors delivered to us an executed Promissory
Note for the payment of the remaining 83.75% of the remaining commitment under
this agreement.  However, on February 7, 2008, we entered into a
termination and release agreement with the Investors, pursuant to which we
agreed to void and terminate the Distribution Agreement and release each other
from our respective obligations thereunder because performance of our respective
obligations could not be completed without unreasonable expense or delay.
 Other than our obligation to repay the funds paid by the Investors, no
termination penalties were incurred by us in connection with the termination of
the Distribution Agreement.

Juxian and Weihe Transactions

On April 20, 2007, we entered into a share exchange
agreement, or the Juxian Agreement, with Zhongshan City Juxian Gas Oven Co.,
Ltd., or Juxian, and Juxians shareholders, for the acquisition of 100% of
Juxian for an aggregate purchase price of $14,000,000, $10,000,000 of which was
payable in cash and $4,000,000 of which was payable in 1,000,000 shares of our
common stock valued at $4.00 per share.  The cash portion of the purchase
price was evidenced by non interest-bearing, unsecured promissory notes
delivered by us to each of the Juxian shareholders, pursuant to which one-half
of the cash portion was due and payable on July 2, 2008, the first anniversary
of the closing, and the remaining half was due and payable on July 2, 2009, the
second anniversary of the closing.  On July 5, 2007, we entered into a
share exchange agreement, or the Weihe Agreement, between our Company, Zhongshan
City Weihe Appliances Co. Ltd., or Weihe, and the Weihe shareholders for the
acquisition of 100% of the then outstanding shares of Weihe. In consideration
for the shares of Weihe, we agreed to pay an aggregate price of $45,000,000, to
be paid in a combination of 4,500,000 shares of our common stock, valued at
$4.00 per share and $27,000,000 in cash.  The obligation to pay the cash
portion of the purchase price was evidenced by non-interest-bearing, unsecured
promissory notes delivered by us to each of the Weihe shareholders at the
closing. Pursuant to the promissory notes, 40% of the cash portion of the
purchase price was due and payable on July 5, 2008, the first anniversary of the
closing, and the remaining 60% was due and payable on July 5, 2009, the second
anniversary of the closing.   However, on February 7, 2008, we entered
into two separate termination and release agreements with each of Juxian and
Weihe and their respective shareholders, pursuant to which we agreed to void and
terminate each of the Juxian Agreement and the Weihe Agreement and release each
other from our respective obligations under each of the agreements because
performance of our respective obligations under the agreements could not be
completed without unreasonable expense or delay.  No termination penalties
were incurred by our Company in connection with the termination of the Juxian
Agreement and the Weihe Agreement.

6

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Acquisition of Coffee Pot Production
Line

On June 15, 2007, Well Profit, our wholly owned
subsidiary, entered into a definitive asset purchase agreement with Ms. Huiping
Cheng, an individual, pursuant to which Well Profit acquired from Ms. Cheng
certain stainless steel coffee pot production equipment, together with all
related materials and patent technology owned by Ms. Cheng. The purchased assets
include a technology patent which will strengthen our research and development
platform and a production line which will be incorporated into our current
facility.  Our coffee pot production line has been operational since
August, 2007. We have submitted our application to the Zhongshan
Municipal Administration for Industry and Commerce to expand the scope of our
business permit to allow the addition of this new product line to our authorized
business activities.

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



7

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Our Industry

The global small household appliance market is served
by a large number of companies that are widely distributed geographically.
 The manufacturing arm of the industry is comprised of establishments
primarily engaged in manufacturing either small electrical appliances or major
appliances.  Subsectors in these categories are electric housewares and
household fans, household vacuum cleaners, household cooking appliances,
household refrigerators and freezers, household laundry equipment, and other
major household appliances.  Since most of the appliances now being
produced have changed little in recent decades, there is often relatively little
to differentiate one manufacturers products from anothers. The result has been
intense price competition, as consumers have tended to consider appliances more
like commodities.

A recent study by IMS Research concluded that around
405 million small kitchen appliances, garment care appliances and floor care
appliances were shipped worldwide in 2005, worth more than $16.7 billion. The
market is forecast to reach 457 million units in 2010, with corresponding
revenue forecast at $18.4 billion. Asia Pacific is forecast to be the major
driver of growth. Within Asia Pacific, China is the market with the greatest
potential, due to its huge household population and rising income levels.
 While total retail market sales of appliances in the United States in
recent years have been aided by an expanding economy, a high rate of housing
construction, and low interest rates, increasing imports continue to capture a
greater share of the market at the expense of domestic production.
 According tochinasourcingreports.com, China's exports of small
household appliances worldwide are forecast to exceed US$4 billion in 2005, a
year-on-year increase of about 30%.

The following chart shows Chinas export statistics
by origin, with Guangdong province, where Well Profit is located, showing the
largest market share.

[ga001.jpg]

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Chinas small household appliance output has been
growing at a rapid pace since 2005.  With the improvement in urban quality
of life in China and the gradual change in living environment and lifestyle, the
acquisition of small household appliances that are practical and convenient has
become more desirable to the Chinese consumer.  Market researchers believe
that over the next ten years, 33% of the Chinese population will be moving into
new homes, which means more than 26 million household appliances will be
purchased each year.   Due to the availability of low-cost production
and improving innovations, Chinese domestic enterprises, such as Home System
Group, have won consumer recognition of their brands and are in a position to
capture higher market shares, both at home and abroad.

Business Strategy

Our objective is to increase profitability, cash flow
and revenue while developing and enhancing our position as a leading
manufacturer, marketer and distributor of branded consumer products used in and
around the home.  Our strategy for achieving these objectives includes the
following key elements:

Further Penetrate Existing Distribution
Channels.We seek to further penetrate existing
distribution channels to drive organic growth by leveraging our strong existing
customer relationships and attracting new customers. We intend to further
penetrate existing customers by continuing to:

- provide quality products;
- fulfill logistical requirements and volume demands
  efficiently and consistently;
- provide comprehensive product support from design
  to after-market customer service;
- cross-sell our brands across various business
  segments to our customers; and
- leverage strong established distribution
  channels.

Introduce New Products.To
drive organic growth from our existing businesses, we intend to continue to
leverage our customer relationships to develop or acquire new products and
product extensions in each of our major product categories.  For example in
June 2007, we expanded our product mix by acquiring patent technology and
equipment to launch our new stainless steel coffee pot production
line.

Further Expand Internationally.Our distributors sold almost all of our products in international
markets. We intend to expand our international sales primarily by leveraging
these distribution channel opportunities across product lines and by pursuing
strategic cross-selling or co-branding in our foreign businesses with
established complementary distribution channels.  We believe our
distribution network will continue to assist us in placing more products into
foreign channels and increase the rate at which our products assimilate
themselves into homes in the North American, European and Australian
markets.

Pursue Strategic Acquisitions.We anticipate that the fragmented nature of the consumer products market
will continue to provide opportunities for growth through strategic acquisitions
of complementary businesses. Our acquisition strategy will continue to focus on
businesses or brands with product offerings that provide expansion into related
categories and can be marketed through our existing distribution channels or
provide us with new distribution channels for our existing products, thereby
increasing marketing and distribution efficiencies. Furthermore, we seek
acquisition candidates that demonstrate a combination of attractive margins,
strong cash flow characteristics, category leading positions and products that
generate recurring revenue.  We anticipate that future acquisitions will be
financed through a combination of cash on hand, operating cash flow,
availability under our existing credit facilities and new capital market
offerings.

9

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Our Products

We are primarily engaged in the production and
distribution of a variety of small household appliances, including stainless
steel gas grills and ovens, residential water pumps and heaters and coffee pots
to PRC distributors, who channel them to retailers based in China, the United
States, Europe and Australia.  We also produce industrial racks and
skateboards on a smaller scale.

Our BBQ grills are made of stainless steel and use
either natural gas or coal as fuel.  Our stainless steel grills are sold to
distributors who sell them mainly to retailers in the United States (where
according to lanmayi.net, approximately 85% of households own a barbecue grill).
We use advanced technology to design the burners in order to have safe
combustion and save gas.  Our grills are stylish, elegant and are
convenient to use.  For the fiscal years ended December 31, 2006 and 2007,
94% and 76% of our sales revenue, respectively, came from this product.Revenue from our industrial racks were $1,638,219 and $212,264, for
the fiscal years ended December 2006 and 2007, respectively.

We started our new skateboard production and coffee
pot production lines during 2007.  As a result, revenue from the sale of
our skateboard products was $0 and $10,427,732 for the fiscal years ended
December 2006 and 2007 respectively, and revenue from the sale of our coffee pot
products was $0 and  $79,044, respectively.

Manufacturing

Our products are manufactured in a combined 864,000
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 sets of imported and domestic advanced
production and testing equipment, including the more advanced electrostatic
spraying production line and the semi-automatic routine assembly line.  We
currently operate five barbeque production lines, with a total annual production
capacity of approximately 450,000 such units, and two skateboard production
lines, with a total annual production capacity of approximately 1,200,000 to
1,500,000 such units.  Our manufacturing facilities operate at peak
efficiency while maintaining high workplace safety and environmental compliance
standards.   The utilization rates of our barbeque production lines in
2006 and 2007 were approximately 90% and 80%, respectively.

On June 15, 2007, we acquired our the stainless steel
coffee production equipment and patent technology for our new coffee pot
production line, which has been integrated into our current production
facilities and has been operational since August, 2007. Our current business
permit does not include the production of coffee pot equipment under our
authorized business activities so we have submitted our application to the
Administration for Industry and Commerce to expand the scope of our business
permit to allow the addition of this new product line to our authorized business
activities.

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 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.  A manufacturer of a UL certified product
must demonstrate compliance with the appropriate safety requirements, many of
which are developed by UL and demonstrate that it has a program in place to
ensure that each copy of the product complies with the appropriate requirements.
If a product design is modified, a representative example may need to be
retested before a UL Mark can be attached to the new product or its packaging.
 The CE marking is a mandatory European marking for certain product groups
to indicate conformity with the essential health and safety requirements set out
in European Directives.  To permit the use of a CE mark on a product, proof
that the item meets the relevant requirements must be documented.
 Sometimes this is achieved using an independent testing organization which
evaluates the product and its documentation.  Often it is achieved by a
company-internal self-certification process.  In either case, the
responsible organization (manufacturer, representative, importer) has to issue
an EC-Declaration of Conformity (EC-DoC) indicating its identity,
the list of European Directives he declares compliance with, a list of standards
the product complies with, and a legally binding signature on behalf of the
organization.  All our products are UL or CE certified.

10

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Our Suppliers of Raw Materials

The primary raw materials used in our products are
iron, zinc, stainless steel, metal and glass.  The prices of these raw
materials are determined based upon prevailing market conditions, supply and
demand.  Supply and demand for these raw materials is generally affected by
market price fluctuations.  Our primary suppliers, Oceanic PRC and Yingyuan
Ltd., account for 22% and 18%, respectively, of our raw material
expense.

The costs of our primary our raw materials during
fiscal years 2007 and  2006 are as follows:

2007
    2006Iron
    $4,180,303
    --Stainless
    Steel
    $3,513,167
    $2,436,741Metal
    $6,091,893
    $2,150,054Glass
    $12,028,315
    --TOTAL
    $ 25,813,678
    $4,587,795


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 and favorable quality control capabilities.

Well Profits main suppliers in 2007 are Jinou
Kitchenware Co. Ltd., Gangwen Metal Products Co. Ltd, Bozheng Packaging Products
Co. Ltd, Guanglong Industrial Electronics Co. Ltd, Jinjiale Metal Products Co.
Ltd. and Zhongshan Oceanic International Co. Ltd.  During 2007 and 2006,
Well Profit purchased 91% and 76% of its products from Zhongshan Oceanic
International Co. Ltd and Ningbo Jinou Kitchenware Co. Ltd suppliers and
Zhongshan Baoying Electronics Co. Ltd suppliers, respectively.

We typically purchase raw materials from our
suppliers on credit, with terms requiring payment within 90 - 180 days following
the delivery of the raw materials. When we purchase raw materials from PRC
suppliers, we are able to pay in Renminbi.  When we purchase raw materials
from foreign suppliers, we usually pay in U.S. dollars.  Our accounts
payable above six months accounted for none of our total account payables in
both 2006 and 2007.

Our Major Customers

We sell 96% of our products to three customers: Zhongshan City Hengbao
Export and Import Co., Ltd. and Import Co., Ltd., or Hengbao, Rich Empire
International Co., Ltd., or Rich Empire, and Baochang Long Export and Import
Co., Ltd., or Baochang, who distribute our products to retailers in China, the
United States, Europe and Australia   These customers accounted for
approximately 69%, 22% and 5% of our total sales revenue in 2007, respectively.
 Our distributors export an increasing amount of our products to the
international market in a bid to further enhance our brand and build our
reputation as a provider of high quality household appliances.

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The following table shows our top customers in 2007,
ranked in order of percentage of revenues.

Rank
    Clients
      Name
    %
    Revenue1
    Zhongshan City Hengbao Export and Import Co., Ltd.
    69%2
    Rich Empire
      International Co., Ltd.
    22%3
    Baochang Long Export and Import Co., Ltd.
    5%Total Sales (US
      $)
    
    96%


During the fiscal years ended December 31, 2007 and
2006, Hengbao, Rich Empire and Baochang accounted for 69%, 22% and 5% of our
total sales revenue for grills, ovens and heaters, respectively.  No other
customers accounted for more than 10% of our sales revenue in 2007.
  We gained some new customers in 2007 but they only accounted for 4%
of our sales in the aggregate.  Hengbao is indirectly owned by Oceanic PRC,
which until March 2007, was indirectly owned and controlled by Mr. Weiqiu Li,
our director and Chief Executive Officer.

Sales, Marketing and Distribution

Our marketing department promotes our products mainly
through our distribution networks, trade fairs, import and export companies, and
print advertising.  In addition, we train and develop a strong sales force
among our own employees by means of various vocational skills training and
qualification examinations.  We have 34 employees in our marketing
department. We do not use outside sales representatives.

We sell all our products to distributors who sell
them to retailers, including mass merchandisers, department stores, home
improvement stores, warehouse clubs, drug store chains, catalog stores and
discount and variety stores in the United States, Europe and Australia.
 Our policy is to maintain an inventory base to service the rapid delivery
requirements of our distributors. Because of manufacturing lead times and our
seasonal sales, it is necessary that we purchase materials and thereby increase
inventories based on anticipated sales and forecasts provided by our
distributors and our sales personnel.  In addition, since the acquisition
of Well Profit in early 2007, we now possess a large production base for our
grills, which will assist us in boosting inventory for such items by
internalizing some of the phases of production for this product.

Our Research and Development
Efforts

We spent approximately, $23,542 and $0 on
Company-sponsored research and developmentactivities in fiscal years
2007 and 2006, respectively. Research and development activities, though a
priority for the future, did not occur during fiscal year 2006 because Well
Profit was acquired less than a year ago and OCIL focuses on distribution, not
production. The expenses on research and development include salary, cost of
materials, depreciation and amortization, utilities and other expenses.  In
addition, we have not spent any money on customer-sponsored research and
development activities.

We believe that the development of new products and
new technology is critical to our success. We are continuously working to
improve the quality, efficiency and cost-effectiveness of our existing products
and develop technology to expand the range of specifications of our products.
 For fiscal year 2008 we have not yet allocated any funds for our research
and development efforts.

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Competition

Our Competitors

The small electric household and appliance industry
does not have onerous entry barriers.  As a result, we compete with many
small manufacturers and distributors of household products.  Additional
competitors may also enter this market and cause competition to intensify.
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 and distributors, some of which have substantially
greater financial and other resources than we currently have.  We believe
that our primary competitors in the production of household appliance are
Taishan City Guangrong Metal Products Co. Ltd. and Yangjiang City Xinli
Industrial Co. Ltd.

The following table ranks our output with the output
of these competitors:

Ranking
    Manufacturer
    Annual Production
    Product Structure1
    Taishan City Guangrong
    1.2 million units
    High, Mid, Low level2
    Yangjiang City Xinli
    0.8 million units
    Mid, Low level3
    Well Profit
    0.45 million units
    High, Mid
level


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

We plan to broaden our product offerings by acquiring
new companies and product lines that are complimentary 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 with
  superior efficiencies, low cost and high quality.  We organize the
  production runs in many of 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 to allow a continuous flow of parts with minimal set up time.
  Our efficient and automated manufacturing operations enable us to provide
  products that are ready for retail distribution with minimal labor costs.
   We also utilize an efficient outsourced manufacturing network of
  suppliers for certain of our products. Many of these relationships are
  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 price points competitive.  We continuously
  implement cost-saving initiatives that have rationalized certain operating and
  manufacturing facilities for products, as well as increased outsourcing of
  certain of our products where it is most cost effective.
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- Proven, Incentivized, and Effective Management
  Team.Our management team has a proven track record of
  successful management and has great experience in international trade and
  management. Our executive corporate management team is led by Weiqiu Li, our
  Chairman and Chief Executive Officer and  Kinwai Cheung, our Chief
  Financial Officer. Our management team has about 10 years of experience
  combined in the manufacturing and marketing of consumer household products.
   Our primary operating segments are led by executives with extensive
  experience in the consumer products markets.
- Established Distributor Relationships with Major
  Retailers.Our distributors are trusted suppliers and
  have attracted large US retailers with our high quality products.  As a
  result, they have now become the main product supplier of some well-known
  international manufacturers and retailers such as Nexgrill Industries, Inc.,
  Whalen Storage, Lightdecor, Costco Wholesale Corporation, Street-Surfing,Wal-Mart Stores, Inc., The Home Depot, Inc., Lowes Companies, Inc.,
  Target Corporation and Leroy Merlin.  Due to our close relationship with
  our distributors, we expect our arrangements with our distributors to continue
  indefinitely.
- Distinctive Location Advantage. Our Chinese subsidiary is located in Zhongshan, an important
  manufacturing base in China with stable regional policies and a healthy
  economic environment. The Catalog of Industrial Structure Development of
  2006 and 2007issued by the Zhongshan Government provides that non-metal,
  metal processing, appliances manufacturing activities are encouraged
  industries in Zhongshan.

