10q10k10q10k.net

What changed in XMax Inc.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of XMax Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+227 added−274 removedSource: 10-K (2024-04-15) vs 10-K (2023-04-17)

Top changes in XMax Inc.'s 2023 10-K

227 paragraphs added · 274 removed · 159 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

40 edited+13 added−24 removed49 unchanged
Biggest changeOperations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. 2 Table of Contents Our organizational structure as of December 31, 2022 is set forth in the diagram: 3 Table of Contents Our Products We design and market modern residential and commercial furniture in diverse markets worldwide.
Biggest changeOur organizational structure as of December 31, 2023 is set forth in the diagram: 2 Table of Contents Our Products We design and market modern residential and commercial furniture in diverse markets worldwide. Our products feature urban and contemporary styles, combining comfort and functionality in matching furniture collections and upscale luxury pieces appealing to lifestyle-conscious middle and upper middle-income consumers.
Operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Nova Furniture Macao Commercial Offshore Limited (“Nova Macao”) was organized under the laws of Macao on May 20, 2006. Nova Macao was a wholly owned subsidiary of Nova Furniture.
Operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Nova Furniture Macao Commercial Offshore Limited (“Nova Macao”) was organized under the laws of Macao on May 20, 2006 as a wholly owned subsidiary of Nova Furniture.
Our largest selling product categories for the year ended December 31, 2022 were sofas, beds and chairs, which accounted for approximately 41%, 15% and 11% of sales from continuing operations, respectively.
For the year ended December 31, 2022, our largest selling product categories were sofas, beds and chairs, which accounted for approximately 41%, 15% and 11% of sales from continuing operations, respectively.
Reverse split On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, 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.
Reverse split On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, 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, was effected.
We believe the Company has complied with the relevant federal, state, local and international requirements for environmental protection. 7 Table of Contents Intellectual Property We rely on the trademark protection laws in the U.S. to protect our intellectual property and maintain our competitive position in the marketplace.
We believe the Company has complied with the relevant federal, state, local and international requirements for environmental protection. 6 Table of Contents Intellectual Property We rely on the trademark protection laws in the U.S. to protect our intellectual property and maintain our competitive position in the marketplace.
We provide samples and brochures of new products for international markets to distributors and buyers, as is common in the furniture industry. 5 Table of Contents We used to gain new customers by attending many international furniture trade shows throughout the years. During these events, we introduce new product offerings and launch new design collections.
We provide samples and brochures of new products for international markets to distributors and buyers, as is common in the furniture industry. 4 Table of Contents We gain new customers by attending many international furniture trade shows throughout the years. During these events, we introduce new product offerings and launch new design collections.
In 2022, via our subsidiary, Nova Malaysia, we marketed and sold high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia.
In 2023, via our subsidiary, Nova Malaysia, we marketed and sold high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia.
We generally negotiate renewable supplier agreements with firm pricing on our products, typically for a term of one year, as is customary in the furniture industry, with individual orders made on standard purchase orders. In 2022, we sold products into approximately 13 countries worldwide, with North America as our principal international market, while we expanded our sales in other regions.
We generally negotiate renewable supplier agreements with firm pricing on our products, typically for a term of one year, as is customary in the furniture industry, with individual orders made on standard purchase orders. In 2023, we sold products into approximately 14 countries worldwide, with North America as our principal international market, while we expanded our sales in other regions.
We also design and ship products for other major brands as their OEM designer or supplier. We offer a wide selection of stand-alone furniture pieces across a variety of product categories and approximately over 230 products developed exclusively for the international markets.
We design and supply our products under our own brands. We also design and ship products for other major brands as their OEM designer or supplier. We offer a wide selection of stand-alone furniture pieces across a variety of product categories and approximately over 230 products developed exclusively for the international markets.
In 2022, our products were sold in 13 countries worldwide, with North America as our principal international market. Sales to North America accounted for 94.2% and 97.9% of our total sales from continuing operations for 2022 and 2021, respectively. Sales to other regions accounted for 5.8% and 2.1% of our total sales from continuing operations for 2022 and 2021, respectively.
In 2023, our products were sold in 13 countries worldwide, with North America as our principal international market. Sales to North America accounted for 79.1% and 94.2% of our total sales from continuing operations for 2023 and 2022, respectively. Sales to other regions accounted for 20.9% and 5.8% of our total sales from continuing operations for 2023 and 2022, respectively.
We expect that a majority of our revenues will continue to come from our sales to the U.S. and international markets. We acquired Diamond Bar in August 2011, which has driven expansion of our sales to the U.S., Mexico, and South America through Diamond Bar’s longstanding customer relationships and distribution capabilities.
We expect that a majority of our revenues will continue to come from our sales to the U.S. and international markets. Diamond Bar has driven expansion of our sales to the U.S., Mexico, and South America through Diamond Bar’s longstanding customer relationships and distribution capabilities.
However, due to the shipping backlog, our fourth quarter’s sales were worse than the first three quarters in 2022. We believe that consumer demand for furniture generally reflects sensitivity to overall economic conditions, including, but not limited to, unemployment rates, housing market conditions and consumer confidence.
However, due to the shipping backlog, our fourth quarter’s sales were worse than the first three quarters in 2022. We believe that consumer demand for furniture generally reflects sensitivity to overall economic conditions, including, but not limited to, unemployment rates, housing market conditions and consumer confidence. Competition The furniture industry is large and highly competitive.
Our showrooms were stocked and ready for local consumers to visit, however, due to government regulations these operations have been suspended until quarantines and travel restrictions are lifted. In October 2021, the Order was lifted for people who are fully vaccinated and our store has reopened since. In April 2022, Malaysia has reopened the border for foreign visitors.
Our showrooms were stocked and ready for local consumers to visit, however, due to government regulations these operations have been suspended until quarantines and travel restrictions are lifted. In October 2021, the Order was lifted for people who are fully vaccinated and our store has reopened since.
On December 12, 2019, Nova LifeStyle, Inc. acquired Nova Malaysia which was incorporated in Malaysia on July 26, 2019. Nova Malaysia markets and sells high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.
On December 12, 2019, Nova LifeStyle, Inc. acquired Nova Malaysia which was incorporated in Malaysia on July 26, 2019. Nova Malaysia was acquired to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.
Sales to North America accounted for 94.2% and 97.9% of our total sales from continuing operations for 2022 and 2021, respectively. The change was attributed principally to our changing sales and marketing strategy to diversify international sales. Sales to other regions accounted for 5.8% and 2.1% of our total sales from continuing operations for 2022 and 2021, respectively.
Sales to North America accounted for 79.1% and 94.2% of our total sales from continuing operations for 2023 and 2022, respectively. The change was attributed principally to our changing sales and marketing strategy to diversify international sales. Sales to other regions accounted for 20.9% and 5.8% of our total sales from continuing operations for 2023 and 2022, respectively.
Our subsidiaries include Nova Furniture Limited in the British Virgin Islands (“Nova Furniture”), Nova Furniture Limited in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. (“Diamond Bar”), i Design Blockchain Technology, Inc (“i Design”), Nova Living (M) SDN. BHD. (“Nova Malaysia”) and Nova Living (HK) Group Limited (“Nova HK”).
We design and market residential and commercial furniture products worldwide. Our subsidiaries include Nova Furniture Limited in the British Virgin Islands (“Nova Furniture”), Nova Furniture Limited in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. (“Diamond Bar”), I Design Blockchain Technology, Inc (“i Design”), Nova Living (M) SDN. BHD. (“Nova Malaysia”) and Nova Living (HK) Group Limited (“Nova HK”).
On November 5, 2020, Nova LifeStyle, Inc. acquired Nova HK from unrelated third party at cost of $1,290 which was incorporated in Hong Kong on November 6, 2019. Nova HK took over Nova Macao’s business. This company has had minimum operations in 2021.
On November 5, 2020, Nova LifeStyle, Inc. acquired Nova HK from unrelated third party at cost of $1,290 which was incorporated in Hong Kong on November 6, 2019. Nova HK took over Nova Macao’s business upon its deregistration. Nova HK had minimum operations in 2021.
We develop both individual furniture pieces and complete furniture collections that equip an entire home which feature matching furniture suites, providing convenient home furnishing options for lifestyle-conscious consumers. We generally introduce new collections and launch new design styles at international furniture exhibitions or trade fairs.
We develop both individual furniture pieces and complete furniture collections that equip an entire home which feature matching furniture suites, providing convenient home furnishing options for lifestyle-conscious consumers. We introduce new collections and launch new design styles at international furniture exhibitions or trade fairs. Our products are displayed in our showrooms.
Our staff collects customer feedback and collaborates with customers worldwide to design store and showroom layouts. In marketing materials, we highlight matching furniture collections by displaying complete and fully accessorized whole-room settings instead of individual furniture pieces.
We further support our new product launches with product brochures and online marketing campaigns. Our staff collects customer feedback and collaborates with customers worldwide to design store and showroom layouts. In marketing materials, we highlight matching furniture collections by displaying complete and fully accessorized whole-room settings instead of individual furniture pieces.
We also recognize the importance of keeping our employees safe. In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19. As of December 31, 2022, we had 28 full time employees worldwide.
In response to the COVID-19 pandemic, we implemented changes that we determined were in the best interest of our employees and have followed local government orders to prevent the spread of COVID-19. As of December 31, 2023, we had 27 full time employees worldwide.
We believe that our products feature superior materials, attractive appearances, superb functionalities and satisfying price points generally desired by today’s middle to upper middle-income consumers worldwide. 4 Table of Contents International Markets We have been selling products to the U.S., Canadian, Honduras, Guatemala, Guam, Puerto Rico, Panama, Costa Rica, Saudi Arabia, Kingdom of Saudi Arabia, Kuwait, Kazakhstan, New Zealand and Middle Eastern markets under the Diamond Sofa brand and selling our Jade Mats to the Malaysia through Nova Malaysia.
We believe that our products feature superior materials, attractive appearances, superb functionalities and satisfying price points generally desired by today’s middle to upper middle-income consumers worldwide. 3 Table of Contents International Markets We have been selling products to the U.S., Canada, Honduras, Guam, Puerto Rico, Costa Rica, Colombia, Uruguay, Mexico, Cayman Islands, Saudi Arabia, Kingdom of Saudi Arabia, Kuwait, Armenia and Middle Eastern markets under the Diamond Sofa brand and selling our Jade Mats in Malaysia through Nova Malaysia.
