UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) 6565 E. Washington Blvd. Com ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (323) 888-9999 (Registrant's telephone number, including area code) Secu ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Nova LifeStyle, Inc. designs and markets contemporary residential and commercial furniture globally, adapting to market trends and managing operational disruptions - Nova LifeStyle, Inc. is a U.S.-headquartered designer and marketer of contemporary residential and commercial furniture, incorporated in Nevada in 2009[24](index=24&type=chunk) - Products are marketed globally through wholesale, retail, and online platforms under brands like Nova LifeStyle, Diamond Sofa, and Nova Living[24](index=24&type=chunk)[25](index=25&type=chunk) - A **1-for-5 reverse stock split** was effected on December 20, 2019, retroactively restating all share and per share data[28](index=28&type=chunk) - As of December 31, 2021, the Company had **29 full-time employees worldwide**, with 25 in the U.S. and 4 internationally[29](index=29&type=chunk) - COVID-19 caused significant disruptions, including showroom closures in Malaysia and Los Angeles, and increased shipping costs from Asia[30](index=30&type=chunk)[31](index=31&type=chunk) - For 2021, largest selling product categories were **sofas (46% of sales)**, **beds (15%)**, and **coffee tables (7%)**[43](index=43&type=chunk) Sales by Geographic Region (Continuing Operations) | Region | 2021 Sales (%) | 2020 Sales (%) | | :------------ | :------------- | :------------- | | North America | 95.9% | 95.6% | | Other Regions | 4.1% | 4.4% | - The Company relies on **three principal suppliers for approximately 60% of total purchases** in 2021, diversifying for stability and pricing[55](index=55&type=chunk) Research and Development Expenses | Year | R&D Expense ($) | | :--- | :-------------- | | 2021 | 110,287 | | 2020 | 33,746 | [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) The Company faces significant risks from COVID-19 disruptions, economic downturns, supply chain dependencies, key personnel loss, and potential delisting - The COVID-19 pandemic has caused and could continue to cause significant business disruptions, impacting demand, supply chains, and financial results[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - Changes in economic conditions, including consumer spending, interest rates, and housing markets, can adversely affect product demand[75](index=75&type=chunk) - The strategy to transition to high-profit margin products may decrease future sales and earnings if new business is not successfully developed[77](index=77&type=chunk) - Loss of key personnel, including the CEO and CFO, or inability to retain qualified staff, could adversely affect business objectives[78](index=78&type=chunk)[79](index=79&type=chunk) - Intense competition in the fragmented furniture industry could lead to market share loss if the Company fails to keep pace in price, quality, and style[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk) - Slow-moving inventory, particularly Jade Mats in Malaysia due to COVID-19 lockdowns, led to a **$39.97 million write-down** in 2021, impacting cash flow and liquidity[89](index=89&type=chunk) - Dependence on foreign suppliers, predominantly in Asia, exposes the Company to risks from currency fluctuations, trade restrictions, and supply chain disruptions[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk) - The Hong Kong-based auditor is not fully inspected by the PCAOB, potentially leading to share delisting under the HFCA Act if inspections are not possible for consecutive years[110](index=110&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Escalating U.S.-China political tensions, including trade disputes, could adversely affect business by requiring new suppliers and impacting sales[118](index=118&type=chunk) [Item 1B. Unresolved Staff Comments](index=28&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This item is not applicable to the Company - Not applicable[139](index=139&type=chunk) [Item 2. Properties](index=28&type=section&id=Item%202.%20Properties) The Company leases principal executive offices, showrooms, and warehouses in California, Nevada, North Carolina, and Malaysia - Principal executive offices, showrooms, distribution, and warehouse facilities are leased in Commerce, California[140](index=140&type=chunk) - Showrooms are maintained in leased spaces at Las Vegas Market in Nevada and High Point Market in North Carolina[140](index=140&type=chunk) - Nova Malaysia operates in leased office, showroom, service center, and warehouse space in Kuala Lumpur, Malaysia[140](index=140&type=chunk) - Nova Macao's office lease was terminated in 2021, and Nova HK shared an office with an unrelated third party[140](index=140&type=chunk) [Item 3. Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The Company is involved in a settled securities class action and ongoing derivative lawsuits, which it intends to vigorously defend - A putative class action (Barney Action) was filed in December 2018, alleging federal securities law violations, including overstated alliances and inflated sales[142](index=142&type=chunk)[143](index=143&type=chunk) - The Barney Action was settled on March 8, 2022, for **$750,000**, funded by D&O insurance, resolving all claims against the Company and defendants[145](index=145&type=chunk) - Two derivative lawsuits (Jie Action and Samuels Action) were filed in 2019, repeating Barney Action allegations and adding claims of self-dealing and auditor misrepresentation[146](index=146&type=chunk) - The derivative actions were stayed pending the final disposition of the Barney Action, with ongoing disagreement on lifting the stay[147](index=147&type=chunk)[148](index=148&type=chunk) - The Company believes the derivative complaints lack basis and intends to vigorously defend them, potentially incurring significant legal costs[149](index=149&type=chunk) [Item 4. Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[150](index=150&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=31&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Nova LifeStyle's common stock trades on NASDAQ, with approximately 47 record holders, and the Company does not anticipate paying future cash dividends - Common stock is quoted on The NASDAQ Stock Market under symbol **"NVFY"** since January 17, 2014[153](index=153&type=chunk) - As of April 6, 2022, the common stock closing price was **$1.60 per share**[153](index=153&type=chunk) - As of April 6, 2022, there were approximately **47 holders of record**[154](index=154&type=chunk) - The Company does not anticipate paying cash dividends, intending to retain earnings for business development and expansion[155](index=155&type=chunk) [Item 6. Selected Financial Data](index=31&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not required for the Company - Not required[156](index=156&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section reviews Nova LifeStyle's financial condition and operational results, highlighting COVID-19 impacts, inventory write-downs, increased net sales, and liquidity management - Nova LifeStyle distributes contemporary residential and commercial furniture through retail, online, and global fulfillment platforms[158](index=158&type=chunk) - The Company is transitioning to higher-margin products to improve profitability, which may temporarily impact revenue and net profit[173](index=173&type=chunk) - The COVID-19 pandemic caused significant disruptions, including showroom closures and increased shipping costs, materially impacting demand and operations[168](index=168&type=chunk)[169](index=169&type=chunk) - The Company sold its subsidiary Bright Swallow in January 2020 for **$2.5 million**, with operations reported as discontinued[172](index=172&type=chunk) Key Financial Results (Continuing Operations) | Metric | 2021 ($) | 2020 ($) | Change (%) | | :------------------------- | :----------- | :----------- | :--------- | | Net Sales | 12,813,223 | 11,350,230 | 13% | | Cost of Sales | 23,130,588 | 31,242,671 | (26)% | | Gross Loss | (10,317,365) | (19,892,441) | (48)% | | Operating Expenses | 9,478,259 | 6,412,335 | 48% | | Loss from Operations | (19,795,624) | (26,304,776) | (25)% | | Income Tax (Expenses) Benefit | (163,893) | 649,165 | (125)% | | Loss from Continuing Operations | (19,962,493) | (25,751,794) | (22)% | | Net Loss | (19,962,493) | (26,078,325) | (24)% | - Net sales from continuing operations increased by **13% to $12.81 million** in 2021, driven by a **29.43% increase in average selling price** despite a **12.78% decrease in sales volume**[208](index=208&type=chunk) - Cost of sales decreased by **26% to $23.13 million** in 2021, primarily due to a lower inventory write-down of **$15.96 million** and a shift to higher-margin products[210](index=210&type=chunk) - Operating expenses increased by **48% to $9.48 million** in 2021, driven by a **115% increase in marketing and advertising** and a **23% increase in general and administrative expenses**[214](index=214&type=chunk) - Net working capital was **$23.75 million** at December 31, 2021, a decrease of **$17.52 million** from **$41.27 million** in 2020[222](index=222&type=chunk) Cash Flow Summary | Activity | 2021 ($) | 2020 ($) | | :----------------- | :------------ | :----------- | | Operating Activities | (4,782,354) | (2,075,272) | | Investing Activities | (154,820) | 672,757 | | Financing Activities | 2,760,974 | 466,096 | - Net cash used in operating activities increased by **$2.71 million** from 2020 to 2021, primarily due to changes in advances to suppliers and inventories[223](index=223&type=chunk) - In July 2021, a registered direct offering raised gross proceeds of **$3.12 million** and net proceeds of approximately **$2.76 million** from equity