Intellectual Property

We do not yet own any trademarks or patents in
connection with our business.  However, in connection with our purchase of
our coffee pot production equipment in July 2007, we also purchased an automatic
insulation and vacuum system as the base for producing energy-saving insulation
products, such as coffee pots, thermoses and other household insulation
products.  Our application for two state patents in connection with this
technology were submitted to the National Patent Office in August 2007 and is
pending.

Pursuant to a verbal agreement, Oceanic PRC has
allowed us to use its logo as a part of our name, indefinitely.  Ocean PRC
was a company indirectly owned and controlled by our Chairman and CEO, Weiqiu
Li.  However, Mr. Li transferred his ownership interests in this entity to
Ye Shu Zhen in March 2007 and filed the transfer with the Hong Kong registrar of
companies in March 2008.

Environmental Matters

Chinas environmental laws requires 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.  Our
facilities are not subject to 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 accessories and only electricity is needed.  We are not
currently subject to any pending actions alleging any violations of applicable
PRC environmental laws.

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Regulation

Because our operating subsidiaries are located in the
PRC, we are regulated by the national and local laws of the PRC.  We do not
face any significant government regulation 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 also 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.  At the same
time, PRC companies are also required to sell their foreign exchange earnings to
authorized PRC banks and the purchase of foreign currencies for capital account
transactions still requires prior approval of the PRC government.

Under current PRC laws and regulations, 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 in China are required to set aside at least 10% of their after-tax profit
based on PRC accounting standards each year to its general reserves until the
cumulative amount of such reserves 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.

As a manufacturer of consumer products that are
distributed to U.S. consumers, we are also subject to the US Consumer Products
Safety Act, which empowers the Consumer Products Safety Commission to exclude
from the market products that are found to be unsafe or hazardous. Under certain
circumstances, the Consumer Products Safety Commission 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 Consumer Products
Safety Commission

Throughout the world, most federal, state, provincial and local
authorities require safety regulation certification prior to marketing
electrical appliances in those jurisdictions and as a result, our distributors
require that 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.  Laws regulating
certain consumer products also exist in some cities and states, as well as in
other countries in which we sell our products. We believe that we are in
material compliance with all of the laws and regulations applicable to
us.

Our Employees

As of March 28, 2008, we employed 2369 full-time employees.  The
following table sets forth the number of our full-time employees by function as
of December 31, 2007.

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Functions
    As ofDecember 31, 2007Manufacturing and engineering
    2058General and administration
    107Marketing and sales
    38Research and development
    166


As required by applicable PRC law, we have entered
into employment contracts with most of our officers, managers and employees.
 We are working towards entering employment contracts with those 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.

China enacted a new Labor Contract Law, which became
effective on January 1, 2008.  The Company has updated its employment
contracts and employee handbook and is in compliance with the new law.  The
Company will work with the employees and the labor union to insure that the
employees obtain the full benefit of the law.  The Company does not
anticipate that changes in the law will materially impact the Company balance
sheet and cash flows.

Our employees in China participate in a state pension
scheme organized by PRC municipal and provincial governments.  We are
currently required to contribute to the scheme at the rate of 20% of the average
monthly salary.  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.

Insurance

We have third-party insurance for a number of types
of insurance including property insurance on our facilities, automobile
insurance, and staff accident insurance.  We are also self-insured to
specified levels against product liability insurance.

We believe our insurance coverage is customary and
standard of companies of comparable size in comparable industries in China.
 However, we cannot ensure that our existing insurance policies are
sufficient to insulate us from all losses and liabilities that we may incur.
 See Risk FactorsRisks Related to our Business.  We have limited
insurance coverage and do not carry any business interruption insurance,
third-party liability insurance for our manufacturing facilities or insurance
that covers the risk of loss of our products in shipment.

Subsequent Events

On April 20, 2007, we entered into the Juxian
Agreement with Juxian and its shareholders, for the acquisition of 100% of
Juxian for an aggregate purchase price of $14,000,000, $10,000,000 of which was
payable in cash and $4,000,000 of which was payable in 1,000,000 shares of our
common stock valued at $4.00 per share.  The cash portion of the purchase
price was evidenced by non interest-bearing, unsecured promissory notes
delivered by us to each of the Juxian shareholders, pursuant to which one-half
of the cash portion was due and payable on July 2, 2008, the first anniversary
of the closing, and the remaining half was due and payable on July 2, 2009, the
second anniversary of the closing.  On July 5, 2007, we entered into the
Weihe Agreement with Weihe and its shareholders for the acquisition of 100% of
the then outstanding shares of Weihe. In consideration for the shares of Weihe,
we agreed to pay an aggregate price of $45,000,000, to be paid in a combination
of 4,500,000 shares of our common stock, valued at $4.00 per share and
$27,000,000 in cash.  The obligation to pay the cash portion of the
purchase price was evidenced by non-interest-bearing, unsecured promissory notes
delivered by us to each of the Weihe shareholders at the closing.  Pursuant
to the promissory notes, 40% of the cash portion of the purchase price was due
and payable on July 5, 2008, the first anniversary of the closing, and the
remaining 60% was due and payable on July 5, 2009, the second anniversary of the
closing.   However, on February 7, 2008, we entered into two separate
termination and release agreements with each of Juxian and Weihe and their
respective shareholders, pursuant to which we agreed to terminate each of the
Juxian Agreement and the Weihe Agreement and release each other from our
respective obligations under each of the agreements because performance of our
respective obligations under the agreements could not be completed without
unreasonable expense or delay.  No termination penalties were incurred by
our Company in connection with the termination of the Juxian Agreement and the
Weihe Agreement.

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On May 23, 2007, we entered into a subscription
agreement with four investors, pursuant to which they agreed to buy 10 million
shares of our common stock for a purchase price, in the aggregate, of
$40,000,000. Pursuant to the terms of the subscription agreement, the investors
paid approximately 16.25%, or $6,575,000 of the total purchase price, with the
remaining subscription receivable payable pursuant to the terms of a promissory
note delivered to us by the investors.  The notes were payable upon the
earlier to occur of: two years from the date of the note or within five business
days of written notification from us that a registration statement pursuant to
the Securities Act has been filed by us with the SEC, registering the shares of
common stock.  On February 7, 2008, we entered into a termination and
release agreement with the above investors, and all parties have agreed to
return all consideration paid and release all claims relating the subscription
agreement.  There is currently a balance of $6,575,000 owed to the
investors pursuant to the termination agreement.

ITEM 1A.  RISK FACTORS

RISKS RELATED TO OUR BUSINESS

The increasing concentration of our small electric household appliance
sales among a few retailers and the trend toward private-label brands could
negatively affect sales levels or profits.

With the growing trend towards the concentration of our small electric
household appliance sales among a few retailers, our distributors are
increasingly dependent upon fewer customers whose bargaining strength is growing
as a result of concentration.  Through our distributors a substantial
quantity of our products to mass merchandisers, national department stores,
variety store chains, drug store chains, specialty home retailers and other
retail outlets.  These retailers generally purchase a limited selection of
small electric household appliances.  As a result, we compete for retail
shelf space with our competitors.  In addition, certain of our larger
customers are using their own private label brands on household appliances that
compete directly with some of our products.  As the retailers in the small
electric household appliance industry become more concentrated, competition for
sales to these retailers may increase, which could adversely affect our results
of operations.

We are susceptible to a material decrease in business if end-users of our
products decide not to utilize our distributors.

The customers of our distributors might utilize the services of a
different distributor or they might directly import the products themselves from
other manufacturers.  If our distributors were to lose one of their major
customers our revenues will materially decrease.

Our business could be adversely affected by retailer inventory
management.

Changes in retailer inventory management strategies
could make inventory management more difficult for us. As a result of the desire
of retailers to more closely manage inventory levels, there is a growing trend
among retailers to make purchases on a just-in-time basis. This requires us to
shorten our lead time for production in certain cases and more closely
anticipate demand, which could in the future require the carrying of additional
inventories or require us to incur additional expenses to expedite delivery.
 If our end 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 orders placed by our distributors or in
liquidating 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.

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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 from only a few
suppliers whose nonperformance would have a near-term severe impact on our
operations.  During 2007, we purchased 43% of our products from only three
suppliers and during 2006 we purchased 86% of our products from only two
suppliers.  At December 31, 2007 and 2006, amounts due to those suppliers
included in accounts payable were $5,662,584 and $1,665,092, respectively. This
concentration makes the Company vulnerable to a near-term severe impact, should
the relationships be terminated.   Such failure could cause us to
experience delivery delays or failures caused by production issues or could
cause us to deliver of non-conforming products.

We rely on three 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
Hengbao, Rich Empire and Baochang, its exclusive distributors, through an
unwritten commercial arrangement between Well Profit and each of them.
 Hengbao is indirectly owned by Oceanic PRC, which until March 2007, was
indirectly owned and controlled by Mr. Weiqiu Li, our director and Chief
Executive Officer.  During the fiscal year ended December 31, 2007,
Hengbao, Rich Empire and Baochang were responsible for 69%, 22% and 5%,
respectively, of Well Profits sales revenues.  In addition, for the fiscal
years ended December 31, 2007 and 2006, our sales to Hengbao, Rich Empire and
Baochang accounted for $8,772,569, or 97% of our receivables,all of
which remains outstanding as at December 31, 2007, with no stated interest rate
or repayment terms.  Since Well Profit accounted for 71% of our sales
during the fiscal year ended December 31, 2007,its concentration of
sales with Hengbao, Rich Empire and Baochang makes us vulnerable to any changes
in the business environment in which they operate.  Any adverse effects on
their business and operations may adversely affect our business and operations.

The small electric household and appliance
industry is consolidating, which could have a material adverse impact on our
success.

Over the past several years, the small electric
household and appliance industry has undergone substantial consolidation, and
further consolidation is likely.  As a result of this consolidation, the
small electric household and appliance industry could largely consist of a
limited number of large distributors.  To the extent that we do not
continue to be a major participant in the small electric household and appliance
industry, our ability to compete effectively with these larger distributors
could be negatively impacted. As a result, our results of operations could be
materially adversely affected.

Competition may materially adversely affect our
results of operations.

The small electric household and appliance industry
does not have onerous entry barriers.  As a result, we compete with many
small manufacturers and distributors of household products.  Additional
competitors may also enter this market and cause competition to intensify.
 We believe that competition is based upon several factors, including
product design and innovation, quality, price, 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.

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We also compete with established companies, a number
of which have substantially greater facilities, personnel, financial and other
resources than we have.  In addition, we compete with our retail customers,
who use their own private label brands, and with exporters and foreign
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 related to consumer
spending.  Any downturn in the general economy or a shift in consumer
spending away from small electric household appliances would adversely affect
our business. In addition, the market for small electric household appliances is
highly seasonal in nature. We often recognize a substantial portion of our sales
during the third and fourth quarters of the fiscal 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;
- reduce 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; and
- 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
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 the development
of new and innovative products on a consistent basis in order to increase
revenues and we may not be able to do so.

We believe that 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 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 newly
acquired businesses or product lines.

We will 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 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.

Government regulations 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 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 are subject to various national and local
environmental laws and regulations in China concerning issues such as 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 may develop, arise or
be discovered that create new environmental compliance or remediation
liabilities and costs.  While we believe that we can comply with existing
environmental legislation and regulatory requirements and that the costs of
compliance have been included within budgeted cost estimates, compliance may
prove to be more limiting and costly than anticipated.

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

As distributors of consumer products to consumers in
the United States, we are subject to the Consumer Products Safety Act, which
empowers the U.S. Consumer Products Safety Commission to exclude from the market
products that are found to be unsafe or hazardous. Under certain circumstances,
the U.S. Consumer 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 or 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 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. We are self-insured to specified levels of those claims.

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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If we grow through acquisitions and fail to
successfully integrate acquired companies, our operations could be disrupted and
management could become distracted by integration issues.

As part of our business strategy, we plan to grow in
part by acquiring other product lines, technologies or facilities that
complement or expand our existing business.  We may be unable to implement
this part of our business strategy and may not be able to continue making
acquisitions to continue our growth.  There is significant competition for
acquisition targets in the small household appliance industry.  We may not
be able to identify suitable acquisition candidates or negotiate attractive
terms.  In addition, we may have difficulty obtaining the financing
necessary to complete transactions that we pursue.  Future acquisitions may
involve the issuance of our equity securities as payment, in part or in full,
for the businesses or assets acquired.  Any future issuances of equity
securities would dilute your ownership interests.  In addition, future
acquisitions might not increase, and may even decrease, our earnings or earnings
per share and the benefits derived by us from an acquisition might not outweigh
or might not exceed the dilutive effect of the acquisition.  We also may
incur additional debt or suffer adverse tax and accounting consequences in
connection with any future acquisitions, although we currently do not have any
identified future acquisition targets.

Where we are successful in completing acquisitions,
we might experience difficulties in integrating the acquired business or assets.
Acquisitions might result in unanticipated liabilities, unforeseen expenses and
distraction of managements time and attention. We cannot assure you that our
acquisition strategy will be successful.

Expansion of our business may put added
pressure on our management and operational infrastructure impeding our ability
to meet any increased demand for our products and possibly hurting our operating
results.

Our business plan is to significantly grow our
operations to meet anticipated growth in demand for existing products, and by
the introduction of new product offerings.  Our planned growth includes the
construction of new production lines to be put into operation over the next
twelve months.  Growth in our business may place a significant strain on
our personnel, management, financial systems and other resources.  The
evolution of our business also presents numerous risks and challenges,
including:

- our ability to successfully and rapidly expand
  sales to potential customers in response to potentially increasing
  demand;
- the costs associated with such growth, which are
  difficult to quantify, but could be significant; and
- rapid technological change.

To accommodate any such growth and compete
effectively, we may need to obtain additional funding to improve information
systems, procedures and controls and expand, train, motivate and manage our
employees, and such funding may not be available in sufficient quantities, if at
all.  If we are not able to manage these activities and implement these
strategies successfully to expand to meet any increased demand, our operating
results could suffer.

We depend heavily on key personnel, and turnover of key employees and
senior management could harm our business.

Our future business and results of operations depend
in significant part upon the continued contributions of our key technical and
senior management personnel, particularly Kinwai Cheung, our Chief Financial
Officer and Weiqiu Li, our Chief Executive Officer.  They also depend in
significant part upon our ability to attract and retain additional qualified
management, technical, marketing and sales and support personnel for our
operations.  If we lose a key employee or if a key employee fails to
perform in his or her current position, or if we are not able to attract and
retain skilled employees as needed, our business could suffer.  Significant
turnover in our senior management could significantly deplete our institutional
knowledge held by our existing senior management team.  We do not maintain
key man life insurance on any of these individuals.  We depend on the
skills and abilities of these key employees in managing the manufacturing,
technical, marketing and sales aspects of our business, any part of which could
be harmed by further turnover.

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We may be exposed to potential risks relating to our internal controls
over financial reporting and our ability to have theoperating effectiveness of our
internal controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act
of 2002, or SOX 404, the SEC adopted rules requiring public companies to include
a report of management on the companys internal controls over financial
reporting in their annual reports on Form 10-K.  We are subject to this
requirement commencing with our fiscal year ending December 31, 2007 and a
report of our management is included under Item 9A of this Annual Report on Form
10-K.  In addition, SOX 404 requires the independent registered public
accounting firm auditing a companys financial statements to also attest to and
report on the operating effectiveness of such companys internal controls.
 However, this annual report does not include an attestation report because
under current law, we will not be subject to these requirements until our annual
report for the fiscal year ending December 31, 2008.  We can provide no
assurance that we will comply with all of the requirements imposed thereby.
 There can be no assurance that we will receive a positive attestation from
our independent registered public accountants. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive a positive
attestation from our independent registered public accountants with respect to
our internal controls, investors and others may lose confidence in the
reliability of our financial statements.

Investor confidence and market price of our shares may be adversely
impacted if we are unable to correct a material weakness in our internal
controls over our financial reporting identified by our independent registered
public accountants.

In connection with their review of our internal controls over financial
reporting for the fiscal year ended December 31, 2007, our management concluded
that there were several significant deficiencies, that when combined, resulted
in a material weakness in our internal controls over our ability to produce
financial statements free from material misstatements.  This material
weakness resulted from the combination of the following significant
deficiencies: (a) lack of timely identification, research and resolution of
accounting issues and lack of  documentation of consideration of recent
accounting pronouncements; (b) lack of documentation and review of financial
information by our accounting personnel with direct oversight responsibility,
and lack of analysis and reconciliation of certain accounts on a periodic basis,
and the failure of the accounting system to provide information related to
expenditures on a project-by-project basis; (c) absence of documented controls
over our related party transactions; and (d) lack of technical accounting
expertise among senior financial staff regarding US GAAP and the requirements of
the PCAOB, and regarding the preparation of draft financial statements. 
Our management has recommended that we address these deficiencies by (1)
restructuring of our relationships with related parties to address our controls
over related party transactions, (2) hiring additional accounting personnel
to assist us in the timely identification, research and resolution of accounting
issues and with our documentation processes, (3)  hiring additional
high-level accounting personnel with experience in US GAAP to monitor all
financial and accounting affairs throughout the Company and (3) engaging a
third-party accounting firm to assist management in evaluating complex
accounting issues on an as-needed basis.  We believe that these steps will
correct the material weaknesses described above, however, our failure to fully
remediate it could result in an adverse reaction in the financial marketplace,
which could negatively impact the market price of our shares.

RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the PRC
 government could impede the overall economic growth of China, which could
reduce the demand for our products and damage our business.

We conduct substantially all of our operations and generate most of our
revenue 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:

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- 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 allocation of resources.

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 the level of automotive investments and expenditures in
China, which in turn could lead to a reduction in demand for our products and
consequently have a material adverse effect on our business and prospects.

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. 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 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 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 all but one of
our directors are residents of China and not of the United States, and
substantially all the assets of these persons are located outside the United
States.  As a result, it could be difficult for investors to affect service
of process in the United States or to enforce a judgment obtained in the United
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 reforms and to
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 sales revenue effectively.

Most of our sales revenue and expenses are
denominated in RMB. 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, or 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.
Since a significant amount of our future revenue will be denominated in RMB, any
existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in RMB to fund our business activities outside China
that are denominated in foreign currencies.

