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 second quarter ended June 30, 2016.

Second Quarter 2016 Financial Highlights:

  • Second quarter Net Sales were $24.0 million, a decrease of 17.9% compared to $29.2 million in the prior year period. 
  • The year over year decline was the result of a 32% decrease in volume offset by a 22% increase in average selling prices as the Company intensified its focus on shifting its sales mix to premium products.
  • Second quarter Gross Margin was 13%, compared to 18% in the prior year period, largely as a result of price increases from the Company’s suppliers. 
  • Gross Profit decreased 40.3% to $3.1 million for the three months ended June 30, 2016 compared to $5.2 million in the prior year quarter as the increase in average sales prices was not enough to offset lower sales volume and increased supplier costs.
  • Operating expenses in the second quarter of 2016 were $3.6 million, compared to $3.4 million in the second quarter of 2015.  As a percentage of sales, operating expenses in the second quarter of 2016 were 15.0% of sales versus 11.7% a year ago.  On a dollar basis, the year over year increase was due primarily to a $0.2 million increase in general and administrative expense.
  • Net loss was $0.7 million, or $0.03 per diluted share based on 24.9 million shares outstanding in the second quarter of 2016, compared to a net loss of $0.1 million or $0.01 per diluted share based on 22.0 million shares outstanding in the prior year period. 

Management Commentary
Jeffrey Wong, Chief Executive Officer of Nova LifeStyle, stated, "We are disappointed that second quarter results were not as strong as hoped for but we are optimistic that we will return to the top line growth trajectory seen in prior periods.  In the quarter, our Chinese franchise retail sales were not immune to broader weakness seen throughout our industry.  In response, we are taking aggressive actions to stimulate growth, with focused efforts on selling to property developers as well as hotels and apartments.  Both of these channels offer opportunities for larger orders by allowing the Company to sell a complete set of furnishings and, in many cases, a complete furnishing set may be ordered for multiple dwelling units.”

Mr. Wong continued, “We are also focused on expanding our internet channel sales by continuing to add to our product catalogue.  Internet sales provide multiple benefits for the Company, including broad customer reach along with sales and marketing scalability.  Younger shoppers are particularly enthusiastic about using online channels either as part of their furniture buying process or as their total shopping solution.  On the internet we can offer customers the ability to purchase single furniture pieces or complete furnishing sets.  For busy professionals, the ability to buy a complete furnishings package online is especially appealing.”

Ms. Tawny Lam, President of Nova LifeStyle, stated, “We recently attended the Summer 2016 Las Vegas Market event which is always a highlight of the year.  At the event this year we expanded our marketing efforts by adding a second showcase, allowing us to feature even more of our latest products.  This summer we have debuted over 60 new items as we continue to focus on keeping our product catalogue fresh and diverse.  At Las Vegas Market, the Company featured coordinated design galleries with Contemporary, Urban Vintage, Motion and Retro lines, along with in-stock, quick-ship availability allowing customers maximum ordering convenience.  We enjoyed a very positive response from customers at Las Vegas Market, with very strong ordering rates and we have also seen that momentum continue with follow-on orders since we have returned from the event.  I am very excited about the remainder of 2016 for Nova LifeStyle, especially as we begin to prepare for the 2016 holiday season.”  

Operational Overview

Product Category
Nova LifeStyle’s largest selling product categories in the three months ended June 30, 2016 and 2015 continued to be sofas, cabinets and dining tables, which accounted for approximately 52%, 13% and 12% of sales, versus 31%, 15% and 16% of sales in the prior year period. 

The Company recently introduced over 60 new products in every product category, many of which were featured at the recent Las Vegas Market show.  Examples include:

  • New Urban Vintage products, a collection of living room, bedroom, dining and bistro furniture with a cohesive industrial vintage aesthetic.  These products were developed with painstaking attention to detail to ensure an authentic vintage inspired look and feel combining the warmth of weathered pine with the rugged stability of distressed iron alongside tasteful fabric selections. 
  • The Company’s Diamond Sofa brand is making a strong entry into the recliner space with two brand new models, Duncan and Mason. Each is available in sofa, loveseat and chair configurations, and both are available with either power or manual recline to offer flexible choices for our customers.