financing[230](index=230&type=chunk) [Overview](index=31&type=section&id=Overview) This section provides an overview of the Company's business model and strategic focus on higher-margin products [Discontinued Operations](index=34&type=section&id=Discontinued%20Operations) This section details the financial impact and reporting of the Company's discontinued operations [Principal Factors Affecting Our Financial Performance](index=34&type=section&id=Principal%20Factors%20Affecting%20Our%20Financial%20Performance) This section discusses key internal and external factors influencing the Company's financial performance [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) This section outlines the Company's critical accounting policies that require significant management judgment [Basis of Presentation](index=35&type=section&id=Basis%20of%20Presentation) This section describes the basis on which the Company's financial statements are prepared [Use of Estimates](index=35&type=section&id=Use%20of%20Estimates) This section explains the use of estimates and assumptions in preparing the Company's financial statements [Accounts Receivable](index=35&type=section&id=Accounts%20Receivable) This section details the Company's policies and balances related to accounts receivable [Advances to Suppliers](index=35&type=section&id=Advances%20to%20Suppliers) This section provides information on the Company's advances made to its suppliers [Income Taxes](index=35&type=section&id=Income%20Taxes) This section outlines the Company's accounting policies and disclosures related to income taxes [Revenue Recognition](index=36&type=section&id=Revenue%20Recognition) This section describes the Company's policies and methods for recognizing revenue from its operations [Foreign Currency Translation and Transactions](index=36&type=section&id=Foreign%20Currency%20Translation%20and%20Transactions) This section explains the Company's accounting for foreign currency translation and transactions [Segment Reporting](index=37&type=section&id=Segment%20Reporting) This section provides information on the Company's operating segments and their financial performance [New Accounting Pronouncements](index=37&type=section&id=New%20Accounting%20Pronouncements) This section discusses the impact of recently issued accounting pronouncements on the Company [Results of Operations](index=39&type=section&id=Results%20of%20Operations) This section analyzes the Company's financial performance, including revenues, expenses, and profitability [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the Company's ability to meet its short-term and long-term financial obligations [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item is not required for the Company - Not required[235](index=235&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=42&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the Company's financial statements and supplementary data presented in a separate section - Financial statements and supplementary data appear in a separate section of this Annual Report beginning on page F-1[236](index=236&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=42&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[237](index=237&type=chunk) [Item 9A. Controls and Procedures](index=43&type=section&id=Item%209A.%20Controls%20and%20Procedures) The Company's CEO and CFO concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - As of December 31, 2021, the CEO and CFO concluded that disclosure controls and procedures were effective[238](index=238&type=chunk) - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 Internal Control-Integrated Framework[241](index=241&type=chunk) - No material changes in internal control over financial reporting occurred during the period covered by this annual report[242](index=242&type=chunk) [Item 9B. Other Information](index=43&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the Company - Not applicable[243](index=243&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=43&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable, but refers to risks regarding PCAOB inspection limitations on the Company's Hong Kong-based auditor - Not applicable, with further information referenced in Item 1A regarding the PCAOB's inability to inspect the Company's auditor and potential delisting risks[243](index=243&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=44&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement for the 2021 Annual Meeting of Stockholders[245](index=245&type=chunk) [Item 11. Executive Compensation](index=44&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the Company's definitive Proxy Statement - Information is incorporated by reference from the Proxy Statement[246](index=246&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=44&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of beneficial owners and management