UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K/A
 
 Q  Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended: December 31, 2009
 
 £  Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from ______ to_______
  Commission File No. 000-49470
  
  HOME SYSTEM GROUP
 (Name of small business issuer in its charter)
 
 Nevada
43-1954776(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer Identification No.)Oceanic Industry Park, Sha Gang Highway, Gang Kou Town

Zhongshan City, Guangdong

People's Republic of China, 528447(Address of Principal Executive Offices)347-624-5699(Registrant’s Telephone Number, Including Area Code)
 
 Securities registered pursuant to Section 12(b) of the Act:None
 
 Securities registered pursuant to Section 12(g) of the Act:Common Stock, par value $0.001
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £        No Q
 
 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £        No Q
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Q       No £
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Q
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
 
 Large Accelerated Filer o

Accelerated Filer oNon-Accelerated Filer o

Smaller Reporting Company ý
 
 Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £        No Q
 
 The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ended June 30, 2009 was $48,165,539.
 
 There were a total of 67,490,166 shares of the registrant’s common stock outstanding as of December 03, 2010.
 
 
  EXPLANATORY NOTE
 
 The purpose of this Amended Annual Report on Form 10-K/A is to amend Part I Item 1, Part II Items 7 and 9A(T), and Part III, Items 10, 12, and 15 (together, the “Amended Items”) of our Annual Report on Form 10-K for the period ended December 31, 2009, which was filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2010 (the “Original 10-K”)
 
 The Amended Items have been amended and restated in their entirety to respond to comments issued by the Securities and Exchange Commission and to supplement and clarify previous disclosures.  Except as stated herein, this Form 10-K/A does not reflect events occurring after the filing of the Original 10-K on March 29, 2010 and no attempt has been made in this Annual Report on Form 10-K/A to modify or update other disclosures as presented in the Original 10-K. Accordingly, this Form 10-K/A should be read in conjunction with the Original 10-K and our filings with the SEC subsequent to the filing of the Original 10-K.
 
 No other changes have been made to the Original 10-K.
  
  HOMESYSTEM GROUP
 FO RM 10-K
 For the Fiscal Year Ended December 31, 2009
 
 PagePART IItem 1.
Business

1PART IIItem 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

8Item 9A(T).
Controls and Procedures

16PART IIIItem 10.
Directors, Executive Officers and Corporate Governance

17Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

20Item 15.
Exhibits and Financial Statements Schedule

22
  Index
  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 of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.  These risks and uncertainties include, but are not limited to, the factors described in the Item 1A captioned “Risk Related to Our Business” elsewhere in this report.  In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements.  Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.  These forward-looking statements include, among other things, statements relating to:




·
our expectations regarding the market for household appliances, fans, lightings and gas grills;
 ·
our expectations regarding the continued growth of the household appliance, fans and grills 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 maintain 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.
 
 Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
 
 USE OF CERTAIN DEFINED TERMS
 
 Except as otherwise indicated by the context, references in this report to:
 
 ·
“Home System,” “we,” “us,” “group” or “our,” are references to the combined business of Home System Group and its direct and indirect subsidiaries: Home System Group, Inc., a BVI company, or HSG; Holy (HK) Limited, a Hong Kong holding company, or Holy HK; Oceanic International (Hong Kong), Ltd., a Hong Kong company, or OCIL; Oceanic Well Profit, Inc., a Chinese operating company, or Well Profit; Asia Forever Investment Limited, a Hong Kong holding company, or Asia Forever; and Zhongshan City Weihe Appliances Co., Ltd., a Chinese operating company, or Weihe;
 ·
“BVI” are to the British Virgin Islands;
 ·
“China” and “PRC” are to the People’s Republic of China;
 ·
“RMB” are to Renminbi, the legal currency of China;
 ·
“U.S. dollar,” “$” and “US$” are to the legal currency of the United States;
 ·
the “SEC” are to the United States Securities and Exchange Commission;
 ·
the “Securities Act” are to Securities Act of 1933, as amended; and the “Exchange Act” are to the Securities Exchange Act of 1934, as amended.
  Index
  PARTI
 ITEM 1. OUR BUSINESS
 
 Our Corporate History
 
 The Company, formerly named Supreme Realty Investments, Inc. (“Supreme”), is incorporated in the State of Nevada.   On August 4, 2006, Supreme was a public shell company and acquired Home System Group, Inc. (“HSGI”). HSGI was incorporated as a limited liability company in the British Virgin Islands on February 28, 2003.  HSGI was inactive until June 30, 2006 when HSGI acquired all the outstanding stock of Oceanic International (HK) Limited (“OCIL”).  OCIL is an operating company, organized under the laws of Hong Kong on June 23, 2004 for the purpose of distributing gas grills, home electronic appliances and bin racks. Since the ownership of HSGI and OCIL was the same, the merger was accounted for as a transaction between entities under common control, whereby HSGI recognized OCIL’s assets and liabilities transferred at their carrying amounts.
 
 Under the terms of the merger agreement, the stockholders of HSGI received 8,000,000 (post reverse stock split) shares of Supreme’s common stock for 100% of HSGI’s outstanding common stock.  Following the merger, Supreme changed its name to Home System Group.  Under accounting principles generally accepted in the United States, the share exchange is considered to be a capital transaction in substance, rather than a business combination.  That is, the share exchange is equivalent to the issuance of stock by HSGI for the net monetary assets of Supreme, accompanied by a recapitalization, and is accounted for as a change in capital structure.  Accordingly, the accounting for the share exchange is identical to that resulting from a reverse acquisition, except no goodwill was recorded.  Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Supreme, are those of the legal acquiree which is considered to be the accounting acquirer, HSGI.  Shares and per share amounts stated have been adjusted to reflect the merger.
 
 On January 31, 2007, the Company acquired Holy (HK) Limited (“Holy”) and its wholly-owned subsidiary, Oceanic Well Profit, Inc. (“Well Profit”).   Holy was incorporated in Hong Kong on September 26, 2006 for the purpose of being a holding company.  Holy was inactive until October 26, 2006 when Holy acquired all the issued and outstanding stock of Well Profit. Since the stockholders of Holy and Well Profit were related, and the control of the merged entity remained with the management of Well Profit, the merger was accounted for as a transaction between entities under common control, whereby Holy recognized Well Profit’s assets and liabilities transferred at their carrying amounts.  The consolidated financial statements combine the historical financial statements of Holy and Well Profit as if the merger occurred at the beginning of the periods presented. 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 the Company in exchange for 100% of Holy’s outstanding common stock. For accounting purposes, the acquisition has been treated as an acquisition of HSGI by Holy and as a recapitalization of Holy. The historical financial statements prior to January 31, 2007 are those of Holy. Share and per share amounts have been retroactively adjusted to reflect the acquisition.
 