Employees As of December 31, 2022, we had 28 full time employees worldwide. Our U.S. corporate office and operations employed 24 full-time employees, our location in Malaysia and Hong Kong employed 3 and 1 a total of 4 full-time employees, respectively. We believe that relations with our employees are satisfactory. We have no collective bargaining agreements with our employees.
Employees As of December 31, 2023, we had 27 full time employees worldwide. Our U.S. corporate office and operations employed 24 full-time employees, our location in Malaysia employed 3 full-time employees, respectively. We believe that relations with our employees are satisfactory. We have no collective bargaining agreements with our employees.
The industry consists of many manufacturers, distributors and retailers, none of which dominates the fragmented and diverse market. Our products principally compete in the U.S., Canada, Honduras, Guatemala, Guam, Puerto Rico, Panama, Costa Rica, Saudi Arabia, Kingdom of Saudi Arabia, Kuwait, Kazakhstan, New Zealand, and Malaysia and Middle Eastern markets.
The industry consists of many manufacturers, distributors and retailers, none of which dominates the fragmented and diverse market. Our products principally compete in the U.S., Canada, Honduras, Guam, Puerto Rico, Costa Rica, Colombia, Uruguay, Mexico, Cayman Islands, Saudi Arabia, Kingdom of Saudi Arabia, Kuwait, Armenia and Malaysia and Middle Eastern markets.
Once the COVID-19 pandemic dissipates, we plan to increase direct sales to retailers and chain stores worldwide as we continue to diversify our customer base from global furniture distributors. 6 Table of Contents We are focusing on establishing and growing long-term relationships with our customers.
We will increase direct sales to retailers and chain stores worldwide as we continue to diversify our customer base from global furniture distributors. 5 Table of Contents We are focusing on establishing and growing long-term relationships with our customers.
Diamond Bar’s revenues accounted for 99.5% and 100.0% of our total sales from continuing operations for 2022 and 2021, respectively, and Nova Malaysia’s revenues accounted for 0.5% and 0% of our total sales from continuing operations for 2022 and 2021, respectively.
Diamond Bar’s revenues accounted for 82.4% and 99.5% of our total sales from continuing operations for 2023 and 2022, respectively, and Nova Malaysia’s revenues accounted for 17.6% and 0.5% of our total sales from continuing operations for 2023 and 2022, respectively.
We issue production orders to manufacturers based on individual purchase orders. Our manufacturing relationships are non-exclusive, and we are permitted to procure products from other sources at our discretion. None of our manufacturing contracts include production volume or purchase commitments on the part of either party.
Our manufacturing relationships are non-exclusive, and we are permitted to procure products from other sources at our discretion. None of our manufacturing contracts include production volume or purchase commitments on the part of either party. Our third-party manufacturers are responsible for sourcing raw materials, agreeing to produce parts and finished products to our specifications.
Our U.S. corporate office and operations employed 24 full-time employees, our location in Malaysia and Hong Kong employed 3 and 1 full-time employees, respectively. We believe that relations with our employees are satisfactory. We have no collective bargaining agreements with our employees.
Our U.S. corporate office and operations employed 24 full-time employees, our location in Malaysia employed 3 full-time employees, respectively. We believe that relations with our employees are satisfactory. We have no collective bargaining agreements with our employees. 1 Table of Contents Our History We are a U.S. holding company that operates through several wholly-owned subsidiaries.
For the year ended December 31, 2021, our largest selling product categories were sofas, beds and coffee tables, which accounted for approximately 47%, 15% and 7% of sales from continuing operations, respectively.
Our largest selling product categories for the year ended December 31, 2023 were sofas, jade mats and beds, which accounted for approximately 37%, 18% and 13% of sales from continuing operations, respectively.
We believe this marketing process helps us to develop and detect the latest-trends in the marketplace, allowing us to better understand the challenges and opportunities facing distributors and buyers with whom we have long–standing customer relationships.
We believe this marketing process helps us to develop and detect the latest-trends in the marketplace, allowing us to better understand the challenges and opportunities facing distributors and buyers with whom we have long–standing customer relationships. We exhibit new products under the “Diamond Sofa” brand during the Las Vegas Market (U.S.) and the High Point Market (U.S.) trade shows.
Many of our products are segments of multi-component furniture collections in distinctive design styles, attractively priced in the medium and upper-medium ranges. Our product lines feature upholstered, wood and metal-based furniture pieces.
We also sell physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia. Many of our products are segments of multi-component furniture collections in distinctive design styles, attractively priced in the medium and upper-medium ranges. Our product lines feature upholstered, wood and metal-based furniture pieces.
We strive to attract, recruit, and retain employees through competitive compensation and benefit programs, learning and development opportunities that support career growth and advancement opportunities, and employee engagement initiatives that foster a strong Company culture. In addition to cash compensation, we offer customary benefits in accordance with local regulatory requirements as well as stock options to our employees.
Human Capital Resources We understand that our success depends on our ability to attract, train and retain our employees. We strive to attract, recruit, and retain employees through competitive compensation and benefit programs, learning and development opportunities that support career growth and advancement opportunities, and employee engagement initiatives that foster a strong Company culture.
In 2021, via our new subsidiary Nova Malaysia, we have marketed and sold high-end physiotherapeutic jade mats to individuals and business companies in Malaysia. Suppliers and Manufacturers We source finished goods from third-party manufacturers to fulfill orders placed by customers through Diamond Bar and Nova Malaysia for the U.S. and international markets.
Suppliers and Manufacturers We source finished goods from third-party manufacturers to fulfill orders placed by customers through Diamond Bar and Nova Malaysia for the U.S. and international markets. Our two principal suppliers of finished goods in 2023 accounted for approximately 36% of our total purchases from continuing operations for 2023.
Customers Our target end customer is the middle and upper middle-income consumer of residential and commercial furniture. In the U.S. and international markets, our sales principally are to furniture distributors and retailers who in turn offer our products under their own brands or under our Diamond Sofa brand.
In the U.S. and international markets, our sales principally are to furniture distributors and retailers who in turn offer our products under their own brands or under our Diamond Sofa brand. One customer accounted for 18% of the Company’s sales and no customer accounted for greater than 10% of our total sales from continuing operations for 2023 and 2022, respectively.
In February 2022, Nova HK also entered a de-registration and liquidation process and was in the process of transferring all its assets and business to Nova Malaysia. All of Nova HK’s inventory was transferred to Nova Malaysia on February 15, 2022.
On February 15, 2022, the Company transferred its entire assets and business in Nova HK to Nova Malaysia. In February 2023, Nova HK was completed the process of de-registration and liquidation. Operations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented.
Under ordinary circumstances, if a change of suppliers is necessary, we believe that we can quickly fulfill our requirements from other suppliers without interruptions in order fulfillment. We monitor our suppliers’ ability to meet our product needs and we participate in quality assurance activities to reinforce our high-quality standards. Our third-party manufacturing contracts are generally of annual or shorter durations.
We monitor our suppliers’ ability to meet our product needs and we participate in quality assurance activities to reinforce our high-quality standards. Our third-party manufacturing contracts are generally of annual or shorter durations. We issue production orders to manufacturers based on individual purchase orders.
Our third-party manufacturers are responsible for sourcing raw materials, agreeing to produce parts and finished products to our specifications. We hold our suppliers to high quality standards and delivery deadlines. Our quality control procedures may extend to stringent requirements for raw material suppliers.
We hold our suppliers to high quality standards and delivery deadlines. Our quality control procedures may extend to stringent requirements for raw material suppliers. Currently, the factories in China and India are in their normal operations.
We plan to expand our business in the Middle East by attending several furniture exhibitions in those markets, such as trade show in Dubai. To highlight our latest design collections, we maintain year-round showrooms at the Company’s headquarters in California as well as the High Point Market and Las Vegas Market.
To highlight our latest design collections, we maintain year-round showrooms at the Company’s headquarters in California as well as the High Point Market and Las Vegas Market. In 2022 and 2023, via our subsidiary Nova Malaysia, we marketed and sold high-end physiotherapeutic jade mats to individuals and business companies in Malaysia.
It is possible that our overseas’ based manufacturers may experience future suspensions of operations as a result of any resurgence or new variants of COVID-19. The situation remains highly uncertain. It is therefore difficult for the Company to estimate the negative impact on our ability to deliver products during the remainder of 2023.
It is possible that our overseas’ based manufacturers may experience future suspensions of operations as a result of any resurgence or new variants of COVID-19. Customers Our target end customer is the middle and upper middle-income consumer of residential and commercial furniture.
Our two principal suppliers of finished goods in 2022 accounted for approximately 42% of our total purchases from continuing operations for 2022. By maintaining relationships with multiple suppliers, generally we benefit from a more stable supply chain and better pricing.
By maintaining relationships with multiple suppliers, generally we benefit from a more stable supply chain and better pricing. Under ordinary circumstances, if a change of suppliers is necessary, we believe that we can quickly fulfill our requirements from other suppliers without interruptions in order fulfillment.
We have used independent designers in the past for product design, from which we built prototype furniture pieces for refinement and testing. In 2022 and 2021, we invested $10,917 and $110,287, respectively, on research and development expense. We may increase future investments in R&D based on our growth needs.
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. In 2023 and 2022, we invested $3.12 million and $10,917, respectively, on research and development expense. We may increase future investments in R&D based on our growth needs.
Removed
All references to shares and per share data have been retroactively restated to reflect such split. Human Capital Resources We understand that our success depends on our ability to attract, train and retain our employees.
Added
On May 22, 2023, the Company filed a Certificate of Change with the Nevada Secretary of State to effect a 1-for-5 reverse stock split , which became effective upon filing (the “Reverse Stock Split”) .
Removed
Recent Developments Related to the COVID-19 Outbreak Beginning in early 2020, a strain of novel coronavirus (“COVID-19”) has spread globally including the U.S. and Malaysia. In March 2020, the World Health Organization declared the COVID-19 a pandemic.
Added
As a result of the reverse Stock Split, every 5 shares of the Company’s common stock issued and outstanding immediately prior to the filing of the Certificate of Change was consolidated into one issued and outstanding share.
Removed
In response to the evolving dynamics related to the COVID-19 outbreak, the Company has been following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and retail partners. The Company’s two showrooms and warehouse in Malaysia was closed from March, 2020 to May, 2020.
Added
All stockholders who would be entitled to receive fractional shares as a result of the Reverse Stock Split received one whole share for their fractional share interest. There was no change in the par value of our common stock. All references to shares and per share data have been retroactively restated to reflect such splits.
