Nova Lifestyle, Inc. [NVFY] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-36259

NOVA LIFESTYLE, INC.

(Exact name of registrant as specified in its charter)

Nevada

90-0746568

(State or other jurisdiction

of incorporation or organization)

(IRS Employer

Identification No.)

6565 E. Washington Blvd. Commerce, CA		90040
(Address of principal executive offices)		(Zip Code)

(323) 888-9999

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		NVFY		Nasdaq Stock Market

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.

YES ☒ 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).

YES ☒ 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 ☐
Non-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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ☐ NO ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 3,084,735 shares of common stock outstanding as of August 12, 2024.

Nova LifeStyle, Inc.

Table of Contents

		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	1
	Condensed Consolidated Statements of Loss and Comprehensive Loss for the six months and three months ended June 30, 2024 and 2023 (unaudited)	3
	Condensed Consolidated Statements of Stockholders’ Equity for the six months and three months ended June 30, 2024 and 2023 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements for the six months and three months ended June 30, 2024 and 2023 (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 5.	Other Information	44
Item 6.	Exhibits	44

	Signatures	45

Table Of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2024 (UNAUDITED) AND DECEMBER 31, 2023

	June 30, 2024		December 31, 2023

Assets

Current Assets
Cash and cash equivalents	$	363,409	$	369,137
Accounts receivable, net		44,469		46,998
Advance to suppliers		50,793		93,740
Inventories		2,134,343		2,213,311
Prepaid expenses		1,088,677		984,934
Other receivables		30,982		41,265

Total Current Assets		3,712,673		3,749,385

Noncurrent Assets
Plant, property and equipment, net		254,098		287,673
Operating lease right-of-use assets, net		1,543,204		1,904,349
Intangible assets, net		5,791		8,473
Lease deposit		69,275		69,992
Goodwill		218,606		218,606

Total Noncurrent Assets		2,090,974		2,489,093

Total Assets	$	5,803,647	$	6,238,478

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONT’D)

AS OF JUNE 30, 2024 (UNAUDITED) AND DECEMBER 31, 2023

	June 30, 2024			December 31, 2023

Liabilities and Stockholders’ Equity

Current Liabilities
Accounts payable	$	297,764		$	430,045
Operating lease liability, current		671,988			701,985
Advance from customers		428,736			306,532
Loan from shareholder		369,159			-
Accrued liabilities and other payables		1,136,631			1,100,661
Income tax payable		1,130,865			1,150,105

Total Current Liabilities		4,035,143			3,689,328

Noncurrent Liabilities
Other Loan		145,779			147,428
Operating lease liability, non-current		931,405			1,262,256
Income tax payable		643,112			643,112

Total Noncurrent Liabilities		1,720,296			2,052,796

Total Liabilities		5,755,439			5,742,124

Contingencies and Commitments		-			-

Stockholders’ Equity
Common stock, $0.001 par value; 250,000,000 shares authorized, 2,672,427 and 1,917,706 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		2,672			1,918
Additional paid-in capital		46,062,766			44,402,821
Accumulated other comprehensive income		438,825			521,425
Accumulated deficits		(46,456,055	)		(44,429,810	)

Total Stockholders’ Equity		48,208			496,354

Total Liabilities and Stockholders’ Equity	$	5,803,647		$	6,238,478

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)

	2024			2023			2024			2023
	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023

Net Sales	$	5,064,926		$	6,336,994		$	2,688,533		$	4,462,429

Cost of Sales		2,853,799			4,228,352			1,493,566			3,015,089

Gross Profit		2,211,127			2,108,642			1,194,967			1,447,340

Operating Expenses
Selling expenses		964,682			1,279,607			405,212			565,093
General and administrative expenses		2,481,802			2,380,738			1,287,937			1,250,458
Research and development		750,698			10,144			(518	)		10,026

Total Operating Expenses		4,197,182			3,670,489			1,692,631			1,825,577

Loss From Operations		(1,986,055	)		(1,561,847	)		(497,664	)		(378,237	)

Other Income (Expenses)
Non-operating income		2,743			17,892			1,162			16,173
Foreign exchange transaction income (loss)		70,649			(133,661	)		(2,383	)		(128,278	)
Interest expense, net		(12,568	)		(3,231	)		(8,626	)		(1,322	)
Financial expense		(96,138	)		(77,649	)		(51,102	)		(44,517	)

