-- Company Recently Completed Three Key Acquisitions: Weihe Appliances Co.,
Ltd., Juxian Gas Oven Co. Ltd. and the Coffee Pot Production Line
-- On May 23 Company Announces $40 Million Private Placement Transaction
-- In August Company Adds Key Members to its Independent Board of
Directors
LOS ANGELES, Calif, Aug. 15 /Xinhua-PRNewswire-FirstCall/ -- Home System Group (OTC Bulletin Board: HSYT) (“Home System” or the “Company”), a manufacturer and distributor of home appliance products to major global retailers, yesterday announced second quarter 2007 financial results. Since Home System is a new business entity, it did not utilize second quarter 2006 results for comparison purposes as those results are not applicable to Home System.
For the quarter ended June 30, 2007, revenues totaling $11.2 million was a result of the Company’s manufacturing and distribution of BBQ gas grills sold to large home product retailers based in the U.S., Europe and Australia. The Company’s indirectly owned subsidiary, Oceanic Well Profit, Inc., (“Well Profit”) a large BBQ gas grill manufacturer in the PRC, contributed $8.8 million in revenue, and subsidiary, Oceanic International (Hong Kong), Ltd. (“OCIL”), a distributor of home appliances, contributed $2.3 million in total revenue.
During the second quarter, the Company’s top three BBQ stainless steel grill models had retail sale prices of between $300 and $400. These retail prices were lower than the Company’s retail sale prices in first quarter and negatively impacted the Company’s reported revenues. BBQ grills represented the majority of Well Profit’s revenue and were sold to it’s largest customer, Hengbao Import and Export Trading Company, which sells and distributes products in China and internationally. The Company’s acquisitions of Weihe Appliances Co., Ltd. (“Weihe”) and Juxian Gas Oven Co. Ltd. (“Juxian”) were not closed until after June 30, 2007 and thus second quarter results do not include the contribution of these entities.
“We made further progress in increasing production at our new Well Profit facility with revenue increasing over 100 percent from the first quarter of this year, despite an overall decline in retail selling prices for our BBQ grills,” commented Mr. Li Wei Qui, CEO and Chairman of Home System Group. “During the quarter, our research and development team continued to evaluate new cost-efficient raw materials for our production process which is expected to enhance margins once implemented. In addition, we built our production lines to be flexible and accommodate changes in customer preferences and demand, not only for grills but also for other home appliance products. During the balance of this year, we expect to manufacture several new products based on recent orders which will help us to both grow our business while diversifying our revenue stream. One example of this is the installation of our new coffee pot manufacturing line, which we acquired in June,” Mr. Wei Qui further remarked.
Cost of goods sold was $9.8 million for the second quarter, which yielded gross profits of $1.4 million and gross margins of 12.9 percent. General and administrative expenses were $0.8 million, the majority of which consisted of a payment for graphic design, branding and marketing services to better establish the Company’s image. Operating income for the quarter totaled $0.7 million, with a related operating margin of 5.9 percent. Net income was $0.7 million, with earnings per share of $0.01, based on 66.6 million diluted weighted shares outstanding.
For the six-month period, revenues were $22.9 million, with $13 million contributed by Well Profit and $8.9 million from OCIL. Cost of goods sold for the first half of 2007 were $19.9 million, resulting in gross profits of $3.0 million and gross margins of 13.1 percent. General and administrative costs were $1.3 million, which yielded operating income of $1.7 million and operating margins of 7.2 percent. Net income for the first six months was $1.6 million, with earnings per share of $0.03, based on 61.1 million weighted shares outstanding.
Cash at the end of the quarter totaled $1.9 million, which represent a $0.9 million increase from the first quarter. Current assets were $14.7 million and the Company maintained a healthy current ratio of 2.4 to 1. Shareholders’ equity totaled $14 million.
Net cash provided by operating activities for the first six months of 2007 totaled $10.0 million, with the variance from net income resulting from a large decrease in accounts receivable, inventory and trade deposits.
On May 23, the Company entered into a $40 million subscription agreement with four accredited investors, pursuant to which they agreed to purchase 10 million shares of the Company’s common stock for a purchase price, in the aggregate, of $40,000,000, and the Company agreed to use its best efforts to submit a registration statement covering these securities with the Securities and Exchange Commission. Until a registration has gone effective, the Company has received approximately $6.5 million of the purchase price in up front cash which has been used to meet certain obligations from the aforementioned acquisitions.
In July, 2007 the Company completed the acquisition of both Juxian and Weihe which significantly expanded its product portfolio and customer base, while positioning the Company to benefit from strong research and development capabilities and marketing to drive future sales. The Company expects to leverage its new operating and distribution capabilities to improve its purchasing power and drive further cost savings, which the Company expects to have a positive impact on future margins.
Juxian employs 400 people at its 100,000 square foot ISO9000-2000 certified facility and manufactures a broad range of stainless steel and metallic gas grills and heaters. Its customers are concentrated in Europe and the United States and include some of the largest retailers. Weihe employs approximately 1,000 people at its manufacturing facility. Weihe currently sells approximately 1,500 different types of decorative ceiling fans and 200 lights that are manufactured in over 23 production lines and sold through distributors to various international retailers, including to FORTUNE 500 companies.