Removed
The Los Angeles facility closed on March 16, 2020 and reopened in full operation on June 1, 2020. On May 12, 2020, the Company’s Kuala Lumpur office and warehouse reopened for business. On August 28, 2020, the Malaysia government extended the shutdown order to all business until March 5, 2021.
Added
On September 5, 2023, Nova LifeStyle, Inc., a Nevada corporation (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.
Removed
After the re-opening on March 5, 2021, Malaysia government 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 reopened. In April 2022, Malaysia has reopened the border for foreign visitors.
Added
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.
Removed
The third-party contract manufacturers that the Company utilizes in China were closed from the end of January 2020 through the beginning of March 2020 and have been open for operation. On August 1, 2022, all travelers are allowed to enter Malaysia regardless for their Covid-19 vaccination status and they are not required for pre-departure or on arrival Covid-19 tests.
Added
In addition to cash compensation, we offer customary benefits in accordance with local regulatory requirements as well as stock options to our employees. We also recognize the importance of keeping our employees safe.
Removed
There are no quarantine orders related to Covid-19 by the Malaysian government upon arrival. In 2022, there have been outbreaks of the Omicron variant of COVID-19 in Hong Kong and many other cities in China, and travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities have been imposed by local governments.
Added
Due to the negative impact caused by COVID-19 in 2021 and 2022, we eventually sold the entire jade mats inventory for $2.00 million in liquidation sales in June 2023 and existed from Jade Mats business.
Removed
In December 2022, the Chinese government eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023.
Added
We started the online sales of our jade mats products in Malaysia since 2021. In April 2022, Malaysia has reopened the border for foreign visitors. In June 2023, everything is back to normal in Malaysia.
Removed
Although our suppliers in China have not been materially and negatively impacted by such outbreaks, the government authorities may issue new orders of office closure, travel and transportation restrictions in China due to the resurgence of the COVID-19 and outbreak of new variants, which could cause the delay of the delivery from our suppliers in China.
Added
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 and existed from Jade Mats business. The furniture wholesale business faces several risks that can impact its operations and profitability.
Removed
Certain of the Company’s new products are being sourced from manufacturers in India starting in 2020. The factories in India suspended their operations as a result of the COVID-19 pandemic during March through early May 2020. Currently, the factories in India are open for operations.
Added
Some common risks include: (i) Economic Instability: Fluctuations in the economy can affect consumer spending on furniture, leading to decreased demand for products; (ii) Competition: Intense competition from other wholesalers, retailers, and online platforms can impact market share and pricing strategies; (iii) Supply Chain Disruptions: Interruptions in the supply chain, such as delays in shipping or shortages of raw materials or finished products, can hinder production and delivery schedules; (iv) Changing Consumer Preferences: Shifts in consumer preferences towards sustainable, trendy, or customized furniture may require wholesalers to adapt their product offerings; (v) Seasonal Demand: The furniture industry often experiences seasonal peaks and troughs, which can impact cash flow and inventory management; (vi) Regulatory Challenges: Compliance with regulations related to product safety, environmental standards, and labor practices can add complexity and costs to operations.
Removed
Shipping of products from Asia has experienced significant delays since the onset of the pandemic and the costs of shipping from Asia have increased since the onset. In June 2022, all the shipping and related costs from Asia have been back to normal.
Added
In order to mitigate these risks, we will continue to diversify our product range, build strong relationships with suppliers, closely monitor market trends, invest in technology for efficiency, and maintain a robust risk management strategy. Our global logistics and delivery capabilities provide our customers with the flexibility to select from our extensive furniture collections to address their respective needs.
Removed
Finally, the Company expects that the impact of the COVID-19 outbreak on the United States and world economies will continue to have a material adverse impact on the demand for its products.
Added
Internationally, we participate in trade fairs in collaboration with our customers. We plan to expand our business in the Middle East by attending several furniture exhibitions in those markets, such as trade show in Dubai.
Removed
Because of the significant uncertainties surrounding the COVID-19 pandemic, the extent of the future business interruption and the related financial impact cannot be reasonably estimated at this time. 1 Table of Contents Our History We are a U.S. holding company that operates through several wholly-owned subsidiaries. We design and market residential and commercial furniture products worldwide.
Added
We have used independent designers in the past for product design, from which we built prototype furniture pieces for refinement and testing. During 2023, Nova Malaysia spent $3.12 million on developing Virtual and Augmented reality software and AI system for potential consulting business.
Removed
Our products feature urban and contemporary styles, combining comfort and functionality in matching furniture collections and upscale luxury pieces appealing to lifestyle-conscious middle and upper middle-income consumers. We also sell physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.
Removed
However, in 2021, due to Covid-19 pandemic, some international furniture exhibitions or trade fairs were cancelled, and for those were still held, the customers traffic was light. Our products are displayed in our showrooms. We further support our new product launches with product brochures and online marketing campaigns.
Removed
That said, the ongoing COVID-19 pandemic could materially and adversely affect the economies of each of the countries in which we market our products, which has adversely affected our ability to generate revenues in 2022.
Removed
In addition, our ability to market our products in 2022 had been adversely impacted by government imposed quarantines and closures, supply chain and shipping disruptions and our current inability to make sales calls and to attend furniture shows. In June 2022, everything is back to the normal.
Removed
We also started the online sales of our jade mats products in Malaysia since 2021. Our global logistics and delivery capabilities provide our customers with the flexibility to select from our extensive furniture collections to address their respective needs. We design and supply our products under our own brands.
Removed
We usually present new products at the International Famous Furniture Fair (3F) in Dongguan, China and the China International Furniture Exhibition in Shanghai, China, which were suspended in 2020 and 2021 due to COVID-19.
Removed
We also exhibit new products under the “Diamond Sofa” brand during the Las Vegas Market (U.S.) and the High Point Market (U.S.) trade shows, which were suspended in 2020 due to COVID-19 but were resumed since 2021. Internationally, we participate in trade fairs in collaboration with our customers.
Removed
The third party contract manufacturers that we utilize in China were closed from the beginning of the Lunar New Year Holiday at the end of January 2020 through the beginning of March 2020 due to the COVID-19 outbreak, and recommenced production and shipment in early March 2020.
Removed
Starting in 2020, certain of the Company’s new products are being sourced from manufacturers in India. The factories in India suspended their operations as a result of the COVID-19 pandemic during March through early May 2020. Currently, the factories in China and India are in their normal operations.
Removed
No customer accounted for greater than 10% of our total sales from continuing operations for 2022 and 2021.
Removed
In view of the expected adverse impact of the COVID-19 pandemic on the respective economies of those countries in which we sell our products, and the COVID-19 pandemic-related impact on our supply chains and shipping providers, seasonality and period to period fluctuations in product sales are impossible to predict in 2023. Competition The furniture industry is large and highly competitive.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

35 edited+8 added−55 removed155 unchanged
Biggest changeAny inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock. We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC.
Biggest changeIf we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. 17 Table of Contents Risks Related to Our Securities Our shares may be delisted under the HFCA Act and related regulations if the PCAOB is unable to inspect our auditor, and the delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.
If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. 15 Table of Contents Risks Related to Our Securities Our shares may be delisted under the HFCA Act and related regulations if the PCAOB is unable to inspect our auditor, and the delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.
In 2022, the majority of our products were purchased from foreign suppliers and manufacturers, predominantly in Asia. Our dependence on foreign suppliers means that we may be affected by changes in the value of the U.S. dollar relative to other foreign currencies.
In 2022 and 2023, the majority of our products were purchased from foreign suppliers and manufacturers, predominantly in Asia. Our dependence on foreign suppliers means that we may be affected by changes in the value of the U.S. dollar relative to other foreign currencies.
Liu is entitled to vote his shares in his own interests, which may not always be in the interests of our shareholders. 20 Table of Contents Provisions in the Nevada Revised Statutes and our Amended and Restated Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.
Liu is entitled to vote his shares in his own interests, which may not always be in the interests of our shareholders. 18 Table of Contents Provisions in the Nevada Revised Statutes and our Amended and Restated Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.
Failure to achieve any of these goals will prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations. 11 Table of Contents We may need additional capital to execute our business plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.
Failure to achieve any of these goals will prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations. 9 Table of Contents We may need additional capital to execute our business plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.
While we believe that products manufactured by our current third-party suppliers could generally be procured from alternative sources, temporary or permanent loss of services from a significant manufacturer could cause disruption in our supply chain and operations. 12 Table of Contents Our dependence on foreign suppliers and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.
While we believe that products manufactured by our current third-party suppliers could generally be procured from alternative sources, temporary or permanent loss of services from a significant manufacturer could cause disruption in our supply chain and operations. 10 Table of Contents Our dependence on foreign suppliers and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.
If we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations. 14 Table of Contents We, or the owners of the intellectual property rights licensed to us, may be subject to claims that we or such licensors have infringed the proprietary rights of others, which could require us and our licensors to obtain a license or change designs.
If we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations. 12 Table of Contents We, or the owners of the intellectual property rights licensed to us, may be subject to claims that we or such licensors have infringed the proprietary rights of others, which could require us and our licensors to obtain a license or change designs.
Further, new laws and regulations or changes in laws and regulations could affect our ability to list our securities on Nasdaq, which could materially impair the market for and market price for our securities. 18 Table of Contents The market price for our common stock may be volatile, which could make it more difficult or impossible for an investor to sell our common stock for a positive return on their investment.
Further, new laws and regulations or changes in laws and regulations could affect our ability to list our securities on Nasdaq, which could materially impair the market for and market price for our securities. 16 Table of Contents The market price for our common stock may be volatile, which could make it more difficult or impossible for an investor to sell our common stock for a positive return on their investment.
The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business. 10 Table of Contents We may not be able to keep pace with competition in our industry, which could adversely affect our market share and result in a decrease in our future sales and earnings.
The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business. 8 Table of Contents We may not be able to keep pace with competition in our industry, which could adversely affect our market share and result in a decrease in our future sales and earnings.
We may issue additional shares of our common stock or debt securities to raise capital or complete acquisitions, which would reduce the equity interest of our shareholders. Our Articles of Incorporation, as amended, authorize the issuance of up to 15,000,000 shares of common stock, par value $0.001 per share.
We may issue additional shares of our common stock or debt securities to raise capital or complete acquisitions, which would reduce the equity interest of our shareholders. Our Articles of Incorporation, as amended, authorize the issuance of up to 250,000,000 shares of common stock, par value $0.001 per share.
Non-U.S. companies, including some of our competitors, are not subject to the provisions of the FCPA. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in mainland China and other Asian countries that we conduct business.