Total Other Expenses, Net		(35,314	)		(196,649	)		(60,949	)		(157,944	)

Loss Before Income Taxes		(2,021,369	)		(1,758,496	)		(558,613	)		(536,181	)

Income Tax Expense		(4,876	)		(2,400	)		(4,876	)		(2,400	)

Net Loss		(2,026,245	)		(1,760,896	)		(563,489	)		(538,581	)

Other Comprehensive Loss
Foreign currency translation		(82,600	)		(99,290	)		(909	)		(96,183	)

Net Loss and Comprehensive Loss		(2,108,845	)		(1,860,186	)		(564,398	)		(634,764	)

Weighted average shares outstanding - Basic and Diluted		2,387,653			1,452,303			2,538,792			1,459,655

Net loss per share of common stock
Basic and Diluted	$	(0.85	)	$	(1.21	)	$	(0.22	)	$	(0.37	)

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)

Three Months Ended June 30, 2024

	Shares		Amount		Capital		Income			Deficits)			Equity
							Accumulated
					Additional		Other						Total
	Common stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income (Loss)			Deficits			Equity

Balance at beginning of period		2,345,179	$	2,346	$	45,407,744	$	439,734		$	(45,892,566	)	$	(42,742	)

Stock issued to employees		1,500		1		3,224		-			-			3,225

Stock issued to consultants		112,500		113		222,010		-			-			222,123

Stock issued to designer		13,248		12		29,988		-			-			30,000

Stock issued to an investor		200,000		200		399,800								400,000

Foreign currency translation loss		-		-		-		(909	)		-			(909	)

Net loss		-		-		-		-			(563,489	)		(563,489	)

Balance at end of period		2,672,427	$	2,672	$	46,062,766	$	438,825		$	(46,456,055	)	$	48,208

Three Months Ended June 30, 2023

							Accumulated
					Additional		Other						Total
	Common stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income			Deficits			Equity

Balance at beginning of period		1,438,268	$	1,449	$	43,285,295	$	74,135		$	(37,928,868	)	$	5,432,011

Stock issued to employees		300				885		-			-			885

Stock issued to consultants		5,000				16,000		-			-			16,000

Stock issued to designer		10,543		11		29,978		-			-			29,989

Fractional shares due to 1:5 stock split		10,979		10				-			-			10

Foreign currency translation loss		-		-		-		(96,183	)		-			(96,183	)

Net loss		-		-		-		-			(538,581	)		(538,581	)

Balance at end of period		1,465,090	$	1,470	$	43,332,158	$	(22,048	)	$	(38,467,449	)	$	4,844,131

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)

Six Months Ended June 30, 2024

							Accumulated
					Additional		Other						Total
	Common stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income			Deficits			Equity

Balance at beginning of period		1,917,706	$	1,918	$	44,402,821	$	521,425		$	(44,429,810	)	$	496,354

Stock issued to employees		3,000		3		6,447		-			-			6,450

Stock issued to consultants		225,000		225		444,024		-			-			444,249

Stock issued to designer		26,721		26		59,974		-			-			60,000

Acquisition of AI-Calculation Engine		300,000		300		749,700		-			-			750,000

Stock issued to an investor		200,000		200		399,800								400,000

Foreign currency translation loss		-		-		-		(82,600	)		-			(82,600	)

Net loss		-		-		-		-			(2,026,245	)		(2,026,245	)

Balance at end of period		2,672,427	$	2,672	$	46,062,766	$	438,825		$	(46,456,055	)	$	48,208

Six Months Ended June 30, 2023

							Accumulated
					Additional		Other						Total
	Common stock				Paid-in		Comprehensive			Accumulated			Stockholders’
	Shares		Amount		Capital		Income			Deficits			Equity

Balance at beginning of period		1,423,836	$	1,440	$	43,239,701	$	77,242		$	(36,706,553	)	$	6,611,830
Balance		1,423,836	$	1,440	$	43,239,701	$	77,242		$	(36,706,553	)	$	6,611,830

Stock issued to employees		600				1,770		-			-			1,770

Stock issued to consultants		10,000				32,000		-			-			32,000

Stock issued to designer		19,676		20		58,687		-			-			58,707

Fractional shares due to 1:5 stock split		10,979		10				-			-			10

Foreign currency translation loss		-		-		-		(99,290	)		-			(99,290	)