is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[247](index=247&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=44&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[248](index=248&type=chunk) [Item 14. Principal Accounting Fees and Services](index=44&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the Proxy Statement - Information is incorporated by reference from the Proxy Statement[249](index=249&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=44&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements and various exhibits filed as part of the Annual Report on Form 10-K - Includes financial statements listed in the Index to Financial Statements, starting on page F-1[251](index=251&type=chunk) - Lists various exhibits such as merger agreements, articles of incorporation, bylaws, stock certificates, warrants, and employment agreements[251](index=251&type=chunk)[252](index=252&type=chunk) - Includes certifications of Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act[253](index=253&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=48&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Centurion ZD CPA & Co. issued an unqualified opinion on the financial statements, identifying inventory write-down as a critical audit matter - Centurion ZD CPA & Co. issued an unqualified opinion on the consolidated financial statements for December 31, 2021 and 2020, affirming fair presentation in conformity with U.S. GAAP[260](index=260&type=chunk) - The auditor did not perform an audit of internal control over financial reporting and expresses no opinion on its effectiveness[262](index=262&type=chunk) - Inventory write-down was identified as a critical audit matter due to subjective management assumptions about future demands and market conditions affecting net realizable value[265](index=265&type=chunk)[266](index=266&type=chunk) - Audit procedures for inventory write-down included observing physical inventory, evaluating management's estimation process, testing report reliability, assessing reasonableness of assumptions, and analyzing subsequent sales[267](index=267&type=chunk)[268](index=268&type=chunk) [Consolidated Balance Sheets](index=50&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased from $46.48 million in 2020 to $29.53 million in 2021, driven by reduced inventories and cash, while liabilities slightly increased Consolidated Balance Sheet Summary | Metric | Dec 31, 2021 ($) | Dec 31, 2020 ($) | | :------------------------- | :--------------- | :--------------- | | **Assets** | | | | Cash and cash equivalents | 6,276,106 | 8,744,784 | | Accounts receivable, net | 103,397 | 514,939 | | Inventories | 17,656,175 | 32,814,520 | | Total Current Assets | 25,568,953 | 43,294,903 | | Total Noncurrent Assets | 3,960,671 | 3,183,619 | | **Total Assets** | **29,529,624** | **46,478,522** | | **Liabilities** | | | | Accounts payable | 358,362 | 743,785 | | Total Current Liabilities | 1,814,397 | 2,025,283 | | Total Noncurrent Liabilities | 4,271,039 | 3,524,764 | | **Total Liabilities** | **6,085,436** | **5,550,047** | | **Stockholders' Equity** | | | | Total Stockholders' Equity | **23,444,188** | **40,928,475** | - Cash and cash equivalents decreased by **$2.47 million (28.2%)** from **$8.74 million** in 2020 to **$6.28 million** in 2021[271](index=271&type=chunk) - Inventories decreased significantly by **$15.16 million (46.2%)** from **$32.81 million** in 2020 to **$17.66 million** in 2021[271](index=271&type=chunk) - Accumulated deficits increased from **$351,370 in retained earnings** in 2020 to a deficit of **$19.60 million** in 2021[273](index=273&type=chunk) [Consolidated Statements of Comprehensive (Loss) Income](index=52&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) The Company reported a net loss of $19.96 million in 2021, an improvement from $26.08 million in 2020, driven by reduced gross loss despite increased operating expenses Consolidated Statements of Comprehensive (Loss) Income Summary | Metric | 2021 ($) | 2020 ($) | Change (%) | | :------------------------- | :----------- | :----------- | :--------- | | Net Sales | 12,813,223 | 11,350,230 | 13% | | Cost of Sales | 23,130,588 | 31,242,671 | (26)% | | Gross Loss | (10,317,365) | (19,892,441) | (48)% | | Total Operating Expenses | 9,478,259 | 6,412,335 | 48% | | Loss From Operations | (19,795,624) | (26,304,776) | (25)% | | Income Tax (Expense) Benefit | (163,893) | 649,165 | (125)% | | Loss From Continuing Operations | (19,962,493) | (25,751,794) | (22)% | | Loss From Discontinued Operations | - | (326,531) | (100)% | | Net Loss | (19,962,493) | (26,078,325) | (24)% | | Foreign currency translation | (416,440) | 798,290 | (152)% | | Net Loss and Comprehensive Loss | (20,378,933) | (25,280,035) | (19)% | - Net sales increased by **13%** from **$11.35 million** in 2020 to **$12.81 million** in 2021[275](index=275&type=chunk) - Gross loss decreased by **48%** from **$19.89 million** in 2020 to **$10.32 million** in 