UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-K

 


 

(Mark One)

 

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

For the fiscal year ended December 31, 2019

OR

 

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

For the transition period from                                    to                                       

 

Commission file number: 333-163019

 

NOVA LIFESTYLE, INC.

(Exact name of registrant as specified in its charter)

 

Nevada

90-0746568

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

6565 E. Washington Blvd.

Commerce, CA

90040

(Address of principal executive offices)

(Zip Code)

 

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

NVFY

Nasdaq Stock Market

 

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

None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  ☐                      No  ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  ☐                      No  ☑

 

Indicate by check mark 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 past 90 days.

Yes  ☑                      No  ☐

 

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 such files).

Yes  ☑                      No  ☐

 

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 Act).

Yes  ☐                      No  ☑

 

 

As of June 28, 2019, the registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $3,479,006, based upon the closing price of the Company’s common stock of $3.50 per share as reported on the same date. (The Company effected a 1 for 5 reverse stock split on December 20, 2019)

 

As of May 11, 2020, there were 5,536,544 shares of common stock outstanding.

 

 

DOCUMENTS INCORPORATED BY REFERENCE:

 

Portions of the Nova LifeStyle, Inc. Proxy Statement for the 2020 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

 

 

 

 

NOVA LIFESTYLE, INC.

 

Table of Contents

 

 

 

Page

PART I

 

 

 

Item 1.

Business

1

Item 1A.

Risk Factors

9

Item 1B.

Unresolved Staff Comments

19

Item 2.

Properties

20

Item 3.

Legal Proceedings

21

Item 4.

Mine Safety Disclosures

22

 

 

 

PART II

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

23

Item 6.

Selected Financial Data

23

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

34

Item 8.

Financial Statements and Supplementary Data

34

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

34

Item 9A.

Controls and Procedures

34

Item 9B.

Other Information

35

 

 

 

PART III

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

36

Item 11.

Executive Compensation

36

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

36

Item 13.

Certain Relationships and Related Transactions, and Director Independence

36

Item 14.

Principal Accounting Fees and Services

36

 

 

 

PART IV

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

37

 

Financial Statements

F-1

 

 

 

 

 

NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This report contains 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, regarding our company that include, but are not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.

 

These forward-looking statements involve various risks and uncertainties. Although we believe our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business” and other sections in this report. You should read this report and the documents we refer to thoroughly with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this report include additional factors which could adversely impact our business and financial performance.

 

This report contains statistical data we obtained from various publicly available government publications and industry-specific third party reports. Statistical data in these publications also include projections based on a number of assumptions. The markets for our products may not grow at the rate projected by market data, or at all. The failure of these markets to grow at the projected rates may have a material adverse effect on our business and the market price of our securities. In addition, the rapidly changing nature of our customers’ industries results in significant uncertainties in any projections or estimates relating to the growth prospects or future condition of our markets. Furthermore, if any one or more of the assumptions underlying the market data is later found to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

 

Unless otherwise indicated, information in this report concerning economic conditions and our industry is based on information from independent industry analysts and publications, as well as our estimates. Except where otherwise noted, our estimates are derived from publicly available information released by third party sources, as well as data from our internal research, and are based on such data and our knowledge of our industry, which we believe to be reasonable. None of the independent industry publication market data cited in this report was prepared on our or our affiliates’ behalf.

 

The forward-looking statements made in this report relate only to events or information as of the date on which the statements are made in this report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this report and the documents we refer to in this report and have filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.

 

As used in this report, “Nova LifeStyle,” “Nova,” the “Company,” “we,” “our” and similar terms refer to Nova LifeStyle, Inc. and its subsidiaries, unless the context indicates otherwise.

 

Our functional currency is the U.S. Dollar, or USD. See Note 2 of the consolidated financial statements included herein.

  

 

 

PART I

 

Item 1. Business

 

Recent Developments Related to the COVID-19 Outbreak

 

All of the disclosures set forth in Item 1 below should be read in the context of the recent COVID-19 related developments discussed immediately below.  All of the disclosures recited in “Recent Developments Related to the COVID-19 Outbreak” are as of the date of this filing.

 

The Company primarily conducts its business operations in three cities: Los Angeles, California, Macao, China and Kuala Lumpur, Malaysia. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as it prioritizes the health and safety of its employees, contractors, suppliers and retail partners. Our office located in Macau was closed for the Lunar New Year Holiday Break, and remained closed until late February as a result of the outbreak. The Company’s two showrooms and warehouse in Kuala Lumpur have been closed since March 18, 2020.  At this juncture, the Company is unable to predict when the Kuala Lumpur and Los Angeles facilities will be able to resume ordinary operations, or whether future developments may cause the Company to curtail or suspend operations in its other facilities. The Los Angeles facility public showroom has been closed since March 16, 2020, but a skeleton staff works in that facility each day (i) to receive shipping containers of products delivered from the Company’s contract manufacturers and (ii) to ship products to customers. The Company is dependent on the Port of Los Angeles, which is the primary point of delivery of products manufactured for the Company by its Asian manufacturers.  The Port of Los Angeles is currently open and the Company is receiving shipping containers of products.  In the event that a determination is made by the relevant authorities to close the port, that would have a material adverse impact on the Company. 

 

The COVID-19 outbreak precludes in person sales meetings or visits being made out of all of the Company’s offices or attendance at furniture trade shows, but the Company continues to receive orders and solicit business via telephone and email.  However, the Company is experiencing reduced demand for its products and an increased level of purchase order cancellations as a result of the COVID-19 pandemic, though in recent weeks we seem to be experiencing a modest increase in orders placed with us online.

 

The third-party contract manufacturers that we utilize in China were closed from the beginning of the Lunar New Year Holiday through the beginning of March, and recommenced production and shipment in early March. Certain of the Company’s new products are being sourced from manufacturers in India and Malaysia starting in 2020. The factories in India and Malaysia have suspended operations as a result of the COVID-19 pandemic.  They are currently scheduled to reopen in May but it is likely that their reopening will be delayed further as a consequence of governmental health-related action. The Company cannot reasonably predict when they will reopen.  Finally, the Company expects that the impact of the COVID-19 outbreak on the United States and world economies will have a material adverse impact on the demand for its products.  The Company has made a determination to attempt to retain all of its employees during the COVID-19 disruption.  The situation remains highly uncertain. It is therefore difficult for the Company to estimate the negative impact on demand for its products or on its operating results. However, the first and second quarter operating results will be adversely impacted in any event.

 

The Company is also experiencing a variety of additional COVID-19 related difficulties in its operations. Some of the branches of the commercial banks where the Company maintains bank accounts have not fully resumed operations, or have curtailed operations. Cities and municipalities where the Company’s key customers and suppliers operate still maintain monitoring and compulsory quarantine policies adopted during the outbreak; and a number of the Company’s key customers and suppliers are unable to provide audit confirmations on time. Finally, express delivery companies are suffering disruptions and delays in their operations. The delivery periods have been significantly extended compared to those prior to the outbreak, due to a shortage of active staff. Additional disinfection and sterilization requirements are in place to prevent potential virus transmission through courier packages.

 

We do not have access to a revolving credit facility. The Company has applied for a forgivable small business loan authorized by the CARES Act (sometimes referred to as a paycheck protection loan) in the amount of $430,000, as well as for a small business disaster loan (in an unspecified amount), but there is no assurance that the loan applications will be approved or funded. 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.

 

Many of our employees are currently working remotely, and our systems appear adequate to address the current demands on our employees. We do not expect that the remote working arrangements will materially and adversely impact our internal control over financial reporting and disclosure controls and procedures. While there can be no assurance, at the present time we do not expect the outbreak-related circumstances to result in material impairments of our assets or to significantly affect management’s judgements in assessing the fair value of our assets.

 

1

 

Our Company

 

Nova LifeStyle, Inc. (“Nova LifeStyle” or the “Company”) is a U.S.-based innovative designer and marketer of contemporary styled residential and commercial furniture formerly known as Stevens Resources, Inc..  We were incorporated in the State of Nevada on September 9, 2009. The Company’s products are marketed through wholesale and retail channels as well as various online platforms worldwide.

 

Nova LifeStyle’s family of brands includes Diamond Sofa (www.diamondsofa.com).

 

Our business strength lies in our abilities to quickly adapt to changing marker demand and stay ahead of the latest trends in modern furniture designs. Our customers principally consist of designers, distributors and retailers who cater to mid-level and high end private label home furnishings that have little product overlap within our specific furnishings products or product lines.  Nova LifeStyle is constantly seeking to integrate new sources of distribution and manufacturing that are aligned with our growth strategies, allowing us to continually focus on growing our customer base as well as driving the expansion of our overall distribution and manufacturing relationships worldwide, providing our customers with trendy furnishing solutions.

 

We generate the majority of our sales as a branding and marketing company with vertically integrated third-party manufacturing capabilities for global furniture distributors and large national retailers. We have established long term relationships with our worldwide customers by providing them with high quality, large scale and cost-effective sourcing solutions.  Our worldwide logistics and delivery capabilities provide our customers with the flexibility to select from our extensive furniture collections tailored for their respective shipments. Our experience marketing products to international customers have enabled us to fully integrate the supply scale, product delivery logistics, marketing efficiency and design expertise to address customer demand from established markets in the U.S., Asia and the Middle East.

 

Our History

 

We are a U.S. holding company that operates through several wholly-owned subsidiaries. We design and market residential and commercial furniture products worldwide. Our subsidiaries include Nova Furniture Limited in the British Virgin Islands (“Nova Furniture”), Nova Furniture Limited in Samoa (“Nova Samoa”), Nova Furniture Macao Commercial Offshore Limited (“Nova Macao”), Bright Swallow International Group Limited (“Bright Swallow”), Diamond Bar Outdoors, Inc. (“Diamond Bar”), i Design Blockchain Technology, Inc (“i Design”) and Nova Living (M) SDN. BHD. (“Nova Malaysia”). Nova Macao was organized under the laws of Macao on May 20, 2006. Nova Macao is a wholly owned subsidiary of Nova Furniture.  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 which was fully paid at the closing of the acquisition.

 

On October 24, 2013, Nova Furniture (Dongguan) Co., Ltd. (“Nova Dongguan”) incorporated Dongguan Ding Nuo Household Products Co., Ltd. (“Ding Nuo”) under the laws of the People’s Republic of China (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 to the terms 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 Dongguan’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.

 

On November 10, 2016, Nova Furniture entered into a Trademark Assignment Agreement with Kuka Design BVI (“Assignee”).  Pursuant to the terms of the Trademark Assignment Agreement, Nova Furniture assigned the Assignee its full right to, and title in, the NOVA trademark in China for $6,000,000. 

 

On December 7, 2017, Nova LifeStyle, Inc. incorporated i Design under the laws of the State of California, USA. The purpose of i Design is to build our own blockchain technology team. This new company will focus on application of blockchain technology in the furniture industry, including encouraging and facilitating interactions among designers and customers, and building blockchain-powered platform that enables designers to showcase their products including current and future furniture designs. This company is in a planning stage and has had minimum operations to date.

 

2

 

On December 12, 2019, Nova LifeStyle, Inc. acquired Nova Living (M) SDN. BHD (“Nova Malaysia”) which was incorporated in Malaysia on July 26, 2019. Nova Malaysia markets and sells high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.

 

Towards the end of 2019, our board of directors committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020. Operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented.

 

Our organizational structure as of December 31, 2019 is set forth in the diagram:

 

 

 

Our Products

 

We design and market modern residential and commercial furniture in diverse markets worldwide. Our products feature urban and contemporary styles, combining comfort and functionality in matching furniture collections and upscale luxury pieces appealing to lifestyle-conscious middle and upper middle-income consumers. Many of our products are segments of multi-component furniture collections in distinctive design styles, attractively priced in the medium and upper-medium ranges. Our product lines feature upholstered, wood and metal-based furniture pieces. We classify our products by room, designation or series, such as living room, dining room, bedroom and home office series, and by category or product types such as sofas, chairs, dining tables, beds, entertainment consoles, cabinets and cupboards. Our largest selling product categories for the year ended December 31, 2019 were sofas, cabinets and beds, which accounted for approximately 50%, 13% and 10% of sales from our continuing operations, respectively. For the year ended December 31, 2018, our largest selling product categories were sofas, beds and television cabinets, which accounted for approximately 54%, 11% and 7% of 2018 sales from our continuing operations, respectively. Our products are manufactured primarily from medium-density fiberboard, or MDF board, and particleboard covered with veneers or lacquers and combined with other materials, including steel, glass, marble, leather and fabrics.

 

 

3

 

Our product offerings consist of a mix of furnishings designed by us, and sourced from third party manufacturers that are supervised under our rigorous quality control processes. Through market research, customer feedback, and ongoing design development, we identify the latest trends and customer needs in target markets to develop new products, collections and brands. Our product collections are designed to appeal to consumer preferences in specific markets. We develop both individual furniture pieces and complete furniture collections that equip an entire home which feature matching furniture suites, providing convenient home furnishing options for lifestyle-conscious consumers.

 

We generally introduce new collections and launch new design styles at international furniture exhibitions or trade fairs. Our products are displayed in our showrooms. We further support our new product launches with product brochures and online marketing campaigns. Our staff collects customer feedback and collaborates with customers worldwide to design store and showroom layouts. In marketing materials, we highlight matching furniture collections by displaying complete and fully accessorized whole-room settings instead of individual furniture pieces. We believe that such in-store presentations provide convenient, one-stop solutions to customers, and thus incentivize clients to purchase an entire room of furniture from us instead of shopping for individual pieces offered by different brands or manufacturers. Our products are designed by our own designers. Customer orders are filled by third party manufacturers under our direct quality control. We believe that our products feature superior materials, attractive appearances, superb functionalities and satisfying price points generally desired by today’s middle to upper middle-income consumers worldwide.

 

International Markets

 

We sell products to the U.S., Canadian, Chinese, Australian, European and Middle Eastern markets under the Diamond Sofa brand. We believe that discretionary purchases of furniture by middle to upper middle-income consumers will continue to increase in the furniture markets worldwide. We also believe that furniture products that feature contemporary design styles such as ours will continue to attract significant customer demand.

 

In 2019, our products were sold in 6 countries worldwide, with North America and Asia our principal international markets. Sales to North America accounted for 46.3% and 57.9% of sales from our continuing operations in 2019 and 2018, respectively.  Sales to Australia accounted for 0% and 13.6% of sales from our continuing operations in 2019 and 2018, respectively. We also expanded sales to other regions, and sales to those regions, primarily in China and other Asian countries, accounted for 53.6% and 28.5% of our total sales from our continuing operations in 2019 and 2018, respectively. In 2019, via our new subsidiary, Nova Living (M) SDN. BHD (“Nova Malaysia”) in Malaysia, we plan to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia in 2020. As we continue to broaden our distribution network, increase direct sales and grow in the emerging markets, we believe that we are well positioned to respond to changing market conditions that will allow us to take advantage of any upturns in the global and local economies of the markets that we serve. That said, the ongoing COVID-19 outbreak could materially and adversely affect the economies of each of the countries in which we market our products, which could adversely affect our ability to generate revenues in 2020. In addition, our ability to market our products in 2020 will be adversely impacted by government imposed quarantines and closures, supply chain and shipping disruptions and our current inability to make sales calls and to attend furniture shows.

 

Our expansion in Malaysia with health line products has also been disrupted due to COVID-19. Our initial plan was to establish showrooms in which consumers can interact with our products. Through research, we found that consumers were becoming more self-aware about their health and were willing to improve their lifestyles. Our showrooms were stocked and ready for local consumers to visit, however, due to government regulations these operations have been suspended until quarantines and travel restrictions are lifted.

 

Our global logistics and delivery capabilities provide our customers with the flexibility to select from our extensive furniture collections to address their respective needs. We design and supply our products under our own brands. We also design and ship products for other major brands as their OEM designer or supplier. We offer a wide selection of stand-alone furniture pieces across a variety of product categories and approximately 30 collections developed exclusively for the international markets.  We also sell products under the Diamond Sofa brand to distributors and retailers in North America and South America and to end-user U.S. consumers our own online orders or through third-party shopping portals. Reflecting market demand, our research and development team works closely with customers to timely modify our existing product designs. We also offer custom-designed styles for specific market segments. Once the COVID-19 outbreak dissipates, we plan to grow both online and offline sales.

 

Sales and Marketing

 

Our sales and marketing strategies target middle class, urban consumers, including: (1) direct sales to the U.S. and international customers; (2) internet sales and online marketing campaigns; and (3) participation in exhibitions and trade shows.

 

4

 

We diversify our customer base by increasing direct sales to a broad range of retailers and chain stores across the U.S. and international markets. In August 2011, we acquired Diamond Bar, a California importer and marketer of modern home furniture with market presence in North and South America. In the U.S., Diamond Bar markets its products under the “Diamond Sofa” brand to wholesale distributors and retailers.  Through Diamond Bar’s longstanding customer relationships and distribution capabilities, we plan to continue to solidify the “Diamond Sofa” brand in the U.S., Mexico and South America markets. We plan to continue to expand our direct sales and marketing efforts in North America, and in particular the U.S., which historically is the largest market worldwide for imported furniture. We intend to expand the “Diamond Sofa” brand and introduce new brands for direct sales in the U.S. and international markets while continuing to offer custom-made products under private label.

 

Diamond Bar also currently sells products under the Diamond Sofa brand in the U.S. through third party shopping portals, shipping orders received online directly to the end customer.  We believe that our planned direct-to-consumer online sales and marketing strategies will increase our sales in the U.S. by building our brand awareness and acting as an effective advertising vehicle. We also support new product collections and brand launches with print and online advertising campaigns, participation in furniture exhibitions and by offering product brochures and samples. We provide samples and brochures of new products for international markets to distributors and buyers, as is common in the furniture industry.

 

We gain new customers by attending many international furniture trade shows throughout the year. During these events, we introduce new product offerings and launch new design collections. We believe this marketing process helps us to develop and detect the latest-trends in the marketplace, allowing us to better understand the challenges and opportunities facing distributors and buyers with whom we have long–standing customer relationships. Each year, we present new products at the International Famous Furniture Fair (3F) in Dongguan, China and the China International Furniture Exhibition in Shanghai, China. We also exhibit products under the “Diamond Sofa” brand during the Las Vegas Market (U.S.) and the High Point Market (U.S.) trade shows. Internationally, we participate in trade fairs in collaboration with our customers. We plan to expand our business in the Middle East by attending several furniture exhibitions in those markets. To highlight our latest design collections, we maintain year-round showrooms at the Company’s headquarters in California as well as the High Point Market and Las Vegas Market. As of the date of this filing all of trade fairs have been delayed or canceled, and all of the showrooms referenced above are closed due to the COVID-19 outbreak, and we cannot project when they will be rescheduled and reopened. 

 

In 2019, via our new subsidiary Nova Living (M) SDN. BHD (“Nova Malaysia”) in Malaysia, we plan to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia in 2020. 

 

Suppliers and Manufacturers

 

We source finished goods from third-party manufacturers to fulfill orders placed by customers through Nova Macao and Diamond Bar for the U.S. and international markets. Our three principal suppliers of finished goods in 2019 accounted for approximately 61.2% of our total purchases for our continuing operations in 2019.  By maintaining relationships with multiple suppliers, generally we benefit from a more stable supply chain and better pricing. Under ordinary circumstances, if a change of suppliers is necessary, we believe that we can quickly fulfill our requirements from other suppliers without interruptions in order fulfillment.  We monitor our suppliers’ ability to meet our product needs and we participate in quality assurance activities to reinforce our high-quality standards. Our third-party manufacturing contracts are generally of annual or shorter durations. We issue production orders to manufacturers based on individual purchase orders. Our manufacturing relationships are non-exclusive, and we are permitted to procure products from other sources at our discretion.  None of our manufacturing contracts include production volume or purchase commitments on the part of either party. Our third-party manufacturers are responsible for sourcing raw materials, agreeing to produce parts and finished products to our specifications. We hold our suppliers to high quality standards and delivery deadlines. Our quality control procedures may extend to stringent requirements for raw material suppliers.

 

The third party contract manufacturers that we utilize in China were closed from the beginning of the Lunar New Year Holiday through the beginning of March due to the COVID-19 outbreak, and recommenced production and shipment in early March. Starting in 2020, certain of the Company’s new products are being sourced from manufacturers in India and Malaysia, which are currently closed due to the COVID-19 outbreak. They are currently scheduled to reopen in May, but it is likely that their reopening will be delayed further as a consequence of government health-related action. The Company cannot reasonably predict when they will reopen.  The Company expects that as the COVID-19 pandemic continues to spread there will be significant disruptions in the production and shipment of product from those manufacturers, and it is possible that our China-based manufacturers may experience future suspensions of operations as a result of the COVID-19 outbreak. The situation remains highly uncertain. It is therefore difficult for the Company to estimate the negative impact on our ability to deliver products during the remainder of 2020.

 

5

 

Customers

 

Our target end customer is the middle and upper middle-income consumer of residential and commercial furniture. In the U.S. and international markets, our sales principally are to furniture distributors and retailers who in turn offer our products under their own brands or under our Diamond Sofa brand. Our largest customer in 2019 accounted for 53.6% of our total sales from our continuing operations in 2019. Our three largest customers in 2018 accounted for 14.6%, 14.0% and 13.6% of our total sales from our continuing operations in 2018, respectively. No other individual customer accounted for greater than 10% of our sales in 2019 or 2018. Once the COVID-19 outbreak dissipates we plan to increase direct sales to retailers and chain stores worldwide as we continue to diversify our customer base from global furniture distributors.

 

We are focusing on establishing and growing long-term relationships with our customers. We believe that the majority of our customers view us as a strategic long-term supplier and value the quality of our products, our timely delivery and design capabilities. We generally negotiate renewable supplier agreements with firm pricing on our products, typically for a term of one year, as is customary in the furniture industry, with individual orders made on standard purchase orders. In 2019, we sold products into approximately 6 countries worldwide, with North America and Asia as our principal international markets, while we expanded our sales in other regions. Sales to North America accounted for 46.3% and 57.9% of sales from our continuing operations in 2019 and 2018, respectively. Sales to Australia accounted for 0% and 13.6% of sales from our continuing operations in 2019 and 2018, respectively. The change was attributed principally to our changing sales and marketing strategy to diversify international sales. Sales to other regions, primarily in China and other Asia countries, accounted for 53.6% and 28.5% of our total sales from our continuing operations in 2019 and 2018, respectively. We expect that a majority of our revenues will continue to come from our sales to the U.S. and international markets. We acquired Diamond Bar in August 2011, which has driven expansion of our sales to the U.S., Mexico, and South America through Diamond Bar’s longstanding customer relationships and distribution capabilities. Diamond Bar accounted for 46.4% and 71.8% of total sales from our continuing operations in 2019 and 2018, respectively, and Nova Macao’s revenues accounted for 53.6% and 28.2% of total sales from our continuing operations in 2019 and 2018, respectively.  In addition, we anticipate increasing internet sales under the Diamond Sofa brand through third-party shopping portals. We believe that as we expand our broad network of distributors and increase direct sales, we will be better positioned to capitalize on emerging market trends.

 

We typically experience stronger fourth calendar quarters as our product sales are subject to the seasonality and fluctuations typical of the furniture industry. This industry-based seasonality is generally caused by shipping lead-times to international markets combined with the real estate market slowdown and decrease in furniture consumption commonly experienced during the summer months in the Northern Hemisphere markets in which the majority of our customers are located and our products sell at retail. In addition, we believe that consumer demand for furniture generally reflects sensitivity to overall economic conditions, including, but not limited to, unemployment rates, housing market conditions and consumer confidence. In view of the expected adverse impact of the COVID-19 outbreak on the respective economies of those countries in which we sell our products, and the COVID-19 outbreak-related impact on our supply chains and shipping providers, seasonality and period to period fluctuations in product sales are impossible to predict in 2020. 

 

Competition

 

The furniture industry is large and highly competitive. The industry consists of many manufacturers, distributors and retailers, none of which dominates the fragmented and diverse market. Our products principally compete in the U.S., China, Malaysia, Europe and Australia markets. The primary competitive factors in these markets for our products and target consumers are price, quality, style, marketing, functionality and availability.

 

In the U.S. and international markets, we compete against other furniture distributors and wholesalers which are mostly located in China and other Southeast Asian countries. We also compete against traditional distributors in North America and Europe. We believe that we have significant competitive advantages over North American and European distributors due to our superb customer service and a history of prompt delivery of high quality products. Our contemporary product designs have styles and functionality that are better than, or at least comparable to, those offered by our higher-priced competitors. Our design team closely coordinates with our sales and marketing staff to include customer feedback as part of their ongoing R&D improvement process, thus allows the Company to develop and timely modify products to meet the changing stylistic and functional demands from our worldwide customers. We believe that our decades of product experience and proven performance record offer competitive edges over many other suppliers. In addition to our design and logistical capabilities, we believe that our experience from sourcing custom-made products for distributors presents significant benefits to our customers. We expanded our presence in the North American market through the acquisitions of Diamond Bar in August 2011. We have since expanded its customer base and integrated its sales channels into our growing marketing network.

 

6

 

Environmental and Regulatory Matters

 

Our operations are subject to various laws and regulations both domestically and abroad. In the U.S., federal, state and local regulations impose standards on our workplace and our relationship with the environment. For example, the U.S. Environmental Protection Agency, Occupational Safety and Health Administration and other federal agencies have the authority to promulgate regulations that may impact our operations. In particular, we are subject to legislation placing restrictions on our generation, emission, treatment, storage and disposal of materials, substances and wastes. Such legislation includes: the Toxic Substances Control Act; the Resource Conservation and Recovery Act; the Clean Air Act; the Clean Water Act; the Safe Drinking Water Act; and the Comprehensive Environmental Response and the Compensation and Liability Act (also known as Superfund). We are also subject to the requirements of the Consumer Product Safety Commission and the Federal Trade Commission, in addition to regulations concerning employee health and safety matters.  We believe the Company has complied with the relevant federal, state, local and international requirements for environmental protection.

 

After the close of the fiscal year to which this Annual Report relates, we experienced (and continue to experience) significant adverse impacts of public health orders. In response to the evolving dynamics related to the COVID-19 outbreak, the Company is following the guidelines of local authorities as they prioritize the health and safety of its employees, contractors, suppliers and retail partners for the Lunar New Year Holiday Break, and the Company’s office in Macao remained closed until late February as a result of the outbreak. The Company’s two showrooms and warehouse in Kuala Lumpur have been closed since March 18, 2020.  At this juncture, the Company is unable to predict when the Kuala Lumpur and Los Angeles facilities will be able to resume ordinary operations, or whether future developments may cause the Company to curtail or suspend operations in its other facilities. The Los Angeles facility public showroom has been closed since March 16, 2020, but a skeleton staff currently works in that facility each day (i) to receive shipping containers of products delivered from the Company’s contract manufacturers and (ii) to ship products to customers. The Company is dependent on the Port of Los Angeles, which is the primary point of delivery of products manufactured for the Company by its Asian manufacturers. The Port of Los Angeles is currently open and the Company is receiving shipping containers of products.  In the event that a determination is made by the relevant authorities to close the port, that would have a material adverse impact on the Company.  The COVID-19 pandemic precludes sales calls from being made out of all of the Company’s offices and attendance at furniture trade shows, but the Company continues to receive orders and solicit business via telephone and email. However, the Company is experiencing reduced demand for its products and an increased level of purchase order cancellations as a result of the COVID-19 pandemic. The third-party contract manufacturers that we utilize in China were closed from the beginning of the Lunar New Year Holiday through the beginning of March, and recommenced production and shipment in early March. Starting in 2020, certain of the Company’s new products are being sourced from manufacturers in India and Malaysia. The factories in India and Malaysia have suspended operations as a result of the COVID-19 pandemic.  They are currently scheduled to reopen in May, but it is likely that their reopening will be delayed further as a consequence of governmental health-related action. The Company cannot reasonably predict when they will reopen.  Finally, the Company expects that the impact of the COVID-19 outbreak on the United States and world economies will have a material adverse impact on the demand for its products.  The Company has made a determination to attempt to retain all of its employees during the COVID-19 disruption.  The situation remains highly uncertain. It is therefore difficult for the Company to estimate the negative impact on demand for its products or on its operating results. However, the first and second quarter operating results will be adversely impacted in any event. 

 

Intellectual Property

 

We rely on the patent and trademark protection laws in the U.S. to protect our intellectual property and maintain our competitive position in the marketplace. The Company and our subsidiaries currently hold two trademarks registered in the U.S. related to the “Diamond Sofa” brand. We acquired all rights, title and interest in the two registered U.S. trademarks from St. Joyal at a price of $200,000 (which was paid in full at closing) pursuant to a trademark purchase and assignment agreement dated August 31, 2011. In addition, we have registered and maintained numerous internet domain names related to our business, including “novalifestyle.com” and “diamondsofa.com.”

 

Research and Development

 

We believe that new product designs are important to our continued success. We actively seek to protect our product designs and brand names under the patent and trademark protection laws in the U.S., but the copying of a product’s appearance is a common and ongoing issue in the furniture industry as manufacturers seek to capitalize on popular designs and features by copying those of their competitors and making subtle changes to avoid infringement claims. To remain competitive, we believe that we must constantly innovate to stay ahead of competitors. We have developed a design process that enables us to better manage the short product life cycles for furniture designs by anticipating and responding quickly to changing consumer preferences. We attend furniture exhibitions worldwide, conduct market research and solicit customer feedback to help us identify new trends and customer needs in our target markets. We then incorporate customer feedback into new product designs. We introduce new product collections annually for the U.S. and international markets. We anticipate introducing new products under the “Diamond Sofa” brand on a quarterly basis for the U.S. market. At least annually, we assess the marketing results for new designs in order to decide whether to continue with a particular line.

 

7

 

We use in-house designers and computer-aided modeling systems to generate design and related development work. We have used independent designers in the past for product design, from which we built prototype furniture pieces for refinement and testing. In 2019 and 2018, we invested $132,844 and $237,290, respectively, on research and development expense. We may increase future investments in R&D based on our growth strategies.

 

Furniture Industry Regulations and Standards

 

We and our products are subject to PRC, U.S. and international regulations related to the furniture industry.

 

China has a series of national standards, or the GB and QB standards, that govern certain technical, safety and quality requirements for furniture manufactured in and exported from China. The Standardization Administration of the PRC, or SAC, and the China Chamber of Commerce for Import and Export of Light Industrial Products and Art-Crafts, or the CCCLA, develop and revise these national standards relating to the structure, material, size and quality requirements for the many varied categories and classifications of upholstered, wood and metal-based furniture. Many of these standards are not compulsory, but manufacturers typically follow all applicable recommended standards.

 

Our products are also subject to the mandatory and voluntary furniture test standards of the U.S. and international markets in which our products are distributed to end consumers, including those developed by the American National Standards Institute, or ANSI, Business and Institutional Furniture Manufacturer’s Association, or BIFMA, ASTM International, California Air Resources Board, or CARB, Furniture Industry Research Association, or FIRA, and the International Organization for Standardization, or ISO. These environmental, ecological and formaldehyde emission standards and source of origin labeling requirements are national or international, with the U.S. and European Union typically having the strictest standards for their markets. We manufacture all products to customer specifications and we believe that our products meet all currently applicable national and international furniture test standards.

 

Export Laws and Regulations

 

We may be subject from time to time to various PRC governmental regulations related to exportation, including the Customs Law of the PRC and the Regulation of the PRC on the Administration of the Import and Export of Goods. These laws and regulations set out standards and requirements for various aspects of the export and import of goods, customs registration, sanitary registration and inspection. Failure to comply with these laws and regulations may result in the confiscation of our products for export and proceeds from the sales of non-compliant products, orders for correction, fines, revocation of licenses and, in extreme cases, criminal liabilities. We believe we are in material compliance with all applicable PRC laws and regulations related to the exports of our products.

 

Foreign Currency Regulations

 

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations promulgated by the State Council, as amended on August 5, 2008, or the Foreign Exchange Regulations. Under the Foreign Exchange Regulations, the RMB, the national currency of the PRC, is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange, or the SAFE, is obtained and prior registration with the SAFE is made.

 

On July 4, 2014, the SAFE issued Circular 37, the Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Corporate Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, which became effective as of July 4, 2014. Please refer to “Risk Factors – Risks Related to Business in China – PRC regulations relating to the registration requirements for PRC resident shareholders owning shares in offshore companies may subject our PRC resident shareholders to personal liability and adversely affect our business” for a discussion of Circular 37.

 

On August 29, 2008, the SAFE promulgated Circular 142, the Notice on Perfecting Practices Concerning Foreign Exchange Settlement Regarding the Capital Contribution by Foreign-invested Enterprises, regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used.

 

Employees

 

As of December 31, 2019, we had 32 full time employees worldwide.  Our U.S. corporate office and operations employed 30 full-time employees, our location in Macau employed a total of 2 full-time employees. We believe that relations with our employees are satisfactory. We have no collective bargaining agreements with our employees.

 

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Item 1A. Risk Factors

 

Our business and an investment in our securities are subject to a variety of risks. The following risk factors describe the most significant events, facts or circumstances that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement our business plan and the market price for our securities. Additional risks and uncertainties that presently are not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. Many of these events are outside of our control. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.

 

Risks Related to Our Business

 

Impact of the COVID-19 Outbreak.

 

Beginning in late 2019, there were reports of the COVID-19 (coronavirus) outbreak originating in China, prompting government-imposed quarantines, cessation of certain travel and business closures. Following this outbreak, in February 2020, the Company temporarily shut down its operations in Hong Kong and Macao. In March 2020, the Company gradually resumed its operations in those cities, and its China-based third party manufacturers recommenced production and shipment. Thereafter additional government-imposed quarantines, cessation of certain travel and business closures occurred in Malaysia, California (including Los Angeles, where our headquarters are located) and in other states across the United States.  During the middle of March the Company was forced to close its public showrooms in Kuala Lumpur and Los Angeles. Recently, the Company’s third-party manufacturers in India and Malaysia suspended production and shipment due to the outbreak and related government-imposed quarantines. They are currently scheduled to reopen in May, but it is likely that their reopening will be delayed further as a consequence of governmental health-related action. The Company cannot reasonably predict when they will reopen. While our China-based manufacturers have recommenced production and shipment, they may suffer future production and shipment disruptions if the outbreak recurs in China.  It is presently unknown whether and to what extent the Company’s supply chains may be affected if the pandemic persists for an extended period of time. It is also possible that the outbreak will cause additional shipment disruptions both on inbound and outbound shipments.  Any closure of the Port of Los Angeles would have a material adverse effect on the ability of the Company to receive and deliver product.  Thus, the Company may incur significant delays, reductions in revenue and increases in expenses relating to such events outside of its control. In addition, the outbreak precludes Company personnel from visiting customers and potential customers and from attending trade shows, which adversely affects the Company’s ability to generate new sales. In addition, the Company is experiencing reduced demand for its products and an increased level of purchase order cancellations as a result of the COVID-19 pandemic. The Company expects that the impact of the COVID-19 outbreak on the United States and world economies will have a material adverse effect on the demand for its products.  Any and all of the foregoing could have a material adverse impact on its business, operating results and financial condition.

 

Changes in economic conditions in the industries and markets served by our customers could adversely affect demand for our products.