Non-U.S. companies, including some of our competitors, are not subject to the provisions of the FCPA. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in Asian countries that we conduct business.
If our common stock were to be delisted, the liquidity of our common stock would be materially adversely affected and the market price of our common stock could decrease. 19 Table of Contents Future sales of shares of our common stock by our shareholders could cause our stock price to decline.
If our common stock were to be delisted, the liquidity of our common stock would be materially adversely affected and the market price of our common stock could decrease. 17 Table of Contents Future sales of shares of our common stock by our shareholders could cause our stock price to decline.
As of December 31, 2018, the closing price of our common stock as reported on the NASDAQ Stock Market was $2.30, representing a decrease of $1.55 compared to $3.85, the closing price of our common stock as of December 20, 2018.
As of December 31, 2018, the closing price of our common stock as reported on the NASDAQ Stock Market was $2.30 per share, representing a decrease of $1.55 per share compared to $3.85 per share, the closing price of our common stock as of December 20, 2018.
While the Company believes it has adequate defenses, the defense of those cases could become costly and could significantly divert management attention from its business.
While the Company believes it has adequate defenses, the defense of those cases are costly and could significantly divert management attention from its business.
Our financial statements contained in the annual report on Form 10-K for the year ended December 31, 2021 have been audited by Centurion ZD, an independent registered public accounting firm that is headquartered in Hong Kong.
Our financial statements contained in the annual report on Form 10-K for the year ended December 31, 2021 have been audited by Centurion ZD CPA & Co. (“ Centurion ZD”), an independent registered public accounting firm that is headquartered in Hong Kong.
In addition, any significant litigation, regardless of its merits, could divert management’s attention from our operations and may result in substantial legal costs. The Company has been named in a putative securities class action case and two derivatives cases described in Item 3 below.
In addition, any significant litigation, regardless of its merits, could divert management’s attention from our operations and may result in substantial legal costs. The Company has been named in a putative securities class action case and two derivatives cases, details See Item 3 Legal Proceedings.
Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences or superior voting rights, be combined with the issuance of warrants or other derivative securities, or be the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects.
Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences or superior voting rights, be combined with the issuance of warrants or other derivative securities, which may have additional dilutive effects.
On October 8, 2020, we renewed a shelf registration statement on Form S-3 under which we may, from time to time, sell securities in one or more offerings up to a total dollar amount of $60,000,000. The shelf registration statement was declared effective as of October 15, 2020.
On October 13, 2023, we renewed a shelf registration statement on Form S-3 under which we may, from time to time, sell securities in one or more offerings up to a total dollar amount of $55,000,000. The shelf registration statement was declared effective as of October 23, 2023.
Our principal shareholders have the ability to exert significant control in matters requiring a shareholder vote and could delay, deter or prevent a change of control in our company. As of March 15, 2023, Steven Qiang Liu, our largest shareholder, owned approximately 27.9% of our outstanding shares of common stock. Mr.
Our principal shareholders have the ability to exert significant control in matters requiring a shareholder vote and could delay, deter or prevent a change of control in our company. As of April 11, 2024, Steven Qiang Liu, our largest shareholder, owned approximately 17.3% of our outstanding shares of common stock. Mr.
Although we have timely responded to the false allegations set forth in the Seeking Alpha article, we cannot assure you that false, misleading and/or defamatory articles will not be published again in the future.
The stock prices are all before our reverse stock splits in 2019 and 2023. Although we have timely responded to the false allegations set forth in the Seeking Alpha article, we cannot assure you that false, misleading and/or defamatory articles will not be published again in the future.
Future sales of shares of our common stock could adversely affect the prevailing market price of our stock. As of March 15, 2023, Steven Qiang Liu, our largest shareholder and vice president of the Company, owned approximately 27.9% of our outstanding shares of common stock. If Mr.
Future sales of shares of our common stock could adversely affect the prevailing market price of our stock. As of April 11, 2024, Steven Qiang Liu, our largest shareholder and vice president of the Company, owned approximately 17.3% of our outstanding shares of common stock. If Mr.
The Company started to source certain of its new products from manufacturers in India in 2020. Sales during this stage may also be impacted by this shift in behavior. The U.S. government currently has increased tariffs from 25%. During this time period our company will continue to seek alternatives and new resources to increase the revenue.
The Company started to source certain of its new products from manufacturers in India in 2020. Sales during this stage may also be impacted by this shift in behavior. The U.S. government currently has the increased tariffs of 25% for the furniture products from China.
In February 2022, Nova HK also entered into a de-registration and liquidation process and was in the process of transferring all its assets and business to Nova Malaysia.
In February 2022, Nova HK also entered into a de-registration and liquidation process and all of Nova HK’s inventory was transferred to Nova Malaysia on February 15, 2022.
All of Nova HK’s inventory was transferred to Nova Malaysia on February 15, 2022. 13 Table of Contents Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations.
In February 2023, Nova HK completed the process of de-registration and liquidation. 11 Table of Contents Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations.
We are a holding company that depends on cash flow from our wholly owned subsidiaries to meet our obligations, and any inability of our subsidiaries to pay us dividends or make other payments to us when needed could disrupt or have a negative impact on our business.
Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. 13 Table of Contents We are a holding company that depends on cash flow from our wholly owned subsidiaries to meet our obligations, and any inability of our subsidiaries to pay us dividends or make other payments to us when needed could disrupt or have a negative impact on our business.
Controversies may arise in the future between these two countries. These controversies also could make it more difficult for us to provide our products to our customers in the U.S. and China.
Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations. Controversies may arise in the future between these two countries. These controversies also could make it more difficult for us to provide our products to our customers in the U.S. and China.
Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could have a material adverse effect on our business, prospects, financial condition and results of operations.
President that prohibit certain transactions with certain Chinese companies and their applications. Rising political tensions could reduce levels of trades, investments, technological exchanges and other economic activities between the two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets.
Our management has concluded that our internal control over financial reporting was effective as of December 31, 2022. See “Item 9A. Controls and Procedures.” However, our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors.
Controls and Procedures.” However, our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors.
Over time, measures of control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
Over time, measures of control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate.
If and to the extent we are not able to mitigate the effects of such trade or tariff policies, our operations may be adversely affected. Our compliance with the Foreign Corrupt Practices Act may put us at a competitive disadvantage, while our failure to comply with the Foreign Corrupt Practices Act may result in substantial penalties.
Our compliance with the Foreign Corrupt Practices Act may put us at a competitive disadvantage, while our failure to comply with the Foreign Corrupt Practices Act may result in substantial penalties.
Because the development and investment in new products and markets are inherently risky, no assurance can be given that such plans will be successful and will not adversely affect our reputation, financial condition, and operating results. If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately.
Because the development and investment in new products and markets are inherently risky, no assurance can be given that such plans will be successful and will not adversely affect our reputation, financial condition, and operating results. Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information and adversely impact our reputation and results of operations.
If our subsidiaries are unable to pay us dividends and make other payments to us when needed because of regulatory restrictions or otherwise, we may be materially and adversely limited in our ability to make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business. 15 Table of Contents We may not be able to attract the attention of major brokerage firms because we became public by means of a share exchange, which could limit our ability to obtain future capital and financing.
If our subsidiaries are unable to pay us dividends and make other payments to us when needed because of regulatory restrictions or otherwise, we may be materially and adversely limited in our ability to make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business. 14 Table of Contents If relations between the U.S. and China worsen, our business could be adversely affected as we have to find new suppliers and manufacturers out of China.
As of December 31, 2022, there were 7,880,820 authorized and unissued shares of our common stock available for future issuance, based on 7,119,180 shares of our common stock outstanding.
As of April 11, 2024, there were 247,677,855 authorized and unissued shares of our common stock available for future issuance, based on 2,322,115 shares of our common stock issued and outstanding.
In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment. 8 Table of Contents Risks Related to Our Business The COVID-19 pandemic has caused, and could continue to cause business disruptions, resulting in a material, adverse impact to our financial condition and results of operations.
In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment. 7 Table of Contents Risks Related to Our Business Changes in economic conditions in the industries and markets served by our customers could adversely affect demand for our products.
Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive orders issued by then U.S. President that prohibit certain transactions with certain Chinese companies and their applications.
Political tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19 outbreak, sanctions imposed by the U.S. Department of Treasury on certain officials of the Hong Kong Special Administrative Region and the central government of the PRC and the executive orders issued by then U.S.
Removed
In recent years, there have been outbreaks of epidemics in various countries. Recently, there was an outbreak of a novel strain of coronavirus (COVID-19) in China, which has spread rapidly to many parts of the world, including the U.S. In March 2020, the World Health Organization declared COVID-19 a pandemic.
Added
Due to the negative impact caused by COVID-19 in 2021 and 2022, we eventually sold the entire jade mats inventory for $2.00 million in liquidation sales and existed from Jade Mats business in June 2023.
Removed
The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in the U.S., China and Malaysia. In response to the evolving dynamics related to the COVID-19 outbreak, the Company has been following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and retail partners.
Added
Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (“IT”) systems to sophisticated and targeted measures known as advanced persistent threats.
Removed
The Company’s two showrooms and warehouse in Malaysia was closed from March, 2020 to May, 2020. The Los Angeles facility has been closed since March 16, 2020 and reopened in full operation on June 1, 2020. On May 12, 2020, the Company’s Kuala Lumpur office and warehouse reopened for business.
Added
While we employ measures to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations.
Removed
However, on August 28, 2020, Malaysia government extended the shutdown order to all business until March 5, 2021. After the re-opening on March 5, 2021, Malaysia government imposed a new nationwide lockdown on May 12, 2021 until early June 2021 which was subsequently extended to early October 2021.
Added
While no cybersecurity attack to date has had a material impact on our financial condition, results of operations or liquidity, the threat remains and the potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of our investment in research, development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations.
Removed
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.
Added
We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2023. See “Item 9A.
Removed
The third-party contract manufacturers that the Company utilizes in China were closed from the end of January 2020 through the beginning of March 2020 and have been open for operation.
Added
During this time period our company will continue to seek alternatives and new resources to increase the revenue. If and to the extent we are not able to mitigate the effects of such trade or tariff policies, our operations may be adversely affected.
Removed
In 2022, there have been outbreaks of the Omicron variant of COVID-19 in Hong Kong and many other cities in China, and travel restrictions, mandatory COVID-19 tests, quarantine requirements and/or temporary closure of office buildings and facilities have been imposed by local governments.
Added
On May 22, 2023, we filed a Certificate of Change with the Secretary of State of Nevada to effect a 1-for-5 reverse stock split of the Company’s common stock to meet the $1.00 per share minimum closing bid price requirement.
