OREANDA-NEWS. Nova LifeStyle, Inc. (NASDAQ:NVFY), a U.S. based fast-growing, innovative designer, manufacturer and distributor of modern LifeStyle furniture, today announced financial results for the first quarter ended March 31, 2016.

First Quarter 2016 Financial Highlights:

  • First quarter Net Sales were $27.1 million, an increase of 23% compared to $22.0 million in the prior year period.  Sales growth was driven by a 7% increase in volume along with a 15% increase in average selling prices.
  • Nova LifeStyle brands Diamond Bar and Nova Macao continue to see strong growth, resulting in an overall lower margin sales mix for the Company.  Nova LifeStyle was able to implement pricing increases in the quarter, resulting in higher average selling prices (“ASPs”) which aided margins.
  • First quarter Gross Margin was 15%, compared to 18% in the prior year period, largely as a result of price increases from third party manufacturers sold under the Diamond Sofa brand to distributors and retailers. 
  • Gross Profit increased 1.7% to $4.14 million for the three months ended March 31, 2016 compared to $4.07 million in the prior year quarter as the increase in sales volume more than offset product mix driven gross margin compression.
  • Operating expenses in the first quarter of 2016 were $3.8 million, compared to $3.2 million in the first quarter of 2015.  As a percentage of sales, operating expenses in the first quarter of 2016 were 13.9% of sales versus 14.4% a year ago.  On a dollar basis, the year over year increase was due primarily to a $0.6 million increase in sales and marketing expense.
  • Net Income was $0.1 million, or $0.00 per diluted share based on 24.3 million shares outstanding in the first quarter of 2016, compared to net income of $1.6 million or $0.08 per diluted share based on 20.9 million shares outstanding in the prior year period. 

Management Commentary
Jeffrey Wong, Chief Executive Officer of Nova LifeStyle, stated, "We are off to a solid start in 2016 with first quarter net sales up 23% versus last year.  North American sales increased 14% during the period while Chinese sales posted a 23% gain.  We have been ramping up our sales and marketing activities in the US and we are pleased to see that investment yields growth.  In China, our subsidiary Ding Nuo continued to expand its business with IKEA and we are optimistic this trend will continue.   We are also very heartened to see our sales in Europe post year over year growth of 61%.  Economic conditions in that region are certainly not back to a high growth mode but we are nonetheless encouraged to see our sales improve as they did in the period.”

Mr. Wong continued, “As noted earlier, our first quarter sales mix favored our wholesale brands Diamond Bar and Nova Macao, which yield lower margins for the Company due to the wholesale nature of their operations.  We continue to focus on providing our customers with a diverse catalogue of products which will appeal to a variety of tastes and budgets.  On a short term basis, we expect our sales mix to vary as customers pick and choose among the many products we have on offer.  By providing our customers with such a variety of products to choose from, we hope to become their first choice for home furnishings over the long term.  Additionally, partners such as IKEA offer Nova LifeStyle an opportunity for significant sales leverage along with operational insight.  Over the long term, we expect the margin we sacrifice in working with such accounts will provide value far exceeding any short-term margin compression.”

Ms. Tawny Lam, President of Nova LifeStyle, stated, “We are pleased to see our first quarter results reflect continued volume growth.  This indicates that our products are “on point” with current trends and fashion in the home furnishings marketplace.  We are constantly looking to keep our product catalogue fresh and our production line is currently in the process of adopting new image standards.  We have been investing heavily in new product development along with an aggressive sales and marketing effort which we anticipate will drive continued sales increases along with improved margins as we move through the year.  In closing, I would like to thank our shareholders for their support and trust in our company and also a special appreciation to all of our employees for their hard work and dedication.”  

Operational Overview

Product Category
Nova LifeStyle’s largest selling product categories in the three months ended March 31, 2016 and 2015 were sofas, cabinets and dining tables, which accounted for approximately 50%, 15% and 10% of sales, versus 40%,14% and 13% of sales in the prior year period.

Diamond Sofa recently launched its new 2016 Collections, with the introduction of over 40 new products in every product category.  Many of these products were featured at the recent High Point Market show. Nova LifeStyle also introduced new product segments including items ranging from Industrial Vintage Bar to Bistro and Dining sets. Diamond Sofa products were featured in top furniture publications:

  • January 14, 2016 Furniture Today- Online article highlighting Diamond Sofa’s showcase for the Winter 2016 Las Vegas Market show.
  • February 8, 2016 Furniture Today- Print issue selecting  our Dolce sectional as “Best of Vegas”.
  • January, 2016 Furniture World- Print issue showcasing our Gemma sectional in their “Best Selling Design” feature.
  • May 2, 2016 Furniture Today- Print issue featuring our Sable leather sectional as “Best of Market: Upholstery” for High Point Market.