 

The furniture industry is subject to cyclical variations in the global economy and to uncertainty regarding future economic prospects. Our business is affected by the number of orders we are able to secure from our customers, which is determined by the level of our customers’ business activity. Our customers’ level of business activity is in turn determined by the level of consumer spending in the markets our customers serve. Economic downturns could affect discretionary consumer spending habits by decreasing the overall demand for home furnishings. Any significant or prolonged decline of the economy in China, the U.S. or other international markets in which our products are sold will affect disposable income and spending by consumers in these markets, and may lead to a decrease in demand for consumer products. To the extent that such decrease in demand for consumer products translates into a decline in the demand for home furnishings, our sales and financial performance could be adversely affected. Any economic downturn also could negatively impact our primary customers, furniture wholesalers, distributors and retailers, possibly resulting in a decrease in our sales or earnings. Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and geopolitical factors could have particularly significant effects on our consolidated financial condition, results of operations and cash flows. Any decline in economic activity and conditions in the industries and markets served by our customers and in which we operate may reduce demand for our products and could adversely affect our financial condition and results of operations. The recent COVID-19 pandemic could adversely impact the global economy which in turn would adversely affect the demand for our products. 

 

9

 

We historically have derived a substantial part of our sales from a limited number of customers. If we lose any of these customers, or any of these customers reduce the amount of business they do with us, our sales may be adversely affected.

 

Historically, a substantial part of our sales was attributed to a limited number of customers. Sales to our largest customer constituted 53.6% and 14.6% of total sales from our continuing operations in 2019 and 2018, respectively. If the demand for our products decreases in one or more of the markets supplied by our largest customers, or if there are any material social or regulatory changes in these markets, our sales could decline and we could lose market share, any of which could materially harm our business. We do not foresee relying on these same customers for sales generation as we expand our business to increase our internet sales and direct sales to the U.S. and other international markets. We cannot assure you, however, that we will be able to successfully implement these plans.

 

Our decision to move away from low margin products and to eliminate customers who generate low margin sales and that have slow payment histories could result in a decrease in our future sales and earnings.

 

A significant portion of our sales was driven by selling low margin products to customers who had slow payment histories. By moving away from those customers and selling high margin products, we will lose those customers and related sales and profits from their business. As we implement our plan to transition to high profit margin products and fast paying clients, we cannot assure that the transition will be successful and that we will eventually develop enough new business to make up the loss of sales from the existing low margin products and slow paying clients.  If we are unable to develop enough new clients for our high profit margin products, our sales and net income will be negatively impacted.

 

If we lose our key personnel, or are unable to attract and retain additional qualified personnel, the quality of our services may decline and our business may be adversely affected.

 

We rely heavily on the expertise, experience and continued services of our senior management, including our Chief Executive Officer, President, Director and Chairperson, Ms. Lam, and our Chief Financial Officer, Mr. Chuang. Loss of their services could adversely affect our ability to achieve our business objectives. Ms. Lam and Mr. Chuang are key factors in our success at establishing relationships within the furniture industry in the U.S. and international market because of their extensive industry experience and reputation. The continued development of our business depends upon their continued employment. We have entered into employment agreements with Ms. Lam and Mr. Chuang that include provisions for non-competition and confidentiality.

 

We believe our future success will depend upon our ability to retain key employees and our ability to attract and retain other skilled personnel. We cannot guarantee that any employee will remain employed by us for any period of time or that we will be able to attract, train or retain qualified personnel in the future. Such loss of personnel could have a material adverse effect on our business and company. Furthermore, we will need to employ additional personnel to expand our business. Qualified employees are in great demand and may be unavailable in the time frame required to satisfy our customers’ requirements. There is no assurance we will be able to attract and retain sufficient numbers of highly skilled employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates could impair the growth of our business.

 

We may not be able to keep pace with competition in our industry, which could adversely affect our market share and result in a decrease in our future sales and earnings.

 

The furniture industries in the U.S. and international markets are very competitive and fragmented. Our business is subject to risks associated with competition from new or existing industry participants who may have more resources and better access to capital. Many of our competitors and potential competitors may have substantially greater financial and government support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the industry than we do. Among other things, these industry participants compete with us based upon price, quality, style, functionality and availability. We cannot be sure we will have the resources or expertise to compete successfully in the future. Some of our competitors may also be able to provide customers with additional benefits at lower overall costs to increase market share. We cannot be sure we will be able to match cost reductions by our competitors or that we will be able to succeed in the face of current or future competition. Also, due to the large number of competitors and their wide range of product offerings, we may not be able to continue to differentiate our products through value, styling or functionality from those of our competitors. In addition, some of our customers are also performing more manufacturing services themselves. We may face competition from our customers as they seek to become more vertically integrated. As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings.

 

10

 

We will face different market dynamics and competition as we develop new products to expand our presence in our target markets. In some markets, our future competitors may have greater brand recognition and broader distribution than we currently enjoy. We may not be as successful as our competitors in generating revenues in those markets due to the lack of recognition of our brands, lack of customer acceptance, lack of product quality history and other factors. As a result, any new expansion efforts could be more costly and less profitable than our efforts in our existing markets. If we are not as successful as our competitors are in our target markets, our sales could decline, our margins could be impacted negatively and we could lose market share, any of which could materially harm our business.

 

We may lose U.S. market share due to competition and our dependence on production facilities located outside the U.S., which would result in a decrease in our future sales and earnings.

 

We compete in the U.S. market principally through our sales under the Diamond Sofa brand, which we acquired on August 31, 2011. The furniture industry in the U.S. is very competitive and fragmented. We compete with many domestic U.S. and international furniture sources, including national department stores, regional or independent specialty stores, dedicated franchises of furniture manufacturers and retailers marketing products through catalogs and over the internet. There are few barriers to entry in the U.S. furniture market, and new competitors may enter this market at any time. Some of our competitors have greater financial resources than we have and often offer extensively advertised and well-recognized branded products. We may not be able to meet price competition or otherwise respond to competitive pressures in the U.S. market. We also may not be able to continue to differentiate our products from those of our competitors in the U.S. through value, styling and functionality because of the large number of competitors and their wide range of product offerings. Furthermore, some large furniture retailers in the U.S. are sourcing products directly from furniture manufacturers located in China and other Southeast Asian countries instead of through distributors like us. Over time, this practice may expand to smaller retailers in the U.S. Accordingly, we are continually subject to the risk of losing U.S. market share, which may decrease our future sales and earnings.

 

Failure to anticipate or timely respond to changes in fashion and consumer preferences could adversely impact our business.

 

Furniture is a styled product and is subject to rapidly changing fashion trends and consumer preferences, as well as to increasingly shorter product life cycles. We believe our past performance has been based on, and our future success will depend, in part, upon our ability to continue to improve our existing products through product innovation and to develop, market and produce new products. We cannot assure you that we will be successful in introducing, marketing and producing any new products or product innovations, or that we will develop and introduce in a timely manner innovations in our existing products that satisfy customer needs or achieve market acceptance. Our success also depends upon our ability to anticipate and respond in a timely manner to fashion trends related to residential and commercial furniture. If we fail to identify and respond to these changes, our sales could decline and we could lose market share, any of which could materially harm our business.

 

If we are unable to manage our growth, we may not continue to be profitable.

 

Our continued success depends, in part, upon our ability to manage and expand our operations and facilities in the face of continued growth. This planned growth includes the expansion of our internet sales and diversifying our international sales by expanding our broad network of distributors, increasing direct sales in the U.S., Europe and other international markets and entering emerging growth markets. The growth in our operations has placed, and may continue to place, significant demands on our management, operational and financial infrastructure. If we do not manage our growth effectively, the quality of our products and services could suffer, which could negatively affect our operating results. To manage this growth effectively, we will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. We cannot assure you that we will be able to fulfill our staffing requirements for our business, successfully train and assimilate new employees, or expand our management base and enhance our operating and financial systems. Failure to achieve any of these goals will prevent us from managing our growth in an effective manner and could have a material adverse effect on our business, financial condition or results of operations.

 

We may need additional capital to execute our business plan and fund operations and may not be able to obtain such capital on acceptable terms or at all.

 

In connection with the development and expansion of our business, we may incur significant capital and operational expenses. We believe that we can increase our sales and net income by implementing a growth strategy that focuses on (i) increasing online sales and (ii) diversifying our international sales. We plan to increase and diversify our sales to the U.S., Europe and international markets by establishing new brands for the international markets and to increase our online sales presence.

 

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In the event that available funds are not sufficient to meet our operating needs and our plans for expansion, we intend to pursue alternative financing arrangements, including additional bank loans based on our good credit rating or funds raised through additional offerings of our equity or debt, if and when we determine such offerings are required. Our ability to obtain additional capital on acceptable terms or at all is subject to a variety of uncertainties, including:

 

●  

Investors’ perceptions of, and demand for, companies in our industry;

●  

Investors’ perceptions of, and demand for, companies sourcing from China and other Asian countries;

●  

Conditions of the U.S. and other capital markets in which we may seek to raise funds;

●  

Our future results of operations, financial condition and cash flows;

●  

Governmental regulation of foreign investment in companies in particular countries;

●  

Economic, political and other conditions in the U.S., China, and other countries; and

●  

Governmental policies relating to foreign currency.

 

There is no assurance we will be successful in locating a suitable financing transaction in a timely fashion or at all. In addition, there is no assurance we will obtain the capital we require by any other means. Future financings through equity investments are likely to be dilutive to our existing shareholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly-issued securities may include preferences or superior voting rights, be combined with the issuance of warrants or other derivative securities, or be the issuances of incentive awards under equity employee incentive plans, which may have additional dilutive effects. Furthermore, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. If we cannot raise additional funds on favorable terms or at all, we may not be able to carry out all or parts of our strategy to maintain our growth and competitiveness. 

 

Our accounts receivable remain outstanding for a significant period of time, which has a negative impact on our cash flow and liquidity.

 

Our standard payment term for accounts receivable is 30 - 120 days. We give an extended payment term to certain of our major customers of up to 180 days. We remain subject to negative impacts on our cash flow and liquidity due to the significant period of time our accounts receivable remain outstanding with respect to sales made under the longer payment terms. In 2019, we had accounts receivable turnover of 0.65 on an annualized basis, with sales outstanding of 563 days. In 2018, we had accounts receivable turnover of 1.45 on an annualized basis, with sales outstanding of 251 days. As of December 31, 2019, we had gross accounts receivable of $394,183, of which $361,737 was not yet past due, $32,446 was less than 90 days past due and $0 was over 90 days past due.  We had an allowance for bad debt of $3,942 for accounts receivables. The decrease in gross accounts receivable was due to, among other things, we have been tightening our accounts receivable policy towards our certain major customers. While historically our collections have been reasonably assured, delays in collections and the significant period of time our accounts receivable remain outstanding may result in pressure on our cash flow and liquidity. We recognized a (reversal) loss of ($220,853) and $13,241 from bad debts from continuing operations during the years ended December 31, 2019 and 2018. The reversal in 2019 primarily resulted from the ability to collect accounts receivable from Diamond Bar’s customers on time.

 

We may experience material disruptions to our ability to acquire sufficient inventory from third-party suppliers that could result in material delays, quality control issues, increased costs and loss of business opportunities, which may negatively impact our sales and financial results.

 

We rely upon our third-party suppliers to produce our products and maintain sufficient inventory to meet customer demand. A material disruption at our suppliers’ manufacturing facilities could prevent us from meeting customer demand, reduce our sales and negatively impact our financial results. We may also experience quality control issues as we seek out new suppliers or are forced to contract with new suppliers to meet increased customer demand. Any such material disruption may prevent us from shipping our products on a timely basis, reduce our sales and market share and negatively impact our financial results. Our third-party supplier contracts are generally of annual or shorter duration, or manufactured products are sourced on the basis of individual purchase orders. There is no assurance that we will be able to maintain our current relationships with these parties or, if necessary, establish future arrangements with other third-party suppliers on commercially reasonable terms. Further, while we maintain an active quality control program, we cannot assure that their manufacturing and quality control processes will be maintained at a level sufficient to meet our inventory needs or prevent the inadvertent sale of substandard products. While we believe that products manufactured by our current third-party suppliers could generally be procured from alternative sources, temporary or permanent loss of services from a significant manufacturer could cause disruption in our supply chain and operations.

 

12

 

Our dependence on foreign suppliers and our increased global operations subject us to a variety of risks and uncertainties that could impact our operations and financial results.

 

In 2019, the majority of our products were purchased from foreign suppliers and manufacturers, predominantly in Asia. Our dependence on foreign suppliers means that we may be affected by changes in the value of the U.S. dollar relative to other foreign currencies. For example, any upward valuation in the Chinese yuan or any other foreign currency against the U.S. dollar may result in higher costs to us for those goods. Declines in foreign currencies and currency exchange rates might negatively affect the profitability and business prospects of one or more of our foreign suppliers. This, in turn, might cause such foreign vendors to demand higher prices for products in their effort to offset any lost profits associated with any currency devaluation, delay product shipments to us, or discontinue selling to us, any of which could ultimately reduce our sales or increase our costs.

 

We, and our foreign suppliers, are also subject to other risks and uncertainties associated with changing economic and political conditions worldwide. These risks and uncertainties include import duties and quotas, compliance with anti-dumping regulations, work stoppages, economic uncertainties and adverse economic conditions (including inflation and recession), government regulations, employment and labor matters, wars and fears of war, political unrest, natural disasters, public health issues, regulations to address climate change and other trade restrictions. We cannot predict whether any of the countries from which our raw materials or products are sourced, or in which our products are currently manufactured or may be manufactured in the future, will be subject to trade restrictions imposed by the U.S. or foreign governments or the likelihood, type or effect of any such restrictions. Any event causing a disruption or delay of imports from foreign suppliers, including labor disputes resulting in work disruption, the imposition of additional import restrictions, restrictions on the transfer of funds and/or increased tariffs or quotas, or both, could increase the cost, reduce the supply of merchandise available to us, or result in excess inventory if merchandise is received after the planned or appropriate selling season, all of which could adversely affect our business, financial condition and operating results. 

 

A delay in getting non-U.S.-sourced products through port operations and customs in a timely manner could result in reduced sales, canceled sales orders and unanticipated inventory accumulation.

 

Our business depends on our ability to source and distribute products in a timely manner. As a result, we rely on the free flow of goods through open and operational ports worldwide. Labor disputes or other disruptions at ports create significant risks for our business, particularly if work slowdowns, lockouts, strikes or other disruptions occur during our peak importing seasons. Any of these factors could result in reduced sales, canceled sales orders and unanticipated inventory accumulation and have a material adverse effect on our operating results, financial position and cash flows.

 

Increases in income tax rates, changes in income tax laws or disagreements with tax authorities could adversely affect our business, financial condition or results of operations.

 

We are subject to income taxes in the United States and in certain foreign jurisdictions in which we operate. Increases in income tax rates or other changes in income tax laws that apply to our business could reduce our after-tax income from such jurisdiction and could adversely affect our business, financial condition or results of operations. Our operations outside the United States generate a significant portion of our income. In addition, the United States and many of the other countries in which our products are distributed or sold, including countries in which we have significant operations, have recently made or are actively considering changes to existing tax laws.

 

In October 2018, the Macau Legislative Assembly has approved a bill revoking the current offshore law, to abolish the relevant legislation on the Macau offshore business regime. The existing offshore institutions in Macau can continue to operate their offshore businesses until the end of 2020. Starting on January 1, 2021, the exemptions of stamp duty, professional tax (for individuals) and complementary tax (for corporations) will no longer be available to these offshore institutions. Nova Macao is currently an income tax-exempt entity incorporated and domiciled in Macao. The Company will continue to examine the potential impact this proposal may have on our effective tax rate.

 

Additional changes in the U.S. and Macau tax regimes or in how U.S. multinational corporations are taxed on foreign earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial condition or results of operations.

 

13

 

We are also subject to regular reviews, examinations and audits by the IRS and other taxing authorities with respect to income and non-income based taxes both within and outside the United States. Economic and political pressures to increase tax revenues in jurisdictions in which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting in an adverse impact on our business, financial condition or results of operations. In addition, in connection with the Organization for Economic Co-operation and Development Base Erosion and Profit Shifting project, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in various countries.

 

We are subject to warranty claims for our products, which could result in unexpected expense.

 

Many of our products carry warranties for defects in quality and workmanship. Historically, the amount for return of products, the discount provided to the customers due to defects and cost for the replacement parts has been immaterial. However, we may experience significant expense as the result of future product quality issues, product recalls or product liability claims which may have a material adverse effect on our business. The actual costs of servicing future warranty claims may exceed our expectations and have a material adverse effect on our results of operations, financial condition and cash flows.

 

We are subject to periodic litigation, product liability risk and other regulatory proceedings, which could result in unexpected expense of time and resources.

 

From time to time, we may be a defendant in lawsuits and regulatory actions relating to our business. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse effect on our business, financial condition and results of operations. In addition, any significant litigation, regardless of its merits, could divert management's attention from our operations and may result in substantial legal costs. The Company has been named in a putative securities class action case and two derivatives cases described in Item 3 below.  While the Company believes it has adequate defenses, the defense of those cases could become costly and could significant divert management attention from its business.

 

We may not be able to protect our product designs and other proprietary rights adequately, which could adversely affect our competitive position and reduce the value of our products and brands, and litigation to protect our intellectual property rights may be costly.

 

We attempt to strengthen and differentiate our product portfolio by developing new and innovative brands and product designs and functionality. As a result, our patents, trademarks and other intellectual property rights are important assets to our business. Our success will depend in part on our ability to obtain and protect our products, methods, processes and other technologies, to preserve our trade secrets, and to operate without infringing on the proprietary rights of third parties in China, the U.S. and other international markets. Despite our efforts, any of the following may reduce the value of our owned and used intellectual property:

 

●  

Issued patents and trademarks that we own or have the right to use may not provide us with any competitive advantages;

●  

Our efforts to protect our proprietary rights may not be effective in preventing misappropriation of our intellectual property or that of those from whom we license our rights to use;

●  

Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we use or develop; or

●  

Another party may obtain a blocking patent and we or our licensors would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products.

 

Effective protection of intellectual property rights may be unavailable or limited in China or certain other countries. Policing the unauthorized use of our proprietary technology can be difficult and expensive. Litigation might be necessary to protect our intellectual property rights, which may be costly and may divert our management’s attention away from our core business. Furthermore, there is no guarantee that litigation would result in an outcome favorable to us. If we are unable to protect our proprietary rights adequately, it would have a negative impact on our operations.

 

14

 

We, or the owners of the intellectual property rights licensed to us, may be subject to claims that we or such licensors have infringed the proprietary rights of others, which could require us and our licensors to obtain a license or change designs.

 

Although we do not believe any of our products infringe upon the proprietary rights of others, there is no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against us or those from whom we have licenses or that any such assertions or prosecutions will not have a material adverse effect on our business. Regardless of whether any such claims are valid or can be asserted successfully, defending against such claims could cause us to incur significant costs and could divert resources away from our other activities. In addition, assertion of infringement claims could result in injunctions that prevent us from distributing our products. If any claims or actions are asserted against us or those from whom we have licenses, we may seek to obtain a license to the intellectual property rights that are in dispute. Such a license may not be available on reasonable terms, or at all, which could force us to change our designs.

 

We incur significant costs as a result of our operating as a public company and our management is required to devote substantial time to compliance with the regulatory requirements placed on a public company.

 

As a public company with substantial operations, we incur significant legal, accounting and other expenses. The costs of preparing and filing annual, quarterly and current reports, proxy statements and other information with the SEC and furnishing audited reports to shareholders is time-consuming and costly.

 

It has also been time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and this remains an ongoing process. Certain members of our management have limited or no experience operating a company whose securities are listed on a national securities exchange or with the rules and reporting practices required by the federal securities laws as applied to a publicly traded company. We have needed to recruit, hire, train and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate internal controls and reporting procedures.

 

We have a significant amount of deposits placed with a few suppliers who may breach the agreements or be insolvent, illiquid or bankrupt without delivery of our products, which could materially adversely affect our financial condition or results of operations.

 

We have advanced significant amounts to a few suppliers who manufacture the high-end jade mat products that we plan to sell and market in Malaysia and some other regions in East Asia. If those suppliers breach their agreements with us or become bankrupt for any reason, we may not receive any or all of the products that we purchased from them and may lose all of our deposits, which could materially negatively impact on our result of operation as well as our expansion plans in Malaysia. As of May 8, 2020, most of these products are ready for shipment to our facilities in Malaysia, but due to the COVID-19 pandemic, we requested that the suppliers put the shipment on hold. 

 

Our ongoing investment in new products is inherently risky, and could disrupt our current operations.

 

We have invested and expect to continue to invest in new products. Our plan to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia is a reflection of our ongoing efforts to innovate and provide useful products in new geographical markets. Such endeavors including the investment of jade mats in Malaysia involve significant risks and uncertainties, including insufficient revenues from such investments to offset any new liabilities assumed and expenses associated with these new investments, inadequate return of capital on our investments, distraction of management from current operations, and risks and competition not discovered in our due diligence and decision making of such strategy plans could cause us to fail to realize the anticipated benefits of such investments and incur unanticipated liabilities. Because the development and investment in new products and markets are inherently risky, no assurance can be given that such plans will be successful and will not adversely affect our reputation, financial condition, and operating results.

 

15

 

If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.

 

We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. Our management has concluded that our internal control over financial reporting was effective as of December 31, 2019. See “Item 9A. Controls and Procedures.” However, our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, measures of control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

 

We are a holding company that depends on cash flow from our wholly owned subsidiaries to meet our obligations, and any inability of our subsidiaries to pay us dividends or make other payments to us when needed could disrupt or have a negative impact on our business.

 

We are a holding company with no material assets other than the stock of our wholly owned subsidiaries, Diamond Bar, Nova Furniture and Nova Samoa. We rely on dividends paid by our subsidiaries for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our subsidiaries are unable to pay us dividends and make other payments to us when needed because of regulatory restrictions or otherwise, we may be materially and adversely limited in our ability to make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

 

We may not be able to attract the attention of major brokerage firms because we became public by means of a share exchange, which could limit our ability to obtain future capital and financing.

 

There may be risks associated with our becoming public by means of a share exchange, or reverse merger with a public shell company that had no revenues, operations or material assets prior to the time of the share exchange. Analysts of major brokerage firms may not provide coverage for our company because there is no incentive for brokerage firms to recommend the purchase of our common stock. Furthermore, we can give no assurance that brokerage firms will, in the future, want to conduct any secondary offerings on our behalf, which could limit our ability to obtain future capital and financing.

 

Risks Related to Business in China

 

If relations between the U.S. and China worsen, our business could be adversely affected and investors may be unwilling to hold or buy our stock and our stock price may decrease.

 

At various times during recent years, the U.S. and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the U.S. and China, whether or not directly related to our business, could reduce the price of our common stock. These controversies also could make it more difficult for us to provide our products to our customers in the U.S. and China. The international trade policies of China and the U.S. could adversely affect our business, and the imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports from China, including those applied specifically to furniture products, or the imposition of taxes, import duties or other charges on exports to the U.S. could increase our costs and decrease our earnings. Due to an increase in tariffs imposed by the U.S., some customers are seeking alternative resources instead of China, which has negatively affected the purchase orders and our sales as we mainly resource our products from China. In order to avoid these new tariffs, the market has shifted towards an uncertain era. Sales during this stage may also be impacted by this shift in behavior. The U.S. government currently has suspended the increases of tariffs from 10% to 25%, pending on the result of US and China trade negotiation. During this time period our company will continue to seek alternatives and new resources to increase the revenue. If and to the extent we are not able to mitigate the effects of such trade or tariff policies, our operations may be adversely affected.

 

16

 

The nature and application of many laws of China create an uncertain environment for business operations and they could have a negative effect on us.

 

The legal system in China is a civil law system. Unlike the common law system, the civil law system is based on written statutes in which decided legal cases have little value as precedents. In 1979, China began to promulgate a comprehensive system of laws and has since introduced many laws and regulations to provide general guidance on economic and business practices in China and to regulate foreign investment. Progress has been made in the promulgation of laws and regulations dealing with economic and commercial matters, but these recently enacted laws and regulations may not cover all aspects of business activities in China sufficiently. In particular, because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, there may be certain instances when we may not be aware of our violation of these policies and rules until sometime after such violation.

 

The PRC government has enacted some laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. Our ability to enforce commercial claims or to resolve commercial disputes under these laws and regulations is unpredictable, however, because the implementation, interpretation and enforcement of these laws and regulations is limited and, given their relative newness, involve uncertainties. For example, contracts governed by PRC law tend to contain less detail than those under U.S. law and generally are not as comprehensive in defining the rights and obligations of the contracting parties. Consequently, contracts in China are more vulnerable to disputes and legal challenges than those in the U.S. In addition, contract interpretation and enforcement in China is not as developed as in the U.S., and the result of any contract dispute is subject to significant uncertainties. We currently are not subject to any contract disputes in China, but we cannot assure you that we will not be subject to future contract disputes with our suppliers and other customers under contracts governed by PRC law, and if such disputes arise, we cannot assure you that we will prevail.

 

Furthermore, the political, governmental and judicial systems in China are impacted sometimes by corruption. There is no assurance we will be able to obtain recourse in any legal disputes with the suppliers, customers or other parties with whom we conduct business, if desired, through China’s developing and sometimes corrupt judicial systems. Any rights we may have under PRC law to specific performance or to seek an injunction are severely limited, and without a means of recourse by virtue of the PRC legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.

 

PRC regulations relating to the registration requirements for PRC resident shareholders owning shares in offshore companies may subject our PRC resident shareholders to personal liability and limit our ability to acquire companies in or otherwise materially and adversely affect our business.

 

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. We cannot predict fully how Circular 37 will affect our business operations or future strategies because of ongoing uncertainty over how Circular 37 is interpreted and implemented, and how or whether SAFE will apply it to us.

 

We attempt to ensure that our PRC resident beneficial owners subject to these rules comply, with the relevant SAFE regulations. We cannot provide any assurances that all of our present or prospective direct or indirect PRC resident beneficial owners will comply fully with all applicable registrations or required approvals. The failure or inability of our PRC resident beneficial owners to comply with the applicable SAFE registration requirements may subject these beneficial owners or us to fines, legal sanctions and restrictions described above.

 

17

 

Our compliance with the Foreign Corrupt Practices Act may put us at a competitive disadvantage, while our failure to comply with the Foreign Corrupt Practices Act may result in substantial penalties.

 

We are required to comply with the United States Foreign Corrupt Practices Act, or the FCPA, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties. Non-U.S. companies, including some of our competitors, are not subject to the provisions of the FCPA. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time to time in mainland China and other Asian countries that we conduct business. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage.

 

Risks Related to Our Securities

 

The market price for our common stock may be volatile, which could make it more difficult or impossible for an investor to sell our common stock for a positive return on their investment.

 

The trading price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include, but are not limited to, our quarterly operating results or the operating results of other companies in our industry, announcements by us or our competitors of acquisitions, new products, product improvements, commercial relationships, intellectual property, legal, regulatory or other business developments and changes in financial estimates or recommendations by stock market analysts regarding us or our competitors. In addition, the stock market in general, and the market for companies that became public by means of a reverse acquisition with a public shell company in particular, has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated or disproportionate to their operating performance. These broad market fluctuations may materially affect our stock price, regardless of our operating results. Furthermore, the market for our common stock historically has been limited and we cannot assure you that a larger market will ever be developed or maintained. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, these factors may make it more difficult or impossible for you to sell our common stock for a positive return on your investment.

 

Shares of our common stock lack a significant trading market, which could make it more difficult for an investor to sell our common stock.

 

Our common stock is traded on The NASDAQ Stock Market LLC. However, there is no assurance that an active trading market in our common stock will be sustained. As a result, an investor may find it more difficult to dispose of our common stock.

 

If we fail to continue to meet the listing standards of NASDAQ, our common stock may be delisted, which could have a material adverse effect on the liquidity of our common stock.

 

Our common stock is currently listed on the Nasdaq Capital Market. The NASDAQ Stock Market LLC has requirements that a company must meet in order to remain listed on NASDAQ. In particular, NASDAQ rules require us to maintain a minimum bid price of $1.00 per share of our common stock. The Company was notified on January 18, 2019 that pursuant to NASDAQ Listing Rule 5810(c)(3)(A), it will be afforded 180 calendar days, or until July 17, 2019, to regain compliance with the minimum bid price requirement. On December 18, 2019, we filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019 to effect a 1-for-5 reverse stock split of the Company’s common stock to meet the $1.00 per share minimum closing bid price requirement. On January 9, 2020, we received a written notification from the NASDAQ Stock Market Listing Qualifications Staff indicating that the Company has regained compliance with the $1.00 minimum closing bid price requirement for continued listing on the NASDAQ Capital Market. In addition, we may be unable to meet other applicable NASDAQ listing requirements, including maintaining minimum levels of stockholders’ equity or market values of our common stock in which case, our common stock could be delisted. If our common stock were to be delisted, the liquidity of our common stock would be materially adversely affected and the market price of our common stock could decrease.

 

18

 

Future sales of shares of our common stock by our shareholders could cause our stock price to decline.

 

Future sales of shares of our common stock could adversely affect the prevailing market price of our stock. As of March 29, 2020, Steven Qiang Liu, our largest shareholder and vice president of the Company, owned approximately 36% of our outstanding shares of common stock. If Mr. Liu sells a large number of shares, or if we issue a large number of shares, the market price of our stock could decline. Moreover, the perception in the public market that significant shareholders might sell shares of our stock could depress the market for our shares. If such shareholders sell substantial amounts of our common stock in the public market, such sales could create a circumstance commonly referred to as an “overhang,” in anticipation of which the market price of our common stock could fall.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for us to raise additional financing through the sale of equity or equity-related securities in the future at a time and price we deem reasonable or appropriate.

 

We may issue additional shares of our common stock or debt securities to raise capital or complete acquisitions, which would reduce the equity interest of our shareholders.

 

Our Articles of Incorporation, as amended, authorize the issuance of up to 15,000,000 shares of common stock, par value $0.001 per share. As of December 31, 2019, there were 9,258,396, authorized and unissued shares of our common stock available for future issuance among which 171,667 shares are issuable upon exercise of outstanding warrants, based on 5,741,604 shares of our common stock outstanding. Although we have no commitments as of the date of this report to issue our securities, we may issue a substantial number of additional shares of our common stock or debt securities to complete a business combination or to raise capital.  On July 13, 2017, we filed a shelf registration statement on Form S-3 under which we may, from time to time, sell securities in one or more offerings up to a total dollar amount of $60,000,000.  The shelf registration statement was declared effective as of October 12, 2017.

 

On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), shall be effected. All references to shares and per share data have been retroactively restated to reflect such split.

 

The issuance of additional shares of our common stock may significantly reduce the equity interest of our existing shareholders and adversely affect prevailing market prices for our common stock. 

 

We do not expect to pay dividends in the foreseeable future. Any return on investment may be limited to the value of our common stock.

 

We do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant. We are a holding company that depends on cash flow from our wholly owned subsidiaries to meet our obligations, and any inability of our subsidiaries to pay us dividends or make other payments to us when needed could disrupt or have a negative impact on our business.” Our management intends to follow a policy of retaining all of our earnings to finance the development and execution of our strategy and the expansion of our business. If we do not pay dividends, our common stock may be less valuable because a return on your investment will occur only if our stock price appreciates.

 

Our principal shareholders have the ability to exert significant control in matters requiring a shareholder vote and could delay, deter or prevent a change of control in our company.

 

As of March 29, 2020, Steven Qiang Liu, our largest shareholder, owned approximately 36% of our outstanding shares of common stock. Mr. Liu may exert significant influence over us, giving him the ability, among other things, to exercise significant control over the election of all or a majority of the Board of Directors and to approve significant corporate transactions that require the shareholders’ approval. Such share ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. Without the consent of Mr. Liu, we could be prevented from entering into potentially beneficial transactions if such transactions conflict with our principal shareholder’s interests. As an officer of the Company, Mr. Liu owes a fiduciary duty to our shareholders and must act in good faith in a manner he reasonably believes to be in the best interests of our shareholders. As a shareholder, Mr. Liu is entitled to vote his shares in his own interests, which may not always be in the interests of our shareholders.

 

19

 

Provisions in the Nevada Revised Statutes and our Amended and Restated Bylaws could make it very difficult for an investor to bring any legal actions against our directors or officers for violations of their fiduciary duties or could require us to pay any amounts incurred by our directors or officers in any such actions.

 

Members of our Board of Directors and our officers will have no liability for breaches of their fiduciary duty of care as a director or officer, except in limited circumstances, pursuant to provisions in the Nevada Revised Statutes and our Amended and Restated Bylaws as authorized by the Nevada Revised Statutes. Specifically, Section 78.138 of the Nevada Revised Statutes provides that a director or officer is not individually liable to the company or its shareholders or creditors for any damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (1) the director’s or officer’s act or failure to act constituted a breach of his or her fiduciary duties as a director or officer and (2) his or her breach of those duties involved intentional misconduct, fraud or a knowing violation of law. This provision is intended to afford directors and officers protection against and to limit their potential liability for monetary damages resulting from suits alleging a breach of the duty of care by a director or officer. Accordingly, you may be unable to prevail in a legal action against our directors or officers even if they have breached their fiduciary duty of care. In addition, our Amended and Restated Bylaws allow us to indemnify our directors and officers from and against any and all costs, charges and expenses resulting from their acting in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood, we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay. Accordingly, our indemnification obligations could divert needed financial resources and may adversely affect our business, financial condition, results of operations and cash flows, and adversely affect prevailing market prices for our common stock.

 

Short sellers of our stock may be manipulative and may drive down the market price of our common stock.

 

Short selling is the practice of selling securities that the seller does not own but rather has borrowed or intends to borrow from a third party with the intention of buying identical securities at a later date to return to the lender. A short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. Since it is in the short seller’s interest for the price of the stock to decline, some short sellers publish, or arrange for the publication of, opinions or characterizations regarding the relevant issuer, its business prospects and similar matters calculated to or which may create negative market momentum, which may permit them to obtain profits for themselves as a result of selling the stock short. Issuers whose securities have historically had limited trading volumes and/or have been susceptible to relatively high volatility levels can be particularly vulnerable to such short seller attacks. On December 21, 2018, Seeking Alpha published a report that contained various false allegations against the Company, which has driven down the market price of our common stock. The author of that article disclosed that he had accumulated a short position in the Company’s common stock prior to the publication of the article.  As of December 31, 2018, the closing price of our common stock as reported on the NASDAQ Stock Market was $2.30, representing a decrease of $1.55 compared to $3.85, the closing price of our common stock as of December 20, 2018.

 

Although we have timely responded to the false allegations set forth in the Seeking Alpha article, we cannot assure you that false, misleading and/or defamatory articles will not be published again in the future. The publication of any such commentary regarding us in the future may bring about a temporary, or long term, decline in the market price of our common stock. No assurances can be made that similar declines in the market price of our common stock will not occur in the future, in connection with such commentary by short sellers or otherwise.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Our principal executive offices and those of Diamond Bar are in leased office space with showroom, distribution and warehouse space in Commerce, California. Diamond Bar also maintains showrooms in leased space at Las Vegas Market in Nevada and High Point Market in North Carolina. Nova Macao leases office space in Macao.

 

We believe that our existing office and distribution facilities are adequate for current and presently foreseeable operations. In general, our properties are well maintained, considered adequate and being utilized for their intended purposes. See Note 15 to our consolidated financial statements contained herein, which discloses lease agreements.  

