UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q


 
FORM 10-Q


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

For the quarterly period ended SeptemberJune 30, 2017

2022

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

Commission file number: 011-36259


001-36259

NOVA LIFESTYLE, INC.

(Exact name of registrant as specified in its charter)


Nevada
90-0746568

(State or other jurisdiction

of incorporation

or organization)

(IRS Employer

Identification No.)


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

(323)888-9999
(Registrant’s telephone number, including area code)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareNVFYNasdaq Stock Market

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.

YES NO


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

YES NO

Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date: 27,383,6486,882,021 shares of common stock outstanding as of November 9, 2017.August 10, 2022.

 






Nova LifeStyle, Inc.


Table of Contents

Page
PART I. FINANCIAL INFORMATION
Item 1.1
1
3
4
Condensed Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172022 and 20162021 (unaudited) 46
 67
Item 2.2627
Item 3.3440
Item 4.3440
PART II. OTHER INFORMATION
Item 1.3541
Item 1A.Risk Factors42
Item 2.6.Unregistered Sales of Equity Securities and Use of ProceedsExhibits44
Item 3.Defaults Upon Senior Securities
Item 4.(Removed and Reserved)Signatures
Item 5.Other Information
Item 6.35
36
3745

i



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER

AS OF JUNE 30, 20172022 (UNAUDITED) AND DECEMBER 31, 2016

  September 30,  December 31, 
  2017  2016 
       
Assets      
       
Current Assets      
Cash and cash equivalents $802,037  $2,587,743 
Accounts receivable, net  36,938,819   42,102,761 
Advance to suppliers  21,951,040   13,669,752 
Inventories  6,720,649   2,781,123 
Assignment fee receivable (Note 3)  --   1,250,000 
Receivable from an unrelated party (Note 7)  --   7,000,000 
Prepaid expenses and other receivables  315,833   642,891 
Taxes receivable  14,094   14,893 
         
Total Current Assets  66,742,472   70,049,163 
         
Noncurrent Assets        
Plant, property and equipment, net  158,412   171,276 
Lease deposit  43,260   43,260 
Goodwill  218,606   218,606 
Intangible assets, net  4,573,612   5,686,623 
Deferred tax asset  1,498,631   874,759 
         
Total Noncurrent Assets  6,492,521   6,994,524 
         
Total Assets $73,234,993  $77,043,687 
2021

  June 30, 2022  December 31, 2021 
  (Unaudited)    
Assets        
         
Current Assets        
Cash and cash equivalents $4,682,698  $6,276,106 
Accounts receivable, net  208,255   103,397 
Advance to suppliers  302,721   707,264 
Inventories  13,469,887   17,656,175 
Prepaid expenses  406,457   406,366 
Other receivables  26,376   120,634 
Tax receivable     299,011 
         
Total Current Assets  19,096,394   25,568,953 
         
Noncurrent Assets        
Plant, property and equipment, net  414,810   510,680 
Operating lease right-of-use assets, net  2,768,825   3,158,734 
Lease deposit  71,100   72,651 
Goodwill  218,606   218,606 
         
Total Noncurrent Assets  3,473,341   3,960,671 
         
Total Assets $22,569,735  $29,529,624 

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

1

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER (CONTD)

AS OF JUNE 30, 20172022 (UNAUDITED) AND DECEMBER 31, 2016

  September 30,  December 31, 
  2017  2016 
       
Liabilities and Stockholders’ Equity      
       
Current Liabilities      
Accounts payable $162,147  $2,368,775 
Line of credit  -   7,977,841 
Advance from customers  19,298   513,880 
Accrued liabilities and other payables  726,501   780,960 
         
Total Current Liabilities  907,946   11,641,456 
         
Noncurrent Liabilities        
Line of credit  3,322,040   - 
Income tax payable  2,009,825   2,136,788 
         
Total Noncurrent Liabilities  5,331,865   2,136,788 
         
Total Liabilities  6,239,811   13,778,244 
         
Contingencies and Commitments        
         
Stockholders’ Equity        
Common stock, $0.001 par value; 75,000,000 shares authorized,
27,909,843 and 27,309,695 shares issued and outstanding;
as of September 30, 2017 and December 31, 2016, respectively
  27,910   27,309 
Additional paid-in capital  38,309,891   36,885,462 
Statutory reserves  6,241   6,241 
Retained earnings  28,651,140   26,346,431 
         
Total Stockholders’ Equity  66,995,182   63,265,443 
         
Total Liabilities and Stockholders’ Equity $73,234,993  $77,043,687 
2021

  June 30, 2022  December 31, 2021 
  (Unaudited)    
Liabilities and Stockholders’ Equity        
         
Current Liabilities        
Accounts payable $375,976  $358,362 
Operating lease liability, current  701,661   731,284 
Advance from customers  344,139   394,376 
Accrued liabilities and other payables  537,008   326,679 
Other loan interest payable  2,149   3,696 
Income tax payable  204,847    
         
Total Current Liabilities  2,165,780   1,814,397 
         
Noncurrent Liabilities        
Other Loan  150,000   150,000 
Operating lease liability, non-current  2,222,349   2,577,567 
Income tax payable  1,157,604   1,543,472 
         
Total Noncurrent Liabilities  3,529,953   4,271,039 
         
Total Liabilities  5,695,733   6,085,436 
         
Contingencies and Commitments  -     
         
Stockholders’ Equity        
Common stock, $0.001 par value; 15,000,000 shares authorized,
6,891,313 and 6,836,742 shares issued and outstanding; as of
June 30, 2022 and December 31, 2021, respectively
  6,892   6,837 
Additional paid-in capital  42,974,288   42,660,383 
Accumulated other comprehensive income  87,258   381,850 
Accumulated deficits  (26,194,436)  (19,604,882)
         
Total Stockholders’ Equity  16,874,002   23,444,188 
         
Total Liabilities and Stockholders’ Equity $22,569,735  $29,529,624 

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

2

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOMELOSS AND COMPREHENSIVE INCOME (LOSS)

LOSS

FOR THE NINESIX MONTHS AND THREE MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND 20162021 (UNAUDITED)

  Nine Months Ended September 30,  Three Months Ended September 30, 
  2017  2016  2017  2016 
  (Unaudited)  (Unaudited) 
             
Net Sales $70,813,414  $72,748,972  $33,222,625  $30,538,918 
                 
Cost of Sales  58,741,122   62,091,435   27,323,972   25,935,832 
                 
Gross Profit  12,072,292   10,657,537   5,898,653   4,603,086 
                 
Operating Expenses                
Selling expenses  2,690,342   4,358,206   1,003,906   2,050,201 
General and administrative expenses  7,608,323   4,756,118   2,124,614   1,491,684 
                 
Total Operating Expenses  10,298,665   9,114,324   3,128,520   3,541,885 
                 
Income From Operations  1,773,627   1,543,213   2,770,133   1,061,201 
                 
Other Income (Expenses)                
Non-operating income (expense, net)  797   40,994   --   16,623 
Foreign exchange transaction loss  (324)  (5,578)  (94)  (3,281)
Interest expense, net  (133,093)  (241,202)  (40,932)  (96,535)
Financial expense  (86,335)  (88,098)  (34,508)  (33,733)
                 
Total Other Expenses, Net  (218,955)  (293,884)  (75,534)  (116,926)
                 
Income Before Income Taxes and Discontinued Operations  1,554,672   1,249,329   2,694,599   944,275 
                 
Income Tax (Benefit) Expense  (750,037)  60,063   (262,034)  (100,656)
                 
Income From Continuing Operations  2,304,709   1,189,266   2,956,633   1,044,931 
                 
Loss From Discontinued Operations, net of tax  --   (1,476,572)  --   (743,594)
                 
Net Income (Loss)  2,304,709   (287,306)  2,956,633   301,337 
                 
Other Comprehensive Loss                
Foreign currency translation  --   (420,752)  --   (98,638)
                 
Comprehensive Income (Loss) $2,304,709  $(708,058) $2,956,633  $202,699 
                 
Basic weighted average shares outstanding  27,570,425   24,937,069   27,846,921   25,558,604 
Diluted weighted average shares outstanding  27,704,406   24,937,069   27,980,629   25,558,604 
                 
Income from continuing operations per share of common stock                
Basic $0.08  $0.05  $0.11  $0.04 
Diluted $0.08  $0.05  $0.11  $0.04 
                 
Loss from discontinued operations per share of common stock                
Basic $--  $(0.06) $--  $(0.03)
Diluted $--  $(0.06) $--  $(0.03)
                 
Net income (loss) per share of common stock                
Basic $0.08  $(0.01) $0.11  $0.01 
Diluted $0.08  $(0.01) $0.11  $0.01 

                 
  Six Months Ended June 30,  Three Months Ended June 30, 
  2022  2021  2022  2021 
  (Unaudited)  (Unaudited) 
             
Net Sales $7,478,993  $6,881,583  $3,813,047  $3,550,016 
                 
Cost of Sales  9,498,842   9,508,404   7,361,224   7,557,149 
                 
Gross Loss  (2,019,849)  (2,626,821)  (3,548,177)  (4,007,133)
                 
Operating Expenses                
Selling expenses  1,538,544   1,646,842   770,211   878,757 
General and administrative expenses  2,952,737   2,771,043   1,364,328   1,392,713 
Loss on disposal of fixed assets  36,549          
                 
Total Operating Expenses  4,527,830   4,417,885   2,134,539   2,271,470 
                 
Loss From Operations  (6,547,679)  (7,044,706)  (5,682,716)  (6,278,603)
                 
Other Income (Expenses)                
Foreign exchange transaction income (loss)  63,644   34,428   45,881   (34,556)
Interest (expense) income, net  (5,959)  25,911   (2,885)  28,301 
Financial expense  (99,560)  (111,636)  (51,787)  (57,284)
                 
Total Other Expenses, Net  (41,875)  (51,297)  (8,791)  (63,539)
                 
Loss Before Income Taxes  (6,589,554)  (7,096,003)  (5,691,507)  (6,342,142)
                 
Income Tax Expense     (13,061)     (3,385)
                 
Net Loss  (6,589,554)  (7,109,064)  (5,691,507)  (6,345,527)
                 
Other Comprehensive Loss                
Foreign currency translation  (294,592)  (392,764)  (239,719)  (163,917)
                 
Net Loss and Comprehensive Loss  (6,884,146)  (7,501,828)  (5,931,226)  (6,509,444)
                 
                 
Weighted average shares outstanding - Basic and Diluted  6,860,907   5,601,988   6,876,963   5,605,261 
                 
Net loss per share of common stock                
Basic and Diluted $(0.96) $(1.27) $(0.83) $(1.13)

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

3



NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016 (UNAUDITED)
  Nine Months Ended September 30, 
  2017  2016 
  (Unaudited) 
Cash Flows From Operating Activities      
 Net income from continuing operations $2,304,709  $1,189,266 
Adjustments to reconcile net income to net cash used in
operating activities:
        
Depreciation and amortization  1,143,319   462,194 
Deferred tax benefit  (623,872)  -- 
Stock compensation expense  1,773,537   1,216,765 
Changes in bad debt allowance  203,905   33,818 
Changes in operating assets and liabilities:        
Accounts receivable  4,960,037   (558,573)
Advance to suppliers  (8,281,288)  (3,613,765)
Inventories  (3,939,526)  241,611 
Other current assets  (21,452)  (711,727)
Accounts payable  (2,206,628)  129,278 
Advance from customers  (494,582)  584,968 
Accrued liabilities and other payables  (54,458)  (325,799)
Taxes payable  (126,163)  52,864 
         
Net Cash Used in Continuing Operations  (5,362,462)  (1,299,100)
Net Cash Used in Discontinued Operations  --   (166,148)
Net Cash Used in Operating Activities  (5,362,462)  (1,465,248)
         
         
Cash Flows From Investing Activities        
Assignment fee received  1,250,000   -- 
Purchase of property and equipment  (17,443)  (7,272)
Cash received from Buyer  --   5,500,000 
Advances to unrelated parties  (8,835,000)    
Repayment from unrelated parties  15,835,000   -- 
         
Net Cash Provided by Continuing Operations  8,232,557   5,492,728 
Net Cash Used in Discontinued Operations  --   (218,170)
Net Cash Provided by Investing Activities  8,232,557   5,274,558 
         
         
Cash Flows From Financing Activities        
        Proceeds from line of credit and bank loan  36,881,842   29,828,074 
        Repayment to line of credit and bank loan  (41,537,643)  (29,301,699)
        Proceeds from warrants exercised  --   203,250 
         
Net Cash (Used in) Provided by Continuing Operations  (4,655,801)  729,625 
Net Cash Provided by Discontinued Operations  -   319,762 
Net Cash (Used in) Provided by Financing Activities  (4,655,801)  1,049,387 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

STOCKHOLDERSEQUITY

FOR THE NINETHREE MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND 20162021 (UNAUDITED)

  Nine Months Ended September 30, 
  2017  2016 
    
       
Effect of Exchange Rate Changes on Cash and Cash Equivalents  --   (3,128)
         
Net (decrease) increase in cash and cash equivalents  (1,785,706)  4,855,569 
         
Cash and cash equivalents, beginning of period  2,587,743   988,029 
         
Cash and cash equivalents, end of period $802,037  $5,843,598 
         
Analysis of cash and cash equivalents        
Included in cash and cash equivalents per consolidated balance sheets $802,037  $5,718,601 
Included in assets of discontinued operations  -   124,997 
         
Cash and cash equivalents, end of period $802,037  $5,843,598 
         
Supplemental Disclosure of Cash Flow Information 
Continuing operations:        
Cash paid during the period for:        
Income tax payments $--  $7,200 
      Interest expense $159,686  $371,036 
         
Discontinued operations:        
Cash paid during the period for:        
Income tax payments $--  $-- 
      Interest expense $--  $-- 

Three Months Ended June 30, 2022

                         
           Accumulated       
        Additional  Other     Total 
  Common stock  Paid-in  Comprehensive  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Income  Deficits  Equity 
                   
Balance at beginning of period  6,856,899  $6,857  $42,811,695  $326,977 -$(20,502,929) $      22,642,600 
                         
Stock issued to employees  1,500   2   3,298   - - -   3,300 
                         
Stock issued to consultants  32,914   33   159,295   - - -   159,328 
                         
Foreign currency translation loss  -   -   -   (239,719)- -   (239,719)
                         
Net loss  -   -   -   - - (5,691,507)  (5,691,507)
                         
Balance at end of period  6,891,313  $6,892  $42,974,288  $87,258 -$(26,194,436) $16,874,002 

Three Months Ended June 30, 2021

                         
           Accumulated       
        Additional  Other     Total 
  Common stock  Paid-in  Comprehensive  Accumulated  Stockholders’ 
  Shares  Amount  Capital  Income  Deficits  Equity 
                   
Balance at beginning of period  5,602,734  $5,602  $39,779,842  $569,443 -$(405,926) $       39,948,961 
                         
Stock issued to employees  1,500   2   2,968   - - -   2,970 
                         
Stock issued to consultants  5,000   5   9,895   -   -   9,900 
                         
Foreign currency translation loss  -   -   -   (163,917)  -   (163,917)
                         
Net loss  -   -   -   -   (6,345,527)  (6,345,527)
                         
Balance at end of period  5,609,234  $5,609  $39,792,705  $405,526 -$(6,751,453) $33,452,387 

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

4



NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED)

Six Months Ended June 30, 2022

  Shares  Amount  Capital  Income  Deficits)  Equity 
           Accumulated      
        Additional  Other    Total 
  Common stock  Paid-in  Comprehensive  (Accumulated  Stockholders’ 
  Shares  Amount  Capital  Income  Deficits)  Equity 
                   
Balance at beginning of period  6,836,742  $6,837  $42,660,383  $381,850 -$(19,604,882) $23,444,188 
                         
Stock issued to employees  3,000   3   6,597   - - -   6,600 
                         
Stock issued to consultants  51,571   52   307,308   - - -   307,360 
                         
Foreign currency translation loss  -   -   -   (294,592)  -   (294,592)
                         
Net loss  -   -   -   - - (6,589,554)  (6,589,554)
                         
Balance at end of period  6,891,313  $6,892  $42,974,288  $87,258 -$(26,194,436) $16,874,002 

Six Months Ended June 30, 2021

           Accumulated     Retained    
        Additional  Other     Earnings  Total 
  Common stock  Paid  Comprehensive  Statutory  (Accumulated  Stockholders’ 
  Shares  Amount  in Capital  Income  Reserve  Deficits)  Equity 
                      
Balance at beginning of period  5,596,234  $5,596  $39,766,978  $798,290  $6,241  $351,370  $40,928,475 
                             
Stock issued to employees  3,000   3   5,937   -   -   -   5,940 
                             
Stock issued to consultants  10,000   10   19,790   -   -   -   19,800 
                             
De-registration and liquidation of Nova Macau  -   -   -   -   (6,241)  6,241   -- 
                             
Foreign currency translation loss  -   -   -   (392,764)  -   -   (392,764)
                             
Net loss  -   -   -   -   -   (7,109,064)  (7,109,064)
                             
Balance at end of period  5,609,234  $5,609  $39,792,705  $405,526  $-  $(6,751,453) $33,452,387 

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

5

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021 (UNAUDITED)

         
  Six Months ended June 30, 
  2022  2021 
    
Cash Flows From Operating Activities        
Net loss $(6,589,554) $(7,109,064)
Adjustments to reconcile net income to net cash used in operating activities:        
Depreciation and amortization  42,161   38,526 
Amortization of operating lease right-of-use assets  378,403   385,816 
Loss on disposal of fixed assets  36,549    
Write down of inventories  5,119,054   5,526,307 
Stock based compensation expense  313,960   25,740 
Changes in bad debt allowance  1,060   (3,590)
Changes in operating assets and liabilities:        
Accounts receivable  (105,918)  359,078 
Advance to suppliers  404,543   62,921 
Inventories  (932,766)  124,171 
Other current assets  86,299  (703,768)
Operating lease liabilities  (370,841)  (363,836)
Accounts payable  17,614   (193,852)
Advance from customers  (50,237)  (3,777)
Accrued liabilities and other payables  209,791   421,366 
Taxes payable  117,990   (180,832)
         
Net Cash Used in Operating Activities  (1,321,892)  (1,614,794)
         
Cash Flows From Investing Activities        
Loan to an unrelated party     (1,220,226)
Purchase of property and equipment  (1,487)  (152,950)
         
Net Cash Used in Investing Activities  (1,487)  (1,373,176)
         
Cash Flows From Financing Activities        
         
Effect of Exchange Rate Changes on Cash and Cash Equivalents $(270,029) $(251,665)
         
Net decrease in cash and cash equivalents  (1,593,408)  (3,239,635)
         
Cash and cash equivalents, beginning of period  6,276,106   8,744,784 
         
Cash and cash equivalents, ending of period $4,682,698  $5,505,149 
         
Supplemental Disclosure of Cash Flow Information        
Cash paid during period for:        
Income tax payments $42,102  $193,948 
Interest expense $8,013  $2,910 

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

6

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINESIX MONTHS AND THREE MONTHS ENDED SEPTEMBERJUNE 30, 20172022 AND 20162021 (UNAUDITED)

Note 1 - Organization and Description of Business


Organization and Business

Nova LifeStyle, Inc. (“Nova LifeStyle” or the “Company”), formerly known as Stevens Resources, Inc., was incorporated in the State of Nevada on September 9, 2009.


The Company is a U.S. holding company with no material assets other than the ownership interests of ourits subsidiaries through which we market, designit markets, designs and sellsells furniture worldwide: Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”) and Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). The Company had two former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”), which was sold in January 2020 and Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”), which was de-registered and Diamond Bar Outdoors, Inc. (“Diamond Bar”).


liquidated in January 2021.

Nova Macao was organized under the laws of Macao on May 20, 2006, and iswas a wholly owned subsidiary of Nova Furniture. Diamond Bar, doing business as Diamond Sofa, was incorporated in California on June 15, 2000.  Nova Macao iswas a trading company, importing, marketing and selling products designed and manufactured by Nova Furniture (Dongguan) Co., Ltd. (“Nova Dongguan”) and third partythird-party manufacturers for the U.S. and international markets.market. Diamond Bar was incorporated in California on June 15, 2000. Diamond Bar markets and sells products manufactured by third partythird-party manufacturers under the Diamond Sofa brand to distributors and retailers principally in the U.S. market.

On April 24, 2013, the Company completed the acquisition of Bright Swallow, an established furniture company with a global client base.  


The sale of three of the Company’s former subsidiaries,December 7, 2017, Nova Dongguan, Nova Dongguan Chinese Style Furniture MuseumLifeStyle incorporated i Design Blockchain Technology, Inc. (“Nova Museum”i Design”), and Dongguan Ding Nuo Household Products Co., Ltd. (“Ding Nuo”), was consummated on October 25, 2016, and as a result, they are now accounted for as discontinued operations in the accompanying consolidated financial statements for all periods presented. Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the business of these subsidiaries have been appropriately reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. Additional information with respect to the sale of these subsidiaries is presented at Note 3.