 On October 1, 2008, the Company purchased from the shareholders of Asia Forever Investment Limited (“Asia Forever”) all of Asia Forever’s outstanding stock for approximately $39.5 million.  Asia Forever had been incorporated as a limited liability company on April 1, 2008 in the Hong Kong Special Administrative Region, and it has 100% ownership interest of Zhongshan City Weihe Appliances Co., Ltd. (“Weihe”).
  1
 Index
  Current Operations
 
 Home System Group is a Nevada holding company which has its operations based exclusively in China. As of December 31, 2009, we have three operating subsidiaries: OCIL, Well Profit and Weihe.
 
 Below is our Corporate Hierarchy Chart:
 
 
 
 Well Profit and Weihe are Wholly Foreign Owned Enterprises, established in China under the relevant laws of China with their capital fully invested by Foreign Investors.  Well Profit was incorporated in PRC and obtained a business license on April 5, 2006 to manufacture and sell gas grills, fans, lightings, small home appliances and hardware. It is 100% owned by Holy (HK) Limited (“Holy”), which is a Hong Kong Limited Liability Company. Weihe was established in October 1998, and obtained a business license to manufacture, and sell fans and lightings. It is 100% owned by Asia Forever Investment Limited (“Asia Forever”), which is a Hong Kong Limited Liability Company acquired by Home System on October 1, 2008. In addition, because Weihe and Well Profit are Wholly Foreign Owned Enterprises, in compliance with Chinese laws and regulations, Well Profit and Weihe have each obtained the certificate of approval for establishment of enterprises with investment by Taiwan, Hong Kong, Macao and overseas companies from Guangdong administrative authorities.
 
 We believe that the Company has obtained all the approvals and authorizations necessary to conduct business within our business scope in the PRC.
 
 Our Products
 
 We are primarily engaged in the production and distribution of a variety of household appliances, stainless steel gas grills and ovens, ceiling fans, lamps and skateboards to distributors, who sell them to large retailers in United States, Europe and Australia.
 
 Our barbeque grills are made of stainless steel and other durable materials and use natural gas as fuel. Our barbeque grills are sold to distributors who sell them mainly to retailers in the United States. We design the burners in order to have safe combustion and save gas. We believe that our grills are stylish, elegant and are convenient to use. For the fiscal years ended December 31, 2009 and 2008, 23.6% and 17.6% of our sales revenue, respectively, came from this product line.
  2
 Index
 
 Decorative ceiling fans and lamps also became our feature products when we acquired Weihe in October, 2008, which is an exported-oriented manufacture and distributor of small household appliances. We can produce up to four million decorative ceiling fans and six million units of lamps per year. In 2009, the sales from fans and lamps were $37,543,116, contributing 60.7% of our sales revenue.
 
 Manufacturing
 
 Our products are manufactured in 742,000 square feet of plant facilities in Guangdong Province, China.  Our plants include purchasing, technology, quality control and production, and workshops for assembling, welding and stamping.  Our production facilities have over 300 units of imported and domestic advanced production and testing equipment, including an electrostatic spraying production line and semi-automatic routine assembly line.  We currently operate five barbeque production lines, with a total annual production capacity of approximately 650,000 units; two skateboard production lines, with a total annual production capacity of approximately 1,000,000 skateboards.  Our manufacturing facilities are designed to operate efficiently while maintaining workplace safety and environmental compliance standards.
 
 We closely monitor and test the quality of our raw materials.  We have established inspection points at key production stages to identify product defects during the production process and our finished products are inspected and tested according to standardized procedures. We provide regular training and specific guidelines to our operators to ensure that our internal production processes meet quality standards.
 
 Our distributors also require that our products carry a UL Mark (Underwriters Laboratory) or a CE (mandatory conformity) Mark. Underwriters Laboratories, Inc. evaluates products, components, materials and systems for compliance to specific requirements, and permits acceptable products to carry the UL Mark, as long as they remain compliant with such standards.  All our products are UL or CE certified.
 
 Our Suppliers of Raw Materials
 
 The primary raw materials used in our products include stainless steel, iron, plastic, metal and glass.  The prices of these raw materials are determined based upon prevailing market conditions including supply and demand.
 
 We utilize local suppliers in close proximity to us, typically within 20 kilometers of our manufacturing facilities, in order to closely supervise their activities, monitor quality, provide technical training and collaborate on technical improvements.  If geographically proximate suppliers continue to be able to provide high quality raw materials to us, we intend to continue source our raw materials from them in order to take advantage of lower shipping costs, time to transport and favorable quality control capabilities.
  Our top five major suppliers are:
 
 Name
Raw Material
% of Annual Total Raw

Material Purchased1
Oceanic International (Zhongshan) Company Limited
Metal plate
13%2
Hubei Xin Cheng Industry & Trade Company Limited
Metal plate
11%3
Waiyi (HK) Company Limited
Copper wire
10.8%4
Heshan Zhongsheng Plastic & Hardware Company
Hardware & Plastic
3.7%5
Foshan Nanhai Jiujiang Jinlingfeng Appliance Co. Ltd.
Appliance accessories
3.1%
 
 3
 Index
  Our Major Customers
 
 We sell products to consumer products distributors who in turn sell the products to worldwide large retailers such as Home Depot, Lowe’s, and Costco. Two of our largest customers, Zhongshan City Heng Bao Trading Co., Ltd and Waiyi (HK) Limited,  accounted for approximately 62% and 32% of our annual sales, respectively, during 2009.
 
 Our Major Competitors
 
 We are an exported-oriented manufacture, which focuses on North America and Europe markets. Since our main products do not have significant entry barriers, we have experienced increased competition from other original equipment manufacturers which are mostly located in China. Competition is based on price and quality, as well as access to retail shelf space, product design, brand names, new product introductions, marketing support and distribution strategies.  We compete with various domestic and international manufacturers, some of which have substantially greater financial and other resources than we currently have.
 
 Weihe’s major competitors:
 
 Name
Product
Annual Output

(Estimated)1
Zhongshan Kong Luen Wah Hoi Electrical Appliance Co., Ltd
Fans
2,000,000 units2
Zhongshan Jianlun Electrical Appliance Co., Ltd
Fans
1,500,000 units3
Shunde Xianhua Fan Manufacturer Company
Fans
1,200,000 units4
Zhongshan Xinfeng Electrical Appliance Co., Ltd
Fans
1,000,000 units
 
 Well Profit’s major competitors:
 
 Name
Product
Annual Output

(Estimated)1
Taishan Guanrong Metal Products Co., Ltd
Grills
400,0002
Yangjiang Xinli Company Limited
Grills
300,0003
Shunde Kangbao Company Limited
Grills
150,000
 
 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 and innovative offering of products in each category at competitive prices.
 