 

20

 

Item 3. Legal Proceedings

 

On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and 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 Security Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). Richard Deutner and ITENT EDV were subsequently substituted as plaintiffs and, on June 18, 2019, they filed an Amended Complaint. In the Amended Complaint, plaintiffs seek to recover compensatory damages caused by the Company’s alleged violations of federal securities laws during the period from December 3, 2015 through December 20, 2018. Plaintiffs claim that the Company: (1) overstated its purported strategic alliance with a customer in China to operate as lead designer and manufacturer for all furnishings in such customer’s planned $460 million senior care center in China; (2) the Company inflated its reported sales in 2016 and 2017 with the Company’s two major customers; and (3) as a result, the Company’s public statements were materially false and misleading at all relevant times. In support of these claims, plaintiffs rely primarily upon the aforementioned Seeking Alpha blog in which it was claimed that an investigation of the Company failed to confirm the existence of several entities identified as significant customers, Plaintiffs purported to verify some of the information alleged in the Seeking Alpha blog. By Order entered December 2, 2019, the Court denied defendant’s Motion to Dismiss the Amended Complaint. Defendants have accordingly filed an Answer to the Amended Complaint denying its material allegations. The Court also entered a scheduling order setting a final pretrial conference for July 20, 2020.

 

Independent of the litigation, the Audit Committee engaged the Company’s auditor to perform special procedures to confirm the reported sales. Those procedures included, but were not limited to, the examination and testing of relevant documentation relating to the sales made by the Company to the customers identified in the purported research report for the periods 2015-2018, and 100% sampling of all transactions between the Company and the subject customers. The Audit Committee finished its special procedures in March 2019 and the Company’s independent auditor has reported to the Audit Committee that, regarding the four subject customers mentioned in the purported research report, the special procedures resulted in no evidence of fictitious sales or of fictitious customers. Please see the details in the Form 8-K filed by the Company with SEC on March 29, 2019.

 

On March 8, 2019, in the United States District Court for the Central District of California, shareholder Jie Yuan (the “Jie Action”) filed a 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), directors (Charlie Huy La, Bin Liu, Umesh Patel, and Min Su), and vice president (Steven Qing 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 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 nonpublic information . . . .”

 

On May 15, 2019, Wilson Samuels (the “Samuels Action”) also 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 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 2016, the Company asserted 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. He purports to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5.

 

On March 3, 2020, defendants filed in each of the derivative actions motions to stay those proceedings until the Barney action is resolved or alternatively to dismiss on the grounds that plaintiffs’ failure to make demand upon the Board 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 litigation is resolved.  The Motion to Stay and Dismiss remains pending in the Samuels Action. 

 

While these derivative actions are purportedly asserted on behalf of the Company, it is possible that the Company may directly incur attorneys’ fees and is 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.

 

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 the business, financial condition or results of operations.

 

21

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

22

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Since January 17, 2014, our common stock has been quoted on The NASDAQ Stock Market under the symbol “NVFY.” On May 11, 2020, the closing price for our common stock as reported on the NASDAQ Stock Market was $1.08 per share.

 

Holders of Record

 

On May 11, 2020, there were approximately 41 holders of record based on information provided by our transfer agent. Many of our shares of common stock are held in street or nominee name by brokers and other institutions on behalf of shareholders and we are unable to estimate the total number of shareholders represented by these record holders.

 

Dividend Policy

 

Dividends may be declared and paid out of legally available funds at the discretion of our Board of Directors. We do not anticipate or contemplate paying dividends on our common stock in the foreseeable future. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial condition, cash requirements and other factors deemed relevant by our Board of Directors. We currently intend to utilize all available funds to develop our business.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

On June 4, 2019, our Board of Directors authorized a share repurchase program, under which we may repurchase up to $2 million of our common stock over the next 12 months from June 5, 2019 through June 4, 2020. The share repurchase program was publicly announced on June 11, 2019. On December 11, 2019, the Company closed out this repurchase program.

 

As of December 31, 2019, we had repurchased 172,870 shares of common stock under this share repurchase program. The table below is a summary of the shares repurchased by us for the year ended December 31, 2019.

 

Period

 

Total
Number of
Shares of Common Stock
Purchased

   

Average Price
Paid Per Share

   

Total
Number of
Shares
Purchased as
Part of the Publicly
Announced Plan

   

Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plan

 

June 14 to June 30, 2019

    29,138     $ 3.78       29,138     $ 110,034  

July 1 to July 31, 2019

    45,174     $ 4.05       45,174     $ 183,317  

August 1 to August 31, 2019

    36,111     $ 3.75       36,111     $ 136,125  

September 1 to September 30, 2019

    25,123     $ 3.40       25,123     $ 85,980  

October 1 to October 31, 2019

    20,762     $ 1.98       20,762     $ 60,134  

November 1 to November 31, 2019

    9,879     $ 2.10       9,879     $ 25,974  

December 1 to December 31, 2019

    6,683     $ 2.21       6,683     $ 14,629  

Total

    172,870     $ 2.93       172,870     $ 616,193  

 

On December 20, 2019, the Company effectuated a 1 for 5 reverse stock split. Shares have been retroactively restated.

 

Shelf Registration

 

On July 13, 2017, 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 shelf registration statement was declared effective as of October 12, 2017.

 

Item 6. Selected Financial Data

 

Not required.

 

23

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Safe Harbor Declaration

 

The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the heading “Risk Factors.”

 

Overview

 

Nova LifeStyle, Inc. is a distributor 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.  We monitor popular trends and products 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-party manufacturing partner) a managed variety of high quality bedding foundation components.

 

Nova LifeStyle’s brand family currently includes Diamond Sofa (www.diamondsofa.com).

 

Our customers principally consist of distributors and retailers with specific geographic territories that deploy middle to high end private label home furnishings which have very little competitive overlap with our specific furnishing 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. This allows us to continually focus on building both 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 furniture worldwide: Nova Furniture Macao Commercial Offshore Limited, Bright Swallow International Group Limited, and Diamond Bar Outdoors, Inc. Nova Macao was organized under the laws of Macao on May 20, 2006. Nova Macao is a wholly owned subsidiary of 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 which we sold in January 2020.  On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the 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 minimal 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. This company is in the planning stage and has had minimal operations to date.

 

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, Asian and Middle Eastern markets. 

 

Due to the recent imposition of significant trade tariffs on importation from China to United States and the adverse effect such policies have on our operations, we are actively pursuing alternative product lines with positive growth potential. One such area pertains to the health-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, but it is currently closed as a result of the COVID-19 outbreak. We expect that it will serve as one of our primary distribution channels. 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.

 

24

 

Discontinued Operations

 

Towards the end of 2019, our board of directors determined to discontinue its marketing efforts in Canada and committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020. Operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented.

 

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, and the recent launch of our Summer 2019 Collection, 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; (iii) general economic conditions in the U.S., Chinese, Canadian, European and other international markets; and (iv) trade tariffs imposed by the United States on certain products manufactured in China; and (v) the consequences of the COVID-19 outbreak throughout the world. We believe most of our customers are willing to pay 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 margin for our products. We do not manufacture our products, rather we utilize third party manufacturers. In response to the tariffs imposed by the United States on certain products manufactured in China, we are attempting to shift 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 in 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 is not generally available in other Asian countries. Consumer preference trends favoring high quality and stylish products and lifestyle-based furniture suites should also allow us at least to maintain our gross profit margins. The markets in North America (excluding the United States) and particularly in Europe remain challenging because such markets are experiencing a slower than anticipated recovery from the international financial crisis, and may be entering another period of financial crisis due to the COVID-19 pandemic.

 

Critical Accounting Policies

 

While our significant accounting policies are described more fully in Note 2 to our accompanying consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this Management’s Discussion and Analysis. 

 

On January 1, 2019, we adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. See Note 2— Summary of Significant Accounting Policies and Note 15 — Leases in the notes to the consolidated financial statements for additional information regarding the adoption.

 

Basis of Presentation

 

The accompanying 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, Nova Macao, i Design, Nova Furniture, Nova Samoa, Nova Malaysia and its former subsidiary, Bright Swallow.

 

25

 

Use of Estimates

 

In preparing 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 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 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 $3,942 and $224,795 as of December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, bad debt (reversal) provision from continuing operations was ($220,853) and $13,241, respectively. During the years ended December 31, 2019 and 2018, bad debt expenses from discontinued operations were $0. As of December 31, 2019, we had gross receivable of $394,183, of which $0 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 5 to 9 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 comprehensive income (loss).

 

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.

 

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.

 

26

 

Nova Lifestyle, Inc. and Diamond Bar Outdoors, Inc. (“Diamond Bar”) are subject to U.S. federal and state income taxes. Nova Furniture BVI and Bright Swallow International Group Limited (“BSI”) were incorporated in the BVI, Nova Samoa was incorporated in Samoa and Nova Macau was incorporated in Macau. There is no income tax for companies domiciled in the BVI, Samoa and Macau. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI, Samoa and Macau tax jurisdictions where Nova Furniture BVI and BSI, Nova Samoa and Nova Macau are domiciled.

 

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 December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Act. In the fourth quarter of 2018, the Company completed its accounting for the impact of the Act and no material adjustments to the provisional tax expense was required.

 

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 year ended December 31, 2019, 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.

 

To the extent that portions of our U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, we may be able to claim foreign tax credits to offset our U.S. income tax liabilities. Any remaining liabilities are accrued in our consolidated statements of comprehensive income and estimated tax payments are made when required by U.S. law.

 

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 year ended December 31, 2019.

 

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 consolidated statements of comprehensive income (loss).

 

27

 

Foreign Currency Translation and Transactions

 

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

 

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

 

 

 

 

December 31, 2019

 

 

RM4.09 to 1

 

 

 

 

 

 

Income statement and cash flow items

 

 

 

 

For the period ended December 31, 2019

 

 

RM4.13 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, Bright Swallow is a furniture distributor focusing on customers primarily in Canada, Nova Macao is a furniture distributor based in Macao 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, Bright Swallow, Nova Macao 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 for administrative purposes.

 

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.

 

28

 

New Accounting Pronouncements 

 

Recently issued accounting pronouncements not yet adopted 

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.  Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Adoption of the ASUs is on a modified retrospective basis. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures. 

 

In January 2017, the FASB issued ASU No. 2017-04, simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact of adopting this standard on our consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. We are evaluating the effects of the adoption of this guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The adoption of this standard is not expected to have a material impact on our consolidated financial statements or disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, we must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. We are evaluating the impact this update will have on our financial statements.

 

29

 

Results of Operations

 

Comparison of Years Ended December 31, 2019 and 2018

 

The following table sets forth the results of our operations for the years ended December 31, 2019 and 2018. Certain columns may not add due to rounding.

 

   

Years Ended December 31,

 
   

2019

   

2018

 
   

   

% of Sales

   

$

   

% of Sales

 

Net sales

  $ 21,983,279             $ 81,178,010          

Cost of sales

    (20,690,015

)

    94

%

    (65,818,339

)

    81

%

Gross profit

    1,293,264       6

%

    15,359,671       19

%

Operating expenses

    (7,089,621

)

    32

%

    (10,532,405

)

    13

%

(Loss) Income from operations

    (5,796,357

)

    (26

%)

    4,827,266       6

%

Other expenses, net

    (89,281

)

    (0

%)

    (306,708

)

    (0

%)

Income tax (benefit) expense

    (251,042

)

    (1

%)

    738,767       1

%

(Loss) Income from continuing operations

    (6,136,680

)

    (28

%)

    5,259,325       6

%

(Loss) Income from discontinued operations

    (2,464,044

)

    (11

%)

    40,300       0

%

Net (loss) income

    (8,600,724

)

    (39

%)

    5,299,625       7

%

 

Net Sales

 

Net sales from continuing operations for the year ended December 31, 2019 were $21.98 million, a decrease of 73% from $81.18 million in the same period of 2018. This decrease in net sales resulted primarily from a 49.07% decrease in sales volume and 46.85% decrease in average selling price. Our largest selling product categories in the year ended December 31, 2019 were sofas, cabinets and beds, which accounted for approximately 50%, 13% and 10% of sales from our continuing operations, respectively. In the year ended December 31, 2018, the largest three selling categories were sofas, beds and television cabinets, which accounted for approximately 54%, 11% and 7% of sales from our continuing operations, respectively. 

 

Our revenue has been adversely impacted by two factors, (a) our decision to move away from low margin products and to eliminate customers generating low margin sales and customers that have slow payment histories, and (b) the increased trade tariffs imposed by the United States on products manufactured in China. The trade tariffs imposed by the United States would have effectively reduced or eliminated our gross margin on our low cost, low margin products, which in part drove our decision to move away from those products.  The resulting shift from those low cost, low margin products caused certain of our distributors that historically had represented a significant portion of our revenue to move their business to other providers.  The $59.20 million decrease in net sales from continuing operations in the year ended December 31, 2019, compared to the same period of 2018, was mainly due to decreased sales to Australia, Asia, and North America. Sales to North America were $10.17 million in the year ended December 31, 2019, a decrease of 78.34% from $46.96 million in 2018, primarily due to the trade war tariffs, which took effect in September 2018 and have caused a significant number of our sales orders to be held up. We also temporarily eliminated sales to customers generating high volume but low profit margin sales. Sales to Asia, excluding China, decreased 100% to $0 million in the year ended December 31, 2019, compared to $11.82 million in the same period of 2018. Australia sales also decreased 100% to $0 million in the year ended December 31, 2019, compared to $11.06 million in 2018. We stopped selling to customers from which it took us a long time to collect our accounts receivable. We thus ceased our marketing efforts in these regions altogether. We changed our sales strategy to seek sales of products of higher margins and shorter collection time on the customers’ accounts receivable. See the discussion of our tightened credit terms below under the heading Liquidity and Capital Resources.  China sales were $11.79 million in the year ended December 31, 2019, compared to $11.33 million in 2018, primarily as a result of increasing sales orders from one of our customers in China. Sales to other countries increased to $17,720 in the year ended December 31, 2019, compared to $9,990 in 2018, primarily due to receiving more sales orders from customers.

 

Cost of Sales

 

Cost of sales from continuing operations consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales from continuing operations decreased by 69% to $20.69 million in the year ended December 31, 2019, compared to $65.82 million in the same period of 2018. Cost of sales as a percentage of sales increased to 94% in the year ended December 31, 2019, compared to 81% in 2018. The decrease of cost of sales in dollars is primarily due to decreased sales. The increase in cost of sales as a percentage of sales is primarily a result of write-downs of slow moving inventory of $3.61 million for the year ended December 31, 2019.

 

30

 

Gross Profit

 

Gross profit from continuing operations decreased by 92% to $1.29 million in the year ended December 31, 2019, compared to $15.36 million in 2018. Our gross profit margin decreased to 6% in the year ended December 31, 2019, compared to 19% in 2018. The decrease in gross profit margin was mainly due to the written down slow moving inventory of $3.61 million for the year ended December 31, 2019.

 

Operating Expenses

 

Operating expenses from continuing operations consisted of selling, general and administrative expenses. Operating expenses were $7.08 million in the year ended December 31, 2019, compared to $10.53 million in the same period of 2018. Selling expenses decreased by 60%, or $2.40 million, to $1.58 million in the year ended December 31, 2019, from $3.98 million in the same period of 2018, primarily due to decreased sales commissions, marketing, advertising and show expenses. General and administrative expenses decreased by 16%, or $1.05 million, to $5.50 million in the year ended December 31, 2019, from $6.55 million in the same period of 2018, primarily due to a decrease in travel and consultant expenses of $0.52 million and $0.41 million, respectively.

 

Other Expenses, Net

 

Other expenses, net, from continuing operations was $89,281 in the year ended December 31, 2019, compared with other expenses, net, of $306,708 in the same period of 2018, representing a decrease in other expenses of $217,427. The decrease in other expenses was due primarily to the decreased interest expense on our lines of credit to $35,444 in the year ended December 31, 2019 from $170,373 in 2018. We paid off our lines of credit upon expiration on June 30, 2019. Besides, we recorded a higher interest income on our increased average balances at banks in 2019. Interest income was $61,319 for the year ended December 31, 2019, compared with interest expense of $118 for the year ended December 31, 2018.

 

Income Tax (Benefit) Expense

 

Income tax expense from continuing operations was $251,042 in the year ended December 31, 2019, compared with $738,767 of income tax benefit in 2018. The income tax expense for the year ended December 31, 2019 was primarily related to full valuation allowance against deferred tax assets, partially offset by a reversal of tax liability reserves due to a statute of limitations expiration in 2019. The income tax benefit for the year ended December 31, 2018 was mainly caused by a reversal of our tax liability reserves due to a statute of limitations expiration in 2018, and an adjustment made to the 2017 one-time transition tax expense, partially offset by accruing income tax on our 2018 income.

 

Net (Loss) Income from Continuing Operations

 

As a result of the foregoing, our net loss from continuing operations was $6.14 million in the year ended December 31, 2019, compared with $5.26 million of net income for the year of 2018.

 

Net (Loss) Income from Discontinued Operations

 

Towards the end of 2019, our board of directors determined to discontinue its marketing efforts in Canada and committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020. Operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. We had net loss from discontinued operations of $2.46 million in the year ended December 31, 2019, and net income from discontinued operations of $40,300 in the year ended December 31, 2018.

 

Net (Loss) Income

 

As a result of the foregoing, our net loss was $8.60 million in the year ended December 31, 2019, compared with $5.30 million of net income for the year of 2018.

 

31

 

Liquidity and Capital Resources

 

Our principal demands for liquidity are related to our efforts to increase sales, and to 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, collections of accounts receivable, and credit facilities from banks. The liquidity that is available to us is sufficient to support the Company’s operations for the next 12 months.

 

We rely primarily on internally generated cash flow and available 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.  As of December 31, 2019, we do not have any credit facilities. We believe that our current cash and cash equivalents and anticipated cash receipts from sales of 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 $67,034,171 at December 31, 2019, a decrease of $6,582,542 from net working capital of $73,616,713 at December 31, 2018. The ratio of current assets to current liabilities was 46.77-to-1 at December 31, 2019.

 

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2019 and 2018: 

 

   

2019

   

2018

 

Cash provided by (used in):

               

Operating activities

  $ 14,885,246     $ (6,882,324

)

Investing activities

    (25,902

)

    (27,529

)

Financing activities

    (6,864,354

)

    2,077,545  

 

Net cash provided by operating activities was $14.89 million in the year ended December 31, 2019, an increase of cash inflow of $21.77 million from $6.88 million of cash used in operating activities in 2018. The increase of cash inflow was attributable primarily to an increased cash inflow of $80.17 million from accounts receivable to $66.42 million cash inflow in the year ended December 31, 2019, compared to $13.75 million cash outflow in 2018, such increase being primarily due to collected accounts receivable from our customers. In past years, we had allowed our key customers to take longer than the granted credit periods to settle their purchases, in order to boost sales. Starting from the second half of 2018, we had been monitoring them closely for payment but our accounts receivable still reached a record high of $66.59 million as of December 31, 2018, and this negatively impacted to our cash flow from operating activities. In 2019, the industry environment worsened as a result of the imposition by the U.S. of tariffs on products manufactured in China. We determined not to accept new sales orders from those key customers until they settled all overdue balances. As a result of customer payments and the significant reduction in sales, we were able to reduce our accounts receivable balance by approximately $66.42 million in 2019. We will continue our efforts to tighten customers’ credit terms and expect that most of our customers will pay according to the contract terms going forward. The increase in operating cash inflow was partially offset by the increase in cash outflow for net loss of $11.43 million from net income of $5.30 million in the year ended December 31, 2018 to net loss of $8.60 million in the year ended December 31, 2019; the increase in cash outflow for advances to suppliers of $16.78 million to $18.20 million cash outflow in the year ended December 31, 2019, compared to $1.42 million cash outflow in 2018; and by the increase in cash outflow for inventory of $26.96 million to $26.96 million cash outflow in the year ended December 31, 2019, compared to $3,448 cash inflow in 2018.

 

Due to the recent imposition of significant trade tariffs on importation from China to the United States, we are actively developing alternative markets and product lines. We have been developing relationships with potential customers in Asia who intend to purchase high-end health furniture products for use in therapy clinics, hospitality and real estate projects. We have also been networking with sales agents to develop these markets. In the second quarter of 2019, we sourced physiotherapeutic jade mats from manufacturers in China. As of December 31, 2019, purchase of these inventories totaled $27.72 million, and we had advanced deposits for approximately $27.61 million in order to procure more of such products. These advances can ensure that our products are prioritized and help lock in purchase prices and bulk purchase discounts with our suppliers. We expect to receive these products within year 2020.

 

The operating cash flow is also negatively impacted by the increase in cash outflow for accounts payable of $6.24 million to $3.73 million in cash outflow in the year ended December 31, 2019, compared to $2.51 million in cash inflow in 2018, such increase being mainly due to more timely payments to suppliers.

 

Net cash used in investing activities was $25,902 and $27,529 in 2019 and 2018, respectively, for purchases of property and equipment.

 

32

 

Net cash used in financing activities was $6.86 million in the year ended December 31, 2019, an increase of cash outflow of $8.94 million from cash inflow of $2.08 million in 2018. In the year ended December 31, 2019, we repaid $23.76 million in bank loans and borrowed $17.51 million in bank loans, while repurchasing common stock for $616,193.  In the year ended December 31, 2018, we repaid $65.53 million in bank loans, and borrowed $67.58 million in bank loans, while cash received from exercise of options for common stock was $31,501.

 

As of December 31, 2019, we had gross accounts receivable of $394,183, of which $361,737 was not yet past due, $32,446 was less than 90 days past due and $0 was over 90 days past due. We had an allowance for bad debt of $3,942. As of May 5, 2020, $376,609 accounts receivable outstanding at December 31, 2019 had been collected.

 

All accounts receivable outstanding at December 31, 2018 had been collected during 2019.

 

As of December 31, 2019 and 2018, we had advances to suppliers of $27,745,184 and $9,545,489, respectively. These supplier prepayments are made for goods before we actually receive them. As of December 31, 2019, we made deposits of $27.61 million with suppliers who manufacture physiotherapeutic jade mats in China.

 

For a 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 five months after our advance payment. We will consider the need for a reserve when and if a supplier fails to fulfill our orders within the time frame as stipulated in the purchase contracts. As of December 31, 2019 and December 31, 2018, no reserve on supplier prepayments had been made or recorded by us.

 

As of May 5 2020, none of our advances to suppliers outstanding at December 31, 2019 had been delivered to us in the form of purchases of physiotherapeutic jade mats. Most of these products have been ready to ship to us, however, due to COVID-19 pandemic, we request the suppliers to put the shipment on hold. We will request these products to be delivered to us when the COVID-19 outbreak dissipates.

 

Lines of Credit

 

On September 19, 2017, Diamond Bar extended the line of credit up to a maximum of $8,000,000 to mature on June 1, 2019. The annual interest rate was 5.50% as of December 31, 2019. The line of credit was secured by all of the assets of Diamond Bar and is guaranteed by Nova LifeStyle. We paid off our lines of credit upon expiration on June 30, 2019. As of December 31, 2019 and 2018, Diamond Bar had $0 and $6,248,162 outstanding on the line of credit, respectively.  During the years ended December 31, 2019 and 2018, the Company recorded interest expense of $35,444 and $170,373, respectively.

 

As of December 31, 2019, we do not have any credit facilities.

 

The Diamond Bar loan had the following covenants: (i) maintain a minimum tangible net worth of not less than $20 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.5 to 1.0; (iii) the pre-tax income must not be less than 1% of total quarterly revenue; and (iv) maintain a current ratio in excess of 1.25 to 1.00. As of December 31, 2018, Diamond Bar was in compliance with the stated covenants.  

 

Shelf Registration

 

On July 13, 2017, 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 shelf registration statement was declared effective as of October 12, 2017.

 

Other Long-Term Liabilities

 

As of December 31, 2019, we recorded long-term taxes payable of $1.83 million, consisting of an income tax payable of $1.82 million, primarily arising from a one-time transition tax recognized in the fourth quarter of 2017 on our post-1986 foreign unremitted earnings, and a $0.01 million unrecognized tax benefit, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities.

 

We elected to pay the one-time transition tax over the eight years commencing April 2018.

 

33

 

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 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 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 8. Financial Statements and Supplementary Data

 

Our financial statements, together with the report thereon, appear in a separate section of this Annual Report beginning on page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (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 December 31, 2019. Based on this evaluation, our CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. 

 

Management’s Report on Internal Control over Financial Reporting

 

Our management, with oversight from our audit committee effective as of June 4, 2013, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. In designing and evaluating internal controls, management recognizes that any internal controls, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of control systems must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2019, using the criteria set forth by the Committee of Sponsoring Organizations of the Tread way Commission (COSO) in the 2013 Internal Control-Integrated Framework.  Based on this assessment, our management concluded that, as of December 31, 2019, our internal control over financial reporting was effective.  

 

34

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information. 

               

Not applicable

 

35

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

Information relating to nominees for director of Nova LifeStyle, compliance with Section 16(a) of the Securities Exchange Act of 1934, and the Company’s code of ethics is set forth under the captions “Proposal 1–Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance,” and “Code of Ethics,” respectively, in the Proxy Statement for our 2020 Annual Meeting of Stockholders. Such information is incorporated herein by reference. The definitive Proxy Statement will be filed with the Securities and Exchange Commission no later than 165 days after December 31, 2019, in reliance upon the SEC Order issued pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules thereunder (SEC Release No. 34-88465 on March 25, 2020).

 

Item 11. Executive Compensation

 

Information required by this Item 11 relating to executive compensation and other matters is set forth under the captions “Executive Compensation,” “Non-Employee Director Compensation,” and “Corporate Governance” in the Proxy Statement referred to in Item 10 above.  Such information is incorporated herein by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Information related to ownership of common stock of Nova LifeStyle by certain persons is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement referred to in Item 10 above.  Such information is incorporated herein by reference.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Information relating to existing or proposed relationships or transactions between Nova LifeStyle and any affiliate of Nova LifeStyle, as well as matters related to director independence, is set forth under the caption “Certain Relationships and Related Transactions” in the Proxy Statement referred to in Item 10 above.  Such information is incorporated herein by reference.

 

Item 14. Principal Accounting Fees and Services

 

Information relating to Nova LifeStyle’s principal accountant’s fees and services is set forth under the caption “Principal Accountant Fees and Services” in the Proxy Statement referred to in Item 10 above.  Such information is incorporated herein by reference.

 

 

36

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

The following documents are filed as part of or are included in this Annual Report:

 

1.  

Financial statements listed in the Index to Financial Statements, filed as part of this Annual Report beginning on page F-1; and

2.  

Exhibits

 

Exhibit No.

 

Description

2.1

 

Agreement and Plan of Merger by and between Stevens Resources, Inc. and Nova LifeStyle, Inc., dated June 14, 2011 (Incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

2.2

 

Share Exchange Agreement and Plan of Reorganization by and between Nova Furniture Limited and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

2.3

 

Return to Treasury Agreement by and between Nova LifeStyle, Inc. and Alex Li, dated June 30, 2011 (Incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

3.1

 

Articles of Incorporation (Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-163019) filed on November 10, 2009)

3.2

 

Amended and Restated Bylaws (Incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

3.3

 

Certificate of Amendment to Articles of Incorporation filed with the Secretary of the State of Nevada on December 15, 2009, and effective as of September 9, 2009 (Incorporated herein by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

3.4

 

Articles of Merger between Stevens Resources, Inc. and Nova LifeStyle, Inc. amending the Articles of Incorporation filed with the Secretary of State of the State of Nevada on June 14, 2011, and effective as of June 27, 2011 (Incorporated herein by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

3.5

 

Articles of Exchange of Nova Furniture Limited and Nova LifeStyle, Inc. filed with the Secretary of State of the State of Nevada on June 30, 2011 (Incorporated herein by reference to Exhibit 3.5 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

3.6

 

First Amendment to the Amended and Restated Bylaws of Nova Lifestyle, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36259) filed on February 28, 2018)

3.7

 

Certificate of Change to Authorized Shares of Nova Lifestyle, Inc. (Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-36259) filed on December 20, 2019)

4.1

 

Specimen Stock Certificate (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

4.2

 

Form of Regulation S Subscription Agreement (Incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.3

 

Form of Regulation D Subscription Agreement (Incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.4

 

Form of Regulation S Warrant (Incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.5

 

Form of Regulation D Warrant (Incorporated herein by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.6

 

Form of Regulation S Registration Rights Agreement (Incorporated herein by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.7

 

Form of Regulation D Registration Rights Agreement (Incorporated herein by reference to Exhibit 4.7 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 22, 2011)

4.8

 

Form of Regulation S Subscription Agreement (Incorporated herein by reference to Exhibit 4.8 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

4.9

 

Form of Regulation D Subscription Agreement (Incorporated herein by reference to Exhibit 4.9 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

4.10

 

Form of Regulation S Warrant (Incorporated herein by reference to Exhibit 4.10 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

4.11

 

Form of Regulation D Warrant (Incorporated herein by reference to Exhibit 4.11 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

 

37

 

4.12

 

Form of Regulation S Registration Rights Agreement (Incorporated herein by reference to Exhibit 4.12 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

4.13

 

Form of Regulation D Registration Rights Agreement (Incorporated herein by reference to Exhibit 4.13 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on January 18, 2012)

10.1

 

Shareholder Agreement by and between Nova Furniture Limited and St. Joyal, dated January 1, 2011 (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)

10.2#

 

Amended and Restated Employment Agreement between Nova LifeStyle, Inc. and Thanh H. Lam, dated May 3, 2013 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on May 9, 2013)

10.3#

 

Form of Director Agreement (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 3, 2013)

10.4#

 

Stock Award Agreement between Thanh H. Lam and Nova Lifestyle, Inc., effective May 3, 2013 (Incorporated herein by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)

10.5#

 

Nova LifeStyle, Inc. 2014 Omnibus Long-Term Incentive Plan (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A (File No. 333-163019) filed on July 10, 2014)

10.6#

 

Nova LifeStyle, Inc. Form of Restricted Stock Award Agreement (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A (File No. 333-163019) filed on July 10, 2014)

10.7#

 

Employment Agreement between Nova LifeStyle, Inc. and Jeffery Chuang, dated August 22, 2017 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 13, 2017)

10.8#

 

Employment Agreement between Nova LifeStyle, Inc. and Min Su, dated February 27, 2018 and effective as of November 14, 2017 (Incorporated herein by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed March 29, 2018)

10.9

 

Share Transfer Agreement between Nova Furniture Limited and Kuka Design Limited, dated September 23, 2016 (Incorporated herein by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K filed on April 14, 2017)

10.10

 

Trademark Assignment Agreement between Nova Furniture Limited and Kuka Design Limited, dated November 10, 2016 (Incorporated herein by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed on April 14, 2017)

10.11#

 

Amendment to Amended and Restated Employment Agreement between Thanh H. Lam and Nova LifeStyle, Inc., dated July 24, 2017 (Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 27, 2017)

10.12#

 

Employment Agreement by and between Nova Lifestyle Inc. and Thanh H. Lam dated May 8, 2018 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2018)

10.13#

 

Employment Agreement by and between Nova Lifestyle Inc. and Jeffery Chuang dated August 22, 2018 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 28, 2018)

10.14#

 

Employment Agreement by and between Nova Lifestyle Inc. and Min Su dated December 13, 2018 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2018)

10.15

 

Sales Representative Agreement between Diamond Bar Outdoors, Inc. and Tawny Lam Consulting, Inc. dated January 4, 2018 (Incorporated herein by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K filed April 1, 2019)

10.16#

 

Employment Agreement by and between Nova Lifestyle Inc. and Jeffery Chuang dated August 12, 2019 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 16, 2019)

10.17†   Sales Representative Agreement by and between Diamond Bar Outdoors, Inc. and Tawny Lam Consulting, Inc. dated January 4, 2020
10.18†   Sale and Purchase Agreement by and between Nova LifeStyle, Inc. and Y-Tone (Worldwide) Limited dated January 7, 2020

14.1

 

Code of Business Conduct and Ethics of Nova Lifestyle, Inc. (Incorporated herein by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 10, 2013)

 

38

 

21.1†

 

Subsidiaries of the Registrant

23.1†

 

Consent of Centurion ZD CPA & Co.

24.1†

 

Power of Attorney (Included on the Signature Page of this Annual Report on Form 10-K)

31.1†

 

Certification of Principal 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 Principal 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‡

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2‡

 

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS

 

XBRL Instance Document.

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document.

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document.

 

#           Indicates management contract or compensatory plan, contract or arrangement.

†           Filed herewith.

‡           Furnished herewith.

 

39

 

NOVA LIFESTYLE, INC.

 

Consolidated Financial Statements

Years Ended December 31, 2019 and 2018

 

Index to Consolidated Financial Statements

 

 

Page

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Financial Statements

 

Consolidated Balance Sheets as of December 31, 2019 and 2018

F-3

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018

F-5

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018

F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018

F-7

Notes to Consolidated Financial Statements for the years ended December 31, 2019 and 2018

F-9

 

 

F-1

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Nova Lifestyle, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Nova Lifestyle, Inc. and subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Centurion ZD CPA & Co.

 

We have served as the Company's auditor since 2016.