Before its divestment, Nova Dongguan was a wholly foreign-owned enterprise, or WFOE, and was incorporated under the laws of the PRCState of California. The purpose of i Design is to build the Company’s own blockchain technology team. This new company will focus on the application of blockchain technology in the furniture industry, including encouraging and facilitating interactions among designers and customers, and building a blockchain-powered platform that enables designers to showcase their products, including current and future furniture designs. This company is in the planning stage and has had minimal operations through June 6, 2003.30, 2022.

On December 12, 2019, Nova Dongguan organizedLifeStyle acquired Nova MuseumMalaysia at cost of $1.00 which was incorporated in Malaysia on March 17, 2011 asJuly 26, 2019. The purpose of this acquisition was to market and sell high-end physiotherapeutic jade mats in Malaysia.

On January 7, 2020, the Company transferred its entire interest in Bright Swallow to Y-Tone (Worldwide) Limited, an unrelated third party, for cash consideration of $2,500,000, pursuant to a non-profit organizationformal agreement entered into on January 7, 2020. The Company received the payment on May 11, 2020.

On October 14, 2020, the Macao Trade and Investment Promotion Institute invalidated licenses for offshore companies under the lawsan Order of Repeal of Legal Regime of the PRC engagedOffshore Services by Macao Special Administrative Region. Nova Macao then entered into a de-registration process and its business was taken over by Nova HK. Nova Macao completed the de-registration and liquidation process in the promotionJanuary 2021.

On November 5, 2020, Nova LifeStyle acquired Nova HK at cost of the culture$1,290 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 history of furniture in China.transferred all its assets and business to Nova Dongguan markets and sells products in China to stores in our former franchise network and to wholesalers and agents for domestic retailers and exporters. At the time of sale, Nova Dongguan also provided design expertise and facilities to manufacture branded products and products for international markets under original design manufacturer and original equipment manufacturer agreements, or ODM and OEM agreements. On October 24, 2013, Nova Dongguan incorporated Ding Nuo under the laws of the PRC.


Malaysia.

The “Company” and “Nova” collectively refer to Nova LifeStyle, the U.S. parent, and its subsidiaries, Nova Furniture, Nova Samoa, Nova Macao, Diamond Bar, i Design, Nova HK and BSI.  The “Company” may also from time to timeNova Malaysia.

7

COVID-19

Beginning in these Notes include2020, a strain of novel coronavirus (“COVID-19”) has spread globally and, at this point, the Company’s former subsidiaries,operations has been adversely impacted by the COVID-19 pandemic. In particular, Nova Furniture BVI, Nova Dongguan, Nova MuseumMalaysia had not been able to operate in normal condition due to Malaysian government’s shut down orders which resulted in sales lagging and Ding Nuo.


slow-moving inventories. The Company’s two showrooms in Kuala Lumpur were closed from March 2020 to May 2020 and closed again from August 2020 to March 5, 2021. Malaysia government imposed a new nationwide lockdown on May 12, 2021 until early June 2021, then the lockdown was extended to early October 2021. In October 2021, Malaysia government lifted lockdown order for people fully vaccinated against COVID-19 and our store has been reopened since then. In April 2022, Malaysia also has reopened the border for foreign visitors. However, COVID-19 in Malaysia increased financial vulnerability for those affected households and business which contributed to significant decrease of sales and risk of continuous sluggish sales. As a result, we further lowered the estimated sales quantities of the inventories during the interim review. The Company expects that the impact of the COVID-19 outbreak in the United States and world economies will also continue to have a material adverse impact on the demand for its products. In 2022, there have been outbreaks of the Omicron variant of the 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.

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.

The extent of the impact of the COVID-19 pandemic that will continue to have on the Company’s business is highly uncertain and difficult to predict and quantify, as the actions that the Company, other businesses and governments may take to contain the spread of COVID-19 continue to evolve. 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. 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.

The severity of the impact of the COVID-19 pandemic on the Company’s business will continue to depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the new variants of COVID-19, the efficacy and distribution of COVID-19 vaccines and the extent and severity of the impact on the global supply chain and the Company’s customers, service providers and suppliers, all of which are uncertain and cannot be reasonably predicted at this time. As of the date of issuance of the Company’s financial statements, the extent to which the COVID-19 pandemic may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure.

Note 2 - Summary of Significant Accounting Policies


Basis of Presentation


The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.


The interim condensed consolidated financial information as of SeptemberJune 30, 20172022 and for the ninesix months and three month periodsmonths ended SeptemberJune 30, 20172022 and 20162021 have been prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with U.S. GAAP have not been included.condensed or omitted pursuant to such rules and regulations. The interim condensed consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, previously filed with the SEC on April 14, 2017.


8, 2022.

In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present a fair statement of the Company’s interim condensed consolidated financial position as of SeptemberJune 30, 2017,2022, its interim condensed consolidated results of operations and cash flows for the ninesix months and three month periodsmonths ended SeptemberJune 30, 20172022 and 2016,2021, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

8

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. 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.goodwill, and loss contingencies. Actual results could differ from those estimates.


The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, supply chain disruption, depress demand for the Company’s products, and adversely impact its results of operations. During the six months ended June 30, 2022, the Company continued to face increasing uncertainties around its estimates of revenue collectability, accounts receivable credit losses and valuation of inventories. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its unaudited condensed consolidated financial statements.

Business Combination


For a business combination, the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree are recognized at the acquisition date and measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree, that excess in earnings is recognized as a gain attributable to the acquirer.

Deferred tax liability and assetassets are recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 740-10.


Goodwill


Goodwill is the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.


ASC Topic 350 also permits an entity to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the two-step goodwill impairment test is required to be performed. Otherwise, no further testing is required. Performing the qualitative assessment involved identifying the relevant drivers of fair value, evaluating the significance of all identified relevant events and circumstances, and weighing the factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. After evaluating and weighing all these relevant events and circumstances, it was concluded that a positive assertion can be made from the qualitative assessment that it is more likely than not that the fair value of Diamond Bar is greater than its carrying amount. As such, it is not necessary to perform the two-step goodwill impairment test for the Diamond Bar reporting unit. Accordingly, as of SeptemberJune 30, 20172022 and 2016,December 31, 2021, the Company concluded there was no impairment of goodwill of Diamond Bar.

9

Cash and Cash Equivalents


For purposes of the statement of cash flows, the Company considers cash, money market funds, investments in interest bearing demand deposit accounts, time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.



Accounts Receivable

a significant financing component at contract inception if it expects to collect the receivables in one year or less from the time of sale. The Company does not expect to collect receivables greater than one year from the time of sale.

The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. An analysis of the allowance for doubtful accounts is as follows:

Balance at January 1, 2017 $3,019,931 
Provision for the period  203,905 
Write off  (3,106,474)
Balance at September 30, 2017 $117,362 
During

Schedule of Allowance for Doubtful Accounts

Balance on January 1, 2022 $1,044 
Provision for the period  1,060 
Balance on June 30, 2022 $2,104 

The bad debts provision (reversal) for the ninesix months ended SeptemberJune 30, 2016, bad debt (reversal) expense from continuing operations2022 and discontinued operations were $33,8182021 was $1,060 and $552,611, respectively. During($3,590), respectively; and ($820) and ($130) for the three months ended SeptemberJune 30, 2016, bad debt expense from continuing operations2022 and discontinued operations were $55,294 and $539,327,2021, respectively.


Advances to Suppliers


Advances to suppliers are reported net of allowance when the Company determines that amounts outstanding are not likely to be collected in cash or utilized against purchase of inventories. Based on its historical record and actual practice,in normal circumstances, the Company always receivedreceives goods within 5 to 9 months from the date the advance payment is made. As such, no reserve on supplier prepayments hadDue to the COVID-19 pandemic, freight transportation of products from the Company’s international suppliers has been madedelayed or recorded bysuspended during the Company.outbreak. Any provisions for allowance for advanceadvances to suppliers, if deemed necessary, will beare included in general and administrative expenses in the condensed consolidated statements of income.


operations. During the six months and three months ended June 30, 2022 and 2021, no provision was made on advances to suppliers.

Inventories


Inventories are stated at the lower of cost and net realizable value, with cost determined on a weighted-average basis. Management compares the costWrite-down of potential obsolete or slow moving inventories with the net realizable valueis recorded based on management’s assumptions about future demands and an allowance is made for writing down their inventories to market value, if lower. The Company did not record any write-downs of inventory at September 30, 2017 and 2016.


In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 effective January 1, 2017 and it did not have a material effect on the Company’s consolidated financial statements.

conditions.

Plant, Property and Equipment


Plant, property, and equipment are stated at cost, net of accumulated depreciation and impairment losses, if any. Expenditures for maintenance and repairs are expensed as incurred;incurred, while additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with 10%no salvage value and estimated lives as follows:


Schedule of Plant, Property and Equipment Estimated Lives Under Straight-line Method

Computer and office equipment5 - 10 years
Decoration and renovation5 - 10 years

Depreciation of plant, property and equipment attributable to manufacturing activities is capitalized as part of inventories, and expensed to cost of goods sold when inventories are sold.

Impairment of Long-Lived Assets


Long-lived assets, which include property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

10

Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.


Based on

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the asset’s carrying amount may not be recoverable. The Company conducts its review,long-lived asset impairment analyses in accordance with ASC 360-10-15, “Impairment or Disposal of Long-Lived Assets.” ASC 360-10-15 requires the Company believes that,to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of September 30, 2017 and December 31, 2016, there was no significantthe asset group asset group exceeds its fair value based on discounted cash flow analysis or appraisals. There were 0 impairment of its long-lived assets.


assets for the six months and three months ended June 30, 2022 and 2021.

Research and Development


Research and development costs are related primarily to the Company designing and testing its new products during the development stage. Research and development costs are recognized in general and administrative expenses and expensed as incurred. Research and development expense from continuing operations was $364,105expenses were $9,668 and $94,839$4,791 for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively; and $0 $1,005and $35,174$1,527 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.  Research and development expense from the Company’s discontinued operations was $588,790 and $179,643 for the nine and three months ended September 30, 2016, respectively.


Income Taxes


In its interim financial statements, the Company follows the guidance in ASC 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby the Company utilizes the expected annual effective rate in determining its income tax provision. The actual effectiveincome tax rate of continuing operations of 48.24%expense for the ninesix months ended September 30, 2017 differs from the U.S. federal statutory tax rate, primarily as a result of tax liability reserves from uncertain tax positions.


During the nine months ended September 30, 2017 and 2016, the Company recorded income tax (benefit) and expense from its continuing operations of approximately ($750,000) and ($60,000), respectively.  During the three months ended September 30, 2017 and 2016, the Company recorded income tax (benefit) and expense of approximately ($262,000) and ($101,000) from its continuing operations.  

During the nine and three months ended SeptemberJune 30, 2016, the Company recorded2022 is $0. The income tax (benefit) expense for the six months and three months ended June 30, 2021 are $13,061 and $3,385, respectively, and are primarily related to quarter-to-date income generated from its discontinued operationsforeign operation.

Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of approximately ($26,000)differences between the tax bases of assets and $36,000, respectively.  liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under the provisions of ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

11

Nova Lifestyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture Limited and Bright Swallow areBVI was incorporated in the BVI.BVI and Nova Macao isSamoa was incorporated in Macao. Nova Samoa is incorporated in Oceania.Samoa. There is no income tax for companies domiciled in the BVI Oceania or Macao.and Samoa. Accordingly, the Company’s condensed consolidated financial statements do not present any income tax provisionprovisions related to the BVI and MacaoSamoa tax jurisdictionjurisdictions where Nova Furniture BVI BSI and Nova MacaoSamoa are domiciled. Nova MacaoMalaysia is anincorporated in Malaysia and is subject to Malaysia income tax-exempt entitytaxes at the statutory rate of 24%. Nova HK is incorporated in Hong Kong and domiciledis subject to Hong Kong income taxes at the statutory rate of 16.5%. In February 2022, Nova HK was deregistered.

The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the quarter ended June 30, 2022, the Company has calculated its best estimate of the impact of the GILTI in Macao.


its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a modified territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses (NOLs) arising in taxable years beginning after December 31, 2017.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. Since all research and development expenditures were incurred within the U.S. and the amount is immaterial, we do not anticipate it having any material impact to our provision.

As of SeptemberJune 30, 2017,2022 and December 31, 2021, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $26.7 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, or GILTI. Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

As of June 30, 2022, unrecognized tax benefits were approximately $1.4 million.$0. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was $1.4 million$0 as of SeptemberJune 30, 2017.2022. As of SeptemberJune 30, 2016,2021, unrecognized tax benefits were approximately $4.6 million.$900. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was $4.6 million$900 as of SeptemberJune 30, 2016.


2021.

A reconciliation of the January 1, 2017, through September 30, 2017, amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the six months ended June 30, 2022 and 2021, is as follows:


  Gross UTB 
Beginning Balance – January 1, 2017
 $1,642,381 
Decrease in unrecorded tax benefits related to the Company’s continuing operations  (160,230)
Exchange rate adjustment  (85,881)
Ending Balance – September 30, 2017
 $1,396,270 


As of SeptemberUnrecognized Tax Benefits

  Gross UTB 
  2022  2021 
       
Balance – January 1 and June 30 $-   935 

At June 30, 2017,2022 and December 31, 2021, the Company had cumulatively accrued approximately $567,000$0, respectively, for estimated interest and penalties related to unrecognized tax benefits, of which $567,000 were related to the Company’s continuing operations. At December 31, 2016, the Company had cumulatively accrued approximately $494,000 for estimated interest and penalties related to unrecognized tax benefits.respectively. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax expense,benefit, which totaled approximately $73,000$0 and $331,000$14 for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively, of which $73,000 2021, respectively; and $82,000 were related to the Company’s continuing operations;$0 and totaled approximately $7,000 and $98,000$7 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively of which $7,000 and $15,000 were related to the Company’s continuing operations.. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.

12

Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2011-20162018-2021 remain open to examination by tax authorities in the U.S.


Revenue Recognition


The Company’s revenue recognition policiesCompany recognizes revenues when its customers obtain control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (i) identifies contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenues when (or as) it satisfies the performance obligation.

Revenues from product sales are in compliance with ASC Topic 605, “Revenue Recognition.” Sales revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed and no other significant obligations of the Company exist and collectability is reasonably assured. No revenue is recognized if there are significant uncertainties regarding the recovery of the consideration due, or the possible return of the goods. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.


Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). Allcustomer obtains control of the Company’s products soldproduct, which occurs at a point in China are subjecttime, typically upon delivery to the PRC VATcustomer. The Company expenses incremental costs of 17%obtaining a contract as and when incurred if the expected amortization period of the grossasset that it would have recognized is one year or less or the amount is immaterial.

Revenues from product sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China and included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the consolidated financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collectedreserves established for applicable discounts and paidallowances that are offered within contracts with the Company’s customers.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the Company acts as an agent foramount is payable to the government.


Company’s customer.

The Company’s sales policy allows for the return of product returns within the warranty period if the product is defective and the defects are the Company’s fault. As alternatives forto the product return option, the customers have optionsthe option of askingrequesting a discount from the Company for the products with quality issues or of receiving replacement parts from the Company at no cost. The amount for return of products,product returns, the discount provided to the Company’s customers, and the costs for replacement parts were immaterial for the ninesix months and three months ended SeptemberJune 30, 20172022 and 2016.


Franchise Arrangements 

In 2010, the Company’s former subsidiaries in China began entering into area product franchise agreements with franchisees who operated specialty furniture stores carrying only Nova-branded products. The product franchise agreement provided for the franchisee to retail Nova-brand furniture products for a period of one year from the date of the agreement. The franchisee was required to pay a deposit of RMB 30,000 at the signing of the agreement, which is used as payment for future purchases and is deferred on the Company’s balance sheet as a customer deposit. The franchisee was required to guarantee a minimum purchase amount from the Company during the contract period. The Company had the right to terminate the agreement should the franchisee fail to meet the minimum purchase amount. The Company previously provided the franchisee with store images and designs, signage, floor plan product information and training. In addition, the Company would rebate a per square meter subsidy to the franchisee for the store build-out within 12 months from the agreement date.  Under the program, the Company established standard renovation amounts (the “Renovation Subsidy”) for various cities in China.  The franchisee was able to obtain, in the form of credits against purchase orders, percentages of the Renovation Subsidy applicable in the city in which the franchisee is located, as follows: 0% to 30% of the Renovation Subsidy applied to the first purchase order and 5% of each purchase order thereafter until the aggregate of all credits equals 100% of the Renovation Subsidy, or 12 months from the date of the franchise agreement, whichever occurs first. In accordance with ASC 605-50, as the Company does not receive an identifiable benefit from these rebates, the rebates are recorded as a reduction of revenue on sales to the franchisees.  All of the franchise agreements relating to the Company’s operations were divested in connection with its discontinued operations (see Note 3 – Discontinued Operations).

2021.

Cost of Sales


Cost of sales consists primarily of costs of finished goods purchased from otherthird-party manufacturers material costs, labor costs and related overhead that are directly attributable to the productionwrite-downs of the products. Write-downs of inventory to the lower of cost or net realizable value is also recorded in the cost of sales.



inventory.

Shipping and Handling Costs


Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, shipping and handling costs from continuing operations were $1,576$176 and $2,033, respectively;$2,939, respectively, and $623$668 and $313$1,946 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.  During the nine and three months ended September 30, 2016, shipping and handling costs from discontinued operations were $373,123 and $137,308, respectively.


Advertising


Advertising expenses consist primarily of costs of promotion and marketing for the Company’s image and products, and costs of direct advertising, and are included in selling expenses. The Company expenses all advertising costs as incurred. Advertising expense from continuing operations was $847,177$619,673 and $2,156,451$823,947 for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively;2021, respectively, and $186,381$321,541 and $841,345$416,085 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. Advertising expense from discontinued operations was $60,379 and $59,286 for the nine and three months ended September 30, 2016, respectively.


Share-based compensation


Compensation

The Company accounts for share-based compensation awards to officers, directors, employees, and for acquiring goods and services from nonemployees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite servicevesting period.


The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the fair value of the equity instrument issued or committed to be issued, as this is more reliable than the fair value of the services received. The fair value is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.forfeitures when they occur.

13

Earnings per Share (EPS)


Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares pertaining to warrants, stock options, and similar instruments had been issued and if the additional common shares were dilutive. Diluted earnings per share are based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding unvested restricted stock, options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).



The following table presents a reconciliation of basic and diluted (loss) earningsloss per share for the ninesix months and three months ended SeptemberJune 30, 20172022 and 2016: 


  Nine Months Ended September 30, Three Months Ended September 30, 
  2017  2016 2017 2016 
            
Income from continuing operations $2,304,709  $1,189,266  $2,956,633  $1,044,931 
Loss from discontinued operations  -   (1,476,572)  -   (743,594)
Net income (loss)  2,304,709   (287,306)  2,956,633   301,337 
                           
Weighted average shares outstanding – basic  27,570,425   24,937,069   27,846,921   25,558,604 
Dilutive unvested restricted stock  126,828   -   112,480   - 
Dilutive vested stock options  7,153      21,228    
Weighted average shares outstanding – diluted  27,704,406   2,493,7069 
27,980,629 
   25,558,604 
                 
(Loss) income from continuing operations per share                
– basic $0.08  $0.05  $0.11  $0.04 
– diluted $0.08  $0.05  $0.11  $0.04 
                 
Loss from discontinued operations per share                
– basic $0.08  $(0.06) $-  $(0.03)
– diluted $0.08  $(0.06) $-  $(0.03)
                 
Net income (loss) per share                         
– basic $0.08  $(0.01) $0.11  $0.01 
– diluted $0.08  $(0.01) $0.11  $0.01 

* Including 571,5332021:

Schedule of Reconciliation of Basic and 337,114 shares that were granted and vested but not yet issued for the nine months ended September 30, 2017 and 2016, respectively.


Diluted Loss Per Share

                 
  Six Months Ended June 30,  Three Months Ended June 30, 
  2022  2021  2022  2021 
             
Net loss $(6,589,554) $(7,109,064) $(5,691,507) $(6,345,527)
                 
Weighted average shares outstanding – Basic and Diluted *  6,860,907   5,601,988   6,876,963   5,605,261 
                 
Net loss per share of common stock                
Basic and Diluted $(0.96) $(1.27) $(0.83) $(1.13)

*Including 42,779 shares that were granted and vested but not yet issued for the six months ended June 30, 2022 and 2021, respectively.

For the ninesix months and three months ended SeptemberJune 30, 20172022, 115,000 shares of unvested restricted stock, vested stock options to purchase 340,500 shares of common stock of the Company, and 2016, 858,334 and 1,925,0011,225,959 shares purchasableexercisable under warrants were excluded from the EPS respectively,calculation, as their effects were anti-dilutive.

For the ninesix months and three month periodsmonths ended SeptemberJune 30, 2016, the2021, 13,000 shares of unvested restricted stock and vested stock options to purchase 340,500 shares of common stock of the Company were excluded from EPS calculation, as their effects were anti-dilutive.


Concentration of Credit Risk


Financial instruments that potentially subject the Company to credit risk consist primarily of accounts and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.