2021[275](index=275&type=chunk) - Total operating expenses increased by **48%** from **$6.41 million** in 2020 to **$9.48 million** in 2021[275](index=275&type=chunk) - Net loss per share of common stock (Basic and Diluted) improved from **$(4.54)** in 2020 to **$(3.27)** in 2021[275](index=275&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=53&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Total stockholders' equity decreased from $40.93 million in 2020 to $23.44 million in 2021, primarily due to net loss and foreign currency translation loss Consolidated Statements of Stockholders' Equity Summary | Metric | Dec 31, 2021 ($) | Dec 31, 2020 ($) | | :------------------------- | :--------------- | :--------------- | | Common stock | 6,837 | 5,596 | | Additional paid-in capital | 42,660,383 | 39,766,978 | | Statutory reserves | - | 6,241 | | Accumulated other comprehensive income | 381,850 | 798,290 | | (Accumulated deficits) Retained earnings | (19,604,882) | 351,370 | | **Total Stockholders' Equity** | **23,444,188** | **40,928,475** | - Net loss of **$19.96 million** contributed to the decrease in retained earnings in 2021[277](index=277&type=chunk) - Issuance of common stock generated **$2.76 million** in 2021[277](index=277&type=chunk) - Foreign currency translation resulted in a loss of **$416,440** in 2021, compared to a gain of **$798,290** in 2020[277](index=277&type=chunk) [Consolidated Statements of Cash Flows](index=54&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by $2.47 million in 2021, primarily due to increased cash used in operating and investing activities, partially offset by equity financing Consolidated Statements of Cash Flows Summary | Activity | 2021 ($) | 2020 ($) | | :----------------- | :------------ | :----------- | | Operating Activities | (4,782,354) | (2,075,272) | | Investing Activities | (154,820) | 672,757 | | Financing Activities | 2,760,974 | 466,096 | | Effect of Exchange Rate Changes | (292,478) | 795,805 | | Net decrease in cash and cash equivalents | (2,468,678) | (140,614) | | Cash and cash equivalents, end of year | 6,276,106 | 8,744,784 | - Net cash used in operating activities increased by **$2.71 million** from 2020 to 2021, primarily due to changes in advances to suppliers and inventories[279](index=279&type=chunk) - Net cash used in investing activities was **$0.15 million** in 2021, a shift from **$0.67 million** provided in 2020, mainly due to the absence of cash received from subsidiary sales[279](index=279&type=chunk) - Net cash provided by financing activities increased to **$2.76 million** in 2021, primarily from equity financing, compared to **$0.47 million** from other loans in 2020[279](index=279&type=chunk) [Notes to Consolidated Financial Statements](index=56&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the Company's organization, accounting policies, COVID-19 impacts, inventory write-downs, tax positions, related party transactions, and legal proceedings [Note 1 - Organization and Description of Business](index=56&type=section&id=Note%201%20-%20Organization%20and%20Description%20of%20Business) This note describes the Company's corporate structure, business activities, and operational scope [Note 2 - Summary of Significant Accounting Policies](index=57&type=section&id=Note%202%20-%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the financial statements [Note 3 - Discontinued Operations](index=67&type=section&id=Note%203%20-%20Discontinued%20Operations) This note provides details on the financial results and assets/liabilities of discontinued operations [Note 4 - Inventories](index=67&type=section&id=Note%204%20-%20Inventories) This note details the composition, valuation, and write-downs related to the Company's inventories [Note 5 - Plant, Property and Equipment, Net](index=67&type=section&id=Note%205%20-%20Plant%2C%20Property%20and%20Equipment%2C%20Net) This note provides information on the Company's property, plant, and equipment, including depreciation [Note 6 - Advances to Suppliers](index=67&type=section&id=Note%206%20-%20Advances%20to%20Suppliers) This note details the amounts and nature of advances made by the Company to its suppliers [Note 7 - Prepaid Expenses and Other Receivables](index=68&type=section&id=Note%207%20-%20Prepaid%20Expenses%20and%20Other%20Receivables) This note outlines the components of prepaid expenses and other non-trade receivables [Note 8 - Accrued Liabilities and Other Payables](index=68&type=section&id=Note%208%20-%20Accrued%20Liabilities%20and%20Other%20Payables) This note details the Company's accrued liabilities and other non-trade payables [Note 9 - Loan to Unrelated Party](index=68&type=section&id=Note%209%20-%20Loan%20to%20Unrelated%20Party) This note provides information on a loan extended by the Company to an unrelated third party [Note 10 - Other Loans](index=68&type=section&id=Note%2010%20-%20Other%20Loans) This note details other loans and borrowing arrangements