 

Hong Kong, China

 

May 12, 2020

 

 

F-2

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 

Assets

               
                 

Current Assets

               

Cash and cash equivalents

  $ 7,423,198     $ 243,551  

Accounts receivable, net

    390,241       66,592,663  

Advance to suppliers

    27,745,184       9,545,489  

Inventories

    29,724,665       6,371,112  

Prepaid expenses and other receivables

    173,607       100,394  

Current assets of discontinued operations

    3,041,976       2,596,405  
                 

Total Current Assets      

    68,498,871       85,449,614  
                 

Noncurrent Assets

               

Plant, property and equipment, net

    136,512       147,096  

Operating lease right-of-use assets, net

    2,658,344       -  

Lease deposit

    43,260       43,260  

Goodwill

    218,606       218,606  

Deferred tax asset

    -       436,449  

Non-current assets of discontinued operations

    -       3,795,904  
                 

Total Noncurrent Assets

    3,056,722       4,641,315  
                 

Total Assets      

  $ 71,555,593     $ 90,090,929  

 

F-3

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (continued)

DECEMBER 31, 2019 AND 2018

  

   

2019

   

2018

 
                 

Liabilities and Stockholders' Equity

               
                 

Current Liabilities

               

Accounts payable 

  $ 417,918     $ 4,145,927  

Line of credit

    -       6,248,162  

Operating lease liability, current

    481,068       -  

Advance from customers

    26,450       45,309  

Accrued liabilities and other payables

    301,764       803,455  

Income tax payable

    22,055       584,874  

Current liabilities of discontinued operations

    215,445       5,174  
                 

Total Current Liabilities

    1,464,700       11,832,901  
                 

Noncurrent Liabilities

               

Operating lease liability, non-current

    2,211,061       -  

Income tax payable

    1,833,286       2,255,094  

Non-current liabilities of discontinued operations

    -       1,096,558  
                 

Total Noncurrent Liabilities

    4,044,347       3,351,652  
                 

Total Liabilities

    5,509,047       15,184,553  
                 

Contingencies and Commitments

               
                 

Stockholders' Equity

               

Common stock, $0.001 par value; 15,000,000 shares authorized, 

5,741,604 and 5,713,330 shares issued and outstanding;

as of December 31, 2019 and 2018, respectively

    5,741       5,713  

Additional paid-in capital

    40,221,062       39,864,003  

Statutory reserves

    6,241       6,241  

Treasury stock, at cost, 172,870 and nil shares as of December 31, 2019 and 2018,  respectively 

    (616,193

)

    -  

Retained earnings 

    26,429,695       35,030,419  
                 

Total Stockholders' Equity

    66,046,546       74,906,376  
                 

Total Liabilities and Stockholders' Equity

  $ 71,555,593     $ 90,090,929  

 

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

 

F-4

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 
                 

Net Sales 

  $ 21,983,279     $ 81,178,010  
                 

Cost of Sales

    20,690,015       65,818,339  
                 

Gross Profit

    1,293,264       15,359,671  
                 

Operating Expenses

               

Selling expenses

    1,585,542       3,980,826  

General and administrative expenses

    5,504,079       6,551,579  
                 

Total Operating Expenses

    7,089,621       10,532,405  
                 

(Loss) Income From Operations

    (5,796,357

)

    4,827,266  
                 

Other Income (Expenses)

               

Non-operating income, net

    37,915       596  

Foreign exchange transaction gain (loss)

    79       (124

)

Interest income (expense), net

    25,875       (170,255

)

Financial expense

    (153,150

)

    (136,925

)

                 

Total Other Expenses, Net

    (89,281

)

    (306,708

)

                 

(Loss) Income Before Income Taxes and Discontinued operations

    (5,885,638

)

    4,520,558  
                 

Income Tax (Expense) Benefit 

    (251,042

)

    738,767  
                 

(Loss) Income From Continuing Operations

    (6,136,680

)

    5,259,325  
                 

(Loss) Income From Discontinued Operations

    (2,464,044

)

    40,300  
                 

Net (Loss) Income and Comprehensive (Loss) Income

    (8,600,724

)

    5,299,625  
                 
                 

Basic weighted average shares outstanding

    5,666,320       5,678,771  

Diluted weighted average shares outstanding

    5,666,320       5,722,657  
                 

(Loss) Income from continuing operations per share of common stock

               

Basic

  $ (1.08

)

  $ 0.92  

Diluted

  $ (1.08

)

  $ 0.92  
                 

(Loss) Income from discontinued operations per share of common stock

               

Basic

  $ (0.44

)

  $ 0.01  

Diluted

  $ (0.44

)

  $ 0.01  
                 

Net (loss) income per share of common stock

               

Basic

  $ (1.52

)

  $ 0.93  

Diluted

  $ (1.52

)

  $ 0.93  

 

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

 

F-5

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

                                                 

Total 

 
   

Common stock

   

Additional

   

Treasury

   

Statutory

   

Retained

   

Stockholders’

 
   

Shares

   

Amount

   

Paid-in Capital

   

Stock

   

Reserve

   

Earnings

   

Equity 

 
                                                         

Balance at January 1, 2018

    5,638,385       5,638       38,704,931       -       6,241       29,730,794       68,447,604  
                                                         

Exercise of options – employees

    6,546       7       31,494       -       -       -       31,501  
                                                         

Stock issued to employees

    7,500       7       73,869       -       -       -       73,876  
                                                         

Stock issued to consultants

    60,899       61       486,538       -       -       -       486,599  
                                                         

Stock options vested to board of directors and employees

    -       -       567,171       -       -       -       567,171  
                                                         

Net income

    -       -       -       -       -       5,299,625       5,299,625  
                                                         

Balance at December 31, 2018

    5,713,330     $ 5,713     $ 39,864,003     $ -     $ 6,241     $ 35,030,419     $ 74,906,376  
                                                         

Stock issued to employees

    4,500       5       17,320       -       -       -       17,325  
                                                         

Stock issued to consultants

    23,774       23       99,977       -       -       -       100,000  
                                                         

Stock options vested to board of directors and employees

    -       -       239,762       -       -       -       239,762  
                                                         

Common stock repurchased

    -       -       -       (616,193 )     -       -       (616,193 )
                                                         

Net loss

    -       -       -       -       -       (8,600,724 )     (8,600,724 )
                                                         

Balance at December 31, 2019

    5,741,604     $ 5,741     $ 40,221,062     $ (616,193 )   $ 6,241     $ 26,429,695     $ 66,046,546  

 

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

 

F-6

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 

Cash Flows From Operating Activities

               

 Net (loss) income

  $ (8,600,724

)

  $ 5,299,625  

 Net (loss) income from discontinued operations

    (2,464,044

)

    40,300  

 Net (loss) income from continuing operations

    (6,136,680

)

    5,259,325  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    36,486       37,679  

Amortization of operating lease right-of-use assets

    474,291       -  

Deferred tax benefit

    436,449       (117,488

)

Stock compensation expense 

    369,247       1,194,759  

Changes in bad debt allowance

    (220,853

)

    13,241  

Write-down of inventories

    3,605,748       -  

Changes in operating assets and liabilities:

               

Accounts receivable

    66,423,276       (13,753,400

)

Advance to suppliers

    (18,199,695

)

    (1,418,544

)

Inventories

    (26,959,301

)

    3,448  

Operating lease liabilities

    (440,507

)

    -  

Other current assets

    (88,607

)

    49,551  

Accounts payable 

    (3,728,008

)

    2,511,373  

Advance from customers

    (18,859

)

    25,483  

Accrued liabilities and other payables

    (498,457

)

    (28,590

)

Taxes payable

    (984,627

)

    (848,479

)

                 

Net Cash Provided by (Used in) Continuing Operations

    14,069,903       (7,071,642

)

Net Cash Provided by Discontinued Operations

    815,343       189,318  

Net Cash Provided by (Used in) Operating Activities

    14,885,246       (6,882,324

)

                 

Cash Flows From Investing Activities

               

Purchase of property and equipment

    (25,902

)

    (27,529

)

                 

Net Cash Used in Continuing Operations

    (25,902

)

    (27,529

)

Net Cash Provided by Discontinued Operations

    -       -  

Net Cash Used in Investing Activities

    (25,902

)

    (27,529

)

                 

Cash Flows From Financing Activities

               

Proceeds from line of credit and bank loan

    17,512,205       67,576,418  

Repayment to line of credit and bank loan

    (23,760,366

)

    (65,530,374

)

Proceeds from the exercise of options for common stocks

    -       31,501  

Purchase of the treasury stock

    (616,193

)

    -  
                 

Net Cash (Used in) Provided by Continuing Operations

    (6,864,354

)

    2,077,545  

Net Cash Provided by Discontinued Operations

    -       -  

Net Cash (Used in) Provided by Financing Activities

  $ (6,864,354

)

  $ 2,077,545  

 

F-7

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

   

2019

   

2018

 
                 

Net increase (decrease) in cash and cash equivalents

  $ 7,994,990     $ (4,832,308

)

                 

Cash and cash equivalents, beginning of year

    890,408       5,722,716  
                 

Cash and cash equivalents, ending of year

  $ 8,885,398     $ 890,408  
                 

Analysis of cash and cash equivalents

               
                 

Included in cash and cash equivalents per consolidated balance sheets

  $ 7,423,198     $ 243,551  

Included in assets of discontinued operations

    1,462,200       646,857  

Cash and cash equivalents, end of year

  $ 8,885,398     $ 890,408  
                 
Supplemental Disclosure of Cash Flow Information                
                 

Continuing operations:

               

Cash paid during the years for:

               

Income tax payments

  $ 799,220     $ 227,200  

Interest expense

  $ 64,286     $ 173,128  
                 

Discontinued operations:

               

Cash paid during the years for:

               

Income tax payments

  $ -     $ -  

Interest expense

  $ -     $ -  

 

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

 

F-8

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

 

Note 1 - Organization and Description of 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 its subsidiaries through which it markets, designs and sells furniture worldwide: Nova Furniture Limited in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. in Samoa (“Nova Samoa”), Bright Swallow International Group Limited (“Bright Swallow” or “BSI”), Nova Furniture Macao Commercial Offshore Limited (“Nova Macao”), Diamond Bar Outdoors, Inc. (“Diamond Bar”) and Nova Living (M) SDN. BHD. (“Nova Malaysia”).

 

Nova Macao was organized under the laws of Macao on May 20, 2006, and is a wholly owned subsidiary of Nova Furniture.  Diamond Bar was incorporated in California on June 15, 2000.  Nova Macao is a trading company, importing, marketing and selling products designed and manufactured by third-party manufacturers for the U.S. and international markets. Diamond Bar markets and sells products manufactured by third-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.  

 

On December 7, 2017, Nova LifeStyle, Inc. incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State 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 to date.

 

On December 12, 2019, Nova LifeStyle, Inc. acquired Nova Living (M) SDN. BHD (“Nova Malaysia’), which was incorporated in Malaysia on July 26, 2019. The purpose of this acquisition is to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia. This company is in the planning stage and has had minimal operations to date.

 

Towards the end of 2019, the board of directors of the Company intended to discontinue its marketing efforts in Canada and committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020. As of December 31, 2019, operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Accordingly, assets, liabilities, revenues, expenses and cash flows related to Bright Swallow have been reclassified in the consolidated financial statements as discontinued operations for all periods presented. Additional information with respect to the sale of Bright Swallow is presented at Note 3.

 

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, BSI and Nova Malaysia.

 

Note 2 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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.

 

Reverse split

 

On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), shall be effected. All references to shares and per share data have been retroactively restated to reflect such split.  

 

F-9

 

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

 

Recently Adopted Accounting Pronouncements

 

On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

 

Significant Accounting Policies - Leases

 

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with its historical accounting under Topic 840.

 

The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

 

Upon adoption, the Company recognized total ROU assets of $3.13 million, with corresponding liabilities of $3.13 million on the consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact its beginning retained earnings, or its prior year consolidated statements of income and statements of cash flows.

 

Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

 

Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and non-current operating lease liabilities, on the consolidated balance sheets.

 

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.

 

F-10

 

Deferred tax liability and assets 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 December 31, 2019 and 2018, the Company concluded there was no impairment of goodwill of Diamond Bar.

 

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

 

The Company’s accounts receivable arise from product sales. The Company does not adjust its receivables for the effects of 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, 2019

  $ 224,795  

Provision for the year

    3,942  

Reversal – recoveries by cash

    (224,795

)

Balance at December 31, 2019

  $ 3,942  

 

During the years ended December 31, 2019 and 2018, bad debts (reversal) provision from continuing operations were ($220,853) and $13,241, respectively. During the year ended December 31, 2019 and 2018, bad debt provision and written off from discontinued operations were $0.

 

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 in normal circumstances, the Company receives goods within 5 to 9 months from the date the advance payment is made. 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 the Company. Any provisions for allowance for advances to suppliers, if deemed necessary, are included in general and administrative expenses in the consolidated statements of comprehensive income (loss). During the years ended December 31, 2019 and 2018, no provision was made on advances to suppliers.

 

F-11

 

Inventories

 

Inventories are stated at the lower of cost and net realizable value, with cost determined on a weighted-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 year ended December 31, 2019, the Company wrote-down $3.61 million of slow-moving inventory. The Company did not record any write-downs of inventories at December 31, 2018. The inventory write-down is included in “Cost of Sales” from continuing operations in the consolidated statements of comprehensive income. There were no write-downs of inventories from the Company’s discontinued operations for the years ended December 31, 2019 and 2018.

 

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, 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 no salvage value and estimated lives as follows:

 

Computer and office equipment

5 - 10 years

Decoration and renovation

5 - 10 years

 

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.

 

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.

 

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 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 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 the asset group asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

 

Treasury Stock

 

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in capital using the average-cost method. Upon retirement of treasury stock, the amounts in excess of par value are charged entirely to retained earnings.

 

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 expenses from continuing operations were $132,844 and $237,290 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, research and development costs from discontinued operations were $0.

 

F-12

 

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.

 

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.

 

Nova Lifestyle, Inc. and Diamond Bar Outdoors, Inc. (“Diamond Bar”) are subject to U.S. federal and state income taxes. Nova Furniture BVI and Bright Swallow International Group Limited (“BSI”) were incorporated in the BVI, Nova Samoa was incorporated in Samoa, and Nova Macau was incorporated in Macau. There is no income tax for companies domiciled in the BVI, Samoa and Macau. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI, Samoa and Macau tax jurisdictions where Nova Furniture BVI and BSI, Nova Samoa and Nova Macau are domiciled.

 

On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly change the federal income tax laws. The provisions of the Tax Act that have significant impact on the Company include the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for Global Intangible Low-Taxed Income ("GILTI"), deduction for Foreign Derived Intangible Income ("FDII"), repeal of corporate alternative minimum tax, limitation of various business deductions, and modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017.

 

The Act also 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 year ended December 31, 2019, 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.

 

As of December 31, 2019, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $27.8 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.

 

A reconciliation of the January 1, 2019 through December 31, 2019 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:

 

   

Gross UTB

 
   

2019

   

2018

 
                 

Balance – January 1

  $ 158,153       884,361  

Decrease in unrecorded tax benefits taken, related to the Company’s continuing operations

    (145,606

)

    (726,208

)

Foreign exchange adjustment 

            -  

Balance – December 31

  $ 12,547       158,153  

 

F-13

 

At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $1,278 and $85,994 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s continuing operations. The Company recorded reversal of interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled $84,716 and $71,948 for the years ended December 31, 2019, and 2018, respectively, 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.

 

At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $0 and $532,657 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s discontinued operations. The Company recorded (a decrease) an increase in unrecognized tax benefits and (reversal) increase in interest and penalties as a component of income tax (benefit) expense, which totaled $(1,011,532) and $111,142 for the years ended December 31, 2019, and 2018, respectively, related to the Company’s discontinued operations.

 

Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2015-2018 remain open to examination by tax authorities in the U.S.

 

Revenue Recognition

 

The Company 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 recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses 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.

 

Revenues from product sales are recorded net of reserves established for applicable discounts and allowances 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 amount is payable to the Company’s customer.

 

The Company’s sales policy allows for product returns within the warranty period if the product is defective and the defects are the Company’s fault.  As alternatives to the product return option, the customers have the option of requesting a discount from the Company for products with quality issues or of receiving replacement parts from the Company at no cost. The amount for product returns, the discount provided to the Company’s customers, and the costs for replacement parts were immaterial for the years ended December 31, 2019 and 2018.

 

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on the Company’s consolidated statements of comprehensive income (loss).

 

Cost of Sales

 

Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers and write-downs of inventory.

 

Shipping and Handling Costs

 

Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the years ended December 31, 2019 and 2018, shipping and handling costs (income) from continuing operations were $2,792 and $(6,399), respectively. During the years ended December 31, 2019 and 2018, shipping and handling costs from discontinued operations were $0.

 

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 $176,526 and $1,076,570 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, advertising expense from discontinued operations were $0. 

 

F-14

 

Share-based compensation

 

The Company accounts for share-based compensation awards to employees 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 service 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.

 

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) income per share for the years ended December 31, 2019 and 2018: 

 

   

2019

   

2018

 
                 

Net (loss) income from continuing operations

  $ (6,136,680

)

  $ 5,259,325  

Net (loss) income from discontinued operations

    (2,464,044

)

    40,300  

Net (loss) income 

    (8,600,724

)

    5,299,625  
                 

Weighted average shares outstanding – basic*

    5,666,320       5,678,771  

Dilutive stock options and unvested restricted stock

    -       43,886  

Weighted average shares outstanding – diluted

    5,666,320       5,722,657  
                 

(Loss) Income from continuing operations per share of common stock

               

– basic

  $ (1.08

)

  $ 0.92  

– diluted

  $ (1.08

)

  $ 0.92  
                 

(Loss) Income from discontinued operations per share of common stock

               

– basic

  $ (0.44

)

  $ 0.01

 

– diluted

  $ (0.44

)

  $ 0.01

 

                 

(Loss) Income per share of common stock

               

– basic

  $ (1.52

)

  $ 0.93  

– diluted

  $ (1.52

)

  $ 0.93  

 

*

Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.

 

F-15

 

For the year ended December 31, 2019, 171,667 shares purchasable under warrants, 26,000 shares of unvested restricted stock and options to purchase 340,500 shares of the Company’s stock were excluded from the EPS calculation, as their effects were anti-dilutive.

 

For the year ended December 31, 2018, 171,667 shares purchasable under warrants and 26,000 unvested restricted stock 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.

 

One major customer accounted for 54% of the Company’s sales from our continuing operations for the year ended December 31, 2019 and major customers accounted for 43% (15%, 14% and 14% each) of the Company’s sales from our continuing operations for the year of 2018.  Gross accounts receivable from these customers was $0 and $55,683,031 as of December 31, 2019 and 2018, respectively.

 

The Company purchased its products from three major vendors during the year ended December 31, 2019 and 2018, accounting for a total of 61% (31%, 15% and 15% each) and 83% (37%, 34%, and 12% each) of the Company’s purchases from our continuing operations, respectively. Advances made to these vendors were $17,279,749 and $6,719,481 as of December 31, 2019 and 2018, respectively. Accounts payable to these vendors was $0 as of December 31, 2019 and 2018.

 

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, advances to suppliers, other receivables, accounts payable, short-term 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 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 consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Nova Macao, Bright Swallow, Diamond Bar 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 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 comprehensive loss.

 

F-16

 

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

       

December 31, 2019

    RM4.09 to 1  
         

Income statement and cash flows items

       

For the period ended December 31, 2019

    RM4.13 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.

 

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, Bright Swallow is a furniture distributor focusing on customers in Canada, and Nova Macao is a furniture distributor based in Macao focusing on international customers, and Nova Malaysia is a furniture retailer and distributor focusing on 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 and Nova Malaysia as a whole for making business decisions.

 

After the disposal of Nova Dongguan and its subsidiaries in October 2016, all of the Company’s long-lived assets are mainly property, plant and equipment located in the United States for administrative purposes.

 

Net sales to customers by geographic area are determined by reference to the physical locations of the Company’s customers. For example, if the products are delivered to a customer in the US, 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 issued accounting pronouncements not yet adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Adoption of the ASUs is on a modified retrospective basis. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

 

F-17

 

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.

 

Note 3 - Discontinued Operations

 

Towards the end of 2019, the board of directors of the Company committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020.

 

As of December 31, 2019, operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Accordingly, assets, liabilities, revenues, expenses and cash flows related to Bright Swallow have been reclassified in the consolidated financial statements as discontinued operations for all periods presented.

 

The following table presents the components of discontinued operations in relation to Bright Swallow reported in the consolidated statements of operations:

 

   

2019

   

2018

 
                 

Sales

  $ 6,547,538     $ 7,467,194  

Cost of sales

    (6,223,468

)

    (6,874,666

)

Operating expenses

    (3,799,261

)

    (471,729

)

(Loss) income before income taxes

    (3,475,576

)

    119,149  

Income tax (benefit) expense

    (1,011,532

)

    78,849  

(Loss) income from discontinued operations

    (2,464,044

)

    40,300  

 

F-18

 

The following table presents the major classes of assets and liabilities of discontinued operations of Bright Swallow reported in the consolidated balance sheets:

 

   

December 31,

2019

   

December 31,

2018

 
                 

Cash and equivalents

  $ 1,462,200     $ 646,857  

Accounts receivable, net

    969,841       864,598  

Advance to suppliers, net

    609,935       1,079,532  

Prepaid expenses and other receivables

    -       5,418  

Current assets of discontinued operations

    3,041,976       2,596,405  
                 

Intangible assets

    -       3,795,904  

Non-current assets of discontinued operations

    -       3,795,904  
                 

Accounts payable

  $ 948     $ -  

Advance from customers

    126,916       -  

Accrued liabilities and other payables

    2,553       5,174  

Income tax payable

    85,028       -  

Current liabilities of discontinued operations

    215,445       5,174  
                 

Noncurrent FIN 48 liability

    -       1,096,558  

Non-current liabilities of discontinued operations

    -       1,096,558  

 

Note 4 - Inventories

 

The inventories as of December 31, 2019 and 2018 totaled $29,724,665 and $6,371,112, respectively, and were all finished goods.

 

Note 5 - Plant, Property and Equipment, Net

 

As of December 31, 2019 and 2018, plant, property and equipment consisted of the following: 

 

   

2019

   

2018

 
                 

Computer and office equipment

  $ 346,141     $ 320,239  

Decoration and renovation

    118,858       118,858  

Less: accumulated depreciation

    (328,487

)

    (292,001

)

    $ 136,512     $ 147,096  

 

Depreciation expense from continuing operations was $36,486 and $37,679 for the years ended December 31, 2019 and 2018, respectively. Depreciation expense from discontinued operations was $0 for the years ended December 31, 2019 and 2018.

 

Note 6 - Advances to Suppliers

 

The Company makes advances to certain vendors for inventory purchases. The advances on inventory purchases were $27,745,184 and $9,545,489 as of December 31, 2019 and 2018, respectively. No impairment charges were made on advances to suppliers for the years ended December 31, 2019 and 2018.

 

Note 7 - Intangible Assets, net

 

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 purchase and assignment agreement for all rights, title 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 each.

 

F-19

 

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 its estimated life was 15 years.

 

Intangible assets consisted of the following as of December 31, 2019 and 2018:

 

   

 2019

   

 2018

 
                 

Customer relationship

  $ 50,000     $ 50,000  

Trademarks

    200,000       200,000  

Less: accumulated amortization

    (250,000

)

    (250,000

)

    $ -     $ -  

 

Amortization of intangible assets from continuing operations was $0 for the years ended December 31, 2019 and 2018. Amortization of intangible assets from discontinued operations was $406,704 and $406,704 for the years ended December 31, 2019 and 2018, respectively.

 

Impairment on intangible assets from continuing operations was $0 for the years ended December 31, 2019 and 2018. The Company recorded impairment on its intangible assets from its discontinued operations $3,389,200 and $0 for the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, as a result of lower-than-expected revenue performance of Bright Swallow, management determined the carrying amount of customer relationship was no longer recoverable. The unamortized customer relationship of $3,389,200 was fully impaired. The impairment of customer relationship was not deductible for income tax purposes and, therefore, the Company did not record a corresponding tax benefit in 2019.

 

Note 8 - Prepaid Expenses and Other Receivables

  

Prepaid expenses and other receivables consisted of the following at December 31, 2019 and 2018: 

 

   

2019

   

2018

 
                 

Prepaid expenses

  $ 148,750     $ 96,197  

Other receivables

    24,857       4,197  
    $ 173,607     $ 100,394  

 

As of December 31, 2019 and 2018, prepaid expenses and other receivables mainly represented prepaid insurance and a Paypal account balance. 

 

Note 9 - Accrued Liabilities and Other Payables

 

Accrued liabilities and other payables consisted of the following as of December 31, 2019 and 2018:

 

   

 2019

   

2018

 
                 

Other payables

  $ 33,115     $ 49,441  

Salary payable

    16,419       40,907  

Financed insurance premiums

    102,354       39,202  

Accrued rents

    17,733       2,951  

Accrued commission

    53,850       623,372  

Accrued expenses, others

    78,293       47,582  
    $ 301,764     $ 803,455  

 

As of December 31, 2019 and 2018, other accrued expenses mainly included legal and professional fee and utilities. Other payables represented other tax payable and rebate. 

 

F-20

 

Note 10 - Lines of Credit

 

On September 19, 2017, Diamond Bar extended the line of credit up to a maximum of $8,000,000 to mature on June 1, 2019. The annual interest rate was 5.50% as of June 30, 2019. The line of credit was secured by all of the assets of Diamond Bar and is guaranteed by Nova LifeStyle. As of December 31, 2019 and 2018, Diamond Bar had $0 and $6,248,162 outstanding on the line of credit, respectively.  During the years ended December 31, 2019 and 2018, the Company recorded interest expense of $35,444 and $169,675, respectively. The Company paid off the lines of credit during the year ended December 31, 2019.

 

As of December 31, 2019, the Company does not have any lines of credit.

 

The Diamond Bar loan had the following covenants: (i) maintain a minimum tangible net worth of not less than $20 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.5 to 1.0; (iii) the pre-tax income must be not less than 1% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.25 to 1.00. As of December 31, 2018, Diamond Bar was in compliance with the stated covenants.  

 

Note 11 - Income Taxes

 

Taxes payable consisted of the following at December 31, 2019 and 2018:

 

   

2019

   

2018

 

Income tax payable - current

  $ 22,055     $ 584,874  

Income tax payable – noncurrent

  $ 1,833,286     $ 2,255,094  

 

As of December 31, 2019 and 2018, noncurrent tax payable were $1.83 million and $2.26 million, respectively, consisting primarily of an income tax payable of $1.82 million and $2.01 million respectively, arising from a one-time transition tax recognized in the fourth quarter of 2017 on post-1986 foreign unremitted earnings (see below), and unrecognized tax benefit of $0.01 million and $0.16 million, respectively, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities  (see Note 2).

 

The (benefit) provision for income taxes on income (loss) from continuing operations consisted of the following:

 

   

2019

   

2018

 

Current:

               

Federal

  $ (187,807

)

  $ (623,679

)

State

    2,400       2,400  
      (185,407

)

    (621,279

)

                 

Deferred:

               

Federal

    194,007       (41,138

)

State

    242,442       (76,350

)

      436,449       (117,488 )

Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)

 

F-21

 

The following is a reconciliation of the difference between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on income before income taxes from continuing operations:

 

   

2019

   

2018

 

Tax at federal statutory rate

  $ (1,235,984

)

  $ 949,384  

Foreign rate differential

    (2,922

)

    2,922  

ASC 740-10 uncertain tax position

    (230,322

)

    (798,156

)

Tax exemption

    (388,742

)

    (1,148,552

)

Global Intangible Low-Taxed Income

    420,444       574,510  

Stock based compensation

    18,473       (270,754

)

Tax Cut and Jobs Act

    -       30,055  

Others

    (463,093

)

    (78,176

)

Valuation allowance

    2,133,188       -  

  Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)

 

The following presents the aggregate dollar effects of the Company’s tax exemption from its continuing operations:

 

   

2019

   

2018

 

Aggregate dollar effect of tax holiday

  $ 388,742     $ 1,148,552  

 

Deferred Tax Assets and Liabilities

 

Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following:

 

   

2019

   

2018

 

Non-Current Deferred Tax Assets:

               

Accrued liabilities

  $ 18,464     $ 108,250  

Fed & CA amortization

    24,529       26,481  

Stock compensation

    189,635       129,691  

ASC 842 – lease liability

    742,878       -  

Inventory

    994,986       -  

U.S. NOL

    1,025,078       196,430  
                 

Non-Current Deferred Tax Liabilities:

               

Prepaid expenses

    -       (3,988

)

Fed & CA depreciation

    (21,081

)

    (20,415

)

ASC 842- ROU Asset

    (733,555

)

    -  
                 

Net Non-Current Deferred Tax Assets before Valuation Allowance

    2,240,934       436,449  

Less: Valuation Allowance

    (2,240,934

)

    -  

Non-Current Deferred Tax Assets, Net:

    -       436,449  

Total Deferred Assets, Net:

  $ -     $ 436,449  

 

Nova LifeStyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI. There is no income tax for a company domiciled in the BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provision related to the BVI tax jurisdiction where Nova Furniture BVI is domiciled. On April 24, 2013, the Company acquired all outstanding shares of Bright Swallow, which is incorporated in BVI. Generally, there is no income tax for a company domiciled in the BVI.

 

For U.S. Federal income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $2.66 million and $0 million at December 31, 2019 and 2018, respectively.

 

For U.S. California income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $6.24 million and $2.81 million, at December 31, 2019 and 2018, respectively.

 

F-22

 

On September 19, 2013, Bright Swallow moved the office from Macau to Hong Kong, which is subject to a 16.5% corporate income tax. Nova Macao is an income tax-exempt entity incorporated and domiciled in Macao.

 

Corporate income tax in Malaysia is calculated at the statutory rate of 24% of the estimated taxable profit for the year ended December 31, 2019.

 

Note 12 - Related Party Transactions

 

On September 30, 2011, Diamond Bar leased a showroom in High Point, North Carolina from the Company’s president who is currently also the Chief Executive Officer and Chairman of the Board. The lease is to be renewed and has been renewed each year since 2011. On April 1, 2020, the Company renewed the lease for an additional one year term. The lease was for the amount of $34,561, with a term of one year. During the years ended December 31, 2019 and 2018, the Company paid rental amounts of $34,561 that are included in selling expenses.

 

On January 4, 2018, the Company entered into a sales representative agreement with a consulting firm, which is owned by the Chief Executive Officer and Chairman 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. The Company agreed to compensate the sales representative via commission at predetermined rates of the relevant sales amount. During the years ended December 31, 2019 and 2018, the Company recorded $126,949 and $159,360 as commission expense to this sales representative consulting firm, respectively.

 

Note 13 - Stockholders’ Equity

 

Share repurchase program

 

On December 12, 2017, the Company issued a press release announcing that the Board of Directors of the Company had approved a 10b-18 share repurchase program to repurchase up to $5 million of its outstanding common stock. Under the repurchase program, shares of the Company’s common stock may be repurchased from time to time over the next 12 months. The program expired on December 8, 2018 and no shares have been repurchased under the program.

 

On June 4, 2019, the Board of Directors of the Company adopted a 10b-18 share repurchase program to repurchase up to $2 million of its common stock. The share repurchase authorization permits shares to be repurchased from time to time at the discretion of the Company’s management, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The program is effective as of June 5, 2019 and will expire on June 4, 2020. During the year ended December 31, 2019, the Company repurchased 172,870 shares of its common stock.

 

Warrants

 

The following is a summary of the warrant activity for the year ended December 31, 2019: 

 

   

Number of 

Warrants 

   

Average 

Exercise Price 

   

Weighted Average Remaining Contractual Term in Years

 
                         

Outstanding at January 1, 2019

    171,667     $ 13.55       1.92  

Exercisable at January 1, 2019

    171,667     $ 13.55       1.92  

Granted

    -       -       -  

Exercised / surrendered

    -       -       -  

Expired

    -       -       -  

Outstanding at December 31, 2019

    171,667     $ 13.55       0.92  

Exercisable at December 31, 2019

    171,667     $ 13.55       0.92  

 

F-23

 

Shares Issued to Consultants 

 

On February 1, 2016, the Company entered into an agreement with a consultant for E-Commerce consulting services with a term of 24 months. The Company agreed to grant the consultant 2,000 shares of the Company’s common stock per month, for a total commitment of 48,000 shares. Twelve and half percent (12.5%) of those shares vested 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 48,000 shares was $326,400, which was calculated based on the stock price of $6.80 per share on February 1, 2016, the date the agreement was executed, and was amortized over the service term. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $13,600 as consulting expenses, respectively.

  

On June 30, 2017, the Company entered into a consulting agreement with a consultant for business advisory services 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 were granted pursuant to Nova LifeStyle, Inc.’s 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. On June 12, 2018, the Company renewed the agreement with the consultant for an additional year and agreed to compensate the consultant $10,000 worth of shares of the Company’s common stock per month starting from July 1, 2018 for a period of 12 months. The shares were issued pursuant to the Plan. On January 31, 2019, the Company terminated the agreement. During the years ended December 31, 2019 and 2018, the Company recorded $10,000 and $125,000 as consulting expense, respectively.

 

On November 16, 2017, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2017 for one year. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2018, 25% on May 15, 2018, 25% vested on August 15, 2018 and the remaining 25% vested on November 15, 2018. The fair value of 20,000 shares was $173,000, which was calculated based on the stock price of $8.65 per share on November 16, 2017 and was amortized over the service term. The shares were granted pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $151,197 as consulting expense, respectively.

 

On December 10, 2017, the Company entered into a consulting agreement with a consultant for business advisory services effective as of January 1, 2018 and ending on December 31, 2018. The Company agreed to compensate the consultant a one-time amount of $15,000 worth of shares of the Company’s common stock based on the price per share on December 15, 2017. The Company also granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from January 1, 2018 for 12 months. The shares were granted pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $195,000 as consulting expense, respectively.

 

On November 16, 2018, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2018 for one year. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2019 and 25% on May 15, 2019; 25% vested on August 15, 2019 and the remaining 25%  vested on November 15, 2019. The fair value of 20,000 shares was $90,000 which was calculated based on the stock price of $4.50 per share on November 16, 2018 and was amortized over the service term. The shares were issued pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $78,657 and $11,343 as consulting expenses, respectively.

 

On December 1, 2018, the Company entered into a consulting agreement with a consultant for business advisory services effective as of January 1, 2019 and ending on December 31, 2019. The Company granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from January 1, 2019 for 12 months. The shares were granted pursuant to the Plan. On January 1, 2019, the consultant terminated the agreement for personal reasons.

 

On November 16, 2019, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2019 for a one year term. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2020, 25% will vest on May 15, 2020; 25% will vest on August 15, 2020 and the remaining 25% will vest on November 15, 2020. The fair value of 20,000 shares was $51,000 which was calculated based on the stock price of $2.55 per share on November 18, 2019 and will be amortized over the service term. The shares would be issued pursuant to the Plan. During the year ended December 31, 2019, the Company amortized $6,427 as consulting expenses.

 

F-24

 

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 (the “Purchase Agreement”) with certain purchasers (the “Purchasers”) pursuant to which the Company offered to the Purchasers, in a registered direct offering, an aggregate of 594,102 shares of common stock, par value $0.001 per share. Of these, 400,000 shares were sold to the Purchasers at a negotiated purchase price of $10.00 per 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 Purchase Agreement, the Company exchanged outstanding 2014 Series A Warrants with their holders for 132,006 shares of common stock, and exchanged the outstanding 2014 Series C Warrants with their holders for 62,096 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”). The 2015 Warrants became exercisable beginning on the six month anniversary of the date of issuance (the “Initial Exercise Date”) at an exercise price of $13.55 per share and will expire on the five year anniversary of the Initial Exercise Date. The purchase price of one share of the Company’s common stock under the 2015 Warrants is equal to the exercise price. 

 

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 years, volatility of 107%, risk-free interest rate of 1.55% and dividend yield of 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.

 

Shares and Options Issued to Independent Directors

 

On April 10, 2017, the Company entered into a restricted stock award agreement under the 2014 Omnibus Long-Term Incentive Plan with a new independent director of the Board. The Company agreed to grant $20,000 worth of stock to the independent director with a grant date on April 10, 2017. The restricted period lapses as of 50% of the restricted stock granted vested on April 10, 2017 based on the closing price of common stock on Nasdaq as of April 10, 2017, and 50% 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. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $1,261 as directors’ stock compensation expenses, respectively. 

 

On September 26, 2017, 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 60,000 shares of the Company’s common stock at an exercise price of $8.25 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on September 30, 2017, 25% on December 31, 2017, 25% on March 31, 2018, and the remaining 25% vested on June 30, 2018.

 

The fair value of the stock option granted is 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. The fair value of the options was calculated using the following assumptions, estimated life of five years, volatility of 84%, risk free interest rate of 1.87%, and dividend yield of 0%. The fair value of 60,000 stock options was $324,907 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $0 and $162,453 as directors’ stock compensation expenses, respectively.

 

F-25

 

On November 7, 2018, 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 60,000 shares of the Company’s common stock at an exercise price of $5.90 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on November 30, 2018, 25% vested on February 28, 2019, 25% on May 31, 2019, and the remaining 25% vested on August 31, 2019. The fair value of the stock options granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”) as described above. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 3.07%, and dividend yield of 0%. The fair value of 60,000 stock options was $240,105 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $180,079 and $60,026 as directors’ stock compensation expenses, respectively.