A

No customer accounted for 35% and 10%10% or more of the Company’s sales for the ninesix and three months ended SeptemberJune 30, 20172022 and 2016, respectively. A customer2021. Three customers accounted for 54%36%, 23% and 10%17%, respectively, of the Company’s sales for the three months ended September 30, 2017 and 2016, respectively. Accountsgross accounts receivable from this customer were $21,812,355 and $5,216,213 as of SeptemberJune 30, 20172022. Four customers accounted for 22%, 19%, 14% and14%, respectively, of the Company’s gross accounts receivable as of December 31, 2016, respectively.


2021.

The Company purchased its products from fivethree major vendors during the nine and threesix months ended SeptemberJune 30, 2017,2022 and 2021, respectively, accounting for a total of 82% (26%53% for 2022 (22%, 19%21%, 15%and 10%) and 59% for 2021 (32%, 12%16%, and 10% for each) and 80% (30%, 16%, 12%, 11% and 11% for11% each) of the Company’s purchases, respectively.


purchases. The Company purchased its products from four and fivetwo major vendors during the nine and three months ended SeptemberJune 30, 2016,2022 and 2021, accounting for a total of 59% (20%, 15%, 12%41% for 2022 (26% and 12%15%) and 51% for each)2021 (33% and 89% (22%, 17%, 17%, 17%, and 16% for each)18%) of the Company’s purchases, respectively.purchases.

14

Advances made to these vendors were $150,162and accounts$307,718 as of June 30, 2022 and December 31, 2021, respectively. Accounts payable to these vendors were $13,237,351$204,829 and $0$125,636 as of SeptemberJune 30, 2017, respectively. Advances made2022 and accounts payable to these vendors were $1,561,381 and $481,455 as of December 31, 2016,2021, respectively.


Prior to its divestment of its PRC subsidiaries, the operations of the Company were located principally in China and the U.S. Accordingly, the Company’s Chinese subsidiaries’ business, financial condition and results of operations were, from time to time, influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.

Statement of Cash Flows

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations is calculated based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Fair Value of Financial Instruments

ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

·Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The carrying value of cash, accounts receivable, advanceadvances to suppliers, other receivables, accounts payable, line of credit, advance from customers, other payables and accrued liabilities approximate estimated fair values because of their short maturities.  The estimated fair value of the long-term lines of credit approximated the carrying amount as of September 30, 2017, as the interest rates are considered as approximate to the current rate for comparable loans at the respective balance sheet dates.


Foreign Currency Translation and Transactions


The condensed consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Diamond Bar, Nova Macao, Bright SwallowHK and Diamond Bar.


i Design.

The Company’s subsidiary with operations in Malaysia uses its local currency, the Malaysian Ringgit (“RM”), as its functional currency. An entity’s functional currency of Nova Dongguan, Nova Museum and Ding Nuo is RMB. The functional currenciesthe currency of the Company’s foreign operationsprimary economic environment in which it operates, which is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

Foreign currency transactions denominated in currencies other than the functional currency are translated into USD for balance sheet accountsthe functional currency using the current exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in effect as offoreign currencies at the balance sheet date except forare re-measured at the equity account using the historicalapplicable rates of exchange rate, and for revenue and expense accounts using the weighted-average exchange rate during the fiscal year. The translation adjustments are recorded in the consolidated statements of income and comprehensive income, captioned “Accumulated other comprehensive income.”effect at that date. Gains and losses resulting from transactions denominated in foreign currenciescurrency re-measurement are included in “Other income (expenses)” in the consolidated statements of incomeoperations.

The financial statements are presented in U.S. dollars. Assets and comprehensive income. There have been no significant fluctuations inliabilities are translated into U.S. dollars at the current exchange rate for the conversion of RMB to USD afterin effect at the balance sheet date.


The RMB to USDdate, and revenues and expenses are translated at the average of the exchange rates in effect as of September 30, 2016, was RMB6.6778 = USD$1.00. The weighted-average RMB to USDduring the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates in effectat the date the entry to stockholders’ equity was recorded, except for the nine months ended September 30, 2016 was RMB6.5771= USD$1.00. Thechange in retained earnings during the period, which is translated using the historical exchange rates used in translationto translate each period’s income statement. Differences resulting from RMB to USD were published by the People’s Bank of the People’s Republic of China.

Comprehensive Income

The Company follows FASB ASC 220 “Reporting Comprehensive Income.” Comprehensive income is comprised of net income and all changestranslating functional currencies to the consolidated statementsreporting currency are recorded in accumulated other comprehensive income in the balance sheets.

Translation of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income foramounts from RM into U.S. dollars has been made at the nine and three months ended September 30, 2017 and 2016 included net income and foreign currency translation adjustments. following exchange rates:

Schedule of Exchange Rates

Balance sheet items, except for equity accounts
June 30, 2022RM 4.41 to 1
December 31, 2021RM 4.18 to 1
Income Statement and cash flow items
For the six months ended June 30, 2022RM 4.27 to 1
For the six months ended June 30, 2021RM 4.10 to 1

15

Segment Reporting


ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.


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


Management concluded that the Company had one reportable segment under ASC 280 because Diamond Bar is a furniture distributor based in California focusing on customers in the US,United States, Bright Swallow iswas a furniture distributor focusing on customers in Canada, and Nova Macao was a furniture distributor based in Macao focusing on international customers, Nova HK was a furniture distributor based in Hong Kong focusing on international customers, in Canada, and Nova MacaoMalaysia is a furniture retailer and distributor based in Macao focusing on international customers.customers primarily in Malaysia. They are all operated under the same senior management of the Company, and management views the operations of Diamond Bar, Bright Swallow, Nova Macao, Nova HK and Nova MacaoMalaysia as a wholeone entity for making business decisions


Prior to the disposal of Nova Dongguan, the Company’s furniture products sold through Nova Dongguan, Nova Macao, and Ding Nuo were created with similar production processes, in the same facilities, under the same regulatory environment and sold to customers using similar distribution systems. Although Nova Museum was principally engaged in the dissemination of the culture and history of furniture in China, it also served a function of promoting and marketing the Company’s image and products by providing a platform and channel for consumers to be exposed to the Company and its products, it was operated under the same management with the same resources and in the same location as Nova Dongguan, and it was an additive and supplemental unit to the Company’s main operations, the design and sale of furniture.

Until the disposal of Nova Dongguan and its subsidiaries, all of the Company’s long-lived assets for production were located at its facilities in Dongguan, Guangdong Province, China, and operated within the same environmental, safety and quality regulations governing furniture manufacturers. After the disposal of Nova Dongguan and its subsidiaries, alldecisions.

All of the Company’s long-lived assets are mainly property, plant and equipment located in the United States and Malaysia and are utilized for administrative purposes.


Net sales to customers by geographic area are determined by reference to the physical product shipment delivery locations ofrequested by the Company’s customers. For example, if the products are delivered to a customer in the US,United States, the sales are recorded as generated in the U.S.United States; if the customer directs us to ship its products to China, the sales are recorded as sold in China.

Leases

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term.

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.

The Company recognized no impairment of ROU assets as of June 30, 2022 and December 31, 2021.

The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the consolidated balance sheets on June 30, 2022 and December 31, 2021.

16
New

Recent Accounting Pronouncements


Recently Adopted Accounting Standards

In February 2016,May 2021, the FASB issued ASU No. 2016-02, Leases2021-04, Earnings Per Share (Topic 842)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”). TheASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new standard establishesinstrument. An issuer should measure the effect of a right-of-use (“ROU”)modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that requires a lesseecomprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to record a ROU assetequity issuance and a lease liability on the balance sheetdebt origination or modification). ASU 2021-04 is effective for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effectiveentities for fiscal years beginning after December 15, 2018,2021, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on the consolidated financial statements.


In May 2014, the FASB issued No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that anAn entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance provided in ASU 2014-092021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company applied the new standard beginning January 1, 2022. The adoption of the new standard did not have any impact on the Company’s condensed consolidated financial statement presentation or disclosures.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual reportingdisclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This update is effective for annual periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier2021, and early application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods withinpermitted. This guidance should be applied either prospectively to all transactions that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect that these ASUs will have on its consolidatedare reflected in financial statements at the date of initial application and related disclosures.


On March 30, 2016, the FASB issued ASU No. 2016-09, Improvementsinitial application or retrospectively to Employee Share-Based Payment Accounting, which includes amendments to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU 2016-09 are effective for public companies for fiscal years beginning after December 31, 2016, and interim periods within those annual periods.transactions. The Company adopted this new guidance onASU 2021-10 beginning January 1, 2017 and this standard does2022. The adoption of ASU 2021-10 did not have a materialany impact on the Company’s condensed consolidated financial statements.

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. ThisASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidanceASU 2016-13 is to be adopted on a modified retrospective basis. As a smaller reporting company, ASU 2016-13 will be effective for fiscal years,the Company for interim and interimannual reporting periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted2022. In March 2022, the FASB issued ASU 2022-02, Topic 326. The ASU eliminates the accounting guidance for all entitiestrouble debt restructurings by creditors in Subtopic 310-40, and enhances the disclosure requirements for fiscal years, and interimmodifications of loans to borrowers experiencing financial difficulty. Additionally, the ASU requires disclosure of gross writeoffs of receivables by year of origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. This ASU is effective for periods within those fiscal years, beginning after December 15, 2018.2022. The Company is currently evaluating the impact that the standardadoption of ASU 2016-13 and ASU 2022-02 will have on its condensed consolidated financial statementsstatement presentations and related disclosures.


In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.

In October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations2017-04, Intangibles – Goodwill and Other (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.


In January 2017, the FASB issued ASU 2017-04,350), Simplifying the Test for Goodwill Impairment. The guidance removesImpairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which requires a hypothetical purchase price allocation. A goodwill impairment will now beloss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount by whichof that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying value exceedsamount over its fair value not(not to exceed the carrying amounttotal goodwill allocated to that reporting unit). Adoption of goodwill. The guidance should be adoptedthe ASUs is on a prospective basismodified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual or any interim goodwill impairment testsreporting periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.2022. The Company is currently evaluating the impact that the adoption of adopting this standardASU 2017-04 will have on its condensed consolidated financial statements.statement presentation or disclosures.

17

The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

Note 3 - Discontinued Operations


On September 23, 2016, Nova Furniture,Inventories

The inventories as of June 30, 2022 and December 31, 2021 totaled $13,469,887 and $17,656,175, respectively, and consisted entirely of finished goods.

Inventories are stated at the lower of cost and net realizable value, with cost determined on a wholly-owned subsidiaryweighted-average basis. Write-down of potential obsolete or slow moving inventories is recorded based on management’s assumptions about future demands and market conditions. For the six months and three months ended June 30, 2022, the Company (the “Seller”), entered into a Share Transfer Agreement (the “Agreement”) with Kuka Design Limited, an unrelated company incorporatedwrote-down $5,119,054of slow-moving inventory. The inventory write-down is included in British Virgin Islands (“Kuka Design BVI” or “Buyer”). Pursuant to the terms“Cost of the Agreement, the Seller sold all of the outstanding equity interests in Nova Dongguan, a wholly owned subsidiary of the Seller, to the Buyer for a total of $8,500,000 (the “Transaction”), which such value was primarily derived from Nova Dongguan and Nova Donguan’s wholly owned subsidiary, Nova Museum, and 90.97% owned subsidiary, Ding Nuo. Upon consummation of the Transaction on October 25, 2016, the Buyer became the sole owner of Nova Dongguan. The purchase price of $8,500,000 was fully paid on October 6, 2016.



On November 10, 2016, Nova Furniture entered into a Trademark Assignment Agreement with Kuka Design BVI.  Pursuant to the terms of the Trademark Assignment Agreement, Nova Furniture agreed to assign to Kuka Design BVI its full right to, and title in, the NOVA trademark in China for $6,000,000 (the “Assignment Fee”).  Kuka Design BVI was to pay the Assignment Fee in two installments: $1,000,000 on or before November 30, 2016, and $5,000,000 on or before December 31, 2016.  As the result of the assignment of NOVA trademark in China, Nova Furniture and its affiliated companies, including Nova Macao, have ceased to use the NOVA trademark and brand in their business in China. A portion of the Assignment Fee in the amount of $4,750,000 was received in 2016, and the remaining balance of $1,250,000 was fully paid in January 2017.

As a result, the operations of Nova Dongguan, Nova Museum and Ding Nuo are now accounted for as discontinued operations in the accompanying consolidated financial statements for all periods presented. The following table presents the components of discontinued operations reportedSales” in the consolidated statements of operations:

  Nine Months ended September 30,  Three Months Ended September 30 
  2017  2016  2017  2016 
Sales from external customers $-  $15,351,105  $-  $6,111,494 
Cost of goods sold  -   (13,338,316)  -   (5,284,100)
Operating expenses  -   (3,231,788)  -   (907,016)
Loss before income taxes  -   (1,450,487)  -   (780,545)
Income tax (expense) benefit  -   26,085   -   (36,951)
Loss from discontinued operations $-  $(1,476,572) $-  $(743,594)

Note 4 - Inventories

Theoperations. For the six months and three months ended June 30, 2021, the Company wrote-down $5,526,307 of slow-moving inventory. In light of the current and developing business conditions as a result of COVID-19 pandemic, additional write downs of inventories as of September 30, 2017 and December 31, 2016 totaled $6,720,649 and $2,781,123, respectively, and were all finished goods.
may be required in subsequent periods.

Note 54 - Plant, Property and Equipment, Net


As of SeptemberJune 30, 20172022 and December 31, 2016,2021, plant, property and equipment consisted of the following:


  September 30, 2017  December 31, 2016 
       
Computer and office equipment $283,336  $274,735 
Decoration and renovation  118,858   110,015 
Less: accumulated depreciation  (243,782)  (213,474)
  $158,412  $171,276 

Schedule of Plant, Property and Equipment

  June 30, 2022  December 31, 2021 
       
Computer and office equipment $428,005  $474,196 
Decoration and renovation  467,582   487,002 
Property plant and equipment gross  895,587   961,198 
Less: accumulated depreciation  (480,777)  (450,518)
Property plant and equipment net $414,810  $510,680 

Depreciation expense from continuing operations was $30,307$42,161 and $33,217$38,526 for the ninesix months ended SeptemberJune 30, 20172022 and 2016, respectively;2021, respectively, and $10,164$20,306 and $11,128$20,775 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.  Depreciation expense from discontinued operations was $1,011,125

Note 5 - Advances to Suppliers

The Company makes advances to certain vendors for inventory purchases. The advances on inventory purchases were $302,721 and $331,323$707,264 as of June 30, 2022 and December 31, 2021, respectively. No impairment charges were made on advances to suppliers for the ninesix months and three months ended SeptemberJune 30, 2016, respectively.


2022 and 2021.

Note 6 - Intangible Assets


The Company acquired a customer relationship with a fair value of $50,000 on August 31, 2011, as part of its acquisition of Diamond Bar. Concurrently with its acquisition of Diamond Bar, the Company entered into a trademark purchasePrepaid Expenses and assignment agreement for all rights, titleOther Receivables

Prepaid expenses and interest in two trademarks (Diamond Sofa and Diamond Furniture) for $200,000 paid in full at the closing. Amortization of said customer relationship and the trademarks is provided using the straight-line method and estimated lives were 5 years for each.


The Company acquired a customer relationship with a fair value of $6,100,559 on April 24, 2013, as part of its acquisition of Bright Swallow. Amortization of said customer relationship is provided using the straight-line method and estimated life was 15 years. 


The Company’s eCommerce platform is a website through which customers are able to browse and place orders online for the Company’s products. For the downloadable mobile application, customers are able to download the application onto their own mobile devices to browse the Company’s product offerings. The Nova sales kit application is used on mobile devices to enable the Company’s sales representatives to display the Company’s products and inventory to customers. The total cost associated with the development, programming, design and roll-out of the Company’s eCommerce platform, downloadable mobile application, and Nova sales kit application is approximately $1.20 million. The Company’s eCommerce platform, downloadable mobile application, and Nova sales-kit application were completed and put into operation in 2015. These intangible assets are amortized using the straight-line method with an original estimated life of 10 years for each and are revised to 1 year in the quarter ended March 31, 2017.  The effect of the change in estimate is accounted for on a prospective basis.  

Intangible assetsother receivables consisted of the following as of SeptemberJune 30 20172022 and December 31, 2016:

  September 30, 2017  December 31, 2016 
��      
eCommerce platform $1,208,200  $1,208,200 
Customer relationship  6,150,559   6,150,559 
Trademarks  200,000   200,000 
Less: accumulated amortization  (2,985,147)  (1,872,136)
  $4,573,612  $5,686,623 

Amortization2021:

Schedule of intangible assets from continuing operations was $1,113,011 and $428,977 for the nine months ended September 30, 2017 and 2016, respectively; and $371,004 and $140,215 for the three months ended September 30, 2017 and 2016, respectively. Amortization of intangible assets from discontinued operations was $28,164 and $9,305 for the nine and three months ended September 30, 2016, respectively.


Estimated amortization expense relating to the existing intangible assets with finite lives for each of the next five years is as follows:

12 months ending September 30,   
2018 $676,032 
2019  406,704 
2020  406,704 
2021  406,704 
2022  406,704 

Note 7 - Receivables from an Unrelated Party, Prepaid Expenses and Other Receivables

(a)On September 22, 2016, in order to promote the Company’s image and extend its customer reach, the Company entered into a memorandum of understating with an unrelated party (“MOU”) whereby the Company agreed to pay a total fee of $16,000,000 for a period of twelve months, commencing on December 31, 2016, to finance the establishment and promotion of the unrelated party’s Academic E-commerce platform and integrated training center in Hong Kong (the “Platform”).

  June 30, 2022  December 31, 2021 
       
Prepaid expenses $406,457  $406,366 
Other receivables  26,376   120,634 
Prepaid expenses and other receivable $432,833  $527,000 

As of September 30, 2017 and December 31, 2016, the Company prepaid $0 and $7,000,000 to the unrelated party, respectively.

However, having considered the recent market situation and the status of the establishment and promotion of the Platform, the Company does not wish to continue to finance the promotion of the Platform. On March 20, 2017, the Company and the unrelated party terminated the MOU and released both parties from all the obligations and liabilities under the MOU. The Company agreed to bear the costs of $800,000 incurred by the unrelated party on the Platform, which were charged as expenses in the first quarter of fiscal year 2017. The Company collected a total of approximately $13 million, which was prepaid previously, as of SeptemberJune 30, 2017, and no further balance was owed by the unrelated party.

(b)          Prepaid Expenses and Other Receivables consisted of the following at September 30, 20172022 and December 31, 2016: 

 September 30, 2017 December 31, 2016 
     
Prepaid expenses $288,784  $573,005 
Other receivables  27,049   69,886 
Total $315,833  $642,891 


On March 23, 2017, the Company made a short-term2021, prepaid expenses and other receivables mainly represented prepaid insurance, prepaid advertising expense, advance of $2,000,000 to an unrelated party. The advance is unsecuredemployee and bears interest of 5% per annum. The unrelated party agreed to pay the whole amount of $2,000,000 back to the Company by May 31, 2017. During the nine months ended September 30, 2017, the Company collected full payment of the principalCelero and interest of $26,575 from the unrelated party.Cardknox account balances.

18

Note 87 - Accrued Liabilities and Other Payables


Accrued liabilities and other payables consisted of the following as of SeptemberJune 30, 20172022 and December 31, 2016:


  September 30, 2017  December 31, 2016 
       
Other payables $18,462  $47,790 
Salary payable  42,909   30,207 
Financed insurance premiums  128,891   66,314 
Accrued rents  84,659   102,269 
Accrued commission  360,630   494,108 
Accrued expenses, others  90,950   40,272 
         
Total $726,501  $780,960 

2021:

Schedule of Accrued Liabilities and Other Payables

  June 30, 2022  December 31, 2021 
       
Other payables $8,609  $6,893 
Salary payable  6,346   6,231 
Financed insurance premiums  211,600   134,173 
Accrued commission  94,694   66,507 
Accrued expenses, others  215,759   112,875 
Total accrued liabilities and other payable $537,008  $326,679 

As of SeptemberJune 30, 20172022 and December 31, 2016,2021, other accrued expenses mainly included legal and professional fees, transportationutilities and unpaid operating expenses and utilities.incurred in Malaysia. Other payables represented other taxtaxes payable and meal expenses.


rebates.

Note 98 - LinesOther Loans

On May 4, 2020, the Company received loan proceeds in the amount of Credit


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 loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. On June 5, 2020, Congress passed a new law that allowed current PPP borrowers to choose to extend the eight-week period to 24 weeks to use the funds, but which cannot be extended beyond December 31, 2020. The Company had used the loans for eligible purposes and on December 28, 2020, the Company submitted the loan forgiveness application to the bank. On November 15, 2021, the Small Business Administration (SBA) approved the company’s forgiveness application and no interest had been accrued for on this loan as of December 31, 2021 and June 30, 2022.