Net loss		-		-		-		-			(1,760,896	)		(1,760,896	)

Balance at end of period		1,465,090	$	1,470	$	43,332,158	$	(22,048	)	$	(38,467,449	)	$	4,844,131
Balance		1,465,090	$	1,470	$	43,332,158	$	(22,048	)	$	(38,467,449	)	$	4,844,131

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)

	2024			2023
	Six Months Ended June 30,
	2024			2023

Cash Flows From Operating Activities
Net loss	$	(2,026,245	)	$	(1,760,896	)

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		29,691			66,812
Amortization of operating lease right-of-use assets		359,086			392,146
Write down of inventories		44,253			108,785
Stock based compensation expense		497,794			93,770
Research and development		750,000			-
Changes in allowance for expected credit losses		(83	)		(196	)
Changes in operating assets and liabilities:
Accounts receivable		2,612			(958,457	)
Advance to suppliers		42,947			(36,716	)
Inventories		34,714			2,420,468
Other current assets		(109,576	)		1,165,396
Operating lease liabilities		(358,790	)		(389,840	)
Accounts payable		(132,281	)		261,883
Advance from customers		124,889			20,905
Accrued liabilities and other payables		50,574			132,908
Taxes payable		-			(87,322	)

Net Cash provided by (Used in) Operating Activities		(690,415	)		1,429,646

Cash Flows From Investing Activities
Purchase of intangible assets		-			(2,468,582	)

Net Cash Used in Investing Activities		-			(2,468,582	)

Cash Flows From Financing Activities
Proceed from loan from a shareholder		360,000			-
Proceed from issuing common stocks		400,000			-

Net Cash Provided by Financing Activities		760,000			-


Effect of Exchange Rate Changes on Cash and Cash Equivalents	$	(75,313	)	$	106,867

Net Decrease in Cash and Cash Equivalents		(5,728	)		(932,069	)

Cash and Cash Equivalents, Beginning of Period		369,137			1,374,167

Cash and Cash Equivalents, Ending of Period	$	363,409		$	442,098

Supplemental Disclosure of Cash Flow Information

Cash paid during period for:
Income tax payments	$	4,800		$	202,288
Interest expense	$	9,368		$	3,400

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

Table of Contents

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2024 AND 2023 (UNAUDITED)

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, 2023.

On December 12, 2019, Nova LifeStyle acquired Nova Malaysia at cost of $1.00 which was incorporated in Malaysia on July 26, 2019. The purpose of this acquisition was to market and sell high-end physiotherapeutic jade mats in Malaysia.

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 $2,500,000, pursuant to a formal agreement entered into on January 7, 2020. The Company received the payment on May 11, 2020.

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 $1,290 which was incorporated in Hong Kong on November 6, 2019. This company had minimal operations other than to take over the business of Nova Macao. On February 15, 2022, the Company transferred its entire assets and business in Nova HK to Nova Malaysia, a subsidiary of the Company. In February 2023, Nova HK was completed the process of de-registration and liquidation.

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.

Table of Contents

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 a net loss of $2.03 million and $1.76 million for the six months ended June 30, 2024 and 2023, respectively; and $0.56 million and $0.54 million for the three months ended June 30, 2024 and 2023, respectively. The accumulated deficit of the Company was $46.46 million and $44.43 million as of June 30, 2024 and December 31, 2023. Net cash balance decreased to $0.36 million for the six months ended June 30, 2024 from $0.37 million for the year ended December 31, 2023. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raises substantial doubt that the Company will be able to continue as a going concern.

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. Besides, in the second half of this year, the Company plans to raise money from the market to increase cash flow and investment capital in addition to the private placement during the second quarter.

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.

The interim unaudited condensed consolidated financial statements as of June 30, 2024 and for the six and three-month periods ended June 30, 2024 and 2023 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The interim unaudited condensed consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, previously filed with the SEC on April 15, 2024.

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s interim unaudited condensed consolidated financial position as of June 30, 2024, its interim unaudited condensed consolidated results of operations and cash flows for the six and three-month periods ended June 30, 2024 and 2023, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

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”), shall be effected. All references to shares and per share data have been retroactively restated to reflect such split.

Table of Contents

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 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 unaudited 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 expected credit losses, 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.