 We plan to broaden our product offerings perhaps by acquiring new companies and product lines that are complementary to our existing products, or related to technologies and know-how developed and used in our existing core product family.
 
 Our Competitive Strengths
 
 We believe that the following competitive strengths enable us to compete effectively:
 
 ·           Low Cost Manufacturing. We focus on executing manufacturing programs involving large volumes produced efficiently, at low cost and with high quality.  We organize the production runs in 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. We believe that our efficient and automated manufacturing operations enable us to provide products for retail distribution with reduced 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 our price points competitive.  We continuously implement cost-saving initiatives that have rationalized operating and manufacturing facilities for products, as well as increased outsourcing of certain of our products where it is most cost effective.
  4
 Index
  ·           Established Distributor Relationships with Major Retailers. Our customers are distributors who sell our high quality products to major retailers.  As a result, our products are sold in well-known retailers such as Wal-Mart, Home Depot, Lowe’s, Whalen Storage, Lightdecor, Costco, Street-Surfing,Target and Leroy Merlin.  Due to our close relationships with our distributors, we expect our arrangements with our distributors to continue for the foreseeable future.
 
 ·           Distinctive Location Advantage. Our production facilities are located in Zhongshan, an important manufacturing base in China with stable regional policies and a healthy economic environment. It also provides us with a stable and high quality labor pool which enables the Company to grow and expand without concerns of increasing labor cost and shortage of qualified personnel.
 
 Regulation
 
 Because our operating subsidiaries are located in the PRC, we are regulated by its national and local laws. We do not currently 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. The following sets forth a summary of the most significant regulations or restrictions that affect our business activities.
 
 Under current PRC laws and regulations, PRC enterprises may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations.  In addition, PRC enterprises in China are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to a general reserve until the cumulative amount of such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a company 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 consumers located in the United States, 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.
  5
 Index
  Environmental Matters
 
 China’s environmental laws require all manufacturing enterprises to submit an environmental impact report to the relevant environmental protection authority before starting production operations. In addition, manufacturing enterprises must engage professional environmental organizations to monitor and report on pollutants emission regularly. We do not believe that our facilities are impacted by the various pollution control regulations with respect to noise and air pollution and the disposal of waste and hazardous materials because our production process does not generate industrial pollutants.  Our production process primarily involves the forming of steel and assembly of product.  We are not currently subject to any pending actions alleging any violations of applicable PRC environmental laws. Home System is required to comply with applicable hygiene and safety standards in relation to our production processes and we are in compliance with all the regulations and standards.
 
 Foreign Currency Exchange
 
 We are subject to PRC’s foreign currency regulations.  The PRC government has controlled Renminbi reserves primarily through direct regulation of the conversion of Renminbi into other foreign currencies.  Although foreign currencies, which are required for “current account” transactions, can be bought freely at authorized PRC banks, the proper procedural and documentation requirements prescribed by PRC law must be met.
 
 Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
  In October 2005, the State Administration of Foreign Exchange (“SAFE”) issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Notice 75, which became effective as of November 1, 2005. SAFE Notice 75 states that PRC residents, whether natural or legal persons, must register with the relevant local SAFE branch prior to establishing or taking control of an “offshore special purpose company” established for the purpose of overseas equity financing with the enterprise assets or interests they hold in China. Under Notice 75, a “special purpose vehicle” refers to an offshore entity established or controlled, directly or indirectly, by PRC residents for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents in onshore companies.
  PRC residents are required to complete amended registrations with the local SAFE branch upon: (i) injection of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. PRC residents are also required to complete amended registrations or filings with the local SAFE branch within 30 days of any material change in their shareholding or capital of the offshore entity, such as changes in share capital, share transfers and long-term equity or debt investments or providing security, and these changes do not relate to return investment activities. PRC residents who have already organized or gained control of offshore entities that have made onshore investments in the PRC before SAFE Notice 75 were to promulgated must register their shareholdings in the offshore entities with the local SAFE branch on or before March 31, 2006.
  Under SAFE Notice 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under SAFE Notice 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.
 
 To further clarify the implementation of Notice 75, the SAFE issued Notice 124 and Notice 106 on November 24, 2005 and May 29, 2007, respectively. Under Notice 106, PRC subsidiaries of an offshore special purpose company are required to coordinate and supervise the filing of SAFE registrations by the offshore holding company’s shareholders who are PRC residents in a timely manner. If these shareholders fail to comply, the PRC subsidiaries are required to report the shareholders to the local SAFE authorities. If the PRC subsidiaries of the offshore parent company do not report to the local SAFE authorities, they may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company and the offshore parent company may be restricted in its ability to contribute additional capital into its PRC subsidiaries. Moreover, failure to comply with the above SAFE registration requirements could result in liabilities under PRC laws for evasion of foreign exchange restrictions.
  6
 Index
 
 The Company’s PRC resident shareholders, including our Chairman, have filed the initial registrations with the local SAFE branch as required under SAFE regulations in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiaries. Thus we do believe that the Company has incurred a liability because of noncompliance with Notice 75 under SAFE registration procedures. However, the Company cannot provide any assurances that our PRC resident shareholders have made all applicable amended registrations in compliance with SAFE Notice 75. The Company has little control over either our present or prospective direct or indirect PRC resident shareholders or their completion of such amended registration procedures. The failure or inability of our PRC resident shareholders to comply with the applicable SAFE registration requirements may subject these shareholders or the Company to fines, legal sanctions and restrictions described above. Moreover, because of uncertainty over how Notice 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.
  Our Employees
 
 As of December 31, 2009, we have 1158 full-time employees.
 
 Departments
As of December 31, 2009Manufacturing and engineering
902General and administration
182Marketing and sales
26Research and development
48
 
 As required by applicable PRC law, we have entered into employment contracts with most of our officers, managers and employees to enable them to receive social benefits from the State.  We are working towards entering 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.
 
 Our employees in China participate in a state pension scheme organized by PRC municipal and provincial governments.  According to the regulation, the Company contributes 20% of employee’s actual monthly salary to the employee’s pension account if the salary is below three times of local average salary; if the employee’s salary is over three times of the local average salary, the Company contributes 20% of three times of local average salary to the employee’s pension account.  In addition, we are required by PRC law to cover employees in China with various types of social insurance and believe that we are in material compliance with the relevant PRC laws.
 
 Home System Group maintains strong ties with its employees and staff and retention is stable. Employee contracts adhere to both State and Provincial employment regulations and all social security regulations. All compensation including social insurance is paid in a timely manner to authorities and employees. There have been no disputes and there are no collective bargaining agreements.
 
