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Nova LifeStyle Reports Third Quarter 2016 Financial Results

Revenues Increase 26.9% as Shift to Higher-Margin Products Takes Root

LOS ANGELES, Calif., Nov. 14, 2016 (GLOBE NEWSWIRE) -- Nova LifeStyle, Inc. (NASDAQ:NVFY), a U.S. based fast-growing, innovative designer, manufacturer and distributor of modern LifeStyle furniture, today announced financial results for the third quarter ended September 30, 2016.

/EIN News/ -- Third Quarter 2016 Financial Highlights:

  • Third quarter net sales were $30.5 million, an increase of 26.9% compared to $24.0 million in the prior year period. 
  • The year over year increase was the result of a 55% increase in average selling price as the Company’s recent efforts to focus its sales mix on premium products began yielding positive results.  As expected, the focus on higher-margin, lower volume products did negatively impact overall volumes, which fell 19% in the quarter.
  • Third quarter gross margin was 15.1%, compared to 14.6% in the prior year period, as the product focus noted above had a positive impact on margins. 
  • Gross profit increased 31.3% to $4.6 million for the three months ended September 30, 2016 compared to $3.5 million in the same quarter of the prior year.
  • Operating expenses in the third quarter of 2016 were $3.5 million, compared to $3.0 million in the third quarter of 2015.  As a percentage of sales, operating expenses in the third quarter of 2016 were 11.6% of sales versus 12.3% during the same period a year ago. 
  • Net income from continuing operations was $1.0 million, or $0.04 per diluted share based on 25.7 million shares outstanding in the third quarter of 2016, compared to net income from continuing operations of $0.4 million or $0.02 per diluted share based on 24.1 million shares outstanding in the same period of the prior year.
  • The Company agreed to sell its Chinese manufacturing operations for $8.5 million in order to focus the business on an “asset light” operating model. 

Management Commentary

Tawny Lam, President and Interim Chief Executive Officer of Nova LifeStyle, stated, "We are excited to report a very solid third quarter for Nova LifeStyle.  Our top line sales grew nearly 27% versus the same period last year as efforts we have made in recent quarters to focus our sales mix on higher-margin products began to pay off in the form of higher average selling prices and improved gross margins.  Sales improved in every geography we serve, with European sales more than doubling in this quarter as compared to the same period last year as the regional economy there continues to improve.  Our expectation is that growth will continue there and we are looking to capitalize on that momentum with an increased local sales and marketing effort.”

Ms. Lam continued, “The third quarter also saw us make a significant strategic change to our business as we agreed to sell our Chinese operations in order to focus on an “asset-light” operating model.  The transaction, which we announced on September 29th and closed on October 25th, added $8.5 million to our balance sheet while also eliminating a significant source of margin pressure which has negatively impacted our results in recent quarters.  As part of our strategic transition, we are devoting more energy and emphasis to developing our E-commerce initiatives, as exemplified by our recent agreement with Inno International.  That partnership will allow us to engage consumers who are utilizing reward point programs for a wide variety of products and services.”

Operational Overview

Product Category
Nova LifeStyle’s largest selling product categories in the three months ended September 30, 2016 and 2015 were sofas, beds and dining tables, which accounted for approximately 57%, 15% and 6% of sales, versus 23%, 10% and 13% of sales in the prior year period. 

Geographic Breakdown
North America
Sales to North America were $22.5 million in the three months ended September 30, 2016, an increase of 4% from $21.6 million in the same period of 2015. The Company is aggressively focusing on changing its product mix while also implementing sales and marketing strategies designed to diversify sales.  Termination of promotional discounts that were offered in the second quarter positively impacted margin in the quarter as well. 

Europe  
Sales to Europe were $2.9 million in the three months ended September 30, 2016, an increase of 114.2% from $1.4 million in the same period of 2015 as European economies continued to improve, leading to increased sales volume.  Nova LifeStyle anticipates increasing sales and marketing efforts in Europe in order to capitalize on continued regional economic growth.

Geographical distribution of sales is set out as follows:

(US$ in millions) For nine months ended September 30,   For three months ended September 30,
    2016     2015       2016     2015  
  Sales % of  Total Sales % of  Total   Sales % of  Total Sales % of  Total
North America   52.5     72 %   57.0     85 %     22.5     74 %   21.6     90 %
Asia*   3.6     5 %   2.1     3 %     1.7     6 %   0.8     3 %
Europe   10.7     15 %   6.9     10 %     2.9     10 %   1.4     6 %
Australia   3.4     5 %   0.4     1 %     1.4     5 %   0.2     1 %
Hong Kong   2.2     3 %   0.2     0 %     1.9     6 %   0.2     1 %
Other countries   0.2     0 %   0.1     0 %     0.1     0 %   0.0     0 %
  $   72.7     100 % $   66.7     100 %   $   30.5     100 % $   24.1     100 %
* excluding Hong Kong                  
                   

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents were $5.8 million at September 30, 2016, as compared to $1.0 million as of December 31, 2015. 
  • Working capital at September 30, 2016 was $56.5 million, as compared to $50.9 million at June 30, 2016; $48.3 million at September 30, 2015; and $48.6 million at December 31, 2015.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2016 and 2015:

    2016     2015  
Cash (used in) provided by:            
Operating activities   $   (1,465,248 )     $ (4,217,872
Investing activities       5,274,558         (2,224,830 )
Financing activities       1,409,387         5,388,462  

Net cash provided by operating activities was $1.5 million in the nine months ended September 30, 2016, a decrease in cash outflow of $2.7 million from $4.2 million of cash used in operating activities in the same period of 2015.