Geographic Breakdown
North America
Sales to North America were $17.2 million in the three months ended March 31, 2016, an increase of 14% from $15.1 million in the same period of 2015. The Company continued to integrate the operations of Bright Swallow while also aggressively expanding sales and marketing efforts in North America. 

China
In China, overall sales increased by 23% to $4.6 million in the three months ended March 31, 2016, as compared to $3.8 million in the same period of 2015, as subsidiary Ding Nuo continued to increase its sales by expanded orders from IKEA.

Europe  
Sales to Europe were $3.9 million in the three months ended March 31, 2016, an increase of 61% from $2.4 million in the same period of 2015 as European economies began to show modest signs of recovery.

Geographical distribution of sales is set out as follows:

(US$ in millions)   For three months ended March 31,
      2016     2015  
    Sales % of 
Total		 Sales % of 
Total
China*   $   4.6     17 % $   3.8     14 %
North America     17.2     64 %   15.1     56 %
Asia**     0.5     2 %   0.7     3 %
Europe     3.9     14 %   2.4     9 %
Australia     0.8     3 %   0.1     0 %
Hong Kong     0.0     0 %   0.0     0 %
Other countries     0.1     0 %   0.0     0 %
    $   27.1     100 % $  22.0     100 %

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents were $1.0 million at March 31, 2016, as compared to $1.0 million as of December 31, 2015. 
  • Working capital at March 31, 2016 was $50.0 million, as compared to $48.6 million at December 31, 2015.

The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2016 and 2015:

    2016     2015  
Cash (used in) provided by:            
Operating activities   $ (522,964 )    $ (86,883 ) 
Investing activities     (44,777 )     (627,548 )
Financing activities     637,230       786,431  

Net cash used in operating activities was $0.5 million in the three months ended March 31, 2016, an increase of cash outflow of $0.4 million from $0.1 million of cash used in operating activities in the same period of 2015.

About Nova LifeStyle
Nova LifeStyle, Inc., a NASDAQ Global Markets Exchange listed company headquartered in California, is a fast growing, innovative designer, manufacturer and distributor of modern LifeStyle furniture; primarily sofas, dining rooms, cabinets, office furniture and related components, bedrooms, and various accessories in matching collections. Nova's products are made in the US, Europe, and Asia and include LifeStyle brands such as Diamond Sofa, Colorful World, Giorgio Mobili, Nova QwiK, and Bright Swallow International. Nova's products feature urban contemporary styles that integrate comfort and functionality incorporating upscale luxury designs appealing to LifeStyle-conscious middle and upper middle-income consumers in the U.S., China, Europe, and elsewhere in the world.

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
   
  Three Months Ended March 31,
     2016        2015  
   (Unaudited) 
       
Net Sales  $   27,084,087     $   22,032,478  
       
Cost of Sales     22,941,273         17,960,447  
       
Gross Profit     4,142,814         4,072,031  
       
Operating Expenses      
Selling expenses     1,879,508         1,265,856  
General and administrative expenses     1,876,790         1,910,888  
       
Total Operating Expenses     3,756,298         3,176,744  
       
Income From Operations     386,516         895,287  
       
Other Income (Expenses)      
Non-operating expense, net     (19,782 )       29,576  
Foreign exchange transaction gain     2,310         29,682  
Change in fair value of warrant liability   --         972,645  
Interest expense     (115,103 )       (90,910 )
Financial expense     (29,579 )       (15,208 )
       
Total Other (Expenses) Income, Net     (162,154 )       925,785  
       
Income Before Income Tax     224,362         1,821,072  
       
Income Tax Expense     127,233         196,209  
       
Net Income     97,129         1,624,863  
       
Other Comprehensive Income    
Foreign currency translation     75,628         (68,658 )
       
Comprehensive Income  $   172,757     $   1,556,205  
       
Basic weighted average shares outstanding     24,333,971         20,912,968  
Diluted weighted average shares outstanding     24,333,971         20,912,968  
       
Basic net earnings per share  $   0.00     $   0.08  
Diluted net earnings per share  $   0.00     $   0.08  
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015
  March 31,   December 31,
    2016       2015  
  (Unaudited)    
Assets      
       
Current Assets      
Cash and cash equivalents $   1,060,186     $   988,029  
Accounts receivable, net     48,657,112         50,451,665  
Advance to suppliers     14,700,840         7,958,870  
Inventories     4,572,899         5,254,029  
Prepaid expenses and other receivables     1,006,427         1,180,452  
       