Removed
In December 2022, the Chinese government eased its strict zero COVID-19 policy which resulted in a surge of new COVID-19 cases during December 2022 and January 2023.
Added
On June 8, 2023, we received a written notification from the NASDAQ Stock Market Listing Qualifications Staff indicating that the Company has regained compliance with the $1.00 minimum closing bid price requirement for continued listing on the NASDAQ Capital Market.
Removed
Although our suppliers in China have not been materially and negatively impacted by such outbreaks, the government authorities may issue new orders of office closure, travel and transportation restrictions in China due to the resurgence of the COVID-19 and outbreak of new variants, which could cause the delay of the delivery from our suppliers in China.
Removed
Certain of the Company’s new products are being sourced from manufacturers in India starting in 2020. The factories in India suspended their operations as a result of the COVID-19 pandemic during March through early May 2020. Currently, the factories in China and India are open for operations.
Removed
Shipping of products from Asia has experienced significant delays since the onset of the pandemic and the costs of shipping from Asia have increased since the onset; and we have experienced and may continue to experience shipping disruptions in the future. In June 2022, all the shipping and related costs from Asia have been back to normal.
Removed
Any further impact to our results will depend on, to a large extent, future developments and new variants that may emerge regarding COVID-19 and the actions taken by governmental authorities and other entities to contain COVID-19 or treat its impact, almost all of which are beyond our control.
Removed
Potential impacts include, but are not limited to, the following: ● temporary closure of offices, stores, showrooms, warehouse, travel restrictions, cancellation of marketing and promotion activities and in person meetings or suspension of transportation, which may materially adversely affect our financial condition and operating results; ● our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts.
Removed
We have experienced and may experience the delay or cancellation of orders from customers in the future, which has and may continue to adversely affect our financial condition and operating results; ● our customers that are negatively impacted by the outbreak of COVID-19 may reduce their budgets to purchase our products, which may materially adversely impact our revenue; ● any disruption of our supply chain, logistics providers, customers or our marketing activities could adversely impact our business and results of operations, including causing our suppliers to cease manufacturing products for a period of time or materially delay delivery to us and customers, which may also lead to loss of customers, as well as reputational, competitive and business harm to us; ● many of our customers, distributors, suppliers and other partners are small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to an epidemic outbreak and slowing macroeconomic conditions.
Removed
If the SMEs that we work with cannot weather the COVID-19 outbreak and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted. The situation remains highly uncertain for any further outbreak or new variants of the COVID-19 and effectiveness of any vaccines.
Removed
It is therefore difficult for the Company to estimate the impact on our business or operating results that might be adversely affected by any further outbreak or new variants of COVID-19.
Removed
Potential impact to our results of operations will also depend on future developments and new information that may emerge regarding COVID-19 and the actions taken by governmental authorities and other entities to contain COVID-19 and/or mitigate its impact, almost all of which are beyond our control. 9 Table of Contents Changes in economic conditions in the industries and markets served by our customers could adversely affect demand for our products.
Removed
A substantial portion of our inventory has moved slowly in terms of utilization due to the stay home and store closure orders, delay of shipments and suspension of transportations caused by COVID-19, which has caused and might continue to cause negative impacts on our cash flow, liquidity and financial results.
Removed
Due to the COVID-19 pandemic, our showrooms and stores were closed and freight transportation of products from our international suppliers has been delayed or suspended, and a substantial portion of our inventory has moved slowly in terms of utilization.
Removed
As of December 31, 2022, the Company has written-down total of $45.09 million of slow-moving inventory since 2020, mostly Jade Mats in Malaysia due to the extension of Movement Control Order by Malaysia government which prohibits the businesses from opening to public to control the spread of COVID-19.
Removed
While our showroom and stores in Malaysia reopened since October 2021, though we cannot offer any assurances they will not be closed again if there is any further outbreak or resurgence of COVID-19 and further closure order from local government. If we have to write down more inventory, our cash flow, liquidity and financial results will be materially adversely affected.
Removed
There may be risks associated with our becoming public by means of a share exchange, or reverse merger with a public shell company that had no revenues, operations or material assets prior to the time of the share exchange.
Removed
Analysts of major brokerage firms may not provide coverage for our company because there is no incentive for brokerage firms to recommend the purchase of our common stock.
Removed
Furthermore, we can give no assurance that brokerage firms will, in the future, want to conduct any secondary offerings on our behalf, which could limit our ability to obtain future capital and financing.
Removed
The audit report included in our Annual Report on Form 10-K for the year ended December 31, 2021 was prepared by auditors who were not inspected fully by the Public Company Accounting Oversight Board (the “PCAOB”), and as such, investors are deprived of the benefits of such inspection. Our former auditor, Centurion ZD CPA & Co.
Removed
(“Centurion ZD”), is required to undergo regular inspections by the PCAOB as an auditor of companies that are publicly traded in the United States and a firm registered with the PCAOB.
Removed
However, because Centurion ZD is based in Hong Kong, a jurisdiction where the PCAOB was unable to conduct inspections before December 2022, Centurion ZD and its audit work were not inspected independently and fully by the PCAOB.
Removed
Inspections of other auditors conducted by the PCAOB outside Hong Kong have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
Removed
The lack of PCAOB inspections of audit work prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections and may lose confidence in our reported financial information and procedures and the quality of our financial statements.
Removed
The Holding Foreign Companies Accountable Act, or the HFCA Act, was enacted on December 18, 2020.
Removed
In accordance with the HFCA Act, trading in securities of any registrant on a national securities exchange or in the over-the-counter trading market in the United States may be prohibited if the PCAOB determines that it cannot inspect or fully investigate the registrant’s auditor for three consecutive years beginning in 2021, and, as a result, an exchange may determine to delist the securities of such registrant.
Removed
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”), which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three.
Removed
On December 29, 2022, a legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”), was signed into law by President Biden.
Removed
The Consolidated Appropriations Act contained, among other things, an identical provision to Accelerating Holding Foreign Companies Accountable Act, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two, thus reducing the time period before our securities may be prohibited from trading or delisted if our auditor is unable to meet the PCAOB inspection requirement.
Removed
On December 2, 2021, SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act.
Removed
The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (the “Commission-Identified Issuers”).
Removed
A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified.

… 18 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+0 added−0 removed0 unchanged
Biggest changeWe terminated the Nova Macao’s lease in 2021. Nova HK did not have a lease and shared an office with an unrelated third party. Nova Malaysia is in leased office space with showroom, service center and warehouse space in Kuala Lumpur, Malaysia. We believe that our existing office and distribution facilities are adequate for current and presently foreseeable operations.
Biggest changeNova Malaysia is in leased office space with showroom, service center and warehouse space in Kuala Lumpur, Malaysia. We believe that our existing office and distribution facilities are adequate for current and presently foreseeable operations. In general, our properties are well maintained, considered adequate and being utilized for their intended purposes.
Item 2. Properties Our principal executive offices and those of Diamond Bar are in leased office space with showroom, distribution and warehouse space in Commerce, California. Diamond Bar also maintains showrooms in leased space at Las Vegas Market in Nevada and High Point Market in North Carolina. Nova Macao leased office space in Macao even it entered the de-registration procedure.
Item 2. Properties Our principal executive offices and those of Diamond Bar are in leased office space with showroom, distribution and warehouse space in Commerce, California. Diamond Bar also maintains showrooms in leased space at Las Vegas Market in Nevada and High Point Market in North Carolina.
In general, our properties are well maintained, considered adequate and being utilized for their intended purposes. See Note 15 to our consolidated financial statements contained herein, which discloses lease agreements. 21 Table of Contents
See Note 15 to our consolidated financial statements contained herein, which discloses lease agreements. 19 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

6 edited+10 added−9 removed9 unchanged
Biggest changeThe settlement provides for the class members’ complete release of all claims against the Company and the named defendants with respect to any of the matters alleged in the litigation. The Settlement was subject to various conditions, including preliminary approval by the Court, notice to all class members, an opt-out period, and a final hearing and approval by the Court.
Biggest changeThe Renewed Stipulation provided for the certification of a settlement class and the Company’s payment to the settlement class of $750,000. It also provided for the complete release of all claims by the settlement class against the Company and its directors, officers, and employees and the other named defendants with respect to any of the matters alleged in the litigation.
On March 8, 2019, in the United States District Court for the Central District of California, Jie Yuan (the “Jie Action”) filed a putative shareholder derivative lawsuit purportedly on behalf of the Company against its former and current CEOs and CFOs (Thanh H.
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.
The Plaintiff also alleges that President and CEO Lam engaged in self-dealing transactions by leasing her property to Diamond Bar, a Company subsidiary, and asserts, in conclusory fashion, that 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 putative derivative complaint purportedly on behalf of the Company against the same current and former directors and officers named in the Jie Action other than Steven Qiang Liu.
The Plaintiff also alleges that President and CEO Lam engaged in self-dealing transactions by leasing her property to Diamond Bar, a Company subsidiary, and asserts, in conclusory fashion, that 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 purportedly on behalf of the Company against the same current and former directors and officers named in the Jie Action other than Steven Qiang Liu.
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. Item 4. Mine Safety Disclosures Not applicable. 22 Table of Contents PART II
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. Item 4. Mine Safety Disclosures Not applicable. 20 Table of Contents PART II
Specifically, the derivative lawsuit alleges that the Defendants caused the Company to make the alleged false and/or misleading statements giving rise to the putative securities class action.
Specifically, the derivative lawsuit alleges that the Defendants caused the Company to make the alleged false and/or misleading statements giving rise to the Barney Action.
Item 3. Legal Proceedings On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and its former and current CEOs and CFOs (Thanh H.
Item 3. Legal Proceedings The Company has reported a federal putative class action complaint George Barney filed the Company and former and current CEOs and CFOs (Thanh H.
Removed
Richard Deutner and ITENT EDV were subsequently appointed as lead plaintiffs and, on June 18, 2019, filed an Amended Complaint. Plaintiffs seek to represent a class of entities acquiring Nova’s stock from December 3, 2015 through December 20, 2018.
Added
That matter was resolved by the entry of an Order on January 30, 2024 certifying a settlement class and approving a class settlement.
Removed
They claim that during this period the Company: (1) overstated its purported strategic alliance with a customer in China to operate as lead designer and manufacturer for all furnishings in its planned $460 million senior care center in China; and (2) inflated sales in 2016 and 2017 by recognizing significant sales to two allegedly non-existent customers.