On May 5, 2020, Diamond Bar entered into an agreement withwas granted a bankloan from Cathay Bank in Californiathe aggregate amount of $176,294 (the “Loan”), pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted on March 27, 2020. The Loan, which was in the form of a Note dated May 5, 2020 matures on May 5, 2022 and bore interest at a rate of 1.00% per annum, payable monthly commencing on May 5, 2020. Funds from the Loan may only be used for a line of credit of uppayroll costs, costs used to $5,000,000 with annualcontinue group health care benefits, mortgage payments, rent, utilities, and interest of 4.25% and maturity on June 1, 2015. On June 8, 2015, the bank extended and modifiedother debt obligations. Under the terms of the loan agreementPPP, certain amounts of the Loan may be forgiven if they are used for qualifying expenses as described in the CARES Act. On June 5, 2020, Congress passed a new law that allowed current PPP borrowers to choose to extend the lineeight-week period to 24 weeks to use the funds but which cannot be extended beyond December 31, 2020. The Company had used all the PPP loan proceeds for qualifying purposes within 24 weeks. On June 15, 2021, the Small Business Administration (SBA) approved the Company’s loan forgiveness application and no interest had been accrued for on this loan as of credit upDecember 31, 2021.

On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. The Loan, which was in the form of a maximum of $6,000,000 until July 31, 2015promissory note dated June 19, 2020, matures on June 18, 2050 and $5,000,000 thereafter with an annualbears interest at a rate of 4.25% and maturity on September 1, 2015 (the term3.75% per annum, payable monthly beginning 12 months from the date of which the bank allowed to extend untilpromissory note. Funds from the renewal described in the following sentence while the bank conducted its own audit associated therewith). On September 28, 2015, Diamond Bar extended the line of credit up to a maximum of $6,000,000 with annual interest of 3.75% (4% from December 17, 2015) and maturity on June 1, 2017. On January 20, 2016, Diamond Bar increased the line of credit up to a maximum of $8,000,000 with annual interest of 4%.  On June 22, 2017, Diamond Bar extended the line of credit to maturity on September 1, 2017. On September 19, 2017, Diamond Bar extended the line of credit to maturity on June 1, 2019.Loan may only be used for working capital. The annual interestloan was 4.25% as of September 30, 2017. The line of credit is secured by all of the assetstangible and intangible property of Diamond BarBar. Interest of $2,839 and is guaranteed by Nova LifeStyle. As of September 30, 2017 and December 31, 2016, Diamond Bar$2,867 had $3,322,040 and $6,129,841 outstanding onbeen accrued for this loan for the line of credit, respectively.  During the ninesix months ended SeptemberJune 30, 20172022 and 2016, the Company recorded interest expense of $145,857 and $167,381,2021, respectively; and $40,932$1,424 and $61,127$1,447 for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.  As of September 30, 2017, Diamond Bar had $4,677,960 available for borrowing without violating any covenants.


The Diamond Bar loan has the following covenants: (i) maintain a minimum tangible net worth of not less than $10 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.500 to 1.000; (iii) the pre-tax income must be not less than 1.000% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.250 to 1.000. As of September 30, 2017, Diamond Bar was in compliance with the stated covenants.  
On January 22, 2015, Nova Macao renewed a line of credit, with an annual interest rate of 4.25% and principal of up to $6,500,000, with a commercial bank in Hong Kong to extend the maturity date to January 29, 2016. On February 16, 2016, Nova Macao extended the maturity date of line of credit to January 31, 2017, with an annual interest rate of 4% and principal of up to $6,500,000. The loan requires monthly payment of interest and that the interest rate will be adjusted annually. The loan was secured by assignment of Sinosure (China Export and Credit Insurance Company) credit insurance and was guaranteed by Nova LifeStyle and Diamond Bar. The Company did not extend the line of credit and paid it off in February 2017. As of September 30, 2017 and December 31, 2016, Nova Macao had $0 and $1,848,000 outstanding on the line of credit, respectively. During the nine months ended September 30, 2017 and 2016, Nova Macao paid interest of $13,828 and $57,304, respectively; and $0 and $18,890 for the three months ended September 30, 2017 and 2016, respectively.

Note 10 - 9- Related Party Transactions


On September 30, 2011, Diamond Bar leased a showroom in High Point, North Carolina from the Company’s presidentPresident who is currently also ourthe Chief Executive Officer and ChairmanChairperson of the Board. The lease is to be renewedrenewable and has been renewed each year since 2011. On March 16, 2017,April 1, 2022, the Company renewed the lease for an additional one year term. The lease was $32,916 for one year and only for use during two furniture exhibitions to be held between April 1, 2017 and March 31, 2018. term at a cost of $34,562. During the ninesix months and three months ended SeptemberJune 30, 2017,2022, the Company paid rental amounts of $32,916$17,281 and $16,458$nil, respectively that are included in selling expenses from continuing operations.



expenses. During the ninesix months and three months ended SeptemberJune 30, 2016,2021, the Company paid rental amounts of $32,916$17,281 that are included in selling expenses.

19

On January 4, 2018, the Company entered into a sales representative agreement with a consulting firm, which is owned by the President, Chief Executive Officer and Chairperson of the Board, for sales representative service for a term of two years.On January 4, 2020, the Company renewed the agreement for an additional two years which was amended in July 2020. If not terminated during the first year, the agreement will continue until one party or the other terminates the agreement with 30 days written notice. The Company agreed to compensate the consulting firm via commission at predetermined rates of the relevant sales amount. During the six months ended June 30, 2022 and 2021, the Company recorded $226,014 and $211,802 as commission expense to this consulting firm, respectively; and $114,820 and $111,884 for the three months ended June 30, 2022 and 2021, respectively.

In September 2021, Nova Malaysia entered into a consultancy agreement with an I.T. firm whose sole shareholder was a director of Nova Macao to provide E-Commerce Web Application Setup, E-Commerce Essentials Implementation, E-Commerce UIUX and other related services. During the six and three months ended June 30, 2022, the Company recorded $287,971 and $134,077 as technology service expenses from continuing operations.

to this I.T. firm.

Note 11 - 10- Stockholders’ Equity


Warrants

Following is a summary

On May 28, 2021, the Company’s stockholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) at its annual meeting. The 2021 Plan was approved by the Board of Directors of the warrant activity for the nine months ended September 30, 2017: 


  
Number of
Warrants
  
Average
Exercise
Price
  
Weighted
Average
Remaining
Contractual
Term in Years
 
          
Outstanding at January 1, 2017  858,334  $2.71   3.92 
Exercisable at January 1, 2017  858,334   2.71   3.92 
Granted  -   -   - 
Exercised / surrendered  -   -   - 
Expired  -   -   - 
Outstanding at September 30, 2017  858,334  $2.71   3.17 
Exercisable at September 30, 2017  858,334  $2.71   3.17 

Shares Issued to Consultants 

On December 1, 2014, the Company entered intoon April 12, 2021 and has a consulting agreement with a consulting firm for management consulting services effective on December 1, 2014. The Company agreed to issue 60,000total of 3,000,000 shares of the Company’s common stock which may be granted as stock reward to attract and retain personnel, provide additional incentives to employees, directors and consultants and promote the firm for three years of consulting services. The shares will be issued according to the following vesting schedule set forth as follows: The initial 10,000 shares were required to be issued within 30 days upon signingsuccess of the agreement; for the remaining 50,000 shares,Company’s business. On June 16, 2021, the Company issuedfiled Form S-8 to register the consultant 10,000 shares of common stock on or before each of June 1, 2015, December 1, 2015, June 1, 2016, December 1, 2016 and June 1, 2017. The Company or the consultant may terminate the agreement at any time by 90 days’ written notice to the other party. The fair value of the 60,000 shares was $224,400, which was calculated based on the stock price of $3.74 per share on December 1, 2014 and will be amortized over the service term. During each of the nine-month and three-month periods ended September 30, 2017 and 2016, the Company amortized $56,100 and $18,700 as consulting expenses, respectively. 

On March 1, 2015, the Company entered into a marketing agreement with a consultant for marketing and product promotion services effective on March 1, 2015. The Company agreed to grant the consultant $100,000 worth of3,000,000 shares of the Company’s common stock for 12 months of consulting services starting on March 1, 2015. The shares vested immediately on March 1, 2015. The share price was calculated asunder the average closing price per share for ten trading days immediately prior to the execution of the agreement2021 Plan.

Shares and was amortized over the service term. Warrants issued through Private Placement

On March 9, 2015,July 23, 2021, the Company issued 38,745 shares at an average priceconducted a registered direct offering of $2.581 per share to the consultant. During the nine months ended September 30, 2017 and 2016, the Company amortized $0 and $16,667 as consulting expenses, respectively; and $0 for each of the three month periods ended September 30, 2017 and 2016. 


On September 14, 2015, the Company entered into a business marketing advisory agreement with a consultant for marketing and general consulting services effective on August 15, 2015. The Company agreed to pay the consultant a monthly fee of $5,000 and also granted 18,348 shares of the Company’s common stock to the consultant for 12 months of services starting on August 15, 2015. Twenty-five percent (25%) of those shares vested on November 15, 2015, 25% on February 15, 2016, 25% on May 15, 2016 and the remaining 25% vested on August 15, 2016. The fair value of the 18,348 shares was $45,870, which was calculated based on the stock price of $2.50 per share on August 15, 2015 and will be amortized over the service term. During the nine months ended September 30, 2017 and 2016, the Company amortized $0 and $28,669 as consulting expenses, respectively; and $0 and $5,734 for the three months ended September 30, 2017 and 2016, respectively.

On February 1, 2016, the Company entered into a marketing agreement with a consultant for marketing development strategies and consulting services for 15 months. The Company agreed to grant the consultant 10,000 unregistered restricted shares of the Company’s common stock per month, for a total commitment of 150,0001,114,508 shares of common stock. The fair value ofshares were offered and sold by the 150,000 shares was $204,000,Company pursuant to an effective shelf registration statement on Form S-3, which was calculated basedfiled with the Securities and Exchange Commission (the “SEC”) on the stock price of $1.36 per shareOctober 8, 2020 and subsequently declared effective on February 1, 2016, the date the agreement was executed, and will be amortized over the service term. During the nine months ended September 30, 2017 and 2016,October 15, 2020. Additionally, the Company amortized $54,400 and $108,800 as consulting expenses, respectively; and $0 and $40,800 for the three months ended September 30, 2017 and 2016 as consulting expenses, respectively.

On February 1, 2016, the Company entered into an agreement with a consultant for E-Commerce consulting service with a term of 24 months. The Company agreed to grant the consultant 10,000 shares of the Company’s common stock per month, for a total commitment of 240,000 shares. Twelve and half percent (12.5%) of those shares vested or will vest on April 30, 2016, 12.5% on July 30, 2016, 12.5% on October 31, 2016, 12.5% on January 31, 2017, 12.5% on April 30, 2017, 12.5% on July 30, 2017, 12.5% on October 31, 2017, and the remaining 12.5% on January 31, 2018. The fair value of the 240,000 shares was $326,400, which was calculated based on the stock price of $1.36 per share on February 1, 2016, the date the agreement was executed, and will be amortized over the service term. During the nine months ended September 30, 2017 and 2016, the Company amortized $122,400 and $108,800 as consulting expenses, respectively; and $40,800 for the three months ended September 30, 2017 and 2016.

On February 1, 2016, the Company entered into a consulting agreement with a consultant for planning, coordinating and strategy implementation services for a term of 6 months. The Company agreed to grant the consultant $10,000 worth of shares of the Company’s common stock per month. During each of the nine month periods ended September 30, 2017 and 2016, 83,386 shares vested, based on the stock prices as of the end of each month commencing February 2016 and concluding September 2016. During the nine months ended September 30, 2017 and 2016, the Company amortized $0 and $60,000 as consulting expense, respectively; and $0 and $10,000 for the three month ended September 30, 2017 and 2016, respectively.
On November 15, 2016, the Company entered into a consulting and strategy service agreement with a consultant for marketing and general consulting services effective on November 14, 2016. The Company agreed to grant 100,000 shares of the Company’s common stockissued to the consultant for 12 months of services starting on November 14, 2016. The shares would be issued pursuantinvestors unregistered warrants to Nova LifeStyle, Inc. 2014 Omnibus Long-Term Incentive Plan (the “Plan”) approved by the Board of Directors (“Board”) of the Company on May 13, 2014 and ratified at the annual shareholder meeting on June 30, 2014. The Plan was registered under Form S-8 on July 30, 2014. Twenty-five percent (25%) of those shares vested on December 15, 2016, 25% on February 15, 2017, 25% on May 15, 2017, and the remaining 25% will vest on August 15, 2017. The fair value of the 100,000 shares was $294,000, which was calculated based on the stock price of $2.94 per share on November 15, 2016 and will be amortized over the service term. During the nine and three months ended September 30, 2017, the Company amortized $219,896 and $74,104 as consulting expenses, respectively.

On November 15, 2016, the Company entered into a consulting agreement with a consultant for business development and financial advisory service for a term of 12 months. The Company agreedpurchase up to grant the consultant 100,000 shares of the Company’s common stock. The shares would be issued pursuant to the Plan. The fair value of the 100,000 shares was $294,000, which was calculated based on the stock price of $2.94 per share on November 15, 2016 and will amortized over the service term. During the nine and three months ended September 30, 2017, the Company amortized $220,500 and $73,500 as consulting expense, respectively.

On November 15, 2016, the Company entered into a consulting agreement with a consultant for business advisory service for a term of 12 months. The Company agreed to compensate the consultant a one-time amount of $20,000 worth of shares of the Company’s common stock based on the price per share on November 15, 2016. The Company also granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from December 1, 2016 for 12 months. The shares would be issued pursuant to the Plan. During the nine and three months ended September 30, 2017, the Company amortized $150,000 and $50,000 as consulting expense, respectively.

On June 30, 2017, the Company entered into a consulting agreement with a consultant for business advisory service for a term of 12 months. The Company agreed to compensate the consultant a one-time amount of $10,000 worth of shares of the Company’s common stock based on the price per share on June 30, 2017. The Company also granted the consultant $10,000 worth of shares of the Company’s common stock per month starting from July 1, 2017 for a period of 12 months. The shares would be issued pursuant to the Plan. During the nine and three months ended September 30, 2017, the Company amortized $32,500 as consulting expense.

Shares and Warrants Issued through Private Placement

Private Placement on May 28, 2015

On May 28, 2015, the Company entered into a Securities Purchase Agreement with certain purchasers (the “Purchasers”) pursuant to which the Company offered to the Purchasers, in a registered direct offering, an aggregate of 2,970,5091,114,508 shares of common stock par value $0.001 per share. Of these, 2,000,001 shares were sold to the Purchasers atin a negotiatedconcurrent private placement. The combined purchase price of $2.00 perfor one share for aggregate gross proceeds to the Company of $4,000,002, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. In accordance with the terms of the Securities Purchase Agreement entered on April 14, 2014, the outstanding 2014 Series A Warrants were exchanged for 660,030 shares of common stock and the outstanding 2014 Series C Warrants were exchanged for 310,478 shares of common stock.
In a concurrent private placement, the Company also sold to the Purchasers a warrant to purchase one share of the Company’s common stock for each share purchased for cash in the offering, pursuant to that certain Common Stock Purchase Warrant, by and between the Company and each Purchaser (the “2015 Warrants”)was $2.80. The 2015 Warrants becamewarrants have an exercise price of $3.50 per share, will be exercisable beginning on the six month anniversary ofsix-months from the date of issuance, (the “Initial Exercise Date”)and will expire five and a half years from the date of issuance. The offering gross proceeds were $3,120,622 before deducting placement agent’s commissions and other offering costs, and the net proceeds of the offering were approximately $2,760,000. The offering closed on July 27, 2021.

In conjunction with this offering, the Company issued warrants to purchase 111,451 shares of common stock at an exercise price of $2.71$3.50 per share to the placement agent and will expireits designees. The placement agent warrants are exercisable on the five yearsix-month anniversary of the Initial Exercise Date.issuance date. The purchase priceplacement agent warrants are exercisable for four and a half years from the initial exercise date. The placement agent warrants hold piggy-back registration rights and have a termination date of one share of the Company’s common stock under the 2015 Warrants is equal to the exercise price. 



July 23, 2026.

The warrants issued in the private placement described above are exercisable for a fixed number of shares, and are classified as equity instruments under ASC 815-40-25-10. The Company accounted for the warrants issued in the 2015 private placement based on the fair value method under ASC Topic 505, and the fair value of the warrants was calculated using the Black-Scholes model under the following assumptions: estimated life of 5 5.5 years, volatility of 107%107%, risk-free interest rate of 1.55%0.71% and dividend yield of 0%0%. No estimate of forfeitures was made as the Company has a short history of granting options and warrants. The fair value of the warrants issued to investors at grant date was $3,147,530.$2,018,597.

20

Warrants

The following is a summary of the warrant activity for the six months ended June 30, 2022:

Summary of Warrant Activity

  

Number of

Warrants

  

Average

Exercise Price

  Weighted
Average
Remaining
Contractual
Term in Years
 
          
Outstanding at January 1, 2022  1,225,959  $3.50   5.02 
Exercisable at January 1, 2022  -  $-   - 
Granted  -   -   - 
Exercised / surrendered  -   -   - 
Expired  -   -   - 
Outstanding at June 30, 2022  1,225,959  $3.50   4.52 
Exercisable at June 30, 2022  1,225,959  $3.50   4.52 

Shares and Options Issued to Independent Directors


In March 2015,Consultants

On November 16, 2020, the Company entered into restricted stock award agreements under the 2014 Omnibus Long-Term Incentive Plana consulting agreement with three independent directors of the Board.a consultant for consulting and strategy services effective on November 16, 2020 for a one-year term. The Company agreed to grant 12,195the consultant 20,000 shares of the Company’s common stock, to each of these independent directors with a grant date of March 24, 2015. The restricted period lapses as to 25% of the restricted stockvesting 25% on September 30, 2015, December 31, 2015, March 31, 2016February 15, 2021, 25% on May 15, 2021, 25% on August 15, 2021 and September 30, 2016, subject to the director remaining in the continuous service of the Company or its affiliates25% on each applicable vesting date.November 15, 2021. The fair value of thesethe 20,000 shares was $119,999,$39,600, which was calculated based on the stock price of $3.28$1.98 per share on March 24, 2015.November 16, 2020 and is being amortized over the service term. The shares were issued pursuant to the 2014 Plan. During the ninesix months and three months ended SeptemberJune 30, 2016,2021, the Company amortized $26,959charged $19,800 and $0$9,900, respectively, to operations as directors’ stock compensation expenses, respectively.


In May 2015,consulting expenses.

On November 2, 2021, the Company entered into a restricted stock awardan information technology consulting agreement under the 2014 Omnibus Long-Term Incentive Plan with a new independent director.consultant for analyzing and developing the Company’s information technology infrastructure and system, and related general business advisory services effective on November 2, 2021 for a one-year term. The Company agreed to grant 12,195the consultant 100,000 shares of the Company’s common stock, to50,000 shares issued before the new independent director with a grant dateend of May 19, 2015. The restricted period lapsed as to 25%November 2021 and remaining 50,000 shares will be issued on the one-year anniversary of the restricted stock on September 30, 2015, December 31, 2015, March 31, 2016 and September 30, 2016, subject to the director remaining in the continuous service of the Company or its affiliates on each applicable vesting date.agreement. The fair value of thesethe 100,000 shares was $38,292,$236,000, which was calculated based on the stock price of $3.14$2.36 per share on May 19, 2015.November 2, 2021 and is being amortized over the service term. The shares were issued pursuant to Nova Lifestyle, Inc. 2021 Omnibus Equity Plan (the “2021 Plan”). During the ninesix months and three months ended SeptemberJune 30, 2016,2022, the Company amortized $14,478charged $117,030 and $0$58,839, respectively, to operations as directors’ stock compensation expenses, respectively.


consulting expenses.

On August 9, 2016,November 2, 2021, the Board approvedCompany entered into a restricted stock awardmarketing consulting agreement under the 2014 Omnibus Long-Term Incentive Plan with four independent directors.a consultant for developing branding and marketing strategies, analyzing and evaluating consumer data services effective on November 2, 2021 for a one-year term. The Company agreed to grant $40,000 worth of stocks to each of its four independent directors. The restricted period lapses as to 25%the consultant 100,000 shares of the restrictedCompany’s common stock, granted vested50,000 shares issued before the end of November 2021 and remaining 50,000 shares will be issued on September 30, 2016the one-year anniversary of the agreement. The fair value of the 100,000 shares was $236,000, which was calculated based on the closingstock price of common stock$2.36 per share on Nasdaq as of August 9, 2016, 25% ofNovember 2, 2021 and is being amortized over the restricted stock granted vested on December 31, 2016 based onservice term. The shares were issued pursuant to the closing price of common stock on Nasdaq as of September 30, 2016, 25% of the restricted stock granted vested on March 31, 2017 based on the closing price of common stock on Nasdaq as of December 31, 2016, and 25% of the restricted stock granted vested on June 30, 2017 based on the closing price of common stock on Nasdaq as of March 31, 2017.2021 Plan. During the ninesix months and three months ended SeptemberJune 30, 2017,2022, the Company amortized $96,438charged $117,030 and $17,096$58,839, respectively, to operations as directors’ stock compensation expenses, respectively. During the nine and three months ended September 30, 2016, the Company amortized $23,233 as directors’ stock compensationconsulting expenses.