 

On 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 60,000 shares of the Company’s common stock at an exercise price of $2.80 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on November 30, 2019, 25% vested on February 28, 2020, 25% on May 31, 2020, and the remaining 25% will vest on August 31, 2020. The fair value of the stock options granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”) as described above. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 87%, risk free interest rate of 1.60%, and dividend yield of 0%. The fair value of 60,000 stock options was $114,740 at the grant date. During the year ended December 31, 2019, the Company recorded $28,685 as directors’ stock compensation expenses. 

 

Shares Issued to Employees and Service Providers

 

On May 18, 2016, the Company entered into agreements with three designers for product design services for a term of 24 months. The Company agreed to grant each designer 48,000 shares of the Company’s common stock. 25% of those shares vested 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 $2.70 per share on May 18, 2016, the date the agreement was executed, and was amortized over the service term. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $72,967 as stock compensation expenses, respectively.

 

On February 27, 2018, the Company renewed an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $68,100, which was calculated based on the stock price of $11.35 per share on February 27, 2018, the date the awards were determined by the Compensation Committee of the Board. 25% of those shares vested on February 27, 2018, 25% on March 31, 2018, 25% on June 30, 2018 and the remaining 25% vested on September 30, 2018. During the years ended December 31, 2019 and 2018, the Company amortized $10,821 and $57,279 as stock compensation, respectively.

 

On December 13, 2018, the Company extended an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $23,100, which was calculated based on the stock price of $3.85 per share on December 13, 2018, the date the awards were determined by the Compensation Committee of the Board. Twenty-five percent (25%) of those shares vested on December 13, 2018, 25% on March 31, 2019, 25% on June 30, 2019 and the remaining 25% vested on September 30, 2019. During the years ended December 31, 2019 and 2018, the Company amortized $21,898 and $1,202 as stock compensation, respectively.

 

On December 14, 2019, the Company extended an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $12,780, which was calculated based on the stock price of $2.13 per share on January 31, 2020, the date the awards were determined by the Compensation Committee of the Board. Twenty-five percent (25%) of those shares vested on January 31, 2020, 25% on March 31, 2020, 25% on June 30, 2020 and the remaining 25% vested on September 30, 2020. During the year ended December 31, 2019, the Company amortized $1,681 as stock compensation.

 

F-26

 

Options Issued to Employees

 

On August 29, 2017 (the “Grant Date”), the Board approved option grants to the Company’s employees to purchase an aggregate of 156,000 shares of the Company’s common stock (including options to purchase 20,000 shares and 7,000 shares to the Company’s CEO and CFO, respectively) at an exercise price of $6.30 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% 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 granted to independent directors above. The fair value of the option granted to employees is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 1.70%, and dividend yield of 0%. The fair value of 780,000 stock options was $643,182 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $0 and $321,591 as stock compensation, respectively.

 

On August 24, 2018 (the “Grant Date”), the Board approved an option grant to the Company’s CFO to purchase an aggregate of 7,000 shares of the Company’s common stock at an exercise price of $9.25 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% vested on the six-month anniversary of the Grant Date.

 

The fair value of the option granted to the CFO in 2018 is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 2.72%, and dividend yield of 0%. The fair value of 7,000 stock options was $43,680 at the grant date. During each of the years ended December 31, 2019 and 2018, the Company recorded $21,840 as stock compensation.

 

On August 12, 2019, the Board approved an option grant to the Company’s CFO to purchase an aggregate of 7,000 shares of the Company’s common stock at an exercise price of $3.85 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% vested on the six-month anniversary of the Grant Date.

 

The fair value of the option granted to the CFO in 2019 is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 87%, risk free interest rate of 1.49%, and dividend yield of 0%. The fair value of 7,000 stock options was $18,318 at the grant date. During the year ended December 31, 2019, the Company recorded $9,159 as stock compensation.

 

As of December 31, 2019, unrecognized share-based compensation expense related to options was $95,214.

 

Stock option activity under the Company’s stock-based compensation plans is shown below:

 

   

Number of
Shares

   

Average
Exercise
Price per Share

   

Aggregate Intrinsic
Value
(1)

   

Weighted
Average
Remaining
Contractual
Term in Years

 
                                 

Outstanding at January 1, 2019

    273,500       6.70     $ -       3.96  

Exercisable at January 1, 2019

    225,000       6.85     $ -       3.75  
                                 

Granted

    67,000       2.91       -       5.00  

Exercised

    -       -       -       -  

Forfeited

    -       -       -       -  

Outstanding at December 31, 2019

    340,500     $ 5.97     $ -     $ 3.33  

Exercisable at December 31, 2019

    292,000     $ 6.48     $ -     $ 3.08  

 

(1)

The intrinsic value of the stock options at December 31, 2019 is the amount by which the market value of the Company’s common stock of $1.85 as of December 31, 2019 exceeds the exercise price of the option.

 

F-27

 

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 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 Macau laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as a general statutory reserve fund until such reserve balance reaches 50% of the subsidiary’s registered capital. Nova Macao is restricted in its ability to transfer a portion of its net assets to the Company as a dividend.

 

Surplus Reserve Fund

 

At December 31, 2019 and December 31, 2018, 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 14 - Geographical Sales

 

Geographical distribution of sales consisted of the following for the years ended December 31, 2019 and 2018:

 

   

2019

   

2018

 
                 

Geographical Areas

               

North America

  $ 10,172,970     $ 46,959,295  

China

    11,792,589       11,331,108  

Australia

    -       11,060,421  

Asia*

    -       11,817,196  

Hong Kong

    -       -  

Other countries

    17,720       9,990  
    $ 21,983,279     $ 81,178,010  

 

* excluding China

 

Note 15 - Lease

 

On June 17, 2013, the Company entered into a lease agreement for office, warehouse, storage, and distribution space with a five year term, commencing on November 1, 2013 and expiring on October 31, 2018. The lease agreement also provides an option to extend the term for an additional six years. On April 23, 2018, the Company extended the lease for another 36 months with an expiration date of October 31, 2021. The monthly rental payment is $42,000 with an annual 3% increase.  

 

On January 7, 2014, the Company entered into a sublease agreement with Diamond Bar for warehouse space with a five-year term commencing on November 1, 2013 and which expired on October 31, 2018. The Company subleased a portion 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 had been renewed every year, expired on October 31, 2018 and was not renewed. The sublease income of $6,000 per month was recorded against the rental expense. During the year ended December 31, 2018, the Company recorded $47,330 in sublease income.

 

F-28

 

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 ($2,548). The Company terminated the lease on December 31, 2018.

 

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 payments from continuing operations for the years ended December 31, 2019 and 2018 were $1,110,725 and $855,201, respectively. Total rental payments from discontinued operations for the years ended December 31, 2019 and 2018 were $0 and $30,618, respectively.

 

The components of lease costs, lease term and discount rate with respect of leases with an initial term of more than 12 months are as follows:

 

   

2019

 
         

Operating lease cost

  $ 620,980  

Weighted Average Remaining Lease Term - Operating leases

 

4.84 years

 

Weighted Average Discount Rate - Operating leases

    5

%

 

The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019:

 

   

Operating Leases

 

Fiscal year 2020

  $ 604,811  

Fiscal year 2021

    622,956  

Fiscal year 2022

    641,644  

Fiscal year 2023

    660,894  

Thereafter

    508,000  

Total undiscounted cash flows

    3,038,305  

Less: imputed interest

    (346,176

)

Present value of lease liabilities

  $ 2,692,129  

 

Note 16 - Commitments and Contingencies

 

Legal Proceedings

 

On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and 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 Security Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). Richard Deutner and ITENT EDV were subsequently substituted as plaintiffs and, on June 18, 2019, they filed an Amended Complaint.  In the Amended Complaint, plaintiffs seek to recover compensatory damages caused by the Company’s alleged violations of federal securities laws during the period from December 3, 2015 through December 20, 2018.  Plaintiffs claim that the Company: (1) overstated its purported strategic alliance with a customer in China to operate as lead designer and manufacturer for all furnishings in such customer’s planned $460 million senior care center in China; (2) the Company inflated its reported sales in 2016 and 2017 with the Company’s two major customers; and (3) as a result, the Company’s public statements were materially false and misleading at all relevant times.  In support of these claims, plaintiffs rely primarily upon a blog appearing in Seeking Alpha on December 21, 2018 in which it was claimed that an investigation of the Company failed to confirm the existence of several entities identified as significant customers, Plaintiffs purported to verify some of the information alleged in the Seeking Alpha blog.   By Order entered December 2, 2019, the Court denied defendants’ Motion to Dismiss the Amended Complaint. Defendants have accordingly filed an Answer to the Amended Complaint denying its material allegations. The Court also entered a scheduling order setting a final pretrial conference for July 20, 2020.

 

F-29

 

Independent of the litigation, the Audit Committee engaged the Company’s auditor to perform special procedures to confirm the reported sales.  Those procedures included but were not limited to the examination and testing of relevant documentation relating to the sales made by the Company to the customers identified in the purported research report for the periods 2015-2018, and 100% sampling of all transactions between the Company and the subject customers.  The Audit Committee finished its special procedures in March 2019 and the Company’s independent auditor has reported to the Audit Committee that, regarding the four subject customers mentioned in the purported research report, the special procedures resulted in no evidence of fictitious sales or of fictitious customers. Please see the details in the Form 8-K filed by the Company with SEC on March 29, 2019.

 

On March 8, 2019, in the United States District Court for the Central District of California, shareholder Jie Yuan (the “Jie Action”) filed a 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 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”) also 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 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 2016, the Company asserted 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.  He purports to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5.

 

On March 3, 2020, defendants filed in each of the derivative actions motions to stay those proceedings until the Barney action is resolved or alternatively to dismiss on the grounds that plaintiffs’ failure to make demand upon the Board 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 this action until the Barney litigation is resolved.  The Motion to Stay and Dismiss remains pending in the Samuels action.

 

While these derivative actions are purportedly asserted on behalf of the Company, it is possible that the Company may directly incur attorneys’ fees and is 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.

 

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 the business, financial condition or results of operations.

 

Note 17 - Subsequent Events

 

After the close of the fiscal year to which these financial statements relate, the Company experienced (and continues to experience) significant adverse impacts of novel coronavirus (COVID-19) and the related public health orders. The Company’s two showrooms and warehouse in Kuala Lumpur have been closed since March 18, 2020.  At this juncture, the Company is unable to predict when the Kuala Lumpur and Los Angeles facilities will be able to resume ordinary operations, or whether future developments may cause the Company to curtail or suspend operations in its other facilities. The Company is experiencing reduced demand for its products and an increased level of purchase order cancellations as a result of the COVID-19 pandemic. The third-party contract manufacturers that the Company utilizes in China were closed from the beginning of the Lunar New Year Holiday through the beginning of March. Certain of the Company’s new products are being sourced from manufacturers in India and Malaysia starting in 2020. The factories in India and Malaysia have suspended operations as a result of the COVID-19 pandemic. They are currently scheduled to reopen in May, but it is likely that their reopening will be delayed further as a consequence of governmental health-related action. The Company cannot reasonably predict when they will reopen. Finally, the Company expects that the impact of the COVID-19 outbreak on the United States and world economies will 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 business interruption and the related financial impact cannot be reasonably estimated at this time.

 

F-30

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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: May 12, 2020

By:

/s/ Thanh H. Lam

 

 

 

Thanh H. Lam

Chairperson and Chief Executive Officer

(Principal Executive Officer)

 

 

Power of Attorney

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thanh H. Lam and Jeffery Chuang, jointly and severally, his or her attorneys-in-fact, with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature

 

Title

 

Date

         

/s/ Thanh H. Lam

 

Chief Executive Officer, President, Director and Chairperson

 

May 12, 2020

Thanh H. Lam

 

(Principal Executive Officer)

 

 

         

/s/ Jeffery Chuang

 

Chief Financial Officer

 

May 12, 2020

Jeffery Chuang

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

/s/ Min Su

 

Director

 

May 12, 2020

Min Su

 

 

 

 

 

 

 

 

 

/s/ Bin Liu

 

Director

 

May 12, 2020

Bin Liu

 

 

 

 

 

 

 

 

 

/s/ Umesh Patel

 

Director

 

May 12, 2020

Umesh Patel

 

 

 

 

 

 

 

 

 

/s/ Huy P. La

 

Director

 

May 12, 2020

Huy P. La

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 
ex_185727.htm

Exhibit 10.17

 

Diamond Bar Outdoors Inc.

 

Sales Rep Agreement

 

This Agreement (“Agreement”) is made and effective on January 4th,2020 by and between Tawny Lam Consulting Inc and Diamond Bar Outdoors Inc.

 

In consideration of the mutual promises contained herein, the parties agree as follows:

 

1. Definitions.

 

As used herein, the following terms shall have the meanings set forth below:

 

A, “Products” shall mean the following of Company's products to be sold by Rep: Tawny Lam Consulting Inc

 

B. "Territory” shall mean the following described geographic area and/or specific accounts:          All     

 

2. Appointment.

 

Company hereby appoints Rep as its sales rep for the Products in the Territory, and Rep hereby accepts such appointment. Rep's sole authority shall be to solicit orders for the Products in the Territory in accordance with the terms of this Agreement- Rep shall not have the authority to make any commitments whatsoever on behalf of Company, and be fully responsible for keeping his or her customers duly informed of this limit on Rep's authority to make agreements on behalf of the Company with the customer.

 

3. General Duties.

 

Rep shall use its best efforts to promote the Products and maximize the sale of the Products in the Territory. Rep shall also provide reasonable assistance to Company in promotional activities in the Territory such as trade shows, product presentations, sales calls and other activities of Company with respect to the Products. Rep shall also provide reasonable "after sale” support to Product purchasers and generally perform such sales related activities as are reasonable to promote the Products and the goodwill of Company in the Territory, in the line of business Company is in. Rep shall report weekly to Company concerning sales of the Products and competitive promotional ad pricing activities. Rep will devote adequate lime and effort to perform its obligations. Rep shall neither advertise the Products outside the Territory nor solicit sales from purchasers located outside the Territory without the prior written consent of the Company.

 

4. Reserved Rights.

 

Company reserves the right to solicit orders directly from and sell directly to any end users or other retail buyers within the Territory Rep’s task is to solicit orders from all potential wholesale customers in the Territory including original equipment manufacturers, distributors, resellers, dealers, value-added resellers, telemarketing companies and retail distribution chains, unless agreed otherwise else in this agreement.

 

 

 

5. Conflict of Interest.

 

Rep warrants to Company that it does not currently represent or promote any lines or products that compete with the Products. During the term of this Agreement, Rep shall not represent, promote or otherwise try to sell within the Territory any lines or products that, in Company's judgment, compete with the Products covered by this Agreement Rep shall provide Company with a list of the companies and products that it currently represents and shall notify Company in writing of any new companies and products at such time as its promotion of those new companies and products commence.

 

6. Independent Contractor.

 

Rep is an independent contractor, and nothing contained in this Agreement shall be construed to (i) give either party the power to direct and control the day-to-day activities of the other, (ii) constitute the parties as partners, joint ventures, co-owners or otherwise, or (iii) allow Rep to create or assume any obligation on behalf of Company for any purpose whatsoever. Rep is not an employee of Company and is not entitled to any employee benefits. Rep shall be responsible for paying all income taxes and other taxes charged to Rep on amounts earned hereunder. All financial and other obligations associated with Rep’s business are the sole responsibility of Rep.

 

7. Indemnification by Rep.

 

Rep shall indemnify and hold Company free and harmless from any and all claims, damages or lawsuits (including reasonable attorneys’ fees) arising out of negligence or malfeasant acts of Rep, its employees or its agents.

 

8. Indemnification by Company.

 

Company shall indemnify and hold Rep free and harmless from any and all claims, damages or lawsuits (including reasonable attorneys' fees) arising out of defects in the Products caused by Company or failure of Company to provide any products to a customer that has properly ordered through Rep.

 

9. Commission.

 

Sole Compensation. Rep's sole compensation under the terms of this Agreement shall be a commission computed as follows: Standard 5 %, Direct Container rate varies from 2% to 10%, override rate varies from 1% to 3%

 

Basis of Commission. The Commission shall apply to all orders solicited by Rep from the Territory that have been accepted by Company and for which shipment has occurred. No commissions shall be paid on (i) orders from outside the Territory (even if Rep receives the initial inquiry from outside the Territory) unless otherwise agreed in writing by Company. Commissions shall be computed on the net amount paid by customer.

 

Time of Payment. The commission on a given order shall be due and payable when paid by the customer and be due within 5 days after such payment is received.

 

 

 

Commission Charge-Back. Company shall have the absolute right to set forth cash discounts, to make such allowances and adjustments to accept such returns from its customers, and to write off as bad debts such overdue customer accounts as it deems advisable. In each such case Company shall charge back to Rep's account any amounts previously paid or credited to it with respect to such cash discounts, allowances, adjustments, return or bad debts. However, Company agrees that the amount of any cash discount provided to a customer and charged back to Rep shall not exceed of the sales price. Payment to Rep upon receipt of customer payments and for the percentage agreed upon eliminates most of these areas for dispute, which the parties acknowledge herein.

 

Annual Inspection of Records. Rep shall have the right, at its own expense and not more than once per year, to inspect at reasonable times Company's relevant accounting records to verify the accuracy of commissions paid by Company under the terms of this Agreement. If the audit correctly reveals that Company has underpaid Rep by ten percent (10%) or more, then Company shall reimburse Rep for the cost of the audit, in addition to the amount of underpayment. Unless otherwise stipulated, this date shall be January 31 of each year. In no event shall an audit be permitted for more than the past 12 months. Therefore, any amounts possibly due prior to this year and one day, are not subject to review for any reason including fraudulent misrepresentation or any other such claim Rep might make.

 

10. Sale of the Products.

 

Prices and Terms of Sale. Company shall provide Rep with copies of its current price lists, delivery schedules, and standard terms and conditions of sale, as established from time to time. Rep shall quote to customers only those authorized prices, delivery schedules, and terms and conditions, and modify, add to or discontinue Products following written notice to Rep. Each order shall be controlled, by the prices, delivery schedules, and terms and conditions in effect at the time the order is accepted, and all quotations by Reps shall contain a statement to that effect.

 

Quotations. Reps shall promptly furnish to Company copies of all quotations submitted to customers. Each quotation shall accurately reflect the terms of this Agreement.

 

Orders. All orders for the Products shall be in writing, and the originals shall be submitted to Company.

 

Acceptance. All orders obtained by Rep shall be subject to final acceptance by Company at its principal office and all quotations by Reps shall contain a statement to that effect. Rep shall have no authority to make any acceptance or delivery commitments to customers. Company specifically reserves the right to reject any order or any part thereof for any reason.

 

Credit Approval. Company shall have the sole right of credit approval or credit refusal for customers in all cases, with or without cause.

 

Collection. Full responsibility for collection from customers rests with Company, provided that Rep shall at Company's request assist in such collection efforts.

 

 

 

Inquiries from Outside the Territory. Rep shall promptly submit to Company, for Company's attention and handling, the originals of all inquiries received by Rep from customers outside the Territory.

 

11. Term and Termination.

 

A. Term. This Agreement shall commence on the Effective Date and continue for two year thereafter, unless terminated earlier as provided herein. This Agreement shall continue until terminated upon at least 30 Days written notice by either party. If not terminated during the first year, this Agreement shall continue until one party or the other terminates the Agreement with 30 Days written notice.

 

B. Return of Materials. All of Company's trademarks, trade names, patents, copyrights, designs, drawings, formulas or other data, photographs, demonstrators, literature, and sales aids of every kind shall remain the property of Company. Within 10 days after the termination of this Agreement, Rep shall return all such items to company at Rep's expense. Rep shall not ^ make or retain any copies of any confidential items or information that may have been entrusted to it. Effective upon the termination of this Agreement Rep shall cease to use all trademarks, marks and trade name of Company.

 

12. Limitation of Liability.

 

Upon termination by either party in accordance with any of the provisions of this Agreement, neither party shall be liable to the other, because of the termination for compensation, reimbursement or damages on account of the loss of prospective profits or anticipated sales or on account of expenditures, investments, leases or commitments in connection with the business or goodwill of Company or Rep. Company's sole liability under the terms of this Agreement shall be for any unpaid commissions,

 

13. Confidentiality.

 

Rep acknowledges that by reason of its relationship to Company hereunder it will have access to certain information and materials concerning Company's business plans, customers, technology, and products that is confidential and of substantial value to Company, which value would be impaired if such information were disclosed to third parties. Rep agrees that it shall not use in any way for its own account or the account of any third party, nor disclose to any third party, any such confidential information revealed to it by Company. Rep shall not publish any technical description of the Products beyond the description published by Company. In the event of termination of this Agreement, there shall be no use or disclosure by Rep of any confidential information of Company, and Rep shall not manufacture or have manufactured any devices, components or assemblies utilizing Company's patents, inventions, copyrights, knowhow or trade secrets.

 

14. No Waiver.

 

The waiver or failure of either party to exercise in any respect any right provided in this agreement shall not be deemed a waiver of any other right or remedy to which the party may be entitled.

 

 

 

15. Entirety of Agreement.

 

The terms and conditions set forth herein constitute the entire agreement between the parties and supersede any communications or previous agreements with respect to the subject matter of this Agreement. There are no written or oral understandings directly or indirectly related to this Agreement that are not set forth herein. No change can be made to this Agreement other than in writing and signed by both parties.

 

16. Governing Law.

 

This Agreement shall be construed and enforced according to the laws of State of California and any dispute under this Agreement must be brought in this venue and no other.

 

17. Headings in this Agreement.

 

The headings in this Agreement are for convenience only, confirm no rights or obligations in either party, and do not alter any terms of this Agreement.

 

18. Severability.

 

If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will remain in full force

 

In Witness whereof, the parties have executed this Agreement as of the date first written above.

 

 

 

 

 

_____________________________               ____________________________

 

Thanh H. Lam                                                Tawny Lam Consulting Inc

 

CEO, President                                                 Sales Representative

 

Diamond Bar Outdoors Inc.                             Date: 01/04/2020

 

Date: 01/04/2020

 

 

 

 
ex_185728.htm

Exhibit 10.18

 

 

 

 

DATED 07th January 2020

 

 

 

NOVA LIFESTYLE INC

(the “Seller”)

 

 

- and -

 

 

Y-TONE(WORLDWIDE) LIMITED

(the “Purchaser”)

 

 


 

 

 

SALE AND PURCHASE AGREEMENT

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prepared by: Alliance Plus CPA Limited

Unit B, 19/F Hillier Commercial Building

89-91 Wing Lok Street, Sheung Wan

Hong Kong

 

 

 

 

SALES AND PURCHASE AGREEMENT

 

THIS AGREEMENT is made on this 07th day of January, 2020

 

BETWEEN:

 

 

(1)

NOVA LIFESTYLE INC., a company registered in Nevada, registered address at 6565 E. Washington Blvd, Commerce, CA 90040 (the Seller) and

 

 

(2)

Y-TONE (WORLDWIDE) LIMITED, a company incorporated in Hong Kong with limited liability, registered address at ROOM 9, 8/F, BLOCK B, MERIT INDUSTRIAL CENTRE, 94 TOK WA WAN ROAD, KO WLOON, HONG KONG (the "Purchaser") and

 

 

(3)

BRIGHT SWALLOW INTERNATIONAL GROUP LIMITED, a company incorporated in the British Virgin Islands with limited liability (Certificate of Incorporation No.1525965) (the "Company ")

 

 

RECITALS:

 

 

(A)

Whereas, Purchaser desires to purchase the share of the Company on the terms and conditions set forth herein; and.

 

 

(B)

Whereas, Seller desires to sell the share to Purchaser of the Company on the terms and conditions set forth herein.

 

 

AGREEMENT

 

Now, therefore, in consideration of the foregoing recitals and the mutual promises and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

 

1.

Agreement to sell and purchase

 

 

1.1.

Sales and Purchase. Subject to the terms and conditions of this Agreement, the Purchaser hereby agrees to purchase ONE (1) share from the Seller of the Company at a purchase price of United States Dollars Two Million Five Hundred Thousand Exactly (USD 2,500,000), and the Seller agrees to sell ONE (1) share of the Company to the Purchaser.

 

 

1.2.

Payment Date. The purchase price of United States Dollars Two Million and Five Hundred Thousand Exactly (USD 2,500,000) should be entirely paid from the Purchaser to the Seller on or before 4TH MAY, 2020.

 

 

 

 

2.

Representation and warranties of the Company

 

 

2.1.

Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing. The Company has all requisite corporate power and authority to own and operate its properties and assets, to execute and levier this Agreement to carry on its business as presently conducted.

 

 

2.2.

Subsidiaries. The Company does not own or control any equity security or other interest of any other corporation, partnership, limited liability company or other business entity.

 

 

2.3.

Liabilities. The Company has no material liabilities and to the Company’s knowledge, no material contingent liabilities, except current liabilities incurred in the ordinary course of business that have not been, either in any individual case or in the aggregate, materially adverse to the Company.

 

 

2.4.

Litigation. There is no action, suit, proceeding or investigation pending or to the Company’s knowledge, currently threatened in writing against the Company that would reasonably be expected to result, either individually or in the aggregate, in any material adverse change in the assets, condition or affairs of the Company, financially or otherwise, or any change in the current equity ownership of the Company

 

 

2.5.

Tax returns and payments. The Company has filed all tax returns required to be filed by it. The Company has not been advised (a) that any of its returns have been or are being audited as of the date hereof or (b) of any deficiency in assessment or proposed judgement to local tax authority. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date of this Agreement that is not adequately provided for.

 

 

2.6.

Compliance with laws. To its knowledge, the Company is not in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government of any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition or operations of the Company.

 

 

3.

REPRESENTATIONS OF THE PURCHASER

 

 

3.1.

Requisite power and authority. Purchaser has all necessary power and authority to execute and deliver this Agreement and to carry out their provisions. All action on the Purchaser’s part required for the lawful execution and delivery of this Agreement has been taken. Upon their execution and delivery, this Agreement will be valid and binding obligations of the Purchaser, enforceable in accordance with their terms.

 

 

3.2.

Purchaser bears economic risk. Purchaser has substantial experience in investment activities so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Purchaser must bear the economic risk of this investment indefinitely.

 

 

3.3.

Acquisition for own account. Purchaser is acquiring the share for Purchaser’s own account for investment only and not with a view towards their distribution.

 

 

 

 

3.4.

Company information. Purchaser has had an opportunity to discuss the Company’s business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities.

 

Purchaser has also had the opportunity to ask questions of, and receive answers from, the Company and its management regarding the terms and conditions of this investment.

 

 

4.

ANTI-MONEY LAUNDERING ISSUES

 

Neither the Seller nor the Purchaser (nor any director, officer, agent, employee consultant of or other person associated with or acting on behalf of the Company or the Purchaser) has made, authorized, offered or promised to make any payment or transfer of anything of value, directly, indirectly or through a third party, to any government or regulatory official (domestic or foreign), employee or other representative (including employees of a government owned or controlled entity or public international organization and including any political party or candidate for public office), in violation of any law in any jurisdiction to which such person is subject. The operations of the Company and the Purchaser are and have been conducted at all times in material compliance with all applicable financial record keeping and reporting requirements and the applicable anti-money laundering statutes of jurisdictions where each of the Company and the Purchaser conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or the Purchaser with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company or the Purchaser, threatened.

 

 

5.

CONFIDENTIALITY

 

No confidential information or terms of this Agreement may be disclosed to any person except as required by law or any regulatory authority.

 

 

6.

COSTS

 

Each Party agrees to pay its own legal and other costs and expenses in connection with the negotiation, preparation, execution and completion of this Agreement and other related documentation.

 

 

7.

GENERAL

 

 

7.1.

No assignment. A Party must not assign or otherwise deal with its rights under this Agreement or allow any interest in them to arise or be varied, in each case without the consent of the other party. That consent must not be unreasonably withheld or delayed.

 

 

 

 

7.2.

Failure to exercise rights. Except as otherwise set out in this Agreement, any partial exercise, failure to exercise, or delay in exercising, a right or remedy provided under this Agreement or by law does not operate as a waiver or prevent or restrict any further or other exercise of that or any other right or remedy in accordance with this Agreement.

 

 

7.3.

No liability for loss. Except as otherwise set out in this Agreement, a Party is not liable for loss caused by the exercise or attempted exercise of, failure to exercise, or delay in exercising a right or remedy that is available to it under this Agreement.

 

 

7.4.

Remedies cumulative. The rights and remedies provided in this Agreement are in addition to other rights and remedies given by law independently of this Agreement.

 

 

7.5.

Rights and obligations are unaffected. Rights given to the parties under this Agreement and the Parties’ liabilities under it are not affected by anything which might otherwise affect them by law.

 

 

7.6.

Variation and waiver. A provision of this Agreement or a right created under it, may not be waived or varied except in writing, signed by the Party or the Parties to be bound.

 

 

7.7.

Entire agreement. This Agreement supersedes all previous agreements whether in writing, verbal or implied between the Parties.

 

 

7.8.

Time of the essence. Time shall be of the essence in this Agreement, both as regards the dates and periods specifically mentioned and as to any dates and periods which may, by agreement in writing between or on behalf of each of the Parties, be substituted for them.

 

 

7.9.

Counterparts. This Agreement may consist of a number of copies, each signed by one or more parties to the agreement. If there are a number of signed copies they are treated as making up the one document and the date on which the last counterpart is executed is the date of the agreement.

 

 

7.10.

Governing law. This Agreement was negotiated and completed in Hong Kong and shall be governed by and construed in accordance with the laws of Hong Kong and the Parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts of Hong Kong.

 

 

 

IN WITNESS WHEREOF this Agreement has been executed on the day and year first above written.

 

 

SELLER

SIGNED by

 

 

for and on behalf of

 

 

NOVA LIFESTYLE INC

 

 

 

PURCHASER

SIGNED by

 

for and on behalf of

 

 

Y-TONE(WORLDWIDE) LIMITED 

 

 

 
ex_178556.htm

 

 

Exhibit 21.1

 

Nova LifeStyle, Inc. and subsidiaries as of December 31, 2019

 

 

Subsidiary Name

 

Jurisdiction of Incorporation

 

Percentage Owned

Diamond Bar Outdoors, Inc.

 

California, U.S.

 

100%

 

Bright Swallow International Group Limited

 

British Virgin Islands

 

100%

 

Nova Furniture Limited

 

British Virgin Islands

 

100%

 

Nova Furniture Macao Commercial Offshore Ltd.*

 

Macao

 

100%

 

Nova Furniture Limited (Samoa)

 

Samoa

 

100%

 

i Design Blockchain Technology, Inc.*

 

California, U.S.

 

100%

 

Nova Living (M) SDN. BHD.*   Malaysia   100%  

 

*           Indicates subsidiary of a subsidiary.

 

 

 

 
ex_178557.htm

 

Exhibit 23.1 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-193746, 333-205768 and 333-219263) and the Registration Statement on Form S-8 (File No. 333-197735) of Nova LifeStyle, Inc. (the “Company”) of our report dated May 12, 2020, relating to the Company’s consolidated financial statements which appears in this Annual Report on Form 10-K of the Company for the year ended December 31, 2019.

 

/s/ Centurion ZD CPA & Co.

Centurion ZD CPA & Co. 

Hong Kong, China

 

May 12, 2020

 

 

 

 

 
ex_178558.htm

 

Exhibit 31.1

 

CERTIFICATION PURSUANT TO SECTION 302(a)

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Thanh H. Lam, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2019, of Nova LifeStyle, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2020

By:

/s/ Thanh H. Lam

 

 

 

Thanh H. Lam

Chief Executive Officer

(Principal Executive Officer)

 

 

 

 

 

 

 
ex_178559.htm

 

Exhibit 31.2

 

CERTIFICATION PURSUANT TO SECTION 302(a)

OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jeffery Chuang, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the period ended December 31, 2019, of Nova LifeStyle, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 12, 2020

By:

/s/ Jeffery Chuang

 

 

 

Jeffery Chuang

Chief Financial Officer

(Principal Financial Officer) 

 

 

 

 

 

 

 
ex_178560.htm

 

Exhibit 32.1

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Thanh H. Lam, Chief Executive Officer of Nova Lifestyle, Inc., certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Nova LifeStyle, Inc. for the fiscal year ended December 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Nova LifeStyle, Inc.

 

Date: May 12, 2020

By:

/s/ Thanh H. Lam

 

 

 

Thanh H. Lam

Chief Executive Officer

 

 

The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not to be incorporated by reference into any filing of Nova LifeStyle, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

A signed original of this written statement required by Section 906 has been provided to Nova LifeStyle, Inc. and will be retained by Nova LifeStyle, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

 
ex_178561.htm

 

Exhibit 32.2

 

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jeffery Chuang, Chief Financial Officer of Nova Lifestyle, Inc., certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K of Nova LifeStyle, Inc. for the fiscal year ended December 31, 2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Nova LifeStyle, Inc.

 

Date: May 12, 2020

By:

/s/ Jeffery Chuang

 

 

 

Jeffery Chuang

Chief Financial Officer

 

 

The foregoing certifications are not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and are not to be incorporated by reference into any filing of Nova LifeStyle, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

A signed original of this written statement required by Section 906 has been provided to Nova LifeStyle, Inc. and will be retained by Nova LifeStyle, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 
v3.20.1
Discontinued Operations
12 Months Ended
Dec. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Note 3 - Discontinued Operations


Towards the end of 2019, the board of directors of the Company committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020.


As of December 31, 2019, operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Accordingly, assets, liabilities, revenues, expenses and cash flows related to Bright Swallow have been reclassified in the consolidated financial statements as discontinued operations for all periods presented.