Added
In the Barney action, Company shareholders sought to assert claims on behalf of all entities purchasing stock from December 21, 2015, through December 20, 2018, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities Exchange Commission Rule 10b-5.
Removed
Plaintiffs claim that the falsity of these representations was exposed in a blog posted on the Seeking Alpha website in which it was claimed that an investigation failed to confirm the existence of several entities identified as significant customers. On March 8, 2022, the parties to the Barney Action filed a Stipulation of Settlement (“Settlement”) with the Court.
Added
In support of these claims, plaintiffs alleged that defendants artificially inflated the Company’s 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.
Removed
Under the terms of the Settlement, and without admitting to any wrongdoing, fault, or liability, the Company agreed to a payment of $750,000 to completely resolve the Barney Action. The $750,000 would be funded by the remainder of any retention under applicable directors and officer liability insurance with the remainder paid by the directors and officer liability insurer.
Added
Plaintiffs claimed that Shanxi Winqing was a fictitious entity and Merlno 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.
Removed
By Memorandum Opinion and Order dated August 29, 2022, the Court denied the Barney plaintiffs’ unopposed Motion to Certify a Settlement Class and to Approve the Settlement.
Added
It asserted that the entities referenced in its public disclosures were actual companies and the revenues booked from those entities were genuine and actually collected. The Company alleged that no registration exists for Shanxi Winqing because the Company slightly mistranslated its Chinese name in its public disclosures.
Removed
The Court held that plaintiffs had not met their burden of establishing the prerequisites to class certification of adequacy of class counsel, numerosity, and the superiority of class certification in fairly and efficiently adjudicating the controversy. The Court similarly concluded that plaintiffs had failed to make a threshold showing that the settlement was fair and adequate.
Added
Similarly, the Company claimed to have previously sold products to Merlino Lewis LLP and failed to update its customer name when the customer restructured its business. On March 31, 2023, the parties filed a Renewed Stipulation of Settlement (“Renewed Stipulation”) resolving all claims asserted in the matter.
Removed
Finally, the Court rejected plaintiffs’ proposed plan for providing notice of the settlement to putative class members, finding that it was inadequate under the circumstances.
Added
This Renewed Stipulation was executed and filed after the Court denied plaintiffs’ Motion to Certify a Settlement Class and Approve Class Action settlement in accordance with the parties’ original Stipulation of Settlement. The substantive terms of the settlement as they applied to the Company were not modified between the original Settlement Stipulation and the Renewed Settlement Stipulation.
Removed
With the settlement of the Barney action, the derivative actions will be activated. The parties disagree as to when that will occur. Defendants have asserted that the Action must remained stayed until the final disposition of the Barney Action, meaning, the Court’s final approval of the Settlement.
Added
The Company settled without in any manner admitting, and expressly denying, liability. By Order entered July 10, 2023, the Court preliminarily approved a settlement class and the proposed settlement. The settlement escrow was then funded as specified in this Order. The funding was provided through a directors and officers liability insurance policy.
Removed
Plaintiff’s position is that the Court should lift the stay because the class action plaintiffs agreed to settle the case. The Court has yet to address this issue.
Added
The Court thereafter certified a settlement class and finally approved the settlement by Order entered January 30, 2024. The entry of this Order resolved the matter as to the Company. The settlement payment was funded through insurance.
Added
With the settlement of the Barney action, it is expected that the stay of the derivative actions will be lifted.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 23 Item 6. Selected Financial Data 23 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 34 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 21 Item 6. Selected Financial Data 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 32 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

2 edited+0 added−0 removed3 unchanged
Biggest changeMarket for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Since January 17, 2014, our common stock has been quoted on The NASDAQ Stock Market under the symbol “NVFY.” On April 14, 2023, the closing price for our common stock as reported on the NASDAQ Stock Market was $0.60 per share.
Biggest changeMarket for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Since January 17, 2014, our common stock has been quoted on The NASDAQ Stock Market under the symbol “NVFY.” On April 11, 2024, the closing price for our common stock as reported on the NASDAQ Stock Market was $2.45 per share.
Holders of Record On April 12, 2023, there were approximately 47 holders of record based on information provided by our transfer agent.
Holders of Record On April 11, 2024, there were approximately 50 holders of record based on information provided by our transfer agent.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

72 edited+37 added−27 removed52 unchanged
Biggest changeThe increase in cash outflow was attributable primarily to (i) an increase in cash outflow of $1.01 million for other current assets to $1.19 million cash outflow for the year ended December 31, 2022, compared to $0.18 million cash outflow for 2021, such increase in cash outflow being mainly due to the increasing prepaid expenses regarding technology services incurred for 2022; (ii) an increase in cash outflow of $0.60 million for accounts receivable to $0.19 million cash outflow for the year ended December 31, 2022, compared to $0.42 million cash inflow for 2021, such increase in cash outflow being mainly a result of more credit sales for 2022; (iii) an increase in cash outflow of $0.36 million for advance from customers to $0.22 million cash outflow for the year ended December 31, 2022, compared to $0.13 million cash inflow for 2021, such increase in cash outflow being mainly due to more goods delivered to our customers with less deposits received from them for 2022.
Biggest changeThe increase in cash inflow was attributable primarily to (i) an increase in cash inflow of $3.41 million for inventories to $2.53 million cash inflow for the year ended December 31, 2023, from $0.88 million cash outflow for 2022, such increase in cash inflow being mainly due to less purchases made from our suppliers and liquidation sales of the entire inventory of jade mats in Nova Malaysia for 2023; (ii) an increase in cash inflow of $1.69 million for other current assets to $0.51 million cash inflow for the year ended December 31, 2023, from $1.19 million cash outflow for 2022, such increase in cash inflow being mainly a result of less prepayments to IT consulting firm due to the completion of our virtual tour and web augmented reality development project for 2023; and (iii) an increase in cash inflow of $0.64 million for accrued liabilities and other payables to $0.67 million cash inflow for the year ended December 31, 2023, from $0.04 million cash inflow for 2022, such increase in cash inflow being mainly due to delay the payments to our service providers.
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, currency exchange rate fluctuations, foreign exchange controls, import and export requirements, potentially adverse tax consequences and higher costs associated with doing business internationally.
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.
Basis of Presentation The accompanying 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, Nova HK and its former subsidiary, Nova Macao.
Basis of Presentation The accompanying 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.
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, Nova Macao was a furniture distributor based in Macao focusing on international customers, Nova HK is a furniture distributor based in Hong Kong focusing on international customers and Nova Malaysia is a furniture retailer and distributor focusing on customers primarily in Malaysia.
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, Nova HK was a furniture distributor based in Hong Kong focusing on international customers and Nova Malaysia is a furniture retailer and distributor focusing on customers primarily in Malaysia.
We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns. 26 Table of Contents 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.
We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns. 23 Table of Contents 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.
The amount of reserves for return of products, the discount provided to the customers, and cost for the replacement parts were immaterial for the years ended December 31, 2022 and 2021. We generally expense sales commissions when incurred because the amortization period would have been one year or less.
The amount of reserves for return of products, the discount provided to the customers, and cost for the replacement parts were immaterial for the years ended December 31, 2023 and 2022. We generally expense sales commissions when incurred because the amortization period would have been one year or less.
Our policy is to maintain an allowance for potential 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.
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 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 December 31, 2022, we do not have any credit facilities.
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 December 31, 2023, we do not have any credit facilities.
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. 27 Table of Contents Revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.
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.
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, 2022.
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, 2023.
Each of our subsidiaries is operated under the same senior management of our company, and we view the operations of Diamond Bar, Bright Swallow, Nova Macao, Nova HK 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.
Each of our subsidiaries is operated under the same senior management of our company, and we view the operations of Diamond Bar, Nova HK 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.
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 was completed in February 2023. 23 Table of Contents On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State of California.
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.
Results of Operations Comparison of Years Ended December 31, 2022 and 2021 The following table sets forth the results of our operations for the years ended December 31, 2022 and 2021. Certain columns may not add due to rounding.
Results of Operations Comparison of Years Ended December 31, 2023 and 2022 The following table sets forth the results of our operations for the years ended December 31, 2023 and 2022. Certain columns may not add due to rounding.
Significant estimates and assumptions made by us, 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. Actual results could differ from those estimates.
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.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. We follow 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.
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.
Other Long-Term Liabilities As of December 31, 2022, we recorded long-term taxes payable of $1.16 million, consisting of an income tax payable of $1.16 million, 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.
Other Long-Term Liabilities As of December 31, 2023, we recorded long-term taxes payable of $0.64 million, consisting of an income tax payable of $0.64 million, 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.
Discontinued Operations On February 15, 2022, we transferred our entire assets and business of Nova HK to Nova Malaysia, one of our subsidiaries. O perations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented.
Loss from Discontinued Operations On February 15, 2022, we transferred our entire assets and business in Nova HK to Nova Malaysia, one of our subsidiaries. Operations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented.
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. In 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.
(“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. In 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. We currently believe that our financial resources will be adequate to finance our operations through the outbreak.
In July 2021, we completed a registered direct offering of our shares of common stock and received offering gross proceeds of $3,120,622. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months.
Translation of amounts from RM into U.S. dollars has been made at the following exchange rates: Balance sheet items, except for equity accounts December 31, 2022 RM4.40 to 1 December 31, 2021 RM4.18 to 1 Income statement and cash flow items For the year ended December 31, 2022 RM4.40 to 1 For the year ended December 31, 2021 RM4.14 to 1 28 Table of Contents Segment Reporting ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
Translation of amounts from RM into U.S. dollars has been made at the following exchange rates: Balance sheet items, except for equity accounts December 31, 2023 RM4.59 to 1 December 31, 2022 RM4.40 to 1 Income statement and cash flow items For the year ended December 31, 2023 RM4.56 to 1 For the year ended December 31, 2022 RM4.40 to 1 26 Table of Contents Segment Reporting ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
Use of Estimates In preparing consolidated financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Use of Estimates In preparing 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.
The markets in North America (excluding the United States) remains challenging because such markets are experiencing a slow-down and may be entering a recession due to the COVID-19 pandemic. 25 Table of Contents Critical Accounting Policies While our significant accounting policies are described more fully in Note 2 to our accompanying 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.
The markets in North America (excluding the United States) remains challenging because such markets are experiencing a slow-down and may be entering a recession due to high interest rate and inflation. 22 Table of Contents Critical Accounting Policies While our significant accounting policies are described more fully in Note 2 to our accompanying 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.
