XMAX 10-Q
XMax Inc. (XMAX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by checkmark 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 preceding 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 last 90 days.
☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock outstanding as of May 14, 2025.
Nova LifeStyle, Inc.
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2025 AND DECEMBER 31, 2024
(Stated in US Dollars except for Number of Shares)
| March 31, 2025 | December 31, 2024 | |||||||
| Unaudited | Audited | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Advance to suppliers | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Other receivables | ||||||||
| Total Current Assets | ||||||||
| Noncurrent Assets | ||||||||
| Plant, property and equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Lease deposit | ||||||||
| Goodwill | ||||||||
| Total Noncurrent Assets | ||||||||
| Total Assets | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONT’D)
AS OF MARCH 31, 2025 AND DECEMBER 31, 2024
(Stated in US Dollars except for Number of Shares)
| March 31, 2025 | December 31, 2024 | |||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating lease liabilities, current | ||||||||
| Finance lease liabilities - current | ||||||||
| Advance from customers | ||||||||
| Loan from shareholders | ||||||||
| Accrued liabilities and other payables | ||||||||
| Other loan | ||||||||
| Income tax payable | ||||||||
| Total Current Liabilities | ||||||||
| Noncurrent Liabilities | ||||||||
| Other Loan | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Finance lease liabilities – non-current | ||||||||
| Total Noncurrent Liabilities | ||||||||
| Total Liabilities | ||||||||
| Contingencies and Commitments | ||||||||
| Stockholders’ Equity | ||||||||
| Common stock, $ par value; shares authorized, and shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ||||||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net Sales | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development | ||||||||
| Total Operating Expenses | ||||||||
| Loss From Operations | ( | ) | ( | ) | ||||
| Other (Expenses) Income | ||||||||
| Non-operating income | ||||||||
| Loss on impairment of goodwill | ( | ) | ||||||
| Foreign exchange transaction income (loss) | ( | ) | ||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Financial expense | ( | ) | ( | ) | ||||
| Total Other (Expenses) Income, Net | ( | ) | ||||||
| Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Income Tax Benefit | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Other Comprehensive Loss | ||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||
| Net Loss and Comprehensive Income (Loss) | ( | ) | ( | ) | ||||
| Weighted average shares outstanding - Basic and Diluted | ||||||||
| Net loss per share of common stock | ||||||||
| Basic and Diluted | $ | ) | $ | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (UNAUDITED)
Three Months Ended March 31, 2025
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||
| Common stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficits | Equity | |||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||
| Stock issued to employees | ||||||||||||||||||||||||
| Stock issued to consultants | ||||||||||||||||||||||||
| Stock issued to creditor | ||||||||||||||||||||||||
| Stock issued to suppliers | ||||||||||||||||||||||||
| Stock issued to an investor | ||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Three Months Ended March 31, 2024
| Accumulated | Retained | |||||||||||||||||||||||
| Additional | Other | Earnings | Total | |||||||||||||||||||||
| Common stock | Paid-in | Comprehensive | (Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Income | Deficits) | Equity | |||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||
| Stock issued to employees | ||||||||||||||||||||||||
| Stock issued to consultants | ||||||||||||||||||||||||
| Stock issued to designer | ||||||||||||||||||||||||
| Acquisition of AI-Calculation Engine | ||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024 (UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Write down of inventories | ||||||||
| Stock based compensation expense | ||||||||
| Research and development | ||||||||
| Loss on impairment of goodwill | ||||||||
| Changes in bad debt allowance | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Advance to suppliers | ||||||||
| Inventories | ( | ) | ||||||
| Other current assets | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Advance from customers | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Cash Flows From Financing Activities | ||||||||
| Repayment to loan from a shareholder | ( | ) | ||||||
| Repayment to other loan | ( | ) | ||||||
| Proceed from loan from a shareholder | ||||||||
| Proceed from issuing common stocks | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | $ | $ | ( | ) | ||||
| Net Decrease in Cash and Cash Equivalents | ( | ) | ( | ) | ||||
| Cash and Cash Equivalents, Beginning of Period | ||||||||
| Cash and Cash Equivalents, Ending of Period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during period for: | ||||||||
| Income tax payments | $ | $ | ||||||
| Interest expense | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024
Note 1 - Organization and Description of Business
Organization and Business
Nova LifeStyle, Inc. (“Nova LifeStyle” or the “Company”), formerly known as Stevens Resources, Inc., was incorporated in the State of Nevada on September 9, 2009.
The Company is a U.S. holding company with no material assets other than the ownership interests of its subsidiaries through which it markets, designs and sells furniture worldwide: Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), i Design Blockchain Technology, Inc. domiciled in California (“i Design”) and Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”). The Company had three former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020, Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”) which was de-registered and liquidated in January 2021 and Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”) which was de-registered and liquidated in February 2023.
Nova Macao was organized under the laws of Macao on May 20, 2006, and was a wholly owned subsidiary of Nova Furniture. Nova Macao was a trading company, importing, marketing and selling products designed and manufactured by third-party manufacturers for the international market. Diamond Bar was incorporated in California on June 15, 2000. Diamond Bar markets and sells products manufactured by third-party manufacturers under the Diamond Sofa brand to distributors and retailers principally in the U.S. market.
On December 7, 2017, Nova LifeStyle incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State of California. The purpose of i Design is to build the Company’s own blockchain technology team. This company will focus on the application of blockchain technology in the furniture industry, including encouraging and facilitating interactions among designers and customers, and building a blockchain-powered platform that enables designers to showcase their products, including current and future furniture designs. This company is in the planning stage and has had minimal operations through December 31, 2024.
On December 12, 2019, Nova LifeStyle acquired Nova
Malaysia at cost of $
On January 7, 2020, the Company transferred its entire
interest in Bright Swallow to Y-Tone (Worldwide) Limited, an unrelated third party, for cash consideration of $
On October 14, 2020, the Macao Trade and Investment Promotion Institute invalidated licenses for offshore companies under an Order of Repeal of Legal Regime of the Offshore Services by Macao Special Administrative Region. Nova Macao then entered into a de-registration process and its business was taken over by Nova HK. Nova Macao completed the de-registration and liquidation process in January 2021.
On November 5, 2020, Nova LifeStyle acquired Nova
HK at cost of $
The “Company” and “Nova” collectively refer to Nova LifeStyle, the U.S. parent, and its subsidiaries, Nova Furniture, Nova Samoa, Diamond Bar, i Design, Nova HK and Nova Malaysia.
| 6 |
Going Concern
The accompanying unaudited condensed
consolidated financial statements have been prepared on a going concern basis and following GAAP in the U.S. The going concern basis
of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued
and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company
incurred an operating cash outflow of $
The Company has faced ongoing losses from operations, and significant cash outflows from cash used in operating activities in past years. The Company lacks assurance regarding its ability to achieve profitability or secure essential financing for its operations. Considering these principal conditions, the Company’s management has determined that it is probable the Company might encounter challenges in meeting its obligations within one year after the issuance of financial statements, primarily due to insufficient cash flow. Therefore, the Company must assess the probability that its plans will effectively alleviate the substantial doubt.
The Company management has the following plans to alleviate the substantial doubt: the Company will participate in four major U.S. furniture fairs every year to seek new customers to increase the Company’s sales. To augment diversified revenue streams, the Company’s subsidiary Nova Malaysia has engaged in the development of an innovative home decoration design IT software systems. The Company plans to raise money from the market to increase cash flow and investment capital.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Reverse split
On May 22, 2023, the Company filed a Certificate of
Change with the Secretary of State of Nevada with an effective date of May 22, 2023, at which time a
| 7 |
Amendments to Articles of Incorporation
On September 5, 2023, the Company filed the Certificate of Change (the “Amendment”) with the Secretary of State for the State of Nevada to amend its Articles of Incorporation to increase the amount of authorized shares of its common stock, par value $ per share, from to . The Amendment was approved by the Company’s Board of Directors (the “Board”) on June 28, 2023 and by the shareholders at a special meeting of the Company’s shareholders held on August 31, 2023. The Amendment does not affect the rights of the Company’s shareholders and was effective immediately upon filing.
Use of Estimates
In preparing unaudited condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for expected credit losses, valuation of inventories, the valuation of stock-based compensation, income taxes and unrecognized tax benefits, valuation allowance for deferred tax liabilities, assumptions used in assessing impairment of long-lived assets and goodwill, and loss contingencies. Actual results could differ from those estimates.
Business Combination
For a business combination, the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree are recognized at the acquisition date and measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, that excess in earnings is recognized as a gain attributable to the acquirer.
Deferred tax liability and assets are recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 740-10.
Goodwill
Goodwill is the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.
ASC Topic 350 also permits an entity to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the single step goodwill impairment test is required to be performed. Otherwise, no further testing is required. Performing the qualitative assessment involved identifying the relevant drivers of fair value, evaluating the significance of all identified relevant events and circumstances, and weighing the factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. The Company completed the required testing of goodwill for impairment as of March 31, 2025, and determined that goodwill was impaired because of the current financial condition of the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that the recoverability of goodwill is not reasonably assured.
| 8 |
The goodwill write-down was reflected as an impairment
loss, $
Intangible Assets
Intangible assets consist primarily of computer software
acquired for internal use. Acquired intangible assets are initially recorded at the acquisition-date fair value. Intangible assets are
amortized on a straight-line basis over their estimated useful lives and are carried at cost less accumulated amortization. The estimated
useful life of computer software are generally from
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
The Company’s accounts receivable arises from product sales. The Company does not adjust its receivables for the effects of a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.
The Company’s policy is to maintain an allowance for expected credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves.