The following table presents the components of discontinued operations in relation to Bright Swallow reported in the consolidated statements of operations:


   

2019

   

2018

 
                 

Sales

  $ 6,547,538     $ 7,467,194  

Cost of sales

    (6,223,468

)

    (6,874,666

)

Operating expenses

    (3,799,261

)

    (471,729

)

(Loss) income before income taxes

    (3,475,576

)

    119,149  

Income tax (benefit) expense

    (1,011,532

)

    78,849  

(Loss) income from discontinued operations

    (2,464,044

)

    40,300  

The following table presents the major classes of assets and liabilities of discontinued operations of Bright Swallow reported in the consolidated balance sheets:


   

December 31,

2019

   

December 31,

2018

 
                 

Cash and equivalents

  $ 1,462,200     $ 646,857  

Accounts receivable, net

    969,841       864,598  

Advance to suppliers, net

    609,935       1,079,532  

Prepaid expenses and other receivables

    -       5,418  

Current assets of discontinued operations

    3,041,976       2,596,405  
                 

Intangible assets

    -       3,795,904  

Non-current assets of discontinued operations

    -       3,795,904  
                 

Accounts payable

  $ 948     $ -  

Advance from customers

    126,916       -  

Accrued liabilities and other payables

    2,553       5,174  

Income tax payable

    85,028       -  

Current liabilities of discontinued operations

    215,445       5,174  
                 

Noncurrent FIN 48 liability

    -       1,096,558  

Non-current liabilities of discontinued operations

    -       1,096,558  

v3.20.1
Income Taxes (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of Effective Income Tax Rate Reconciliation [Abstract]    
Tax at federal statutory rate $ (1,235,984) $ 949,384
Foreign rate differential (2,922) 2,922
ASC 740-10 uncertain tax position (230,322) (798,156)
Tax exemption (388,742) (1,148,552)
Global Intangible Low-Taxed Income 420,444 574,510
Stock based compensation 18,473 (270,754)
Tax Cut and Jobs Act 0 30,055
Others (463,093) (78,176)
Valuation allowance 2,133,188 0
Total (benefit) provision for income taxes $ 251,042 $ (738,767)
v3.20.1
Lines of Credit (Details) - Diamond Bar [Member] - Line of Credit [Member] - USD ($)
12 Months Ended
Sep. 19, 2017
Dec. 31, 2019
Dec. 31, 2018
Lines of Credit (Details) [Line Items]      
Line of Credit Facility, Maximum Borrowing Capacity $ 8,000,000    
Line of Credit Facility, Expiration Date Jun. 01, 2019    
Line of Credit Facility, Interest Rate at Period End   5.50%  
Line of Credit Facility, Collateral   The line of credit was secured by all of the assets of Diamond Bar and is guaranteed by Nova LifeStyle.  
Long-term Line of Credit   $ 0 $ 6,248,162
Interest Expense, Debt   $ 35,444 $ 169,675
Line of Credit Facility, Covenant Terms   The Diamond Bar loan had the following covenants: (i) maintain a minimum tangible net worth of not less than $20 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.5 to 1.0; (iii) the pre-tax income must be not less than 1% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.25 to 1.00.  
Line of Credit Facility, Covenant Compliance   Diamond Bar was in compliance with the stated covenants.  
v3.20.1
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings, Appropriated [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Total
Balance at Dec. 31, 2017 $ 5,638 $ 38,704,931 $ 6,241 $ 29,730,794   $ 68,447,604
Balance (in Shares) at Dec. 31, 2017 5,638,385          
Exercise of options - employees $ 7 31,494       31,501
Exercise of options - employees (in Shares) 6,546          
Stock issued to employees $ 7 73,869       73,876
Stock issued to employees (in Shares) 7,500          
Stock issued for service $ 61 486,538       486,599
Stock issued for service (in Shares) 60,899          
Stock options vested to board of directors and employees   567,171       567,171
Net income       5,299,625   5,299,625
Balance at Dec. 31, 2018 $ 5,713 39,864,003 6,241 35,030,419   $ 74,906,376
Balance (in Shares) at Dec. 31, 2018 5,713,330         5,713,330
Exercise of options - employees (in Shares)           0
Stock issued to employees $ 5 17,320       $ 17,325
Stock issued to employees (in Shares) 4,500          
Stock issued for service $ 23 99,977       100,000
Stock issued for service (in Shares) 23,774          
Stock options vested to board of directors and employees   239,762       239,762
Common stock repurchased         $ (616,193) (616,193)
Net income       (8,600,724)   (8,600,724)
Balance at Dec. 31, 2019 $ 5,741 $ 40,221,062 $ 6,241 $ 26,429,695 $ (616,193) $ 66,046,546
Balance (in Shares) at Dec. 31, 2019 5,741,604         5,741,604
v3.20.1
Document And Entity Information - USD ($)
12 Months Ended
Dec. 31, 2019
May 05, 2020
Jun. 28, 2019
Document Information Line Items      
Entity Registrant Name Nova Lifestyle, Inc.    
Document Type 10-K    
Current Fiscal Year End Date --12-31    
Entity Common Stock, Shares Outstanding   5,536,544  
Entity Public Float     $ 3,479,006
Amendment Flag false    
Entity Central Index Key 0001473334    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Non-accelerated Filer    
Entity Well-known Seasoned Issuer No    
Document Period End Date Dec. 31, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Small Business true    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Interactive Data Current Yes    
v3.20.1
Geographical Sales (Tables)
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]
Geographical distribution of sales consisted of the following for the years ended December 31, 2019 and 2018:


   

2019

   

2018

 
                 

Geographical Areas

               

North America

  $ 10,172,970     $ 46,959,295  

China

    11,792,589       11,331,108  

Australia

    -       11,060,421  

Asia*

    -       11,817,196  

Hong Kong

    -       -  

Other countries

    17,720       9,990  
    $ 21,983,279     $ 81,178,010  

* excluding China

v3.20.1
Summary of Significant Accounting Policies (Details) - Schedule of Accounts, Notes, Loans and Financing Receivable
12 Months Ended
Dec. 31, 2019
USD ($)
Schedule of Accounts, Notes, Loans and Financing Receivable [Abstract]  
Balance at January 1, 2019 $ 224,795
Provision for the year 3,942
Reversal – recoveries by cash (224,795)
Balance at December 31, 2019 $ 3,942
v3.20.1
Related Party Transactions
12 Months Ended
Dec. 31, 2019
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]

Note 12 - Related Party Transactions


On September 30, 2011, Diamond Bar leased a showroom in High Point, North Carolina from the Company’s president who is currently also the Chief Executive Officer and Chairman of the Board. The lease is to be renewed and has been renewed each year since 2011. On April 1, 2020, the Company renewed the lease for an additional one year term. The lease was for the amount of $34,561, with a term of one year. During the years ended December 31, 2019 and 2018, the Company paid rental amounts of $34,561 that are included in selling expenses.


On January 4, 2018, the Company entered into a sales representative agreement with a consulting firm, which is owned by the Chief Executive Officer and Chairman 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. The Company agreed to compensate the sales representative via commission at predetermined rates of the relevant sales amount. During the years ended December 31, 2019 and 2018, the Company recorded $126,949 and $159,360 as commission expense to this sales representative consulting firm, respectively.


v3.20.1
Prepaid Expenses and Other Receivables
12 Months Ended
Dec. 31, 2019
Other Income and Expenses [Abstract]  
Other Income and Other Expense Disclosure [Text Block]

Note 8 - Prepaid Expenses and Other Receivables


Prepaid expenses and other receivables consisted of the following at December 31, 2019 and 2018: 


   

2019

   

2018

 
                 

Prepaid expenses

  $ 148,750     $ 96,197  

Other receivables

    24,857       4,197  
    $ 173,607     $ 100,394  

As of December 31, 2019 and 2018, prepaid expenses and other receivables mainly represented prepaid insurance and a Paypal account balance. 


v3.20.1
Inventories
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Inventory Disclosure [Text Block]

Note 4 - Inventories


The inventories as of December 31, 2019 and 2018 totaled $29,724,665 and $6,371,112, respectively, and were all finished goods.


v3.20.1
Discontinued Operations (Tables)
12 Months Ended
Dec. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations [Table Text Block]
   

2019

   

2018

 
                 

Sales

  $ 6,547,538     $ 7,467,194  

Cost of sales

    (6,223,468

)

    (6,874,666

)

Operating expenses

    (3,799,261

)

    (471,729

)

(Loss) income before income taxes

    (3,475,576

)

    119,149  

Income tax (benefit) expense

    (1,011,532

)

    78,849  

(Loss) income from discontinued operations

    (2,464,044

)

    40,300  
   

December 31,

2019

   

December 31,

2018

 
                 

Cash and equivalents

  $ 1,462,200     $ 646,857  

Accounts receivable, net

    969,841       864,598  

Advance to suppliers, net

    609,935       1,079,532  

Prepaid expenses and other receivables

    -       5,418  

Current assets of discontinued operations

    3,041,976       2,596,405  
                 

Intangible assets

    -       3,795,904  

Non-current assets of discontinued operations

    -       3,795,904  
                 

Accounts payable

  $ 948     $ -  

Advance from customers

    126,916       -  

Accrued liabilities and other payables

    2,553       5,174  

Income tax payable

    85,028       -  

Current liabilities of discontinued operations

    215,445       5,174  
                 

Noncurrent FIN 48 liability

    -       1,096,558  

Non-current liabilities of discontinued operations

    -       1,096,558  
v3.20.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]

Note 16 - Commitments and Contingencies


Legal Proceedings


On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and 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 Security Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). Richard Deutner and ITENT EDV were subsequently substituted as plaintiffs and, on June 18, 2019, they filed an Amended Complaint.  In the Amended Complaint, plaintiffs seek to recover compensatory damages caused by the Company’s alleged violations of federal securities laws during the period from December 3, 2015 through December 20, 2018.  Plaintiffs claim that the Company: (1) overstated its purported strategic alliance with a customer in China to operate as lead designer and manufacturer for all furnishings in such customer’s planned $460 million senior care center in China; (2) the Company inflated its reported sales in 2016 and 2017 with the Company’s two major customers; and (3) as a result, the Company’s public statements were materially false and misleading at all relevant times.  In support of these claims, plaintiffs rely primarily upon a blog appearing in Seeking Alpha on December 21, 2018 in which it was claimed that an investigation of the Company failed to confirm the existence of several entities identified as significant customers, Plaintiffs purported to verify some of the information alleged in the Seeking Alpha blog.   By Order entered December 2, 2019, the Court denied defendants’ Motion to Dismiss the Amended Complaint. Defendants have accordingly filed an Answer to the Amended Complaint denying its material allegations. The Court also entered a scheduling order setting a final pretrial conference for July 20, 2020.


Independent of the litigation, the Audit Committee engaged the Company’s auditor to perform special procedures to confirm the reported sales.  Those procedures included but were not limited to the examination and testing of relevant documentation relating to the sales made by the Company to the customers identified in the purported research report for the periods 2015-2018, and 100% sampling of all transactions between the Company and the subject customers.  The Audit Committee finished its special procedures in March 2019 and the Company’s independent auditor has reported to the Audit Committee that, regarding the four subject customers mentioned in the purported research report, the special procedures resulted in no evidence of fictitious sales or of fictitious customers. Please see the details in the Form 8-K filed by the Company with SEC on March 29, 2019.


On March 8, 2019, in the United States District Court for the Central District of California, shareholder Jie Yuan (the “Jie Action”) filed a 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 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”) also 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 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 2016, the Company asserted 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.  He purports to state direct claims under Sections 10(b) and 20 of the Exchange Act and SEC Rule 10b-5.


On March 3, 2020, defendants filed in each of the derivative actions motions to stay those proceedings until the Barney action is resolved or alternatively to dismiss on the grounds that plaintiffs’ failure to make demand upon the Board 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 this action until the Barney litigation is resolved.  The Motion to Stay and Dismiss remains pending in the Samuels action.


While these derivative actions are purportedly asserted on behalf of the Company, it is possible that the Company may directly incur attorneys’ fees and is 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.


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 the business, financial condition or results of operations.


v3.20.1
Lease (Details)
12 Months Ended
Sep. 13, 2017
USD ($)
Sep. 13, 2017
HKD ($)
Jan. 07, 2014
Jun. 17, 2013
USD ($)
Dec. 31, 2018
USD ($)
Apr. 23, 2018
Lease (Details) [Line Items]            
Description of Lessor Leasing Arrangements, Operating Leases     The Company subleased a portion 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 had been renewed every year, expired on October 31, 2018 and was not renewed.      
Diamond Bar [Member] | Land, Buildings and Improvements [Member]            
Lease (Details) [Line Items]            
Lessee, Operating Lease, Term of Contract       5 years   36 months
Lessee, Operating Lease, Renewal Term       6 years    
Operating Leases, Rent Expense, Minimum Rentals       $ 42,000    
Operating lease, annual rent expense increase       3.00%    
Diamond Bar [Member] | Building [Member]            
Lease (Details) [Line Items]            
Rental Income, Nonoperating         $ 47,330  
Bright Swallow International Group Limited [Member] | Land, Buildings and Improvements [Member]            
Lease (Details) [Line Items]            
Lessee, Operating Lease, Term of Contract 2 years 2 years        
Operating Leases, Rent Expense, Minimum Rentals $ 20,000 $ 2,548        
Monthly Sublease Income [Member] | Diamond Bar [Member] | Building [Member]            
Lease (Details) [Line Items]            
Sublease Income         $ 6,000  
v3.20.1
Stockholders' Equity (Details)
12 Months Ended
Dec. 14, 2019
USD ($)
$ / shares
shares
Nov. 16, 2019
USD ($)
$ / shares
shares
Nov. 04, 2019
USD ($)
$ / shares
shares
Aug. 12, 2019
$ / shares
shares
Dec. 13, 2018
USD ($)
$ / shares
shares
Dec. 01, 2018
shares
Nov. 07, 2018
USD ($)
$ / shares
shares
Aug. 24, 2018
USD ($)
$ / shares
shares
Feb. 27, 2018
USD ($)
$ / shares
shares
Dec. 10, 2017
USD ($)
$ / shares
Nov. 16, 2017
shares
Sep. 26, 2017
USD ($)
$ / shares
shares
Aug. 29, 2017
$ / shares
shares
Jun. 30, 2017
Apr. 10, 2017
USD ($)
May 18, 2016
USD ($)
shares
Feb. 01, 2016
USD ($)
$ / shares
shares
May 28, 2015
USD ($)
$ / shares
shares
Dec. 31, 2019
USD ($)
$ / shares
shares
Dec. 31, 2018
USD ($)
$ / shares
Dec. 31, 2017
USD ($)
Dec. 12, 2017
USD ($)
Stockholders' Equity (Details) [Line Items]                                            
Stock Repurchase Program, Authorized Amount (in Dollars)                                           $ 5,000,000
Stock Issued During Period, Value, Issued for Services (in Dollars)                                     $ 100,000 $ 486,599    
Common Stock, Par or Stated Value Per Share (in Dollars per share) | $ / shares                                     $ 0.001 $ 0.001    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares                                     67,000      
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares                                     $ 2.91      
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     $ 369,247 $ 1,194,759    
Shares Issued, Value, Share-based Payment Arrangement, before Forfeiture (in Dollars)                                     17,325 73,876    
Statutory Equity Reserves (in Dollars)                                     6,241 6,241    
Consulting Service Agreement [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Consulting Agreement, Term                           12 years                
Share-based Payment Arrangement, Expense (in Dollars)                                     10,000 125,000    
Consulting Agreement, Vesting Terms                           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 were granted pursuant to Nova LifeStyle, Inc.’s 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. On June 12, 2018, the Company renewed the agreement with the consultant for an additional year and agreed to compensate the consultant $10,000 worth of shares of the Company’s common stock per month starting from July 1, 2018 for a period of 12 months.                
Consulting Agreement #2 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     0 151,197    
2014 Omnibus Long-Term Incentive Plan [Member] | August 292017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares                         156,000                  
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares                         $ 6.30                  
Share Based Compensation, Options, Term                         5 years                  
2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | August 292017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                         50.00%                  
2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | August 292017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                         50.00%                  
Consulting Service Agreement #7 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Consulting Agreement, Term                                 24 months          
Stock Issued During Period, Shares, Issued for Services (in Shares) | shares                                 48,000          
Stock Issued During Period, Value, Issued for Services (in Dollars)                                 $ 326,400          
Shares Issued, Price Per Share (in Dollars per share) | $ / shares                                 $ 6.80          
Share-based Payment Arrangement, Expense (in Dollars)                                     0 13,600    
Consulting Service Agreement #7 [Member] | Share-based Payment Arrangement, Tranche One [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Payment Arrangement, Tranche Two [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Payment Arrangement, Tranche Three [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Compensation Award, Tranche Four [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Compensation Award, Tranche Five[Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Compensation Award, Tranche Six[Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Compensation Award, Tranche Seven [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Service Agreement #7 [Member] | Share-based Compensation Award, Tranche Eight [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                                 12.50%          
Consulting Agreement #2 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Consulting Agreement, Term                     1 year                      
Consulting Agreement #2 [Member] | Share-based Payment Arrangement, Tranche One [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                     25.00%                      
Consulting Agreement #2 [Member] | Share-based Payment Arrangement, Tranche Two [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                     25.00%                      
Consulting Agreement #2 [Member] | Share-based Payment Arrangement, Tranche Three [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                     25.00%                      
Consulting Agreement #2 [Member] | Monthly Award [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Shares, Issued for Services (in Shares) | shares                     20,000                      
Consulting Service Agreement #12 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Consulting Agreement, Term                   12 months                        
Stock Issued During Period, Shares, Issued for Services (in Shares) | shares           20,000                                
Stock Issued During Period, Value, Issued for Services (in Dollars)                   $ 15,000                        
Share-based Payment Arrangement, Expense (in Dollars)                                     0 195,000    
Consulting Service Agreement #12 [Member] | Share-based Payment Arrangement, Tranche One [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                   25.00%                        
Consulting Service Agreement #12 [Member] | Share-based Payment Arrangement, Tranche Two [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                   25.00%                        
Consulting Service Agreement #12 [Member] | Share-based Payment Arrangement, Tranche Three [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                   25.00%                        
Consulting Service Agreement #12 [Member] | Share-based Compensation Award, Tranche Four [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                   25.00%                        
Consulting Agreement #14 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)                   $ 90,000                        
Share-based Payment Arrangement, Expense (in Dollars)                                     78,657 11,343    
Share Price (in Dollars per share) | $ / shares                   $ 4.50                        
Consulting Agreement #15 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Shares, Issued for Services (in Shares) | shares   20,000                                        
Share-based Payment Arrangement, Expense (in Dollars)                                     6,427      
Share Price (in Dollars per share) | $ / shares   $ 2.55                                        
Other Commitments, Description           The Company granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from January 1, 2019 for 12 months                                
Consulting Agreement #15 [Member] | Share-based Payment Arrangement, Tranche One [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage   25.00%                                        
Consulting Agreement #15 [Member] | Share-based Payment Arrangement, Tranche Two [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage   25.00%                                        
Consulting Agreement #15 [Member] | Share-based Payment Arrangement, Tranche Three [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage   25.00%                                        
Consulting Agreement #15 [Member] | Share-based Compensation Award, Tranche Four [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage   25.00%                                        
Consulting Agreement #15 [Member] | 2014 Omnibus Long-Term Incentive Plan [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)   $ 51,000                                        
Agreement with Three Furniture Designers [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)                               $ 2.70            
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     0 72,967    
Employmet Agreement, Term                               24 months            
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares                               48,000            
Agreement with Three Furniture Designers [Member] | Share-based Payment Arrangement, Tranche One [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                               25.00%            
Agreement with Three Furniture Designers [Member] | Share-based Payment Arrangement, Tranche Two [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                               25.00%            
Agreement with Three Furniture Designers [Member] | Share-based Payment Arrangement, Tranche Three [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                               25.00%            
Agreement with Three Furniture Designers [Member] | Share-based Compensation Award, Tranche Four [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                               25.00%            
Corporate Secretary [Member] | February 27, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share Price (in Dollars per share) | $ / shares                 $ 11.35                          
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     10,821 57,279    
Employmet Agreement, Term                 1 year                          
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares                 6,000                          
Shares Issued, Value, Share-based Payment Arrangement, before Forfeiture (in Dollars)                 $ 68,100                          
Corporate Secretary [Member] | December 13, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     21,898 1,202    
Share Price (in Dollars per share) | $ / shares         $ 3.85                                  
Employmet Agreement, Term         1 year                                  
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares         6,000                                  
Shares Issued, Value, Share-based Payment Arrangement, before Forfeiture (in Dollars)         $ 23,100                                  
Corporate Secretary [Member] | December 14, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     1,681      
Share Price (in Dollars per share) | $ / shares $ 2.13                                          
Employmet Agreement, Term 1 year                                          
Stock Issued During Period, Shares, Restricted Stock Award, Gross (in Shares) | shares 6,000                                          
Stock Issued During Period, Value, Restricted Stock Award, Gross (in Dollars) $ 12,780                                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche One [Member] | February 27, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                 25.00%                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche One [Member] | December 13, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage         25.00%                                  
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche One [Member] | December 14, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage 25.00%                                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Two [Member] | February 27, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                 25.00%                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Two [Member] | December 13, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage         25.00%                                  
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Two [Member] | December 14, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage 25.00%                                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Three [Member] | February 27, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                 25.00%                          
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Three [Member] | December 13, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage         25.00%                                  
Corporate Secretary [Member] | Share-based Payment Arrangement, Tranche Three [Member] | December 14, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage 25.00%                                          
Corporate Secretary [Member] | Share-based Compensation Award, Tranche Four [Member] | February 27, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                 25.00%                          
Corporate Secretary [Member] | Share-based Compensation Award, Tranche Four [Member] | December 13, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage         25.00%                                  
Corporate Secretary [Member] | Share-based Compensation Award, Tranche Four [Member] | December 14, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage 25.00%                                          
Consulting Agreement #9 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     9,159      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share Based Compensation, Options, Term     5 years                                      
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     95,214      
Number of Directors     3                                      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | April 102017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)                             $ 20,000              
Share-based Payment Arrangement, Expense (in Dollars)                                     0 1,261    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | September 26, 2017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     0 162,453    
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Dividend Rate                       0.00%                    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares                       60,000                    
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares                       $ 8.25                    
Share Based Compensation, Options, Term                       5 years                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term                       5 years                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate                       84.00%                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate                       1.87%                    
Option, Grant Date Fair Value (in Dollars)                       $ 324,907                 $ 18,318  
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | November 7, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share Price (in Dollars per share) | $ / shares             $ 0.0307                              
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares             60,000                              
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares             $ 5.90                              
Share Based Compensation, Options, Term             5 years                              
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate             84.00%                              
Option, Grant Date Fair Value (in Dollars)             $ 240,105                              
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate             0.00%                              
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     180,079 60,026    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | November 4, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)     $ 114,740                                      
Share Price (in Dollars per share) | $ / shares     $ 0.0160                                      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares     60,000                                      
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares     $ 2.80                                      
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate     87.00%                                      
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate     0.00%                                      
Share-based Payment Arrangement, Noncash Expense (in Dollars)                                     28,685      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | April 102017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                             50.00%              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | September 26, 2017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                       25.00%                    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | November 7, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage             25.00%                              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | November 4, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage     25.00%                                      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | April 102017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                             50.00%              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | September 26, 2017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                       25.00%                    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | November 7, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage             25.00%                              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | November 4, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage     25.00%                                      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Three [Member] | September 26, 2017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                       25.00%                    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Three [Member] | November 7, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage             25.00%                              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Three [Member] | November 4, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage     25.00%                                      
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Compensation Award, Tranche Four [Member] | September 26, 2017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage                       25.00%                    
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Compensation Award, Tranche Four [Member] | November 7, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage             25.00%                              
Director [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Compensation Award, Tranche Four [Member] | November 4, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage     25.00%                                      
President [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | August 292017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Payment Arrangement, Expense (in Dollars)                                     0 $ 321,591    
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares                         20,000                  
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term                         10 years                  
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate                         84.00%                  
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate                         1.70%                  
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate                         0.00%                  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in Dollars per share) | $ / shares                         $ 643,182                  
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | August 292017 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares                         7,000                  
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | August 24, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Stock Issued During Period, Value, Issued for Services (in Dollars)               $ 43,680                            
Share-based Payment Arrangement, Expense (in Dollars)                                     $ 21,840      
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares               7,000                            
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares               $ 9.25                            
Share Based Compensation, Options, Term               5 years                            
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term               10 years                            
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate               84.00%                            
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate               2.72%                            
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate               0.00%                            
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | August 12, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares) | shares       7,000                                    
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share) | $ / shares       $ 3.85                                    
Share Based Compensation, Options, Term       5 years                                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term       10 years                                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate       87.00%                                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate       1.49%                                    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate       0.00%                                    
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | August 24, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage               50.00%                            
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche One [Member] | August 12, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage       50.00%                                    
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | August 24, 2018 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage               50.00%                            
Chief Financial Officer [Member] | 2014 Omnibus Long-Term Incentive Plan [Member] | Share-based Payment Arrangement, Tranche Two [Member] | August 12, 2019 [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage       50.00%                                    
Private Placement [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Shares Issued, Price Per Share (in Dollars per share) | $ / shares                                   $ 10.00        
Private Placement Number of Shares Authorized (in Shares) | shares                                   594,102        
Common Stock, Par or Stated Value Per Share (in Dollars per share) | $ / shares                                   $ 0.001        
Stock Issued During Period, Shares, New Issues (in Shares) | shares                                   400,000        
Proceeds from Issuance or Sale of Equity (in Dollars)                                   $ 4,000,002        
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per share) | $ / shares                                   $ 13.55        
Warrants, Term                                   5 years        
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Term                                   5 years        
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Volatility Rate                                   107.00%        
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Risk Free Interest Rate                                   1.55%        
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Dividend Rate                                   0.00%        
Warrants, Fair Value of Warrants, Granted (in Dollars)                                   $ 3,147,530        
Private Placement [Member] | Series A Warrants [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares                                   132,006        
Private Placement [Member] | Series C Warrants [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares) | shares                                   62,096        
Nova Macao [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Statutory reserve, after-tax income percentage                                     10.00%      
Nova Dongguan [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Statutory reserve, percentage of registered capital                                     50.00%      
Nova Dongguan [Member] | Minimum [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Common welfare fund, voluntary contribution                                     5%      
Nova Dongguan [Member] | Maximum [Member]                                            
Stockholders' Equity (Details) [Line Items]                                            
Common welfare fund, voluntary contribution                                     10%      
v3.20.1
Discontinued Operations (Details) - Disposal Groups, Including Discontinued Operations - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Disposal Groups, Including Discontinued Operations [Abstract]    
Sales $ 6,547,538 $ 7,467,194
Cost of sales (6,223,468) (6,874,666)
Operating expenses (3,799,261) (471,729)
(Loss) income before income taxes (3,475,576) 119,149
Income tax (benefit) expense (1,011,532) 78,849
(Loss) income from discontinued operations (2,464,044) 40,300
Cash and equivalents 1,462,200 646,857
Accounts receivable, net 969,841 864,598
Advance to suppliers, net 609,935 1,079,532
Prepaid expenses and other receivables 0 5,418
Current assets of discontinued operations 3,041,976 2,596,405
Intangible assets 0 3,795,904
Non-current assets of discontinued operations 0 3,795,904
Accounts payable 948 0
Advance from customers 126,916 0
Accrued liabilities and other payables 2,553 5,174
Income tax payable 85,028 0
Current liabilities of discontinued operations 215,445 5,174
Noncurrent FIN 48 liability 0 1,096,558
Non-current liabilities of discontinued operations $ 0 $ 1,096,558
v3.20.1
Advances to Suppliers (Details) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Disclosure Text Block Supplement [Abstract]    
Prepaid Supplies $ 27,745,184 $ 9,545,489
v3.20.1
Plant, Property and Equipment, Net (Tables)
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Member]  
Plant, Property and Equipment, Net (Tables) [Line Items]  
Property, Plant and Equipment [Table Text Block]
As of December 31, 2019 and 2018, plant, property and equipment consisted of the following:


   

2019

   

2018

 
                 

Computer and office equipment

  $ 346,141     $ 320,239  

Decoration and renovation

    118,858       118,858  

Less: accumulated depreciation

    (328,487

)

    (292,001

)

    $ 136,512     $ 147,096  
v3.20.1
Subsequent Events
12 Months Ended
Dec. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

Note 17 - Subsequent Events


After the close of the fiscal year to which these financial statements relate, the Company experienced (and continues to experience) significant adverse impacts of novel coronavirus (COVID-19) and the related public health orders. The Company’s two showrooms and warehouse in Kuala Lumpur have been closed since March 18, 2020.  At this juncture, the Company is unable to predict when the Kuala Lumpur and Los Angeles facilities will be able to resume ordinary operations, or whether future developments may cause the Company to curtail or suspend operations in its other facilities. The Company is experiencing reduced demand for its products and an increased level of purchase order cancellations as a result of the COVID-19 pandemic. The third-party contract manufacturers that the Company utilizes in China were closed from the beginning of the Lunar New Year Holiday through the beginning of March. Certain of the Company’s new products are being sourced from manufacturers in India and Malaysia starting in 2020. The factories in India and Malaysia have suspended operations as a result of the COVID-19 pandemic. They are currently scheduled to reopen in May, but it is likely that their reopening will be delayed further as a consequence of governmental health-related action. The Company cannot reasonably predict when they will reopen. Finally, the Company expects that the impact of the COVID-19 outbreak on the United States and world economies will 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 business interruption and the related financial impact cannot be reasonably estimated at this time.


v3.20.1
Lease (Details) - Schedule of lease Cost
12 Months Ended
Dec. 31, 2019
USD ($)
Schedule of lease Cost [Abstract]  
Operating lease cost $ 620,980
Weighted Average Remaining Lease Term - Operating leases 4 years 306 days
Weighted Average Discount Rate - Operating leases 5.00%
v3.20.1
Stockholders' Equity (Details) - Schedule of Stockholders' Equity Note, Warrants or Rights - $ / shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of Stockholders' Equity Note, Warrants or Rights [Abstract]    
Number of Warrants Outstanding   171,667
Warrants Outstanding, Average Exercise Price $ 13.55 $ 13.55
Warrants Outstanding, Weighted Average Remaining Contractual Term in Years 335 days 1 year 335 days
Number of Warrants Exercisable   171,667
Warrants Exercisable, Average Exercise Price $ 13.55 $ 13.55
Warrants Exercisable, Weighted Average Remaining Contractual Term in Years 335 days 1 year 335 days
Number of Warrants Granted 0  
Warrants Granted, Average Exercise Price $ 0  
Number of Warrants Exercised 0  
Warrants Exercised, Average Exercise Price $ 0  
Number of Warrants Expired 0  
Warrants Expired, Average Exercise Price $ 0  
Number of Warrants Outstanding 171,667  
Number of Warrants Exercisable 171,667  
v3.20.1
Discontinued Operations (Details) - USD ($)
$ in Thousands
Mar. 01, 2020
Jan. 27, 2020
Discontinued Operations and Disposal Groups [Abstract]    
Proceeds from Sale of Buildings $ 2,500 $ 2,500
v3.20.1
Plant, Property and Equipment, Net (Details) - Schedule of Property, Plant and Equipment - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Property, Plant and Equipment [Line Items]    
Less: accumulated depreciation $ (328,487) $ (292,001)
Property, plant and equipment, net 136,512 147,096
Office Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross 346,141 320,239
Museum Decoration and Renovation [Member]    
Property, Plant and Equipment [Line Items]    
Property, plant and equipment, gross $ 118,858 $ 118,858
v3.20.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Net Sales $ 21,983,279 $ 81,178,010
Cost of Sales 20,690,015 65,818,339
Gross Profit 1,293,264 15,359,671
Operating Expenses    
Selling expenses 1,585,542 3,980,826
General and administrative expenses 5,504,079 6,551,579
Total Operating Expenses 7,089,621 10,532,405
(Loss) Income From Operations (5,796,357) 4,827,266
Other Income (Expenses)    
Non-operating income, net 37,915 596
Foreign exchange transaction gain (loss) 79 (124)
Interest income (expense), net 25,875 (170,255)
Financial expense (153,150) (136,925)
Total Other Expenses, Net (89,281) (306,708)
(Loss) Income Before Income Taxes and Discontinued operations (5,885,638) 4,520,558
Income Tax (Expense) Benefit (251,042) 738,767
(Loss) Income From Continuing Operations (6,136,680) 5,259,325
(Loss) Income From Discontinued Operations (2,464,044) 40,300
Net (Loss) Income and Comprehensive (Loss) Income $ (8,600,724) $ 5,299,625
Basic weighted average shares outstanding (in Shares) [1] 5,666,320 5,678,771
Diluted weighted average shares outstanding (in Shares) 5,666,320 5,722,657
(Loss) Income from continuing operations per share of common stock    
Basic (in Dollars per share) $ (1.08) $ 0.92
Diluted (in Dollars per share) (1.08) 0.92
(Loss) Income from discontinued operations per share of common stock    
Basic (in Dollars per share) (0.44) 0.01
Diluted (in Dollars per share) (0.44) 0.01
Net (loss) income per share of common stock    
Basic (in Dollars per share) (1.52) 0.93
Diluted (in Dollars per share) $ (1.52) $ 0.93
[1] Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.
v3.20.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]

Note 2 - Summary of Significant Accounting Policies


Basis of Presentation


The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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.


Reverse split


On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), shall be effected. All references to shares and per share data have been retroactively restated to reflect such split.  


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


Recently Adopted Accounting Pronouncements


On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.


Significant Accounting Policies - Leases


On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with its historical accounting under Topic 840.


The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.


Upon adoption, the Company recognized total ROU assets of $3.13 million, with corresponding liabilities of $3.13 million on the consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact its beginning retained earnings, or its prior year consolidated statements of income and statements of cash flows.


Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.


Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and non-current operating lease liabilities, on the consolidated balance sheets.


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 assets 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 December 31, 2019 and 2018, the Company concluded there was no impairment of goodwill of Diamond Bar.


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


The Company’s accounts receivable arise from product sales. The Company does not adjust its receivables for the effects of 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, 2019

  $ 224,795  

Provision for the year

    3,942  

Reversal – recoveries by cash

    (224,795

)

Balance at December 31, 2019

  $ 3,942  

During the years ended December 31, 2019 and 2018, bad debts (reversal) provision from continuing operations were ($220,853) and $13,241, respectively. During the year ended December 31, 2019 and 2018, bad debt provision and written off from discontinued operations were $0.


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 in normal circumstances, the Company receives goods within 5 to 9 months from the date the advance payment is made. 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 the Company. Any provisions for allowance for advances to suppliers, if deemed necessary, are included in general and administrative expenses in the consolidated statements of comprehensive income (loss). During the years ended December 31, 2019 and 2018, 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. Write-down of potential obsolete or slow moving inventories is recorded based on management’s assumptions about future demands and market conditions. For the year ended December 31, 2019, the Company wrote-down $3.61 million of slow-moving inventory. The Company did not record any write-downs of inventories at December 31, 2018. The inventory write-down is included in “Cost of Sales” from continuing operations in the consolidated statements of comprehensive income. There were no write-downs of inventories from the Company’s discontinued operations for the years ended December 31, 2019 and 2018.


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, 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 no salvage value and estimated lives as follows:


Computer and office equipment

5 - 10 years

Decoration and renovation

5 - 10 years


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.


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.


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 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 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 the asset group asset group exceeds its fair value based on discounted cash flow analysis or appraisals.


Treasury Stock


Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in capital using the average-cost method. Upon retirement of treasury stock, the amounts in excess of par value are charged entirely to retained earnings.


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 expenses from continuing operations were $132,844 and $237,290 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, research and development costs from discontinued operations were $0.


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.


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.


Nova Lifestyle, Inc. and Diamond Bar Outdoors, Inc. (“Diamond Bar”) are subject to U.S. federal and state income taxes. Nova Furniture BVI and Bright Swallow International Group Limited (“BSI”) were incorporated in the BVI, Nova Samoa was incorporated in Samoa, and Nova Macau was incorporated in Macau. There is no income tax for companies domiciled in the BVI, Samoa and Macau. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI, Samoa and Macau tax jurisdictions where Nova Furniture BVI and BSI, Nova Samoa and Nova Macau are domiciled.


On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly change the federal income tax laws. The provisions of the Tax Act that have significant impact on the Company include the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for Global Intangible Low-Taxed Income ("GILTI"), deduction for Foreign Derived Intangible Income ("FDII"), repeal of corporate alternative minimum tax, limitation of various business deductions, and modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017.


The Act also 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 year ended December 31, 2019, 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.


As of December 31, 2019, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $27.8 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.


A reconciliation of the January 1, 2019 through December 31, 2019 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:


   

Gross UTB

 
   

2019

   

2018

 
                 

Balance – January 1

  $ 158,153       884,361  

Decrease in unrecorded tax benefits taken, related to the Company’s continuing operations

    (145,606

)

    (726,208

)

Foreign exchange adjustment 

            -  

Balance – December 31

  $ 12,547       158,153  

At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $1,278 and $85,994 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s continuing operations. The Company recorded reversal of interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled $84,716 and $71,948 for the years ended December 31, 2019, and 2018, respectively, 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.