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 through loans from us or other foreign
lenders, these loans must be registered with SAFE, and if we finance the
subsidiaries by means of additional 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.

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In October 2005, the PRC State Administration of
Foreign Exchange, or 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 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.

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.

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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 will be indirectly
affected by the foreign exchange rate between U.S. dollars 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 without
giving effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue that will be exchanged into U.S. dollars and earnings from,
and the value of, any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been 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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Currently, some of our raw materials and major
equipment are imported.  In the event that the U.S. dollars appreciate
against RMB, our costs will increase.  If we cannot pass the resulting cost
increases on to our customers, our profitability and operating results will
suffer.  In addition, since our sales to international customers are
growing rapidly, we are increasingly subject to the risk of foreign currency
depreciation.

New corporate income tax law could adversely affect our business and our
net income.

On March 16, 2007, National People's Congress passed
a new corporate income tax law, which will be effective on January 1, 2008.
 This new corporate income tax unifies the corporate income tax rate, cost
deductions and tax incentive policies for both domestic and foreign-invested
enterprises in China.  According to the new corporate income tax law, the
applicable corporate income tax rate of our Chinese subsidiaries will
incrementally increase to 25% over a five-year period.  We are expecting
that the rules for implementation would be enacted by the Chinese government in
the coming months.  After the rules are enacted, we can better assess what
the impact of the new unified tax law would be over this period.  The
discontinuation of any special or preferential tax treatment or other incentives
could adversely affect our business and our net income.

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 is volatile, and this volatility may
continue.  For instance, between December 15, 2006 and September 30, 2007,
the bid price of our common stock, as reported on the markets on which our
securities have traded, ranged between $0.50 and $4.75. 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 analysts 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 small 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.

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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
operating performance of particular companies.  For example, in late
February 2007, the securities markets in the United States, China and other
jurisdictions experienced the largest decline in share prices since September
2001.  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.

We have no direct business operations, other than our
ownership of our subsidiaries.  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.  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. 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 U.S. dollars may reduce the amount received by U.S.
stockholders upon conversion of the dividend payment into U.S.
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.

ITEM 2.  PROPERTIES.

There is no private ownership of land in China and
all land ownership is held by the government of the PRC, its agencies and
collectives.  Individuals and companies are permitted to acquire land use
rights for specific purposes.  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 production facilities are located in five leased
buildings totaling 35,012.72 square meters, in Zhongshan Harbor Town Oceanic
Industrial Area, China for RMB350,127 per month, subject to a 5-year lease that
will expire in June 30, 2011.   Oceanic PRC owns the land use right to
the facility. We also rent from Oceanic PRC an additional 6,613.7 square meters
of production space in the Zhongshan Harbor Town Oceanic Industrial Area, for
RMB66,137 per month, subject to a 5-year lease that will expire on May 31,
2012.

We also lease from Oceanic PRC, 2,140 square meters
of facilities for employees to use as living quarters, for a monthly payment of
RMB12,800 per month (or approximately $1,825). These facilities are offered as
an added free benefit to our employees, many of whom have to travel great
distances to come to work each day.

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We rent administrative offices, located at No.
264-298 Qingshan Road, Nanfeng Center Suite 1905, Quanwan Xingjie, Hong Kong,
from Secretary Service Co. Ltd, at a monthly rate of HKD4,500 (approximately,
$578), pursuant to a verbal agreement.  In addition, Secretary Service Co.
Ltd., receives and forwards our correspondence

We also rent 80 square feet of office space for our
U.S. administrative offices located at 633 West 5th Street, 26th Fl Los Angeles
 CA 90071, for a monthly payment of $1,200 per month.

We believe that all our 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. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

There were no matters that were submitted during the
fourth quarter of 2007 to a vote of security holders.

PART II

ITEM 5. MARKET 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.OB
on the Electronic Bulletin Board maintained by the National Association of
Securities Dealers, Inc., but had not been traded in the Over-The-Counter market
except on a limited and sporadic basis.  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.  The high and low quotations for
the first quarter and second quarters of the 2006 fiscal year have been adjusted
for a 1-for-10 reverse stock split that became effective in June 20, 2006.

Closing Prices(1)High
    LowYear Ended December 31, 20081st Quarter (to March 28, 2008)
    $1.65
    $0.20Year Ended December 31, 20071st Quarter
    $2.82
    $2.632nd Quarter
    $4.18
    $4.123rd Quarter
    $6.05
    $3.004th Quarter
    $4.06
    $1.05


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Year Ended December 31, 20061st Quarter
    $1.00
    $0.302nd Quarter
    $1.20
    $0.233rd Quarter
    $1.49
    $0.204th Quarter
    $1.40
    $0.25


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

Holders

On March 28, 2008, there were approximately 684 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.

Dividend Policy

We have never declared dividends or paid cash
dividends.  Our board of directors 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 directors has complete discretion on
whether to pay dividends, subject to the approval of our shareholders.
 Even if our board 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.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table includes the information as of the end of the most
recently completed fiscal year for each category of equity compensation plan of
the Company:

|Plan category                                                    | Number of securities to be issued upon
      exercise of outstanding options, warrants and
    rights(a) | Weighted-average exercise price of
      outstanding options, warrants and rights(b) | Number of securities remaining available for
      future issuance under equity compensation plans (excluding securities
      reflected in column (a))(c)
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security
holders           | 5,000,000(1)                                                                                             | $0.25                                                                                | 0                                                                                                                                                         
|Equity compensation plans not approved by security
      holders | 0                                                                                                        | 0                                                                                    | 0                                                                                                                                                         
|Total                                                            | 5,000,000                                                                                                | $0.25                                                                                | 0                                                                                                                                                         

(1)On September 29, 2006, our board
of directors authorized the establishment of the Home System Group 2006 Equity
Incentive Plan, or Plan, whereby we can issue shares of our common stock to
certain employees, consultants and directors.  At that time we reserved
5,000,000 shares of our common stock for issuance under the Plan.  On
October 5, 2006, we issued 5,000,000 shares of our common stock under the Plan
to eight consultants, in lieu of $700,000 in fees due and payable to the
consultants for services rendered from January 2, 2006 through September 30,
2006.

30

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

On April 20, 2007, we entered into the Juxian
Agreement, with Juxian and its shareholders, for the acquisition of 100% of
Juxian for an aggregate purchase price of $14,000,000, $10,000,000 of which was
payable in cash and $4,000,000 of which was payable in 1,000,000 shares of our
common stock valued at $4.00 per share.  The cash portion of the purchase
price was evidenced by non interest-bearing, unsecured promissory notes
delivered by us to each of the Juxian shareholders, pursuant to which one-half
of the cash portion was due and payable on July 2, 2008, the first anniversary
of the closing, and the remaining half was due and payable on July 2, 2009, the
second anniversary of the closing.  On July 5, 2007, we entered into the
Weihe Agreement with Weihe and its shareholders for the acquisition of 100% of
the then outstanding shares of Weihe. In consideration for the shares of Weihe,
we agreed to pay an aggregate price of $45,000,000, to be paid in a combination
of 4,500,000 shares of our common stock, valued at $4.00 per share and
$27,000,000 in cash.  The obligation to pay the cash portion of the
purchase price was evidenced by non-interest-bearing, unsecured promissory notes
delivered by us to each of the Weihe shareholders at the closing.  Pursuant
to the promissory notes, 40% of the cash portion of the purchase price was due
and payable on July 5, 2008, the first anniversary of the closing, and the
remaining 60% was due and payable on July 5, 2009, the second anniversary of the
closing.   However, on February 7, 2008, we entered into two separate
termination and release agreements with each of Juxian and Weihe and their
respective shareholders, pursuant to which we agreed to terminate each of the
Juxian Agreement and the Weihe Agreement and release each other from our
respective obligations under each of the agreements because performance of our
respective obligations under the agreements could not be completed without
unreasonable expense or delay.  No termination penalties were incurred by
our Company in connection with the termination of the Juxian Agreement and the
Weihe Agreement.

Purchases of Our Equity Securities

No repurchases of our common stock were made during
the fourth quarter of our fiscal year ended December 31, 2007.

ITEM 6.  SELECTED FINANCIAL
DATA

Not required.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS

Overview

Home System Group is a Nevada holding company whose
China-based operating subsidiaries, OCIL and Well Profit, are primarily engaged
in the production of a variety of small household appliances, including
stainless steel gas grills and ovens, gas and electric heaters and residential
water pumps.  Our products are sold through distributors to retailers in
the United States, Europe, Australia and China.

Our products are primarily manufacturedin
Well Profits facilities which is located on over 82.5 acres of land in Oceanic
Industry Park, Sha Gang Highway, Gang Kou Town, Zhongshan, Guangdong Province,
China.  Well Profit currently has five (5) assembly lines of stainless
steel BBQ grill with a total annual production capacity of approximately 710,000
units of BBQ grills, and two (2) skateboard production lines with a total annual
production capacity of approximately 100,000 units.  Our current annual
production output is approximately 220,000 BBQ grills, 100,000 sets of shelves,
20 million pump units.

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Our sales revenue in 2006 was $3,938,562, and net
income in 2006 was $118,249.  Our sales revenue and net income was
$41,012,614 and $61,528, respectively, during the year ended December 31, 2007.
 In the year ended December 31, 2007, our sales revenue generated from
sales of our grills and ovens was $29.9 million, constituting 72.9% of our sales
revenue.

Overview of Business Operations in the fiscal year of
2007

During the fiscal year of 2007, we continued to see
an increase in sales of our BBQ grills.  However, our gross margin
decreased from 9.9% in 2006 to 8.4% in 2007, due to a variety of factors
including an increase in the cost of raw materials in 2007.

We also focused on developing new business for our
Company by acquiring a coffee pot product line at the end of the second quarter
of 2007.  Through additional mergers and acquisitions, we hope to achieve
product diversification and enhance our research and development capability and
manufacturing, production and processing capacity for our products.  Our
long-term goal is to focus on the future development of our Company, to increase
our international market share and enhance investor confidence.

We expect our revenue to continue to grow in future
periods as a result of expected growth in the small household appliance industry
and our plans to increase the level of our sales for export.

Principal Factors Affecting Our Financial
Performance

Growth of Chinas small household appliance
manufacturing industry.

Chinas small household appliance industry has been
growing at a rapid pace since 2005 and does not have onerous entry barriers.
 As a result, we compete with many small manufacturers and distributors of
household products.  We also compete with established companies, a number
of which have substantially greater facilities, personnel, financial and other
resources than we have.  If we are unable to compete effectively with these
manufacturers and distributors in the areas of product design and innovation,
quality, price, product features, merchandising, promotion and warranty, our
results of operations could be materially adversely affected.

Fluctuations and increases in raw material
costs.

One of our primary challenges is the unstable
domestic market for stainless steel plates, our main raw material.  We rely
on a steady supply of stainless steel plates to manufacture our products but in
recent years the price of metal materials has increased, which has increased the
pressure on our production costs.  While the expansion of our Company has
necessitated the purchase of larger amounts of raw materials from our suppliers,
our purchase volumes have allowed us to bargain with our suppliers to receive a
lower price for the purchase of such large quantities.  In addition, we are
seeking to identify alternative raw material suppliers to the extent that there
are viable alternatives.  In the long term, we are also seeking to expand
our use of alternative raw materials.  Should fluctuations and increases in
the price of our main raw material become severe, the consequent price movements
may have a direct and substantial negative impact on our gross
margin.

Taxation

Our subsidiary Well Profit is subject to a
preferential corporate income tax rate of 27% of assessable profits, consisting
of a 24 % national tax and a 3% local tax.  As approved by the relevant PRC
tax authority, Well Profit is entitled to a two-year exemption from EIT from
January 2007 to the end of December 2008, followed by 50% tax exemption from
January 2009 through December 2011, and a valued added tax rate of 17%.
 Well Profit will not have any urban construction tax or education surtax
but embankment fees will be charged on 1/1000 of Well Profits sales income.

32

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On March 16, 2007, the National Peoples Congress of
the PRC passed the new EIT Law, which will take effect as of January 1, 2008.
 Under the new EIT Law, an enterprise established outside of the PRC with
de facto management bodies within the PRC is considered a resident enterprise
and will normally be subject to the enterprise income tax at the rate of 25.0%
on its global income. The new EIT Law, however, does not define the term de
facto management bodies.  If the PRC tax authorities subsequently
determine that we should be classified as a resident enterprise, then our global
income will be subject to PRC income tax at a tax rate of 25.0%. In addition,
under the new EIT Law, dividends from our PRC subsidiaries to us will be subject
to a withholding tax.  The rate of the withholding tax has not yet been
finalized, pending promulgation of implementing regulations.  Furthermore,
the ultimate tax rate will be determined by treaty between the PRC and the tax
residence of the holder of the PRC subsidiary.  We are actively monitoring
the proposed withholding tax and are evaluating appropriate organizational
changes to minimize the corresponding tax impact. The new EIT Law imposes a
unified income tax rate of 25.0% on all domestic-invested enterprises and FIEs,
such as our PRC operating subsidiaries, unless they qualify under certain
limited exceptions, but the EIT Law permits companies to continue to enjoy their
existing preferential tax treatments until such treatments expire in accordance
with their current terms.  We expect details of the transitional
arrangement for the five-year period from January 1, 2008 to December 31, 2012
applicable to enterprises approved for establishment prior to March 16, 2007 to
be set out in more detailed implementing rules to be adopted in the future.
 Any increase in our effective tax rate as a result of the above may
adversely affect our operating results.  However, details regarding
implementation of this new law are expected to be provided in the form of one or
more implementing regulations to be promulgated by the PRC government, and the
timing of the issuance of such implementing regulations is currently
unclear.

Private-label Brands

With the growing trend towards the concentration of our small electric
household appliance sales among a few retailers, our distributors are
increasingly dependent upon fewer customers whose bargaining strength is growing
as a result of concentration.  Through our distributors a substantial
quantity of our products to mass merchandisers, national department stores,
variety store chains, drug store chains, specialty home retailers and other
retail outlets.  These retailers generally purchase a limited selection of
small electric household appliances.  As a result, we compete for retail
shelf space with our competitors.  In addition, certain of our larger
customers are using their own private label brands on household appliances that
compete directly with some of our products.  As the retailers in the small
electric household appliance industry become more concentrated, competition for
sales to these retailers may increase, which could adversely affect our results
of operations.

Results of Operations

Year Ended December 31, 2007 compared to the year ended December 31,
2006

The following table summarizes the results of our operations during the
fiscal years ended December 31, 2007 and 2006 and provides information regarding
the dollar and percentage increase or (decrease) from the 2006 fiscal year to
the 2007 fiscal year.

33

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|Item                                | 12/31/2007  | 12/31/2006 | $ Increase(Decrease) | Percentage Increase
      (Decrease)
|----------------------------------- | ----------- | ---------- | -------------------- | ------------------------------------
|Revenues                            | $41,012,614 | $3,938,562 | $37,074,052          | 941.31%                             
|Cost of Sales                       | $37,584,115 | $3,507,759 | $34,076,356          | 971.46%                             
|General and Administrative Expenses | $2,324,548  | $253,458   | $2,071,090           | 817.13%                             
|Income (Loss) From Operations       | $229,425    | $177,345   | $52,080              | 29.37%                              
|Interest Expense                    | $147,764    | $0         | $147,764             | 191800%                             
|Net Income                          | $61,528     | $118,249   | ($56,721)            | (47.97%)                            

Revenues

Net sales for 2007 totaled $41,012,614 compared to
$3,938,562 for 2006, an increase of $37,074,052, or approximately 941.31%. The
increase in 2007 was primarily due to Holy HKs generation of revenues for the
entire 2007 fiscal year, as compared to only from September to December in the
2006 period.  Revenues from Holy HK accounted for 75.3% of our revenues
during 2007.

Cost Of Sales

Cost of sales for 2007 totaled $37,584,115, or
approximately 91.6% of net sales, compared to $3,507,759, or approximately 89.1%
of net sales, for 2006. The 2.5% increase in cost of sales as a percentage of
net sales was due to a significant increase in the price of our raw materials
during the 2007 period. During 2007, the cost of iron and steel, in particular,
increased significantly and had a negative impact on our cost of sales
percentage.Global demand for steel is high, especially in China, due in
part to major construction projects in China related to the 2008 Beijing
Olympics, the 2010 Shanghai World Exposition and the ongoing construction of
housing.

General and Administrative Expenses

General and administrative expenses for 2007 totaled
$2,324,548, or approximately 5.67% of net sales, compared to $253,458, or
approximately 6.44% of net sales, for 2006. The increase was primarily
attributable to the expansion of our new administrative offices in the US and
the related lease payment and increased professional fees associated with our
expansion.

Income (Loss) From
Operations

Income from operations in 2007 was $229,425 as
compared to income from operations of $177,345 for 2006, an increase of $52,080,
or approximately 29.37%. This increase was also due to Holy HKs generation of
revenues for the entire 2007 fiscal year, as compared to only from September to
December in the 2006 period..

Interest Expense

Interest expense for 2007 totaled $147,764, compared
to $0 for 2006, an increase of $147,764.  During the 2006 period, Holy HK
had minimal operations and had no interest expense and OCIL had no operations.
 However, interest expense increased during the 2007 period, due to bank
loans totaling $3,706,000 obtained by OCIL during the period and repaid in full
in June 2007.

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Net Income

Net income was  $61,528 for 2007, compared to a
net income of $118,249 for 2006, a decrease of $56,721, or 48%. The decrease was
due to an increase in our cost of revenues and our increase in operating expense
discussed above.

Liquidity and Capital Resources

As of December 31, 2007, we had cash and cash equivalents of $821,074.
 The following table sets forth a summary of our cash flows for the periods
indicated:

|                                                                   | December 31, 2007 | December 31, 2006
|------------------------------------------------------------------ | ----------------- | -----------------
|Net cash  provided by / (used in) operating
      activities       | $8,059,554        | $(2,512,053)     
|Net cash used in investing activities                              | $(2,280,492)      | $(1,101,490)     
|Net cash (used in) / provided by financing activities              | ($4,999,423)      | $3,619,465       
|Effect of exchange rate changes on cash and cash
      equivalents | $35,423           | $90              
|Net increase in cash and cash equivalent                           | $815,062          | $6,012           
|Cash and cash equivalents at the beginning of period               | $6,012            | -                
|Cash and cash equivalents at the end of period                     | $821,074          | $6,012           

As of the year ended December 31, 2007, our
unrestricted cash resources were $821,074 as compared to $6,012 as of the year
ended December 31, 2006.  We believe that the company will have sufficient
funds to meet all the obligations that are due in the next year.