Accounts receivable consisted of the following as of the date indicated:
| March 31, 2025 | December 31, 2024 | |||||||
| Accounts receivable | $ | |||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ||||
| Total accounts receivable, net | $ | |||||||
Expected credit losses (reversal) provision consisted for the following as of the dated indicated:
| March 31, 2025 | December 31, 2024 | |||||||
| Balance – January 1 | $ | |||||||
| Expected credit losses (reversal) provision | ( | ) | ||||||
| Balance – March 31 | $ | |||||||
The expected credit losses (reversal) provision for
the three months ended March 31, 2025 and December 31, 2024 was $
| 9 |
Advances to Suppliers
Advances to suppliers represent amounts paid to suppliers in advance for goods that are yet to be delivered and from which future economic benefits are expected to flow to the Company within the normal operating cycle. Based on its historical record and in normal circumstances, the Company receives goods within 4 to 6 months from the date the advance payment is made. During the three months ended March 31, 2025 and December 31, 2024, no provision was made on advances to suppliers.
Inventories
Inventories are stated at the lower of cost and net
realizable value, with cost determined on a weighted-average basis. Write-down of potential obsolete or slow moving inventories is recorded
based on management’s assumptions about future demands and market conditions. For the three months ended March 31, 2025 and 2024,
the Company wrote down $
Property, plant, and Equipment
Property, plant, and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred, while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with no salvage value and estimated lives as follows:
| Computer and office equipment | ||||
| Decoration and renovation |
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group asset group exceeds its fair value based on discounted cash flow analysis or appraisals. As of March 31, 2025, the Company determined that goodwill was impaired because of the current financial condition of the Company and the Company’s inability to generate future operating income without substantial sales volume increases, which are highly uncertain. Furthermore, the Company anticipates future cash flows indicate that the recoverability of goodwill is not reasonably assured.
Research and Development
Research and development costs are related primarily
to the Company designing and testing its new products during the development stage. During 2023, the Company has been developing Virtual
and Augmented reality software and AI system for potential consulting business. In addition, during 2024, the Company acquired IT systems
for AI-Calculation Engine, Nova Living DesignXperience System and Payment IT System which were integrated into our current IT system (see
Note 11). The entire system is far from complete as it requires to integrate with other components in order to be functional. It is still
in development stage and not in operation. Research and development costs are recognized in general and administrative expenses and expensed
as incurred. Research and development expenses were $
| 10 |
Income Taxes
In its interim financial statements,
the Company follows the guidance in ASC 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby the Company
utilizes the expected annual effective rate in determining its income tax provision. The income tax expense for the three months ended
March 31, 2025 is $
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Nova Lifestyle, Inc. and Diamond Bar
are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI and Nova Samoa was incorporated
in Samoa. There is no income tax for companies domiciled in the BVI and Samoa. Accordingly, the Company’s unaudited condensed
consolidated financial statements do not present any income tax provisions related to the BVI and Samoa tax jurisdictions where Nova
Furniture BVI and Nova Samoa are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes at the
statutory rate of
The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the three months ended March 31, 2025, the Company has calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.
On December 22, 2017, the Tax Cuts and Jobs Act of
2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not
limited to, a corporate tax rate decrease from
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses (NOLs) arising in taxable years beginning after December 31, 2017.
| 11 |
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. Since all research and development expenditures were incurred within the U.S. and the amount is immaterial, we do not anticipate it having any material impact to our provision.
As of March 31, 2025 and December
31, 2024, the accumulated undistributed loss generated by its foreign subsidiaries were approximately $
As of March 31, 2025 and 2024, unrecognized tax benefits were approximately and , respectively. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was as of March 31, 2025 and 2024.
A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the three months ended March 31, 2025 and 2024, is as follows:
| Gross UTB | ||||||||
| 2025 | 2024 | |||||||
| Balance – January 1 | ||||||||
| Foreign exchange adjustment | ||||||||
| Balance – March 31 | $ | $ | ||||||
At March 31, 2025 and December 31, 2024, the Company had cumulatively accrued approximately and for estimated interest and penalties related to unrecognized tax benefits. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled and for the three months ended March 31, 2025 and 2024, respectively, related to the Company’s operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.
Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2021-2024 remain open to examination by tax authorities in the U.S.
Revenue Recognition
The Company recognizes revenues when its customers obtain control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASC-606: (i) identifies contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenues when (or as) it satisfies the performance obligation.
Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenues from product sales are recorded net of reserves established for applicable discounts and allowances that are offered within contracts with the Company’s customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to the Company’s customer.
| 12 |
The Company’s sales policy allows for product returns within the warranty period if the product is defective and the defects are the Company’s fault. As alternatives to the product return option, the customers have the option of requesting a discount from the Company for products with quality issues or of receiving replacement parts from the Company at no cost. The amount for product returns, the discount provided to the Company’s customers, and the costs for replacement parts were immaterial for the three months ended March 31, 2025 and 2024.
The Company considers itself acting as a principal for sales of goods which is evidenced by (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods, (ii) the Company has inventory risk before the specified goods have been transferred to a customer or after transfer of control to the customer, (iii) the Company has discretion in establishing the price for the specified good. Thus, the Company’s’ revenue is recognized at a point in time when a promised good is delivered to a customer.
Cost of Sales
Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers and write-downs of inventory.
Shipping and Handling Costs
Shipping and handling costs related
to delivery of finished goods are included in selling expenses. During the three months ended March 31, 2025 and 2024, shipping and
handling (credits) costs were ($
Advertising
Advertising expenses consist primarily of costs of
promotion and marketing for the Company’s image and products, and costs of direct advertising, and are included in selling expenses.
The Company expenses all advertising costs as incurred. Advertising expense was $
The Company accounts for share-based compensation awards to officers, directors, employees, and for acquiring goods and services from nonemployees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the vesting period. The Company accounts for forfeitures when they occur.
Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares pertaining to warrants, stock options, and similar instruments had been issued and if the additional common shares were dilutive. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding unvested restricted stock, options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).
| 13 |
| March 31, 2025 | March 31, 2024 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding – Basic and Diluted * | ||||||||
| Net loss per share of common stock | ||||||||
| Basic and Diluted | $ | ) | $ | ) | ||||
| * |
For the three months ended March 31, 2025, shares of unvested restricted stock shares of the Company’s common stock, and shares exercisable under warrants were excluded from the EPS calculation, as their effect were anti-dilutive.
For the three months ended March 31, 2024, shares of unvested restricted stock, vested stock options to purchase shares of common stock of the Company, and shares exercisable under warrants were excluded from the EPS calculation, as their effects were anti-dilutive.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist primarily of accounts receivable and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
The following table sets forth information as to the Company’s customers that accounted for 10% or more of the Company’s sales and accounts receivable for the three months ended March 31, 2025 and 2024.
| Three Months Ended March 31, 2025 | As of March 31, 2025 | |||||||
| Customer | Percentage of Total Sales | Percentage of accounts receivable | ||||||
| A | % | % | ||||||
| Three Months Ended March 31, 2024 | As of March 31, 2024 | |||||||
| Customer | Percentage of total Sales | Percentage of accounts receivable | ||||||
| A | % | % | ||||||
No customer accounted for
One customer accounted for
The following table sets forth information as to the Company’s suppliers that accounted for 10% or more of the Company’s total purchases, accounts payable and advance to suppliers for the three months ended March 31, 2025 and 2024.
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| Three Months Ended March 31, 2025 | As of March 31, 2025 | As of March 31, 2025 | ||||||||||||||
| Supplier | Percentage of Total Purchase | Supplier | Balance of Accounts Payable | Balance of Advance to Supplier | ||||||||||||
| A | % | A | ||||||||||||||
| B | % | B | ||||||||||||||
| C | % | C | ||||||||||||||
| Three Months Ended March 31, 2024 | As of March 31, 2024 | As of March 31, 2024 | ||||||||||||||
| Supplier | Percentage of Total Purchase | Supplier | Balance of Accounts Payable | Balance of Advance to Supplier | ||||||||||||
| A | % | A | ||||||||||||||
| B | % | B | ||||||||||||||
| C | % | C | ||||||||||||||
The Company
purchased its products from one and two major vendors during the three months ended March 31, 2025 and 2024, respectively, accounting
for a total of
Accounts payable to these major vendors were $
Advances made to these major vendors were and
$
Fair Value of Financial Instruments
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the condensed consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The carrying value of cash, accounts receivable, advances to suppliers, other receivables, accounts payable, advance from customers, other payables and accrued liabilities approximate estimated fair values because of their short maturities.
Foreign Currency Translation and Transactions
The accompanying consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Diamond Bar, and i Design.
The Company’s subsidiary with operations in Malaysia uses its local currency, the Malaysian Ringgit (“RM”), as its functional currency. An entity’s functional currency is the currency of the primary economic environment in which it operates, which is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
| 15 |
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of operations.
The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.
Translation of amounts from RM into U.S. dollars has been made at the following exchange rates:
| Balance sheet items, except for equity accounts | ||
| March 31, 2025 | RM | |
| December 31, 2024 | RM | |
| Income Statement and cash flow items | ||
| For the three months ended March 31, 2025 | RM | |
| For the three months ended March 31, 2024 | RM |
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined that the Company’s operations
constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in
Management concluded that the Company had
All of the Company’s long-lived assets are mainly property, plant and equipment located in the United States and Malaysia and are utilized for administrative purposes.
Net sales to customers by geographic area are determined by reference to the physical product shipment delivery locations requested by the customers. For example, if the products are delivered to a customer in the United States, the sales are recorded as generated in the United States; if the customer directs us to ship its products to China, the sales are recorded as sold in China.
Leases
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term.
| 16 |
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
The Company recognized no impairment of ROU assets as of March 31, 2025 and December 31, 2024.
The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the condensed consolidated balance sheets at March 31, 2025 and December 31, 2024.