Total Current Assets      69,997,464         65,833,045  
       
Noncurrent Assets      
Heritage and cultural assets     125,494         124,868  
Plant, property and equipment, net     14,995,614         15,201,395  
Lease deposit     94,491         94,235  
Deposits for equipment and factory construction     114,486         143,758  
Goodwill     218,606         218,606  
Intangible assets, net     7,917,917         8,062,649  
Deferred tax asset     69,493         69,451  
       
Total Noncurrent Assets     23,536,101         23,914,962  
       
Total Assets  $   93,533,565     $   89,748,007  
       
       
Liabilities and Stockholders' Equity      
       
Current Liabilities      
Accounts payable  $   12,212,948     $   9,822,857  
Line of credit     4,943,400         4,604,560  
Advance from customers     860,030         187,359  
Accrued liabilities and other payables     1,893,561         2,584,622  
Taxes payable     8,920         5,773  
       
Total Current Liabilities     19,918,859         17,205,171  
       
Noncurrent Liabilities      
Line of credit     5,974,936         5,659,357  
Deferred rent payable     95,048         89,904  
Income tax payable     6,943,255         6,801,893  
       
Total Noncurrent Liabilities     13,013,239         12,551,154  
       
Total Liabilities     32,932,098         29,756,325  
       
Contingencies and Commitments      
       
Stockholders' Equity      
Common stock, $0.001 par value; 75,000,000 shares authorized,           
24,511,952 and 24,254,160 shares issued and outstanding     24,512         24,254  
as of March 31, 2016 and December 31, 2015, respectively  
Additional paid-in capital     32,198,753         31,761,983  
Statutory reserves     6,241         6,241  
Accumulated other comprehensive income      1,646,162         1,570,534  
Retained earnings      26,725,799         26,628,670  
       
Total Stockholders' Equity     60,601,467         59,991,682  
       
Total Liabilities and Stockholders' Equity $   93,533,656     $   89,748,007  
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
       
  Three Months Ended March 31,
    2016       2015  
  (Unaudited)
       
Cash Flows From Operating Activities    
 Net Income  $   97,129     $   1,624,863  
Adjustments to reconcile net income to net cash           
(used in) operating activities:      
Depreciation and amortization     506,378         466,690  
Stock compensation expense      295,596         354,571  
Change in fair value of warrant liability   --         (972,645 )
Bad debt expenses     (26,326 )       (5,755 )
Changes in operating assets and liabilities:      
Accounts receivable     1,865,155         402,071  
Advance to suppliers     (6,741,014 )       2,234,498  
Inventories     688,401         (2,266,091 )
Other current assets     317,955         151,309  
Accounts payable      2,369,232         (1,668,686 )
Advance from customers     671,656         11,961  
Accrued expenses and other payables     (691,802 )       (585,870 )
Deferred rent payable     4,644         4,940  
Taxes payable     120,032         161,261  
       
Net Cash Used in Operating Activities     (522,964 )       (86,883 )
       
Cash Flows From Investing Activities      
Payment for land compensation fee and occupancy tax   --         (193,211 )
Purchase of property and equipment     (44,777 )       (321,587 )
Construction in progress   --         (112,750 )
       
Net Cash Used in Investing Activities     (44,777 )       (627,548 )
       
Cash Flows From Financing Activities    
Proceeds from line of credit and bank loan     10,884,726         9,309,218  
Repayment to line of credit and bank loan     (10,247,496 )       (8,522,787 )
       
Net Cash Provided by Financing Activities $   637,230     $   786,431  
       
Effect of Exchange Rate Changes on    
 Cash and Cash Equivalents $   2,668     $   2,090  
       
Net increase (decrease) in cash and cash equivalents     72,157         74,090  
       
Cash and cash equivalents, beginning of period     988,029         1,244,308  
               
Cash and cash equivalents, ending of period $ 1,060,186     $ 1,318,398  
NOVA LIFESTYLE, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED)
 
  Three Months Ended March 31,
    2016       2015  
       
Effect of Exchange Rate Changes on    
Cash and Cash Equivalents $   2,668     $   2,090  
       
Net increase (decrease) in cash and cash equivalents     72,157         74,090  
       
Cash and cash equivalents, beginning of period     988,029         1,244,308  
       
Cash and cash equivalents, ending of period $   1,060,186     $   1,318,398  
       
Supplemental Disclosure of Cash Flow Information
       
Cash paid during the year for:      
Income tax payments $   7,200     $   35,000  
  Interest expense $   114,645     $   94,240