Operating Activities

For the years ended December 31, 2007 and December
31, 2006, net cash provided by (used in) operating activities totaled

$8,059,554 and $(2,512,053), respectively.  This
change is primarily due to the increase in our scale of operations during the
2007 period. Accounts payable, accounts receivable and inventories increased
9,766,686, 3,330,670 and 2,662,696 respectively, and the aggregate effect
contributed a cash inflow of 3,773,320 from operating activities.

Investing Activities

Our main uses of cash for investing activities are
for capital expenditures.

Net cash used for investing activities in the fiscal
year ended December 31, 2007 was $(2,280,492), as compared to $(1,101,490) in
the fiscal year ended December 31, 2006.  The increase of net cash used for
investing activities was mainly attributable to the purchase of our new coffee
pot production line.

Financing Activities

Net cash (used in) financing activities in the fiscal
year ended December 31, 2007 totaled ($4,993,423), as compared to $3,690,581
provided by financing activities in the year ended December 31, 2006.  The
increase of the cash provided by financing activities was mainly attributable to
the our deposit during the 2007 period of $7,540,000 in cash to the shareholders
of Weihe in connection with our planned acquisition of Weihe, and our repayment
during the same period of $1,745,000 in outstanding principal on an OCIL bank
loan.

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Our subsidiary, OCIL, has a $4 million revolving line
of credit with Bank SinoPac.  At the beginning of the fiscal year ended
December 31, 2007, OCIL had an outstanding balance of $1,745,000 on this line of
credit and during the period OCIL utilized a total of $3,706,000, at an annual
interest rate of  4% + HIBOR (the Hong Kong Inter Bank Offered Rate).
 At December 31, 2007, there were no amounts outstanding in connection with
this line of credit.

On May 23, 2007, we entered into a subscription
agreement with four investors, pursuant to which they agreed to buy 10 million
shares of our common stock for a purchase price, in the aggregate, of
$40,000,000. Pursuant to the terms of the subscription agreement, the investors
paid approximately 16.25%, or $6,575,000 of the total purchase price, with the
remaining subscription receivable payable pursuant to the terms of a promissory
note delivered to us by the investors.  The notes were payable upon the
earlier to occur of: two years from the date of the note or within five business
days of written notification from us that a registration statement pursuant to
the Securities Act has been filed by us with the SEC, registering the shares of
common stock.  February 7, 2008, we entered into a termination and release
agreement with the above investors, and all parties have agreed to return all
consideration paid and release all claims relating the subscription agreement.
 There is currently a balance of $6,575,000 owed to the investors pursuant
to the termination agreement.

Our debt to equity ratio was 3.76% as of December 31, 2007.  We plan
to lower this ratio to a healthier level during the next twelve months.  As
of December 31, 2007, Well Profit has no bank loan or guarantee.

Our current material capital expenditure requirements
are approximately $50,000,000, which will be used to build production facilities
(costing approximately $20,000,000) including plant, an R&D center and
employee dormitory, purchase equipment (costing approximately $10,000,000),
funds for acquisition of target entities (at approximately $20,000,000) and
working capital (of approximately $30,000,000) during the next 12 months.
 Additional working capital of approximately $30,000,000 may be needed in
the short term which we plan to obtain through capital raising
activities.

We believe that our current available working
capital, after receiving the aggregate proceeds of the capital raising
activities, should be adequate to sustain our operations at our current levels
through at least the next twelve months.

Obligations Under Material Contracts

Below is a table setting forth our contractual
obligations as of December 31, 2007:

|(dollars in thousands)     
|---------------------------
|                           
|Long term debt obligations 
|Capital commitment         
|Operating lease obligations
|Purchase obligations       
|Total                      

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On May 23, 2007, we entered into a subscription
agreement with four investors, pursuant to which they agreed to buy 10 million
shares of our common stock for a purchase price, in the aggregate, of
$40,000,000. Pursuant to the terms of the subscription agreement, the investors
paid approximately 16.25%, or $6,575,000 of the total purchase price, with the
remaining subscription receivable payable pursuant to the terms of a promissory
note delivered to us by the investors.  The notes were payable upon the
earlier to occur of: two years from the date of the note or within five business
days of written notification from us that a registration statement pursuant to
the Securities Act has been filed by us with the SEC, registering the shares of
common stock.  On February 7, 2008, we entered into a termination and
release agreement with the above investors, and all parties have agreed to
return all consideration paid and release all claims relating the subscription
agreement.  There is currently a balance of $6,575,000 owed to the
investors pursuant to the termination agreement.

On July 2, 2006, we entered into a lease agreement
with Oceanic PRC for a plant consisting of five buildings totaling 35,012.72
square meters. The monthly rent for this plant is RMB350,127.2 (approximately
$46,070).  The term of this lease is from July 1, 2006 to June 30, 2011.
 We use this plant primarily for production purposes, and, to a small
extent, for administrative needs.  In addition, on June 6, 2007, we entered
into a lease with Oceanic PRC for a plant consisting of one 6,613.7 square meter
building for RMB66,137 (approximately $8,703) per month.  This leases term
is from June 1, 2007 to May 31, 2012.  This building is exclusively used
for production.

Critical Accounting Policies

General

Our financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America.
The following policies, we believe, are our most critical accounting policies,
are important to our financial position and results of operations, and require
significant judgment and estimates on the part of management. Those policies,
that in the belief of management are critical and require the use of judgment in
their application, are disclosed on Form 10KSB for the year ended December 31,
2006.  Since December 31, 2006, there have been no material changes to our
critical accounting policies.

We have identified the following policies as critical
to our business and the understanding of its results of operations. The impact
of these policies is discussed throughout Managements Discussion and Analysis
of Financial Condition and Results of Operations where these policies affect
reported and anticipated financial results. Preparation of this report requires
our use of estimates and assumptions that affect the reported amounts of assets,
liabilities, disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported revenue and expense amounts
for the periods being reported. On an ongoing basis, we evaluate these
estimates, including those related to the valuation of accounts receivable, and
the potential impairment of long lived assets. We base the estimates on
historical experience and on various other assumptions that are believed to be
reasonable, the results of which forms the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates.

Revenue Recognition

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

37

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The Company follows Emerging Issues Task Force
(EITF) No. 99-19,Reporting Revenue as a Principal versus Net as an
Agent.  Under the guidance of this EITF, the assessment of whether
revenue should be reported gross with separate display of cost of sales to
arrive at gross profit should be based on the following considerations: the
Company acts as principal in the transaction, takes title to the products and
has risk and rewards of ownership (such as the risk of loss for collection,
delivery or returns). Based on EITF No. 99-19, the Company recognizes all
revenue on a gross basis.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to its stockholders.

Seasonality

Our business is seasonal,  with the highest
proportion of sales being generated in the third and fourth quarters of each
year for the reason that the retail market is more active during such quarters.
 Lower proportions of activity generally occur in the first and second
quarter of each year.  However, since the production duration of our
product, BBQ grills, is six months, the highest proportion of production for
such products is completed in the first and second quarter of each year.

Inflation

Inflationary factors, such as increases in the cost
of our products 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 high 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 do not increase with
these increased costs.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

Consolidated Financial Statements

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

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

On December 20, 2007, Morison Cogen, LLP, or Morison
Cogen, resigned as our independent auditor, effective immediately.  Our
board of directors accepted Morison Cogens resignation and appointed the
independent registered public accounting firm of Yu & Associates CPA
Corporation, or Yu, as our new auditor.

Morison Cogen had been appointed on October 18,
2006and during the period that Morison Cogen served as our independent
registered public accounting firm and through the date of their resignation, (a)
there were no disagreements with Morison Cogen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to the satisfaction of Morison Cogen, would
have caused it to make reference to the subject matter of the disagreement(s) in
connection with its report; and (b) no accountants report on our financial
statements issued by Morison Cogen contained an adverse opinion or disclaimer of
opinion or was qualified or modified as to uncertainty, audit scope or
accounting principles.

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For more details regarding the resignation see our
current report on Form 8-K, filed on December 28, 2007, and a copy of Morison
Cogens consent letter filed as Exhibit 16.1 thereto.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as
defined in Rules 13a-15(e) under the Exchange Act) that are designed to ensure
that information that would be required to be disclosed in Exchange Act reports
is recorded, processed, summarized and reported within the time period specified
in the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to the Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

As required by Rule 13a-15 under the Exchange Act,
under the supervision and with the participation of our management, including
Weiqiu Li our President and Chief Executive Officer and Kinwai Cheung, our Chief
Financial Officer, we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures as of December 31, 2007.  Based on
that evaluation, Messrs. Li and Cheung concluded that because of the material
weakness in internal control over financial reporting described below, our
disclosure controls and procedures were not effective as of December 31,
2007.

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.

Management is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company.
Internal control over financial reporting refers to the process designed by, or
under the supervision of Weiqiu Li, our Chief Executive Officer, and Kinwai
Cheung, 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. 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. 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.

39

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Management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2007. In making this
assessment, management used the framework set forth in the report entitled
Internal Control  Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. The COSO framework summarizes
each of the components of a companys internal control system, including (i) the
control environment, (ii) risk assessment, (iii) control activities, (iv)
information and communication and (v) monitoring. Based on that evaluation, Mr.
Li and Mr. Cheung concluded that as of December 31, 2007, and as of the date
that the evaluation of the effectiveness of our disclosure controls and
procedures was completed, our disclosure controls and procedures were not
effective to satisfy the objectives for which they were intended.

In connection with their review of our internal
controls over financial reporting for the fiscal year ended December 31, 2007,
our management concluded that there were several significant deficiencies, that
when combined, resulted in a material weakness in our internal controls over our
ability to produce financial statements free from material misstatements.
 The material weakness resulted from a combination of the following
significant deficiencies:

- Lack of documentation and review of financial
  information by our accounting personnel with direct oversight responsibility,
  and lack of analysis and reconciliation of certain accounts on a periodic
  basis, and the failure of the accounting system to provide information related
  to expenditures on a project-by-project basis;
- Lack of timely identification, research and
  resolution of accounting issues and lack of documentation of consideration of
  recent accounting pronouncements;
- Absence of documented controls over our related
  party transactions; and
- Lack of 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 the above material weakness, our
management concluded that, as of December 31, 2007, our internal control over
financial reporting is not effective.

Change in Internal Control over Financial
Reporting

In order to further enhance our internal controls,
our management, with the participation of Messrs. Li and Cheung, has recommended
the implementation of the following changes by the end of fiscal year
2008:

- the restructuring of our relationships with related
  parties to address our controls over related party transactions;
- the hiring of additional accounting personnel to
  assist us in the timely identification, research and resolution of accounting
  issues and with our documentation processes;
- the hiring of additional high-level accounting
  personnel with experience in US GAAP to monitor all financial and accounting
  affairs throughout the Company; and
- the engagement of a third-party financial
  consulting firm to assist management in evaluating complex accounting issues
  on an as-needed basis, and the implementation of systems to improve control
  and review procedures over all financial statement and account balances.

We expect that these steps, when taken, will correct
the material weaknesses described above. We do not believe that the costs of
remediation for the above material weaknesses will have a material effect on our
financial position, cash flow, or results of operations.

40

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This annual report does not include an attestation
report of our registered public accounting firm regarding internal control over
financial reporting.  Managements report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only managements
report in this annual report.

Changes in Internal Controls over Financial
Reporting.

During the fiscal year ended December 31, 2007, there
were no changes in our internal control over financial reporting identified in
connection with the evaluation performed during the fiscal year covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

There is no information required to be disclosed in a
report on Form 8-K during the fourth quarter of the year covered by this Form
10-K but not reported.

PART III

ITEM 10. 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,
2007.

|Name               | Age | Position/s                          
|------------------ | --- | ------------------------------------
|Weiqiu Li          | 46  | Chairman and Chief Executive Officer
|Kinwai Cheung      | 46  | Director and Chief Financial Officer
|Jing Liu           | 36  | Secretary                           
|Richard P. Randall | 70  | Director                            
|Guanghan Chen      | 53  | Director                            
|Binhai Chen        | 40  | Director                            
|Jianzhao Zheng     | 34  | Director                            

Weiqiu Liwas appointed
Chief Executive Officer of the Company on August 17, 2006 and has been the
Chairman of our subsidiary, Oceanic International Company Limited, since June
2003.  Since May 1980, Mr. Li has also served and Chairman and Chief
Executive Officer of Weihe Electronics Manufacturing Company Limited.
Concurrently, he served as Vice President for Zhong Shan West
District Chamber of Commerce.  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.

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Kinwai Cheungwas
appointed as our Chief Financial Officer on August 17, 2006.  Since June
2004, Mr. Cheung has also served as the Administrative Manager of our largest
subsidiary, 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.

Jing Liuwas appointed as
our Secretary on August 17, 2006.  Ms. Liu has also served as the Secretary
of our subsidiary, Oceanic International Company Limited, since March 2004.
 Prior to this, Ms. Liu served as the Manager in the International Business
Department of Zhong Shan Hua Jie Steel Pipe Group, Ltd. from July1991 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.

Richard Randallwas
appointed to our board of directors on August 7, 2007.  Mr. Randalls
career includes extensive financial and accounting experience as a Chief
Financial Officer and Board Member for several U.S. publicly traded companies
and he is currently Chairman of the Audit Committee for Steve Madden Ltd., a
publicly traded international designer, marketer and retailer of footwear for
women, men and children. From 2002 to 2005, Mr. Randall served as the Executive
Vice President, Chief Operating Officer and Chief Financial Officer of Direct
Holdings Worldwide, the parent of Lillian Vernon Corp. and Time Life, where he
was responsible for orchestrating the sale of the company, and from 2000 to
2001, Mr. Randall served as the Senior Vice President and the Chief Financial
Officer of Coach, Inc, a publicly traded international designer and marketer of
handbags and accessories, where he oversaw the auditing process and SEC
compliance.  Mr. Randall has also provided consulting services to Supreme
International (renamed Perry Ellis International), and Mondo, Inc. and is a
member of the American Institute of CPAs and New York Society of CPAs.  Mr.
Randall received a degree in accounting from the City University of New York,
Baruch College in 1964 and has been certified as a CPA in New York State.

Guanghan Chenwas
appointed to our board of directors on July 31, 2007.  Since May 1999, Mr.
Chen has served as a professor and senior researcher at the Research Institute
of Hong Kong and Macao and the State Council Development Research Center where
he teaches courses in economic development theory and policy, industry and
regional economics of the Asia-Pacific.  Prior to this, Mr. Chen served as
deputy director of the Department of Economics in Zhongshan University from June
1997 to May 1999, and as director of the Institute of Hong Kong and Macao and
deputy director of the Hong Kong and Macao Research Center from May 1999 to
December 2000.  Mr. Chen holds a Bachelors degree in Law and Political
Science and a Masters degree in Economics from Huazhong Normal University and a
Doctorate in Economics from Wuhan University.

Binhai Chenwas appointed
to our board of directors on July 31, 2007.  Mr. Chen has been engaged in
accounting, accounting education, auditing, assets evaluation, and tax and
management consulting for the past 18 years.  Since July 1989, Mr. Binhai
Chen has served as an accountant with the Zhongshan City Zhongxin Accounting
Firm.  Mr. Chen holds a Masters Degree in Accounting from Guangzhou City
Jinan University and is a Certified Public Accountant, a Certified Tax Agent and
a Certified Public Valuer in China.  Mr. Chen is currently the Director of
the Guangdong Province Certified Public Accountants Association, the Executive
Director of Zhongshan City Certified Public Accountants Association, the
Director of Zhongshan City Internal Audit Association and the Director of
Zhongshan City Securities Association.

42

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Jianzhao Zhengwas
appointed to our board of directors on July 31, 2007.  Mr. Zheng has
engaged in accounting, accounting education, auditing, assets evaluation, and
tax and management consulting for the past 10years and is an expert in
the area of auditing and stock restructuring, taxation and corporate mergers and
asset reorganization.  Since July 1994, Mr. Zheng has served as an
accountant with the Zhongshan City Zhongxin Accounting Firm.  Mr. Zheng
holds a Bachelor Degree in Accounting from Zhongshan City College and holds
certifications as a Certified Public Accountant, a Certified Tax Agent and a
Certified Public Valuer in China.

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.

Involvement in Certain Legal
Proceedings

To the best of our knowledge, none of our directors
or executive officers has been convicted in a criminal proceeding, excluding
traffic violations or similar misdemeanors, or has been a party to any judicial
or administrative proceeding during the past five years that resulted in a
judgment, decree or final order enjoining the person from future violations of,
or prohibiting activities subject to, federal or state securities laws (except
where not subsequently dismissed without sanction or settlement), or from
engaging in any type of business practice, or a finding of any violation of
federal or state securities laws.  To the best of our knowledge, no
petition under the Federal bankruptcy laws or any state insolvency law was filed
by or against, or a receiver, fiscal agent or similar officer was appointed by a
court for the business or property of any of our directors or officers, or any
partnership in which any of our directors or officers was a general partner at
or within two years before the time of such filing, or any corporation or
business association of which any of our directors or officers was an executive
officer at or within two years before the time of such filing   Except
as set forth in our discussion below in Transaction with Related Persons,
Promoters and Certain Control Persons; Corporate Governance, none of our
directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.

Promoters and Certain Control Persons

We did not have any promoters at any time during the past five fiscal
years.

Section 16(A) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive officers and
persons holding more than 10% of our common stock must report their initial
ownership of the common stock, and any changes in that ownership, to the
SEC.  The SEC has designated specific due dates for these reports.
 Based solely on our review of copies of such reports filed with the SEC
and written representations of our directors and executive offers, we believe
that all persons subject to reporting filed the required reports on time in 2006
and 2007.