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. After evaluating and weighing all these relevant events and circumstances, it was concluded that a positive assertion can be made from the qualitative assessment that it is more likely than not that the fair value of Diamond Bar is greater than its carrying amount. As such, it is not necessary to perform the single step goodwill impairment test for the Diamond Bar reporting unit. Accordingly, as of June 30, 2024 and December 31, 2023, the Company concluded there was no impairment of goodwill of Diamond Bar.

Table of Contents

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 5 years.

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.

The Company’s cash is maintained at financial institutions in the United States of America. Deposits in these financial institutions may, from time to time, exceed the Federal Deposit Insurance Corporation (“FDIC”)’s federally insured limits. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The bank deposits exceeding the standard insurance amount will not be covered. As of June 30, 2024 and December 31, 2023, cash balances held in the banks, exceeding the standard insurance amount, are $0 and $0, respectively. The Company has not experienced any losses in accounts held in these financial institutions and believes it is not exposed to any risks on its cash held in these financial institutions.

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:

Schedule of Allowance for Credit Losses

	June 30, 2024			December 31, 2023

Accounts receivable	$	44,918		$	47,530
Less: allowance for credit losses		(449	)		(532	)
Total accounts receivable, net	$	44,469		$	46,998

The expected credit losses (reversal) provision for the six months ended June 30, 2024 and 2023 was ($83) and ($196), respectively; ($924) and $65 for the three months ended June 30, 2024 and 2023, respectively.

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 six months ended June 30, 2024 and December 31, 2023, no provision was made on advances to suppliers.

Table of Contents

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 six months ended June 30, 2024 and 2023, the Company wrote down $44,253 and $108,785 of slow-moving inventory, respectively and $5,271 and $23,113 for the three months ended June 30, 2024 and 2023, respectively. The inventory write-down is included in “Cost of Sales” in the unaudited condensed consolidated statements of loss and comprehensive loss.

Plant, Property 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	5 - 10 years
Decoration and renovation	5 - 10 years

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. There was no impairment of long-lived assets for the six months ended June 30, 2024 and December 31, 2023.

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 the six months ended June 30, 2024, the Company acquired an IT system for AI-Calculation Engine which was 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 $0.75 million and $10,144 for the six months ended June 30, 2024 and 2023, respectively; and ($518) and $10,026 for the three months ended June 30, 2024 and 2023, respectively.

Table of Contents

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 six months ended June 30, 2024 and 2023 are $4,876 and $2,400, respectively; and $4,876 and $2,400 for the three months ended June 30, 2024 and 2023, respectively, are primarily related to quarter-to-date income generated from domestic and foreign operation.

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 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%.

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 six months ended June 30, 2024 , 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.

Table of Contents

As of June 30, 2024 and December 31, 2023, the accumulated undistributed loss generated by its foreign subsidiaries were approximately $25.2 million and $25.4 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 June 30, 2024 and 2023, unrecognized tax benefits were approximately $0. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was $0 as of June 30, 2024 and 2023.

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the six months ended June 30, 2024 and 2023, is as follows:

Schedule of Unrecognized Tax Benefits

		Gross UTB
		2024		2023

Balance – January 1 and June 30	$	-	$	-

As of June 30, 2024 and December 31, 2023, the Company had cumulatively accrued approximately $0 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 $0 and $0 for the six and three months ended June 30, 2024 and 2023, respectively, related to the Company’s continuing 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 2020-2023 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.

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 six and three months ended June 30, 2024 and 2023.

Table of Contents

In February 2023, the Company entered into a sales contract to transfer its entire inventory of Jade Mats, with the net realized value of $1.54 million to Shopants Sdn Bhd, an unrelated third party, for cash consideration of $2.00 million. The Company agreed to deliver the Jade Mats on May 20, 2023, May 31, 2023 and June 15, 2023. On June 30, 2023, the Company delivered all the Jade Mats to Shopants Sdn Bhd and recorded as revenue accordingly.

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 six months ended June 30, 2024 and 2023, shipping and handling costs were $1,515 and ($555), respectively; and $859 and ($194) for the three months ended June 30, 2024 and 2023, respectively.

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 $255,875 and $619,465 for the six months ended June 30, 2024 and 2023, respectively; and $30,414 and $207,890 for the three months ended June 30, 2024 and 2023, respectively.

Share-based Compensation

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.

Earnings per Share (EPS)

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).