 7
 Index
  PARTII
 
 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
 
 Safe Harbor Regarding Forward-Looking Statements
 
 The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this December 31, 2009 Form 10-K . Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
 
 Overview
 
 Home System Group is a Nevada holding company which has its operations based exclusively in China.  These operations are primarily engaged in the production of a variety of household appliances, stainless steel gas grills and ovens, ceiling and table fans and decorative lamps. Our products are sold through distributors to retailers in America, Europe, Australia and Asia.
 
 Results of Operation
 
 All amounts, other than percentages, in U.S. dollars
 
 Year ended

December 31, 2009


Year ended

December 31, 2008


Increase

(Decrease)


Percentage

Increase

(Decrease)Net sales

$
61,828,792


$
51,926,205


$
9,902,587



19.1
%Costs of sales


45,875,295



43,491,550



2,383,745



5.5
%Gross profit


15,953,497



8,434,655



7,518,842



89.1
%General selling and administrative expenses


5,437,139



3,645,135



1,792,004



49.2
%Income from operations


10,176,978



4,704,675



5,472,303



116
%Other income


4,369,287



69,880



4,299,407



N/AInterest income (expense), net


(2,242,517
)


12,692



(2,255,609
)


N/AIncome before  taxes


12,303,748



4,788,421



7,515,327



157
%Income taxes


(2,977,716
)


(720,756
)


(2,256,960
)


N/ANet income

$
9,326,032


$
4,067,665


$
5,258,367



129.3
%
 
 Sales Revenue
 
 Total consolidated sales for the year ended December 31, 2009 increased by $9,902,587 as compared to year ended December 31, 2008. The increase was driven by the higher sales of fans and lamps of $25,347,020 over the comparable period of 2008 due to the acquisition of Weihe, which occurred in October, 2008. These increased sales are partially offset by a decrease of $18,178,897 of Well Profit’s revenue which was due to approximately $10 million of sales in 2008 of raw material recorded in 2008 which did not repeated in 2009 and a decrease of $5,556,149 in the sales of skateboards.
 
 8
 Index
  Net revenue by SegmentYear ended

December 31, 2009

Year ended

December 31, 2008Segment



Percent of total



Percent of totalBarbeque sets

$
14,566,946

23.6%

$
9,150,319

17.6%Skateboards


3,098,987

5%


8,655,136

16.7%Other home appliances


44,162,859

71.4%


34,120,749

65.7%Total

$
61,828,792

100%

$
51,926,204

100%
 
 Year ended December 31,

2009 vs. 2008Segment

Percent increase of net revenueBarbeque sets


60%Skateboards


(64)%Other home appliances


29%
 
 The reasons for the major revenue variance for each segment are as follows:
  Barbeque sets –In 2008, due to the downturn of international economy, the orders from international customers for barbeques grills decreased dramatically. Also, as a result of the higher raw material prices, production of barbeque grills experienced operating losses and the sales were deemphasized by the Company.  In response the Company increased the promotion and thus sales of other products, such as skateboards, in order to offset the adverse impact of the lower sales of barbeques. In 2009, with the recovery of global economy and lower raw material costs, production of barbeque grills regained profitability and the Company’s management decided to refocus on the production of barbeque grills.
 
 Skateboards – As per above, in 2008, the Company promoted orders of skateboards.
 
 Other home appliances – the revenue is from small home appliances, lightings and lamps which are produced by Weihe. In 2009, this segment benefited from the full year contribution of Weihe, which was acquired in October, 2008. This resulted in higher sales of home appliances of $25,347,020 over the comparable 2008 period, partially offset by the approximately $10 million sales of raw material in 2008 that were not repeated in 2009 and other general weakness in the sales of some home appliances.
  Costs of Sales and Gross Profit
 
 Year ended December 31,2009

% of Sales

Revenue


2008

% of Sales

RevenueCost of Sales

$
45,875,295

74.2%

$
43,491,550

83.8%Gross Profit

$
15,953,497

25.8%

$
8,434,655

16.3%
 
 The Company reported cost of sales of $45,875,295 for the year ended December 31, 2009, an increase of $2,383,745 from the corresponding 2008 level.  This increase was primarily the result of the full year effect of the October, 2008 acquisition of Weihe, which had $26,683,729 of cost of sales in the year of 2009 compared to $8,637,783 in 2008, offset by lower cost of sales of skateboards and raw materials of $18,393,490 due to its lowerrevenue over the comparable 2008 period and lower cost of sales, as a percentage of revenue. Cost of sales as a percentage of revenue for the year ended December 31, 2009 decreased to 74.2% from the 83.8% in the prior fiscal year, largely as a result of the full year benefit of Weihe’s lower cost of sales as a percentage of revenue, which was 71.1% in 2009. The Company’s other operations had a lower cost of sales as percentage of revenue for the year of 2009 of 78.1%, compared to 88.2% during the prior year. This improvement was largely due to decreased cost of raw materials, such as steel, in part due to increased volumes purchased due to the Weihe acquisition and the increasing efficiency in our production scheduling and material handling.
 
 9
 Index
  General Selling and Administrative Expenses
  The Company’sgeneral selling and administrative expenses increased by $1,792,004 for the year ended December 31, 2009, as compared to the prior year. This amount was higher primarily due to the full year effect of Weihe’s selling and administrative costs, which were $1,670,523 higher than in 2008 due to its acquisition in October, 2008.
 
 Income from Operations
 
 Income from operations increased by $5,472,303 for the year ended December 31, 2009, as compared to year ended December 31, 2008, largely due to the increased revenue and operating profit resulted from the Weihe acquisition, and the lower cost of raw materials and increasing efficiency in our production process which benefited the Company’s gross profit.
 
 Other Income
 
 Other income increased by $4,299,467 for the year ended December 31, 2009 as compared the comparable periods in 2008, largely due to the $2,356,327 of gain on transfer of fixed assets that reduced the level of debt outstanding of the Company due to Weihe acquisition in 2008. In August 2009, the Company transferred certain building assets and land use right to former shareholders of Asia Forever, the previous owner of Weihe. These assets were valued at the time of their transfer at $6,087,312, and the outstanding balance of the Notes due was reduced by this amount. There also was a gain in 2009 of $1,372,121due to a reduction in the Company’s rent expense accrual resulting from the Chinese government’s stimulus plan, in which the landlord, Oceanic International (Zhongshan), received free land use right from the government and a tax rebate to stimulate regional economic development.
  Interest Expense, Net
 
 Net interest expense increased by $2,255,209 for the year ended December 31, 2009 as compared to the prior year 2008, reflected the costs of the amortization of deferred finance cost pertaining to the Weihe acquisition and the higher bank borrowings, which supported the Company’s increased level of business operations resulting from that acquisition.
 
 Net Income before Income Taxes
 
 The Company reported net income before taxes of $12,303,748 for the year of 2009, representing an increase of $7,515,327 from the pre-tax gain of $4,788,421 recorded during year of 2008. These increases were primarily driven by the higher operating profits resulting from the Weihe acquisition, improved gross profit and other income as discussed above.
 