43

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Code of Ethics

On July 31, 2007, our board of directors adopted a
code of ethics pursuant to Section 406 of the Sarbanes-Oxley Act of 2002, that
applies to all of our directors, officers and employees, including our principal
executive officer, principal financial officer, and principal accounting
officer.  The code of ethics is designed to deter wrongdoing and to
promote:

- Honest and ethical conduct, including the ethical
  handling of actual or apparent conflicts of interest between personal and
  professional relationships;
- Full, fair, accurate, timely and understandable
  disclosure in reports and documents that we file with, or submit to, the SEC,
  and in other public communications that we made;
- Compliance with applicable government laws, rules
  and regulations;
- The prompt internal reporting of violations of the
  code to the appropriate person or persons; and
- Accountability for adherence to the
  code.

The code requires the highest standard of ethical
conduct and fair dealing of its senior financial officers, or SFO, defined as
the Chief Executive Officer and Chief Financial Officer. While this policy is
intended to only cover the actions of the SFO, in accordance with
Sarbanes-Oxley, we expect our other officers, directors and employees will also
review our code and abide by its provisions. We believe that our reputation is a
valuable asset and must continually be guarded by all associated with us so as
to cam the trust, confidence and respect of our suppliers, customers and
stockholders.

Our SFO are committed to conducting business in
accordance with the highest ethical standards. The SFO must comply with all
applicable laws, rules and regulations. Furthermore, SFO must not commit an
illegal or unethical act, or instruct or authorize others to do so.

Material Changes to Director Nomination Procedures

We had no governance and nominating committee, until
July 31, 2007, when the board of directors established a governance and
nominating committee. Our governance and nominating committee consists of three
members: Mr. Guanghan Chen, Mr. Randall, and  Mr. Jianzhao Zheng, each of
whom is independent as that term is defined under the Nasdaq Marketplace
Rules.  Mr. Guanghan Chen serves as the chairman to our governance and
nominating committee. The governance and nominating committee assists the board
of directors in identifying individuals qualified to become our directors and in
determining the composition of the board of directors and its committees.

Our governance and nominating committee is
responsible for, among other things:

- identifying and recommending to the board of
  directors nominees for election or re-election to the board of directors, or
  for appointment to fill any vacancy;
- reviewing annually with the board of directors the
  current composition of the board of directors in light of the characteristics
  of independence, age, skills, experience and availability of service to us;
  and
- identifying and recommending to the board of
  directors the directors to serve as members of the committees.
- We recognize that transactions between us and any
  of our directors or executive officers can present potential or actual
  conflicts of interest and create the appearance that our decisions are based
  on considerations other than the best interests of our
  stockholders.

44

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Audit Committee

We had no audit committee until July 31, 2007, when
the board of directors established an audit committee. Our audit committee
consists of three members: Mr. Randall, Guanghan Chen, and  Binhai Chen,
each of whom is independent as that term is defined under the Nasdaq
Marketplace Rules.  Our audit committee oversees our accounting and
financial reporting processes and the audits of the financial statements of our
company.  Mr. Randall serves as our audit committee financial expert as
that term is defined by the applicable SEC rules as well as the audit committee
chair.

Our audit committee is responsible for, among other
things:

- selecting our independent auditors and
  pre-approving all auditing and non-auditing services permitted to be performed
  by our independent auditors;
- reviewing with our independent auditors any audit
  problems or difficulties and managements response;
- reviewing and approving all proposed related-party
  transactions, as defined in Item 404 of Regulation S-K under the Securities
  Act of 1933, as amended;
- discussing the annual audited financial statements
  with management and our independent auditors;
- reviewing major issues as to the adequacy of our
  internal controls and any special audit steps adopted in light of significant
  internal control deficiencies;
- annually reviewing and reassessing the adequacy of
  our audit committee charter;
- such other matters that are specifically delegated
  to our audit committee by our board of directors from time to time;
- meeting separately and periodically with management
  and our internal and independent auditors; and
- reporting regularly to the full board of
  directors.

Shareholder Communications

The Company has a process for shareholders who wish
to communicate with the Board of Directors.  Shareholders who wish to
communicate with the Board may write to it at the Companys address given above.
 These communications will be reviewed by one or more employees of the
Company designated by the Board, who will determine whether they should be
presented to the Board.  The purpose of this screening is to allow the
Board to avoid having to consider irrelevant or inappropriate
communications.

ITEM 11. EXECUTIVE 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: Thomas Elliott and Zujun Xu, our former Chief Executive Officers, Jean
LeRoy, our former Chief Financial Officer and Weiqiu Li, Kinwai Cheung and Jing
Liu, who became our Chief Executive Officer, Chief Financial Officer and
Secretary, respectively, on December 31, 2007.  No other executive officers
received total annual salary and bonus compensation in excess of
$100,000.

|Name & Position    |  | Year |  | Salary |  | Bonus |  | Stock Awards |  | Option Awards |  | Non-Equity Incentive Plan
      Compensation |  | Nonqualified Deferred Compensation
      Earnings ($) |  | All Other Compensation |  | Total | 
|------------------ |  | ---- |  | ------ |  | ----- |  | ------------ |  | ------------- |  | -------------------------------------------- |  | ----------------------------------------------------- |  | ---------------------- |  | ----- | 
|                   |  |      |  |        |  |       |  |              |  |               |  |                                              |  |                                                       |  |                        |  |       | 
|Weiqiu Li, CEO (1) |  | 2007 |  | 0      |  | 0     |  | 0            |  | 0             |  | 0                                            |  | 0                                                     |  | 0                      |  | 0     | 
|                   |  | 2006 |  | 0      |  | 0     |  | 0            |  | 0             |  | 0                                            |  | 0                                                     |  | 0                      |  | 0     | 

45

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Narrative to Compensation Table

(1)         
Weiqiu Li was appointed as our Chief Executive Officer on August 17, 2006,
pursuant to our reverse acquisition of Home System Group, Inc., on August 4,
2006.

Outstanding Equity Awards at Fiscal Year
End

Other than as set forth below, none of our executive
officers received unexercised options, stock that has not vested or equity
incentive plan awards that remained outstanding as of the end of the fiscal year
ended December 31, 2007.

|Name                                                                      | Option Awards                                                                     | Stock Awards                                                                                        
|------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------
|Number of Securities Underlying Unexercised Options
      (#) Exercisable | Number of Securities Underlying Unexercised Options
      Unexercisable
      (1) | Equity Incentive Plan Awards: Number of Securities
      Underlying Unexercised Unearned Options (#)
|Richard Randall                                                           | 0                                                                                 | 100,000                                                                                             

Narrative to outstanding equity awards table

On August 7, 2007, we granted Mr. Randall, our audit committee chair, 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 is contingent on continued
participation as a member of our Board of Directors.

46

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Additional Narrative Disclosure

As required by applicable PRC law, we have entered into employment
agreements with most of our officers, managers and employees.  Currently,
Ms. Liu is the only officer who is compensated for her services to our Company.
 She earns RMB3,500 per month (approximately $440) for her services as our
Secretary.  No other benefits have been granted by the Company to officers
at this time.

Our subsidiary, Well Profit, has employment
agreements with the following executive officers.

Weiqiu Lis employment agreement became effective as
of October 1, 2007 and terminates on October 1, 2008.  We expect that this
agreement will be renewed by the parties upon its expiration.  Weiqiu Li
receives an annual salary of approximately RMB8,500 per month
 (approximately $1,212) under the agreement.

Kinwai Cheungs employment agreement became effective
as of October 1, 2007 and terminates on October 1, 2008.  We expect that
this agreement will be renewed by the parties upon its expiration.  Kinwai
Cheungreceives an annual salary of approximately RMB8,000 per month
(approximately $1,140)  under the agreement.

Our executive officers are not entitled to severance payments upon the
termination of their employment agreements. They are subject to the customary
non-competition and confidentiality covenants.





47

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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.

|Name            | Fees Earned or Paid in Cash
      ($) | Stock Awards
      ($) | Option Awards
      ($) | Non-Equity Incentive Plan Compensation
      ($) | Change in Pension Value and Nonqualified
      Deferred Compensation Earnings ($) | All Other Compensation ($) | Total
      ($)
|--------------- | ------------------------------------- | ---------------------- | ----------------------- | ------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------- | ---------------
|Weiqiu Li       | --                                    | --                     | --                      | --                                               | --                                                                                | --                         | --             
|Kinwai Cheung   | --                                    | --                     | --                      | --                                               | --                                                                                | --                         | --             
|Richard Randall | 12,500                                | --                     | 102,026                 | --                                               | --                                                                                | --                         | 114,526        
|Guanghan Chen   | 2,647                                 | --                     | --                      | --                                               | --                                                                                | --                         | 2,647          
|Binhai Chen     | 2,647                                 | --                     | --                      | --                                               | --                                                                                | --                         | 2,647          
|Jianzhao Zheng  | 2,647                                 | --                     | --                      | --                                               | --                                                                                | --                         | 2,647          

Narrative to Director Compensation Table

In 2007, 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. Randall is entitled
to an annual fee of $30,000, and Messrs. Binhai Chen, Guanghan Chen and Jianzhao
Zheng are each entitled to a one-time fee of RMB20,000 (approximately USD$2,647)
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.

On August 7, 2007, we also granted Mr. Randall, our
audit committee chair, 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 is contingent on continued participation as a member of our Board of
Directors.  We use the Black-Scholes option pricing model to calculate the
grant-date fair value of an award, with the following assumptions: no dividend
yield, expected volatility of 161%, and a risk-free interest rate of 4.2%.
 In determining volatility of the our options, we use the average
volatility of our stock.  Based on the Black-Scholes option pricing model,
the entire option was valued at $204,054. One-third of the value of the issuance
was expensed immediately as it vested, with the remaining amount expensed
monthly over the vesting period. In accordance with SFAS No. 123R, we have
recorded stock-based compensation expense during the year ended December 31,
2007 of $102,026, in connection with the issuance of this option.

48

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The compensation paid to Mr. Li and Mr. Cheung, our
named executive officers who also serve on our board of directors, is reported
in the Summary Compensation Table above. They do not receive any additional
compensation for their service as directors.

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, 2007.

ITEM 12. SECURITY 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 28, 2007 (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 and directors; and (iii) by all of our officers and
directors as a group.

Unless otherwise specified, the address of each of
the persons set forth below is in care of Home System Group, No. 5A, Zuanshi Ge,
Fuqiang Yi Tian Ming Yuan, Fu Tian Qu, Shenzhen City, Peoples Republic of
China, 518000.

|Title of  Class        | Name & Address of Beneficial Owner                                                                                 | Office, If Any   | Amount & Nature of
      BeneficialOwnership(1) | Percent of
      Class(2)
|---------------------- | ------------------------------------------------------------------------------------------------------------------ | ---------------- | ----------------------------------------------- | -------------------------
|Directors and Officers
|Common Stock           | Wei Qiu Li(3)
      No. 264-298 Qingshan Road
      Nanfeng Center, Suite 1905
      Quanwan Xingjie, Hong Kong    | CEO and Chairman | 2,080,000                                       | 3.3%                     
|Common Stock           | Kinwai Cheung(4)
      No. 264-298 Qingshan Road
      Nanfeng Center, Suite 1905
      Quanwan Xingjie, Hong Kong | CFO and Director | 1,600,000                                       | 2.6%                     
|Common Stock           | All officers and directors as a group (2 persons named
      above)                                                |                  | 3,680,000                                       | 5.9%                     

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|5% Securityholders                             
|-----------------------------------------------
|Common Stock                                   
|Common Stock                                   
|Common Stock                                   
|Total Shares Owned by Persons Named
      Above
|Common Stock                                   

* Less than 1%

1Beneficial 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.

2A total of
 62,447,949 shares of our common stock as of March 28, 2008 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.

3Xiyan Li has sole
voting and investment control over the securities held by Arjuno Investments
Ltd.

4Zhiyong Xu has sole
voting and investment control over the securities held by Shenzhen Hua YinCurangy & Investment Co.

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. CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

The following includes a summary of transactions
since the beginning of the last fiscal year, or any currently proposed
transaction, in which we were or are to be a participant and the amount involved
exceeded or exceeds $120,000, and in which any related person had or will have a
direct or indirect material interest (other than compensation described under
Executive Compensation).  We believe the terms obtained or consideration
that we paid or received, as applicable, in connection with the transactions
described below were comparable to terms available or the amounts that would be
paid or received, as applicable, in arms-length transactions.

- As of December 31, 2007, our indirect subsidiary,
  Well Profit, owes us $2.34 millionfor funds that we advanced as
  prepaid expenses on its behalf to suppliers: Zhongshan Food Import and Export
  Company, Zhongshan Guang Yu Import and Export Company, Zhongshan Yu Liang
  Trading Co., and ZhongShan Tai Quan Import and Export Company.  We
  subsequently collected the full amount of these advances in July 2007. In
  September 2006, the Company terminated its business relation with these
  suppliers and these amounts were due to be returned to the Company.
    However, the Company instructed that these suppliers repay such
  amount to Well Profit. There is no stated interest or repayment terms
  associated with this transferred amount.

50

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- On October 26, 2006, Holy (HK) Limited 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.
- Our production facilities are located in five
  leased buildings totaling 35,012.72 square meters, in Zhongshan Harbor Town
  Oceanic Industrial Area, China for RMB350,127 per month, subject to a 5-year
  lease that will expire in June 30, 2011.   Oceanic PRC owns the land
  use right to the facility. We also rent from Oceanic PRC an additional 6,613.7
  square meters of production space in the Zhongshan Harbor Town Oceanic
  Industrial Area, for RMB66,137 per month, subject to a 5-year lease that will
  expire on May 31, 2012.  We also lease from Oceanic PRC, 2,140 square
  meters of facilities for employees to use as living quarters, for a monthly
  payment of RMB12,800 per month. These facilities are offered as an added free
  benefit to our employees, many of whom have to travel great distances to come
  to work each day.  Ocean PRC was a company indirectly owned and
  controlled by our Chairman and CEO, Weiqiu Li.  However, Mr. Li
  transferred his ownership interests in this entity to Ye Shu Zhen in March
  2007 and filed the transfer with the Hong Kong registrar of companies in March
  2008.
- Our PRC operating subsidiary, Well Profit, sells
  69% of its products to Hengbao, one of its exclusive distributors, through an
  unwritten commercial arrangement between Well Profit and Hengbao.
   Hengbao is indirectly owned by Oceanic PRC, which until March 2007, was
  indirectly owned and controlled by Mr. Weiqiu Li, our director and Chief
  Executive Officer.  For the fiscal year ended December 31, 2007, our
  sales to Hengbao accounted for $27,196,100, or 100% of our receivables,
  9,134,350 of which remained outstanding as at December 31, 2007, with no
  stated interest rate or repayment terms.
- On July 5, 2007, we entered into the Weihe
  Agreement for the acquisition of 100% of the then outstanding shares of Weihe,
  a company that was owned and controlled by Weiqiu Li, our Chief Executive
  Officer. In consideration for the shares of Weihe, we agreed to pay an
  aggregate price of $45,000,000, to be paid in a combination of 4,500,000
  shares of our common stock, valued at $4.00 per share and $27,000,000 in cash.
   The obligation to pay the cash portion of the purchase price was
  evidenced by non-interest-bearing, unsecured promissory notes delivered by us
  to each of the Weihe shareholders at the closing. Pursuant to the promissory
  notes, 40% of the cash portion of the purchase price was due and payable on
  July 5, 2008, the first anniversary of the closing, and the remaining 60% was
  due and payable on July 5, 2009, the second anniversary of the closing.
    However, on February 7, 2008, we entered into a termination and
  release agreement with Weihe and its shareholders, pursuant to which we agreed
  to terminate the Weihe Agreement and release each other from our respective
  obligations thereunder because performance of our respective obligations under
  the agreements could not be completed without unreasonable expense or delay.
   No termination penalties were incurred by us in connection with the
  termination of the Weihe Agreement.

51

---



Except as set forth in our discussion above, none of
our directors, director nominees or executive officers has been involved in any
transactions with us or any of our directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.

Policies and Procedures for Review, Approval or
Ratification of Transactions with Related Persons

As we increase the size of our board of directors to
include independent directors, we expect to prepare and adopt a written
related-person transactions policy that sets forth our policies and procedures
regarding the identification, review, consideration and approval or ratification
of related-persons transactions.  For purposes of our policy only, a
related-person transaction will be a transaction, arrangement or relationship
(or any series of similar transactions, arrangements or relationships) in which
we and any related person are participants involving an amount that exceeds
$50,000.  Transactions involving compensation for services provided to us
as an employee, director, consultant or similar capacity by a related person
will not be covered by this policy.  A related person will be any executive
officer, director or a holder of more than five percent of our common stock,
including any of their immediate family members and any entity owned or
controlled by such persons.

We anticipate that, where a transaction has been
identified as a related-person transaction, the policy will require management
to present information regarding the proposed related-person transaction to our
audit committee (or, where approval by our audit committee would be
inappropriate, to another independent body of our board of directors) for
consideration and approval or ratification.  Managements presentation will
be expected to include a description of, among other things, the material facts,
the direct and indirect interests of the related persons, the benefits of the
transaction to us and whether any alternative transactions are
available.

To identify related-person transactions in advance,
we are expected to rely on information supplied by our executive officers,
directors and certain significant stockholders.  In considering
related-person transactions, our board of directors will take into account the
relevant available facts and circumstances including, but not limited
to:

- the risks, costs and benefits to us;
- the impact on a directors independence in the
  event the related person is a director, immediate family member of a director
  or an entity with which a director is affiliated;
- the terms of the transaction;
- the availability of other sources for comparable
  services or products; and
- the terms available to or from, as the case may be,
  unrelated third parties or to or from our employees
generally.

We also expect that the policy will require any
interested director to excuse himself or herself from deliberations and approval
of the transaction in which the interested director is involved.

Promoters and Certain Control
Persons

We did not have any promoters at any time during the
past five fiscal years.  Except as set forth in our discussion above, none
of our directors, director nominees or executive officers has been involved in
any transactions with us or any of our directors, executive officers, affiliates
or associates which are required to be disclosed pursuant to the rules and
regulations of the SEC.