The following table presents a reconciliation of basic and diluted loss per share for the six and three months ended June 30, 2024 and 2023:


	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023

Net loss	$	(2,026,245	)	$	(1,760,896	)		(563,489	)		(538,581	)

Weighted average shares outstanding – Basic and Diluted *		2,387,653			1,452,303			2,538,792			1,459,655

Net loss per share of common stock
Basic and Diluted	$	(0.85	)	$	(1.21	)		(0.22	)		(0.37	)

*	Including 0 shares that were granted and vested but not yet issued for the six and three months ended June 30, 2024 and 2023, respectively.

Table of Contents

For the six and three months ended June 30, 2024, 1,500 shares of unvested restricted stock, vested stock options to purchase 13,400 shares of the Company’s common stock, and 245,192 shares exercisable under warrants were excluded from the EPS calculation, as their effect were anti-dilutive.

For the six and three months ended June 30, 2023, 300 shares of unvested restricted stock, vested stock options to purchase 26,800 shares of common stock of the Company, and 245,192 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 six and three months ended June 30, 2024 and 2023.

Schedule of Concentration Credit Risk

Six Months Ended June 30, 2024				Three Months Ended June 30, 2024					As of June 30, 2024
Customer	Percentage of Total Sales			Customer		Percentage of Total Sales			Percentage of accounts receivable
A		2	%		A		2	%		19	%
B		-	%		B		-	%		30	%
C		-	%		C		-	%		-	%
D		-	%		D		-	%			%

Six Months Ended June 30, 2023				Three Months Ended June 30, 2023					As of June 30, 2023
Customer	Percentage of Total Sales			Customer		Percentage of Total Sales			Percentage of accounts receivable
A		2	%		A		1	%		-	%
B		1	%		B		1	%		-	%
C		31	%		C		45	%		77	%
D		-	%		D		-	%		16	%

No customer accounted for 10% or more of the Company’s sales for the six and three months ended June 30, 2024; and one customer accounted for 31% and 45% of the Company’s sales for the six and three months ended June 30, 2023, respectively.

Two customers accounted for 19% and 30% of the Company’s gross accounts receivable as of June 30, 2024, respectively. Two customers accounted for 77% and 16% of the Company’s gross accounts receivable as of June 30, 2023, respectively.

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 six and three months ended June 30, 2024 and 2023.

Six Months Ended June 30, 2024				Three Months Ended June 30, 2024					As of June 30, 2024		As of June 30. 2024
Supplier	Percentage of Total Purchases			Supplier		Percentage of Total Purchases			Balance of Accounts Payable		Balance of Advance to Supplier
A		12	%		A		20	%	$	26,402		-
B		6	%		B		5	%		-		-
C		7	%		C		8	%		-		-

Six Months Ended June 30, 2023				Three Months Ended June 30, 2023					As of June 30, 2023		As of June 30. 2023
Supplier	Percentage of Total Purchases			Supplier		Percentage of Total Purchases			Balance of Accounts Payable		Balance of Advance to Supplier
A		14	%		A		7	%	$	45,859		-
B		22	%		B		27	%	$	141,849		-
C		9	%		C		12	%		-		-

The Company purchased its products from one major vendor, accounting for 12% and 20% during the six and three months ended June 30, 2024, respectively. The Company purchased its products from two major vendors during the six and three months ended June 30, 2023, respectively, accounting for a total of 36% (22% and 14%) and 39% (27% and 12%), respectively.

Advances made to these major vendors were $0 as of June 30, 2024 and June 30, 2023, respectively. Accounts payable to these major vendors were $26,402 and $187,708 as of June 30, 2024 and June 30, 2023, respectively.

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.

Table of Contents

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.

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:

Schedule of Exchange Rates

Balance sheet items, except for equity accounts
June 30, 2024		RM 4.72 to 1
December 31, 2023		RM 4.59 to 1

Income Statement and cash flow items
For the six months ended June 30, 2024		RM 4.73 to 1
For the six months ended June 30, 2023		RM 4.46 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.

Management determined that the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: the design and sale of furniture.

Management concluded that the Company had one reportable segment under ASC 280 because Diamond Bar is a furniture distributor based in California focusing on customers in the United States and Nova Malaysia is a furniture retailer and distributor focusing on customers primarily in Malaysia. They are all operated under the same senior management of the Company, and management views the operations of Diamond Bar and Nova Malaysia as one entity for making business decisions.

Table of Contents

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.

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 June 30, 2024 and December 31, 2023.