Reclassification
Certain prior period accounts have been reclassified in conformity with current period’s presentation.
New Accounting Pronouncements
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the probable, incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost basis. Am entity should apply ASU 2016-13 on a modified-retrospective transition approach that would require a cumulative-effect adjustment to the opening retained earnings in the balance sheets as of the date of adoption. In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for trouble debt restructurings by creditors and enhances the disclosure requirements for modifications of loans to borrowers experiencing financial difficulty. Additionally, ASU 2022-02 requires disclosure of gross write-offs by year of origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, which should be applied prospectively. Both ASU 2016-13 and ASU 2022-02 are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 and ASU 2022-02 beginning January 1, 2023. The adoption of ASU 2016-13 and ASU 2022-02 did not have any material impact on our consolidated financial statement presentation or disclosures.
In November 2023, the FASB, issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require disclosures, on an annual and interim basis, of significant expenses that are regularly provided to the chief operating officer decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim period within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the ASU during the year ended December 31, 2024. The adoption did not have a material impact on the financial statements.
| 17 |
Recently Issued But Not Yet Adopted Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, Lease (Topic 842): Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with leases between entities under common control (hereinafter referred to as common control lease). ASU 2023-01 requires entities to amortize leasehold improvements associated with common control lease over the useful life to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease, and to account for any remaining leasehold improvements as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the underlying asset. This ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. An entity may apply ASU 2023-01 either prospectively or retrospectively. The Company is currently evaluating the impact that the adoption of ASU 2023-01 will have on our unaudited condensed consolidated financial statement presentations and disclosures.
ln December 2023, the FASB issued Accounting Standards Update No.2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation,(2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3)income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual period beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.
In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40). The FASB issued ASU 2024-03 on November 4, 2024-03 states that the amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Following the issuance of ASU 2024-03, the FASB was asked to clarify the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). Because of how the effective date guidance was written, a non-calendar year-end entity may have concluded that it would be required to initially adopt the disclosure requirements in ASU 2024-03 in an interim reporting period, rather than in annual reporting period. The FASB’s intent in the basis for conclusions of ASU 2024-03 is clear that all public business entities should initially adopt the disclosure requirements in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
Note 3 - Inventories
The inventories as of March 31, 2025 and December
31, 2024 totaled $
Inventories are stated at the lower of cost and net
realizable value, with cost determined on a weighted-average basis. Write-down of potential obsolete or slow moving inventories is recorded
based on management’s assumptions about future demands and market conditions. For the three months ended March 31, 2025 and 2024,
the Company wrote-down $
| 18 |
Note 4 - Property, plant, and Equipment, Net
As of March 31, 2025 and December 31, 2024, Property, plant, and equipment consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Computer and office equipment | $ | $ | ||||||
| Decoration and renovation | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense was $
Note 5 – Intangible Assets
As of March 31, 2025 and December 31, 2024, intangible assets consisted of the following:
| March 31, 2025 | December 31, 2024 | |||||||
| Accounting software | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Amortization expense was $
Note 6 – Advances to Suppliers
The Company makes advances to certain vendors for
inventory purchases. The advances on inventory purchases were $
Note 7 – Prepaid Expenses and Other Receivables
Prepaid expenses and other receivables consisted of the following as of March 31, 2025 and December 31, 2024:
| March 31, 2025 | December 31, 2024 | |||||||
| Prepaid expenses | $ | $ | ||||||
| Other receivables | ||||||||
| $ | $ | |||||||
As of March 31, 2025 and December 31, 2024, prepaid expenses and other receivables mainly represented prepaid insurance, prepaid rent, refund receivable from suppliers, prepaid advertising expense, and Celero and Cardknox account balances.
Note 8 – Accrued Liabilities and Other Payables
Accrued liabilities and other payables consisted of the following as of March 31, 2025 and December 31, 2024:
| March 31, 2025 | December 31, 2024 | |||||||
| Other payables | $ | $ | ||||||
| Salary payable | ||||||||
| Marketing | ||||||||
| Financed insurance premiums | ||||||||
| Auditing fee | ||||||||
| Warranty liability | ||||||||
| Accrued commission | ||||||||
| Accrued expenses, others | ||||||||
| $ | $ | |||||||
| 19 |
As of March 31, 2025 and December 31, 2024, other accrued expenses mainly included legal and professional fees, utilities and unpaid operating expenses incurred in Malaysia. Other payables represented balance on credit card, other taxes payable, 401(k) payable and payable for marketing, shipping, director and showroom.
On September 12, 2023, Nova Malaysia entered into
an agreement with a consulting firm to deliver consultancy service for AI Trends and Tools. Nova Malaysia agreed to pay
Note 9 – Other Loans
On June 19, 2020, Diamond Bar was granted a U.S. Small
Business Administration (SBA) loan in the aggregate amount of $
On November 14, 2024, Nova Malaysia entered into a
loan agreement in the aggregate amount of $
Note 10 – Related Party Transactions
On September 30, 2011, Diamond Bar leased a showroom
in High Point, North Carolina from the Company’s President who is currently also the Chief Executive Officer and Chairperson of
the Board. The lease is renewable and has been renewed each year since 2011. On April 10, 2024, the Company renewed the lease for an additional
one year term at a cost of $
On January 4, 2018, the Company entered into a sales
representative agreement with a consulting firm, which is owned by the President, Chief Executive Officer and Chairperson of the Board,
for sales representative service for a term of
In February 2024, the Company entered into a loan
agreement in the aggregate amount of $
On April 11, 2024, the Company entered into a loan
agreement in the aggregate amount of $
| 20 |
Note 11 – Stockholders’ Equity
On May 28, 2021, the Company’s stockholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) at its annual shareholders’ meeting. The 2021 Plan was approved by the Board of Directors of the Company on April 12, 2021 and has a total of shares of the Company’s common stock which may be granted as stock reward to attract and retain personnel, provide additional incentives to employees, directors and consultants and promote the success of the Company’s business. On June 16, 2021, the Company filed Form S-8 to register the shares of the Company’s common stock under the 2021 Plan.
On August 31, 2023, the Company’s stockholders approved the Company’s 2023 Equity Incentive Plan (the “2023 Plan”) at its special shareholders’ meeting. The 2023 Plan was approved by the Board of Directors of the Company on June 28, 2023 and has a total of shares of the Company’s common stock which may be granted as stock reward to attract and retain personnel, provide additional incentives to employees, directors and consultants and promote the success of the Company’s business. On December 15, 2023, the Company filed Form S-8 to register the shares of the Company’s common stock under the 2023 Plan.
On May 31, 2024, the Company’s stockholders approved the Company’s 2024 Equity Incentive Plan (the “2024 Plan”) at its annual shareholders’ meeting. The 2024 Plan was approved by the Board of Directors of the Company on April 19, 2024 and has a total of shares of the Company’s common stock which may be granted as stock reward to attract and retain personnel, provide additional incentives to employees, directors and consultants and promote the success of the Company’s business.
The NASDAQ notification letter provides the Company until June 6, 2024 to submit a plan to regain compliance. If the plan is accepted, NASDAQ can grant the Company an extension up to 180 calendar days from the date of NASDAQ letter to demonstrate compliance. If NASDAQ does not accept the Company’s compliance plan, the Company will have the opportunity to appeal that decision to a Hearing Panel per NASDAQ Listing Rule 5815(a).
The Company submitted its plan of compliance on May 28, 2024 and a supplemental letter to the plan of compliance on June 20, 2024. On June 27, 2024, the Company received a notification letter from NASDAQ Listing Qualification Staff (“Staff”). Based on the review of the letters submitted by the Company, Staff has determined to grant the Company an extension until October 14, 2024 to regain compliance with the Rule and the Company must complete its initiatives and provide evidences for the compliance with the Rule as required by NASDAQ.
The Company and Nova Samoa have entered into orders
to purchase inventories in total amount of $
Based on the Form 8-K, staff of NASDAQ (“Staff”) has determined that the Company complies with the Listing Rule 5550(b)(1). However, as noted in its letter dated, June 27, 2024, if the Company fails to evidence compliance upon filing its next periodic report covering the period of the Transaction which is the annual report for the year ended December 31, 2024 (“2024 Form 10-K”), it may be subject to delisting. At that time, Staff will provide written notification to the Company, which may then appeal Staff’s determination to a Hearings Panel. The Company filed its 2024 Form 10-K on March 31, 2025 and has not received any written notification from Nasdaq as of the day of this report.