At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $0 and $532,657 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s discontinued operations. The Company recorded (a decrease) an increase in unrecognized tax benefits and (reversal) increase in interest and penalties as a component of income tax (benefit) expense, which totaled $(1,011,532) and $111,142 for the years ended December 31, 2019, and 2018, respectively, related to the Company’s discontinued operations.


Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2015-2018 remain open to examination by tax authorities in the U.S.


Revenue Recognition


The Company 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 recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses 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.


Revenues from product sales are recorded net of reserves established for applicable discounts and allowances 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 amount is payable to the Company’s customer.


The Company’s sales policy allows for product returns within the warranty period if the product is defective and the defects are the Company’s fault.  As alternatives to the product return option, the customers have the option of requesting a discount from the Company for products with quality issues or of receiving replacement parts from the Company at no cost. The amount for product returns, the discount provided to the Company’s customers, and the costs for replacement parts were immaterial for the years ended December 31, 2019 and 2018.


The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on the Company’s consolidated statements of comprehensive income (loss).


Cost of Sales


Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers and write-downs of inventory.


Shipping and Handling Costs


Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the years ended December 31, 2019 and 2018, shipping and handling costs (income) from continuing operations were $2,792 and $(6,399), respectively. During the years ended December 31, 2019 and 2018, shipping and handling costs from discontinued operations were $0.


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 $176,526 and $1,076,570 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, advertising expense from discontinued operations were $0. 


Share-based compensation


The Company accounts for share-based compensation awards to employees 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 service 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.


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) income per share for the years ended December 31, 2019 and 2018: 


   

2019

   

2018

 
                 

Net (loss) income from continuing operations

  $ (6,136,680

)

  $ 5,259,325  

Net (loss) income from discontinued operations

    (2,464,044

)

    40,300  

Net (loss) income 

    (8,600,724

)

    5,299,625  
                 

Weighted average shares outstanding – basic*

    5,666,320       5,678,771  

Dilutive stock options and unvested restricted stock

    -       43,886  

Weighted average shares outstanding – diluted

    5,666,320       5,722,657  
                 

(Loss) Income from continuing operations per share of common stock

               

– basic

  $ (1.08

)

  $ 0.92  

– diluted

  $ (1.08

)

  $ 0.92  
                 

(Loss) Income from discontinued operations per share of common stock

               

– basic

  $ (0.44

)

  $ 0.01

 

– diluted

  $ (0.44

)

  $ 0.01

 

                 

(Loss) Income per share of common stock

               

– basic

  $ (1.52

)

  $ 0.93  

– diluted

  $ (1.52

)

  $ 0.93  

*

Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.


For the year ended December 31, 2019, 171,667 shares purchasable under warrants, 26,000 shares of unvested restricted stock and options to purchase 340,500 shares of the Company’s stock were excluded from the EPS calculation, as their effects were anti-dilutive.


For the year ended December 31, 2018, 171,667 shares purchasable under warrants and 26,000 unvested restricted stock 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.


One major customer accounted for 54% of the Company’s sales from our continuing operations for the year ended December 31, 2019 and major customers accounted for 43% (15%, 14% and 14% each) of the Company’s sales from our continuing operations for the year of 2018.  Gross accounts receivable from these customers was $0 and $55,683,031 as of December 31, 2019 and 2018, respectively.


The Company purchased its products from three major vendors during the year ended December 31, 2019 and 2018, accounting for a total of 61% (31%, 15% and 15% each) and 83% (37%, 34%, and 12% each) of the Company’s purchases from our continuing operations, respectively. Advances made to these vendors were $17,279,749 and $6,719,481 as of December 31, 2019 and 2018, respectively. Accounts payable to these vendors was $0 as of December 31, 2019 and 2018.


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, advances to suppliers, other receivables, accounts payable, short-term 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 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 consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Nova Macao, Bright Swallow, Diamond Bar 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 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 comprehensive loss.


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

       

December 31, 2019

    RM4.09 to 1  
         

Income statement and cash flows items

       

For the period ended December 31, 2019

    RM4.13 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.


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, Bright Swallow is a furniture distributor focusing on customers in Canada, and Nova Macao is a furniture distributor based in Macao focusing on international customers, and Nova Malaysia is a furniture retailer and distributor focusing on 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 and Nova Malaysia as a whole for making business decisions.


After the disposal of Nova Dongguan and its subsidiaries in October 2016, all of the Company’s long-lived assets are mainly property, plant and equipment located in the United States for administrative purposes.


Net sales to customers by geographic area are determined by reference to the physical locations of the Company’s customers. For example, if the products are delivered to a customer in the US, 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 issued accounting pronouncements not yet adopted


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Adoption of the ASUs is on a modified retrospective basis. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.


In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.


In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.


In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.


In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.


v3.20.1
Income Taxes (Details) - Schedule of the Aggregate Dollar and per Share Effects of Tax Exemption - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of the Aggregate Dollar and per Share Effects of Tax Exemption [Abstract]    
Aggregate dollar effect of tax holiday $ 388,742 $ 1,148,552
v3.20.1
Income Taxes (Details) - USD ($)
12 Months Ended
Dec. 22, 2017
Dec. 21, 2017
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Taxes (Details) [Line Items]          
Taxes Payable     $ 1,830,000 $ 2,260,000  
Accrued Income Taxes     1,820,000 2,010,000  
Unrecognized Tax Benefits     12,547 158,153 $ 884,361
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent 21.00% 35.00%      
Domestic Tax Authority [Member]          
Income Taxes (Details) [Line Items]          
Operating Loss Carryforwards     2,660,000 0  
State and Local Jurisdiction [Member]          
Income Taxes (Details) [Line Items]          
Operating Loss Carryforwards     $ 6,240,000 $ 2,810,000  
MALAYSIA | Foreign Tax Authority [Member]          
Income Taxes (Details) [Line Items]          
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent     24.00%    
Bright Swallow International Group Limited [Member] | Foreign Tax Authority [Member]          
Income Taxes (Details) [Line Items]          
Effective Income Tax Rate Reconciliation, Percent       16.50%  
v3.20.1
Stockholders' Equity (Tables)
12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]
The following is a summary of the warrant activity for the year ended December 31, 2019:


   

Number of 

Warrants 

   

Average 

Exercise Price 

   

Weighted Average Remaining Contractual Term in Years

 
                         

Outstanding at January 1, 2019

    171,667     $ 13.55       1.92  

Exercisable at January 1, 2019

    171,667     $ 13.55       1.92  

Granted

    -       -       -  

Exercised / surrendered

    -       -       -  

Expired

    -       -       -  

Outstanding at December 31, 2019

    171,667     $ 13.55       0.92  

Exercisable at December 31, 2019

    171,667     $ 13.55       0.92  
Share-based Payment Arrangement, Option, Activity [Table Text Block]
Stock option activity under the Company’s stock-based compensation plans is shown below:


   

Number of
Shares

   

Average
Exercise
Price per Share

   

Aggregate Intrinsic
Value(1)

   

Weighted
Average
Remaining
Contractual
Term in Years

 
                                 

Outstanding at January 1, 2019

    273,500       6.70     $ -       3.96  

Exercisable at January 1, 2019

    225,000       6.85     $ -       3.75  
                                 

Granted

    67,000       2.91       -       5.00  

Exercised

    -       -       -       -  

Forfeited

    -       -       -       -  

Outstanding at December 31, 2019

    340,500     $ 5.97     $ -     $ 3.33  

Exercisable at December 31, 2019

    292,000     $ 6.48     $ -     $ 3.08  
v3.20.1
Summary of Significant Accounting Policies (Details) - USD ($)
12 Months Ended
Dec. 22, 2017
Dec. 21, 2017
Dec. 31, 2019
Dec. 31, 2018
Jan. 01, 2019
Summary of Significant Accounting Policies (Details) [Line Items]          
Common Stock, Par or Stated Value Per Share (in Dollars per share)     $ 0.001 $ 0.001  
Operating Lease, Right-of-Use Asset     $ 2,658,344 $ 0 $ 3,130,000
Operating Lease, Liability     2,692,129   $ 3,130,000
Accounts Receivable, Credit Loss Expense (Reversal)     (220,853) 13,241  
Inventory Write-down     3,605,748 0  
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent 21.00% 35.00%      
Deferred Tax Liability Not Recognized, Amount of Unrecognized Deferred Tax Liability, Undistributed Earnings of Foreign Subsidiaries     27,800,000    
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued     1,278 85,994  
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense     84,716 71,948  
Revenues     $ 21,983,279 $ 81,178,010  
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number (in Shares)     33,307 162,807  
Number of Operating Segments     1    
Warrant [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)     171,667 171,667  
Restricted Stock [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)     26,000 26,000  
Share-based Payment Arrangement, Option [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)     340,500    
Continuing Operations [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Accounts Receivable, Credit Loss Expense (Reversal)     $ (220,853) $ 13,241  
Research and Development Expense     132,844 237,290  
Advertising Expense     176,526 1,076,570  
Discontinued Operations [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Accounts Receivable, Credit Loss Expense (Reversal)     0    
Research and Development Expense     0 0  
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued     0 532,657  
Unrecognized Tax Benefits, Income Tax Penalties and Interest Expense     (1,011,532) 111,142  
Customer Concentration Risk [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Accounts Receivable, before Allowance for Credit Loss, Current     $ 0 $ 55,683,031  
Customer Concentration Risk [Member] | Revenue Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage     54.00% 43.00%  
Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage       83.00%  
Accounts Receivable, before Allowance for Credit Loss     $ 17,279,749 $ 6,719,481  
Accounts Payable     $ 0 $ 0  
Major Vendor D [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage     61.00%    
Major Vendor A [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage     31.00% 37.00%  
Major Vendor B [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage     15.00% 34.00%  
Major Vendor C [Member] | Supplier Concentration Risk [Member] | Cost of Goods and Service Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage     15.00% 12.00%  
Shipping and Handling [Member] | Continuing Operations [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Revenues     $ 2,792 $ (6,399)  
Shipping and Handling [Member] | Discontinued Operations [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Revenues     0 $ 0  
Major Customer A [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage       15.00%  
Major Customer B [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage       14.00%  
Major Customer C [Member] | Customer Concentration Risk [Member] | Revenue Benchmark [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Concentration Risk, Percentage       14.00%  
Diamond Bar [Member]          
Summary of Significant Accounting Policies (Details) [Line Items]          
Goodwill, Impairment Loss     $ 0 $ 0  
v3.20.1
Accrued Liabilities and Other Payables
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

Note 9 - Accrued Liabilities and Other Payables


Accrued liabilities and other payables consisted of the following as of December 31, 2019 and 2018:


   

 2019

   

2018

 
                 

Other payables

  $ 33,115     $ 49,441  

Salary payable

    16,419       40,907  

Financed insurance premiums

    102,354       39,202  

Accrued rents

    17,733       2,951  

Accrued commission

    53,850       623,372  

Accrued expenses, others

    78,293       47,582  
    $ 301,764     $ 803,455  

As of December 31, 2019 and 2018, other accrued expenses mainly included legal and professional fee and utilities. Other payables represented other tax payable and rebate. 


v3.20.1
Plant, Property and Equipment, Net
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]

Note 5 - Plant, Property and Equipment, Net


As of December 31, 2019 and 2018, plant, property and equipment consisted of the following: 


   

2019

   

2018

 
                 

Computer and office equipment

  $ 346,141     $ 320,239  

Decoration and renovation

    118,858       118,858  

Less: accumulated depreciation

    (328,487

)

    (292,001

)

    $ 136,512     $ 147,096  

Depreciation expense from continuing operations was $36,486 and $37,679 for the years ended December 31, 2019 and 2018, respectively. Depreciation expense from discontinued operations was $0 for the years ended December 31, 2019 and 2018.


v3.20.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2019
Stockholders' Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]

Note 13 - Stockholders’ Equity


Share repurchase program


On December 12, 2017, the Company issued a press release announcing that the Board of Directors of the Company had approved a 10b-18 share repurchase program to repurchase up to $5 million of its outstanding common stock. Under the repurchase program, shares of the Company’s common stock may be repurchased from time to time over the next 12 months. The program expired on December 8, 2018 and no shares have been repurchased under the program.


On June 4, 2019, the Board of Directors of the Company adopted a 10b-18 share repurchase program to repurchase up to $2 million of its common stock. The share repurchase authorization permits shares to be repurchased from time to time at the discretion of the Company’s management, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The program is effective as of June 5, 2019 and will expire on June 4, 2020. During the year ended December 31, 2019, the Company repurchased 172,870 shares of its common stock.


Warrants


The following is a summary of the warrant activity for the year ended December 31, 2019: 


   

Number of 

Warrants 

   

Average 

Exercise Price 

   

Weighted Average Remaining Contractual Term in Years

 
                         

Outstanding at January 1, 2019

    171,667     $ 13.55       1.92  

Exercisable at January 1, 2019

    171,667     $ 13.55       1.92  

Granted

    -       -       -  

Exercised / surrendered

    -       -       -  

Expired

    -       -       -  

Outstanding at December 31, 2019

    171,667     $ 13.55       0.92  

Exercisable at December 31, 2019

    171,667     $ 13.55       0.92  

Shares Issued to Consultants 


On February 1, 2016, the Company entered into an agreement with a consultant for E-Commerce consulting services with a term of 24 months. The Company agreed to grant the consultant 2,000 shares of the Company’s common stock per month, for a total commitment of 48,000 shares. Twelve and half percent (12.5%) of those shares vested 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 48,000 shares was $326,400, which was calculated based on the stock price of $6.80 per share on February 1, 2016, the date the agreement was executed, and was amortized over the service term. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $13,600 as consulting expenses, respectively.


On June 30, 2017, the Company entered into a consulting agreement with a consultant for business advisory services 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 were granted pursuant to Nova LifeStyle, Inc.’s 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. On June 12, 2018, the Company renewed the agreement with the consultant for an additional year and agreed to compensate the consultant $10,000 worth of shares of the Company’s common stock per month starting from July 1, 2018 for a period of 12 months. The shares were issued pursuant to the Plan. On January 31, 2019, the Company terminated the agreement. During the years ended December 31, 2019 and 2018, the Company recorded $10,000 and $125,000 as consulting expense, respectively.


On November 16, 2017, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2017 for one year. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2018, 25% on May 15, 2018, 25% vested on August 15, 2018 and the remaining 25% vested on November 15, 2018. The fair value of 20,000 shares was $173,000, which was calculated based on the stock price of $8.65 per share on November 16, 2017 and was amortized over the service term. The shares were granted pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $151,197 as consulting expense, respectively.


On December 10, 2017, the Company entered into a consulting agreement with a consultant for business advisory services effective as of January 1, 2018 and ending on December 31, 2018. The Company agreed to compensate the consultant a one-time amount of $15,000 worth of shares of the Company’s common stock based on the price per share on December 15, 2017. The Company also granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from January 1, 2018 for 12 months. The shares were granted pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $195,000 as consulting expense, respectively.


On November 16, 2018, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2018 for one year. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2019 and 25% on May 15, 2019; 25% vested on August 15, 2019 and the remaining 25%  vested on November 15, 2019. The fair value of 20,000 shares was $90,000 which was calculated based on the stock price of $4.50 per share on November 16, 2018 and was amortized over the service term. The shares were issued pursuant to the Plan. During the years ended December 31, 2019 and 2018, the Company amortized $78,657 and $11,343 as consulting expenses, respectively.


On December 1, 2018, the Company entered into a consulting agreement with a consultant for business advisory services effective as of January 1, 2019 and ending on December 31, 2019. The Company granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from January 1, 2019 for 12 months. The shares were granted pursuant to the Plan. On January 1, 2019, the consultant terminated the agreement for personal reasons.


On November 16, 2019, the Company entered into a consulting agreement with a consultant for consulting and strategy services effective on November 16, 2019 for a one year term. The Company agreed to grant the consultant 20,000 shares of the Company’s common stock. Twenty-five percent (25%) of those shares vested on February 15, 2020, 25% will vest on May 15, 2020; 25% will vest on August 15, 2020 and the remaining 25% will vest on November 15, 2020. The fair value of 20,000 shares was $51,000 which was calculated based on the stock price of $2.55 per share on November 18, 2019 and will be amortized over the service term. The shares would be issued pursuant to the Plan. During the year ended December 31, 2019, the Company amortized $6,427 as consulting expenses.


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 (the “Purchase Agreement”) with certain purchasers (the “Purchasers”) pursuant to which the Company offered to the Purchasers, in a registered direct offering, an aggregate of 594,102 shares of common stock, par value $0.001 per share. Of these, 400,000 shares were sold to the Purchasers at a negotiated purchase price of $10.00 per 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 Purchase Agreement, the Company exchanged outstanding 2014 Series A Warrants with their holders for 132,006 shares of common stock, and exchanged the outstanding 2014 Series C Warrants with their holders for 62,096 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”). The 2015 Warrants became exercisable beginning on the six month anniversary of the date of issuance (the “Initial Exercise Date”) at an exercise price of $13.55 per share and will expire on the five year anniversary of the Initial Exercise Date. The purchase price of one share of the Company’s common stock under the 2015 Warrants is equal to the exercise price. 


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 years, volatility of 107%, risk-free interest rate of 1.55% and dividend yield of 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.


Shares and Options Issued to Independent Directors


On April 10, 2017, the Company entered into a restricted stock award agreement under the 2014 Omnibus Long-Term Incentive Plan with a new independent director of the Board. The Company agreed to grant $20,000 worth of stock to the independent director with a grant date on April 10, 2017. The restricted period lapses as of 50% of the restricted stock granted vested on April 10, 2017 based on the closing price of common stock on Nasdaq as of April 10, 2017, and 50% 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. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $1,261 as directors’ stock compensation expenses, respectively. 


On September 26, 2017, 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 60,000 shares of the Company’s common stock at an exercise price of $8.25 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on September 30, 2017, 25% on December 31, 2017, 25% on March 31, 2018, and the remaining 25% vested on June 30, 2018.


The fair value of the stock option granted is 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. The fair value of the options was calculated using the following assumptions, estimated life of five years, volatility of 84%, risk free interest rate of 1.87%, and dividend yield of 0%. The fair value of 60,000 stock options was $324,907 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $0 and $162,453 as directors’ stock compensation expenses, respectively.


On November 7, 2018, 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 60,000 shares of the Company’s common stock at an exercise price of $5.90 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on November 30, 2018, 25% vested on February 28, 2019, 25% on May 31, 2019, and the remaining 25% vested on August 31, 2019. The fair value of the stock options granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”) as described above. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 3.07%, and dividend yield of 0%. The fair value of 60,000 stock options was $240,105 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $180,079 and $60,026 as directors’ stock compensation expenses, respectively.


On 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 60,000 shares of the Company’s common stock at an exercise price of $2.80 per share, with a term of 5 years. Twenty-five percent (25%) of those stock options vested on November 30, 2019, 25% vested on February 28, 2020, 25% on May 31, 2020, and the remaining 25% will vest on August 31, 2020. The fair value of the stock options granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”) as described above. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 87%, risk free interest rate of 1.60%, and dividend yield of 0%. The fair value of 60,000 stock options was $114,740 at the grant date. During the year ended December 31, 2019, the Company recorded $28,685 as directors’ stock compensation expenses. 


Shares Issued to Employees and Service Providers


On May 18, 2016, the Company entered into agreements with three designers for product design services for a term of 24 months. The Company agreed to grant each designer 48,000 shares of the Company’s common stock. 25% of those shares vested 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 $2.70 per share on May 18, 2016, the date the agreement was executed, and was amortized over the service term. During the years ended December 31, 2019 and 2018, the Company amortized $0 and $72,967 as stock compensation expenses, respectively.


On February 27, 2018, the Company renewed an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $68,100, which was calculated based on the stock price of $11.35 per share on February 27, 2018, the date the awards were determined by the Compensation Committee of the Board. 25% of those shares vested on February 27, 2018, 25% on March 31, 2018, 25% on June 30, 2018 and the remaining 25% vested on September 30, 2018. During the years ended December 31, 2019 and 2018, the Company amortized $10,821 and $57,279 as stock compensation, respectively.


On December 13, 2018, the Company extended an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $23,100, which was calculated based on the stock price of $3.85 per share on December 13, 2018, the date the awards were determined by the Compensation Committee of the Board. Twenty-five percent (25%) of those shares vested on December 13, 2018, 25% on March 31, 2019, 25% on June 30, 2019 and the remaining 25% vested on September 30, 2019. During the years ended December 31, 2019 and 2018, the Company amortized $21,898 and $1,202 as stock compensation, respectively.


On December 14, 2019, the Company extended an employment agreement with the Company’s Corporate Secretary for a term of one year. The Company agreed to grant an award of 6,000 restricted Stock Units to the officer pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $12,780, which was calculated based on the stock price of $2.13 per share on January 31, 2020, the date the awards were determined by the Compensation Committee of the Board. Twenty-five percent (25%) of those shares vested on January 31, 2020, 25% on March 31, 2020, 25% on June 30, 2020 and the remaining 25% vested on September 30, 2020. During the year ended December 31, 2019, the Company amortized $1,681 as stock compensation.


Options Issued to Employees


On August 29, 2017 (the “Grant Date”), the Board approved option grants to the Company’s employees to purchase an aggregate of 156,000 shares of the Company’s common stock (including options to purchase 20,000 shares and 7,000 shares to the Company’s CEO and CFO, respectively) at an exercise price of $6.30 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% 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 granted to independent directors above. The fair value of the option granted to employees is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 1.70%, and dividend yield of 0%. The fair value of 780,000 stock options was $643,182 at the grant date. During the years ended December 31, 2019 and 2018, the Company recorded $0 and $321,591 as stock compensation, respectively.


On August 24, 2018 (the “Grant Date”), the Board approved an option grant to the Company’s CFO to purchase an aggregate of 7,000 shares of the Company’s common stock at an exercise price of $9.25 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% vested on the six-month anniversary of the Grant Date.


The fair value of the option granted to the CFO in 2018 is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 84%, risk free interest rate of 2.72%, and dividend yield of 0%. The fair value of 7,000 stock options was $43,680 at the grant date. During each of the years ended December 31, 2019 and 2018, the Company recorded $21,840 as stock compensation.


On August 12, 2019, the Board approved an option grant to the Company’s CFO to purchase an aggregate of 7,000 shares of the Company’s common stock at an exercise price of $3.85 per share, with a term of 5 years, pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. Fifty percent (50%) of those stock options vested immediately, and the remaining 50% vested on the six-month anniversary of the Grant Date.


The fair value of the option granted to the CFO in 2019 is recognized as compensation expense over the vesting period of the stock option award. The fair value of the options was calculated using the following assumptions: estimated life of ten years, volatility of 87%, risk free interest rate of 1.49%, and dividend yield of 0%. The fair value of 7,000 stock options was $18,318 at the grant date. During the year ended December 31, 2019, the Company recorded $9,159 as stock compensation.


As of December 31, 2019, unrecognized share-based compensation expense related to options was $95,214.


Stock option activity under the Company’s stock-based compensation plans is shown below:


   

Number of
Shares

   

Average
Exercise
Price per Share

   

Aggregate Intrinsic
Value(1)

   

Weighted
Average
Remaining
Contractual
Term in Years

 
                                 

Outstanding at January 1, 2019

    273,500       6.70     $ -       3.96  

Exercisable at January 1, 2019

    225,000       6.85     $ -       3.75  
                                 

Granted

    67,000       2.91       -       5.00  

Exercised

    -       -       -       -  

Forfeited

    -       -       -       -  

Outstanding at December 31, 2019

    340,500     $ 5.97     $ -     $ 3.33  

Exercisable at December 31, 2019

    292,000     $ 6.48     $ -     $ 3.08  

(1)

The intrinsic value of the stock options at December 31, 2019 is the amount by which the market value of the Company’s common stock of $1.85 as of December 31, 2019 exceeds the exercise price of the option.


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 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 Macau laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as a general statutory reserve fund until such reserve balance reaches 50% of the subsidiary’s registered capital. Nova Macao is restricted in its ability to transfer a portion of its net assets to the Company as a dividend.


Surplus Reserve Fund


At December 31, 2019 and December 31, 2018, 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.


v3.20.1
Prepaid Expenses and Other Receivables (Tables)
12 Months Ended
Dec. 31, 2019
Other Income and Expenses [Abstract]  
Schedule of Other Current Assets [Table Text Block]
Prepaid expenses and other receivables consisted of the following at December 31, 2019 and 2018:


   

2019

   

2018

 
                 

Prepaid expenses

  $ 148,750     $ 96,197  

Other receivables

    24,857       4,197  
    $ 173,607     $ 100,394  
v3.20.1
Summary of Significant Accounting Policies (Tables)
12 Months Ended
Dec. 31, 2019
Summary of Significant Accounting Policies (Tables) [Line Items]  
Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]
An analysis of the allowance for doubtful accounts is as follows:


Balance at January 1, 2019

  $ 224,795  

Provision for the year

    3,942  

Reversal – recoveries by cash

    (224,795

)

Balance at December 31, 2019

  $ 3,942  
Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]
A reconciliation of the January 1, 2019 through December 31, 2019 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:


   

Gross UTB

 
   

2019

   

2018

 
                 

Balance – January 1

  $ 158,153       884,361  

Decrease in unrecorded tax benefits taken, related to the Company’s continuing operations

    (145,606

)

    (726,208

)

Foreign exchange adjustment 

            -  

Balance – December 31

  $ 12,547       158,153  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
The following table presents a reconciliation of basic and diluted (loss) income per share for the years ended December 31, 2019 and 2018:


   

2019

   

2018

 
                 

Net (loss) income from continuing operations

  $ (6,136,680

)

  $ 5,259,325  

Net (loss) income from discontinued operations

    (2,464,044

)

    40,300  

Net (loss) income 

    (8,600,724

)

    5,299,625  
                 

Weighted average shares outstanding – basic*

    5,666,320       5,678,771  

Dilutive stock options and unvested restricted stock

    -       43,886  

Weighted average shares outstanding – diluted

    5,666,320       5,722,657  
                 

(Loss) Income from continuing operations per share of common stock

               

– basic

  $ (1.08

)

  $ 0.92  

– diluted

  $ (1.08

)

  $ 0.92  
                 

(Loss) Income from discontinued operations per share of common stock

               

– basic

  $ (0.44

)

  $ 0.01

 

– diluted

  $ (0.44

)

  $ 0.01

 

                 

(Loss) Income per share of common stock

               

– basic

  $ (1.52

)

  $ 0.93  

– diluted

  $ (1.52

)

  $ 0.93  

*

Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.

Schedule of Exchange Rates [Table Text Block]
Translation of amounts from RM into U.S. dollars has been made at the following exchange rates:


Balance sheet items, except for equity accounts

       

December 31, 2019

    RM4.09 to 1  
         

Income statement and cash flows items

       

For the period ended December 31, 2019

    RM4.13 to 1  
Property Plant and Equipment Estimated Useful Lives [Member]  
Summary of Significant Accounting Policies (Tables) [Line Items]  
Property, Plant and Equipment [Table Text Block]
Depreciation of property and equipment is provided using the straight-line method for substantially all assets with no salvage value and estimated lives as follows:


Computer and office equipment

5 - 10 years

Decoration and renovation

5 - 10 years

v3.20.1
Lease
12 Months Ended
Dec. 31, 2019
ASU 2016-02 Transition [Abstract]  
Lessee, Operating Lease, Disclosure [Table Text Block]

Note 15 - Lease


On June 17, 2013, the Company entered into a lease agreement for office, warehouse, storage, and distribution space with a five year term, commencing on November 1, 2013 and expiring on October 31, 2018. The lease agreement also provides an option to extend the term for an additional six years. On April 23, 2018, the Company extended the lease for another 36 months with an expiration date of October 31, 2021. The monthly rental payment is $42,000 with an annual 3% increase.  


On January 7, 2014, the Company entered into a sublease agreement with Diamond Bar for warehouse space with a five-year term commencing on November 1, 2013 and which expired on October 31, 2018. The Company subleased a portion 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 had been renewed every year, expired on October 31, 2018 and was not renewed. The sublease income of $6,000 per month was recorded against the rental expense. During the year ended December 31, 2018, the Company recorded $47,330 in sublease income.


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 ($2,548). The Company terminated the lease on December 31, 2018.


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 payments from continuing operations for the years ended December 31, 2019 and 2018 were $1,110,725 and $855,201, respectively. Total rental payments from discontinued operations for the years ended December 31, 2019 and 2018 were $0 and $30,618, respectively.


The components of lease costs, lease term and discount rate with respect of leases with an initial term of more than 12 months are as follows:


   

2019

 
         

Operating lease cost

  $ 620,980  

Weighted Average Remaining Lease Term - Operating leases

 

4.84 years

 

Weighted Average Discount Rate - Operating leases

    5

%


The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019:


   

Operating Leases

 

Fiscal year 2020

  $ 604,811  

Fiscal year 2021

    622,956  

Fiscal year 2022

    641,644  

Fiscal year 2023

    660,894  

Thereafter

    508,000  

Total undiscounted cash flows

    3,038,305  

Less: imputed interest

    (346,176

)

Present value of lease liabilities

  $ 2,692,129  

v3.20.1
Summary of Significant Accounting Policies (Details) - Schedule of Earnings per Share, Basic and Diluted - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of Earnings per Share, Basic and Diluted [Abstract]    
Net (loss) income from continuing operations (in Dollars) $ (6,136,680) $ 5,259,325
Net (loss) income from discontinued operations (in Dollars) (2,464,044) 40,300
Net (loss) income (in Dollars) $ (8,600,724) $ 5,299,625
Weighted average shares outstanding – basic (in Shares) [1] 5,666,320 5,678,771
Dilutive stock options and unvested restricted stock (in Shares) 0 43,886
Weighted average shares outstanding – diluted (in Shares) 5,666,320 5,722,657
– basic $ (1.08) $ 0.92
– diluted (1.08) 0.92
– basic (0.44) 0.01
– diluted (0.44) 0.01
– basic (1.52) 0.93
– diluted $ (1.52) $ 0.93
[1] Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.
v3.20.1
Inventories (Details) - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Inventory Disclosure [Abstract]    
Inventory, Net $ 29,724,665 $ 6,371,112
v3.20.1
Intangible Assets, net (Details)
12 Months Ended
Apr. 24, 2013
USD ($)
Aug. 31, 2011
USD ($)
Dec. 31, 2019
USD ($)
Dec. 31, 2018
USD ($)
Intangible Assets, net (Details) [Line Items]        
Amortization of Intangible Assets       $ 0
Customer Relationships [Member]        
Intangible Assets, net (Details) [Line Items]        
Finite-Lived Intangible Assets, Gross     $ 50,000 50,000
Impairment of Intangible Assets, Finite-lived     3,389,200  
Trademarks [Member]        
Intangible Assets, net (Details) [Line Items]        
Finite-Lived Intangible Assets, Gross     200,000 200,000
Computer Software, Intangible Asset [Member]        
Intangible Assets, net (Details) [Line Items]        
Amortization of Intangible Assets     0  
Diamond Bar [Member] | Customer Relationships [Member]        
Intangible Assets, net (Details) [Line Items]        
Finite-Lived Intangible Assets, Gross   $ 50,000    
Finite-Lived Intangible Assets, Amortization Method   straight-line method    
Diamond Bar [Member] | Trademarks [Member]        
Intangible Assets, net (Details) [Line Items]        
Number of trademarks acquired   2    
Payments to Acquire Intangible Assets   $ 200,000    
Finite-Lived Intangible Assets, Amortization Method   straight-line method    
Finite-Lived Intangible Asset, Useful Life   5 years    
Bright Swallow International Group Limited [Member] | Customer Relationships [Member]        
Intangible Assets, net (Details) [Line Items]        
Finite-Lived Intangible Assets, Amortization Method straight-line method      
Finite-Lived Intangible Asset, Useful Life 15 years      
Finite-lived Intangible Assets, Fair Value Disclosure $ 6,100,559      
Discontinued Operations [Member]        
Intangible Assets, net (Details) [Line Items]        
Amortization of Intangible Assets     406,704 406,704
Impairment of Intangible Assets, Finite-lived     3,389,200 0
Continuing Operations [Member]        
Intangible Assets, net (Details) [Line Items]        
Impairment of Intangible Assets, Finite-lived     $ 0 $ 0
v3.20.1
Commitments and Contingencies (Details)
Dec. 28, 2018
Commitments and Contingencies Disclosure [Abstract]  
Loss Contingency, Allegations On December 28, 2018, a federal putative class action complaint was filed by George Barney against the Company and 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 Security Exchange Act of 1934 and Rule 10b-5 (the “Barney Action”). Richard Deutner and ITENT EDV were subsequently substituted as plaintiffs and, on June 18, 2019, they filed an Amended Complaint. In the Amended Complaint, plaintiffs seek to recover compensatory damages caused by the Company’s alleged violations of federal securities laws during the period from December 3, 2015 through December 20, 2018. Plaintiffs claim that the Company: (1) overstated its purported strategic alliance with a customer in China to operate as lead designer and manufacturer for all furnishings in such customer’s planned $460 million senior care center in China; (2) the Company inflated its reported sales in 2016 and 2017 with the Company’s two major customers; and (3) as a result, the Company’s public statements were materially false and misleading at all relevant times. In support of these claims, plaintiffs rely primarily upon a blog appearing in Seeking Alpha on December 21, 2018 in which it was claimed that an investigation of the Company failed to confirm the existence of several entities identified as significant customers, Plaintiffs purported to verify some of the information alleged in the Seeking Alpha blog. By Order entered December 2, 2019, the Court denied defendants’ Motion to Dismiss the Amended Complaint. Defendants have accordingly filed an Answer to the Amended Complaint denying its material allegations. The Court also entered a scheduling order setting a final pretrial conference for July 20, 2020.
v3.20.1
Geographical Sales (Details) - Schedule of Sales by Geographic Region - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Geographical Areas    
Sales $ 21,983,279 $ 81,178,010
North America [Member]    
Geographical Areas    
Sales 10,172,970 46,959,295
CHINA    
Geographical Areas    
Sales 11,792,589 11,331,108
AUSTRALIA    
Geographical Areas    
Sales 0 11,060,421
Asia [Member]    
Geographical Areas    
Sales [1] 0 11,817,196
HONG KONG    
Geographical Areas    
Sales 0 0
Other Countries [Member]    
Geographical Areas    
Sales $ 17,720 $ 9,990
[1] excluding China
v3.20.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Cash Flows From Operating Activities    
Net (loss) income $ (8,600,724) $ 5,299,625
Net (loss) income from discontinued operations (2,464,044) 40,300
Net (loss) income from continuing operations (6,136,680) 5,259,325
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation and amortization 36,486 37,679
Amortization of operating lease right-of-use assets 474,291 0
Deferred tax benefit 436,449 (117,488)
Stock compensation expense 369,247 1,194,759
Changes in bad debt allowance (220,853) 13,241
Write-down of inventories 3,605,748 0
Changes in operating assets and liabilities:    
Accounts receivable 66,423,276 (13,753,400)
Advance to suppliers (18,199,695) (1,418,544)
Inventories (26,959,301) 3,448
Operating lease liabilities (440,507) 0
Other current assets (88,607) 49,551
Accounts payable (3,728,008) 2,511,373
Advance from customers (18,859) 25,483
Accrued liabilities and other payables (498,457) (28,590)
Taxes payable (984,627) (848,479)
Net Cash Provided by (Used in) Continuing Operations 14,069,903 (7,071,642)
Net Cash Provided by Discontinued Operations 815,343 189,318
Net Cash Provided by (Used in) Operating Activities 14,885,246 (6,882,324)
Cash Flows From Investing Activities    
Purchase of property and equipment (25,902) (27,529)
Net Cash Used in Continuing Operations (25,902) (27,529)
Net Cash Used in Investing Activities (25,902) (27,529)
Cash Flows From Financing Activities    
Proceeds from line of credit and bank loan 17,512,205 67,576,418
Repayment to line of credit and bank loan (23,760,366) (65,530,374)
Proceeds from the exercise of options for common stocks 0 31,501
Purchase of the treasury stock (616,193) 0
Net Cash (Used in) Provided by Continuing Operations (6,864,354) 2,077,545
Net Cash (Used in) Provided by Financing Activities (6,864,354) 2,077,545
Net increase (decrease) in cash and cash equivalents 7,994,990 (4,832,308)
Cash and cash equivalents, beginning of year 890,408 5,722,716
Cash and cash equivalents, ending of year 8,885,398 890,408
Cash paid during the years for:    
Income tax payments 799,220 227,200
Interest expense 64,286 173,128
Cash paid during the years for:    
Income tax payments 0 0
Interest expense 0 0
Analysis of cash and cash equivalents    
Included in cash and cash equivalents per consolidated balance sheets 7,423,198 243,551
Included in assets of discontinued operations $ 1,462,200 $ 646,857
v3.20.1
Related Party Transactions (Details) - USD ($)
12 Months Ended
Jan. 04, 2020
Jan. 04, 2018
Sep. 30, 2011
Dec. 31, 2019
Dec. 31, 2018
Chief Executive Officer and Chairman of the Board [Member]          
Related Party Transactions (Details) [Line Items]          
Consulting Agreement, Term 2 years 2 years      
Related Party Transaction, Selling, General and Administrative Expenses from Transactions with Related Party       $ 126,949 $ 159,360
Diamond Bar [Member] | Building [Member] | President [Member]          
Related Party Transactions (Details) [Line Items]          
Related Party Transaction, Description of Transaction     Diamond Bar leased a showroom in High Point, North Carolina from the Company’s president who is currently also the Chief Executive Officer and Chairman of the Board.    
Lessee, Operating Lease, Renewal Term     1 year    
Operating Leases, Rent Expense, Minimum Rentals     $ 34,561    
Operating Leases, Rent Expense       $ 34,561 $ 34,561
v3.20.1
CONSOLIDATED BALANCE SHEETS - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Current Assets    
Cash and cash equivalents $ 7,423,198 $ 243,551
Accounts receivable, net 390,241 66,592,663
Advance to suppliers 27,745,184 9,545,489
Inventories 29,724,665 6,371,112
Prepaid expenses and other receivables 173,607 100,394
Current assets of discontinued operations 3,041,976 2,596,405
Total Current Assets 68,498,871 85,449,614
Noncurrent Assets    
Plant, property and equipment, net 136,512 147,096
Operating lease right-of-use assets, net 2,658,344 0
Lease deposit 43,260 43,260
Goodwill 218,606 218,606
Deferred tax asset 0 436,449
Non-current assets of discontinued operations 0 3,795,904
Total Noncurrent Assets 3,056,722 4,641,315
Total Assets 71,555,593 90,090,929
Current Liabilities    
Accounts payable 417,918 4,145,927
Line of credit 0 6,248,162
Operating lease liability, current 481,068 0
Advance from customers 26,450 45,309
Accrued liabilities and other payables 301,764 803,455
Income tax payable 22,055 584,874
Current liabilities of discontinued operations 215,445 5,174
Total Current Liabilities 1,464,700 11,832,901
Noncurrent Liabilities    
Operating lease liability, non-current 2,211,061 0
Income tax payable 1,833,286 2,255,094
Non-current liabilities of discontinued operations 0 1,096,558
Total Noncurrent Liabilities 4,044,347 3,351,652
Total Liabilities 5,509,047 15,184,553
Contingencies and Commitments
Stockholders' Equity    
Common stock, $0.001 par value; 15,000,000 shares authorized, 5,741,604 and 5,713,330 shares issued and outstanding; as of December 31, 2019 and 2018, respectively 5,741 5,713
Additional paid-in capital 40,221,062 39,864,003
Statutory reserves 6,241 6,241
Treasury stock, at cost, 172,870 and nil shares as of December 31, 2019 and 2018, respectively (616,193) 0
Retained earnings 26,429,695 35,030,419
Total Stockholders' Equity 66,046,546 74,906,376
Total Liabilities and Stockholders' Equity $ 71,555,593 $ 90,090,929
v3.20.1
Income Taxes (Details) - Schedule of Components of Income Tax Expense (Benefit) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Current:    
Federal $ (187,807) $ (623,679)
State 2,400 2,400
(185,407) (621,279)
Deferred:    
Federal 194,007 (41,138)
State 242,442 (76,350)
436,449 (117,488)
Total (benefit) provision for income taxes $ 251,042 $ (738,767)
v3.20.1
Accrued Liabilities and Other Payables (Details) - Schedule of Accrued Liabilitites - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Schedule of Accrued Liabilitites [Abstract]    
Other payables $ 33,115 $ 49,441
Salary payable 16,419 40,907
Financed insurance premiums 102,354 39,202
Accrued rents 17,733 2,951
Accrued commission 53,850 623,372
Accrued expenses, others 78,293 47,582
$ 301,764 $ 803,455
v3.20.1
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