On April 10, 2017,November 11, 2021, the Company entered into restricted stock award agreements under 2014 Omnibus Long-Term Incentive Plana consulting agreement with a new independent director of the Board.consultant for consulting and strategy services effective on November 16, 2021 for a one-year term. The Company agreed to grant $20,000 worththe consultant 20,000 shares of the Company’s common stock, vesting 25% on February 15, 2022, 25% on May 15, 2022, 25% on August 15, 2022 and 25% on November 15, 2022. The fair value of the 20,000 shares was $46,600, which was calculated based on the stock price of $2.33 per share on November 16, 2021 and is being amortized over the service term. The shares were issued pursuant to the independent director2021 Plan. During the six months and three months ended June 30, 2022, the Company charged $23,300 and$11,650, respectively, to operations as consulting expenses.

On January 28, 2022, the Company entered into an advisory service agreement with a grant datedesigner for advising furniture design concept and development effective on April 10, 2017.February 1, 2022 for twelve months. The restricted period lapses as of 50%Company shall pay the designer $10,000 per month starting from February 1, 2022 for twelve months, in the form of the restricted stock granted vested on April 10, 2017Company’s Common Stock, calculated based on the closing stock price of common stock on Nasdaq as of April 10, 2017, and 50%the first trading day of the restricted stock granted vested on June 30, 2017 based on the closing price of common stock on Nasdaq as of June 30, 2017.corresponding month. During the ninesix months and three months ended SeptemberJune 30, 2017,2022, the Company amortized $13,699company issued 41,571 and $5,04127,914 shares to the designer and charged $50,000 and $30,000, respectively, to operations as directors’ stock compensation expenses, respectively.designer fee.

21

Shares and Options Issued to Independent Directors

On September 26, 2017 (the “Grant Date”),November 4, 2019, the Company entered into stock option agreements under the 2014 Omnibus Long-Term Incentive Plan with the three independent members of the board of directors. The Company agreed to grant the Company’s three independent directors options to purchase an aggregate of 300,00060,000 shares of the Company’s common stock at an exercise price of $1.65$2.80 per shares,share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested or will vest years, vesting 25% on the SeptemberNovember 30, 2017, 25%2019, 25% on DecemberFebruary 28, 2020, 25% on May 31, 2017, 25%2020, and 25% on MarchAugust 31, 2018, and the remaining 25% will vest on June 30, 2018, subject to the director remaining in the continuous service of the Company or its affiliates on each applicable vesting date.


2020. The fair value of the stock optionoptions granted iswas estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk-free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The fair value of the option granted to of the independent directors is recognized as director fee over the vesting period of the stock option award.model. The fair value of the options was calculated using the following assumptions,assumptions: estimated life of fiveten years, volatility of 84%87%, risk free interest rate of 0.15%1.60%, and dividend yield of 0%0%. The fair value of 300,000the 60,000 stock options was $324,907$114,740 at the grant date. During the nine and three months ended September 30, 2017, the Company recorded $81,227 as directors’ stock compensation expenses.


Shares Issued to Employees and Service Providers

On May 18, 2016,November 10, 2020, the Company entered into agreementsextended an employment agreement with three designers for product design servicesthe Company’s Corporate Secretary for a term of 24 months. The Company agreed to grant each designer 240,000 shares of the Company’s common stock. Twenty five percent (25%) of those shares vested or will vest on May 31, 2016, 25% on December 18, 2016, 25% on June 18, 2017 and the remaining 25% on December 18, 2017. The fair value of these shares was $388,800, which was calculated based on the stock price of $0.54 per share on May 18, 2016, the date the agreement was executed, and will be amortized over the service term. During the nine months ended September 30, 2017 and 2016, the Company amortized $145,401 and $72,434 as stock compensation expenses, respectively; and $48,999 for the three months ended September 30, 2017 and 2016.

Onone year effective from November 14, 2016, the Company entered into an employment agreement with an executive for one year.2020. The Company agreed to grant an award of 30,0006,000 restricted Stock Units to the executiveofficer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $92,100,$11,880, which was calculated based on the stock price of $3.07$1.98 per share on November 11, 2016,10, 2020, the date the awards wereaward was determined by the Compensation Committee of the Board. Twenty-five percent (25%)Board of those shares vestedDirectors, vesting 25% on December 30, 2016, 25%November 10, 2020, 25% on March 31, 2017, 25%2021, 25% on June 30, 20172021 and the remaining 25% vest25% on September 30, 2017.2021. During the ninesix months and three months ended SeptemberJune 30, 2017,2021, the Company amortized $68,886$5,940 and $23,214$2,970, respectively, to operations as stock compensation respectively.

expense.

On November 15, 2016,11, 2021, the Company entered intoextended an employment agreement with the Company’s Corporate Secretary for a designer for furniture design servicesterm of one year effective onfrom November 15, 2016 for 1 year.14, 2021. The Company agreed to grant an award of 6,000 restricted Stock Units to the designer 100,000 shares ofofficer pursuant to the Company’s common stock.2021 Omnibus Equity Plan. The fair value of the 100,000these shares was $294,000,$13,200, which was calculated based on the stock price of $2.94$2.20 per share on November 15, 2016 and will be amortized over11, 2021, the service term. Twenty-five percent (25%)date the award was determined by the Compensation Committee of those shares vested on February 15, 2017, 25% on May 15, 2017, 25% will vest on August 15, 2017 and the remaining 25% will vestBoard of Directors, vesting 25% on November 15, 2017.10, 2021, 25% on March 31, 2022, 25% on June 30, 2022 and 25% on September 30, 2022. During the ninesix months and three months ended SeptemberJune 30, 2017,2022, the Company amortized $220,500$6,600 and $73,500$3,300, respectively, to operations as stock compensation respectively.


expense.

Options Issued to Employees


On August 29, 2017 (the “Grant Date”),12, 2019, the compensation committee of the Board approved an option grantsgrant to the Company’s employeesChief Financial Officer to purchase an aggregate of 780,0007,000 shares of the Company’s common stock (including options to purchase 100,000 shares and 35,000 shares to the Company’s President and CFO, respectively) at an exercise price of $1.26$3.85 per shares,share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%(50%) of those stock options vested immediately, and the remaining 50% will vest50% vested on the six-month anniversary of the Grant Date.


The fair value of the stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”) as described in options to independent directors above. date.

The fair value of the option granted to employees isthe Chief Financial Officer in 2019 was recognized as compensation expense over the vesting period of the stock option award. The fair value of the optionsoption was calculated using the following assumptions,assumptions: estimated life of tenfive years, volatility of 84%87%, risk free interest rate of 0.16%1.49%, and dividend yield of 0%0%. The fair value of 780,000the 7,000 stock options was $643,182$18,318 at the grant date. During

As of June 30, 2022, unrecognized share-based compensation expense was $252,677.

Stock option activity under the nine and three months ended September 30, 2017, the Company recorded $321,591 as stock compensation.

  
Number of
Shares
  
Average
Exercise
Price per Share
 
Aggregate Intrinsic
Value(1)
  
Weighted
Average
Remaining
Contractual
Term in Years
 
            
Granted  1,080,000  $1.37     5.00 
Exercised  -   -     - 
Forfeited      -     - 
Outstanding at September 30, 2017  1,080,000  $1.37   315,000   4.93 
Exercisable at September 30, 2017  465,000  $1.32   156,750   4.92 

Company’s stock-based compensation plans is shown below:

Schedule of Stock Option Activity

  Number of
Shares
  Average
Exercise
Price per Share
  Weighted
Average
Remaining
Contractual
Term in Years
 
          
Outstanding at January 1, 2022  340,500  $5.97   1.32 
Exercisable at January 1, 2022  340,500   5.97   1.32 
             
Granted  -   -   - 
Exercised  -   -   - 
Forfeited  -   -   - 
Outstanding at June 30, 2022  340,500   5.97   0.82 
Exercisable at June 30, 2022  340,500   5.97   0.82 

(1)

The intrinsic value of the stock options at SeptemberJune 30, 20172022 is the amount by which the market value of the Company’s common stock of $1.66$0.72 as of SeptemberJune 30, 20172022 exceeds the average exercise price of the option. As of June 30, 2022, the intrinsic value of the outstanding and exercisable stock options was $nil.

22

Note 12 -

Statutory Reserves


As a U.S. holding company, the Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit payments of dividends by the Company’s former PRC subsidiary, Nova Macao, only out of the subsidiary’s retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Nova Macao. Pursuant to the corporate laws of the PRC and Macao, including the PRC Regulations on Enterprises with Foreign Investment, Nova Macao is required to maintain a statutory reserve by appropriating from after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings. As a result of the PRCMacau laws and regulations described below that require such annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as a general statutory reserve fund Nova Macao is restricted in its ability to transfer a portion of its net assets to the Company as a dividend.


Surplus Reserve Fund

Prior to the Company’s divestment of Nova Dongguan and Ding Nuo, such subsidiaries were required to transfer 10% of net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the subsidiary’s registered capital. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issuance is not less than 25% of the registered capital.

At September 30, 2017 and December 31, 2016, Nova Macao had surplus reserves of $6,241, representing 50% of its registered capital.

Common Welfare Fund

The common welfare fund is a voluntary fund to which Nova Macao can elect to transfer 5% to 10% of its net income. This fund can only be utilized on capital items for the collective benefit of the subsidiary’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. Nova Macao does not participate in this voluntary fund.

Note 1311 - Geographical Sales


Analysis

Geographical distribution of sales consisted of the following for the ninesix months and three months ended June 30, 2022 and 2021:

Schedule of Revenue From External Customers by Geographic Area

                 
  Six Months Ended June 30,  Three Months Ended June 30, 
  2022  2021  2022  2021 
Geographical Areas                
North America $7,096,682  $6,387,173  $3,484,670  $3,444,057 
Asia (excluding China)  62,280   250,146   62,280   71,864 
Other countries  320,031   244,264   266,097   34,095 
Revenues $7,478,993  $6,881,583  $3,813,047  $3,550,016 

Geographical location of identifiable long-lived assets as of June 30, 2022 and December 31, 2021:

Schedule of Long-lived Assets by Geographic Areas

  June 30, 2022  December 31, 2021 
Geographical Areas        
North America $2,694,051  $2,986,290 
Asia  489,584   683,124 
Assets $3,183,635  $3,669,414 

Note 12- Lease

On June 17, 2013, the Company entered into a lease agreement for office, warehouse, storage, and distribution space in the United States with a five year term, commencing on November 1, 2013 and expiring on October 31, 2018. The lease agreement also provided an option to extend the term for an additional six years. On April 23, 2018, the Company extended the lease for another three years with an expiration date of October 31, 2021. On October 15, 2021, the Company extended the lease for another five years with an expiration date of October 31, 2026. The initial monthly rental payment is $42,000 with an annual 3% increase.

The Company has entered into several lease agreements for office and warehouse space in Commerce, California and showroom space in Las Vegas, Nevada and High Point, North Carolina (see Note 9) on monthly or annual terms.

23

On July 15, 2019, Nova Malaysia entered into a sublease agreement for warehouse space with a two-year term, expiring on July 14, 2021. The initial monthly rental payment was 20,000 Malaysia Ringgit ($4,771) and was increased to 35,000 Malaysia Ringgit ($8,349) effective August 1, 2020. On July 15, 2021, Nova Malaysia extended the lease for another two years with an expiration date of July 31, 2023.

On October 29, 2019, Nova Malaysia entered into a lease agreement for a showroom with a two-year term, commencing on December 1, 2019 and expiring on November 30, 2021. On November 26, 2021, Nova Malaysia extended the lease to November 30, 2022 with an option for renewal for another term of 24 months. The monthly rental payment is 9,280 Malaysia Ringgit ($2,214).

On August 20, 2020, Nova Malaysia entered into a sublease agreement for an office and service center with a two-year term, commencing on September 1, 2020 and expiring on August 31, 2022. The monthly rental payment is 30,000 Malaysia Ringgit ($7,156).

Operating lease expense for the six months and three months ended June 30, 20172022 and 2016:2021 was as follows:

Schedule of Lease Cost

                 
  Six Months Ended June 30,  Three Months Ended June 30, 
  2022  2021  2022  2021 
                 
Operating lease cost – straight line $428,759  $400,376  $213,217  $199,582 

The following is a schedule, by years, of maturities of operating lease liabilities as of June 30, 2022:

Schedule of Operating Lease Liability Maturity

     
  Operating Leases 
2022 (remainder) $396,310 
2023  733,806 
2024  703,881 
2025  701,142 
Thereafter  598,820 
Total undiscounted cash flows  3,133,959 
Less: imputed interest  (209,949)
Present value of lease liabilities  2,924,010 

Lease Term and Discount Rate

June 30, 2022
Weighted-average remaining lease term - years
Operating leases - USA4.34
Operating leases - Malaysia1.45
Weighted-average discount rate (%)
Operating leases - USA3.25%
Operating leases - Malaysia2.78%

Supplemental cash flow information related to leases where the Company was the lessee for the six month ended June 30, 2022 and 2021 was as follows:

Schedule of Supplemental Cash Flow Information Related to Leases

         
  2022  2021 
         
Operating cash outflows from operating leases $423,576  $418,694 

24
  Nine Months Ended September 30,  Three Months Ended September 30, 
Geographical Areas 2017  2016  2017  2016 
North America $37,158,028  $52,539,699  $11,900,592  $22,529,655 
Europe  3,456,045   10,739,127   -   2,932,288 
Australia  24,690,606   3,445,635   17,992,912   1,356,201 
Asia*  5,020,746   3,596,850   3,329,121   1,748,750 
Hong Kong  461,943   2,194,115   -   1,897,420 
Other countries  26,046   233,546   -   74,604 
  $70,813,414  $72,748,972  $33,222,625  $30,538,918 

* excluding Hong Kong

Note 1413 - Commitments and Contingencies


Lease Commitments

Legal Proceedings

On June 17, 2013,December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company entered intoand its former and current CEOs and CFOs (Thanh H. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) in the United States District Court for the Central District of California, claiming the Company violated federal securities laws and pursuing remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). 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 lease agreement for office, warehouse, storage, and distribution spaceclass of entities acquiring Nova’s stock from December 3, 2015 through December 20, 2018. They claim that during this period the Company: (1) overstated its purported strategic alliance with a five year term, commencingcustomer 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. Plaintiffs claim that the falsity of these representations was exposed in a blog posted on November 1, 2013 and expiring on October 31, 2018. The lease agreement also providesthe Seeking Alpha website in which it was claimed that an optioninvestigation failed to extendconfirm the term for an additional six years. The monthly rental payment is $42,000existence of several entities identified as significant customers.

On March 8, 2022, the parties to the Barney Action filed a Stipulation of Settlement (“Settlement”) with an annual 3% increase.  The rent is recorded on a straight-line basis over the termCourt. Under the terms of the lease. 



On January 7, 2014,Settlement, and without admitting to any wrongdoing, fault, or liability, the Company entered intoagreed to a sublease agreementpayment of $750,000 to completely resolve the Barney Action. The $750,000 will 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. The 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 is 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.

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. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) and directors (Charlie Huy La, Bin Liu, Umesh Patel, and Min Su) and vice president (Steven Qiang Liu) (collectively, the “Defendants”) seeking to recover any losses the Company sustains as a result of alleged securities violations outlined in the Seeking Alpha blog and Barney securities class action complaint. 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. The Plaintiff also alleges that President and CEO Lam engaged in self-dealing transactions by leasing her property to Diamond Bar, for warehouse space with a five-year term commencingCompany 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 November 1, 2013 and expiring on October 31, 2018. The Company subleased a portionbehalf of its warehouse space to one of its customers with a one-year term commencing on December 1, 2013 and expiring on November 30, 2014, which has been renewed every year with the current term expiring on October 31, 2017.  On October 24, 2017, the Company renewed the sublease agreement with this customer for another one-year term commencing on November 1, 2017 and expiring on October 31, 2018. The sublease income of $5,400 per month was recorded against the rental expense. Duringsame current and former directors and officers named in the nine months endedJie Action other than Steven Qiang Liu. That action was filed in the United States District Court for the Central District of California. Samuels repeats the allegations of the Complaint in the Jie Action. Additionally, Samuels claims that, in announcing its change of auditing firms in September 30, 2017 and 2016, the Company recorded $48,600asserted that this change was made because its existing auditor ceased auditing public companies subject to regulation in the United States without disclosing that its new auditing firm was created in a merger of three accounting firms, including a firm whose registration was revoked by the Public Company Accounting Oversight Board. Samuels also claims that the Company redeemed its stock in reliance upon the same purported fraudulent recognition of revenues claimed in the putative class action. Samuels purports to state direct claims under Sections 10(b) and $60,231 sublease income, respectively; and $16,200 and $20,077 for the three months ended September 30, 2017 and 2016, respectively.


On September 19, 2013, Bright Swallow entered into a lease agreement for office space in Hong Kong with a two year term, commencing on October 1, 2013 and expiring on September 30, 2015.  On September 15, 2015, Bright Swallow renewed the lease for another two year term, commencing on October 1, 2015 and expiring on September 30, 2017. On September 13, 2017, Bright Swallow renewed the lease for another two year term, commencing on October 1, 2017 and expiring on September 30, 2019. The monthly rental payment is 20,000 Hong Kong Dollars ($2,560).  

The Company has entered into several lease agreements for office and warehouse space in Commerce, California and showroom space in Las Vegas, Nevada and High Point, North Carolina on monthly or annual terms.

Total rental expense from continuing operations for the nine months ended September 30, 2017 and 2016 was $597,103 and $510,018, respectively; and $224,349 and $180,528 for the three months ended September 30, 2017 and 2016. The rental expense is recorded on a straight-line basis over the term20 of the lease.Exchange Act and SEC Rule 10b-5.

25
The total minimum future lease payments are as follows:
12 Months Ending September 30, Amount 
2018 $596,600 
2019  77,991 
2020  - 
2021  - 
2022  - 
Thereafter  - 
Total $674,591 

Employment Agreements

On MayMarch 3, 2013,2020, the Company entered into an amended and restated employment agreement with Thanh H. Lamdefendants filed motions to serve asstay the Company’s president for a five-year term. The agreement provides for an annual salary of $80,000, a grant of 200,000 shares ofderivative actions until the Company’s common stock and an annual bonus at the sole discretion of the Board. The 200,000 sharesBarney Action is resolved or alternatively to be issued to Ms. Lam are subject to the terms of a stock award agreement. The first 50,000 shares of common stock were vested immediately, and the remaining shares vest at 50,000 shares per year for three years on each anniversary of the effective date of the stock award agreement. The fair value of the shares was baseddismiss on the stock price of $3.82 per share on May 3, 2013. During the nine months ended September 30, 2017 and 2016, the Company recorded $0 and $64,626, as stock-based compensationgrounds that plaintiffs’ failure to Ms. Lam, respectively. During the three months ended September 30, 2017 and 2016, the Company recorded $0, as stock compensation to Ms. Lam, respectively. On July 24, 2017, the Company and Thanh H. Lam entered into an amendment (the “Amendment”) to her amended and restated employment agreement, pursuant to which she serves as the Company’s Chief Executive Officer and President.  The Amendment increased the annual salary of Ms. Lam from $80,000 to $100,000.

On March 21, 2016, the Company granted Restricted Stock Units to Ya Ming (Jeffrey) Wong (the Company’s former CEO), Yuen Ching (Sammy) Ho, the Company’s former CFO, and Thanh H. Lam, the Company’s President. Each of them will receive a grant of 100,000 Restricted Stock Units (“RSU”). The fair value of the 300,000 shares of RSU was $360,000, which was calculated based on the stock price of $1.20 per share on March 21, 2016. The RSU grants, to the extent not forfeited, have fully vested. During the nine months ended September 30, 2017 and 2016, the Company recorded $0 and $270,000, as stock-based compensation to the officers, respectively. During the three months ended September 30, 2017 and 2016, the Company recorded $0 and $90,000, as stock-based compensation to the officers, respectively.
On March 25, 2016, the Company entered into one-year employment agreements, effective as of November 11, 2015, with Mr. Ya Ming (Jeffrey) Wong and Mr. Yuen Ching (Sammy) Ho to serve as the Company’s CEO and CFO, respectively. These agreements were in substantially the same form as the previous one-year employment agreements entered into on March 25, 2015 (which expired by their terms), and provide for annual salaries of $100,000 for Mr. Wong and $80,000 for Mr. Ho, and annual bonuses at the sole discretion ofmake demand upon the Board of Directors.Directors was not excused and the Complaints otherwise fail to state a claim upon which relief can be granted. By Order entered April 7, 2020, the Court granted defendants’ Motion to Stay and stayed the Jie Action until the Barney Action is resolved. The employment agreements also reflect the RSU grants describedCourt subsequently entered a similar Order in the immediately preceding paragraph. On October 3, 2016, Mr. Wong resigned hisSamuels Action. It also took a motion that the derivative plaintiffs filed to consolidate the proceedings and appoint lead counsel off calendar.

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. Plaintiff’s position as CEO, terminated his employment agreement, and forfeited 25,000 RSUs grantedis that the Court should lift the stay because the class action plaintiffs agreed to him under such agreement. On August 15, 2017, Mr. Ho resigned his position as CFO and terminated his employment agreement.