52

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Director Independence

Our Board of Directors is currently composed of 6
members, Weiqiu Li, Kinwai Cheung, Richard Randall,  Guanghan Chen, Binhai
Chen and Jianzhao Zheng.  Each of Messrs. Randall, Chen, Chen and Zheng
serve on our board of directors as an independent director as defined by Rule
4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc., or the
Nasdaq Marketplace Rules.  The board of directors has determined that Mr.
Randall possesses the accounting or related financial management experience that
qualifies him as financially sophisticated within the meaning of Rule
4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an audit committee
financial expert as defined by the rules and regulations of the
SEC.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees Paid to Independent Public Accountants

The following table presents fees for professional audit services
rendered by Morison Cogen, LLP, or Morison Cogen, for the audit of the Company's
annual financial statements for the year ended December 31, 2006 and fees billed
for other services rendered by them during this period, and fees for
professional audit services rendered by Yu & Associates CPA Corporation, for
the audit of the Company's annual financial statements for the year ended
December 31, 2007 and fees billed for other services rendered by them during
this period

|                   |  | Fiscal 2007 |         | Fiscal 2006
|------------------ |  | ----------- | ------- | -----------
|Audit fees (1)     |  | $           | 130,000 |            
|Audit Related Fees |  |             | --      |            
|Tax Fees           |  |             | --      |            
|All Other Fees     |  |             | --      |            
|TOTAL              |  | $           | 130,000 |            

(1) Audit Fees consist of fees billed for professional services rendered
for the audit of the Company's consolidated annual financial statements and
review of the interim consolidated financial statements included in quarterly
reports and services that are normally provided by our auditors in connection
with statutory and regulatory filings or engagements.

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.
 In accordance with its policies and procedures, our audit committee
pre-approved the audit service performed by Yu & Associates CPA Corporation
for our consolidated financial statements, as of and for the year ended December
31, 2007.  As our audit committee was formed on July 31, 2007, there was no
such pre-approval by our audit committee before Morison Cogen performed its
audit of fiscal 2006 or before Pollard-Kelley Auditing Services, Inc. performed
its audit of fiscal year 2005.

53

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

|Exhibit Number | Exhibit Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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)                                                                                                                                                                                                                                                                         
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.2            | 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)                                                                                                                                                                                                                                                                                                            
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.3            | 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)
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.4            | 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)                                                                                                                                                                                                                 

54

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|      |                                                                                                                                                                                                                                                                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                 
|      |                                                                                                                                                                                                                                                                                                                                                                                
|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*   | 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*   | Certification of the Chief Executive 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                                                                                                                                                                              

* Filed with this Report.



55

---



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: July 23, 2008 |                                  
|By:                 | /s/ Weiqiu Li                    
|                    | Weiqiu Li                        
|                    | Chief Executive Officer,
Director

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 July 23, 2008.

|SIGNATURE           |  | TITLE                                          
|------------------- |  | -----------------------------------------------
|                    |  |                                                
|/s/ Weiqiu Li       |  | Chief Executive Officer, President and Director
|Weiqiu
      Li     |  | (Principal
      Executive Officer)            
|                    |  |                                                
|/s/ Kinwai Cheung   |  | Chief Financial Officer and Treasurer          
|Kinwai
      Cheung |  | (Principal
      Financial Officer)            



57

---



HOME
SYSTEM GROUP AND SUBSIDIARIES FINANCIAL STATEMENTS FOR THE
YEAR / PERIOD ENDED DECEMBER 31, 2007 AND 2006     C O N T E N T S PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
      31, 2007
    F-1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD FROM APRIL 5,
      2006 (DATE OF INCORPORATION) TO DECEMBER 31, 2006
    F-2CONSOLIDATED BALANCE SHEETS
    F-3CONSOLIDATED STATEMENTS OF INCOME  AND
      COMPREHENSIVE INCOME FOR THE  YEAR ENDED DECEMBER 31, 2007 AND FOR
      THE PERIOD FROM APRIL 5, 2006 (DATE OF INCORPORATION) TO DECEMBER 31,
      2006
    F-4CONSOLIDATED STATEMENT OF STOCKHOLDERS'
      EQUITY
    F-5CONSOLIDATED STATEMENTS OF CASH
FLOWS
    F-6NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS
    F-7 Yu and Associates CPA Corporation(member of GC Alliance Group)Certified Public Accountants, Management
      ConsultantsDirector, Consultant:
    Manager:
    Member:
    Registered:K.K.Yu MBA., CPA.
    Aswin Indradjaja
    American Institute of CPAs
    Public Company AccountingFrank T. Murphy CPA.
    Debbie Wang MBA.
    California Society of CPAs
    Oversight BoardAva Yim CPA.
    Center For Audit Quality REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM To the Board of Directors andStockholders of Home
System Group We have audited the accompanying consolidated balance
sheet of Home System Group and subsidiaries as of December 31, 2007, and the
related consolidated statements of income, stockholders' 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.  The consolidated financial statements of Holy (HK) Limited,
the accounting acquirer of Home System Group, for the period ended December 31,
2006, as explained in Note 1 to the accompanying consolidated financial
statements were audited by other auditors whose report dated March 5, 2007
expressed an unqualified opinion on those statements. 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 opinion. In our opinion, the financial statements referred to
above present fairly, in all material respects, the financial position of Home
System Group and subsidiaries as of December 31, 2007, 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. (Signed) Yu and Associates CPA Corporation Arcadia, CaliforniaFebruary 26, 2008 F-1


---





---



HOME SYSTEM GROUP AND SUBSIDIARIESCONSOLIDATED
BALANCE SHEETSAS OF DECEMBER 31, 2007 AND 2006(Expressed in US dollars
except for number of shares)

|                                                                         |   | December 31,
|------------------------------------------------------------------------ | - | ------------
|                                                                         |   | 2007        
|ASSETS                                                                   |   |             
|                                                                         |   |             
|CURRENT ASSETS                                                           |   |             
|Cash and cash equivalents                                                | $ | 821,074     
|Accounts receivable - trade                                              |   | 10,706,256  
|Other receivables                                                        |   | 1,056,946   
|Inventories                                                              |   | 5,267,728   
|Trade deposits                                                           |   | 434,734     
|Income tax refundable                                                    |   | 75,550      
|Employee advances                                                        |   | -           
|TOTAL CURRENT ASSETS                                                     |   | 18,362,288  
|                                                                         |   |             
|Acquisition deposits                                                     |   | 7,540,500   
|Property, plant and equipment - net                                      |   | 5,986,847   
|                                                                         |   |             
|TOTAL ASSETS                                                             | $ | 31,889,635  
|                                                                         |   |             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                     |   |             
|                                                                         |   |             
|CURRENT LIABILITIES                                                      |   |             
|Accounts payable - trade                                                 | $ | 15,497,372  
|Accrued expenses                                                         |   | 1,411,351   
|Taxes payable                                                            |   | 802,054     
|Due to related party                                                     |   | -           
|Due to stockholder                                                       |   | 304,366     
|TOTAL CURRENT LIABILITIES                                                |   | 18,015,143  
|                                                                         |   |             
|NON-CURRENT LIABILITIES                                                  |   |             
|Due to stockholder                                                       |   | 600,000     
|Notes payable                                                            |   | 6,575,000   
|                                                                         |   |             
|TOTAL LIABILITIES                                                        | $ | 25,190,143  
|                                                                         |   |             
|COMMITMENTS AND CONTINGENCIES (Note
    22)                              |   |             
|                                                                         |   |             
|STOCKHOLDERS' EQUITY                                                     |   |             
|Common stock - $0.001 par value; 200,000,000
      shares                |   |             
|authorized, 62,477,949 shares and 42,500,000
      shares                |   |             
|issued and outstanding at December 31, 2007 and
      2006, respectively | $ | 62,478      
|Additional paid-in capital                                               |   | 6,615,726   
|Note receivable on stock issuance                                        |   | (900,000)   
|Statutory reserves                                                       |   | 29,616      
|Retained earnings                                                        |   | 150,161     
|Cumulative translation adjustment                                        |   | 741,511     
|                                                                         |   |             
|TOTAL STOCKHOLDERS' EQUITY                                               | $ | 6,699,492   
|                                                                         |   |             
|TOTAL LIABILITIES AND STOCKHOLDERS'
      EQUITY                         |   | 31,889,635  

F-3

---



HOME SYSTEM GROUP AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FORTHE YEAR ENDED DECEMBER 31, 2007 AND FOR THE  PERIOD FROM APRIL
5, 2006 (DATE OF INCORPORATION) TO DECEMBER 31, 2006(Expressed in US dollars
except for number of shares)

|                                                  |         | 2007       |        | 2006      
|------------------------------------------------- | ------- | ---------- | ------ | ----------
|                                                  |         |            |        |           
|NET SALES                                         | $       | 41,012,614 | $      | 3,938,562 
|Cost of sales                                     |         | 37,584,115 |        | 3,507,759 
|GROSS PROFIT                                      |         | 3,428,499  |        | 430,803   
|                                                  |         |            |        |           
|OPERATING EXPENSES                                |         |            |        |           
|Stock based compensation                          |         | 874,526    |        | -         
|General selling and administrative
      expenses |         | 2,324,548  |        | 253,458   
|                                                  |         | 3,199,074  |        | 253,458   
|                                                  |         |            |        |           
|INCOME FROM OPERATIONS                            |         | 229,425    |        | 177,345   
|                                                  |         |            |        |           
|OTHER (EXPENSE) INCOME                            |         |            |        |           
|Other income                                      |         | 43,593     |        | -         
|Finance costs                                     |         | (212,219)  |        | -         
|Interest income                                   |         | 2,141      |        | 244       
|                                                  |         |            |        |           
|INCOME BEFORE INCOME TAXES                        |         | 62,940     |        | 177,589   
|                                                  |         |            |        |           
|INCOME TAXES                                      |         | (1,412)    |        | (59,340)  
|                                                  |         |            |        |           
|NET INCOME                                        | $       | 61,528     | $      | 118,249   
|                                                  |         |            |        |           
|OTHER COMPREHENSIVE INCOME                        |         |            |        |           
|Foreign currency translation
    adjustment       | 642,148 |            | 99,363
|                                                  |         |            |        |           
|COMPREHENSIVE INCOME                              | $       | 703,676    | $      | 217,612   
|                                                  |         |            |        |           
|EARNINGS PER SHARE :                              |         |            |        |           
|- BASIC                                           | $       | 0.001      | $      | 0.003     
|- DILUTED                                         | $       | 0.001      | $      | 0.003     
|                                                  |         |            |        |           
|WEIGHTED AVERAGE NUMBER OF SHARES :               |         |            |        |           
|- BASIC                                           |         | 60,749,219 |        | 42,500,000
|- DILUTED                                         |         | 60,749,219 |        | 42,500,000

See accompanying notes to
consolidated financial statements

F-5

---



HOME SYSTEM GROUP AND
SUBSIDIARIESCONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYFOR THE YEAR
ENDED DECEMBER 31, 2007 AND FOR THEPERIOD FROM APRIL 5, 2006 (DATE OF
INCORPORATION) TO DECEMBER 31, 2006(Expressed in US dollars except for
number of shares)

|                                                    |  |              |   |            |   |            |   | Note      |   |           |   |            |   |             |   |          
|--------------------------------------------------- |  | ------------ | - | ---------- | - | ---------- | - | --------- | - | --------- | - | ---------- | - | ----------- | - | ---------
|                                                    |  | Common Stock |   | Additional |   | Receivable |   |           |   |           |   | Cumulative |   |            
|                                                    |  | Number of    |   |            |   | Paid-in    |   | On Stock  |   | Statutory |   | Retained   |   | Translation |   |          
|                                                    |  | shares       |   | Amount     |   | Capital    |   | Issuance  |   | Reserves  |   | Earnings   |   | Adjustment  |   | Total    
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|BALANCE AT APRIL 5, 2006                            |  |              | $ | -          | $ | -          | $ | -         | $ | -         | $ | -          | $ | -           | $ | -        
|Initial capitalization                              |  | 10,000       |   | 1,285      |   | -          |   | -         |   | -         |   | -          |   | -           |   | 1.285    
|Contributed capital                                 |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Cash                                                |  | -            |   | -          |   | 1,123,140  |   | -         |   | -         |   | -          |   | -           |   | 1,123,140
|Property, plant and
      equipment                 |  | -            |   | -          |   | 2,627,100  |   | -         |   | -         |   | -          |   | -           |   | 2,627,100
|Retroactive recapitalization                        |  | 42,490,000   |   | 41,215     |   | (41,215)   |   | -         |   | -         |   | -          |   | -           |   | -        
|Cumulative translation adjustment                   |  | -            |   | -          |   | -          |   | -         |   | -         |   | -          |   | 99,363      |   | 99,363   
|Net income for the period                           |  | -            |   | -          |   | -          |   | -         |   | -         |   | 118,249    |   | -           |   | 118,249  
|BALANCE AT DECEMBER 31, 2006                        |  | 42,500,000   |   | 42,500     |   | 3,709,025  |   | -         |   | -         |   | 118,249    |   | 99,363      |   | 3,969,137
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Effects of reverse acquisition (Note
    3)         |  | 19,797,949   |   | 19,798     |   | 2,032,355  |   | (900,000) |   | -         |   | -          |   | -           |   | 1,152,153
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Issuance of common stock for prepaid
      expenses |  | 150,000      |   | 150        |   | 622,350    |   | -         |   | -         |   | -          |   | -           |   | 622,500  
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Issuance of common stock for
employees              |  | 30,000       |   | 30         |   | 149,970    |   | -         |   | -         |   | -          |   | -           |   | 150,000  
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Issuance of stock options                           |  | -            |   | -          |   | 102,026    |   | -         |   | -         |   | -          |   | -           |   | 102,026  
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Appropriation to reserves                           |  | -            |   | -          |   | -          |   | -         |   | 29,616    |   | (29,616)   |   | -           |   | -        
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Cumulative translation adjustment                   |  | -            |   | -          |   | -          |   | -         |   | -         |   | -          |   | 642,148     |   | 642,148  
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|Net income for the year                             |  | -            |   | -          |   | -          |   | -         |   | -         |   | 61,528     |   | -           |   | 61,528   
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          
|BALANCE AT DECEMBER 31, 2007                        |  | 62,477,949   | $ | 62,478     | $ | 6,615,726  | $ | (900,000) | $ | 29,616    | $ | 150,161    | $ | 741,511     | $ | 6,699,492
|                                                    |  |              |   |            |   |            |   |           |   |           |   |            |   |             |   |          

See accompanying notes to
consolidated financial statements

F-6

---



HOME SYSTEM GROUP AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEAR ENDED
DECEMBER 31, 2007 AND FOR THEPERIOD FROM APRIL 5, 2006 (DATE OF
INCORPORATION) TO DECEMBER 31, 2006(Expressed in US
dollars)

|                                                             |   | Year Ended
      December 31, |   | Period from April 5 to
      December 31,
|------------------------------------------------------------ | - | ----------------------------- | - | -----------------------------------------
|                                                             |   | 2007                          |   | 2006                                     
|                                                             |   |                               |   |                                          
|CASH FLOWS FROM OPERATING ACTIVITIES                         |   |                               |   |                                          
|Net income                                                   | $ | 61,528                        | $ | 118,249                                  
|Adjustments to reconcile net income                          |   |                               |   |                                          
|to net cash provided by (used in) operating
      activities |   |                               |   |                                          
|Depreciation                                                 |   | 313,854                       |   | 127,723                                  
|Stock-based compensation                                     |   | 874,526                       |   | -                                        
|Change in assets and liabilities:                            |   |                               |   |                                          
|(Increase) decrease in assets                                |   |                               |   |                                          
|Accounts receivable  trade                                  |   | (3,330,670)                   |   | (3,157,823)                              
|Other receivables                                            |   | (713,807)                     |   | -                                        
|Inventories                                                  |   | (2,662,696)                   |   | (2,293,966)                              
|Trade deposits                                               |   | 2,224,290                     |   | (110,853)                                
|Increase (decrease) in liabilities                           |   |                               |   |                                          
|Accounts payable                                             |   | 9,766,686                     |   | 2,302,821                                
|Accrued expenses                                             |   | 880,315                       |   | 381,670                                  
|Taxes payable                                                |   | 645,528                       |   | 120,126                                  
|                                                             |   |                               |   |                                          
|Net cash provided by (used in) operating
      activities    |   | 8,059,554                     |   | (2,512,053)                              
|                                                             |   |                               |   |                                          
|CASH FLOWS FROM INVESTING ACTIVITIES                         |   |                               |   |                                          
|Acquisition, net of cash acquired (Note
      3)             |   | (2,944,020)                   |   | -                                        
|Purchase of equipments                                       |   | (2,280,492)                   |   | (1,101,490)                              
|                                                             |   |                               |   |                                          
|Net cash used in investing
activities                        |   | (5,224,512)                   |   | (1,101,490)                              
|                                                             |   |                               |   |                                          
|CASH FLOWS FROM FINANCING ACTIVITIES                         |   |                               |   |                                          
|Proceeds from issuance of share
    capital                  |   | -                             |   | 1,132,805                                
|Acquisition deposit paid                                     |   | (7,540,500)                   |   | -                                        
|Net repayments of bank loans                                 |   | (1,745,000)                   |   | -                                        
|Notes payable                                                |   | 6,575,000                     |   | -                                        
|Net (decrease) increase in due to related
      party        |   | (249,266)                     |   | 2,486,660                                
|Increase in due to stockholder                               |   | 904,363                       |   | -                                        
|                                                             |   |                               |   |                                          
|Net cash provided by (used in) financing
      activities    |   | (2,0055,403)                  |   | 3,619,465                                
|                                                             |   |                               |   |                                          
|EXCHANGE RATE EFFECT ON CASH                                 |   | 35,423                        |   | 90                                       
|                                                             |   |                               |   |                                          
|NET INCREASE IN CASH                                         |   | 815,062                       |   | 6,012                                    
|                                                             |   |                               |   |                                          
|CASH - BEGINNING OF YEAR/PERIOD                              |   | 6,012                         |   | -                                        
|                                                             |   |                               |   |                                          
|CASH - END OF YEAR/PERIOD                                    | $ | 821,074                       | $ | 6,012                                    
|                                                             |   |                               |   |                                          
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
      INFORMATION       |   |                              
|Cash paid during the period for:                             |   |                               |   |                                          
|Interest                                                     | $ | 147,764                       | $ | -                                        
|Income taxes                                                 | $ | 72,574                        | $ | 9,241                                    
|                                                             |   |                               |   |                                          
|NONCASH INVESTING AND FINANCING
      ACTIVITIES:            |   |                               |   |                                          
|                                                             |   |                               |   |                                          
|Issuance of common stock for prepaid
      expenses          | $ | 622,500                       | $ | -                                        
|Issuance of common stock for employees'
      compensation   | $ | 150,000                       | $ | -                                        
|Issuance of stock options                                    | $ | 102,026                       | $ | -                                        
|Property, plant and equipment contributed as
      capital   | $ | -                             | $ | 2,267,100                                

See accompanying notes to
consolidated financial statements

F-7

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION AND NATURE OF BUSINESS

Home System Group, Inc. ("HSGI" or the "Company") was
incorporated with limited liability in The British Virgin Islands on February
28, 2003.  HSGI, with a minimum capitalization of $2, was inactive until
June 30, 2006 when HSGI acquired all the issued and outstanding stock of Oceanic
International (HK) Limited ("Oceanic").  Oceanic is an operating company
organized under the laws of Hong Kong on June 23, 2004 for the purpose of
trading gas grills, home electronic appliances and bin racks. Since the
ownership of HSGI and Oceanic were the same, the merger was accounted for as a
transaction between entities under common control, whereby HSGI recognized the
assets and liabilities transferred at their carrying amounts.