Geographic Breakdown
North America
Sales to North America were $12.8 million in the three months ended June 30, 2016, a decrease of 37% from $20.3 million in the same period of 2015. The Company is aggressively expanding sales and marketing efforts in North America while also transitioning its product mix to favor higher retail-priced, premium products.  As part of this initiative, the Company offered promotional discounts during the course of the second quarter, which also weighed on aggregate dollar sales. 

China
In China, overall sales decreased by 12% to $4.2 million in the three months ended June 30, 2016, as compared to $4.8 million in the same period of 2015, as wholesale sector sales were soft.

Europe  
Sales to Europe were $3.9 million in the three months ended June 30, 2016, an increase of 25% from $3.1 million in the same period of 2015 as European economies continued to improve.

Geographical distribution of sales is set out as follows:

     
(US$ in millions)   For three months ended June 30,
      2016     2015  
    Sales % of
Total		 Sales % of
Total
China*   $   4.2     18 % $   4.8     16 %
North America     12.8     53 %   20.3     70 %
Asia**     1.4     6 %   0.7     2 %
Europe     3.9     16 %   3.1     11 %
Australia     1.3     5 %   0.2     1 %
Hong Kong     0.3     1 %   0.0     0 %
Other countries     0.1     1 %   0.0     0 %
    $   24.0     100 % $   29.2     100 %
 
* excluding Hong Kong
** excluding China
 

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents were $0.6 million at June 30, 2016, as compared to $1.0 million as of December 31, 2015. 
  • Working capital at June 30, 2016 was $50.9 million, as compared to $50.0 million at March 31, 2016 and $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 six months ended June 30, 2016 and 2015:

    2016     2015  
Cash (used in) provided by:            
Operating activities   $ (1,244,869 )    $ (4,122,012 ) 
Investing activities     (85,271 )     (1,063,304 )
Financing activities     993,287       5,290,923  

Net cash used in operating activities was $1.2 million in the six months ended June 30, 2016, a decrease of cash outflow of $2.9 million from $4.1 million of cash used in operating activities in the same period of 2015.

Investor Inquiries
An open line of communication with investors and analysts remains a top priority of the Company and management is readily available for discussions with investors on a one on one basis. 

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. 

Safe Harbor Statement
All statements in this press release that are not historical are forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect Nova's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in Nova's filings with the Securities and Exchange Commission.

 
NOVA LIFESTYLE, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2016 AND 2015
 
    Six Months Ended June 30,   Three Months Ended June 30,
      2016       2015       2016       2015  
                 
    (Unaudited)   (Unaudited)
                 
Net Sales   $  51,052,266     $  51,210,707     $  23,968,179     $  29,178,229  
                 
Cost of Sales     43,812,420       41,952,403       20,871,147       23,991,956  
                 
Gross Profit     7,239,846       9,258,304       3,097,032       5,186,273  
                 
Operating Expenses                
Selling Expenses     2,922,271       2,320,636       1,042,763       1,054,780  
General and Administrative Expenses     4,422,328       4,281,517       2,545,538       2,370,629  
                 
Total Operating Expenses     7,344,599       6,602,153       3,588,301       3,425,409  
                 
(Loss) Income from Operations     (104,753 )     2,656,151       (491,269 )     1,760,864  
                 
Other Income (Expenses)                
Non-operating income (expense), net     25,864       25,155       45,646       (4,421 )
Foreign exchange transaction gain     2,865       34,065       555       4,383  
Loss on change in fair value and
extinguishment of warrant liability		     -       (749,452 )     -       (1,722,097 )
Interest expense     (232,941 )     (190,520 )     (117,838 )     (99,610 )
Financial expense     (55,923 )     (30,537 )     (26,344 )     (15,329 )
                 
Total Other Expenses, Net     (260,135 )     (911,289 )     (97,981 )     (1,837,074 )
                 
(Loss) Income Before Income Tax     (364,888 )     1,744,862       (589,250 )     (76,210 )
                 
Income Tax Expense     223,755       259,528       96,522       63,319  
                 
Net (Loss) Income     (588,643 )     1,485,334       (685,772 )     (139,529 )
                 
Other Comprehensive (Loss) Income                
Foreign currency translation     (322,114 )     13,553       (397,742 )     82,211  
                 
Comprehensive (Loss) Income   $  (910,757 )   $  1,498,887     $  (1,083,514 )   $  (57,318 )
                 