On May 16, 2024,
the Company entered into a Securities Purchase Agreement with an investor to sell shares of the Company’s common stock at
a purchase price of $ per share for an aggregate price of $
| 21 |
On July
30, 2024, the Company entered into a Securities Purchase Agreement with the same investor to sell shares of the Company’s
common stock at a purchase price of $ per share for an aggregate price of $
On October 11, 2024,
Nova LifeStyle, Inc. (the “Company”) and Nova Furniture Limited (Samoa), a wholly owned subsidiary of the Company (“Nova
Samoa”) entered into five purchase orders (“POs”) to purchase certain furniture products (the “Products”)
from Iconic Tech SDN BHD (“Iconic Tech”), Onefull Technologies SDN. BHD. (“Onefull Technologies”), Skyvip SDH
BHD (“Skyvip”), United Poles SDH BHD (“United Poles”) and Teclutions System SDN. BHD (“Teclutions”,
collectively with Iconic Tech, Onefull Technologies, Skyvip and United Poles as the Sellers). Pursuant to the POs, the Company, Nova
Samoa and Sellers agree that (i) Nova Samoa will purchase Background Light Slabs from Iconic Tech for a total of $
On
October 25, 2024, Nova LifeStyle, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”)
with certain purchaser identified on the signature page thereto (the “Purchaser”), pursuant to which the Company agreed to
sell to the Purchaser in a private placement shares (the “Shares”) of the Company’s common stock, par value
$ per share (the “Common Stock”), at a purchase price of $ per share for an aggregate price of $
On January
6, 2025, Nova LifeStyle, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”)
with certain purchaser identified on the signature page thereto (the “Purchaser”), pursuant to which the Company agreed to
sell to the Purchaser in a private placement shares (the “Shares”) of the Company’s common stock, par value
$ per share (the “Common Stock”), at a purchase price of $ per share for an aggregate price of $
On February 10, 2025,
Nova LifeStyle, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”) with certain
purchaser identified on the signature page thereto (the “Purchaser”), pursuant to which the Company agreed to sell to the
Purchaser in a private placement shares (the “Shares”) of the Company’s common stock, par value $ per
share (the “Common Stock”), at a purchase price of $ per share for an aggregate price of $
On February 20, 2025,
Nova LifeStyle, Inc. (the “Company”) entered into a Debt Repayment Agreement (the “Agreement”)
with Huge Energy International Limited, a company incorporated in Hong Kong and a creditor of the Company (the “Creditor”),
pursuant to which the Company agreed to repay $
On February 26, 2025, Nova LifeStyle, Inc. (the
“Company”) and Nova Furniture Limited (Samoa), a wholly owned subsidiary of the Company (“Nova Samoa”) entered
into four purchase orders (“POs”) to purchase certain furniture products (the “Products”) from Flyguy Resources
Sdn Bhd (“Flyguy Resources”), Twenty Nine Business Solutions Sdn. (“Twenty Nine Business”), Chialing Enterprise
(“Chialing”) and Macro IT Solutions SDH BHD (“Macro IT Solutions”, collectively with Flyguy Resources, Twenty
Nine Business, and Chialing as the “Sellers”). Pursuant to the POs, the Company, Nova Samoa and Sellers agree that (i) Nova
Samoa will purchase Transparent Marble Slabs from Flyguy Resources for a total of $
| 22 |
On
March 13, 2025, Nova LifeStyle, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Agreement”)
with certain purchaser identified on the signature page thereto (the “Purchaser”), pursuant to which the Company agreed to
sell to the Purchaser in a private placement shares (the “Shares”) of the Company’s common stock, par value
$ per share (the “Common Stock”), at a purchase price of $ per share for an aggregate price of $
Shares and Warrants issued through Private Placement
On July 23, 2021, the Company conducted a registered
direct offering of shares of common stock. The shares were offered and sold by the Company pursuant to an effective shelf registration
statement on Form S-3, which was filed with the Securities and Exchange Commission (the “SEC”) on October 8, 2020 and subsequently
declared effective on October 15, 2020. Additionally, the Company issued to the investors unregistered warrants to purchase up to an
aggregate of
In conjunction with this offering, the Company
issued warrants to purchase
The warrants issued in the private placement
described above are exercisable for a fixed number of shares, and are classified as equity instruments under ASC 815-40-25-10. The Company
accounted for the warrants issued in the private placement based on the fair value method under ASC Topic 505, and the fair value of
the warrants was calculated using the Black-Scholes model under the following assumptions: estimated life of years, volatility of
%, risk-free interest rate of % and dividend yield of %. No estimate of forfeitures was made as the Company has a short history
of granting options and warrants. The fair value of the warrants issued to investors and placement agent at grant date was $
Warrants
The following is a summary of the warrant activity for the three months ended March 31, 2025:
| Number of Warrants | Average Exercise Price | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding at January 1, 2025 | $ | |||||||||||
| Exercisable at January 1, 2025 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised / surrendered | - | |||||||||||
| Expired | - | |||||||||||
| Outstanding at March 31, 2025 | $ | |||||||||||
| Exercisable at March 31, 2025 | $ | |||||||||||
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Shares Issued to Consultants
On January 28, 2023, the Company entered into
an advisory service agreement with a designer for advising furniture design concept and development effective on February 1, 2023 for
On July 3, 2023, the Company entered into an
IT consulting service agreement with three consultants for analyzing the Company’s IT infrastructure and system effective on July
3, 2023 for
On November 9, 2023, the Company entered into
a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2023 for a one-year term. The
Company agreed to grant the consultant shares of the Company’s common stock, vesting % on February 15, 2024, % on May
15, 2024, % on August 15, 2024 and % on November 15, 2024. The fair value of the shares was $
On November 16, 2023, Nova Malaysia entered
into an agreement with an IT consulting firm to acquire an Artificial Intelligent powered IT System for $
On January 23, 2024, Nova Malaysia entered into
a purchase agreement with an IT consulting firm to acquire an AI-Calculation Engine System, which includes Commission
Management Calculation Module, Compiled and Encrypted Calculation Engine, Membership Module, Sales Module and Maintenance and Support,
etc. for $
On January 28, 2024, the Company entered into
an advisory service agreement with a designer for advising furniture design concept and development effective on February 1, 2024 for
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On March 1, 2024, Nova Malaysia entered into
a consulting agreement with a consultant for IT system related maintenance and services effective on March 1, 2024 for a one-year term.
The Company agreed to grant the consultant shares of the Company’s common stock, vesting % on March 1, 2024, % on June
1, 2024, % on September 1, 2024 and % on December 1, 2024. The fair value of the shares was $
On September 3, 2024, Nova Malaysia entered
into a consulting agreement with a consultant for IT system related maintenance and services effective on September 1, 2024 for a one-year
term. The Company agreed to grant the consultant shares of the Company’s common stock, vesting % on September 3, 2024,
% on December 3, 2024, % on March 3, 2024 and % on June 3, 2024. The fair value of the shares was $
On September 3, 2024, Nova Malaysia entered
into a consulting agreement with a consultant for IT system related maintenance and services effective on September 1, 2024 for a one-year
term. The Company agreed to grant the consultant shares of the Company’s common stock, vesting % on September 3, 2024,
% on December 3, 2024, % on March 3, 2024 and % on June 3, 2024. The fair value of the shares was $
On November 7, 2024, the Company entered into
a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2024 for a one-year term. The
Company agreed to grant the consultant shares of the Company’s common stock, vesting % on February 15, 2025, % on May
15, 2025, % on August 15, 2025 and % on November 15, 2025. The fair value of the shares was $
Shares and Options Issued to Independent Directors
On November 7, 2018 (the “Grant Date”),
the Company entered into stock option agreements under the 2014 Omnibus Long-Term Incentive Plan with the three independent members of
the board of directors. The Company agreed to grant the Company’s three independent directors’ options to purchase an aggregate
of shares of the Company’s common stock at an exercise price of $ per shares, with a term of years. Twenty-five percent
(%) of those stock options vested on November 30, 2018, % on will vest on February 28, 2019, % on May 31, 2019, and the remaining
% will vest on August 31, 2019. The fair value of the stock options granted is estimated on the date of the grant using the Black-Scholes
option pricing model (“BSOPM”) as described above. The fair value of the options was calculated using the following assumptions:
estimated life of ten years, volatility of %, risk free interest rate of %, and dividend yield of %. The fair value of
stock options was $
On November 4, 2019, the Company entered into
stock option agreements under the 2014 Omnibus Long-Term Incentive Plan with the three independent members of the board of directors.
The Company agreed to grant the Company’s three independent directors options to purchase an aggregate of shares of the
Company’s common stock at an exercise price of $ per share, with a term of years, vesting % on November 30, 2019, %
on February 28, 2020, % on May 31, 2020, and % on August 31, 2020. The fair value of the stock options granted was estimated on the
date of the grant using the Black-Scholes option pricing model. The fair value of the options was calculated using the following assumptions:
estimated life of , volatility of %, risk free interest rate of %, and dividend yield of %. The fair value of the
stock options was $
All of above options to the members of the board of directors of the Company were expired during 2024 or earlier.
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Shares Issued to Employees
On November 9, 2023, the Company extended an employment
agreement with the Company’s Corporate Secretary for a term of one year effective from November 14, 2023. The Company agreed to
grant an award of restricted Stock Units to the officer pursuant to the Company’s 2021
Omnibus Equity Plan. The fair value of these shares was $
On November 7, 2024, the Company extended an
employment agreement with the Company’s Corporate Secretary for a term of one year effective from November 14, 2024. The Company
agreed to grant an award of restricted Stock Units to the officer pursuant to the Company’s 2023 Omnibus Equity Plan. The
fair value of these shares was $
Options Issued to Employees
On August 24, 2018, the compensation committee of the Board approved an option grant to the Company’s Chief Financial Officer to purchase an aggregate of shares of the Company’s common stock at an exercise price of $ per share, with a term of years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (%) of those stock options vested immediately, and the remaining % vested on the six-month anniversary of the grant date.
The fair value of the option granted to the Chief
Financial Officer in 2018 was recognized as compensation expense over the vesting period of the stock option award. The fair value of
the option was calculated using Black-Scholes model under the following assumptions: estimated life of , volatility of %,
risk free interest rate of %, and dividend yield of %. The fair value of the stock options was $
On August 12, 2019, the compensation committee of the Board approved an option grant to the Company’s Chief Financial Officer to purchase an aggregate of shares of the Company’s common stock at an exercise price of $ per share, with a term of years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (%) of those stock options vested immediately, and the remaining % vested on the six-month anniversary of the grant date.
The fair value of the option granted to the Chief
Financial Officer in 2019 was recognized as compensation expense over the vesting period of the stock option award. The fair value of
the option was calculated using Black-Scholes model under the following assumptions: estimated life of , volatility of %,
risk free interest rate of %, and dividend yield of %. The fair value of the stock options was $
All of above options to Chief Financial Officer were expired during 2024 or earlier.