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). Adoption of the ASUs is on a modified retrospective basis.
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).
We decided to terminate 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 2019 Collection in the Las Vegas Market, with a view to attracting a higher-end ultimate customer.
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.
Net Loss As a result of the foregoing, our net loss was $17.10 million for the year ended December 31, 2022, compared to $19.96 million for 2021. 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.
Net Loss As a result of the foregoing, our net loss was $7.72 million for the year ended December 31, 2023, compared to $17.10 million for 2022. 30 Table of Contents 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.
Sales to North America decreased by 2.3% to $12.01 million for the year ended December 31, 2022, compared to $12.29 million for 2021, such decrease being mainly a result of inflation, U.S. tightening monetary policy, reducing the purchasing power of the customers and thus making them less willing to spend in nonfood categories.
Sales to North America decreased by 27% to $8.77 million for the year ended December 31, 2023, compared to $12.01 million for 2022, such decrease mainly due to inflation, U.S. tightening monetary policy, reducing the purchasing power of the customers and thus making them less willing to spend in nonfood categories.
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 net working capital of $6,557,629 at December 31, 2022, a decrease of $17,196,927 from net working capital of $23,754,556 at December 31, 2021.
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 net working capital of $60,057 at December 31, 2023, a decrease of $6,497,572 from net working capital of $6,557,629 at December 31, 2022.
This increase in net sales resulted primarily from a 13.30% increase in average selling price, partially offset by a 10.41% decrease in sales volume. Our three largest selling product categories for the year ended December 31, 2022 were sofas, beds and chairs, which accounted for approximately 41%, 15% and 11% of sales from continuing operations, respectively.
This decrease in net sales resulted primarily from a 33% decrease in average selling price, partially offset by a 31% increase in sales volume. Our three largest selling product categories for the year ended December 31, 2023 were sofas, jade mats and beds, which accounted for approximately 37%, 18% and 13% of sales from continuing operations, respectively.
Significant factors that we believe could affect our operating results are the (i) prices of our products to our 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 tariffs imposed by the United States on certain products manufactured in China; and (iv) the consequences of the COVID-19 outbreak throughout the world; and (v) delays in the receipt of shipments of our products from Asia and increased costs of shipping from Asia.
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 tariffs imposed by the United States on certain products manufactured in China; and (iv) the consequences of the COVID-19 outbreak throughout the world; and (v) high interest rate, inflation and slow- down in real estate market.
Accordingly, the Company’s 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 was incorporated in Malaysia and is subject to Malaysia income taxes. Nova HK was incorporated in Hong Kong and was subject to Hong Kong income taxes.
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%.
Cost of Sales Cost of sales from continuing operations consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales from continuing operations increased by 192% to $20.53 million for the year ended December 31, 2022, compared to $7.03 million for 2021.
Cost of Sales Cost of sales from continuing operations consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales from continuing operations decreased by 66% to $6.91 million for the year ended December 31, 2023, compared to $20.53 million for 2022.
Cost of sales as a percentage of sales increased to 161% for the year ended December 31, 2022, compared to 56% for 2021.
Cost of sales as a percentage of sales decreased to 62% for the year ended December 31, 2023, compared to 161% for 2022.
Moreover, if total cost of sales from continuing operations excluded our inventory write down of $12.90 million for the year ended December 31, 2022, total cost of sales from continuing operations would increase by 8% to $7.62 million for the year ended December 31, 2022, compared to $7.03 million for 2021, and cost of sales as a percentage of sales would increase to 60% for the year ended December 31, 2022, compared to 56% for 2021.
Moreover, if total cost of sales from continuing operations excluded our inventory write down of $0.14 million and $12.90 million for the years ended December 31, 2023 and 2022, respectively, total cost of sales from continuing operations would decrease by 11% to $6.77 million for the year ended December 31, 2023, compared to $7.62 million for 2022, and cost of sales as a percentage of sales would increase to 61% for the year ended December 31, 2023, compared to 60% for 2022.
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.
The Company is currently evaluating the impact that the adoption of ASU 2023-01 will have on our consolidated financial statement presentations and disclosures. 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.
New Accounting Pronouncements Recently Adopted Accounting Standards In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”).
The adoption of ASU 2017-04 did not have any impact on our condensed consolidated financial statements. 27 Table of Contents In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”).
We are currently evaluating the impact that the adoption of ASU 2016-13 will have on our consolidated financial statement presentations and disclosures. In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).
The adoption of ASU 2016-13 and ASU 2022-02 did not have any impact on our condensed consolidated financial statement presentation or disclosures. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).
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 five months after our advance payment.
These supplier prepayments are made for goods before we actually receive them. 31 Table of Contents 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.
Moreover, if total cost of sales from continuing operations excluded our inventory write down of $12.90 million for the year ended December 31, 2022, gross profit would be $5.12 million for the year ended December 31, 2022, compared to gross profit of $5.52 million for 2021, and our gross profit margin would be 40% for the year ended December 31, 2022, compared to a gross profit margin of 44% for 2021.
The increase in gross profit and gross profit margin was mainly a result of our decreased inventory write down of $0.14 million for the year ended December 31, 2023, compared to $12.90 million of inventory write down for 2022. 29 Table of Contents Moreover, if total cost of sales from continuing operations excluded our inventory write down of $0.14 million and $12.90 million for the years ended December 31, 2023 and 2022, respectively, our gross profit would be $4.31 million for the year ended December 31, 2023, compared to $5.12 million for 2022, and our gross profit margin would be 39% for the year ended December 31, 2023, compared to 40% for 2022.
The adoption of ASU 2021-10 did not have any impact on our condensed consolidated financial statements. 29 Table of Contents Recently Issued But Not Yet Adopted Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), 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.
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.
Sales to other countries increased by $408,150 to $675,008 for the year ended December 31, 2022 from $266,858 for 2021, primarily due to the increase in direct container sales in other countries. However, the increase in net sales from continuing operations was partially offset by the decrease in sales to North America.
Sales to other countries decreased by $344,849 to $330,159 for the year ended December 31, 2023, from $675,008 for 2022, primarily due to less direct container sales in other countries. However, the decrease in net sales from continuing operations was partially offset by the increase in sales to Asia.
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.
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.
The increase in operating cash outflow was partially offset by (i) an increase in cash inflow of $1.01 million for advance to suppliers to $0.69 million cash inflow for the year ended December 31, 2022, compared to $0.33 million cash outflow for 2021, such increase in cash inflow being mainly due to less deposits paid to our suppliers with more goods received from them for 2022; (ii) an increase in cash inflow of $0.35 million for accounts payable to $0.04 million cash outflow for the year ended December 31, 2022, compared to $0.39 million cash outflow for 2021, such increase in cash inflow being mainly a result of more purchases made on credit for 2022.
The increase in operating cash inflow was partially offset by an increase in cash outflow of $0.76 million for advance to supplier to $0.07 million cash outflow for the year ended December 31, 2023, from $0.69 million cash inflow for 2022, such increase in cash outflow being mainly due to less deposits paid to our suppliers with more goods received from them for 2023.
We recognize revenues following the five step model prescribed under ASU No. 2014-09: (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.
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. 25 Table of Contents Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs upon shipment to the customer.
Gross (Loss) Profit Gross loss from continuing operations was $7.78 million for the year ended December 31, 2022, compared to gross profit of $5.52 million for 2021, representing a decrease in gross profit of $13.30 million. Our gross loss margin was 61% for the year ended December 31, 2022, compared to a gross profit margin of 44% for 2021.
Gross Profit (Loss) Gross profit from continuing operations was $4.17 million for the year ended December 31, 2023, compared to gross loss of $7.78 million for 2022, representing an increase in gross profit of $11.96 million. Our gross profit margin was 38% for the year ended December 31, 2023, compared to a gross loss margin of 61% for 2022.
Selling expenses from continuing operations decreased by 23%, or $0.84 million, to $2.89 million for the year ended December 31, 2022, from $3.73 million for 2021, primarily due to decreased marketing and advertising expenses.
Operating expenses from continuing operations were $10.59 million for the year ended December 31, 2023, compared to $8.44 million for 2022. Selling expenses from continuing operations decreased by 16%, or $0.47 million, to $2.42 million for the year ended December 31, 2023, from $2.89 million for 2022, primarily due to decreased marketing and advertising expenses.
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.
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.
For the year ended December 31, 2022, 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.
For the year ended December 31, 2023, 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. 24 Table of Contents 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.
We maintained an allowance for bad debt of $2,914 and $1,044 as of December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, bad debts provision (reversal) from continuing operations were $1,870 and ($4,157), respectively. During the years ended December 31, 2022 and 2021, bad debt expenses from discontinued operations were $0.
We maintained an allowance for expected credit loss of $532 and $2,914 as of December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, expected credit losses (reversal) provision from continuing operations was ($2,382) and $1,870, respectively.
Net cash provided by financing activities was $0 for the year ended December 31, 2022, compared to $2.76 million of cash provided by financing activities for 2021. During the year ended December 31, 2021, we received $2.76 million from equity financing.
For the year ended December 31, 2022, we incurred cash outflow of $8,772 from purchase of office equipment. Net cash provided by financing activities was $0 for the years ended December 31, 2023 and 2022 . During the year ended December 31, 2023, we received $0 from equity financing.
The ratio of current assets to current liabilities was 4.99-to-1 at December 31, 2022. 32 Table of Contents The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2022 and 2021: 2022 2021 Cash (used in) provided by: Operating activities $ (5,367,650 ) $ (4,782,354 ) Investing activities (8,772 ) (154,820 ) Financing activities - 2,760,974 Net cash used in operating activities was $5.37 million for the year ended December 31, 2022, an increase in cash outflow of $0.59 million from $4.78 million of cash used in operating activities for 2021.
The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2023 and 2022: 2023 2022 Cash provided by (used in): Operating activities $ (1,580,247 ) $ (5,367,650 ) Investing activities 18,643 (8,772 ) Financing activities - - Net cash used in operating activities was $1.58 million for the year ended December 31, 2023, an increase in cash inflow of $3.79 million from $5.37 million of cash used in operating activities for 2022.
The increase in cost of sales in dollar term and cost of sales as a percentage of sales, was mainly due to our write down of $12.90 million of the slow-moving inventory, primarily the jade mats in Malaysia, to the lower of cost and net realizable value for 2022, compared to no inventory write down for 2021.
The decrease in cost of sales in dollar term and cost of sales as a percentage of sales was mainly a result of our decreased inventory write down of $0.14 million, primarily for the products in U.S., for the year ended December 31, 2023, compared to $12.90 million of inventory write down, primarily for the jade mats in Malaysia, for 2022.
