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Nova LifeStyle Reports First Quarter 2016 Financial Results

LOS ANGELES, May 16, 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 first quarter ended March 31, 2016.

First Quarter 2016 Financial Highlights:

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

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

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

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

Operational Overview

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

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

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

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

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

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

Geographical distribution of sales is set out as follows:

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


Balance Sheet and Cash Flow Highlights

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

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

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

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

Investor Conference Calls
The Company has elected to discontinue hosting live quarterly conference calls at this time. 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
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
Three Months Ended March 31,
2016 2015
(Unaudited)
Net Sales $ 27,084,087 $ 22,032,478
Cost of Sales 22,941,273 17,960,447
Gross Profit 4,142,814 4,072,031
Operating Expenses
Selling expenses 1,879,508 1,265,856
General and administrative expenses 1,876,790 1,910,888
Total Operating Expenses 3,756,298 3,176,744
Income From Operations 386,516 895,287
Other Income (Expenses)
Non-operating expense, net (19,782) 29,576
Foreign exchange transaction gain 2,310 29,682
Change in fair value of warrant liability -- 972,645
Interest expense (115,103) (90,910)
Financial expense (29,579) (15,208)
Total Other (Expenses) Income, Net (162,154) 925,785
Income Before Income Tax 224,362 1,821,072
Income Tax Expense 127,233 196,209
Net Income 97,129 1,624,863
Other Comprehensive Income
Foreign currency translation 75,628 (68,658)
Comprehensive Income $ 172,757 $ 1,556,205
Basic weighted average shares outstanding 24,333,971 20,912,968
Diluted weighted average shares outstanding 24,333,971 20,912,968
Basic net earnings per share $ 0.00 $ 0.08
Diluted net earnings per share $ 0.00 $ 0.08



NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015
March 31, December 31,
2016 2015
(Unaudited)
Assets
Current Assets
Cash and cash equivalents$ 1,060,186 $ 988,029
Accounts receivable, net 48,657,112 50,451,665
Advance to suppliers 14,700,840 7,958,870
Inventories 4,572,899 5,254,029
Prepaid expenses and other receivables 1,006,427 1,180,452
Total Current Assets 69,997,464 65,833,045
Noncurrent Assets
Heritage and cultural assets 125,494 124,868
Plant, property and equipment, net 14,995,614 15,201,395
Lease deposit 94,491 94,235
Deposits for equipment and factory construction 114,486 143,758
Goodwill 218,606 218,606
Intangible assets, net 7,917,917 8,062,649
Deferred tax asset 69,493 69,451
Total Noncurrent Assets 23,536,101 23,914,962
Total Assets $ 93,533,565 $ 89,748,007
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 12,212,948 $ 9,822,857
Line of credit 4,943,400 4,604,560
Advance from customers 860,030 187,359
Accrued liabilities and other payables 1,893,561 2,584,622
Taxes payable 8,920 5,773
Total Current Liabilities 19,918,859 17,205,171
Noncurrent Liabilities
Line of credit 5,974,936 5,659,357
Deferred rent payable 95,048 89,904
Income tax payable 6,943,255 6,801,893
Total Noncurrent Liabilities 13,013,239 12,551,154
Total Liabilities 32,932,098 29,756,325
Contingencies and Commitments
Stockholders' Equity
Common stock, $0.001 par value; 75,000,000 shares authorized,
24,511,952 and 24,254,160 shares issued and outstanding 24,512 24,254
as of March 31, 2016 and December 31, 2015, respectively
Additional paid-in capital 32,198,753 31,761,983
Statutory reserves 6,241 6,241
Accumulated other comprehensive income 1,646,162 1,570,534
Retained earnings 26,725,799 26,628,670
Total Stockholders' Equity 60,601,467 59,991,682
Total Liabilities and Stockholders' Equity$ 93,533,656 $ 89,748,007



NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
Three Months Ended March 31,
2016 2015
(Unaudited)
Cash Flows From Operating Activities
Net Income $ 97,129 $ 1,624,863
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 506,378 466,690
Stock compensation expense 295,596 354,571
Change in fair value of warrant liability -- (972,645)
Bad debt expenses (26,326) (5,755)
Changes in operating assets and liabilities:
Accounts receivable 1,865,155 402,071
Advance to suppliers (6,741,014) 2,234,498
Inventories 688,401 (2,266,091)
Other current assets 317,955 151,309
Accounts payable 2,369,232 (1,668,686)
Advance from customers 671,656 11,961
Accrued expenses and other payables (691,802) (585,870)
Deferred rent payable 4,644 4,940
Taxes payable 120,032 161,261
Net Cash Used in Operating Activities (522,964) (86,883)
Cash Flows From Investing Activities
Payment for land compensation fee and occupancy tax -- (193,211)
Purchase of property and equipment (44,777) (321,587)
Construction in progress -- (112,750)
Net Cash Used in Investing Activities (44,777) (627,548)
Cash Flows From Financing Activities
Proceeds from line of credit and bank loan 10,884,726 9,309,218
Repayment to line of credit and bank loan (10,247,496) (8,522,787)
Net Cash Provided by Financing Activities$ 637,230 $ 786,431
Effect of Exchange Rate Changes on
Cash and Cash Equivalents$ 2,668 $ 2,090
Net increase (decrease) in cash and cash equivalents 72,157 74,090
Cash and cash equivalents, beginning of period 988,029 1,244,308
Cash and cash equivalents, ending of period$1,060,186 $1,318,398



NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED)
Three Months Ended March 31,
2016 2015
Effect of Exchange Rate Changes on
Cash and Cash Equivalents$ 2,668 $ 2,090
Net increase (decrease) in cash and cash equivalents 72,157 74,090
Cash and cash equivalents, beginning of period 988,029 1,244,308
Cash and cash equivalents, ending of period$ 1,060,186 $ 1,318,398
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Income tax payments$ 7,200 $ 35,000
Interest expense$ 114,645 $ 94,240

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

Source:Nova LifeStyle, Inc.