As of March 31, 2025, unrecognized share-based compensation expense was $.
Note 12 – Geographical Analysis
Geographical distribution of sales consisted of the following for the three months ended March 31, 2025 and 2024:
| 2025 | 2024 | |||||||
| Geographical Areas | ||||||||
| North America | $ | $ | ||||||
| Other countries | ||||||||
| $ | $ | |||||||
Geographical location of identifiable long-lived assets as of March 31, 2025 and December 31, 2024:
| March 31, 2025 | December 31, 2024 | |||||||
| Geographical Areas | ||||||||
| North America | $ | $ | ||||||
| Asia | ||||||||
| $ | $ | |||||||
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Note 13 – Lease
On June 17, 2013, the Company entered into a lease
agreement for office, warehouse, storage, and distribution space in the United States with a
The Company has entered into several lease agreements for office and warehouse space in Commerce, California and showroom space in Las Vegas, Nevada and High Point, North Carolina (see Note 10) on monthly or annual terms.
On July
15, 2019, Nova Malaysia entered into a sublease agreement for warehouse space with a two-year
term, expiring on
On
October 29, 2019, Nova Malaysia entered into a lease agreement for a showroom with a two-year
term, commencing on December 1, 2019 and expiring on
On August
20, 2020, Nova Malaysia entered into a sublease agreement for an office and service center with a two-year
term, commencing on September 1, 2020 and expiring on
On December
9, 2024, Nova Malaysia entered into an agreement for a warehouse with a two-year
term, commencing on November 15, 2024 and expiring on
Operating lease expense for the three months ended March 31, 2025 and 2024 was as follows:
| 2025 | 2024 | |||||||
| Operating lease cost – straight line | $ | $ | ||||||
The following is a schedule, by years, of maturities of operating lease liabilities as of March 31:
| Operating Leases | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | ||||
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Lease Term and Discount Rate
| March 31, 2025 | ||||
| Weighted-average remaining lease term – years | ||||
| Operating leases – USA | ||||
| Operating leases – Malaysia | ||||
| Weighted-average discount rate (%) | ||||
| Operating leases – USA | ||||
| Operating leases – Malaysia | ||||
Supplemental cash flow information related to leases where the Company was the lessee for the three months ended March 31, 2025 and 2024 was as follows:
| 2025 | 2024 | |||||||
| Operating cash outflows from operating leases | $ | $ | ||||||
Note 14 – Commitments and Contingencies
Legal Proceedings
On March 8, 2019, Jie Yuan (the “Jie Action”) filed a putative shareholder derivative lawsuit in the United States District Court for the Central District of California, purportedly on behalf of the Company against its former and current CEOs and CFOs (Thanh H. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) and directors (Charlie Huy La, Bin Liu, Umesh Patel, and Min Su) and vice president (Steven Qiang Liu) (collectively, the “Defendants”). The putative derivative plaintiffs sought to compel reimbursement of Nova for any judgment entered against the Company in the matter of Barney v. Nova Lifestyle, Inc., United States District Court for the Central District of California, and for any legal fees or other costs the Company may incur in defending the Barney Action. The basis of the claims was that the Defendants caused the Company to make alleged false and/or misleading statements that gave rise to the Barney Action.
In the Barney action, the putative class plaintiffs alleged that the Company artificially inflated its share price by issuing a press release announcing a strategic relationship with Shanxi Winqing Senior Care Service Group, claiming in the Company’s Annual Statements on Form 10-Ks for the 2017 and 2018 fiscal years that Shanxi Winqing and Merlino Lewis LLP were among the Company’s largest customers, and reporting revenues from sales transactions with these entities. Plaintiffs claimed that Shanxi Winqing was a fictitious entity and Merlino Lewis LLP dissolved in 2013, so that the announcement of a strategic alliance was false and the reported revenues non-existent. The Company denied these allegations and all liability.
It was also alleged in the Jie Action that President and CEO Lam engaged in self-dealing transactions by leasing real estate to Diamond Bar, a Company subsidiary. Plaintiffs further alleged in conclusory fashion that Ms. Lam, former CEO and director Ya Ming Wong, former CFO and director Yuen Ching Ho, and director Umesh Patel sold securities during the period of time when the alleged false and/or misleading statements were made “with knowledge of material non-public information.”
On May 15, 2019, Wilson Samuels (the “Samuels Action”) filed a largely duplicative putative derivative complaint against the same current and former directors and officers named in the Jie Action other than Steven Qiang Liu. That action was filed in the United States District Court for the Central District of California. In addition to repeating the allegations in the Jie Complaint, Samuels claimed that the Company’s announcement of a change of auditing firms in asserted that it did so because its existing auditor ceased auditing public companies subject to regulation in the United States without disclosing that its new auditing firm was created in a merger of three accounting firms, including a firm whose registration was revoked by the Public Company Accounting Oversight Board. Samuels also claimed that the Company redeemed its stock in reliance upon the same purported fraudulent recognition of revenues claimed in the Barney Action. Samuels purported to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5 on the Company’s behalf.
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Both derivative actions were stayed pending resolution of the Barney Action. After Barney was settled (on terms previously reported), the parties filed a stipulation to lift the stay and consolidate the derivative actions. The Stipulation also set deadlines for plaintiffs to file a consolidated amended complaint and for defendants to respond to this complaint. By January 7, 2025 Orders, the Court adopted the parties’ Stipulation.
On February 6, 2025, the deadline for filing an amended complaint, plaintiffs filed a Notice of Dismissal without prejudice. While plaintiffs should have sought Court approval, the Clerk accepted the Notice of Dismissal and the lead case has been marked closed. It appears that the Notice of Dismissal concluded these matters.
Other than the above, the Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations.
Note 15 – Subsequent Events
The Company has evaluated subsequent events through May 15, 2025, the date of the issuance of the interim condensed consolidated financial statements, and there are no subsequent events have been identified.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” the negatives of such terms and other terms of similar meaning typically identify forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10K”). The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 2024 Form 10-K. Unless the context otherwise requires, references in this report to “we,” “us,” “Nova,” “Nova Lifestyle” or the “Company” refer to Nova Lifestyle, Inc. and its subsidiaries.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor Declaration
The following discussion and analysis are based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). All references to the first quarter and first three months of 2025 and 2024 mean the three-month periods ended March 31, 2025 and 2024. In addition to historical information, the following discussion and other parts of this report contain certain forward-looking information. When used in this discussion, the words, “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of risks, uncertainties and factors beyond our control. We do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding the various factors that affect the company’s business, which are described in this section and elsewhere in this report. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2024 Form 10-K.
Overview
Nova LifeStyle, Inc. is a distributor of contemporary styled residential and commercial furniture incorporated into a dynamic marketing and sales platform offering retail as well as online selection and global purchase fulfillment. We monitor popular trends and products to create design elements that are then integrated into our product lines that can be used as both stand-alone or whole-room and home furnishing solutions. Through our global network of retailers, e-commerce platforms, stagers and hospitality providers, Nova LifeStyle also sells (through an exclusive third-party manufacturing partner) a managed variety of high quality bedding foundation components.
Nova LifeStyle’s brand family currently includes Nova LifeStyle, Diamond Sofa (www.diamondsofa.com) and Nova Living.
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Our customers principally consist of distributors and retailers with specific geographic territories that deploy middle to high end private label home furnishings which have very little competitive overlap with our specific furnishing products or product lines. Nova LifeStyle is constantly seeking to integrate new sources of distribution and manufacturing that are properly aligned with our growth strategy. This allows us to continually focus on building both our overall distribution and manufacturing relationships through a deployment of popular, as well as trend-based, furnishing solutions worldwide.
We are a U.S. holding company with no material assets in the U.S. other than the ownership interests of our wholly owned subsidiaries through which we market, design and sell residential and commercial furniture worldwide: Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”) and Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). The Company had three former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020, and Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”) which was de-registration and liquidation in January 2021. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.
On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State of California. The purpose of i Design is to build our own blockchain technology team. i Design is in the planning stage and has had minimum operations to date. On December 12, 2019, we became the sole shareholder of Nova Living (M) SDN. BHD. (“Nova Malaysia”), a company incorporated on July 26, 2019 under the laws of Malaysia. Nova Malaysia marketed and sold high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.
On November 5, 2020, Nova LifeStyle, Inc. acquired Nova Living (HK) Group Limited (“Nova HK”) which was incorporated in Hong Kong on November 6, 2019. This company had minimal operations. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.
Our experience developing and marketing products for international markets has enabled us to develop the scale, logistics, marketing, manufacturing efficiencies and design expertise that serve as the foundation for us to expand aggressively into the highly attractive U.S., Canada, South America, Asia and Middle Easter markets.
In 2019, we developed a line of high-end physiotherapeutic jade mats with China-based manufacturing partners for use in therapy clinics, hospitality, and real estate projects in Asia. We launched our first flagship showroom/retail store in Kuala Lumpur, Malaysia in late 2019, which, after a COVID-19 related closing, was reopened in May 2020. On August 28, 2020, after few months reopening, Malaysia government extended Movement Control Order to prohibit the businesses to open to public until March 5, 2021 to contain the spread of COVID-19. After the re-opening on March 5, 2021, Malaysia imposed a new nationwide lockdown on May 12, 2021 until early June 2021 which was subsequently extended to early October 2021. In October 2021, the Order was lifted for people who are fully vaccinated and our store has been reopened since. In April 2022, Malaysia has reopened the border for foreign visitors. In June 2023, everything is back to normal in Malaysia. Due to the negative impact caused by COVID-19 from 2020 to 2022, the Company eventually sold the entire jade mats inventory for $2.00 million in liquidation sales in June 2023. We exited from Jade Mats business in 2023. Nova Malaysia has engaged in the development of an innovative home decoration design, showroom and payment IT software systems. We have limited experience with operations in Southeast Asia and considerable management attention and resources may be required to manage these new markets and product lines. We may be subject to additional risks including credit risk, inflation, currency exchange rate fluctuations, foreign exchange controls, import and export requirements, potentially adverse tax consequences and higher costs associated with doing business internationally.