of the Company [Note 11 - Income Taxes](index=70&type=section&id=Note%2011%20-%20Income%20Taxes) This note provides a reconciliation of income tax expense and deferred tax assets/liabilities [Note 12 - Related Party Transactions](index=72&type=section&id=Note%2012%20-%20Related%20Party%20Transactions) This note discloses transactions and balances with related parties of the Company [Note 13 - Stockholders' Equity](index=72&type=section&id=Note%2013%20-%20Stockholders'%20Equity) This note details changes in common stock, additional paid-in capital, and retained earnings [Note 14 - Geographical Analysis](index=76&type=section&id=Note%2014%20-%20Geographical%20Analysis) This note provides a breakdown of the Company's revenues and assets by geographic region [Note 15 - Lease](index=76&type=section&id=Note%2015%20-%20Lease) This note outlines the Company's lease agreements, including right-of-use assets and lease liabilities [Note 16 - Commitments and Contingencies](index=77&type=section&id=Note%2016%20-%20Commitments%20and%20Contingencies) This note discloses the Company's contractual commitments and potential contingent liabilities [Note 17 - Subsequent Events](index=78&type=section&id=Note%2017%20-%20Subsequent%20Events) This note describes significant events that occurred after the balance sheet date

PART I. FINANCIAL INFORMATION This part presents the company's unaudited financial statements and management's analysis for the period [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the specified periods [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets and stockholders' equity decreased from December 2020 to September 2021 Condensed Consolidated Balance Sheets (September 30, 2021 vs. December 31, 2020) | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Total Current Assets | $37,364,444 | $43,294,903 | | Total Noncurrent Assets | $2,754,964 | $3,183,619 | | **Total Assets** | **$40,119,408** | **$46,478,522** | | **Liabilities & Stockholders' Equity** | | | | Total Current Liabilities | $2,348,443 | $2,025,283 | | Total Noncurrent Liabilities | $3,033,341 | $3,524,764 | | **Total Liabilities** | **$5,381,784** | **$5,550,047** | | Total Stockholders' Equity | $34,737,624 | $40,928,475 | | **Total Liabilities and Stockholders' Equity** | **$40,119,408** | **$46,478,522** | - Total Assets **decreased by approximately $6.36 million** from December 31, 2020, to September 30, 2021, primarily driven by a decrease in current assets, notably inventories and cash and cash equivalents[10](index=10&type=chunk) - Total Stockholders' Equity **decreased by approximately $6.19 million**, from $40.93 million to $34.74 million, during the nine months ended September 30, 2021[13](index=13&type=chunk) [Condensed Consolidated Statements of Loss and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Loss%20and%20Comprehensive%20Loss) The company reported a significant reduction in net loss for the three and nine-month periods ending September 30, 2021 Condensed Consolidated Statements of Loss and Comprehensive Loss (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $9,798,154 | $7,813,819 | +25.39% | | Cost of Sales | $11,025,436 | $12,753,072 | -13.55% | | Gross (Loss) Profit | $(1,227,282) | $(4,939,253) | +75.19% | | Total Operating Expenses | $6,964,266 | $4,663,111 | +49.37% | | Loss From Operations | $(8,191,548) | $(9,602,364) | +14.69% | | Net Loss | $(8,505,696) | $(10,031,756) | +15.21% | | Basic and Diluted EPS | $(1.45) | $(1.80) | +19.44% | Condensed Consolidated Statements of Loss and Comprehensive Loss (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $2,916,571 | $3,315,673 | -12.03% | | Cost of Sales | $1,517,032 | $9,905,852 | -84.67% | | Gross (Loss) Profit | $1,399,539 | $(6,590,179) | +121.24% | | Total Operating Expenses | $2,546,381 | $1,652,777 | +54.07% | | Loss From Operations | $(1,146,842) | $(8,242,956) | +86.00% | | Net Loss | $(1,396,632) | $(8,177,010) | +82.92% | | Basic and Diluted EPS | $(0.22) | $(1.46) | +84.93% | - The company reported a **significant improvement in net loss** for both the three and nine months ended September 30, 2021, primarily due to a substantial decrease in cost of sales, driven by lower inventory write-downs compared to the prior year[15](index=15&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased significantly year-over-year, primarily due to accumulated deficits and currency translation losses Condensed Consolidated Statements of Stockholders' Equity (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Common Stock (Amount) | $6,730 | $5,589 | | Additional Paid-in Capital | $42,565,427 | $39,751,265 | | Accumulated Other Comprehensive Income | $313,552 | $417,774 | | Retained Earnings (Accumulated Deficits) | $(8,148,085) | $16,397,939 | | **Total Stockholders' Equity** | **$34,737,624** | **$56,578,808** | - Total Stockholders' Equity **decreased significantly from $56.58 million in 2020 to $34.74 