 10
 Index
  Net Income before TaxesYear ended

December 31, 2009

Year ended

December 31, 2008Segment



Percent of total

net income

before taxes



Percent of total

net income

before taxesBarbeque sets

$
1,145,992

9.3%

$
(1,605,649)

(33.5)%Skateboards


563,917

4.6%


744,543

15.5%Other home appliances


8,878,445

72.2%


6,546,162

136.7%Corporate


1,715,394

13.9%


(896,635)

(18.7)%Total

$
12,303,748

100%

$
4,788,421

100%
  Net income before taxes of barbeque grills improved to $1,145,992 in 2009 from the net loss in 2008, primarily from the higher revenue of $5.4 million and improved gross profit margin due to lower raw material costs and improved production efficiency as discussed above.
 
 Net income before taxes of skateboards decreased to $563,917 in 2009 resulted from the lower revenue as discussed above.
 
 Net income before taxes of other home appliances was $8,878,445 in 2009, an increase of $1,082,366 as compared to the same period of 2008. This primarily resulted from the net revenue increase of $10 million as discussed above.
 
 Net income before taxes of Corporate segment was $1,715,394, an increase of $2,612,029 from the loss in 2008 due to the other income including gain of transfer of the building $2,356,237 and income on reversal of the rent accrual of $1,372,121 as discussed above, partially offset by the expense for professional services rendered in United States as well as the deferred interest expense of $1,249,917 recognized on the Notes payable pertaining to the acquisition of Weihe.
 
 Taxes
 
 The Company recorded a tax provision of $2,997,716, representing 24.2% of its pre-tax income.  This is an increase over the 2008 tax provision of $720,756, due to the $7,515,327 increase in the 2009 pre-tax income, and the effect of $331,422 the amortization deferred finance cost pertaining to Weihe acquisiton not being deductible .
 
 Net Income
 
 As a result of the increased level of net income before taxes, the Company realized net income of $9,326,032 for the year ended December 31, 2009, an increase of $5,258,367 from the prior year. This improvement reflects the increased revenue and improved gross margin discussed above, plus the gains realized on the transfer of assets and the rent reversal.
 
 Liquidity and Capital Resources
 
 As of December 31, 2009, cash and cash equivalents were $3,985,782 as compared to $1,609,540 as of December 31, 2008. The components of this increase of $2,376,242 are reflected below.
  11
 Index
  Cash Flow
 
 Year Ended December 31,2009


2008Net cash provided by (used in) operating activities

$
12,605,750


$
(17,406,207
)Net cash used in investing activities


(1,682,718
)


(936,978
)Net cash provided by (used in) financing activities


(8,582,967
)


19,107,419Exchange rate effect on cash


36,177



24,232Net cash inflow

$
2,376,242


$
788,466
  Net cash provided by (used in) operating activities
 
 Cash has historically been generated from operations and short-term borrowings. The positive cash flows from operating activities were principally attributed to the net income generated during the year ended December 31, 2009, which was $9,326,032, and also the decrease of $$7,820,883 in trade receivables because a large order shipped in fourth quarter of 2008 was not repeated in corresponding 2009 period. These benefits were partially offset by the net reduced level of bills payable, accounts payable, and other payables accrued expenses, totaling $5,965,943.
 
 Net cash used in investing activities
 
 In the fourth quarter of 2009, the Company spent $2,416,218 on the purchase of metal fabrication machines. Combined with the refund of an acquisition deposit of $733,500, net cash used in investing activities was $1,682,718.
 
 Net cash provided by (used in) financing activities
 
 As of December 31, 2009, the net cash used in financing activities was $8,582,967, primarily due to the $15,419,051 for repayment of notes payable, partially offset by the net increases in bank loans of $2,688,108 and advances from stockholder of $3,174,756.
 
 Working capital at December 31, 2009 was approximately $(1,242,215) as compared to $(10,028,127) at December 31, 2008, reflecting the reduced level of current notes payable of $14,961,763 and lower accounts and bills payables of $8,416,439, partially offset by a reduction in trade accounts receivable.
  12
 Index
  The following table reflects the Company’s short-term and long-term bank loans:
 
 Name of Institution

Interest Rate

Term

December 31,

2009


December 31,

2008Standard Chartered Bank


7.74
%

120 days

$
96,942


$
-China Construction Bank Zhongshan Branch


7.74
%

120 days


1,966,759



-China Construction Bank Zhongshan Branch


2.49
%

July 2, 2010


2,896,517Industrial and Commercial Bank of China


7.74
%

120 days


3,194,680



-CITIC Bank


5.84
%

September 10, 2010


2,929,030



-CITIC Bank


5.84
%

June 9, 2010


1,464,513



-CITIC Bank


7.62
%

October 9, 2009


-



2,934,000Bank of Communication


10.34
%

90 days


-



676,710Guangdong Development Bank


10.34
%

90 days


-



2,312,593Standard Chartered Bank


10.74
%

90 days


-



267,045Industrial and Commercial Bank of China


6.21
%

January 22, 2009


-



3,667,500Industrial and Commercial Bank of China


6.21
%

January 16, 2009


-



1,467,000Total Short-term Bank Loans







$
12,548,441


$
11,324,848Industrial and Commercial Bank of China


5.40
%

March 9, 2012

$
1,464,515



-Total Long-term Bank Loans







$
1,464,515


$
-
  As of December 31, 2009, the Company owned to individual stockholder and related parties a total of $5,349,329 as following:
 
 December 31,

2009Due to stockholder, unsecured and no interest. due before June 30, 2010

$
3,979,971Due to a related party (Cheung Kinwai) with interest of 7.844%, due on May14, 2014


1,369,358Total


5,349,329Less: Current portion


(4,040,896
)Due to stockholder & related parties under non-current liabilities

$
1,308,433
 
 On May 14, 2009, the Company received a loan from Cheung Kinwai, a shareholder and director of the Company, with an interest rate 7.844%, due on May 14, 2014.  The Company is required to make monthly payments of approximately $29,280 for principal amount and interest. As of December 31, 2009, the amount due was $1,369,358, with a principal amount of $248,049 due within twelve months.
  13
 Index
  In the future, the Company may periodically access funding from its shareholders, if such funds are made available, to fund its growth. The Company incurs operating expenses in U.S. including office rent, payroll expenses, audit and legal expenses and other administrative expenses. However, the Company has not established a U.S. disbursement account in part due to PRC’s foreign currency regulations. Chinese foreign exchange restrictions require a company to provide certain documents to State Administration of Foreign Exchange, banks and tax department, including employment agreements, invoices and tax forms, to obtain approval. In the view of this, the management decided it would be more efficient and cost effective to let one shareholder who has a U.S. disbursement account pay the expenses for the Company. As a result, foreign exchange restrictions have not impacted our liquidity and capital resources and if necessary, the Company could elect to directly fund these disbursements. The advances from the shareholder can be repaid either by equity or cash flows from operations, based on discussions with the stockholder. For example, on April 1, 2010, The Company entered into a Debt for Equity Conversion Agreements with various debt holders, including shareholders who also held debt, who converted certain loans, including those resulting from US dollar disbursements, into the Company’s common shares at a share price of $3.50 in order to reduce the Company’s debt and the related repayment requirement.
 