On August 22, 2017, the Company, entered intowhen they are subsequently activated, it is possible that the Company may directly incur attorneys’ fees and costs in advancing the costs of defense for its current directors and officers pursuant to contractual and legal indemnity obligations. The Company believes there is no basis to the derivative complaints and they will be vigorously defended if necessary.

Other than the above, the Company is not currently a one-year employment agreement, effective as of August 22, 2017, with Jeffery Chuang,party to any legal proceeding, investigation or claim which, in the Company’s new CFO. The employment agreement provided for an annual salary of $50,000 to CFO and annual bonuses at the sole discretionopinion of the Boardmanagement, is likely to have a material adverse effect on the business, financial condition or results of Directors. The employment agreement also provides for a grant of options to purchase 35,000 shares of the Company’s common stock, which was described in the Note 11 – Stockholders’ equity.


operations.

Note 1514 - Subsequent Events


The Company has evaluated allsubsequent events that have occurred subsequent to September 30, 2017 through the date of the issuance of the condensed consolidated financial statements and the following subsequent event has been identified.


On October 24, 2017,July 1, 2022, the Company renewed the subleaseentered into a consulting agreement with its one of its customersa consultant for consulting and strategy services effective on July 1, 2022 for a one-year term commencingone-year term. The Company agreed to grant the consultant 50,000 shares of the Company’s common stock, vesting 25% on NovemberJuly 1, 2017 and expiring2022, 25% on October 31, 2018.1, 2022, 25% on January 1, 2023 and 25% on April 1, 2023. The fair value of the 50,000 shares was $36,000, which was calculated based on the stock price of $0.72 per share on July 1, 2022 and is being amortized over the service term. The shares were issued pursuant to the 2021 Plan.

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CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Words such as “may,may,“will,will,“should,should,“could,could,“would,would,“expect,expect,“plan,plan,“anticipate,anticipate,“believe,believe,“estimate,estimate,“continue,continue,the negatives of such terms and other terms of similar meaning typically identify forward-looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” Risk Factorsand those listed in our 2016Annual Report on Form 10-K.10-K for the year ended December 31, 2021 (the 2021 Form 10K). The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report and in our 20162021 Form 10-K. Unless the context otherwise requires, references in this report to “we,we,“us,us,“Nova,Nova,“Nova Lifestyle” Nova Lifestyleor the “Company” Companyrefer to Nova Lifestyle, Inc. and its subsidiaries.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor Declaration

The following discussion and analysis isare based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our 2016annual report on Form 10-K.10-K for the fiscal year ended December 31, 2021 (the 2021 Form 10-K). All references to the thirdsecond quarter and first ninesix months of 20172022 and 20162021 mean the three and nine-monthsix-month periods ended SeptemberJune 30, 20172022 and 2016, respectively.2021. In addition to historical information, the following discussion and other parts of this report contain certain forward-looking information. When used in this discussion, the words, “believes,believes,“anticipates,anticipates,“expects” expectsand similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of risks, uncertainties and factors beyond our control. We do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding the various factors that affect the company’scompanys business, which are described in this section and elsewhere in this report. For more information, see our discussion of risk factors located at Part I, Item 1A of our 20162021 Form 10-K.

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Overview

Nova LifeStyle, Inc. is a broad based distributor and retailer of contemporary styled residential and commercial furniture incorporated into a dynamic marketing and sales platform offering retail as well as online selection and global purchase fulfillment globally.fulfillment. We monitor popular trendingtrends and workproducts to create design elements that are then integrated into our product lines that can be used as both stand-alone or whole-room and home furnishing solutions. Through our global network of retailers, e-commerce platforms, stagers and hospitality providers, Nova LifeStyle also sells (through an exclusive third partythird-party manufacturing partner) a managed variety of high quality bedding foundation components.


Nova LifeStyle’s brand family currently includes Nova LifeStyle, Diamond Sofa (www.diamondsofa.com), Colorful World, Giorgio Mobili, and Bright Swallow.


Nova Living.

Our customers principally consist of distributors and retailers havingwith specific geographic coveragesterritories that deploy middle to high end private label home furnishings havingwhich have very little competitive overlap withinwith our specific furnishingsfurnishing products or product lines. Nova LifeStyle is constantly seeking to integrate new sources of distribution and manufacturing that are properly aligned with our growth strategy, thus allowingstrategy. This allows us to continually focus on building both same store sales growth as well as drive the expansion of our overall distribution and manufacturing relationships through a deployment of popular, as well as trend-based, furnishing solutions worldwide.

We are a U.S. holding company with no material assets in the U.S. other than the ownership interests of our wholly owned subsidiaries through which we market, design and sell residential and commercial furniture worldwide: Nova Macao,Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”) and Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). The Company had two former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020 and Diamond Bar. Nova Furniture Macao was organizedCommercial Offshore Limited domiciled in Macao (“Nova Macao”) which completed the de-registration and liquidation process in January 2021.

On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of Macaothe State of California. The purpose of i Design is to build our own blockchain technology team. i Design is in the planning stage and has had minimum operations to date. On December 12, 2019, we became the sole shareholder of Nova Living (M) SDN. BHD. (“Nova Malaysia”), a company incorporated on July 26, 2019 under the laws of Malaysia. Nova Malaysia is to market and sell high-end physiotherapeutic jade mats in Malaysia.

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 20, 2006.11, 2020.

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 iscompleted de-registration and liquidation process in January 2021 and its business was taken over by Nova HK.

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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 has had minimal operations. In February 2022, Nova HK also entered a wholly owned subsidiary ofde-registration process and transferred all its assets and businessto Nova Lifestyle.  Diamond Bar is a California corporation organized on June 15, 2000, which we acquired pursuant to a stock purchase agreement on August 31, 2011.  On April 24, 2013, we acquired all of the outstanding stock of Bright Swallow; the purchase price was $6.5 million in cash and was fully paid at the closing of the acquisition.  


Malaysia.

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., Canadian, European, Australian,Canada, Honduras, Panama, Kazakhstan, Asian and Middle Eastern markets.



Discontinued Operations

On October 24, 2013, Nova Dongguan incorporated Ding Nuo under the laws of the PRC and contributed capital of RMB 1 million ($162,994). Nova Dongguan made an additional capital contribution of RMB 0.1 million ($16,305) on November 27, 2013 through one of Nova Dongguan’s officers, Mr. Gu Xing Chang, who acted as the nominee shareholder of Ding Nuo. 

On September 23, 2016, Nova Furniture, a wholly-owned subsidiary of the Company (the “Seller”), entered into a Share Transfer Agreement (the “Agreement”) with Kuka Design Limited, an unrelated company incorporated in British Virgin Islands (“Kuka Design BVI” or “Buyer”). Pursuant

Due to the termsrecent imposition of the Agreement, the Seller sold all of the outstanding equity interests in Nova Dongguan, a wholly owned subsidiary of the Seller,significant trade tariffs on importation from China to the Buyer for a total of $8,500,000 (the “Transaction”), whichUnited States and the adverse effect such value was primarily derived from Nova Dongguan and Nova Donguan’s wholly owned subsidiary, Nova Museum, and 90.97% owned subsidiary, Ding Nuo. Upon consummation of the Transactionpolicies have on October 25, 2016, the Buyer became the sole owner of Nova Dongguan.  The purchase price of $8,500,000 was fully paid on October 6, 2016.


On November 10, 2016, Nova Furniture (“Assignor”) entered into a Trademark Assignment Agreementour operations, we are actively pursuing alternative product lines with Kuka Design BVI (“Assignee”).  Pursuantpositive growth potential. One such area pertains to the termshealth-oriented furniture segment which continues to experience popularity, particularly in Asia. 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 several COVID-19 related temporary closing, was reopened in October 2021. . In April 2022, Malaysia has reopened the Trademark Assignment Agreement, Assignor agreedborder for foreign visitors. However, COVID-19 in Malaysia increased financial vulnerability for those affected households and business which contributed to assign to the Assignee its full right to,significant decrease of sales and title in, the NOVA trademark in China for $6,000,000 (the “Assignment Fee”).  Assignee was to pay the Assignment Fee in two installments: $1,000,000 on or before November 30, 2016, and $5,000,000 on or before December 31, 2016. Asrisk of December 31, 2016, $4,750,000 had been received, and the remaining balance of $1,250,000 was fully paid in January 2017.

continuous sluggish sales. As a result, we further lowered the operationsestimated sales quantities of Nova Dongguan, Nova Museumthe inventories during the interim review. During the six months ended June 30, 2022, we wrote down the inventory of $5.12 million. We will regularly monitor the future demands and Ding Nuo are now accountedjade mats market for impairment consideration. We expect that our flagship showroom/retail store will serve as discontinuedone of our primary distribution channels in Malaysia. Marketing of jade mats will focus on their premium therapeutic qualities and target health conscious general consumers and professionals. 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.

Beginning in early 2020, a strain of novel coronavirus (“COVID-19”) has spread globally including the accompanying consolidatedU.S. and Malaysia. In March 2020, the World Health Organization declared the COVID-19 a pandemic. 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. 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. 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 been reopened since then. In April 2022, Malaysia has reopened the border for foreign visitors. The third-party contract manufacturers that the Company utilizes 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. 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. 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. 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. 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. 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. Because of the significant uncertainties surrounding the COVID-19 pandemic, the extent of the future business interruption and the related financial statementsimpact cannot be reasonably estimated at this time.

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We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for all periods presented.


loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. 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. 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.

While there can be no assurance, at the present time we expect the outbreak-related circumstances to result in material impairments of our inventory of Jade Mattress in Malaysia that significantly affect management’s judgements in assessing the fair value of our assets.

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. 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 believe these new strategies, will provide us with significant long term growth opportunities. The transition has and is expected to continue to adversely impact our revenue and our net profit in the short-term as we roll out new products and market those products to our existing client base and to new potential customers better suited for the higher end products, and as we assess our new products’ market acceptance. 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) consumer acceptance of our new brands and product collections; and (iii) general economic conditions in the U.S., Canadian, EuropeanChinese, and other international markets.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) continued significant delays in the receipt of shipments of our products from Asia and increased costs of shipping from Asia. We believe most of our customers are willing to pay higher prices for our high quality and stylish products, timely delivery, and strong production capacity at price levels which we expect will allow us to maintain a relatively high gross profit marginsmargin for our products. We have diversifieddo not manufacture our products, but instead we utilize third-party manufacturers. In response to the tariffs imposed by acquiring the Diamond Sofa brandUnited States on certain products manufactured in China, we are in the U.S. marketprocess of shifting a portion of our product manufacturing from third-party manufacturers located in China to third-party manufacturers located in other parts of Asia, such as Vietnam, India and/or Malaysia, countries unaffected by the tariffs. Implementation of a relocation of manufacturing (which by necessity includes an assessment of the factory’s ability to deliver the quantity of the product, in accordance with the Company’s specifications, and developing higher-marginin accordance with the Company’s quality control requirements) is time-consuming, but a portion of our manufacturing has been transitioned to Malaysia and India starting in 2020 and we expect that more of our manufacturing will be transitioned to one or more of these venues once the COVID-19 outbreak dissipates. Some of our manufacturing will continue to be performed in China because the intellectual know-how necessary to manufacture certain products for the U.S. and international markets, and acquiring Bright Swallow for the Canadian market.is not generally available in other Asian countries. Consumer preference trends favoring high quality and stylish products and lifestyle-based furniture suites should also should allow us at least to maintain our high gross profit margins. SomeThe markets in North America (excluding the United States) and particularly in Europe remain challenging because such markets are experiencing a slower than anticipated recovery sinceslow-down and may be entering a recession due to the international financial crisis that beganCOVID-19 pandemic and war in 2008. However, we believe that discretionary purchases of furniture by middle to upper middle-income consumers, our target global consumer market, will increase along with expected growth in the worldwide furniture trade and the recovery of housing markets. Furthermore, we believe that our expansion of direct sales in the U.S. will have a positive impact on our net sales and net income, while helping to diversify our customer base and end consumer markets. 

Ukraine.

Critical Accounting Policies


Our

While our significant accounting policies are described more fully in Note 2 to our accompanying unaudited condensed consolidated financial information has been prepared in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (1)statements, we believe the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of ourfollowing accounting policies require a higher degree of judgment than othersare the most critical to aid you in their application. fully understanding and evaluating this Management’s Discussion and Analysis.

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There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies previously disclosedand estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for Nova LifeStyle and its subsidiaries, Diamond Bar, i Design, Nova Furniture, Nova Samoa, Nova Malaysia and Nova HK.

Use of Estimates

In preparing condensed 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 condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. 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.

Accounts Receivable

Our accounts receivable arises from product sales. We do not adjust receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We do not expect to collect receivables greater than one year from the time of sale. Our policy is to maintain an allowance for 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. We maintained an allowance for bad debt of $2,104 and $1,611 as of June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022 and 2021, bad debts provision (reversal) were $1,060 and ($3,590), respectively; and ($820) and ($130) for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had gross receivable of $210,359 of which no amount 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. We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns.

Advances to Suppliers

Advances to suppliers are reported net of allowance when we determine that amounts outstanding are not likely to be collected in cash or utilized against purchase of inventories. 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. As such, no reserve on supplier prepayments has been made or recorded by us. Any provisions for allowance for advance to suppliers, if deemed necessary, will be included in general and administrative expenses in the consolidated statements of operations.

Income Taxes

Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

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. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

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Under the provisions of ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

Nova Lifestyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI and Nova Samoa was incorporated in Samoa. There is no income tax for companies domiciled in the BVI and Samoa. Accordingly, the Company’s condensed consolidated financial statements do not present any income tax provisions related to the BVI and Samoa tax jurisdictions where Nova Furniture BVI and Nova Samoa are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes. Nova HK is incorporated in Hong Kong and is subject to Hong Kong income taxes.

The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the quarter ended June 30, 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.

Revenue Recognition

We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. We recognize revenues following the five step model prescribed under ASU No. 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.

Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs upon delivery to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

Revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to our customer.

Our sales policy allows for the return of product within the warranty period if the product is defective and the defects are our fault. As alternatives for the product return option, the customers have the option of asking us for a discount for products with quality issues, or of receiving replacement parts from us at no cost. The amount of reserves for return of products, the discount provided to the customers, and cost for the replacement parts were immaterial for the six months and three months ended June 30, 2022 and 2021.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on our condensed consolidated statements of operations.

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Foreign Currency Translation and Transactions

The accompanying unaudited condensed consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Diamond Bar, Nova HK and i Design.

The Company’s subsidiary with operations in Malaysia uses its local currency, Malaysian Ringgit (“RM”), as its functional currency. An entity’s functional currency is the currency of the primary economic environment in which it operates, which is normally the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of operations.

The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.

Translation of amounts from RM into U.S. dollars has been made at the following exchange rates:

Balance sheet items, except for equity accounts
June 30, 2022RM 4.41 to 1
December 31, 2021RM 4.18 to 1
Income statement and cash flow items
For the six months ended June 30, 2022RM 4.27 to 1
For the six months ended June 30, 2021RM 4.10 to 1

Segment Reporting

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions, assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

We determined that our operations constitute a single reportable segment in accordance with ASC 280. We operate exclusively in one business and industry segment: the design and sale of furniture.

We concluded that we had one reportable segment under ASC 280 because Diamond Bar is a furniture distributor based in California focusing on customers in the US, 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. 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.

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Net sales to customers by geographic area are determined by reference to the physical product shipment delivery locations requested by our customers. For example, if the products are delivered to a customer in the U.S., the sales are recorded as generated in the U.S.; if the customer directs us to ship its products to China, the sales are recorded as sold in China.

New Accounting Pronouncements

Recently Adopted Accounting Standards


Please refer

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”). ASU 2021-04 provides guidance as to note 2how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. The Company applied the new standard beginning January 1, 2022. The adoption of the new standard did not have any impact on our condensed consolidated financial statement presentation or disclosures.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This update is effective for annual periods beginning after December 15, 2021, and early application is permitted. This guidance should be applied either prospectively to all transactions that are reflected in financial statements “Summaryat the date of Significant Accounting Policies – Newinitial application and new transactions that are entered into after the date of initial application or retrospectively to those transactions. The Company adopted ASU 2021-10 beginning January 1, 2022. The adoption of ASU 2021-10 did not have any impact on our condensed consolidated financial statements.

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. 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 discussionmodified 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. In March 2022, the FASB issued ASU 2022-02, Topic 326. The ASU eliminates the accounting guidance for trouble debt restructurings by creditors in Subtopic 310-40, and enhances the disclosure requirements for modifications of relevant pronouncements.loans to borrowers experiencing financial difficulty. Additionally, the ASU requires disclosure of gross writeoffs of receivables by year of origination for receivables within the scope of Subtopic 326-20, Financial Instruments - Credit Losses - Measured at Amortized Cost. This ASU is effective for periods beginning after December 15, 2022. We are currently evaluating the impact that the adoption of ASU 2016-13 and ASU 2022-02 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”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. We are currently evaluating the impact that the adoption of ASU 2017-04 will have on our consolidated financial statement presentation or disclosures.

34

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.

Results of Operations


Comparison of three monthsThree Months Ended SeptemberJune 30, 20172022 and 2016


2021

The following table sets forth the results of our operations for the three months ended SeptemberJune 30, 20172022 and 2016.2021. Certain columns may not add due to rounding.


  Three Months Ended September 30, 
  2017  2016 
  $  % of Sales  $  % of Sales 
Net sales  33,222,625      30,538,918    
Cost of sales  (27,323,972)  (82%)  (25,935,832)  (85%)
Gross profit  5,898,653   18%  4,603,086   15%
Operating expenses  (3,128,520)  (9%)  (3,541,885)  (12%)
Income from operations  2,770,133   8%  1,061,201   3%
Other expenses, net  (75,534)  (-%)  (116,926)  (-%)
Income tax benefit  (262,034)  (1%)  (100,656)  (-%)
Income from continuing operations  2,956,633   9%  1,044,931   3%
Loss from discontinued operations  -   -   (743,594)  (2%)
Net income  2,956,633   9%  301,337   1%

  Three Months Ended June 30, 
  2022  2021 
  $  % of Sales  $  % of Sales 
Net sales $3,813,047      $3,550,016     
Cost of sales  (7,361,224)  (193%)  (7,557,149)  (213%)
Gross loss  (3,548,177)  (93%)  (4,007,133)  (113%)
Operating expenses  (2,134,539)  (56%)  (2,271,470)  (64%)
Loss from operations  (5,682,716)  (150%)  (6,278,603)  (177%)
Other expenses, net  (8,791)  (0)%  (63,539)  (2%)
Income tax expenses  -   0%  (3,385)  0%
Net loss  (5,691,507)  (149%)  (6,345,527)  (179%)

Net Sales


Net sales for the three months ended SeptemberJune 30, 2017,2022 were $33.22$3.81 million, an increase of 9%7.4% from $30.54$3.55 million in the same period of 2016.2021. This increase in net sales resulted primarily from an 82%a 15.3% increase in average selling price, which was partially offset by a 40%6.9% decrease in sales volume. Our three largest selling product categories in the three months ended SeptemberJune 30, 20172022 were television cabinets, sofas, beds, and diningchairs, which accounted for approximately 37%, 14% and 11% of sales, respectively. In the three months ended June 30, 2021, the three largest selling categories were sofas, beds, and coffee tables, which accounted for approximately 48%52%, 32%16% and 6%7% of sales, respectively. Our largest selling product categories in the three months ended September 30, 2016 were sofas, beds and dining tables, which accounted for approximately 57%, 15% and 6% of sales, respectively.


The $2.68$0.26 million increase in net sales in the three months ended SeptemberJune 30, 2017,2022, compared to the same period of 2016,2021, was mainly due to increased sales to Australia and Asia.  Australia salesother countries. Sales to other countries increased by 1,227%$232,002 to $17.99$266,097 in the three months ended June 30, 2022 from $34,095 in the same period of 2021, primarily due to increase in direct container sales in other countries. Sales to North America increased by 1.2% to $3.48 million in the three months ended SeptemberJune 30, 2017,2022, as compared to $1.36$3.44 million in the same period of 2016,2021. It was primarily as a resultdue to increased customers switching orders from traditional sales to direct container sales. Sales to Asia decreased by $9,584 to $62,280 in the three months ended June 30, 2022, compared to $71,864 in the same period of increased2021, primarily due to less sales orders from one of our customers who was involved in projectsMalaysia, as Malaysia has tightened its monetary policy to maintain the stability of Ringgit, reducing the purchasing power of the consumers and thus making them less willing to spend in many hotels and apartments during the third quarternonfood categories.

Cost of 2017. We do not anticipate that such significantSales

Cost of sales orders will continue in the near futureconsists primarily of costs of finished goods purchased from this client. North Americanthird-party manufacturers. Total cost of sales decreased 47%by 2.6% to $11.90$7.36 million in the three months ended SeptemberJune 30, 2017,2022, compared to $22.53$7.56 million in the same period of 2016, primarily due to the abandonment of sales of lower price and quality products after the sale of our factory in China in connection with our discontinued operations. We aggressively changed our product mix and our sales and marketing strategies to offer high margin products to customers. Sales to Asia, excluding Hong Kong, were $3.33 million in the three months ended September 30, 2017, an increase of 90% from $1.75 million in the same period of 2016, primarily due to the increases of sales orders from customers in the region. We had no sales to Europe, Hong Kong, and other countries in the three months ended September 30, 2017, compared to $4.90 million in the same period of 2016, primarily due to the fact that we stopped selling low margin products to customers. We aggressively changed our sales strategy to aim for sales of high margin products. We will continue to pursue marketing efforts in these regions and we anticipate that sales to these regions will increase in near future.