Guidance
The company is withdrawing previously issued guidance due to the ongoing integration of the recently completed acquisitions. Management is currently updating the financial forecasts for the combined entities, including anticipated cross selling of the expanded product portfolio to a larger customer base.
About Home System Group
Based in Guangdong Province, People’s Republic of China, Home System Group, through its wholly owned distributors, Oceanic International (Hong Kong), Ltd. and Oceanic Well Profit, Inc., produces and distributes home appliances, including stainless steel gas grills, residential water pumps, electronic fans, fruit processors, and other electrical appliances to retailers in the United States, Europe and Australia. The Company became public through a reverse merger on October 4, 2006. To learn more about the Company, please visit the Company’s website at: http://www.homesystemgroup.com .
Safe Harbor Statement:
Certain statements in this release may contain certain forward-looking statements about Home System Group’s business and products, including, but not limited to, statements regarding Home System Group’s ability to identify cost-efficient raw materials for its production process or enhance future margins; to grow its business while diversifying its revenue stream; and to leverage its new operating and distribution capabilities to improve its purchasing power and drive further cost savings. Actual results may differ materially from the results expressed in the forward-looking statements due to a number of risk factors including, but not limited to: general economic and business conditions globally; product development; shipments to end customers; market acceptance of new and existing products; additional competition from existing and new competitors; changes in technology; economic, political, and social events in China and other regions and markets; securities markets trends; regulations of the U. S. Securities and Exchange Commission (SEC) and various other factors beyond the Company’s control. All forward-looking statements are expressly qualified in their entirety by this cautionary statement and by the risk factors detailed in the Company’s reports filed with the SEC. Home System Group undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.
-- FINANCIAL TABLES TO FOLLOW --
The financial information stated above and in the tables below has been abstracted from the Company’s Quarterly Report on Form 10-Q, for the fiscal quarter ended June 30, 2007, filed with the Securities and Exchange Commission on August 14, 2007, and should be read in conjunction with the information provided therein.
HOME SYSTEM GROUP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 AND DECEMBER 31, 2006
June 30, December 31,
2007 2006
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 1,851,061 $ 6,012
Accounts receivable 1,964,779 3,212,160
Prepaid expense and other --
receivable 1,153,440
Inventory 629,566 2,334,744
Trade deposits 824,226 112,824
Acquisition deposit 6,575,000
Employee advances
-- 4,391
Due from stockholder -- --
Due from related party 1,676,735 --
14,674,807 5,670,131
PROPERTY AND EQUIPMENT - Net 5,421,843 3,684,326
TOTAL ASSETS $ 20,096,650 $ 9,354,457
LIABILITIES AND
STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,694,924 $ 2,353,705
Accrued expenses 637,836 389,455
Taxes payable 579,076 122,262
Due to director 1,280 --
Due to related party 4,000 2,519,898
Due to stockholder 155,980 --
TOTAL LIABILITIES 6,073,096 5,385,320
STOCKHOLDERS’ EQUITY
COMMON STOCK - $0.001 par value;
200,000,000 shares
authorized, 62,447,949 shares and
42,500,000 shares
issued and outstanding 62,448 42,500
PAID-IN CAPITAL 6,667,979 3,709,025
NOTE RECEIVABLE FOR STOCK
ISSUANCE (900,000) --
COMMON STOCK SUBSCRIBED 40,000,000
SUBSCRIPTION RECEIVABLE (33,425,000)
RETAINED EARNINGS 1,410,293 118,249
CUMULATIVE TRANSLATION
ADJUSTMENT 207,834 99,363
TOTAL STOCKHOLDERS’ EQUITY 14,023,554 3,969,137
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY $ 20,096,650 $ 9,354,457
HOME SYSTEM GROUP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND FOR THE
PERIOD APRIL 5, 2006 (DATE OF INCORPORATION) THROUGH JUNE 30, 2006
(UNAUDITED)
Three Months 05-Apr-06 Six Months 05-Apr-06
Ended Through Ended Through
30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-06
Unaudited Unaudited Unaudited Unaudited
NET SALES $11,226,912 $ -- $22,943,679 $ --
OPERATING
EXPENSES
Cost of net
sales 9,783,876 -- 19,942,630 --
General and
administrative
expenses 784,488 518 1,339,709 518
10,568,364 518 21,282,339 518
INCOME FROM
OPERATIONS 658,548 (518) 1,661,340 (518)
OTHER INCOME
(EXPENSE)
Finance costs (577) -- (577) --
Interest income 7,832 30 8,013 30
7,255 30 7,436 30
INCOME BEFORE
INCOME TAXES 665,803 (488) 1,668,776 (488)
INCOME TAXES -
CURRENT (1,391) -- (72,483) --
NET INCOME
(LOSS) $ 664,412 $ (488) $ 1,596,293 $ (488)
BASIC AND
DILUTED
EARNINGS PER
SHARE $ 0.01 (0.00) $ 0.03 $(0.00)
BASIC AND
DILUTED
WEIGHTED
AVERAGE PER
SHARE 62,447,949 42,500,000 58,997,472 42,500,000
For more information, please contact:
Michelle Zheng
Home System Group
Tel: +1-213-223-2277
Email: michelle@homesystemgroup.com
Matt Hayden
HC International, Inc.
Tel: +1-858-704-5065
Email: matt@haydenir.com