 We believe that our available funds and cash flows generated from operations and short term borrowings will be sufficient to meet our anticipated ongoing operating needs for the next twelve months. However it is possible that the Company might need to raise additional capital in order to fund the Company’s debt schedule and/or expansion. There can be no guarantee that we will be able to obtain such funding, whether through the issuance of debt or equity, on terms satisfactory to management and our Board of Directors.
 
 Off-Balance Sheet Arrangements
 
 There were no off-balance sheet arrangements during the year ended December 31, 2009 that have, or are reasonably likely to have, a current or future affect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
 
 Recent Accounting Pronouncements
 
 In February 2007, the FASB issued ASC Topic 825, “Financial Instruments” which permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this standard is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The Company adopted this standard on January 1, 2008, and the implementation of this standard did not have a significant impact on the Company’s financial position or results of operations.
 
 In December 2007, the FASB issued ASC Topic 805, “Business Combinations”, to establish principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The standard also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement was effective for the Company beginning January 1, 2009.
 
 In December 2007, the FASB issued ASC Topic 810, “Consolidation”, to establish accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. It also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. This standard  is effective for the Company beginning January 1, 2009. The Company adopted the new standard on January 1, 2009, and the implementation of the new standard did not have a significant impact on the Company’s financial position or results of operations.
 
 14
 Index
  In April 2008, the FASB issued  ASC Topic 350, “Intangibles-Goodwill and Other”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this standard did not have a significant impact on the Company’s financial statements.
 
 In May 2008, the FASB issued ASC Topic 470, “Debt”, which is effective for financial statements issued for fiscal years beginning after December 15, 2008. This standard includes guidance that convertible debt instruments that may be settled in cash upon conversion should be separated between the liability and equity components, with each component being accounted for in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. This standard is not currently applicable to the Company since the Company does not have convertible debt.
 
 In June 2008, the FASB issued ASC Topic 260, “Earnings per Share”, regarding determining whether instruments granted in share-based payment transactions are participating securities. This provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company does not currently have any share-based awards that would qualify as participating securities. Therefore, application of this is not expected to have an effect on the Company’s financial reporting.
 
 In April 2009, the FASB issued ASC Topic 820, “Fair Value Measurements and Disclosures”, which provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that regardless of market conditions the fair value measurement is an exit price concept as defined in the standard. The scope of this standard does not include assets and liabilities measured under Level 1 inputs (quoted prices in active markets for identical assets). The standard is applied prospectively to all fair value measurements where appropriate and is effective for the Company’s interim and annual periods beginning in the second quarter of fiscal year 2009. The Company’s adoption of this above standard did not have a material impact on the Consolidated Financial Statements.
 
 In May 2009, the FASB issued ASC Topic 855, “Subsequent Events”, that established general standards for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and shall be applied to subsequent events not addressed in other applicable generally accepted accounting principles.  This standard, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted this standard effective with the fiscal quarter ending June 30, 2009.
 
 In July 2009, the FASB issued standards that established the ASC Accounting Standards Codification as the single source of authoritative US GAAP for nongovernmental entities. The ASC supersedes all non-SEC accounting and reporting standards that existed at the ASC’s effective date, including FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and related literature. The FASB uses Accounting Standards Updates (“ASU”) to amend the ASC. The Codification was effective for interim and annual periods ending after September 15, 2009 (i.e., the year ended December 31, 2009 for the Company).
  15
 Index
  ITEM9A(T). CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls and Procedures
 
 An evaluation was conducted under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”), its principal executive officer, and Chief Financial Officer (“CFO”), its principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of December 31, 2009. Based on that evaluation, the CEO and CFO concluded that there had been substantial improvements of the Company’s disclosure controls and procedures and the manner in which information that is required to be disclosed in Exchange Act report is reported within the time period specified in the SEC’s rule and forms. CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2009.
 
 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 Lei Yu, our Chief Executive Officer, and Jianming Xu, our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. 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.
 
 The management designed an evaluation process that meets the needs of its company and that provides reasonable assurance for its assessment based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
 In connection with their review of our internal controls over financial reporting for the fiscal year ended December 31, 2009, our management concluded that in 2009, there are substantial improvements on our internal control over financial reporting:
 
 ·           We have accounting personnel with direct oversight responsibility to document and review financial information, who analyze and reconcile certain accounts on a periodic basis, and set up accounting systems to provide information related to expenditures on a project-by-project basis;
 
 ·           We finished interview, documentation and provided risk control matrix for improving financial system for timely identification, research and resolution of accounting issues and documentation of consideration of recent accounting pronouncements;
 
 ·           We hired technical accounting expertise among senior financial staff regarding US GAAP and the requirements of the PCAOB, and regarding the preparation of draft financial statements.
 
 16
 Index
  As a result of these improvements, our management concluded that, as of December 31, 2009, our internal control over financial reporting was effective.
 
 This Annual Report on Form 10-K does not, nor is required to, include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
 Change in Internal Control over Financial Reporting
 
 In order to further enhance our disclosure and internal controls, the Company has hired financial consultants 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.
 
 PARTIII
 
 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, 2009.
 
 Name
Age
PositionLei Yu
46
Chief Executive OfficerJianming Xu
35
Chief Financial OfficerJing Liu
37
SecretaryWeiqiu Li
50
Chairman of Board of DirectorsKinwai Cheung
47
DirectorYiming Zhu
47
Independent DirectorHuafeng Chen
35
Independent DirectorYidong Xiao
34
Independent Director
 
 Lei Yu  Mr. Yu, age 46, graduated from Zhejiang University of Technology with a B.S. degree in Mechanical Engineering in 1983. In 2002, he received a MBA degree from Xiamen University. From September, 2007 to August, 2008, he was the Vice President of China Wallink Investment Group (“Wallink”), where he oversaw the operational and financial activities of Wallink’s portfolio companies, and subsequently was pursuing completing a Doctorate thesis at Wuhan University Law School. From October, 2005 to August, 2007, Mr. Yu was a Senior Vice President of Ever Fortune International Holding Limited (“Ever Fortune”) where he directed its transition to an infrastructure construction company including road, harbor, and bridge construction. He also restructured Ever Fortune’s capital structure.  From January, 2001 to September, 2005, Mr. Yu was the director of the investment bank department of China Taisheng Investment Holding Limited (“Taisheng”), where he managed Taisheng’s merger and acquisition activities. During the period from July, 2002 to June, 2003, he was appointed by Taisheng to be the Chief Executive Officer of one of Taisheng’s portfolio companies-Hebei Huda Technology & Education Development Co., Ltd.
 