Investor Inquiries
An open line of communication with investors and analysts remains a top priority of the Company and management is readily available for discussions with investors on a one on one basis.  Investors and analysts wishing to speak with management are urged to contact the Company’s investor relations representatives at The Equity Group at +1 212 836 9600 or aprior@equityny.com.

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

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

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
    Nine Months Ended September 30,     Three Months Ended September 30,
      2016         2015         2016         2015  
                       
Net Sales $   72,748,972     $   66,725,811     $   30,538,918     $   24,064,319  
                       
Cost of Sales     62,091,435         55,176,720         25,935,832         20,558.658  
                       
Gross Profit     10,657,537         11,549,091         4,603,086         3,505,661  
                       
Operating Expenses                      
Selling Expenses     4,358,206         2,709,161         2,050,201         1,151,721  
General and Administrative Expenses     4,756,118         4,806,282         1,491,684         1,811,767  
                       
Total Operating Expenses     9,114,324         7,515,443         3,541,885         2,963,488  
                       
Income from Operations     1,543,213         4,033,648         1,061,201         542,173  
                       
Other Income (Expenses)                      
Non-operating income (expense), net     40,994         38,826         16,623         11,859  
Foreign exchange transaction gain     (5,578 )       (5,208 )       (3,281 )       (1,860 )
Loss on change in fair value and extinguishment of warrant liability     -         (767,096 )       -         (17,644 )
Interest expense     (241,202 )       (205,324 )       (96,535 )       (69,576 )
Financial expense     (88,098 )       (42,070 )       (33,733 )       (13,460 )
Total Other Expenses, Net     (293,884 )       (980,872 )       (116,926 )       (90,681 )
                       
Income Before Income Taxes and Discontinued operations     1,189,266         3,052,776         944,275         451,492  
                       
Income Tax (Benefit) Expense     60,063         111,936         (100,656 )       48,233  
                       
Income From Continuing Operations     1,189,266         2,940,840         1,044,931         403,259  
                       
Loss From Discontinued Operations     (1,476,572 )       (1,425,101 )       (743,594 )       (372,854 )
                       
Net Income (Loss)     (287,306 )       1,515,739         301,337         30,405  
                       
Other Comprehensive (Loss) Income                      
Foreign currency translation     (420,752 )       (665,170 )       (98,638 )       (668,723 )
                       
Comprehensive (Loss) Income $   (708,058 )   $   860,569     $   202,699     $   (638,318 )
                       
Basic weighted average shares outstanding     24,937,069         22,362,381         25,558,604         24,144,512  
Diluted weighted average shares outstanding     24,937,069         22,362,381         25,558,604         24,144,512  
                       
Income from continuing operations per share of common stock                      
Basic $   0.05     $   0.13     $   0.04     $   0.02  
Diluted $   0.05     $   0.13     $   0.04     $   0.02  
                       
Loss from discontinued operations per share of common stock                      
Basic $   (0.06 )   $   (0.06 )   $   (0.03 )   $   (0.02 )
Diluted $   (0.06 )   $   (0.06 )   $   (0.03 )   $   (0.02 )
                       
Net income (loss) per share of common stock                      
Basic $   (0.01 )   $   0.07     $   0.01     $   0.00  
Diluted $   (0.01 )   $   0.07     $   0.01     $   0.00  

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
           
    September 30,     December 31,
    2016     2015
    (Unaudited)      
Assets          
           
Current Assets          
Cash and cash equivalents $ 5,843,598   $ 988,029
Accounts receivable, net   43,209,014     50,451,665
Advance to suppliers   11,549,905     7,958,870
Inventories   2,272,708     5,254,029
Prepaid expenses and other receivables   1,305,327     1,180,452
Assets held for sale   25,055,319     -
           
Total Current Assets   89,235,871     65,833,045
           
Noncurrent Assets          
Heritage and cultural assets   -     124,868
Plant, property and equipment, net   174,133     15,201,395
Lease deposit   43,260     94,235
Deposits for equipment and factory construction   -     143,758
Goodwill   218,606     218,606
Intangible assets, net   5,818,504     8,062,649
Deferred tax asset   61,000     69,451
           
Total Noncurrent Assets   6,315,503     23,914,962
           
Total Assets $ 95,551,374   $ 89,748,007
           

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
    September 30,     December 31,
    2016     2015
    (Unaudited)      
           