Principal Factors Affecting Our Financial Performance At the beginning of 2019, we commenced a transition of our business. We began moving away from low margin products. This move was intended to improve our gross profit margin, receivable collections and net profitability, and to increase our return on long-term equity.
O perations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. 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.
As of December 31, 2022, we had gross accounts receivable of $291,392, of which $63,833 was not yet past due and $19,425 was less than 90 days past due. We had an allowance for bad debt of $2,914. As of March 17, 2023, 28% of accounts receivable outstanding as of December 31, 2022 had been collected.
As of December 31, 2023, we had gross accounts receivable of $47,530 of which $28,362 was not yet past due and $19,168 was less than 90 days past due. We had an allowance for expected credit losses of $532.
The increase in cost of sales in dollar term and cost of sales as a percentage of sales, was a result of the increase in our direct container sales which came with low profit margin.
The decrease in cost of sales in dollar term was mainly due to the decrease in our net sales for the year ended December 31, 2023. The increase in cost of sales as a percentage was mainly a result of liquidation sales of jade mats in Malaysia which came with low profit margin for the year ended December 31, 2023.
However, in the event that we do need to raise capital in the future, the outbreak-related instability in the securities markets could adversely affect our ability to raise additional capital.
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. Discontinued Operations On February 15, 2022, we transferred entire assets and business of Nova HK to Nova Malaysia, one of our subsidiaries.
For the year ended December 31, 2021, the three largest selling categories were sofas, beds and coffee tables, which accounted for approximately 46%, 15% and 7% of sales from continuing operations, respectively. 30 Table of Contents The $188,652 increase in net sales from continuing operations for the year ended December 31, 2022, compared to the year of 2021, was mainly due to increased sales to other countries.
For the year ended December 31, 2022, the three largest selling categories were sofas, beds and chairs, which accounted for approximately 41%, 15% and 11% of sales from continuing operations, respectively.
The process of de-registration and liquidation was completed in February 2023.
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.
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. Due to the COVID-19 pandemic, the freight transportation of the products from our international suppliers have been delayed or suspended during the outbreak.
For other products, the typical time is 4-6 months after our advance payment. During the COVID-19 pandemic, freight transportation of products from our international suppliers has been delayed or suspended during the outbreak.
Due to the COVID-19 pandemic, freight transportation of products from our international suppliers has been delayed or suspended during the outbreak. 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.
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 March 19, 2024, $57,842 or 62% of our advances to suppliers outstanding at December 31, 2023 had been delivered to us in the form of purchases of furniture.
In addition, general and administrative expenses from continuing operations decreased by 2%, or $0.09 million, to $5.56 million for the year ended December 31, 2022, from $5.65 million for 2021, primarily due to a decrease in legal and professional fees, rent expenses, technology services fees and research and development expenses of $0.26 million, $0.13 million, $0.13 million and $0.10 million, respectively, while the decrease was partially offset by an increase in travel expenses and consulting fees of $0.25 million and $0.22 million, respectively. 31 Table of Contents Other Expenses, Net Other expenses, net, from continuing operations were $851,166 for the year ended December 31, 2022, compared to $200,675 for 2021, representing an increase in other expenses of $650,491.
In addition, general and administrative expenses from continuing operations decreased by 9%, or $0.49 million, to $5.06 million for the year ended December 31, 2023, from $5.54 million for 2022, primarily due to a decrease in technology service fees and consulting fees of $0.31 million and $0.29 million, respectively, while the decrease was partially offset by an increase in stock compensation expenses of $0.31 million.
Years Ended December 31, 2022 2021 $ % of Sales $ % of Sales Net sales $ 12,744,871 $ 12,556,219 Cost of sales (20,526,484 ) 161 % (7,034,482 ) 56 % Gross (loss) profit (7,781,613 ) (61 )% 5,521,737 44 % Operating expenses (8,440,738 ) (66 )% (9,382,285 ) (75 )% Loss from operations (16,222,351 ) (127 )% (3,860,548 ) (31 )% Other expenses, net (851,166 ) (7 )% (200,675 ) (2 )% Income tax expenses (2,400 ) - % (163,893 ) (1 )% Loss from continuing operations (17,075,917 ) (134 )% (4,225,116 ) (34 )% Loss from discontinued operations (25,754 ) - % (15,737,377 ) (125 )% Net loss (17,101,671 ) (134 )% (19,962,493 ) (159 )% Net Sales Net sales from continuing operations for the year ended December 31, 2022 were $12.74 million, an increase of 2% from $12.56 million in 2021.
Years Ended December 31, 2023 2022 $ % of Sales $ % of Sales Net sales $ 11,087,459 $ 12,744,871 Cost of sales (6,913,902 ) 62 % (20,526,484 ) 161 % Gross profit (loss) 4,173,557 38 % (7,781,613 ) (61 )% Operating expenses (10,592,105 ) (96 )% (8,440,738 ) (66 )% Loss from operations (6,418,548 ) (58 )% (16,222,351 ) (127 )% Other expenses, net (573,617 ) (5 )% (851,166 ) (7 )% Income tax expenses (731,092 ) (7 )% (2,400 ) 0 % Loss from continuing operations (7,723,257 ) (70 )% (17,075,917 ) (134 )% Loss from discontinued operations - - % (25,754 ) 0 % Net loss (7,723,257 ) (70 )% (17,101,671 ) (134 )% 28 Table of Contents Net Sales Net sales from continuing operations for the year ended December 31, 2023 were $11.09 million, a decrease of 13% from $12.74 million for 2022.
The decrease in gross profit and gross profit margin, was primarily due to the increasing direct container sales with low profit margin. Operating Expenses Operating expenses from continuing operations consisted of selling, general and administrative expenses. Operating expenses from continuing operations were $8.44 million for the year ended December 31, 2022, compared to $9.38 million for 2021.
The decrease in gross profit and gross profit margin was mainly a result of declining sales along with liquidation sales of jade mats for the year ended December 31, 2023. Operating Expenses Operating expenses from continuing operations consisted of selling, general and administrative expenses, and research and development.
Operations of Nova HK were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. We had loss from discontinued operations of $0.03 million and $15.74 million for the years ended December 31, 2022 and 2021, respectively.
We had no loss from discontinued operations for the year ended December 31, 2023 and loss of $0.03 million for the years ended December 31, 2022.
All accounts receivable outstanding at December 31, 2021 had been collected during 2022. As of December 31, 2022 and 2021, we had advances to suppliers of $21,173 and $707,264, respectively. These supplier prepayments are made for goods before we actually receive them.
As of March 19, 2024, 99.7% of accounts receivable outstanding as of December 31, 2023 had been collected. 100% of our accounts receivable outstanding at December 31, 2022 had been collected during 2023. As of December 31, 2023 and 2022, we had advances to suppliers of $93,740 and $21,173, respectively.
The increase in other expenses was due primarily to an increase in foreign exchange loss of $737,507 to $639,432 for the year ended December 31, 2022 from foreign exchange gain of $98,075 for 2021. The increase in foreign exchange loss was mainly a result of the depreciation of Malaysian Ringgit against U.S. dollars on the Company’s assets in Malaysia.
The decrease in other expenses was due primarily to a decrease in foreign exchange loss of $221,742 to $417,690 for the year ended December 31, 2023, from $639,432 for 2022.
Net cash used in investing activities was $8,772 for the year ended December 31, 2022, a decrease in cash outflow of $146,048 from $154,820 of cash used in investing activities for 2021.
Net cash provided by investing activities was $0.02 million for the year ended December 31, 2023, an increase in cash inflow of $0.03 million from $8,772 of cash used in investing activities for 2022. For the year ended December 31, 2023, we incurred cash inflow of $0.02 million from disposal of fixed assets.
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, Honduras, Guatemala, Guam, Puerto Rico, Panama, Costa Rica, Saudi Arabia, Kingdom of Saudi Arabia, Kuwait, Kazakhstan, Malaysia, Asian and Middle Eastern markets.
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. 21 Table of Contents 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.
Nova Macao completed the de-registration and liquidation process in January 2021. 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.
Nova Malaysia markets and sells 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.
As of December 31, 2022, we had gross receivable of $291,392 of which $208,134 was over 90 days past due. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing trade accounts receivable.
The allowance for expected credit losses is our best estimate of the amount of expected credit losses in our existing trade accounts receivable.
ASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022.
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.
Loss from Continuing Operations As a result of the foregoing, our loss from continuing operations was $17.08 million for the year ended December 31, 2022, compared to $4.23 million for 2021. Loss from Discontinued Operations On February 15, 2022, we transferred our entire assets and business in Nova HK to Nova Malaysia, one of our subsidiaries.
The income tax expenses for 2022 were primarily related to minimum California state tax incurred from U.S. entities. Loss from Continuing Operations As a result of the foregoing, our loss from continuing operations was $7.72 million for the year ended December 31, 2023, compared to $17.08 million for 2022.
However, the increase in other expenses was partially offset by a decrease in interest expenses of $97,928 to $25,216 for the year ended December 31, 2022, compared to $123,144 for 2021. Income Tax Expenses Income tax expenses from continuing operations were $2,400 for the year ended December 31, 2022, compared to $163,893 for 2021.
Other Expenses, Net Other expenses, net, from continuing operations were $573,617 for the year ended December 31, 2023, compared to $851,166 for 2022, representing a decrease in other expenses of $277,549.
Removed
Nova Malaysia markets and sells high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia. On January 7, 2020, we transferred our entire interest in Bright Swallow to Y-Tone (Worldwide) Limited an unrelated third party, for cash consideration of $2,500,000. We received the payment on May 11, 2020.
Added
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 existed from Jade Mats business in 2023.
Removed
On October 14, 2020, Nova Macao’s offshore license was invalidated by the Macao Trade and Investment Promotion Institute under the order of Repeal of Legal Regime of the Offshore Services by Macao Special Administrative Region. Nova Macao was de-registration and liquidation in January 2021 and its business was taken over by Nova HK.
Added
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”).
Removed
Due to the imposition of significant trade tariffs on importation from China to the United States and the adverse effect such policies have on our operations, we are actively pursuing alternative product lines with positive growth potential. One such area pertains to the health-oriented furniture segment which continues to experience popularity, particularly in Asia.
Added
The core focus of the Company’s direction today is entirely centered on product. 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.
Removed
Since the second quarter of 2019, we have 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.
Added
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.

… 56 more changes not shown on this page.

Other XWIN 10-K year-over-year comparisons