 Jianming XuMr. Xu, age 35, graduated from Hangzhou Dianzi Unniversity with a M.S. degree in Accounting in 1996. Mr. Yu was appointed as our Chief Financial Officer on September 24, 2008. Before that, Mr. Xu has served as Assistant to the CEO of the Company. Previously Mr. Xu also served as Chief Director of Audit of Stone Investment Group from October, 2002 to July, 2007.  Prior to that, he was an Audit department manager at an international accounting firm (BDO member) from October, 1998 to September, 2002.  From September, 1996 to September, 1998, he was the Finance Manager at China's Shaoxing City Textile Group.
 
 17
 Index
  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 July, 1991 to January, 2004, where she assisted in the financial management of its subsidiaries.  Ms. Liu received a Bachelor degree in International Trade from the Guangdong Foreign Language Institute.
 
 Weiqiu Li was appointed Chief Executive Officer of the Company on August 17, 2006 and resigned as our CEO on September 24, 2008.  He was appointed Chairman of Board of Directors on November 30, 2009. Now he is serving 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 was selected as a director because of his more than 20 years experience in product design, research and development, production, management and international trade negotiations.
 
 Kinwai Cheung was appointed as our Chief Financial Officer on August 17, 2006 and resigned as our CFO on September 24, 2008. He is now serving the company as the director on the board. Since June, 2004, Mr. Cheung has also served as the Administrative Manager of one of our subsidiaries, Oceanic International Company Limited.  Prior to this time, Mr. Cheung served as the Chairman and Chief Executive Officer of Kang Teng Trading Company Limited in Zhongshan City, China, from May, 1998 to May, 2004.  Mr. Cheung received a Bachelor degree in Business Administration from the Zhongshan City Shunwen College in 1989.  Mr. Cheung was selected as a director because of his intensive knowledge of the Company’s current and historical operations.
 
 Yiming Zhu, 47, is a Chinese Certified Accountant-Senior Level.  He graduated from Hangzhou Dianzi University with a degree in Economics in July, 1986 and in 1996, he received a Master degree in Construction Management from the same school.  Since 1988, he has been working in China Electronic Corporation (“CEC”).  CEC is the largest state-owned information technology company in China, with over 60 subsidiaries around the world.  In September, 2008, he was appointed to be the President of Amoi Electronics Co., Ltd., one of the CEC’s subsidiaries, where he provides executive leadership for the company’s strategy and operations with full income responsibility.  From April, 2007 to September, 2008, he was the Vice President of Panda Electronics Group Co., Ltd, one of the subsidiaries of CEC, where he oversaw the company’s accounting department and streamlined the accounting and billing activities, improving efficiency and profitability.  From 1988 to 2007, Mr. Zhu worked in various financial roles of increasing responsibility with CEC.  Mr. Zhu was selected as a director because of his experience serving in leadership positions at CEC and his proficiency in accounting matters.
 
 Huafeng Chen, 35, is a Chinese Certified Accountant-Medium Level.  He graduated from Hunan University with a degree in Accounting in July 1997.  Since September, 2004, he has been the director of Internal Control department in China Nepstar Chain Drugstore Ltd., which is listed on NYSE.  He is in charge of the management of overall accounting operations and internal control system set up over the financial system.  From June, 2002 to February, 2004, he was the director of Internal Control department and also the financial manager in accounting department in China Resources Vanguard Co., Ltd, where he provided leadership in internal control system and financial system management.  From April, 2000 to May, 2002, he was a project manager in Huatian Hotel Co., Ltd, where he oversaw projects’ cost management and analysis.  Mr. Chen was selected as a director because of his experience serving in financial reporting positions at a US publicly traded company with operations in China.
  18
 Index
  Yidong Xiao, 34, is a Chinese Certified Public Accountant and Certified Tax Agent.  He graduated from Hunan University with a degree in Accounting in July, 1996.  Since November, 2006, he has been the director of the audit department in Shenzhen Yuanfeng Co., Ltd., a public accounting firm, where he works as an auditor responsible for audits and verification of client companies’ financial statements.  Shenzhen Yuanfeng Co., Ltd. does not provide any services to Home System Group.  From November, 2000 to November, 2006, Mr. Xiao was a senior manager in accounting department of Hunan Yixin Chuanghui Co., Ltd.  From September, 1997 to October, 2000, he worked as a staff accountant in Guangzhou Xinda Industrial Co., Ltd., where he was in charge of general accounting.  From July, 1996 to September, 1997, he was an accountant in Hunan Hengyang Secondary Construction Engineering Company Limited.  Mr. Xiao was selected as a director because of his knowledge of accounting principles, as demonstrated by his education and current career serving as a director of a Chinese public accounting firm.
 
 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.
 
 Director Independence
 
 The Board has determined that Yidong Xiao, Yiming Zhu an d Huafeng Chenare independent directors under the standards and definitions of the NASDAQ Stock Market.
 
 Audit Committee
  On November 30, 2009, the Board established an audit committee and adopted a charter for the governance of the Audit Committee of the Board.  The audit committee is responsible for (i) recommending independent accountants to the Board, (ii) reviewing our financial statements with management and the independent accountants, (iii) making an appraisal of our audit effort and the effectiveness of our financial policies and practices and (iv) consulting with management and our independent accountants with regard to the adequacy of internal accounting controls.  The Committee is composed of directors from the Board who are “independent” of management of the Company as provided by applicable law and regulations.  The members of the Audit Committee are Messrs. Yidong Xiao, Yiming Zhu and Huafeng Chen. Mr. Xiao has been appointed as the Chairman of the Audit Committee.  The Board has determined that Mr. Xiao Yidong is qualified to serve, and does serve, as the audit committee financial expert.
  Compensation Committee
 
 We established a compensation committee of the board of directors and adopted a charter for creation and governance of the Compensation Committee on November 30, 2009. The charter requires that at least two members must be “non-employee directors” and “outside directors” within the meaning of the Exchange Act and the Internal Revenue Code.  Employee directors are eligible to serve, in addition to the outside directors.  The Board selected two independent directors from to serve on the Compensation Committee.  Mr. Weiqiu Li serves as the Chairman of the Compensation Committee and Messrs. Yidong Xiao and Huafeng Chen serves as members of the Compensation Committee. The compensation committee reviews and approves our salary and benefits policies, including compensation of executive officers.
 