On August 4, 2006, Supreme Realty Investments, Inc.
("Supreme"), a public shell company incorporated in the State of Nevada,
acquired HSGI. Under the terms of the merger agreement, the stockholders of HSGI
received 8,000,000 (post reverse stock split) shares of common stock of Supreme
for 100% of HSGI's outstanding common stock.  Following the merger, the
Company changed its name to Home System Group ("HSG").  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 will be identical to
that resulting from a reverse acquisition, except no goodwill will be recorded.
 Under reverse takeover accounting, the post reverse acquisition
comparative historical financial statements of the legal acquirer, Supreme, are
those of the legal acquiree which are considered to be the accounting acquirer,
HSGI.  Shares and per share amounts stated have been adjusted to reflect
the merger.

Holy (HK) Limited ("Holy") was incorporated in Hong Kong
on September 26, 2006 for the purpose of being a holding company.  Oceanic
Well Profit, Inc. ("Well Profit"), a wholly-owned subsidiary of Holy, was
incorporated in the Peoples Republic of China ("PRC") on April 5, 2006 for the
purpose of manufacturing gas grills, home electronic appliances, skateboards and
bin racks.

Holy, with a minimum capitalization of $1,285, 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 the assets and liabilities
transferred at their carrying amounts.  The consolidated financial
statements combine the historical financial statements of Holy and Well Profit
as if the merger occurred at the beginning of the periods presented.

On January 31, 2007, HSG acquired Holy and its
wholly-owned subsidiary Well Profit.  Under the terms of the merger
agreement, the stockholders of Holy received $3,000,000 and 42,500,000 shares of
voting common stock of HSG in exchange for 100% of Holy's outstanding common
stock. For accounting purposes, the acquisition has been treated as an
acquisition of HSG by Holy and as a recapitalization of Holy. The historical
financial statements prior to January 31, 2007 are those of Holy and its
subsidiary, Well Profit. Share and per share amounts have been retroactively
adjusted to reflect the acquisition.

On June 26, 2007, the Company
entered into a share exchange agreement with Zhongshan Weihe Electrical
Appliances Co. Ltd. ("Weihe") and Weihe's shareholders, pursuant to which the
Company agreed to acquire 100% equity interests in Weihe for an aggregate
consideration of approximately $45,000,000, consisting of 4,500,000 newly issued
shares of HSG's common stock, (stock price valued at $4.66 per share  average
share price 5 trading days in which there were transactions prior to the
acquisition) and $27,000,000 in cash payable as follows: $10,800,000 due on the
first anniversary of the closing of the transaction, and $16,200,000 due on the
second anniversary of closing of the transaction.

F-8

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION AND NATURE OF BUSINESS
(Continued)

On April 20, 2007, the Company entered into a Share
Exchange Agreement (the "Agreement") pursuant to which Well Profit acquired 100%
of Zhongshan Juxian Gas Oven Co. Ltd. ("Juxian") in a stock and cash transaction
valued at approximately $14,000,000. Under the Agreement, in exchange of
surrendering their shares in Juxian, the stockholders of Juxian would receive
both stock consideration, (stock price at  $4.59 per share  average share
price 5 trading days in which there were transactions prior to the acquisition)
and cash consideration from HSG. The stock consideration would consist of
1,000,000 newly issued shares of the HSG common stock. The cash consideration
would consist of $10,000,000 in cash payable as follows: $5,000,000 due on the
first anniversary of the closing of the transaction, which was July 2, 2007 and
$5,000,000 due on the second anniversary of closing of the transaction.

However, as the delivery of the Company's stock, which
is traded on the OTCBB, has not been recognized as share exchange consideration
by the relevant PRC government authority for the purposes of approval of the
ownership transfer of Weihe and Juxian, on February 7, 2008, the Company
cancelled the acquisition of Weihe and Juxian and both share exchange
agreements.

NOTE 2  BASIS OF CONSOLIDATION

The accompanying consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles in the United States of America.

The consolidated financial statements include the
accounts of the Company and its subsidiaries.  All significant
inter-company accounts and transactions have been eliminated in
consolidation.

As agreements to acquire Zhongshan Weihe Electrical
Appliances Co., Ltd. and Zhongshan Juxian Gas Oven Co., Ltd. have been cancelled
subsequent to the year ended December 31, 2007, the accounts of these two
companies have not been consolidated into these financial statements.

F-9

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3  REVERSE ACQUISITION

On January 31, 2007, HSG completed the acquisition of
Holy (H.K.) Limited ("Holy") and Oceanic Well Profit Inc. ("Oceanic") (the
"Transaction") pursuant to a share exchange agreement ("Share Exchange
Agreement") between HSG, Holy, Oceanic and the then sole shareholder of Holy
("Holy Shareholder"). Pursuant to the Share Exchange Agreement, HSG issued
42,500,000 shares of its common stock, representing 68.2% of HSG's issued and
outstanding common stock immediately following the Transaction, and paid
$3,000,000 cash to Holy Shareholder in exchange of 100% equity interest in Holy.
Holy was incorporated in Hong Kong as an investment holding company for the
primary purpose of holding 100% ownership interest in Oceanic. Oceanic was
incorporated in the PRC and engages in manufacturing of gas grills, home
electronic appliances, skateboards and bin racks.

Before the Transaction, HSG conducted all of its
substantive business through a wholly-owned subsidiary, Oceanic International
(HK) Limited ("OCIL"). OCIL was a distributor of home appliance products without
any manufacturing base or facilities.  In conjunction with the Transaction,
management of the Company has determined to abandon and discontinue the
operations of OCIL and has treated HSG as a shell corporation.

As Holy Shareholder has become the majority
shareholder of the consolidated entity comprising HSG and Holy, the Transaction
has been accounted for as a reverse acquisition using the purchase method of
accounting, where HSG (the legal acquirer) is deemed to be the accounting
acquiree and Holy (the legal acquiree) to be the accounting acquirer. However,
the Transaction is also considered to be a capital transaction in substance as
Holy (a private operating company) has been merged into HSG (a public shell
corporation with nominal non-monetary net assets) with the shareholders of HSG,
the former public shell continuing only as passive investors.  Hence, the
cost of the transaction has been measured at the carrying value of the net
assets of HSG with no goodwill or other intangible being recorded in accordance
with the accounting interpretation and guidance issued by the SEC staff.

HSG is deemed to be a continuation of the business
of Holy and the financial statements prior to January 31, 2007 are those of
Holy. The results of HSG have been consolidated from the date of the
Transaction.

The allocation of the cost of the Transaction is as
follows:

|Cash                                                  | $ | 55,980     
|----------------------------------------------------- | - | -----------
|Accounts receivable                                   |   | 3,656,646  
|Due from a related
    party                          |   | 2,344,415  
|Trade deposits                                        |   | 2,543,165  
|Equipment                                             |   | 998        
|Bank loans                                            |   | (1,745,000)
|Accounts payable                                      |   | (2,696,515)
|Accrued expenses                                      |   | (2,179)    
|Due to directors                                      |   | (1,280)    
|Due to related party                                  |   | (4,077)    
|                                                      |   | 4,152,153  
|Stock subscription
      receivable                   |   | 900,000    
|Net assets of HSG deemed to be
      acquired by Holy |   | 5,052,153  
|                                                      |   |            
|Satisfied by:                                         |   |            
|Shares of HSG                                         |   | 2,052,153  
|Cash                                                  |   | 3,000,000  
|                                                      |   | 5,052,153  

The following unaudited pro forma
information assumes the Transaction occurred on the beginning of the year or the
period presented respectively. These unaudited pro forma results have been
prepared for informational purposes only and do not purport to represent what
the results of operations would have been had the Transaction occurred as of the
date indicated, nor of future results of operations. The unaudited pro forma
results for the year ended December 31, 2007 and the period from April 5, 2006
to December 31, 2006 are as follows:

|                                                            |   | Year ended December 31,
      2007 |   | Period from April 5 to December
      31, 2006
|----------------------------------------------------------- | - | ---------------------------------- | - | ----------------------------------------------
|                                                            |   |                                    |   |                                               
|Net sales                                                   | $ | 43,436,764                         | $ | 30,329,606                                    
|Net income                                                  | $ | 449,540                            | $ | 1,472,052                                     
|Earnings per share (basic and
    diluted)                  | $ | 0.007                              | $ | 0.024                                         
|Weighted average number of shares (basic and
      diluted) |   | 62,430,689                         |   | 62,297,949                                    

F-10

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4  SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Use of Estimates

The preparation of the financial statements, in
conformity with accounting principles generally accepted in the United States of
America, 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. Actual results could differ
from those estimates.

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.

Inventory

Inventory is stated at the lower of cost or market,
determined by the weighted average method.  Work-in-progress and finished
goods inventories consist of raw materials, direct labor and overhead associated
with the manufacturing process.

Property, plant and equipment

Property, plant and equipment are 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
(after taking into account their respective estimated residual values) over the
estimated useful lives of the assets as follows:

Plant and machinery

10 to 15 years

Furniture, fixtures and equipment

5 years

Revenue recognition

Revenue from sales of the Company's products is
recognized when the significant risks and rewards of ownership have been
transferred to the buyer at the time when the products are delivered to and
accepted by its customers, the price is fixed or determinable as stated on the
sales contract, and collectibility is reasonably assured.  Customers do not
have a general right of return on products shipped. Products returns to the
Company were insignificant during past years.  There are no post-shipment
obligations, price protection and bill and hold arrangements.

F-11

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Warranty Costs

The Company accounts for its liability for product
warranties in accordance with FASB Interpretation No. 45 (FIN 45), "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." Under FIN 45, the aggregate changes in
the liability for accruals related to product warranties issued during the
reporting period must be charged to expense as incurred.

Comprehensive Income

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

Income taxes

Income taxes are provided on an asset and liability
approach for financial accounting and reporting of income taxes.  Any tax
paid by subsidiaries during the year is recorded.  Current tax is based on
the profit or loss from ordinary activities adjusted for items that are
non-assessable or disallowable for income tax purpose and is calculated using
tax rates that have been enacted or substantively enacted at the balance sheet
date.  Deferred income tax liabilities or assets are recorded to reflect
the tax consequences in future years of differences between the tax basis of
assets and liabilities and the financial reporting amounts at each year end.

A valuation allowance is recognized if it is more likely
than not that some portion, or all, of a deferred tax asset will not be
realized.

F-12

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Foreign Currency Translation

The consolidated financial statements of the Company are
presented in United States Dollars ("US$").  Transactions in foreign
currencies during the year are translated into US$ at the exchange rates
prevailing at the transaction dates.  Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated into
US$ at the exchange rates prevailing at that date.  All transaction
differences are recorded in the income statement.

The Company's subsidiaries in the PRC have their local
currency, Renminbi ("RMB"), as their functional currency.  On
consolidation, the financial statements of the Company's subsidiaries in PRC are
translated from RMB into US$ in accordance with SFAS No. 52, "Foreign Currency
Translation".  Accordingly, all assets and liabilities are translated at
the exchange rates prevailing at the balance sheet dates and all income and
expenditure items are translated at the average rates for each of the
years.

RMB is not a fully convertible currency.  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, which are determined
largely by supply and demand.  Translation of amounts from RMB into US$ has
been made at the following exchange rates for the respective years:

|December 31, 2007                                  |  |                      
|-------------------------------------------------- |  | ---------------------
|Balance sheet                                      |  | USD 0.1371 to RMB1.00
|Statement of income and comprehensive
      income |  | USD 0.1317 to RMB1.00
|                                                   |  |                      
|December 31, 2006                                  |  |                      
|Balance sheet                                      |  | USD 0.1282 to RMB1.00
|Statement of income and comprehensive
      income |  | USD 0.1256 to
RMB1.00

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.  The exchange rate of the US$ against
the RMB was adjusted from approximately RMB 8.28 per US$ to approximately RMB
8.11 per US$ on July 21, 2005.  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.

Basic and diluted earnings per share

The Company reports basic earnings per share in
accordance with SFAS No. 128, "Earnings Per Share".  Basic earnings per
share is computed using the weighted average number of shares outstanding during
the periods presented.  The weighted average number of shares of the
Company represents the common stock outstanding during the reporting
periods.

Diluted earning per share is based on the assumption
that all dilutive options were converted or exercised. Dilution is computed by
applying the treasury stock method. Under this method, options are assumed to be
exercised at the time of issuance, and as if funds obtained thereby were used to
purchase common stock at the average market price during the year.

The Company reports its diluted earnings per share
exclude all options because they are anti-dilutive.

F-13

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Significant Estimates

Several areas require management's estimates relating to
uncertainties for which it is reasonably possible that there will be a material
change in the near term. The more significant areas requiring the use of
management estimates related to valuation of intangible assets acquired in
business acquisitions, accrued liabilities and the useful lives for amortization
and depreciation.

Recently Issued Accounting Pronouncements

FIN 48 "Accounting for Uncertainty in Income
Taxes"

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

SFAS No. 157 "Fair Value Measurement"

In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements ("SFAS No. 157"). SFAS No. 157 establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The changes to current practice resulting from the application of
SFAS No. 157 relate to the definition of fair value, the methods used to
measure fair value and the expanded disclosures about fair value measurement.
SFAS No. 157 is effective for fiscal years after November 15, 2007 and
interim periods within those fiscal years. The Company does not believe that the
adoption of the provisions of SFAS No. 157 will materially impact its
financial statements and footnote disclosures.

SFAS No. 159 "The Fair Value Option for Financial Assets
and Financial Liabilities  Including an Amendment of FASB Statement No.
115"

In February 2007, the FASB issued SFAS No. 159, "The
Fair Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115" ("SFAS 159").  SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value.  Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date.
 The fair value option may be elected on an instrument-by-instrument basis,
with few exceptions.  SFAS 159 also establishes presentation and disclosure
requirements to facilitate comparisons between companies that choose different
measurement attributes for similar assets and liabilities.  The
requirements of SFAS 159 are effective for the fiscal year beginning January 1,
2008.  The Company is in the process of evaluating this guidance and
therefore has not yet determined the impact that SFAS 159 will have on its
consolidated financial statements upon adoption.

F-14

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)

Recently Issued Accounting Pronouncements
(continued)

SFAS 141R, "Business Combinations"

In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), "Business Combinations"
("FAS 141R"). FAS 141R replaces Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("FAS 141"), although it
retains the fundamental requirement in FAS 141 that the acquisition method
of accounting be used for all business combinations. FAS 141R establishes
principles and requirements for how the acquirer in a business combination
(a) recognizes and measures the assets acquired, liabilities assumed and
any noncontrolling ("minority") interest in the acquiree, (b) recognizes
and measures the goodwill acquired in a business combination or a gain from a
bargain purchase and (c) determines what information to disclose regarding
the business combination. FAS 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
Company's 2009 fiscal year. The Company is currently assessing the potential
effect of FAS 141R on its financial statements.

SFAS 160, "Noncontrolling ("Minority") Interests in
Consolidated Financial Statements" 

In December
2007, the FASB issued Statement of Financial Accounting Standards No. 160,
"Noncontrolling ("minority") Interests in Consolidated Financial Statements"
("FAS 160"). FAS 160 establishes accounting and reporting standards
for the noncontrolling ("minority") interest in a subsidiary, commonly referred
to as minority interest. Among other matters, FAS 160 requires (a) the
noncontrolling ("minority") interest be reported within equity in the balance
sheet and (b) the amount of consolidated net income attributable to the
parent and to the noncontrolling ("minority") interest to be clearly presented
in the statement of income. FAS 160 is effective for the Company's 2009
fiscal year. FAS 160 is to be applied prospectively, except for the
presentation and disclosure requirements, which shall be applied retrospectively
for all periods presented. The Company is currently assessing the potential
effect of FAS 160 on its financial statements.

Control By Principal Stockholders

The directors, executive officers and their affiliates
or related parties, if they voted their shares uniformly, could have the ability
to control the approval of most corporate actions, including increasing the
authorized capital stock of the Company and the dissolution, merger or sale of
the Company's assets.