Basic weighted average shares outstanding     24,662,887       21,456,546       24,911,803       21,995,008  
Diluted weighted average shares outstanding     24,662,887       21,456,546       24,911,803       21,995,008  
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    June 30,     December 31,
    2016     2015
    (Unaudited)      
Assets          
           
Current Assets          
Cash and cash equivalents $ 649,430   $ 988,029
Accounts receivable, net   49,870,406     50,451,665
Advance to suppliers   14,957,311     7,958,870
Inventories   5,339,201     5,254,029
Prepaid expenses and other receivables   1,207,200     1,180,452
Taxes receivable   22,685     -
           
Total Current Assets   72,046,233     65,833,045
           
Noncurrent Assets          
Heritage and cultural assets   122,277     124,868
Plant, property and equipment, net   14,285,128     15,201,395
Lease deposit   93,177     94,235
Deposits for equipment and factory construction   102,822     143,758
Goodwill   218,606     218,606
Intangible assets, net   7,753,067     8,062,649
Deferred tax asset   61,754     69,451
           
Total Noncurrent Assets   22,636,831     23,914.962
           
Total Assets $ 94,683,064   $ 89,748,007
           
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    June 30,   December 31,
    2016   2015
    (Unaudited)    
         
Liabilities and Stockholders’ Equity        
         
Current Liabilities        
Accounts payable $ 13,010,524 $ 9,822,857
Line of credit   4,864,045   4,604,560
Advance from customers   1,185,425   187,359
Accrued liabilities and other payables   2,046,044   2,584,622
Taxes payable   -   5,773
         
Total Current Liabilities   21,106,038   17,205,171
         
Noncurrent Liabilities        
Line of credit   6,331,066   5,659,357
Deferred rent payable   97,184   89,904
Income tax payable   6,936,254   6,801,893
         
Total Noncurrent Liabilities   13,364,504   12,551,154
         
Total Liabilities   34,470,542   29,756,325
         
Contingencies and Commitments        
         
Stockholders’ Equity        
Common stock, $0.001 par value; 75,000,000 shares authorized,          
25,525,725 and 24,254,160 shares issued and outstanding;        
As of June 30, 2016 and December 31, 2015, respectively   25,526   24,254
Additional paid-in capital   32,892,308   31,761,983
Statutory reserves   6,241   6,241
Accumulated other comprehensive income   1,248,420   1,570,534
Retained earnings   26,040,027   26,628,670
         
Total Stockholders’ Equity   60,212,522   59,991,682
         
Total Liabilities and Stockholders’ Equity $ 94,683,064 $ 89,748,007

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015
 
    Six Months Ended June 30,
      2016       2015  
    (Unaudited)
         
Cash Flows From Operating Activities        
Net (loss) income   $  (588,643 )   $  1,485,334  
Adjustments to reconcile net (loss) income to net cash        
Used in operating activities:        
Depreciation and amortization     1,009,514       933,786  
Stock compensation expense     938,501       800,540  
Change in fair value and extinguishment of warrant liability     -       749,452  
Changes in bad debt expenses     (5,192 )     37,698  
Changes in operating assets and liabilities:        
Accounts receivable     401,468       (3,252,276 )
Advance to suppliers     (7,000,050 )     1,789,622  
Inventories     (143,053 )     (3,718,252 )
Other current assets     152,421       (933,145 )
Accounts payable     3,284,234       (2,089,218 )
Advance from customers     1,001,780       14,954  
Accrued expenses and other payables     (516,041 )     (138,425 )
Deferred rent payable     9,287       419  
Taxes payable     210,905       197,499  
         
Net Cash Used in Operating Activities     (1,244,869 )     (4,122,012 )
         
Cash Flows From Investing Activities        
Payment for land compensation fee and occupancy tax     -       (193,501 )
Payment for land cultivated and reclamation fees     (35,965 )     -  
Purchase of property and equipment     (49,306 )     (423,020 )
Deposits for equipment     -       (46,144 )
Construction in progress     -       (400,639 )
         
Net Cash Used in Investing Activities     (85,271 )     (1,063,304 )
         
Cash Flows From Financing Activities        
Proceeds from line of credit and bank loan     20,079,652       20,023,719  
Repayment to line of credit and bank loan     (19,086,365 )     (18,377,798 )
Proceeds from equity financing, net of expenses of $355,000     -       3,645,002  
         
Net Cash Provided by Financing Activities   $  933,287     $  5,290,923