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We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. In July 2021, we completed a registered direct offering of our shares of common stock and received offering gross proceeds of $3,120,622. In May 2024, August 2024 and October 2024, we completed three private placements for gross proceeds of $750,000. During the first quarter of 2025, the Company completed three private placements for gross proceeds of $500,000. The Company also repaid $217,000 debt with its shares of common stock during the first quarter of 2025. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months. However, in the event that we do need to raise capital in the future, the instability in the securities markets could adversely affect our ability to raise additional capital.
On April 18, 2024, the Company received written notice from the NASDAQ stating that the Company does not meet the requirement of maintaining a minimum of $2,500,000 in stockholders’ equity for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(b)(1), the Company also does not meet the alternative of market value of listed securities of $35 million under NASDAQ Listing Rule 5550(b)(2) or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years under NASDAQ Listing Rule 5550(b)(3), and the Company is no longer in compliance with the NASDAQ Listing Rules. The NASDAQ notification letter provided the Company until June 6, 2024 to submit a plan to regain compliance. If the plan is accepted, NASDAQ can grant the Company an extension up to 180 calendar days from the date of NASDAQ letter to demonstrate compliance. The Company submitted its plan of compliance on May 28, 2024 and a supplemental letter to the plan of compliance on June 20, 2024. Based on the review of the letters submitted by the Company, Staff has determined to grant the Company an extension until October 14, 2024 to regain compliance with the Rule and the Company must complete its initiatives and provide evidences for the compliance with the Rule as required by Nasdaq. On October 11, 2024, the Company and Nova Samoa have entered into orders to purchase inventories in total amount of $4,600,000, which will be paid in 3,321,429 shares (“Shares”) of common stock of the Company at US$1.40 per share as disclosed in the Form 8-K filed by the Company with SEC on October 11, 2024 (the “Form 8-K”). The Company believes it has regained compliance with the stockholders’ equity requirement based upon the Transaction. Based on the Form 8-K, staff of NASDAQ (“Staff”) has determined that the Company complies with the Listing Rule 5550(b)(1). However, as noted in its letter dated, June 27, 2024, if the Company fails to evidence compliance upon filing its next periodic report covering the period of the transaction which is the annual report of the Company for the year ended December 31, 2024 (“2024 Form 10-K”), it may be subject to delisting. At that time, Staff will provide written notification to the Company, which may then appeal Staff’s determination to a Hearings Panel. The Company filed its 2024 Form 10-K on March 31, 2025 and has not received any written notification of non-compliance from Nasdaq as of the day of this report.
On December 27, 2024, the Company received a letter from Nasdaq notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for 30 consecutive trading days, the Company no longer meets the minimum bid price requirement for continued listing on Nasdaq under Nasdaq Marketplace Rule 5550(a)(2), which requires a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”). The Company has a period of 180 calendar days from the date of notification, until June 25, 2025 (the “Compliance Period”), to regain compliance with the Minimum Bid Price Requirement. If at any time before the expiration of the Compliance Period the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement. If the Company does not regain compliance by the end of the Compliance Period, the Company may be eligible for an additional 180 calendar day period to regain compliance. To qualify, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. However, if it appears to Nasdaq that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, Nasdaq will provide notice that the Company’s securities will be subject to delisting.
The Company intends to continue actively monitoring the bid price for its common stock between now and the expiration of the Compliance Period and will consider all available options to resolve the deficiency and regain compliance with the Minimum Bid Price Requirement.
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Principal Factors Affecting Our Financial Performance
Since 2019, we have moved away from low margin products and this move was intended to improve our gross profit margin, receivable collections and net profitability, and to increase our return on long-term equity. We terminated sales and marketing efforts to customers that represented a high purchase volume but low profit margin, and we adjusted our product line, which included the launch of our Summer 2023 Collection in the Las Vegas and High Point Markets, with a view to attracting a higher-end ultimate customer. The core focus of the Company’s direction today is entirely centered on our products. Identifying a fashion-driven generational shift in the general perception and consumption of furniture and being more aware of actual consumer tastes and how best to fulfill and engage that need. Closely integrating product development alongside marketing results in appealing products that adheres to the scope of our target demographic of decision makers in the design, staging and retail fields. A process that is continually refined upon each release cycle, maintaining a singular, cohesive vision. In short, we have better identified our customers and how to cater to them – in the process gaining greater traction with every product launch considerably more so on an international level than ever previous. We believe these new strategies, will provide us with significant long term growth opportunities. Significant factors that we believe could affect our operating results are the (i) prices of our products to our domestic and international retailer and wholesaler customers and their markups to end consumers; (ii) general economic conditions in the U.S., Chinese, and other international markets; and (iii) trade war and tariffs imposed by the United States on products manufactured in China and other Asian countries where we purchase our products; and (iv) high interest rate, inflation and slow- down in real estate market. We believe most of our customers are willing to pay for our high quality and stylish products, timely delivery, and strong production capacity at price levels which we expect will allow us to maintain a relatively high gross profit margin for our products. We do not manufacture our products, but instead we utilize third-party manufacturers. In response to the tariffs imposed by the United States on products manufactured in China, we are in the process of shifting a portion of our product manufacturing from third-party manufacturers located in China to third-party manufacturers located in other parts of Asia, such as Vietnam, India and/or Malaysia, countries with lower tariffs. Implementation of a relocation of manufacturing (which by necessity includes an assessment of the factory’s ability to deliver the quantity of the product, in accordance with the Company’s specifications, and in accordance with the Company’s quality control requirements) is time-consuming, but a portion of suppliers manufacturing our products has been transitioned to Malaysia and India starting in 2020 and we expect that more of our manufacturing will be transitioned to one or more of these venues. Some of our manufacturing will continue to be performed in China because the intellectual know-how necessary to manufacture certain products is not generally available in other Asian countries. Consumer preference trends favoring high quality and stylish products and lifestyle-based furniture suites should also allow us at least to maintain our gross profit margins. The markets in North America is challenging because such markets are experiencing a slow-down and may be entering a recession due to high interest rate and inflation.
Critical Accounting Policies
While our significant accounting policies are described more fully in Note 2 to our accompanying unaudited condensed consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this Management’s Discussion and Analysis.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for Nova LifeStyle and its subsidiaries, Diamond Bar, i Design, Nova Furniture, Nova Samoa, Nova Malaysia and its former subsidiary, Nova HK.
Reverse Split
On May 22, 2023, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of May 22, 2023, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), was effected. All references to shares and per share data have been retroactively restated to reflect such split.
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Amendments to Articles of Incorporation
On September 5, 2023, the Company filed the Certificate of Change (the “Amendment”) with the Secretary of State for the State of Nevada to amend its Articles of Incorporation to increase the amount of authorized shares of its common stock, par value $0.001 per share, from 3,000,000 to 250,000,000. The Amendment was approved by the Company’s Board of Directors (the “Board”) on June 28, 2023 and by the shareholders at a special meeting of the Company’s shareholders held on August 31, 2023. The Amendment does not affect the rights of the Company’s shareholders and was effective immediately upon filing.
Use of Estimates
In preparing condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, valuation of inventories, the valuation of stock-based compensation, income taxes and unrecognized tax benefits, valuation allowance for deferred tax assets, assumptions used in assessing impairment of long-lived assets and goodwill, and loss contingencies. Actual results could differ from those estimates.
Accounts Receivable
Our accounts receivable arises from product sales. We do not adjust receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We do not expect to collect receivables greater than one year from the time of sale. Our policy is to maintain an allowance for expected credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. We maintained an allowance for expected credit loss of $654 and $367 as of March 31, 2025 and December 31, 2024, respectively. During the three months ended March 31, 2025 and 2024, expected credit losses provision was $287 and $841, respectively. As of March 31, 2025, we had gross receivable of $65,430 of which $2,419 was over 90 days past due. The allowance for expected credit losses is our best estimate of the amount of expected credit losses in our existing trade accounts receivable. We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns.
Advances to Suppliers
Advances to suppliers represent amounts paid to suppliers in advance for goods that are yet to be delivered and from which future economic benefits are expected to flow to the Company within the normal operating cycle. Based on our historical records and in normal circumstances, we generally receive goods within 4 to 6 months from the date the advance payment is made.
Income Taxes
In its interim financial statements, the Company follows the guidance in ASC 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby the Company utilizes the expected annual effective rate in determining its income tax provision. The income tax expense for the three months ended March 31, 2025 is $686 which is mainly attributable to California state taxes. The income tax expense for the three months ended March 31, 2024 is $9,571 which is primarily related to forecasted annual income generated from foreign operation. Since the projected annual tax expense of $686 is not material to the financial statements, management has decided to pass on recording it for the three months ended March 31, 2025.
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the provisions of ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
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Nova Lifestyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI and Nova Samoa was incorporated in Samoa. There is no income tax for companies domiciled in the BVI and Samoa. Accordingly, the Company’s condensed consolidated financial statements do not present any income tax provisions related to the BVI and Samoa tax jurisdictions where Nova Furniture BVI and Nova Samoa are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes at the statutory rate of 24%. Nova Living (HK) Group Limited (“Nova HK”) is incorporated in Hong Kong and is subject to Hong Kong income taxes at the statutory rate of 16.5%. In February 2023, Nova HK was deregistered.
The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the three months ended December 31, 2025, the Company has calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a modified territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses (NOLs) arising in taxable years beginning after December 31, 2017.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. Since all research and development expenditures were incurred within the U.S. and the amount is immaterial, we do not anticipate it having any material impact to our provision.