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 June 30, 2024 and December 31, 2023.

Reclassification

Certain prior period accounts have been reclassified in conformity with current period’s presentation.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

Table of Contents

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). This Update is effective for smaller reporting companies for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022, which is required to be applied prospectively from the date of adoption. The Company adopted ASU 2017-04 for its interim and annual goodwill impairment tests beginning January 1, 2023. The adoption of ASU 2017-04 did not have any impact on our unaudited condensed consolidated 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 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.

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 June 30, 2024 and December 31, 2023 totaled $2,134,343 and $2,213,311, respectively, and consisted entirely of finished goods.

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 six months ended June 30, 2024 and 2023, the Company wrote-down $44,253 and $108,785 of slow-moving inventory, respectively; and $5,271 and $23,113 of slow-moving inventory for the three months ended June 30, 2024 and 2023, respectively. The inventory write-down is included in “Cost of Sales” in the unaudited condensed consolidated statements of loss and comprehensive loss.

Table of Contents

Note 4 - Plant, Property and Equipment, Net

As of June 30, 2024 and December 31, 2023, plant, property and equipment consisted of the following:

	June 30, 2024			December 31, 2023
Computer and office equipment	$	253,769		$	255,352
Decoration and renovation		369,334			378,237
Property plant and equipment gross		623,103			633,589
Less: accumulated depreciation		(369,005	)		(345,916	)
Property plant and equipment net	$	254,098		$	287,673

Depreciation expense was $27,009 and $36,258 for the six months ended June 30, 2024 and 2023, respectively; and $13,493 and $17,840 for the three months ended June 30, 2024 and 2023, respectively.

For six months ended June 30, 2024 and 2023, the Company disposed of $0 of office equipment and decoration and renovation, respectively.

Note 5 – Intangible Assets

As of June 30, 2024 and December 31, 2023, intangible assets consisted of the following:

Schedule of Intangible Assets

	June 30, 2024			December 31, 2023
Accounting software	$	26,800		$	26,800
Less: accumulated amortization		(21,009	)		(18,327	)
Intangible assets, net	$	5,791		$	8,473

Amortization expense was $2,682 and $30,553 for the six months ended June 30, 2024 and 2023, respectively and $1,341 and $29,212 for the three months ended June 30, 2024 and 2023, respectively.

Note 6 – Advances to Suppliers

The Company makes advances to certain vendors for inventory purchases. The advances on inventory purchases were $50,793 and $93,740 as of June 30, 2024 and December 31, 2023, respectively. No impairment charges were made on advances to suppliers for the six months ended June 30, 2024 and the twelve months ended December 31, 2023.

Note 7 – Prepaid Expenses and Other Receivables

Prepaid expenses and other receivables consisted of the following as of June 30, 2024 and December 31, 2023:

	June 30, 2024		December 31, 2023

Prepaid expenses	$	1,088,677	$	984,934
Other receivables		30,982		41,265
	$	1,119,659	$	1,026,199

As of June 30, 2024 and December 31, 2023, prepaid expenses and other receivables mainly represented prepaid insurance, prepaid rent, refund receivable from suppliers, prepaid advertising expense, and Celero and Cardknox account balances.

Table of Contents

Note 8 – Accrued Liabilities and Other Payables

Accrued liabilities and other payables consisted of the following as of June 30, 2024 and December 31, 2023:

	June 30, 2024		December 31, 2023

Other payables	$	756,514	$	139,722
Salary payable		6,804		7,511
Marketing		20,000		-
Financed insurance premiums		198,999		69,337
Auditing fee		-		125,000
Warranty liability		25,283		27,545
Accrued commission		75,989		58,669
Accrued expenses, others		53,042		672,877
	$	1,136,631	$	1,100,661

As of June 30, 2024 and December 31, 2023, 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, and showroom.

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 $150,000, pursuant to the Economic Injury Disaster Loan. The Loan, which was in the form of a promissory note dated June 19, 2020, matures on June 19, 2050 and bears interest at a rate of 3.75% per annum, payable monthly beginning 12 months from the date of the promissory note. Funds from the Loan may only be used for working capital. The loan was secured by all tangible and intangible property of Diamond Bar and has accumulated interest of $2,737 and $4,386 for the six months ended June 30, 2024 and 2023, respectively; and $1,365 and $2,193 for the three months ended June 30, 2024 and 2023, respectively.