Note 11 - Income Taxes


Taxes payable consisted of the following at December 31, 2019 and 2018:


   

2019

   

2018

 

Income tax payable - current

  $ 22,055     $ 584,874  

Income tax payable – noncurrent

  $ 1,833,286     $ 2,255,094  

As of December 31, 2019 and 2018, noncurrent tax payable were $1.83 million and $2.26 million, respectively, consisting primarily of an income tax payable of $1.82 million and $2.01 million respectively, arising from a one-time transition tax recognized in the fourth quarter of 2017 on post-1986 foreign unremitted earnings (see below), and unrecognized tax benefit of $0.01 million and $0.16 million, respectively, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities  (see Note 2).


The (benefit) provision for income taxes on income (loss) from continuing operations consisted of the following:


   

2019

   

2018

 

Current:

               

Federal

  $ (187,807

)

  $ (623,679

)

State

    2,400       2,400  
      (185,407

)

    (621,279

)

                 

Deferred:

               

Federal

    194,007       (41,138

)

State

    242,442       (76,350

)

      436,449       (117,488 )

Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)


The following is a reconciliation of the difference between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on income before income taxes from continuing operations:


   

2019

   

2018

 

Tax at federal statutory rate

  $ (1,235,984

)

  $ 949,384  

Foreign rate differential

    (2,922

)

    2,922  

ASC 740-10 uncertain tax position

    (230,322

)

    (798,156

)

Tax exemption

    (388,742

)

    (1,148,552

)

Global Intangible Low-Taxed Income

    420,444       574,510  

Stock based compensation

    18,473       (270,754

)

Tax Cut and Jobs Act

    -       30,055  

Others

    (463,093

)

    (78,176

)

Valuation allowance

    2,133,188       -  

  Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)


The following presents the aggregate dollar effects of the Company’s tax exemption from its continuing operations:


   

2019

   

2018

 

Aggregate dollar effect of tax holiday

  $ 388,742     $ 1,148,552  

Deferred Tax Assets and Liabilities


Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following:


   

2019

   

2018

 

Non-Current Deferred Tax Assets:

               

Accrued liabilities

  $ 18,464     $ 108,250  

Fed & CA amortization

    24,529       26,481  

Stock compensation

    189,635       129,691  

ASC 842 – lease liability

    742,878       -  

Inventory

    994,986       -  

U.S. NOL

    1,025,078       196,430  
                 

Non-Current Deferred Tax Liabilities:

               

Prepaid expenses

    -       (3,988

)

Fed & CA depreciation

    (21,081

)

    (20,415

)

ASC 842- ROU Asset

    (733,555

)

    -  
                 

Net Non-Current Deferred Tax Assets before Valuation Allowance

    2,240,934       436,449  

Less: Valuation Allowance

    (2,240,934

)

    -  

Non-Current Deferred Tax Assets, Net:

    -       436,449  

Total Deferred Assets, Net:

  $ -     $ 436,449  

Nova LifeStyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI. There is no income tax for a company domiciled in the BVI. Accordingly, the Company’s consolidated financial statements do not present any income tax provision related to the BVI tax jurisdiction where Nova Furniture BVI is domiciled. On April 24, 2013, the Company acquired all outstanding shares of Bright Swallow, which is incorporated in BVI. Generally, there is no income tax for a company domiciled in the BVI.


For U.S. Federal income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $2.66 million and $0 million at December 31, 2019 and 2018, respectively.


For U.S. California income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $6.24 million and $2.81 million, at December 31, 2019 and 2018, respectively.


On September 19, 2013, Bright Swallow moved the office from Macau to Hong Kong, which is subject to a 16.5% corporate income tax. Nova Macao is an income tax-exempt entity incorporated and domiciled in Macao.


Corporate income tax in Malaysia is calculated at the statutory rate of 24% of the estimated taxable profit for the year ended December 31, 2019.


v3.20.1
Intangible Assets, net
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets Disclosure [Text Block]

Note 7 - Intangible Assets, net


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 purchase and assignment agreement for all rights, title 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 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 its estimated life was 15 years.


Intangible assets consisted of the following as of December 31, 2019 and 2018:


   

 2019

   

 2018

 
                 

Customer relationship

  $ 50,000     $ 50,000  

Trademarks

    200,000       200,000  

Less: accumulated amortization

    (250,000

)

    (250,000

)

    $ -     $ -  

Amortization of intangible assets from continuing operations was $0 for the years ended December 31, 2019 and 2018. Amortization of intangible assets from discontinued operations was $406,704 and $406,704 for the years ended December 31, 2019 and 2018, respectively.


Impairment on intangible assets from continuing operations was $0 for the years ended December 31, 2019 and 2018. The Company recorded impairment on its intangible assets from its discontinued operations $3,389,200 and $0 for the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, as a result of lower-than-expected revenue performance of Bright Swallow, management determined the carrying amount of customer relationship was no longer recoverable. The unamortized customer relationship of $3,389,200 was fully impaired. The impairment of customer relationship was not deductible for income tax purposes and, therefore, the Company did not record a corresponding tax benefit in 2019.


v3.20.1
Accrued Liabilities and Other Payables (Tables)
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Schedule of Accrued Liabilities [Table Text Block]
Accrued liabilities and other payables consisted of the following as of December 31, 2019 and 2018:


   

 2019

   

2018

 
                 

Other payables

  $ 33,115     $ 49,441  

Salary payable

    16,419       40,907  

Financed insurance premiums

    102,354       39,202  

Accrued rents

    17,733       2,951  

Accrued commission

    53,850       623,372  

Accrued expenses, others

    78,293       47,582  
    $ 301,764     $ 803,455  
v3.20.1
Lease (Tables)
12 Months Ended
Dec. 31, 2019
ASU 2016-02 Transition [Abstract]  
Lease, Cost [Table Text Block]
The components of lease costs, lease term and discount rate with respect of leases with an initial term of more than 12 months are as follows:


   

2019

 
         

Operating lease cost

  $ 620,980  

Weighted Average Remaining Lease Term - Operating leases

 

4.84 years

 

Weighted Average Discount Rate - Operating leases

    5

%

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2019:


   

Operating Leases

 

Fiscal year 2020

  $ 604,811  

Fiscal year 2021

    622,956  

Fiscal year 2022

    641,644  

Fiscal year 2023

    660,894  

Thereafter

    508,000  

Total undiscounted cash flows

    3,038,305  

Less: imputed interest

    (346,176

)

Present value of lease liabilities

  $ 2,692,129  
v3.20.1
Summary of Significant Accounting Policies (Details) - Schedule of Estimated Useful Lives of Property and Equipment
12 Months Ended
Dec. 31, 2019
Computer Equipment [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Property and Equipment 5 years
Computer Equipment [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Property and Equipment 10 years
Museum Decoration and Renovation [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Property and Equipment 5 years
Museum Decoration and Renovation [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Property and Equipment 10 years
v3.20.1
Income Taxes (Details) - Schedule of Taxes Payable - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Schedule of Taxes Payable [Abstract]    
Income tax payable - current $ 22,055 $ 584,874
Income tax payable – noncurrent $ 1,833,286 $ 2,255,094
v3.20.1
Prepaid Expenses and Other Receivables (Details) - Schedule of Other Current Assets - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Schedule of Other Current Assets [Abstract]    
Prepaid expenses $ 148,750 $ 96,197
Other receivables 24,857 4,197
$ 173,607 $ 100,394
v3.20.1
Organization and Description of Business
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1 - Organization and Description of 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 its subsidiaries through which it markets, designs and sells furniture worldwide: Nova Furniture Limited in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. in Samoa (“Nova Samoa”), Bright Swallow International Group Limited (“Bright Swallow” or “BSI”), Nova Furniture Macao Commercial Offshore Limited (“Nova Macao”), Diamond Bar Outdoors, Inc. (“Diamond Bar”) and Nova Living (M) SDN. BHD. (“Nova Malaysia”).


Nova Macao was organized under the laws of Macao on May 20, 2006, and is a wholly owned subsidiary of Nova Furniture.  Diamond Bar was incorporated in California on June 15, 2000.  Nova Macao is a trading company, importing, marketing and selling products designed and manufactured by third-party manufacturers for the U.S. and international markets. Diamond Bar markets and sells products manufactured by third-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.  


On December 7, 2017, Nova LifeStyle, Inc. incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State 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 to date.


On December 12, 2019, Nova LifeStyle, Inc. acquired Nova Living (M) SDN. BHD (“Nova Malaysia’), which was incorporated in Malaysia on July 26, 2019. The purpose of this acquisition is to market and sell high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia. This company is in the planning stage and has had minimal operations to date.


Towards the end of 2019, the board of directors of the Company intended to discontinue its marketing efforts in Canada and committed to a plan to dispose of Bright Swallow. 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 $2.50 million, pursuant to a formal agreement entered into on January 7, 2020. We received the payment on May 11, 2020. As of December 31, 2019, operations of Bright Swallow were reported as discontinued operations in the accompanying consolidated financial statements for all periods presented. Accordingly, assets, liabilities, revenues, expenses and cash flows related to Bright Swallow have been reclassified in the consolidated financial statements as discontinued operations for all periods presented. Additional information with respect to the sale of Bright Swallow is presented at Note 3.


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, BSI and Nova Malaysia.


v3.20.1
Income Taxes (Details) - Schedule of Deferred Tax Assets and Liabilities - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Schedule of Deferred Tax Assets and Liabilities [Abstract]    
Accrued liabilities $ 18,464 $ 108,250
Fed & CA amortization 24,529 26,481
Stock compensation 189,635 129,691
ASC 842 – lease liability 742,878 0
Inventory 994,986 0
U.S. NOL 1,025,078 196,430
Non-Current Deferred Tax Liabilities:    
Prepaid expenses 0 (3,988)
Fed & CA depreciation (21,081) (20,415)
ASC 842- ROU Asset (733,555) 0
Net Non-Current Deferred Tax Assets before Valuation Allowance 2,240,934 436,449
Less: Valuation Allowance (2,240,934) 0
Non-Current Deferred Tax Assets, Net: 0 436,449
Total Deferred Assets, Net: $ 0 $ 436,449
v3.20.1
CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Common stock, par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 15,000,000 15,000,000
Common stock, shares issued 5,741,604 5,713,330
Common stock, shares outstanding 5,741,604 5,713,330
v3.20.1
Lines of Credit
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

Note 10 - Lines of Credit


On September 19, 2017, Diamond Bar extended the line of credit up to a maximum of $8,000,000 to mature on June 1, 2019. The annual interest rate was 5.50% as of June 30, 2019. The line of credit was secured by all of the assets of Diamond Bar and is guaranteed by Nova LifeStyle. As of December 31, 2019 and 2018, Diamond Bar had $0 and $6,248,162 outstanding on the line of credit, respectively.  During the years ended December 31, 2019 and 2018, the Company recorded interest expense of $35,444 and $169,675, respectively. The Company paid off the lines of credit during the year ended December 31, 2019.


As of December 31, 2019, the Company does not have any lines of credit.


The Diamond Bar loan had the following covenants: (i) maintain a minimum tangible net worth of not less than $20 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.5 to 1.0; (iii) the pre-tax income must be not less than 1% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.25 to 1.00. As of December 31, 2018, Diamond Bar was in compliance with the stated covenants.  


v3.20.1
Advances to Suppliers
12 Months Ended
Dec. 31, 2019
Disclosure Text Block Supplement [Abstract]  
Other Current Assets [Text Block]

Note 6 - Advances to Suppliers


The Company makes advances to certain vendors for inventory purchases. The advances on inventory purchases were $27,745,184 and $9,545,489 as of December 31, 2019 and 2018, respectively. No impairment charges were made on advances to suppliers for the years ended December 31, 2019 and 2018.


v3.20.1
Summary of Significant Accounting Policies (Details) - Schedule of Unrecognized Tax Benefits Roll Forward - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Schedule of Unrecognized Tax Benefits Roll Forward [Abstract]    
Balance – January 1 $ 158,153 $ 884,361
Balance – December 31 12,547 158,153
Decrease in unrecorded tax benefits taken, related to the Company’s continuing operations (145,606) (726,208)
Foreign exchange adjustment $ 0 $ 0
v3.20.1
Income Taxes (Tables)
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of Taxes Payable [Table Text Block]
Taxes payable consisted of the following at December 31, 2019 and 2018:


   

2019

   

2018

 

Income tax payable - current

  $ 22,055     $ 584,874  

Income tax payable – noncurrent

  $ 1,833,286     $ 2,255,094  
Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]
The (benefit) provision for income taxes on income (loss) from continuing operations consisted of the following:


   

2019

   

2018

 

Current:

               

Federal

  $ (187,807

)

  $ (623,679

)

State

    2,400       2,400  
      (185,407

)

    (621,279

)

                 

Deferred:

               

Federal

    194,007       (41,138

)

State

    242,442       (76,350

)

      436,449       (117,488 )

Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]
The following is a reconciliation of the difference between the actual (benefit) provision for income taxes and the (benefit) provision computed by applying the federal statutory rate on income before income taxes from continuing operations:


   

2019

   

2018

 

Tax at federal statutory rate

  $ (1,235,984

)

  $ 949,384  

Foreign rate differential

    (2,922

)

    2,922  

ASC 740-10 uncertain tax position

    (230,322

)

    (798,156

)

Tax exemption

    (388,742

)

    (1,148,552

)

Global Intangible Low-Taxed Income

    420,444       574,510  

Stock based compensation

    18,473       (270,754

)

Tax Cut and Jobs Act

    -       30,055  

Others

    (463,093

)

    (78,176

)

Valuation allowance

    2,133,188       -  

  Total provision (benefit) for income taxes

  $ 251,042     $ (738,767

)

Schedule of the Aggregate Dollar and per Share Effects of Tax Exemption [Table Text Block]
The following presents the aggregate dollar effects of the Company’s tax exemption from its continuing operations:


   

2019

   

2018

 

Aggregate dollar effect of tax holiday

  $ 388,742     $ 1,148,552  
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]
Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following:


   

2019

   

2018

 

Non-Current Deferred Tax Assets:

               

Accrued liabilities

  $ 18,464     $ 108,250  

Fed & CA amortization

    24,529       26,481  

Stock compensation

    189,635       129,691  

ASC 842 – lease liability

    742,878       -  

Inventory

    994,986       -  

U.S. NOL

    1,025,078       196,430  
                 

Non-Current Deferred Tax Liabilities:

               

Prepaid expenses

    -       (3,988

)

Fed & CA depreciation

    (21,081

)

    (20,415

)

ASC 842- ROU Asset

    (733,555

)

    -  
                 

Net Non-Current Deferred Tax Assets before Valuation Allowance

    2,240,934       436,449  

Less: Valuation Allowance

    (2,240,934

)

    -  

Non-Current Deferred Tax Assets, Net:

    -       436,449  

Total Deferred Assets, Net:

  $ -     $ 436,449  
v3.20.1
Organization and Description of Business (Details) - USD ($)
$ in Thousands
Mar. 01, 2020
Jan. 27, 2020
Accounting Policies [Abstract]    
Proceeds from Sale of Buildings $ 2,500 $ 2,500
v3.20.1
Accounting Policies, by Policy (Policies)
12 Months Ended
Dec. 31, 2019
Accounting Policies, by Policy (Policies) [Line Items]  
Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation


The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The 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.

Reverse Split, Policy [Policy Text Block

Reverse split


On December 18, 2019, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of December 20, 2019, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), shall be effected. All references to shares and per share data have been retroactively restated to reflect such split.

Use of Estimates, Policy [Policy Text Block]

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

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements


Recently issued accounting pronouncements not yet adopted


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), 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. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Adoption of the ASUs is on a modified retrospective basis. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.


In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.


In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.


In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements or disclosures.


In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistent application among reporting entities. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company is evaluating the impact this update will have on its financial statements.

Lessee, Leases [Policy Text Block]

Significant Accounting Policies - Leases


On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with its historical accounting under Topic 840.


The Company elected the package of practical expedients permitted under the transition guidance, which allowed it to carry forward its historical lease classification, its assessment on whether a contract was or contains a lease, and its initial direct costs for any leases that existed prior to January 1, 2019. The Company also elected to combine its lease and non-lease components and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.


Upon adoption, the Company recognized total ROU assets of $3.13 million, with corresponding liabilities of $3.13 million on the consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact its beginning retained earnings, or its prior year consolidated statements of income and statements of cash flows.


Under Topic 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.


Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and non-current operating lease liabilities, on the consolidated balance sheets.

Business Combinations Policy [Policy Text Block]

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 assets 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 and Intangible Assets, Goodwill, Policy [Policy Text Block]

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 December 31, 2019 and 2018, the Company concluded there was no impairment of goodwill of Diamond Bar.

Cash and Cash Equivalents, Policy [Policy Text Block]

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.

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

Accounts Receivable


The Company’s accounts receivable arise from product sales. The Company does not adjust its receivables for the effects of 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, 2019

  $ 224,795  

Provision for the year

    3,942  

Reversal – recoveries by cash

    (224,795

)

Balance at December 31, 2019

  $ 3,942  

During the years ended December 31, 2019 and 2018, bad debts (reversal) provision from continuing operations were ($220,853) and $13,241, respectively. During the year ended December 31, 2019 and 2018, bad debt provision and written off from discontinued operations were $0.

Advances to Suppliers Policy [Policy Text Block]

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 in normal circumstances, the Company receives goods within 5 to 9 months from the date the advance payment is made. 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 the Company. Any provisions for allowance for advances to suppliers, if deemed necessary, are included in general and administrative expenses in the consolidated statements of comprehensive income (loss). During the years ended December 31, 2019 and 2018, no provision was made on advances to suppliers.

Inventory, Policy [Policy Text Block]

Inventories


Inventories are stated at the lower of cost and net realizable value, with cost determined on a weighted-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 year ended December 31, 2019, the Company wrote-down $3.61 million of slow-moving inventory. The Company did not record any write-downs of inventories at December 31, 2018. The inventory write-down is included in “Cost of Sales” from continuing operations in the consolidated statements of comprehensive income. There were no write-downs of inventories from the Company’s discontinued operations for the years ended December 31, 2019 and 2018.

Property, Plant and Equipment, Policy [Policy Text Block]

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, 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 no salvage value and estimated lives as follows:


Computer and office equipment

5 - 10 years

Decoration and renovation

5 - 10 years

Impairment or Disposal of Long-Lived Assets, Including Intangible Assets, Policy [Policy Text Block]

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.


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.


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 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 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 the asset group asset group exceeds its fair value based on discounted cash flow analysis or appraisals.

Stockholders' Equity, Policy [Policy Text Block]

Treasury Stock


Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to additional paid-in capital using the average-cost method. Upon retirement of treasury stock, the amounts in excess of par value are charged entirely to retained earnings.

Research and Development Expense, Policy [Policy Text Block]

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 expenses from continuing operations were $132,844 and $237,290 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, research and development costs from discontinued operations were $0.

Income Tax, Policy [Policy Text Block]

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.


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.


Nova Lifestyle, Inc. and Diamond Bar Outdoors, Inc. (“Diamond Bar”) are subject to U.S. federal and state income taxes. Nova Furniture BVI and Bright Swallow International Group Limited (“BSI”) were incorporated in the BVI, Nova Samoa was incorporated in Samoa, and Nova Macau was incorporated in Macau. There is no income tax for companies domiciled in the BVI, Samoa and Macau. Accordingly, the Company’s consolidated financial statements do not present any income tax provisions related to the BVI, Samoa and Macau tax jurisdictions where Nova Furniture BVI and BSI, Nova Samoa and Nova Macau are domiciled.


On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly change the federal income tax laws. The provisions of the Tax Act that have significant impact on the Company include the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for Global Intangible Low-Taxed Income ("GILTI"), deduction for Foreign Derived Intangible Income ("FDII"), repeal of corporate alternative minimum tax, limitation of various business deductions, and modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017.


The Act also 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 year ended December 31, 2019, 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.


As of December 31, 2019, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $27.8 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.


A reconciliation of the January 1, 2019 through December 31, 2019 amount of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) is as follows:


   

Gross UTB

 
   

2019

   

2018

 
                 

Balance – January 1

  $ 158,153       884,361  

Decrease in unrecorded tax benefits taken, related to the Company’s continuing operations

    (145,606

)

    (726,208

)

Foreign exchange adjustment 

            -  

Balance – December 31

  $ 12,547       158,153  

At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $1,278 and $85,994 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s continuing operations. The Company recorded reversal of interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled $84,716 and $71,948 for the years ended December 31, 2019, and 2018, respectively, 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.


At December 31, 2019 and 2018, the Company had cumulatively accrued approximately $0 and $532,657 for estimated interest and penalties related to unrecognized tax benefits, respectively, related to the Company’s discontinued operations. The Company recorded (a decrease) an increase in unrecognized tax benefits and (reversal) increase in interest and penalties as a component of income tax (benefit) expense, which totaled $(1,011,532) and $111,142 for the years ended December 31, 2019, and 2018, respectively, related to the Company’s discontinued operations.


Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2015-2018 remain open to examination by tax authorities in the U.S.

Revenue [Policy Text Block]

Revenue Recognition


The Company 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 recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses 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.


Revenues from product sales are recorded net of reserves established for applicable discounts and allowances 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 amount is payable to the Company’s customer.


The Company’s sales policy allows for product returns within the warranty period if the product is defective and the defects are the Company’s fault.  As alternatives to the product return option, the customers have the option of requesting a discount from the Company for products with quality issues or of receiving replacement parts from the Company at no cost. The amount for product returns, the discount provided to the Company’s customers, and the costs for replacement parts were immaterial for the years ended December 31, 2019 and 2018.


The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on the Company’s consolidated statements of comprehensive income (loss).

Cost of Goods and Service [Policy Text Block]

Cost of Sales


Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers and write-downs of inventory.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling Costs


Shipping and handling costs related to delivery of finished goods are included in selling expenses. During the years ended December 31, 2019 and 2018, shipping and handling costs (income) from continuing operations were $2,792 and $(6,399), respectively. During the years ended December 31, 2019 and 2018, shipping and handling costs from discontinued operations were $0.

Advertising Cost [Policy Text Block]

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 $176,526 and $1,076,570 for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, advertising expense from discontinued operations were $0.

Share-based Payment Arrangement [Policy Text Block]

Share-based compensation


The Company accounts for share-based compensation awards to employees 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 service 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.

Earnings Per Share, Policy [Policy Text Block]

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) income per share for the years ended December 31, 2019 and 2018: 


   

2019

   

2018

 
                 

Net (loss) income from continuing operations

  $ (6,136,680

)

  $ 5,259,325  

Net (loss) income from discontinued operations

    (2,464,044

)

    40,300  

Net (loss) income 

    (8,600,724

)

    5,299,625  
                 

Weighted average shares outstanding – basic*

    5,666,320       5,678,771  

Dilutive stock options and unvested restricted stock

    -       43,886  

Weighted average shares outstanding – diluted

    5,666,320       5,722,657  
                 

(Loss) Income from continuing operations per share of common stock

               

– basic

  $ (1.08

)

  $ 0.92  

– diluted

  $ (1.08

)

  $ 0.92  
                 

(Loss) Income from discontinued operations per share of common stock

               

– basic

  $ (0.44

)

  $ 0.01

 

– diluted

  $ (0.44

)

  $ 0.01

 

                 

(Loss) Income per share of common stock

               

– basic

  $ (1.52

)

  $ 0.93  

– diluted

  $ (1.52

)

  $ 0.93  

*

Including 33,307 and 162,807 shares that were granted and vested but not yet issued for the years ended December 31, 2019 and 2018, respectively.


For the year ended December 31, 2019, 171,667 shares purchasable under warrants, 26,000 shares of unvested restricted stock and options to purchase 340,500 shares of the Company’s stock were excluded from the EPS calculation, as their effects were anti-dilutive.


For the year ended December 31, 2018, 171,667 shares purchasable under warrants and 26,000 unvested restricted stock were excluded from EPS calculation, as their effects were anti-dilutive.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

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.


One major customer accounted for 54% of the Company’s sales from our continuing operations for the year ended December 31, 2019 and major customers accounted for 43% (15%, 14% and 14% each) of the Company’s sales from our continuing operations for the year of 2018.  Gross accounts receivable from these customers was $0 and $55,683,031 as of December 31, 2019 and 2018, respectively.


The Company purchased its products from three major vendors during the year ended December 31, 2019 and 2018, accounting for a total of 61% (31%, 15% and 15% each) and 83% (37%, 34%, and 12% each) of the Company’s purchases from our continuing operations, respectively. Advances made to these vendors were $17,279,749 and $6,719,481 as of December 31, 2019 and 2018, respectively. Accounts payable to these vendors was $0 as of December 31, 2019 and 2018.

Fair Value of Financial Instruments, Policy [Policy Text Block]

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, advances to suppliers, other receivables, accounts payable, short-term 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 the interest rates are considered as approximate to the current rate for comparable loans at the respective balance sheet dates.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation and Transactions


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


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

       

December 31, 2019

    RM4.09 to 1  
         

Income statement and cash flows items

       

For the period ended December 31, 2019

    RM4.13 to 1  
Segment Reporting, Policy [Policy Text Block]

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, Bright Swallow is a furniture distributor focusing on customers in Canada, and Nova Macao is a furniture distributor based in Macao focusing on international customers, and Nova Malaysia is a furniture retailer and distributor focusing on 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 and Nova Malaysia as a whole for making business decisions.


After the disposal of Nova Dongguan and its subsidiaries in October 2016, all of the Company’s long-lived assets are mainly property, plant and equipment located in the United States for administrative purposes.


Net sales to customers by geographic area are determined by reference to the physical locations of the Company’s customers. For example, if the products are delivered to a customer in the US, 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.

Accounting Standards Update 2016-02 [Member]  
Accounting Policies, by Policy (Policies) [Line Items]  
New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements


On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

v3.20.1
Geographical Sales
12 Months Ended
Dec. 31, 2019
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]

Note 14 - Geographical Sales


Geographical distribution of sales consisted of the following for the years ended December 31, 2019 and 2018:


   

2019

   

2018

 
                 

Geographical Areas

               

North America

  $ 10,172,970     $ 46,959,295  

China

    11,792,589       11,331,108  

Australia

    -       11,060,421  

Asia*

    -       11,817,196  

Hong Kong

    -       -  

Other countries

    17,720       9,990  
    $ 21,983,279     $ 81,178,010  

* excluding China


v3.20.1
Intangible Assets, net (Tables)
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of Finite-Lived Intangible Assets [Table Text Block]
Intangible assets consisted of the following as of December 31, 2019 and 2018:


   

 2019

   

 2018

 
                 

Customer relationship

  $ 50,000     $ 50,000  

Trademarks

    200,000       200,000  

Less: accumulated amortization

    (250,000

)

    (250,000

)

    $ -     $ -  
v3.20.1
Intangible Assets, net (Details) - Schedule of Finite-Lived Intangible Assets - USD ($)
Dec. 31, 2019
Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]    
Less: accumulated amortization $ (250,000) $ (250,000)
Intangible assets, net 0 0
Customer Relationships [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, gross 50,000 50,000
Trademarks [Member]    
Finite-Lived Intangible Assets [Line Items]    
Intangible assets, gross $ 200,000 $ 200,000
v3.20.1
Summary of Significant Accounting Policies (Details) - Schedule of Exchange Rates
Dec. 31, 2019
Income Statement and Cash Flows Items [Member]  
Balance sheet items, except for equity accounts  
Exchange rates 1
Balance Sheet Items [Member]  
Balance sheet items, except for equity accounts  
Exchange rates 1
China, Yuan Renminbi | Income Statement and Cash Flows Items [Member]  
Balance sheet items, except for equity accounts  
Exchange rates 4.13
China, Yuan Renminbi | Balance Sheet Items [Member]  
Balance sheet items, except for equity accounts  
Exchange rates 4.09
v3.20.1
Plant, Property and Equipment, Net (Details) - USD ($)
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Property, Plant and Equipment [Abstract]    
Depreciation $ 36,486 $ 37,679
Depreciation and Amortization, Discontinued Operations $ 0 $ 0
v3.20.1
Lease (Details) - Schedule of Future Minimum Rental Payments for Operating Leases - USD ($)
Dec. 31, 2019
Jan. 01, 2019
Schedule of Future Minimum Rental Payments for Operating Leases [Abstract]    
Fiscal year 2020 $ 604,811  
Fiscal year 2021 622,956  
Fiscal year 2022 641,644  
Fiscal year 2023 660,894  
Thereafter 508,000  
Total undiscounted cash flows 3,038,305  
Less: imputed interest (346,176)  
Present value of lease liabilities $ 2,692,129 $ 3,130,000
v3.20.1
Stockholders' Equity (Details) - Share-based Compensation, Stock Options, Activity - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2019
Share-based Compensation, Stock Options, Activity [Abstract]    
Number of Shares, Outstanding 273,500  
Average Exercise Price per Share, Outstanding $ 6.70  
Weighted Average Remaining Contractual Term in Years, Outstanding 3 years 350 days 3 years 120 days
Number of Shares, Exercisable 225,000  
Average Exercise Price per Share, Exercisable $ 6.85  
Weighted Average Remaining Contractual Term in Years, Exercisable 3 years 9 months 3 years 29 days
Number of Shares, Granted   67,000
Average Exercise Price per Share, Granted   $ 2.91
Weighted Average Remaining Contractual Term in Years, Granted   5 years
Number of Shares, Exercised   0
Average Exercise Price per Share, Exercised   $ 0
Number of Shares, Forfeited   0
Average Exercise Price per Share, Forfeited   $ 0
Number of Shares, Outstanding   340,500
Average Exercise Price per Share, Outstanding   $ 5.97
Aggregate Intrinsic Value, Outstanding [1]   $ 0
Number of Shares, Exercisable   292,000
Average Exercise Price per Share, Exercisable   $ 6.48
Aggregate Intrinsic Value, Exercisable [1]   $ 0
[1] The intrinsic value of the stock options at December 31, 2019 is the amount by which the market value of the Company's common stock of $1.85 as of December 31, 2019 exceeds the exercise price of the option.