As of March 31, 2025 and December 31, 2024, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $22.2 million and $22.2 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, or GILTI. Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.
As of March 31, 2025 and 2024, unrecognized tax benefits were approximately nil and nil, respectively. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was nil as of March 31, 2025 and 2024.
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A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the three months ended March 31, 2025 and 2024, is as follows:
| Gross UTB | ||||||||
| 2025 | 2024 | |||||||
| Balance – January 1 | ||||||||
| Foreign exchange adjustment | ||||||||
| Balance – March 31 | $ | - | $ | - | ||||
At March 31, 2025 and December 31, 2024, the Company had cumulatively accrued approximately nil and nil for estimated interest and penalties related to unrecognized tax benefits. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled nil and nil for the three months ended March 31, 2025 and 2024, respectively, related to the Company’s operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.
Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2021-2024 remain open to examination by tax authorities in the U.S.
Intangible Assets
Intangible assets consist primarily of computer software acquired for internal use. Acquired intangible assets are initially recorded at the acquisition-date fair value. Intangible assets are amortized on a straight-line basis over their estimated useful lives and are carried at cost less accumulated amortization. The estimated useful life of computer software is generally 5 years.
Revenue Recognition
We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. We recognize revenues following the five step model prescribed under ASU No. 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs upon shipment to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.
Revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.
Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to our customer.
Our sales policy allows for the return of product within the warranty period if the product is defective and the defects are our fault. As alternatives for the product return option, the customers have the option of asking us for a discount for products with quality issues, or of receiving replacement parts from us at no cost. The amount of reserves for return of products, the discount provided to the customers, and cost for the replacement parts were immaterial for the three months ended March 31, 2025 and 2024.
The Company considers itself acting as a principal for sales of goods which is evidenced by (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods, (ii) the Company has inventory risk before the specified goods have been transferred to a customer or after transfer of control to the customer, (iii) the Company has discretion in establishing the price for the specified good. Thus, the Company’s’ revenue is recognized at a point in time when a promised good is delivered to a customer.
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on our unaudited consolidated statements of operations.
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Foreign Currency Translation and Transactions
The accompanying unaudited consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Diamond Bar, and i Design.
The Company’s subsidiary with operations in Malaysia uses its local currency, Malaysian Ringgit (“RM”), as its functional currency. An entity’s functional currency is the currency of the primary economic environment in which it operates, which is normally the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.
Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of operations.
The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in accumulated deficits during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.
Translation of amounts from RM into U.S. dollars has been made at the following exchange rates:
| Balance sheet items, except for equity accounts | ||||
| March 31, 2025 | RM4.44 to 1 | |||
| December 31, 2024 | RM4.47 to 1 | |||
| Income statement and cash flow items | ||||
| For the three months ended March 31, 2025 | RM4.45 to 1 | |||
| For the three months ended March 31, 2024 | RM4.72 to 1 |
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions, assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
We determined that our operations constitute a single reportable segment in accordance with ASC 280. We operate exclusively in one business and industry segment: the design and sale of furniture.
We concluded that we had one reportable segment under ASC 280 because Diamond Bar is a furniture distributor based in California focusing on customers in the US and Nova Malaysia is a furniture retailer and distributor focusing on customers primarily in Malaysia and Asia. Each of our subsidiaries is operated under the same senior management of our company, and we view the operations of Diamond Bar and Nova Malaysia as a whole for making business decisions. Our long-lived assets are mainly property, plant and equipment located in the United States and Malaysia for administrative purposes.
Net sales to customers by geographic area are determined by reference to the physical product shipment delivery locations requested by our customers. For example, if the products are delivered to a customer in the U.S., the sales are recorded as generated in the U.S.; if the customer directs us to ship its products to China, the sales are recorded as sold in China.
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New Accounting Pronouncements
Recently Adopted Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the probable, incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost basis. Am entity should apply ASU 2016-13 on a modified-retrospective transition approach that would require a cumulative-effect adjustment to the opening retained earnings in the balance sheets as of the date of adoption. In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance for trouble debt restructurings by creditors and enhances the disclosure requirements for modifications of loans to borrowers experiencing financial difficulty. Additionally, ASU 2022-02 requires disclosure of gross write-offs by year of origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost, which should be applied prospectively. Both ASU 2016-13 and ASU 2022-02 are effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 and ASU 2022-02 beginning January 1, 2023. The adoption of ASU 2016-13 and ASU 2022-02 did not have any material impact on our consolidated financial statement presentation or disclosures.
In November 2023, the FASB, issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require disclosures, on an annual and interim basis, of significant expenses that are regularly provided to the chief operating officer decision maker (“CODM”), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. The ASU requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Public entities will be required to provide all annual disclosures currently required by Topic 280 in interim periods, and entities with a single reportable segment are required to provide all the disclosures required by the amendments in this ASU and existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim period within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company adopted the ASU during the year ended December 31, 2024. The adoption did not have a material impact on the financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, Lease (Topic 842): Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with leases between entities under common control (hereinafter referred to as common control lease). ASU 2023-01 requires entities to amortize leasehold improvements associated with common control lease over the useful life to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease, and to account for any remaining leasehold improvements as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the underlying asset. This ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. An entity may apply ASU 2023-01 either prospectively or retrospectively. The Company is currently evaluating the impact that the adoption of ASU 2023-01 will have on our consolidated financial statement presentations and disclosures.
ln December 2023, the FASB issued Accounting Standards Update No.2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation,(2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3)income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual period beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its unaudited consolidated financial statements and related disclosures.
In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40). The FASB issued ASU 2024-03 on November 4, 2024-03 states that the amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Following the issuance of ASU 2024-03, the FASB was asked to clarify the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). Because of how the effective date guidance was written, a non-calendar year-end entity may have concluded that it would be required to initially adopt the disclosure requirements in ASU 2024-03 in an interim reporting period, rather than in annual reporting period. The FASB’s intent in the basis for conclusions of ASU 2024-03 is clear that all public business entities should initially adopt the disclosure requirements in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.
We do not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on our financial statement presentation or disclosures.
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Results of Operations
Comparison of Three Months Ended March 31, 2025 and 2024
The following table sets forth the results of our operations for the three months ended March 31, 2025 and 2024.
| Three Months Ended March 31, | ||||||||||||||||
| 2025 | 2024 | |||||||||||||||
| $ | % of Sales | $ | % of Sales | |||||||||||||
| Net sales | $ | 2,635,718 | $ | 2,376,393 | ||||||||||||
| Cost of sales | (1,431,484 | ) | (54 | )% | (1,360,233 | ) | (57 | )% | ||||||||
| Gross profit | 1,204,234 | 46 | % | 1,016,160 | 43 | % | ||||||||||
| Operating expenses | (1,397,594 | ) | (53 | )% | (2,504,551 | ) | (105 | )% | ||||||||
| Loss from operations | (193,360 | ) | (7 | )% | (1,488,391 | ) | (63 | )% | ||||||||
| Other (expenses) income, net | (207,771 | ) | (8 | )% | 25,635 | (1 | )% | |||||||||
| Income tax benefit | 62,260 | 2 | % | - | - | % | ||||||||||
| Net loss | (338,871 | ) | (13 | )% | (1,462,756 | ) | (62 | )% | ||||||||
Net Sales
Net sales for the three months ended March 31, 2025 were $2.64 million, an increase of 11% from $2.38 million for the same period of 2024. This increase in net sales resulted primarily from 26% increase in average selling price, while partially offset by 12% decrease in sales volume. Our three largest selling product categories for the three months ended March 31, 2025 were sofas, chairs and beds, which accounted for approximately 55%, 10% and 9% of sales, respectively. For the three months ended March 31, 2024, the three largest selling categories were sofa, beds, and chairs, which accounted for approximately 53%, 12% and 8% of sales, respectively.
The $0.26 million increase in net sales for the three months ended March 31, 2025, compared to the same period of 2024, was mainly due to increased sales to North America. Sales to North America increased by 12% to $2.62 million for the three months ended March 31, 2025, compared to $2.33 million for the same period of 2024, such increase mainly due to increase our average selling price by 26% from the customers in North America. However, the increase in net sales in North America was partially offset by the decrease in sales to other countries. Sales to other countries decreased by $0.03 million to $0.02 million for the three months ended March 31, 2025, from $0.05 million for the same period of 2024, primary due to less sales order received from our customers in other countries.
Cost of Sales
Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales increased by 5% to $1.43 million for the three months ended March 31, 2025, compared to $1.36 million for the same period of 2024. Cost of sales as a percentage of sales decreased to 54% for the three months ended March 31, 2025, compared to 57% for the same period of 2024. The increase in cost of sales in dollar term was mainly due to increased net sales. The decrease in cost of sales as a percentage of sales is a result of selling more products with higher profit margin.
Gross Profit
Gross profit was $1.20 million for the three months ended March 31, 2025, compared to $1.02 million for the same period of 2024, representing an increase in gross profit of $0.19 million. Our gross profit margin was 46% for the three months ended March 31, 2025, compared to 43% for the same period of 2024. The increase in gross profit and gross profit margin was mainly a result of selling more products with higher profit margin.
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Operating Expenses
Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $1.40 million for the three months ended March 31, 2025, compared to $2.50 million for the same period of 2024. Selling expenses decreased by 41%, or $0.23 million, to $0.33 million for the three months ended March 31, 2025, from $0.56 million for the same period of 2024, primarily due to decreased marketing and advertising expenses. Also, general and administrative expenses decreased by 10%, or $0.12 million, to $1.07 million for the three months ended March 31, 2025, from $1.19 million for the same period of 2024, primarily due to a decrease in stock compensation of $0.16 million and insurance of $0.04 million, while the decrease was partially offset by an increase in license fee of $0.05 million and consulting fee of $0.07 million. In addition, research and development decreased by 100%, or $0.75 million to $390 for the three months ended March 31, 2025, from $0.75 million for the same period of 2024, primary due to our spending less on our AI and IT system.