million in 2021** for the nine-month period, largely due to accumulated deficits and foreign currency translation losses[22](index=22&type=chunk)[25](index=25&type=chunk) - The company issued **1,114,508 shares of common stock** through a registered direct offering, contributing $2,760,973 to additional paid-in capital during the nine months ended September 30, 2021[22](index=22&type=chunk)[134](index=134&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities increased while cash from financing activities grew due to an equity offering Condensed Consolidated Statements of Cash Flows (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(3,129,345) | $(1,091,885) | | Net Cash Used in Investing Activities | $(155,156) | $(360,084) | | Net Cash Provided by Financing Activities | $2,760,973 | $466,096 | | Net Cash Provided by Discontinued Operations | $- | $1,037,800 | | Effect of Exchange Rate Changes on Cash | $(342,380) | $413,290 | | Net (decrease) increase in cash and cash equivalents | $(865,908) | $465,217 | | Cash and cash equivalents, ending of period | $7,878,876 | $9,350,615 | - Net cash used in operating activities **increased significantly to $3.13 million in 2021** from $1.09 million in 2020, primarily due to changes in advances to suppliers and inventory[27](index=27&type=chunk)[250](index=250&type=chunk) - Net cash provided by financing activities **increased to $2.76 million in 2021**, driven by proceeds from equity financing, compared to $0.47 million from other loans in 2020[27](index=27&type=chunk)[252](index=252&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's accounting policies and specific financial statement items [Note 1 - Organization and Description of Business](index=12&type=section&id=Note%201%20-%20Organization%20and%20Description%20of%20Business) The company operates as a U.S. holding company designing and selling furniture globally through its subsidiaries - Nova LifeStyle, Inc. is a U.S. holding company that markets, designs, and sells furniture worldwide through its subsidiaries. Key subsidiaries include Nova Furniture, Diamond Bar, Nova Malaysia, and Nova HK[31](index=31&type=chunk)[32](index=32&type=chunk)[38](index=38&type=chunk) - The company **sold its interest in Bright Swallow in January 2020 for $2.5 million** and completed the de-registration and liquidation of Nova Macao in January 2021 due to regulatory changes[36](index=36&type=chunk)[37](index=37&type=chunk) - **COVID-19 significantly impacted operations**, particularly Nova Malaysia, which experienced showroom closures and sales lagging due to government lockdown orders, leading to slow-moving inventories and shipping delays from Asia[39](index=39&type=chunk)[41](index=41&type=chunk) [Note 2 - Summary of Significant Accounting Policies](index=14&type=section&id=Note%202%20-%20Summary%20of%20Significant%20Accounting%20Policies) Financial statements adhere to U.S. GAAP and involve significant management estimates across several key areas - The financial statements are prepared in accordance with U.S. GAAP, with management making significant estimates for revenue recognition, bad debt allowance, inventory valuation, stock-based compensation, and income taxes[43](index=43&type=chunk)[46](index=46&type=chunk) - Goodwill is tested for impairment annually or more frequently, with **no impairment recognized** for Diamond Bar as of September 30, 2021, and December 31, 2020[51](index=51&type=chunk)[52](index=52&type=chunk) - Revenue from product sales is recognized when the customer obtains control, typically upon delivery, and is recorded net of discounts, returns, and rebates[75](index=75&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - The company operates as a **single reportable segment**: the design and sale of furniture, with management viewing all subsidiary operations as one entity for business decisions[98](index=98&type=chunk)[99](index=99&type=chunk)[101](index=101&type=chunk) [Note 3 - Discontinued Operations](index=25&type=section&id=Note%203%20-%20Discontinued%20Operations) The company disposed of its interest in Bright Swallow in January 2020, reclassifying its results as discontinued operations - On January 7, 2020, the Company transferred its entire interest in Bright Swallow to Y-Tone (Worldwide) Limited for **$2,500,000 cash consideration**[114](index=114&type=chunk) - Operations of Bright Swallow were reclassified as discontinued operations for all periods presented in the financial statements[115](index=115&type=chunk) Net Assets of Bright Swallow at Disposal (January 7, 2020) | Asset/Liability | Amount ($) | | :--- | :--- | | Cash and cash equivalents | 1,462,200 | | Accounts receivable, net | 969,841 | | Advance to suppliers | 609,935 | | Accounts payable | (948) | | Advance from customers | (126,916) | | Accrued liabilities and other payables | (2,553) | | Income tax payable | (85,028) | | **Net assets upon disposal** | **2,826,531** | | Cash consideration