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 $41,000. During the six months ended June 30, 2024 and 2023, the Company recorded rental amounts of $18,890 and $17,280, respectively; and $10,250 and $8,640 for the three months ended June 30, 2024 and 2023, respectively, which were included in selling expenses.

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 two years. On January 4, 2020, the Company renewed the agreement for an additional two years which was amended in July 2020. If not terminated during the first year, the agreement will continue until one party or the other terminates the agreement with 30 days written notice. The Company agreed to compensate the consulting firm via commission at predetermined rates of the relevant sales amount. During the six months ended June 30, 2024 and 2023, the Company recorded $153,043 and $151,911; and $87,316 and $86,381 for the three months ended June 30, 2024 and 2023 as commission expense to this consulting firm, respectively.

In February 2024, the Company entered into a loan agreement in the aggregate amount of $200,000 with a shareholder of the Company. The loan was in the form of a promissory note dated on February 21, 2024, matures on February 20, 2025, and bears interest at a rate of 8.5% per annum. The proceed of the loan is used for working capital. During the six and three months ended June 30, 2024, the Company accrued $6,141 and $4,278 as interest expense, respectively.

On April 11, 2024, the Company entered into a loan agreement in the aggregate amount of $160,000 with a shareholder of the Company. The loan was in the form of a promissory note dated on April 11, 2024, matures on April 10, 2025, and bears interest at a rate of 8.5% per annum. The proceed of the loan is used for working capital. During the six and three months ended June 30, 2024, the Company accrued $3,018 and $3,018 as interest expense, respectively.

Table of Contents

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 meeting. The 2021 Plan was approved by the Board of Directors of the Company on April 12, 2021 and has a total of 600,000 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 600,000 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 800,000 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 800,000 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 special shareholders’ meeting. The 2024 Plan was approved by the Board of Directors of the Company on April 19, 2024 and has a total of 3,000,000 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 April 18, 2024, the Company received written notice from the NASDAQ Stock Market (“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 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 intends to fully comply with the exception granted by the Staff and to regain the compliance on or before October 14, 2024.

On May 16, 2024, the Company entered into a Securities Purchase Agreement with an investor to sell 200,000 shares of the Company’s common stock at a purchase price of $2.00 per share for an aggregate price of $400,000 (the “Private Placement”). The Private Placement was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.

Shares and Warrants issued through Private Placement

On July 23, 2021, the Company conducted a registered direct offering of 222,902 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 222,902 shares of common stock in a concurrent private placement. The combined purchase price for one share of common stock and a warrant to purchase one share of common stock was $14.00. The warrants have an exercise price of $17.50 per share, are exercisable beginning six-months from the date of issuance, and will expire five and a half years from the date of issuance. The offering gross proceeds were $3,120,622 before deducting placement agent’s commissions and other offering costs, and the net proceeds of the offering were approximately $2,760,000. The offering closed on July 27, 2021.

Table of Contents

In conjunction with this offering, the Company issued warrants to purchase 22,290 shares of common stock at an exercise price of $17.50 per share to the placement agent and its designees. The placement agent warrants are exercisable on the six-month anniversary of the issuance date. The placement agent warrants are exercisable for four and a half years from the initial exercise date. The placement agent warrants have piggy-back registration rights and have a termination date of July 23, 2026.

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 5.5 years, volatility of 107%, risk-free interest rate of 0.71% and dividend yield of 0%. 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 $2,018,597.

Warrants

The following is a summary of the warrant activity for the six months ended June 30, 2024:

Summary of Warrant Activity

	Number of Warrants		Average Exercise Price		Weighted Average Remaining Contractual Term in Years

Outstanding at January 1, 2024		245,192	$	17.50		3.02
Exercisable at January 1, 2024		245,192	$	17.50		3.02
Granted		-		-		-
Exercised / surrendered		-		-		-
Expired		-		-		-
Outstanding at June 30, 2024		245,192	$	17.50		2.52
Exercisable at June 30, 2024		245,192	$	17.50		2.52

Shares Issued to Consultants

On January 28, 2022, the Company entered into an advisory service agreement with a designer for advising furniture design concept and development effective on February 1, 2022 for twelve months. The Company shall pay the designer $10,000 per month starting from February 1, 2022 for twelve months, in the form of the Company’s Common Stock, calculated based on the closing stock price on the first trading day of the corresponding month. The shares were issued pursuant to the 2021 Plan. During the six and three months ended June 30, 2023, the Company issued 4,748 shares to the designer and charged $10,000, respectively to operations as designer fee.