Other (Expenses) Income, Net
Other expenses, net was $207,771 for the three months ended March 31, 2025, compared to other income, net of $25,635 for the same period of 2024, representing an increase in other expenses of $233,406. The increase in other expenses was due primarily to an increase in loss on impairment of goodwill by $218,606 to $218,606 for the three months ended March 31, 2025, from loss on impairment of goodwill of nil for the same period of 2024. The increase in loss on impairment of goodwill in 2025 was mainly a result of wrote off our entire goodwill of $218,606 because our inability to generate future operating income without substantial sales volume increase.
Income Tax Benefit
Income tax benefit was $62,260 and $0 for the three months ended March 31, 2025 and 2024, respectively. The income tax benefit for the three months ended March 31, 2025 was mainly due to true up the tax deduction that we wrote off Jade Mats for inventory impairment over the prior years in Nova Malaysia.
Net Income (Loss)
As a result of the foregoing, our net loss was $0.34 million for the three months ended March 31, 2025, compared to $1.46 million of net loss for the same period of 2024.
Liquidity and Capital Resources
Our principal demands for liquidity are related to our efforts to increase sales and purchase inventory, and for expenditures related to sales distribution and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to purchase of inventories and the expansion of our business, primarily through cash flow provided by operations, collections of accounts receivable, and credit facilities from banks.
We rely primarily on internally generated cash flow and available working capital to support growth. We may seek additional financing in the form of bank loans or other credit facilities or funds raised through offerings of our equity or debt, if and when we determine such offerings are required. As of March 31, 2025, we do not have any credit facilities. We believe that our current cash and cash equivalents and anticipated cash receipts from sales of products will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months.
We had working capital of $5,989,081 at March 31, 2025, an increase of $3,882,917 from net working capital of $2,106,164 at December 31, 2024. The ratio of current assets to current liabilities was 2.37-to-1 at March 31, 2025.
The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2025 and 2024:
| 2025 | 2024 | |||||||
| Cash (used in) provided by: | ||||||||
| Operating activities | $ | (322,617 | ) | $ | (221,702 | ) | ||
| Investing activities | - | - | ||||||
| Financing activities | 282,133 | 200,000 | ||||||
Net cash used in operating activities was $0.32 million for the three months ended March 31, 2025, an increase in cash outflow by $0.10 million from $0.22 million of cash used in operating activities for the same period of 2024.
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The increase in cash outflow was attributable primarily to (i) an increase in cash outflow of $0.75 million for research and development to $0 million cash outflow for the three months ended March 31, 2025, from $0.75 million cash inflow for the same period of 2024, such increase in cash outflow being mainly due to no our common stocks were issued to purchase various IT and AI systems which are integrated with our current existing IT system; (ii) an increase in cash outflow of $0.59 million for accounts payable to $0.44 million cash outflow for the three months ended March 31, 2025, from $0.14 million cash inflow for the same period of 2024, such increase in cash outflow due to we paid our suppliers more timely; and (iii) an increase in cash outflow of $0.79 million for accrued liabilities and other payables to $0.60 million cash outflow for the three months ended March 31, 2025, from $0.19 million cash inflow for the same period of 2024, such increase in cash outflow being mainly due to made payments to our service providers more timely. The increase in operating cash outflow was partially offset by an increase in cash inflow of $1.05 million for inventories to $0.72 million cash inflow for the three months ended March 31, 2025, from $0.34 million cash outflow for the same period of 2024, such increase in cash inflow being mainly due to less purchases made from our suppliers.
Net cash provided by investing activities was $0 for the three months ended March 31, 2025 and 2024.
Net cash provided by financing activities was $0.28 million for the three months ended March 31, 2025, compared to $0.2 million for the same period of 2024. During the three months ended March 31, 2025, we sold one million shares of common stock with the proceeds of $0.50 million for our working capital, while we paid off one of loans from shareholder by issued 434,000 shares of our common stocks which was equivalent in the value of $0.22 million. During the three months ended March 31, 2024, we borrowed $0.20 million from an unrelated third party.
As of March 31, 2025, we had gross accounts receivable of $65,430 of which $50,009 was not yet past due and $13,002 was less than 90 days past due. We had an allowance for expected credit losses of $654. As of May 7, 2025, 77% of accounts receivable outstanding as of March 31, 2025 had been collected.
As of May 7, 2025, 93% of our accounts receivable outstanding at December 31, 2024 had been collected during the three months ended March 31, 2025.
As of March 31, 2025 and December 31, 2024, we had advances to suppliers of $7,875,174 and $4,689,148, respectively. These supplier prepayments are made for goods before we actually receive them.
For a new product, the normal lead time from new product R&D, prototype, and mass production to delivery of goods from our suppliers to us is approximately six to nine months after we make advance payments to our suppliers. For other products, the typical time is 4-6 months after our advance payment. We will consider the need for a reserve when and if a supplier fails to fulfill our orders within the time frame as stipulated in the purchase contracts.
As of May 7, 2025, $0 or 0% and $10,224 or 0.2% of our advances to suppliers outstanding at March 31, 2025 and December 31, 2024 had been delivered to us in the form of purchases of furniture, respectively.
Other Long-Term Liabilities
As of March 31, 2025, we recorded long-term taxes payable of nil million, consisting of an income tax payable of nil, primarily arising from a one-time transition tax recognized in the fourth quarter of 2017 on our post-1986 foreign unremitted earnings, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities.
We elected to pay the one-time transition tax over the eight years commencing April 2018.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.
We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of March 31, 2025. Based on this evaluation, our CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during or subsequent to the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 8, 2019, Jie Yuan (the “Jie Action”) filed a putative shareholder derivative lawsuit in the United States District Court for the Central District of California, purportedly on behalf of the Company against its former and current CEOs and CFOs (Thanh H. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) and directors (Charlie Huy La, Bin Liu, Umesh Patel, and Min Su) and vice president (Steven Qiang Liu) (collectively, the “Defendants”). The putative derivative plaintiffs sought to compel reimbursement of Nova for any judgment entered against the Company in the matter of Barney v. Nova Lifestyle, Inc., United States District Court for the Central District of California, and for any legal fees or other costs the Company may incur in defending the Barney Action. The basis of the claims was that the Defendants caused the Company to make alleged false and/or misleading statements that gave rise to the Barney Action.
In the Barney action, the putative class plaintiffs alleged that the Company artificially inflated its share price by issuing a press release announcing a strategic relationship with Shanxi Winqing Senior Care Service Group, claiming in the Company’s Annual Statements on Form 10-Ks for the 2017 and 2018 fiscal years that Shanxi Winqing and Merlino Lewis LLP were among the Company’s largest customers, and reporting revenues from sales transactions with these entities. Plaintiffs claimed that Shanxi Winqing was a fictitious entity and Merlino Lewis LLP dissolved in 2013, so that the announcement of a strategic alliance was false and the reported revenues non-existent. The Company denied these allegations and all liability.
It was also alleged in the Jie Action that President and CEO Lam engaged in self-dealing transactions by leasing real estate to Diamond Bar, a Company subsidiary. Plaintiffs further alleged in conclusory fashion that Ms. Lam, former CEO and director Ya Ming Wong, former CFO and director Yuen Ching Ho, and director Umesh Patel sold securities during the period of time when the alleged false and/or misleading statements were made “with knowledge of material non-public information.”
On May 15, 2019, Wilson Samuels (the “Samuels Action”) filed a largely duplicative putative derivative complaint against the same current and former directors and officers named in the Jie Action other than Steven Qiang Liu. That action was filed in the United States District Court for the Central District of California. In addition to repeating the allegations in the Jie Complaint, Samuels claimed that the Company’s announcement of a change of auditing firms in asserted that it did so because its existing auditor ceased auditing public companies subject to regulation in the United States without disclosing that its new auditing firm was created in a merger of three accounting firms, including a firm whose registration was revoked by the Public Company Accounting Oversight Board. Samuels also claimed that the Company redeemed its stock in reliance upon the same purported fraudulent recognition of revenues claimed in the Barney Action. Samuels purported to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5 on the Company’s behalf.
Both derivative actions were stayed pending resolution of the Barney Action. After Barney was settled (on terms previously reported), the parties filed a stipulation to lift the stay and consolidate the derivative actions. The Stipulation also set deadlines for plaintiffs to file a consolidated amended complaint and for defendants to respond to this complaint. By January 7, 2025 Orders, the Court adopted the parties’ Stipulation.
On February 6, 2025, the deadline for filing an amended complaint, plaintiffs filed a Notice of Dismissal without prejudice. While plaintiffs should have sought Court approval, the Clerk accepted the Notice of Dismissal and the lead case has been marked closed. It appears that the Notice of Dismissal concluded these matters.
Other than the above, the Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have a material adverse effect on the business, financial condition or results of operations.
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Item 1A. Risk Factors
Not Applicable
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 5. Other Information
Insider Trading Arrangements
During the three months ended March 31, 2025, none
of the Company’s directors or executive officers
Item 6. Exhibits
EXHIBIT INDEX
† Filed herewith
‡ Furnished herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NOVA LIFESTYLE, INC. | ||
| (Registrant) | ||
| Date: May 15, 2025 | By: | /s/ Xiaohua Lu |
|
Xiaohua Lu, Chief Executive Officer (Principal Executive Officer) | ||
| Date: May 15, 2025 | /s/ Jeffery Chuang | |
|
Jeffery Chuang Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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