Liabilities and Stockholders’ Equity          
           
Current Liabilities          
Accounts payable $ 6,354,379   $ 9,822,857
Line of credit   8,033,733     4,604,560
Advance from customers   648,756     187,359
Accrued liabilities and other payables   1,129,541     2,584,622
Deposit received from buyer   5,500,000     -
Taxes payable   129,644     5,773
Liabilities held for sale   10,891,907     -
           
Total Current Liabilities   32,687,960     17,205,171
           
Noncurrent Liabilities          
Line of credit   -     5,659,357
Deferred rent payable   -     89,904
Income tax payable   2,075,175     6,801,893
           
Total Noncurrent Liabilities   2,269,303     12,551,154
           
Total Liabilities   34,763,135     29,756,325
           
Contingencies and Commitments          
           
Stockholders’ Equity          
Common stock, $0.001 par value; 75,000,000 shares authorized,            
25,716,271 and 24,254,160 shares issued and outstanding;          
As of September 30, 2016 and December 31, 2015, respectively   25,716     24,254
Additional paid-in capital   33,265,136     31,761,983
Statutory reserves   6,241     6,241
Accumulated other comprehensive income   1,149,782     1,570,534
Retained earnings   26,341,364     26,628,670
           
Total Stockholders’ Equity   60,788,239     59,991,682
           
Total Liabilities and Stockholders’ Equity $ 95,551,374   $ 89,748,007

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
     
    Nine Months Ended September 30,
      2016       2015  
    (Unaudited)
         
Cash Flows From Operating Activities        
Net (loss) income $   1,189,266   $   2,940,840  
Adjustments to reconcile net (loss) income to net cash        
Used in operating activities:        
Depreciation and amortization      462,194        377,085  
Stock compensation expense      1,216,765        1,089,549  
Change in fair value and extinguishment of warrant liability      -        767,096  
Changes in bad debt expenses      33,818        651,989  
Changes in operating assets and liabilities:        
Accounts receivable      (558,573 )      (8,429,217 )
Advance to suppliers      (3,613,765 )      1,900,128  
Inventories      241,611        (2,124,204 )
Other current assets      (711,727 )      (555,168 )
Accounts payable      129,278        (543,253 )
Advance from customers      584,968        (56,125 )
Accrued expenses and other payables      (325,799 )      (515,286 )
Deferred rent payable     -        (1,260 )
Taxes payable     52,864        17,949  
         
Net Cash Provided by (Used) in Continuing Operations     (1,299,100 )     (4,479,877 )
Net Cash Provided by (Used) in Discontinued Operations     (166,148 )     262,005  
Net Cash Provided by (Used) in Operating Activities     (1,465,248 )     (4,217,872 )
         
Cash Flows From Investing Activities        
Purchase of property and equipment     (7,272 )     (1,525 )
Cash received from Buyer     5,500,000       -  
Construction in progress     -       (112,750 )
         
Net Cash Used in Continuing Operations     5,492,728       (114,275 )
Net Cash Used Provided by Discontinued Operations     (218,170 )     (1,325,154 )
Net Cash Used in Investing Activities     5,274,558       (1,439,429 )
         
Cash Flows From Financing Activities        
Proceeds from line of credit and bank loan     29,828,074       25,603,644  
Repayment to line of credit and bank loan     (29,301,699 )     (24,896,823 )
Proceeds from warrant exercised     203,250       -  
Proceeds from equity financing, net of expenses of $355,000     -       3,645,002  
         
Net Cash Used in Continuing Operations     729,625       4,351,823  
Net Cash Used Provided by Discontinued Operations     319,762       1,036,639  
Net Cash Provided by Financing Activities $   1,049,387   $   5,388,462  


 NOVA LIFESTYLE, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
     
    Nine Months Ended September 30,
      2016       2015  
    (Unaudited)
         
Effect of Exchange Rate Changes on Cash and Cash Equivalents $   (3,128 ) $   (4,595 )
         
Net (decrease) increase in cash and cash equivalents     4,855,569       (273,434 )
         
Cash and cash equivalents, beginning of period     988,029       1,244,308  
         
Cash and cash equivalents, ending of period $   5,843,598   $   970,874  
         
Supplemental Disclosure of Cash Flow Information        
         
Cash paid during the period for:        
Income tax payments $   7,200   $   93,984  
Interest expense $   371,036   $   282,961  
         
Supplemental Disclosure of Non-Cash Investing and Financing Activities        
         
Deposit on plant construction and website design transfer to construction in progress $   -   $   726,722  
Issuance of common stock in exchange of surrender and termination of warrants $   -   $   2,212,707  

 

Company Contact:
Investor Relations:
The Equity Group Inc.
In U.S.
Adam Prior, Senior Vice President
+1 (212) 836-9606
aprior@equityny.com

In China
Katherine Yao, Senior Associate
+86-10-6587-6435
kyao@equityny.com

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