On July 1, 2022, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on July 1, 2022 for a one-year term. The Company agreed to grant the consultant 10,000 shares of the Company’s common stock, vesting 25% on July 1, 2022, 25% on October 1, 2022, 25% on January 1, 2023 and 25% on April 1, 2023. The fair value of the 10,000 shares was $36,000, which was calculated based on the stock price of $3.60 per share on July 1, 2022 and has been amortized over the service term. The shares were issued pursuant to the 2021 Plan. During the six and three months ended June 30, 2023, the Company charged $18,000 and $9,000 to operations as consulting expenses, respectively.

Table of Contents

On November 16, 2022, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2022 for a one-year term. The Company agreed to grant the consultant 10,000 shares of the Company’s common stock, vesting 25% on February 15, 2023, 25% on May 15, 2023, 25% on August 15, 2023 and 25% on November 15, 2023. The fair value of the 10,000 shares was $28,000, which was calculated based on the stock price of $2.80 per share on November 16, 2022. The shares were issued pursuant to the 2021 Plan. During the six and three months ended June 30, 2023, the Company charged $14,000 and $7,000, respectively, to operations as consulting expenses.

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 twelve months. The Company shall pay the designer $10,000 per month starting from February 1, 2023 for twelve months, in the form of the Company’s Common Stock, calculated based on the closing stock price on the first trading day of the corresponding month. The shares were issued pursuant to the 2021 Plan. During the six months ended June 30, 2024 and 2023, the Company issued 2,645 and 15,328 shares to the designer and charged $10,000 and $50,000 to operations as designer fee, respectively. During the three months ended June 30, 2024 and 2023, the company issued 0 and 10,543 shares to the designer and charged $0 and $30,000 to operations as designer fee, respectively

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 twelve months. The Company agreed to grant the consultant 300,000 shares of the Company’s common stock, vesting 25% on July 3, 2023, 25% on October 3, 2023, 25% on January 3, 2024 and 25% on April 3, 2024. The fair value of the 300,000 shares was $636,000, which was calculated based on the stock price of $2.12 per share on July 3, 2023. The shares were issued pursuant to the 2021 Plan. During the six and three months ended June 30, 2024, the Company charged $318,000 and $159,000 to operations as consulting expenses, respectively.

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 50,000 shares of the Company’s common stock, vesting 25% on February 15, 2024, 25% on May 15, 2024, 25% on August 15, 2024 and 25% on November 15, 2024. The fair value of the 50,000 shares was $

Nova Lifestyle, Inc. [NVFY] Filings
10-Q	[2024-08-14]
10-Q	[2024-05-15]
10-K	[2024-04-15]
10-Q	[2023-11-14]
10-Q	[2023-08-14]
10-Q	[2023-05-15]
10-K	[2023-04-17]
S-1	[2022-12-22]
10-Q	[2022-11-18]
10-Q	[2022-08-12]
10-Q	[2022-05-13]
10-K	[2022-04-08]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
10-Q	[2021-05-17]
10-K	[2021-03-29]
10-Q	[2020-11-20]
10-Q	[2020-08-14]
10-Q	[2020-07-06]
10-K	[2020-05-12]
10-Q	[2019-11-12]
10-Q	[2019-08-14]
10-Q	[2019-05-13]
10-K	[2019-04-01]
10-Q	[2018-11-09]
10-Q	[2018-08-13]
10-Q	[2018-05-14]
10-K	[2018-03-29]
10-Q	[2017-11-13]
10-Q	[2017-08-07]
10-Q	[2017-05-15]
10-K	[2017-04-14]
10-Q	[2016-11-14]
10-Q	[2016-08-12]
10-Q	[2016-05-16]
10-K	[2016-03-28]
10-Q	[2015-11-16]
10-Q	[2015-08-12]
10-Q	[2015-05-13]
10-K	[2015-03-26]
10-Q	[2014-11-12]
10-Q	[2014-08-11]
10-Q	[2014-05-15]
10-K	[2014-03-31]
10-Q	[2013-11-14]
10-Q	[2013-08-14]
10-Q	[2013-05-15]
10-K	[2013-04-01]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-15]
10-K	[2012-03-30]
S-1	[2012-03-30]