Cost of Sales
Cost of sales consists primarily of finished goods purchased from other manufacturers. Total cost of sales increased by 5% to $27.32 million in the three months ended September 30, 2017, compared to $25.94 million in the same period of 2016, due primarily to the increase in net sales.2021. Cost of sales as a percentage of sales decreased to 82%193% in the three months ended SeptemberJune 30, 2017,2022, compared to 85%213% in the same period of 2016.2021. The decrease of cost of sales in dollar term and cost of sales as a percentage of sales resultedis a result of two related factors: (a) our write down of $5.12 million of our slow-moving inventory, primarily from the decreasedjade mats in Malaysia, to the lower of cost and net realizable value in the second quarter of 2022, compared to inventory write-down of $5.53 million in the same period of 2021; (b) we increased our direct container sales which came with higher costs and low profit margin; (c) increase in shipping costs due to global shipping container shortage and the Suez Canal ship stuck accident.

35

Moreover, total cost of products purchased from third parties. 


Gross Profit

Gross profitsales excluding our write down of our slow-moving inventory, increased by 28%10.4% to $5.90$2.24 million in the three months ended SeptemberJune 30, 2017,2022, compared to $4.60$2.03 million in the same period of 2016. Our gross profit margin increased to 18% in the three months ended September 30, 2017, compared to 15% in the same period of 2016. The increase in gross profit margin resulted primarily from decreased cost2021. Cost of sales as a percentage of netsales, excluding our write down of our slow-moving inventory, increased to 59%, in the three months ended June 30, 2022, compared to 57% in 2021. The increase was primarily resulted from the increase of our direct container sales, which came with higher costs as well as shipping costs.

Gross Loss

Gross loss was mainly due to a decreased cost of products purchased from third parties.  



Operating Expenses
Operating expenses consist of selling and general and administrative expenses and research and development expenses. Operating expenses were $3.13$3.55 million in the three months ended SeptemberJune 30, 2017,2022, compared to $3.54gross loss of $4.01 million in the same period of 2016. Selling2021, representing a decrease in gross loss of $0.46 million. Our gross loss margin was 93% in the three months ended June 30, 2022, compared to a gross loss margin of 113% in the same period of 2021. The decrease in gross loss margin is a result of our write down of $5.12 million of our slow-moving inventory, primarily the jade mats in Malaysia, in the three months ended June 30, 2022, compared to $5.53 million of inventory write-down in the same period of 2021.

Operating Expenses

Operating expenses decreased by 51% or $1.05 million to $1.00consisted of selling, general and administrative expenses and loss on disposal of fixed assets. Operating expenses were $2.13 million in the three months ended SeptemberJune 30, 2017, from $2.052022, compared to $2.27 million in the same period of 2016, due primarily to2021. Selling expenses decreased sales and marketing expense since we decreased advertising on shows and television in the U.S. General and administrative expense increased by 42%12.4%, or $0.63$0.11 million, to $2.12$0.77 million in the three months ended SeptemberJune 30, 2017,2022, from $1.49$0.88 million in the same period of 2016,2021, primarily due to increases in stock compensation of approximately $477,000decreased marketing and amortization expense of approximately $231,000 on our intangible assets (see note 6advertising expenses. In addition, general and administrative expenses decreased by 0.2%, or $28,385, to our condensed consolidated financial statements), notwithstanding a decrease in bad debt expense of approximately $274,000.


Other Expenses, Net

Other expenses, net was $75,534$1.36 million in the three months ended SeptemberJune 30, 2017, compared with $116,9262022, from $1.39 million in the same period of 2016,2021, primarily due to the decrease of $0.13 million in legal fees but partially offset by an increase of $0.12 million in consulting fees.

Other Expenses, Net

Other expenses, net, was $8,791 in the three months ended June 30, 2022, compared with $63,539 in the same period of 2021, representing a decrease in other expenseexpenses of $0.04 million.$54,748. The decrease in other expenseexpenses was due primarily to the decreasedincrease of foreign exchange gain of $80,437 to $45,881 for the three months ended June 30, 2022 from foreign exchange loss of $34,556 in the same period of 2021. The increase in gain in three months ended June 30, 2022 was mainly a result of the depreciation of Malaysian Ringgit against U.S. dollars on the Company’s assets in Malaysia. However, the increase in other income was partially offset by the decrease in interest income of $31,186 to interest expense, net of $2,885 for the three months ended June 30, 2022 from interest income, net of $28,301 in the same period of 2021. The interest income in the period of 2021 was caused by the loan of $1.21 million to an unrelated party with 6% annual interest rate. The loan has been fully paid off on our lines of credit to $40,932August 13, 2021.

Income Tax Expenses

Income tax expense was $nil in the three months ended SeptemberJune 30, 2017 from $96,5352022, compared with $3,385 in the same period of 2016, which was partially offset by a decrease in non-operating income of $16,623 to $0 in the three month ended September 30, 2017 from $16,623 in the same period of 2016.


Income Tax Benefit

Income tax benefit was $262,034 in the three months ended September 30, 2017, compared with $100,656 of2021. The income tax benefit in the same period of 2016.  The increase of income tax benefit was mainly dueexpenses were primarily related to the reversalforeign-sourced earnings from one of our prior year ASC 740-10 (FIN 48) reverses due to the expiration of the statute of limitation.

Loss from Discontinued Operations 

The subsidiaries, that were sold on October 25, 2016, Nova Dongguan, Nova Museum, and Ding Nuo, are reported as discontinued operations in our condensed consolidated financial statements. Loss from discontinued operations, net of tax, was approximately $0.74 millionHK for the three months ended SeptemberJune 30, 2016.

2021.

Net Income


Loss

As a result of the foregoing, our net incomeloss was $2.96$5.69 million in the three months ended SeptemberJune 30, 2017,2022, compared with $0.30net loss of $6.35 million infor the same period of 2016. Our net profit margin from continuing operations was 8.90% in the three months ended September 30, 2017, as compared with 3.42% of net profit margin from continuing operations and 1% of net profit margin in the same period of 2016.2021.

36

Comparison of NineSix Months Ended SeptemberJune 30, 20172022 and 2016


2021

The following table sets forth the results of our operations for the ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. Certain columns may not add due to rounding.


  Nine Months Ended September 30, 
  2017  2016 
  $  % of Sales  $  % of Sales 
Net sales  70,813,414      72,748,972    
Cost of sales  (58,741,122)  (83%)  (62,091,435)  (85%)
Gross profit  12,072,292   17%  10,657,537   15%
Operating expenses  (10,298,665)  (15%)  (9,114,324)  (13%)
Income from operations  1,773,627   3%  1,543,213   2%
Other expenses, net  (218,955)  (-%)  (293,884)  (-%)
Income tax (benefit) expense  (750,037)  (1%)  60,063   -%
Income from continuing operations  2,304,709   3%  1,189,266   2%
Loss from discontinued operations  -   -   (1,476,572)  (2%)
Net income (loss)  2,304,709   3%  (287,306)  (-%)


  Six Months Ended June 30, 
  2022  2021 
  $  % of Sales  $  % of Sales 
Net sales $7,478,993      $6,881,583     
Cost of sales  (9,498,842)  (127%)  (9,508,404)  (138%)
Gross loss  (2,019,849)  (27%)  (2,626,821)  (38%)
Operating expenses  (4,527,830)  (61%)  (4,417,885)  (64%)
Loss from operations  (6,547,679)  (88%)  (7,044,706)  (102%)
Other expenses, net  (1,945)  (0%)  (51,297)  (1%)
Income tax expenses  -   0%  (13,061)  0%
Net loss  (6,589,554)  (88%)  (7,109,064)  (103%)

Net Sales


Net sales for the ninesix months ended SeptemberJune 30, 2017,2022 were $70.81$7.48 million, a decreasean increase of 3%8.7% from $72.75$6.88 million in the same period of 2016.2021. This decreaseincrease in net sales resulted primarily from a 40% decrease15.8% increase in sales volume, which wasaverage selling price, partially offset by a 64% increase6.1% decrease in average selling price.sales volume. Our three largest selling product categories in the ninesix months ended SeptemberJune 30, 20172022 were sofas, television cabinetsbeds, and beds,chairs, which accounted for approximately 56%41%, 22%14% and 9%10% of sales, respectively, forrespectively. In the ninesix months ended SeptemberJune 30, 2017. In2021, the nine months ended September 30, 2016, thethree largest three selling categories were sofas, beds and diningcoffee tables, which accounted for 59%approximately 50%, 9%15% and 8%7% of sales, respectively, for the nine months ended September 30, 2016.


respectively.

The $1.94$0.60 million decreaseincrease in net sales in the ninesix months ended SeptemberJune 30, 2017,2022, compared to the same period of 2016, includes a $15.38 million decrease in2021, was mainly due to increased sales into North America. Sales to North America and $7.28 million decrease in sales in Europe, partially offsetincreased by a $21.24 million increase in sales in Australia. North American sales decreased by 29%11.1% to $37.16$7.10 million in the ninesix months ended SeptemberJune 30, 2017,2022, as compared to $52.54$6.39 million in the same period of 2016,2021. It was primarily due to the abandonment of sales of lower price and quality products after the sale of our factoryincrease in China in connection with our discontinued operations. We aggressively changed to our product mix and ourdirect container sales and marketing strategies targeted at high-end products andorders from our existing customers. Sales to Europe were $3.46 millionother countries increased by $75,767 to $320,031 in the ninesix months ended SeptemberJune 30, 2017, a decrease of 68%2022 from $10.74 million$244,264 in the same period of 2016 and Hong Kong2021, primarily due to increase in direct container sales in other countries. However, the increase in net sales was partially offset by the decrease in sales to Asia. Sales to Asia decreased by 79%$187,866 to $0.46 million$62,280 in the ninesix months ended SeptemberJune 30, 2017,2022, compared to $2.19 million$250,146 in the same period of 2016. Sales in these regions decreased as we gradually stopped selling low margin products2021, primarily due to customers. We changed our sale strategy to selling high margin products. We will continue to maintain our marketing efforts in those regions. Sales to Australia increased to $24.69 million in the nine months ended September 30, 2017, compared to $3.45 million in the same period of 2016, primarily as a result of increasedless sales orders from one of our customers who was involved in projectsMalaysia, as Malaysia has tightened its monetary policy to maintain the stability of Ringgit, reducing the purchasing power of the consumers and thus making them less willing to spend in many hotels and apartments during the third quarter of 2017. We do not anticipate that such significant sales orders will continue in the near future from that customer. Sales to Asia, excluding Hong Kong, increased by 40% to $5.02 million in the nine months ended September 30, 2016, compared to $3.60 million in the same period of 2016, primarily due to the increases of sales orders of our products. 


nonfood categories.

Cost of Sales


Cost of sales consists primarily of costs of finished goods purchased from otherthird-party manufacturers. Total cost of sales decreased by 5%$9,562 to $58.74$9.50 million in the ninesix months ended SeptemberJune 30, 2017,2022, compared to $62.09$9.51 million in the same period of 2016. The decrease of products purchased from third party manufacturers is primarily due to the decrease of our sales orders in the nine months ended September 30, 2017.2021. Cost of sales as a percentage of sales decreased to 83%127% in the ninesix months ended SeptemberJune 30, 2017,2022, compared to 85%138% in the same period of 2016.2021. The decrease of cost of sales in dollar term and cost of sales as a percentage of sales fromis a result of two related factors: (a) our write down of $5.12 million of our slow-moving inventory, primarily the ninejade mats in Malaysia, to the lower of cost and net realizable value during the first six months ended September 30, 2017of 2022, compared to the same period during 2016 resulted primarily from the decreased costinventory write-down of products purchased from third parties.


Gross Profit

Gross profit increased by 13% to $12.07 million in the nine months ended September 30, 2017, compared to $10.66$5.53 million in the same period of 2016. Our gross2021; (b) we increased our direct container sales which came with higher cost and low profit marginmargin; (c) increase in shipping costs due to global shipping container shortage and the Suez Canal ship stuck accident.

Moreover, total cost of sales excluding our write down of our slow-moving inventory, increased by 10.0% to 17%$4.38 million in the ninesix months ended SeptemberJune 30, 2017,2022, compared to 15%$3.98 million in the same period of 2016. The increase in gross profit margin resulted primarily from decreased cost2021. Cost of sales as a percentage of netsales, excluding our write down of our slow-moving inventory, increased to 59%, in the six months ended June 30, 2022, compared to 58% in 2021. The increase was primarily resulted from the increase of our direct container sales, which came with higher costs as well as shipping costs.

Gross Loss

Gross loss was due primarily$2.02 million in the six months ended June 30, 2022, compared to gross loss of $2.63 million in the same period of 2021, representing decrease in gross loss of $0.61 million. Our gross loss margin was 27% in the six months ended June 30, 2022, compared to a decreased costgross loss margin of products purchased from third parties.  38% in the same period of 2021. The decrease in gross loss margin is a result of our write down of $5.12 million of our slow-moving inventory, primarily the jade mats in Malaysia, in the six months ended June 30, 2022, compared to $5.53 million of inventory write-down in the same period of 2021.

37

Operating Expenses

Operating expenses consistconsisted of selling, general and administrative expenses, and research and development expenses.loss on disposal of fixed assets. Operating expenses were $10.30$4.53 million in the ninesix months ended SeptemberJune 30, 2017,2022, compared to $9.11$4.42 million in the same period of 2016.2021. Selling expenses decreased by 38%6.6%, or $1.67$0.11 million, to $2.69$1.54 million in the ninesix months ended SeptemberJune 30, 2017,2022, from $4.36$1.65 million in the same period of 2016,2021, primarily due primarily to decreased salesmarketing and marketing expense since we decreased advertising on shows and television in the U.S. Generalexpenses. The general and administrative expenseexpenses increased by 60%6.6%, or $2.85 $0.18 million, to $7.61$2.95 million in the ninesix months ended SeptemberJune 30, 2017,2022, from $4.76$2.77 million in the same period of 2016,2021, primarily due to changesan increase in increased bad debt expensetechnology services fee and consulting fees of approximately $169,000, share-based compensation$0.15 million and $0.25 million, respectively, while the increase was partially offset by the decrease of approximately $557,000, amortization expense$0.19 million in legal fees. Also, the increase in operating expenses was contributed by a loss on disposal of approximately $684,000 onfixed assets of $36,549 due to the de-registration of our intangible assets (see note 6 to our condensed consolidated financial statements), and termination cost on Academic E-commerce platform of approximately $800,000 (see note 7 to our condensed consolidated financial statements).


subsidiary Nova HK.

Other Expenses, Net


Other expenses, net, was $218,955$41,875 in the ninesix months ended SeptemberJune 30, 2017,2022, compared with other expense, net, of $293,884$51,297 in the same period of 2016,2021, representing a decrease in other expenseexpenses of $0.07 million.$9,422. The decrease in other expenseexpenses was due primarily to the decreased interest expense on our linesincrease of creditforeign exchange gain of $29,216 to $133,093 in$63,644 for the ninesix months ended SeptemberJune 30, 20172022 from $241,202 of interest expense$34,428 in the same period of 2016, partially offset by2021. The increase in gain in the six months ended June 30, 2022 was mainly a result of the depreciation of Malaysian Ringgit against U.S. dollars on the Company’s assets in Malaysia. Also, there was a decrease in financial expense of non-operating income of $40,197.



Income Tax Benefit (Expense)

Income tax benefit was $750,037 in$12,076 to $99,560 for the ninesix months ended SeptemberJune 30, 2017,2022, compared with $60,063 of income tax expense$111,636 in the same period of 2016.2021. However, the decrease in other expenses was partially offset by the decrease in interest income of $31,870 to interest expense, net of $5,959 for the six months ended June 30, 2022, from interest income, net of $25,911 in the same period of 2021. The interest income in the period of 2021 was caused by the loan of $1.21 million to an unrelated party with 6% annual interest rate. The loan has been fully paid off on August 13, 2021.

Income Tax Expenses

Income tax expense was $nil in the six months ended June 30, 2022, compared with $13,061 in the same period of 2021. The income tax benefitexpenses were primarily related to the foreign-sourced earnings from one of our subsidiaries, Nova HK for the six months ended June 30, 2021.

Net Loss

As a result of the foregoing, our net loss was $6.59 million in 2017 was mainly due tothe six months ended June 30, 2022, compared with net loss of the parent company, partially offset by net income of Diamond Bar. The income tax benefit in 2017 also resulted from the reversal of our prior year ASC 740-10 (FIN 48) reserves due the expiration of the statute of limitations.


Loss from Discontinued Operations 

The subsidiaries that were sold on October 25, 2016, Nova Dongguan, Nova Museum, and Ding Nuo, are reported as discontinued operations in our condensed consolidated financial statements. Loss from discontinued operations, net of tax, was approximately $1.48$7.11 million for the nine months ended September 30, 2016.

Net Income (Loss)

Net income was $2.30 million in the nine months ended September 30, 2017, as compared with $0.29 million of net loss for the same period of 2016. This increase in net income was mainly due to the loss from discontinued operations of $1.48 million in the nine months ended September 30, 2016, and the income tax benefit of $0.75 million in the nine month ended September 30, 2017, compared with $60,063 of income tax expense in the same period of 2016. Our net profit margin from continuing operations was 3% in the nine months ended September 30, 2017, as compared with 2% of net profit margin from continuing operations and 0.4% of net loss margin for the same period of 2016.

2021.

Liquidity and Capital Resources


Our principal demands for liquidity are related to our efforts to increase sales toand purchase inventory, and for expenditures related to sales distribution and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to purchase of inventories and the expansion of our business, primarily through cash flow provided by operations, and collections of accounts receivable, and credit facilities from banks.


As we continue to execute our growth strategy focused on aggressively expanding sales, particularly in the U.S., we remain focused on improving net margins and bottom line growth.  As noted above, we have in recent periods found it necessary to increase reliance on third party providers in order to meet demand for particular products required by certain of our customers. We also believe that there is elasticity in pricing our higher end products and an ongoing opportunity to improve our product mix, which should help us to stay in step with cost increases.  

We rely primarily on internally generated cash flow and proceeds under our existing credit facilitiesavailable working capital to support growth. We may seek additional financing in the form of bank loans or other credit facilities or funds raised through future offerings of our equity or debt, if and when we determine such offerings are required. During 2016,As of June 30, 2022, we raised approximately $3.09 milliondo not have any credit facilities. We believe that our current cash and cash equivalents and anticipated cash receipts from exercisesales of warrants.

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 $65,834,526 at September$16,930,614 on June 30, 2017, an increase2022, a decrease of $7.43 million$6,823,942 from net working capital of $58,407,707 at$23,754,556 on December 31, 2016.2021. The ratio of current assets to current liabilities was 73.51-to-1 at September8.82-to-1 on June 30, 2017.2022.

38

The following is a summary of cash provided by or used in each of the indicated types of activities during the ninesix months ended SeptemberJune 30, 20172022 and 2016: 


 2017 2016 
Cash (used in) provided by:    
Operating activities $(5,362,462) $(1,465,248)
Investing activities  8,232,557   5,274,558 
Financing activities  (4,655,801)  1,409,387 
2021:

  2022  2021 
Cash provided by (used in):        
Operating activities $(1,321,892) $(1,614,794)
Investing activities  (1,487)  (1,373,176)
Financing activities  -   - 

Net cash used in operating activities was $5.36$1.32 million in the ninesix months ended SeptemberJune 30, 2017, an increase2022, a decrease of cash outflow of $3.90$0.29 million from $1.47$1.61 million of cash used in operating activities in the same period of 2016.2021. The increase indecrease of cash outflow was attributable primarily to an increased cash outflowthe decrease of $8.28net loss after the consideration of non-cash items from $1.14 million from advancesfor the six months ended June 30, 2021 to suppliers, compared with $3.61$0.70 million inflow in the same period of 2016 due to strategic prepayments2022 There was also an increase in cash inflow for inventory purchases to receive vendor discounts. We increased the prepayment amount by approximately $8.49taxes payable of $0.30 million to one of our mattress suppliers who is manufacturer$0.12 million cash inflow in U.S., comparing withthe six months ended June 30, 2022, compared to $0.18 million cash outflow in the same period of 2016,2021. The increase of cash inflow was primarily due to we would likerefund received from IRS for the carryback of our 2019 NOL to sell more mattress2014 and 2015 tax years. The decrease in U.S. market because of higher profit margin comparing with our other products.  We also had increasedoperating cash outflow from inventorieswas partially offset by the increase in cash outflow for accounts receivable of $3.94$0.47 million to $0.11 million cash outflow in the ninesix months ended SeptemberJune 30, 2017,2022, compared to $0.24$0.36 million of cash inflow in the same period of 2016, and an increased2021, such increase in cash outflow for accounts payableoutflows being mainly a result of $2.21 million duringmore credit sales in the ninesix months ended SeptemberJune 30, 2017, compared to $0.13 million inflow in the same period of 2016. We had cash inflow from accounts receivable of $4.96 million during the nine months ended September 30, 2017, compared to $0.56 million outflow in the same period of 2016.  This increase was mainly due to the improved collection of accounts receivable. Net operating cash outflow from our discontinued operations was $0.17 million in the nine months ended September 30, 2016.