 Nominating and Corporate Governance Committee
 
 On November 30, 2009, the Board established its Nominating Committee and adopted a charter for the governance of the Nominating and Corporate Governance Committee of the Board.  Mr. Kinwai Cheung serves as the Chairman of the Nominating and Corporate Governance Committee and Messrs. Yidong Xiao and Huafeng Chen serve as members of the Nominating and Corporate Governance Committee.
  19
 Index
  Annual Meeting
  The Company has not held an annual meeting for several years, which is contrary to Nevada law and the Company’s bylaws.  In recent years, management has believed it has been in the best interest of the Company to not hold annual meetings in order to save the legal, filing, and mailing expenses which are necessary in order to hold an annual meeting.  As a result of the Company’s failure to hold an annual meeting, shareholders have not had an opportunity to vote on whether to retain the current directors who made the decision to not hold annual meetings.  Nevada law permits shareholders holding 15% of the voting power of the Company to apply to Nevada’s district court to order to Company to hold an annual meeting.
  Management has recently decided to hold an annual meeting in 2011 to elect directors.
 
 Director Compensation
 
 We currently compensate our independent directors Mr. Xiao and Mr. Chen $30,000 per year and Mr. Zhu $50,000 per year. We reimburse our directors for reasonable expenses incurred in connection with their service as directors.
 
 Compliance with Section 16(a) of the Exchange Act
 
 Section 16(a) of the Exchange Act requires our executive officers and directors and person who own more than 10% of our common stock to file reports regarding ownership of and transactions in our securities with the Commission and to provide us with copies of those filings.  Based solely on our review of the copies received by or a written representation from certain reporting persons we believe that during fiscal year ended December 31, 2009, we believe that all eligible persons are in compliance with the requirements of Section 16(a).
 
 ITEM12. 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 19, 2010 (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, Oceanic Industry Park, Shang Gang Highway, Gang Kou Town, Zhongshan City, Guangdong Province, P.R. China.
 
 Name and Address

Beneficial Owner(1)
Office, If Any
Title of Class
Number and Nature of

Beneficial Ownership
Percentage of

ClassDirectors and OfficersWeiqiu Li,
Chairman
Common Stock
12,080,000
19.33%Kinwai Cheung,
Director
Common Stock
10,260,000
16.42%All officers and

directors as a group

(2 persons named above)


22,340,000
35.75%5% Securities HoldersTotal Shine Group Ltd.(2)

Common Stock
5,117,277
8.19%Arjuno Investment Ltd.(3)

Common Stock
3,349,794
5.36%
 
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  (1)
Unless otherwise specified, the address of each of the persons set forth below is in care of Home System Group, Oceanic Industry Park, Shang Gang Highway, Gang Kou Town, Zhongshan City, Guangdong Province, P.R. China.
 (2)
Yang Congxi has voting and investment control over the shares held by Total Shine Group Ltd.
 (3)
Li Xiyan has voting and investment control over the shares held by Arjuno Investment Group.
 
 Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.  Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock.
 
 A total of 62,447,949 shares of our common stock as of March 17, 2010 are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1).  For each beneficial owner above, any options or warrants exercisable within 60 days have been included in the denominator.
 
 Changes in Control
 
 There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.
 
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 PARTIV
 
 ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
 Exhibit

Number
Exhibit Title2.1
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)  22
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  4.1
Home System Group 2006 Equity Incentive Plan (Incorporated by reference to Exhibit 4.1 to the registrant’s registration statement on Form S-8, filed on October 11, 2006)10.1
Subscription Agreement, dated as of May 4, 2006, among the registrant, Yujiao Xiong, Youming Xiong, Chaohui Wu, Pingxin Liu, Bo Chen, Wei Liu, Juhua Wang, Shaoke Chen, Hanping Lee and Mingtung Chen (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 4, 2006)10.2
Subscription Agreement, dated as of May 23, 2007, among Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited and Think Big Trading Limited.  (Incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed May 30, 2007)10.3
English Translation of Asset Purchase Agreement, dated June 15, 2007, between Oceanic Well Profit, Inc. and  Ms. Huiping Cheng. (Incorporated by reference to Exhibit 2.1 to the registrant’s current report on Form 8-K filed June 18, 2007)10.4
Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc., Zhongshan City Juxian Gas Oven Co., Ltd., and the shareholders of Zhongshan City Juxian Gas Oven Co., Ltd. (Incorporated by reference to Exhibit 10.4 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)10.5
Termination Agreement, dated February 7, 2008, by and among the registrant, Holy (HK) Limited, Oceanic Well Profit Inc, Zhongshan City Weihe Appliances Co., Ltd., and the shareholders of Zhongshan City Weihe Appliances Co., Ltd. (Incorporated by reference to Exhibit 10.5 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)10.6
Termination and Release Agreement, dated as of February 7, 2008, by and among the Registrant, Total Giant Group Limited, Total Shine Group Limited, Victory High Investments Limited, and Think Big Trading Limited (Incorporated by reference to Exhibit 10.6 of the registrant’s Annual Report on Form 10-K, filed on April 7, 2008)10.7
Share Purchase Agreement dated as of September 23, 2008, is entered into by and among Home System Group, Holy (HK) Limited, Asia Forever Limited and the shareholders of Asia Forever Limited. (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on From 8-K filed on September 25, 2008)
 
 10.8
Form of Promissory Note dated as of October 1, 2008 (Incorporated by reference to Exhibit 10.1 of the registrant’s current report on Form 8-K, filed on October 2, 2008)10.9*
Property Lease Agreement between Jiao Liming and Zhongshan City Weihe Appliances Co., Ltd.10.10*
Property Lease Agreement between Oceanic International (Zhongshan) Co., Ltd. and Oceanic Well Profit, Inc.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)  23
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  21.1
List of Subsidiaries(incorporated by reference to Exhibit 21.1 of the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed on March 29, 2010)31.1*
Certification of 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 200231.2*
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 200232.1*
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 32.2*
Certification of the Chief Financial Officer and the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 * Filed with this Report.
 
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  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 GROUPDate: December 3, 2010/s/ Lei YuLei YuChief Executive Officer
 
 In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, as of December 3, 2010.
 
 SIGNATURE

TITLE/s/ Lei Yu

Chief Executive OfficerLei Yu/s/ Jianming Xu

Chief Financial OfficerJianming Xu/s/ WeiqiuLi

ChairmanWeiqiu Li/s/ Kinwai Cheung

DirectorKinwai Cheung/s/ Yiming Zhu

Independent DirectorYiming Zhu/s/ Yidong Xiao

Independent DirectorYidong Xiao/s/ Huafeng Chen

Independent DirectorHuafeng Chen