F-15

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5  CASH AND CASH EQUIVALENTS

Cash and cash equivalents are summarized as
follows:

|             |   | 2007    |   | 2006 
|------------ | - | ------- | - | -----
|             |   |         |   |      
|Cash at bank | $ | 815,738 | $ | 6,012
|Cash on hand |   | 5,336   |   | -    
|             |   |         |   |      
|Total        | $ | 821,074 | $ | 6,012

NOTE 6  ACCOUNTS RECEIVABLE - TRADE

Accounts receivable by major categories are summarized
as follows:

|                                           |   | 2007       |   | 2006     
|------------------------------------------ | - | ---------- | - | ---------
|Accounts receivable                        | $ | 10,706,256 | $ | 3,212,160
|                                           |   |            |   |          
|Less: allowances for doubtful
    accounts |   | -          |   | -        
|Total                                      | $ | 10,706,256 | $ | 3,212,160

NOTE 7  PROPERTY, PLANT AND EQUIPMENT - NET

Property, plant and equipment consist of the
following:

|                                  |   | 2007      |   | 2006     
|--------------------------------- | - | --------- | - | ---------
|At cost:                          |   |           |   |          
|Plant and machinery               | $ | 6,278,535 | $ | 3,773,252
|Furniture, fixtures and equipment |   | 87,831    |   | 41,068   
|                                  |   |           |   |          
|Total                             |   | 6,366,366 |   | 3,814,320
|                                  |   |           |   |          
|Less: accumulated depreciation    |   | 379,519   |   | 129,994  
|Net book value                    | $ | 5,986,847 | $ | 3,684,326

During the year ended December 31, 2007, depreciation
expenses amounted to $313,854, among which $ 224,841 and $89,013 were recorded
as cost of sales and administrative expense respectively.

During the period from April 5 to December 31, 2006,
depreciation expenses amounted to $127,723, among which $126,347 and $1,376 were
recorded as cost of sales and administrative expense
respectively.

F-16

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8  ACQUISITION DEPOSIT

The acquisition deposit of $7,540,500 as of
December 31, 2007 represented the partial payment of the cash portion of the
consideration for the acquisition of Weihe, as further discussed in Note 1.
However, the delivery of the Company's stock, which is traded on the OTCBB, has
not been recognized as a share exchange consideration by the relevant PRC
government authority for the purposes of approval of the ownership transfer of
Weihe. On February 7, 2008, the share exchange agreement for the acquisition of
Weihe was cancelled. The Company has been in negotiation with the shareholders
of Weihe for new terms of the acquisition of Weihe and intends to enter into a
new agreement to acquire Weihe. The deposit paid under the original agreement
will be applied to the new agreement.

NOTE 9  RELATED PARTIES TRANSACTIONS

Included in trade deposits of $434,734I was an amount of
$79,260 for future purchase of materials from a company whose previous directors
were also directors of the Company.

During the year ended December 31, 2007 and the period
from April 5 to December 31, 2006, the Company had the transactions with related
companies in the normal course of business. Those related companies ceased to be
related to the Company in August 2007 when two of the Company's shareholders
sold their interests. The value of transactions with those related companies up
to August 2007 are as follows:

|                                                        |   | For the year endedDecember
      31, 2007 |   | For the period from April 5
      toDecember 31, 2006
|------------------------------------------------------- | - | ----------------------------------------- | - | -----------------------------------------------------
|                                                        |   |                                           |   |                                                      
|Sales to the related companies                          | $ | 9,722,473                                 | $ | -                                                    
|Percentage of total net sales                           |   | 24%                                       |   | -                                                    
|Purchases from the related companies                    | $ | 4,276,390                                 | $ | 3,481,890                                            
|Percentage of total purchases                           |   | 11%                                       |   | 100%                                                 
|Rental expenses paid to related
      companies         | $ | 337,350                                   | $ | -                                                    
|Building management fee paid to related
      companies | $ | 19,052                                    | $ | -                                                    
|Purchase of fixed assets                                | $ | -                                         | $ | 1,119,260                                            

F-17

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10  SEGMENT REPORTING

Statement of Financial Accounting Standards No 131
("SFAS 131"), "Disclosure About Segments of an Enterprise and Related
Information", requires use of the "management approach" model for segment
reporting. Under this model, segment reporting is consistent with the way
Company's management organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other
manner in which management disaggregates a company.

The Company has three reportable segments: (1) barbeque
set products, (2) skateboards and (3) other home appliances. These operating
segments were determined based on the nature of the products and services
offered. Overhead items that are specifically identifiable to a particular
segment are applied to such a segment.

Operating segments are defined as 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's chief operation decision makers direct the allocation of
resources to operating segments based on the profitability and cash flows of
each respective segment.

The Company evaluates performance based on several
factors, of which the primary financial measure is business segment income
before taxes.

|                                   |   | Barbeque set
      products                |   | Skateboards                                    |   | Other home
      appliances                |   | Corporate                                      |   | Total                                     
|---------------------------------- | - | ------------------------------------------ | - | ---------------------------------------------- | - | ------------------------------------------ | - | ---------------------------------------------- | - | ------------------------------------------
|                                   |   | For the year ended December 31,
      2007 |   | Period from April 5 to December
      31, 2006 |   | For the year ended December 31,
      2007 |   | Period from April 5 to December
      31, 2006 |   | For the year ended December 31,
      2007
|Net sales                          | $ | 29,899,115                                 | $ | 3,938,562                                      | $ | 10,427,732                                 | $ | -                                              | $ | 685,767                                   
|Depreciation                       | $ | 243,981                                    | $ | 127,723                                        | $ | 59                                         | $ | -                                              | $ | 69,814                                    
|Segment income before income taxes | $ | 1,332,484                                  | $ | 177,589                                        | $ | 125,111                                    | $ | -                                              | $ | 4,411                                     
|Segment assets                     | $ | 13,009,322                                 | $ | 9,354,457                                      | $ | 7,894,668                                  | $ | -                                              | $ | 2,274,377                                 
|Capital expenditures               | $ | 119,568                                    | $ | 1,101,490                                      | $ | 1,481                                      | $ | -                                              | $ | 2,159,443                                 

F-18

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11  INVENTORIES

Inventories consist of the following:

|                |   | 2007      |   | 2006      
|--------------- | - | --------- | - | ----------
|                |   |           |   |           
|Raw materials   | $ | 1,695,194 | $ | 563,0977  
|Work in process |   | 2,167,281 |   | 1,669,5591
|Consumables     |   | 70,950    |   | -         
|Finished goods  |   | 1,334,303 |   | 102,088   
|                |   |           |   |           
|Total           | $ | 5,267,728 | $ | 2,334,744 

NOTE 12  SHIPPING AND HANDLING FEES AND
COSTS

The Company follows Emerging Issues Task Force ("EITF")
No. 00-10, Accounting for Shipping and Handling Fees and Costs .
 The Company does not charge its customers for shipping and handling.
 The Company classifies shipping and handling costs as part of the cost of
goods sold which are $416,675 and $48,260 for the year ended December 31, 2007
and for the period from April 5 to December 31, 2006 respectively.

NOTE 13  TRADE DEPOSITS

Amount represents deposits held by suppliers to be used
for future purchases. Included in trade deposits is $79,260 paid to the
previously related company (Note 9).

NOTE 14  DUE TO STOCKHOLDER

Amount represents advances from a stockholder during the
year of 2007.  The amount due is unsecured with no stated interest. Amount
of $600,000 is not repayable within twelve months from the balance sheet date
which recorded under non-current liabilities and the remaining amount of
$304,366 is repayable on demand which recorded under current
liabilities.

F-19

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15  STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted SFAS No. 123
(revised 2004), Share-Based Payment ("SFAS No. 123R"), using the modified
prospective method as permitted under SFAS No. 123R.  Under this transition
method, compensation cost recognized in 2006 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of, December 31,
2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123R.  In accordance with the modified prospective
method of adoption, the Company's results of operations and financial position
for prior periods have not been restated. There was no unrecognized compensation
cost as of December 31, 2006.

During the year ended December 31, 2007, the Company's
net income was $874,526 lower due to stock-based compensation expense as a
result of the adoption of SFAS No. 123R and the issuance of stock options, as
shown below.

The Company uses the Black-Scholes option pricing model
to calculate the grant-date fair value of an award, with the following
assumptions: no dividend yield, expected volatility of 161%, and a risk-free
interest rate of 4.2%. In determining volatility of the Company's options, the
Company used the average volatility of the Company's stock.

On August 7, 2007, the Company granted to the audit
committee chairman and also a Board of Director of the Company an option to
purchase 100,000 shares of the Company's 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 is contingent on continued participation
as a Board of Director. The option expires in ten years. Based on the
Black-Scholes option pricing model, the entire option was valued at $204,054.
One-third of the value of the issuance was expensed immediately as it vested,
with the remaining amount expensed monthly over the vesting period. In
accordance with SFAS No. 123R, the Company has recorded stock-based compensation
expense during the year ended December 31, 2007 of $102,026 in connection with
the issuance of this option.

There were no stock options or warrants issued during
the period from April 5 to December 31, 2006.

F-20

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15  STOCK-BASED COMPENSATION -
CONTINUED

The following table summarizes all Company stock option
transactions between January 1, 2007 and December 31, 2007

|                                                                | Option
    Shares |  | Vested
    Shares |   | Exercise Price per Common Share
      Range
|--------------------------------------------------------------- | ----------------- |  | ----------------- | - | -------------------------------------------
|Balance, December 31, 2006                                      | -                 |  | -                 | $ | -                                          
|Granted or vested during the year ended December
      31, 2007 | 100,000           |  | 50,000            | $ | 6.00                                       
|Expired during the year ended December 31,
      2007           | -                 |  | -                 |   | -                                          
|Balance, December 31, 2007                                      | 100,000           |  | 50,000            | $ | 6.00                                       

The following table provides certain information with
respect to the above referenced options outstanding at December 31,
2007:

| | Exercise Price | Weighted Average Exercise
      Price | Weighted Average Remaining
      Contractual Life Years
| | -------------- | ------------------------------------- | -------------------------------------------------------
| |                |                                       |                                                        
| | $6             | $6                                    | 9.96                                                   

On March 13, 2007, the Company issued 150,000 shares of
its common stock for consulting services to be performed from March 13, 2007
through December 31, 2007 valued at $622,500, fair value of $4.15 per share at
the date of issuance.

On July 18, 2007, the Company issued 30,000 shares of
its common stock to employees (100 shares to each of 300 employees) as a bonus
payment. The shares were valued at $150,000, fair value of $5 per share on the
date of issuance, and recorded as salary expense for the year ended December 31,
2007.

As a result, the total stock compensation expense
reported was $874,526 and $- for the year ended December 31, 2007 and for the
period from April 5 to December 31, 2006, respectively.

NOTE 16  NOTE RECEIVABLE ON STOCK ISSUANCE

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

F-21

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17  INCOME TAXES

The income taxes provided represents the
following:

|                              |   | Year EndedDecember 31,
      2007 |   | Period from April 5 to December
      31, 2006
|----------------------------- | - | --------------------------------- | - | ----------------------------------------------
|                              |   |                                   |   |                                               
|PRC Enterprise Income Tax     |   |                                   |   | -                                             
|Current                       | $ | -                                 | $ | 59,340                                        
|Underprovided in prior period |   | 1,412                             |   | -                                             
|                              |   |                                   |   |                                               
|                              | $ | 1,412                             | $ | 59,340                                        

The effective income tax expenses differ from the PRC
statutory income tax expenses from continuing operations in the PRC as
follows:

|                                                                                     |   | Year EndedDecember 31,
      2007 |   | Period from April 5 to December
      31, 2006
|------------------------------------------------------------------------------------ | - | --------------------------------- | - | ----------------------------------------------
|                                                                                     |   |                                   |   |                                               
|Provision for income taxes at statutory income tax
      rate - 33% in 2007 and 2006 | $ | 20,770                            | $ | 58,691                                        
|Non-deductible items for tax                                                         |   | -                                 |   | 649                                           
|Tax holiday                                                                          |   | (65,892)                          |   | -                                             
|Income not subject to tax                                                            |   | (419,589)                         |   |                                               
|Loss from the subsidiaries                                                           |   | 464,711                           |   | -                                             
|Underprovided in prior period                                                        |   | 1,412                             |   | -                                             
|                                                                                     | $ | 1,412                             | $ | 59,340                                        

UNITED STATES

The Company is incorporated in the United States of
America and is subject to United States of America tax law. No provisions for
income taxes have been made as the Company has no taxable income for reporting
periods. The applicable income tax rates for the Company for the reporting
periods are progressive between 15% and 39%.

BRITISH VIRGIN ISLANDS

HSGI is incorporated in the British Virgin Islands and,
under the current laws of the British Virgin Islands, is not subject to income
taxes.

HONG KONG

Holy is an investment holding company in Hong Kong. No
provisions for income taxes have been made as the Company has no taxable income
for reporting periods.

No Hong Kong Profits Tax has been provided in the
financial statements as the business of Oceanic is carried outside Hong Kong and
there was no income derived from or arising in Hong Kong during the
period.

F-22

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17  INCOME TAXES- CONTINUED

Well Profit being a foreign venture enterprise is
entitled to, starting from the first profitable year, a two-year exemption from
enterprise income tax followed by a three-year 50% reduction in its enterprise
income tax rate ("Tax Holiday"). As such, after the application by Well Profit
and approval by the relevant tax authority in 2007, Well Profit was exempted
from enterprise income tax 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 15%.

The income tax refundable of $75,550 represents the tax
refund for the tax holiday. It will be fully refund after the approval by the
relevant tax authority.

No provision for deferred taxes has been made as there
were no material temporary differences at December 31, 2007 and 2006.

NOTE 18  WARRANTY

The Company accrues an estimate of 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.  The
warranty liability is included in accrued expenses in the accompanying balance
sheet. Changes in the Company's warranty liability were as follows:

|                                                   |   | 2007     |   | 2006  
|-------------------------------------------------- | - | -------- | - | ------
|                                                   |   |          |   |       
|Warranty accrual, beginning of year /
      period | $ | 24,025   | $ | -     
|Warranty accrued during the year /
      period    |   | 13,731   |   | 24,025
|Adjustments to pre-existing accruals               |   | (958)    |   | -     
|Actual warranty expenditures                       |   | (14,110) |   | -     
|Warranty, end of year / period                     | $ | 22,688   | $ | 24,025

NOTE 19  STATUTORY RESERVES

Under PRC regulations, Well Profit may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
GAAP.  In addition, Well Profit is required to set aside at least 10% of
their after-tax net profits each year, if any, to fund the statutory reserves
until the balance of the reserves reaches 50% of their registered capital.
 The statutory reserves are not distributable in the form of cash dividends
to the Company and can be used to make up cumulative prior year
losses.

F-23

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

|                                                                |  | Year EndedDecember 31,
      2007 |  | Period from April 5 to December
      31, 2006
|--------------------------------------------------------------- |  | --------------------------------- |  | ----------------------------------------------
|                                                                |  |                                   |  |                                               
|Zhongshan City Heng Bao Trading Co.,
    Ltd                    |  | 69%                               |  | 69%                                           
|Rich Empire International Limited                               |  | 22%                               |  | -                                             
|Zhongshan City Guang Yu Import and Export Company
      Limited |  | -                                 |  | 19%                                           
|Zhongshan City Xin Da Import and Export Company
      Limited   |  | 1%                                |  | 11%                                           

The Company has the following concentrations of accounts
receivable constituting greater than 10% of the Company's accounts
receivable:

|                                                                |  | Year Ended
    December
|--------------------------------------------------------------- |  | -----------------------
|                                                                |  | 2007                   
|                                                                |  |                        
|Zhongshan City Heng Bao Trading Co.,
    Ltd                    |  | 97%                    
|Zhongshan City Guang Yu Import and Export Company
      Limited |  | 22%                    

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

|                                                           |  | Year EndedDecember 31,
      2007 |  | Period from April 5 to December
      31, 2006
|---------------------------------------------------------- |  | --------------------------------- |  | ----------------------------------------------
|Zhongshan City Oceanic International Company
      Limited |  | 22%                               |  | 75%                                           
|Zhongshan City Heng Bao Trading Co.,
    Ltd               |  | 3%                                |  | 11%                                           
|Foshan Ying Yuan Import and Export Company
      Limited   |  | 18%                               |  | -                                             

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

F-23

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21  NOTES PAYABLE AND FIXED PRICE STANDBY EQUITY
DISTRIBUTION AGREEMENT

On May 23, 2007, the Company entered into a Fixed Price
Standby Equity Distribution Agreement with four investors (the "Investors").
 Pursuant to the Fixed Price Standby Equity Distribution Agreement, the
Company may, at its discretion, periodically sell to the Investors up to 10
million shares of the Company's common stock for a total purchase price of up to
$40 million (a per share purchase price of $4.00 per share). The Investors'
obligation to purchase shares of common stock under the Fixed Price Standby
Equity Distribution Agreement is subject to certain conditions, including the
Company obtaining an effective registration statement for the resale of the
common stock sold under the Fixed Price Standby Equity Distribution Agreement.
 The investors shall deliver 16.5% of the purchase price payable by wire
transfer of immediately available funds to an account that the Company
designated in writing to each investor prior to the closing date of the
transactions. Also, the investors shall deliver to the Company an executed
Promissory Note for the payment of the remaining 83.5% of the remaining
commitment under this agreement.

On February 7, 2008, the Company cancelled the Fixed
Price Standby Equity Distribution Agreement with the investors and the amount
received to be refunded has been reflected as "Notes Payable". In addition, the
Company is also required to pay to the investors an aggregate amount of $65,000
for the cancellation which accrued and recorded as general administrative
expenses.

F-24

---



HOME SYSTEM GROUP AND
SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22  COMMITMENTS AND CONTINGENCIES

Operating Leases

In the normal course of business, the Company leases
office and factory space under operating lease agreements. The Company rents
factory premises for the production and manufacturing process. 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 rental agreements provide for regular increases to the base rental
rate at specified intervals, which usually occur on an annual basis. The Company
was obligated under operating leases requiring minimum rentals as
follows:

|             |   | 2007     
|------------ | - | ---------
|             |   |          
|December 31, |   |          
|2008         | $ | 712,971  
|2009         |   | 712,971  
|2010         |   | 712,971  
|2011         |   | 416,168  
|2012         |   | 45,337   
|             | $ | 2,600,418

During the years ended December 31, 2007 and 2006,
rental expenses were $618,820 and $270,222 respectively.



F-25

---



Exhibit Index

|Exhibit Number | Exhibit Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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)                                                                                                                                                                                                                                                                         
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.2            | 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)                                                                                                                                                                                                                                                                                                            
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.3            | 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)
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|2.4            | 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)                                                                                                                                                                                                                 



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|      |                                                                                                                                                                                                                                                                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                 
|      |                                                                                                                                                                                                                                                                                                                                                                                
|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*   | 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*   | Certification of the Chief Executive 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                                                                                                                                                                              

* Filed with this Report.

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