Net cash provided by investing activities was $8.23 million in the nine months ended September 30, 2017, an increase of cash inflow of $2.96 million from $5.27 million inflow in the same period of 2016. In the nine months ended September 30, 2017, we received a cash inflow of $15.84 million from debt repayment from unrelated parties, an inflow of $1.25 million on collection of an assignment fee, which were partially offset by a cash outflow from advances to unrelated parties of $8.84 million, and a cash outflow of $17,443 from purchase of property and equipment. In the nine months ended September 30, 2016, we had cash received of $5.50 million from buyer, and paid $7,272 for purchasing property and equipment. Net investing cash outflow from our discontinued operations was $218,170 in the nine months ended September 30, 2016.

2022.

Net cash used in financinginvesting activities was $4.66 million$1,487 in the ninesix months ended SeptemberJune 30, 2017, an increase of cash outflow of $5.71 million from cash inflow of $1.052022, as compared to $1.37 million in the same period of 2016. In2021. We incurred cash outflow of $1,487 from purchase of office equipment during the ninesix months ended SeptemberJune 30, 2017,2022. During the same period of 2021, we repaid $41.54 million on bank loans,incurred cash outflow of $152,950 from purchase of office equipment and borrowed $36.88 million from bank loans.  Inleasehold improvement and the nineloan to an unrelated third party in the amount of $1,220,226.

Net cash provided by financing activities was $nil in the six months ended SeptemberJune 30, 2016, we repaid $29.30 million for bank loans, borrowed $29.83 million from bank loans,2022 and had $0.20 million cash received from warrant exercises.  Net financing cash inflow from discontinued operations was $0.32 million in the nine months ended September 30, 2016.


2021.

As of SeptemberJune 30, 2017,2022, we had gross accounts receivable of $37,056,181,$210,359, of which $31,040,535$84,325 was not yet past due $5,981,718and $126,034 was less than 90 days past due, $8,660 was over 90 days but within 180 days past due and $25,268 over 180 days past due. We had an allowance for bad debt of $117,362 for accounts receivable. $2,104. As of OctoberAugust 9, 2022, accounts receivable of $196,862 outstanding as of June 30, 2017, $2,198,4582022 had been collected.

All accounts receivable outstanding at September 30, 2017on December 31, 2021 had been collected.


collected during 2022.

As of OctoberJune 30, 2017, $45,144,487, or 100%, of accounts receivable outstanding at December 31, 2016 had been collected.


As of September 30, 20172022 and December 31, 2016,2021, we had advances to suppliers of $21,951,040$302,721 and $13,699,752,$707,264, respectively. The nature of theseThese supplier prepayments is the payment that isare made for goods before we actually receive them. The balances of advances to suppliers have kept increasing in order to secure our purchasing power over new materials and priority position of our production lines with our suppliers, especially when we are introducing eight new product lines in 2017. Also, the decision for such advances is to establish long term relationship with our suppliers.

With the tighten regulations and enforcement on environmental issues in recent years in China where our suppliers are located, many factories have been affected with limited production hours. These advances can secure our products being treated as priorities and lock in the raw material prices with our suppliers. We do not foresee additional risk with the increase of the advances as we have contracts with the suppliers and our QC team is on site to monitor daily production of our suppliers. Based on our past experience, all products and projects have been delivered as promised with the existing suppliers.

For a brand 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 five4-6 months after our advance payment. Due to the COVID-19 pandemic, freight transportation of products from our international suppliers has been delayed or suspended during the outbreak. As such, no reserve on supplier prepayments had been made or recorded by us. We will consider the need for a reserve when any suppliers failand if a supplier fails to fulfill theour orders within the time frame as stipulated in the purchase contracts. As of SeptemberJune 30, 20172022 and December 31, 2016,2021, no reserve on supplier prepayments had been made or recorded by us.


In addition, we noticed the increasing demands in antique home furnishing and decorating market such as reclaimed wood flooring and one of the kind antique furniture. Due to the nature of antique furnishing business, funds are required up front in order for suppliers to source and secure these products whenever they are available in the market.

As of October 31, 2017, $13,669,300, or almost 100%,August 9, 2022, 80% of our advanceadvances to suppliers outstanding at December 31, 2016on June 30, 2022 had been delivered to us in the form of inventory purchase.purchases of furniture.

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Shelf Registration

On October 8, 2020, the Company filed a shelf registration statement on Form S-3 under which the Company may, from time to time, sell securities in one or more offerings up to a total dollar amount of $60,000,000. The balance of $21,951,040 advance to suppliers outstanding at September 30, 2017 is expected to be delivered to us inshelf registration statement was declared effective on October 15, 2020. On July 23, 2021, the form of inventory purchase through the third quarter in 2018.


Private Placements

On April 14, 2014, we Company entered into a Securities Purchase Agreement (the “2014 Purchase Agreement”) with certain purchasers (the “Buyers”) pursuant to which we sold toinstitutional investors for the Buyers, in a registered direct offering, an aggregate sale by the Company of 1,320,0591,114,508 shares of common stock, par value $0.001 per share, at a negotiated purchase price of $6.78 per share, for aggregate gross proceeds to us of $8.95 million, before deducting feesstock. The shares were offered and sold by the Company pursuant to the placement agent of $716,000 and other estimated offering expenses of $20,000 payable by us.


As part of the transaction, the Buyers also received (i) Series A warrants to purchase up to 660,030 shares of common stock in the aggregate at an exercise price of $8.48 per share (the “Series A Warrants”); (ii) Series B warrants to purchase up to 633,628 shares of common stock in the aggregate at an exercise price of $6.82 per share (the “Series B Warrants”); and (iii) Series C warrants to purchase up to 310,478 shares of common stock in the aggregate at an exercise price of $8.53 per share (the “Series C Warrants” and together with the Series A Warrants and the Series B Warrants, the “Warrants”). The Series A Warrants had a term of four years and were exercisable by the holders at any time after the date of issuance. The Series B Warrants had a term of six months and were exercisable by the holders at any time after the date of issuance. The Series C Warrants had a term of four years and were exercisable by the holders at any time after the date of issuance. After the six month anniversary of the issuance date of the Series C Warrants, to the extent that a holder of Series C Warrant had exercised less than 70% of such holder’s Series B Warrants and the closing sale price of the common stock was equal to or greater than $9.81 for a period of ten consecutive trading days, then we were entitled to purchase the entire then-remaining portion of such holder��s Series C Warrants for $1,000.  The shares and warrants were registered on a takedown of oureffective shelf registration statement described below.on Form S-3. The Series B Warrants expired on October 14, 2014,offering gross proceeds were $3,120,622 before deducting placement agent’s commissions and noneother offering costs, and the net proceeds of the Series B Warrantsoffering were exercised prior to such expiration.

On May 28, 2015,approximately $2,760,000. The offering closed on July 27, 2021.

Other Long-Term Liabilities

As of June 30, 2022, we entered intorecorded long-term taxes payable of $1.16 million, consisting of an income tax payable of $1.16 million, primarily arising from a Securities Purchase Agreement (the “2015 Purchase Agreement”) with certain purchasers (the “Purchasers”) pursuant toone-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 we offered to the Purchasers, in a registered direct offering, an aggregate of 2,970,509 shares of common stock, par value $0.001 per share. Of these shares, 2,000,001 shares were sold to the Purchasers at a negotiated purchase price of $2.00 per share, for aggregate gross proceeds to us of $4,000,002, before deducting fees to the placement agent and other estimated offering expenses payable by us. In accordance with the termstiming of the 2015 Purchase Agreement,ultimate resolution is uncertain should be recognized as long-term liabilities.

We elected to pay the outstanding Series A Warrants described above and issued in connection withone-time transition tax over the transactions contemplated by the 2014 Purchase Agreement were exchanged for 660,030 shares of our common stock, and the outstanding Series C Warrants described above and issued in connection with the transactions contemplated by the 2014 Purchase Agreement were exchanged for 310,478 Shares of our common stock.


As contemplated under the 2015 Purchase Agreement and pursuant to a concurrent private placement, we also sold to the Purchasers a warrant to purchase one share of our common stock for each share purchased for cash in the offering, pursuant to that certain common stock Purchase Warrant, by and between us and each Purchaser (the “2015 Warrants”). The 2015 Warrants are exercisable beginning on the six month anniversary of the date of issuance (the “Initial Exercise Date”) at an exercise price of $2.71 per share and will expire on the five year anniversary of the Initial Exercise Date. The purchase price of one share of our common stock under the 2015 Warrants is equal to the exercise price.

Lines of Credit

Diamond Bar entered into an agreement with a bank in California for a line of credit of up to $5,000,000 with annual interest of 4.25% and maturity on June 1, 2015. On June 8, 2015, the bank extended and modified the terms of the loan agreement to extend the line of credit up to a maximum of $6,000,000 until July 31, 2015 and $5,000,000 thereafter with an annual interest rate of 4.25% and maturity on September 1, 2015 (the term of which the bank allowed to extend until the renewal described in the following sentence while the bank conducted its own audit associated therewith). On September 28, 2015, Diamond Bar extended the line of credit up to a maximum of $6,000,000 with annual interest of 3.75% (4% from December 17, 2015) and maturity on June 1, 2017. On January 20, 2016, Diamond Bar increased the line of credit up to a maximum of $8,000,000 with annual interest of 4%. On June 22, 2017, Diamond Bar extended the line of credit to maturity on September 1, 2017. On September 19, 2017, Diamond Bar extended the line of credit to maturity on June 1, 2019. The annual interest was 4.25% as of September 30, 2017. The line of credit is secured by all of the assets of Diamond Bar and is guaranteed by Nova LifeStyle. As of September 30, 2017 and 2016, Diamond Bar had $3,322,040 and $6,129,841 outstanding on the line of credit, respectively.  During the nine months ended September 30, 2017 and 2016, the Company recorded interest expense of $145,857 and $167,381, respectively; and $40,932 and $61,127 for the three months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, Diamond Bar had $4,677,960 available for borrowing without violating any covenants.

The Diamond Bar loan has the following covenants: (i) maintain a minimum tangible net worth of not less than $10 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.500 to 1.000; (iii) the pre-tax income must be not less than 1.000% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.250 to 1.000. As of September 30, 2017, Diamond Bar was in compliance with the stated covenants. 

On January 22, 2015, Nova Macao renewed a line of credit, with an annual interest rate of 4.25% and principal of up to $6,500,000, with a commercial bank in Hong Kong to extend the maturity date to January 29, 2016. On February 16, 2016, Nova Macao extended the maturity date of its line of credit to January 31, 2017, with an annual interest rate of 4% and principal of up to $6,500,000. The loan requires monthly payment of interest and that the interest rate will be adjusted annually. The loan was secured by assignment of Sinosure (China Export and Credit Insurance Company) credit insurance and was guaranteed by Nova LifeStyle and Diamond Bar.  The Company did not extend the line of credit and paid it off in February 2017. As of September 30, 2017 and 2016, Nova Macao had $0 and $1,848,000 outstanding on the line of credit, respectively. During the nine months ended September 30, 2017 and 2016, the Company paid interest of $13,828 and $57,304, respectively; and $0 and $18,890 for the three months ended September 30, 2017 and 2016, respectively.


eight years commencing April 2018.

Off-Balance Sheet Arrangements


There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.


We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.


Item 3. Quantitative and Qualitative Disclosures about Market Risk


Not required.


Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with

We have evaluated, under the participationsupervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer our principal executive officer and principal financial officer, respectively, evaluated(“CFO”), the effectiveness of our disclosure controls and procedures as(as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of June 30, 2022. Based on this evaluation, our CEO and CFO concluded that as of the end of the period covered by this report. report, our disclosure controls and procedures were effective.

Disclosure controls and procedures include, without limitation,are controls and procedures that are designed to provide reasonable assuranceensure that information we are required to disclosebe disclosed in our reports that we filefiled or submitsubmitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information(b) is accumulated and communicated to our management, including our Chief Executive OfficerCEO and Chief Financial Officer,CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive OfficerOur management recognizes that any controls and Chief Financial Officer concluded that, asprocedures, no matter how well designed and operated, can provide only reasonable assurance of September 30, 2017, ourachieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were effectiveare designed to provide reasonable assurance of achieving their objectives as of such date.

described above.

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Changes in Internal Control over Financial Reporting

The material weakness previously disclosed in our annual report for the year ended December 31, 2016 and the quarterly reports for the quarters ended March 31, 2017 and June 30, 2017

There were no changes in our internal control over financial reporting was(as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that we lacked sufficient accounting personnel withoccurred during or subsequent to the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. This material weakness has been remediated since Jeffery Chuang has joined Nova asperiod covered by this report that have materially affected, or are reasonably likely to materially affect, our CFO since August 22, 2017. Mr. Chuang received his Bachelor of Science in Finance from California State University, Northridge in 1997 and his Master of Science in Taxation from Golden Gate University in 2006. Mr. Chuang is a Certified Public Accountant and is a member of California Society of Certified Public Accountants.


We believe that our remediation measures have significantly remediated the material weakness and management concluded that we have effective internal control over financial reporting as of September 30, 2017. 



reporting.

PART II. OTHER INFORMATION


Item 1. Legal Proceedings


We may occasionally become involved in various lawsuits

On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and legal proceedings arisingits former and current CEOs and CFOs (Thanh H. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) in the ordinary courseUnited States District Court for the Central District of business. LitigationCalifornia, claiming the Company violated federal securities laws and pursuing remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). 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. 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. 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. 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 will 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. The 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 is subject to inherent uncertaintiesvarious conditions, including preliminary approval by the Court, notice to all class members, an opt-out period, and an adversea final hearing and approval by the Court.

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. Lam, Ya Ming Wong, Jeffery Chuang and Yuen Ching Ho) and directors (Charlie Huy La, Bin Liu, Umesh Patel, and Min Su) and vice president (Steven Qiang Liu) (collectively, the “Defendants”) seeking to recover any losses the Company sustains as a result of alleged securities violations outlined in these the Seeking Alpha blog and Barney securities class action complaint. 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. 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 matters that may arise from time to time could have an adverse effect on our business, financial condition or operating results. We are currently not awarethan Steven Qiang Liu. That action was filed in the United States District Court for the Central District of any such legal proceedings orCalifornia. Samuels repeats the allegations of the Complaint in the Jie Action. Additionally, Samuels claims that, will have, individually orin announcing its change of auditing firms in September 2016, the Company asserted that this change was made because its existing auditor ceased auditing public companies subject to regulation in the aggregate,United States without disclosing that its new auditing firm was created in a merger of three accounting firms, including a firm whose registration was revoked by the Public Company Accounting Oversight Board. Samuels also claims that the Company redeemed its stock in reliance upon the same purported fraudulent recognition of revenues claimed in the putative class action. Samuels purports to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5.

41

On March 3, 2020, the defendants filed motions to stay the derivative actions until the Barney Action is resolved or alternatively to dismiss on the grounds that plaintiffs’ failure to make demand upon the Board of Directors was not excused and the Complaints otherwise fail to state a claim upon which relief can be granted. By Order entered April 7, 2020, the Court granted defendants’ Motion to Stay and stayed the Jie Action until the Barney Action is resolved. The Court subsequently entered a similar Order in the Samuels Action. It also took a motion that the derivative plaintiffs filed to consolidate the proceedings and appoint lead counsel off calendar.

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. 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.

While these derivative actions are purportedly asserted on behalf of the Company, when they are subsequently activated, it is possible that the Company may directly incur attorneys’ fees and costs in advancing the costs of defense for its current directors and officers pursuant to contractual and legal indemnity obligations. The Company believes there is no basis to the derivative complaints and they will be vigorously defended if necessary.

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 ourthe business, financial condition or operating results.results of operations.

Item 1A. Risk Factors.

This Quarterly Report on Form 10-Q should be read in conjunction with our 2021 Form 10-K, which describes various material risks and uncertainties to which we are or may become subject. These risks and uncertainties could, directly or indirectly, adversely affect our business, results of operations, financial condition, liquidity, or cash flows and could cause our actual results to differ materially from our past results or the results contemplated by any forward-looking statements we make.

Material changes from the risk factors set forth in our 2021 Form 10-K are set forth below:

Our shares may be delisted under the HFCA Act as the PCAOB is unable to inspect our auditor with presence in Hong Kong, and the delisting of our shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.

The Holding Foreign Companies Accountable Act (“HFCA Act”) was enacted on December 18, 2020. The HFCA Act states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over the counter trading market in the United States. On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCA Act. Such amendments require certain public reporting companies to submit documentation and make disclosures required under the HFCA Act. In addition, the final amendments also establish procedures that the SEC follows in (i) determining whether a registrant is a “Commission-Identified Issuer” and (ii) prohibiting the trading on U.S. securities exchanges and in the over-the-counter market of securities of a “Commission-Identified Issuer” under the HFCA Act. The final amendments became effective on January 10, 2022. 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., an independent registered public accounting firm that is headquartered in Hong Kong. Centurion ZD CPA & Co., is a firm registered with the PCAOB, and is required by the laws of the U.S. to undergo regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. However, because our auditor is based in Hong Kong, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval, our auditor and its audit work are not currently able to be inspected independently and fully by the PCAOB. The PCAOB announced on December 16, 2021 that it had issued its report notifying the SEC of its determination that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong Kong. With respect to our Company the PCAOB reported that it was unable to inspect or investigate our auditor, Centurion ZD CPA & Co., which audited the Company’s financial statements included in our Annual Report on Form 10-K for year ended December 31, 2021 and which is located in Hong Kong. On April 21, 2022, the SEC provisionally identified the Company as a Commission-Identified Issuer on the SEC’s website at www.sec.gov/HFCAA. That provisional identification became final on May 12, 2022.

42

The Company understands that if the SEC makes the same determination in 2023 and 2024 due to the PCAOB’s continued inability to inspect or investigate completely the Company’s independent auditor, the SEC could prohibit trading of the shares of common stock of the company on the NASDAQ Capital Market, any other U.S. securities exchange, and in the over-the-counter market as early as 2024; and as a result an Nasdaq may determine to delist our shares. Such a trading prohibition and delisting would substantially impair, if not preclude your ability to sell or purchase our securities, and the risks and uncertainties associated with a potential trading prohibition could have a negative impact on the price of our shares of Common Stock in the near term. Further, new laws and regulations or changes in laws and regulations could affect our ability to continue to have our securities listed on Nasdaq, which could materially impair the market for, and market price of, our securities. In addition, if certain legislation pending in the U.S. Congress, and passed by the U.S. Senate, as previously disclosed in our Annual Report on Form 10-K for year ended December 31, 2021, becomes law, such a prohibition could take effect as early as 2023. The Company and the audit committee of the Board of the Company will continue to monitor developments of these legislations and evaluate all options.

The Company has determined to engage Centurion ZD CPA & Co. to audit its financial statements for the year ending December 31, 2022; however, as a result of the restrictions and uncertainties presented by the HFCA Act the Company does not intend to engage Centurion ZD CPA & Co. thereafter, unless circumstances change such that the PCAOB is able to conduct a full inspection of Centurion ZD CPA & Co. during the required timeframe. The Company has begun the process of interviewing independent public accounting firms that are registered with the PCAOB and that are subject to PCAOB inspection to replace Centurion ZD CPA & Co., with a view to engaging such a firm to audit its financial statements for the year ending December 31, 2023, and the Company thereby expects to regain compliance with the HFCA Act.

43

Item 6. Exhibits

EXHIBIT INDEX

Exhibit No.Document Description
31.1 †Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 †Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 ‡Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by the Chief Executive Officer
32.2 ‡Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as signed by the Chief Financial Officer
101.INS†Inline XBRL Instance Document
101.SCH†Inline XBRL Schema Document
101.CAL†Inline XBRL Calculation Linkbase Document
101.DEF†Inline XBRL Definition Linkbase Document
101.LAB†Inline XBRL Label Linkbase Document
101.PRE†Inline XBRL Presentation Linkbase Document
104†Cover Page Interactive Data File (embedded within the Inline XBRL document)

† Filed herewith

‡ Furnished herewith

44
See the Exhibit Index following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NOVA LIFESTYLE, INC.
(Registrant)
Date: November 13, 2017August 12, 2022By:/s/ Thanh H. Lam

Thanh H. Lam

Chairperson and Chief Executive Officer

(Principal Executive Officer)

Date: November 13, 2017August 12, 2022/s/ Jeffery Chuang

Jeffery Chuang

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)





EXHIBIT INDEX

Exhibit No.Document Description
10.1
31.1 †
31.2 †
32.1 ‡
32.2 ‡
101.INS†XBRL Instance Document
101.SCH†XBRL Schema Document
101.CAL†XBRL Calculation Linkbase Document
101.DEF†XBRL Definition Linkbase Document
101.LAB†XBRL Label Linkbase Document
101.PRE†XBRL Presentation Linkbase Document

† Filed herewith
‡ Furnished herewith

*Indicates management contract, compensatory agreement or arrangement, in which our directors or executive officers may participate.45

37