received | (2,500,000) | | **Loss on disposal of subsidiary** | **(326,531)** | [Note 4 - Inventories](index=27&type=section&id=Note%204%20-%20Inventories) Inventories decreased by approximately $5 million, with significant write-downs for slow-moving stock in both 2021 and 2020 Inventories (Finished Goods) | Date | Amount ($) | | :--- | :--- | | September 30, 2021 | 27,779,269 | | December 31, 2020 | 32,814,520 | - Inventories **decreased by approximately $5 million** from December 31, 2020, to September 30, 2021[118](index=118&type=chunk) Inventory Write-downs (Slow-Moving Inventory) | Period | Amount ($) | | :--- | :--- | | Nine months ended Sep 30, 2021 | 5,526,307 | | Three months ended Sep 30, 2021 | - | | Nine months ended Sep 30, 2020 | 7,767,910 | | Three months ended Sep 30, 2020 | 7,767,910 | [Note 5 - Plant, Property and Equipment, Net](index=27&type=section&id=Note%205%20-%20Plant%2C%20Property%20and%20Equipment%2C%20Net) The net value of plant, property, and equipment increased slightly, with a corresponding rise in depreciation expense Plant, Property and Equipment, Net | Category | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :--- | :--- | :--- | | Computer and office equipment | 499,043 | 396,302 | | Decoration and renovation | 485,947 | 448,641 | | Less: accumulated depreciation | (452,153) | (391,425) | | **Total, Net** | **532,837** | **453,518** | Depreciation Expense | Period | Amount ($) | | :--- | :--- | | Nine months ended Sep 30, 2021 | 62,055 | | Nine months ended Sep 30, 2020 | 42,805 | | Three months ended Sep 30, 2021 | 23,529 | | Three months ended Sep 30, 2020 | 14,791 | [Note 6 - Advances to Suppliers](index=27&type=section&id=Note%206%20-%20Advances%20to%20Suppliers) Advances to suppliers saw a minor decrease, and no impairment charges were recorded during the reported periods Advances to Suppliers | Date | Amount ($) | | :--- | :--- | | September 30, 2021 | 325,454 | | December 31, 2020 | 381,894 | - **No impairment charges** were made on advances to suppliers for the nine and three months ended September 30, 2021 and 2020[121](index=121&type=chunk) [Note 7 - Prepaid Expenses and Other Receivables](index=27&type=section&id=Note%207%20-%20Prepaid%20Expenses%20and%20Other%20Receivables) Prepaid expenses and other receivables more than doubled, driven by increases in prepaid insurance and other balances Prepaid Expenses and Other Receivables | Category | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :--- | :--- | :--- | | Prepaid expenses | 538,293 | 217,591 | | Other receivables | 181,796 | 132,155 | | **Total** | **720,089** | **349,746** | - Prepaid expenses and other receivables **significantly increased from $349,746 at December 31, 2020, to $720,089 at September 30, 2021**, mainly due to higher prepaid insurance, credit card payments, and other account balances[122](index=122&type=chunk) [Note 8 - Accrued Liabilities and Other Payables](index=27&type=section&id=Note%208%20-%20Accrued%20Liabilities%20and%20Other%20Payables) Accrued liabilities increased, primarily due to higher financed insurance premiums and other accrued expenses Accrued Liabilities and Other Payables | Category | Sep 30, 2021 ($) | Dec 31, 2020 ($) | | :--- | :--- | :--- | | Other payables | 6,804 | 6,428 | | Salary payable | 12,462 | 6,731 | | Financed insurance premiums | 266,847 | 103,104 | | Accrued rents | 1,490 | 14,899 | | Accrued marketing | - | 30,000 | | Accrued commission | 84,084 | 112,673 | | Accrued expenses, others | 119,501 | 49,159 | | **Total** | **491,188** | **322,994** | - Accrued liabilities and other payables **increased by approximately $168,194**, primarily driven by higher financed insurance premiums and other accrued expenses[123](index=123&type=chunk) [Note 9 - Loan to Unrelated Party](index=29&type=section&id=Note%209%20-%20Loan%20to%20Unrelated%20Party) The company granted a significant loan to an unrelated party, a portion of which was repaid during the period - Nova Malaysia granted a loan of up to **20,000,000 Malaysian Ringgit ($4,776,690)** at 6.0% annual interest to an unrelated third party on May 25, 2021[125](index=125&type=chunk) - The unrelated party repaid **5,000,000 Malaysian Ringgit ($1,234,359)** in August 2021, and accrued interest of 120,000 Malaysian Ringgit ($29,048) was written off[125](index=125&type=chunk) [Note 10 - Other Loans](index=29&type=section&id=Note%2010%20-%20Other%20Loans) The company and its subsidiary received government-backed loans under the PPP and EIDL programs - The Company received **$139,802 under the Paycheck Protection Program (PPP)** on May 4, 2020, and submitted a forgiveness application on December 28, 2020[126](index=126&type=chunk) - Diamond Bar received a **$176,294 PPP loan** on May 5, 2020, which was approved for forgiveness by the SBA on June 15, 2021[128](index=128&type=chunk) - Diamond Bar also received a **$150,000 U.S. SBA Economic Injury Disaster Loan** on June 19, 2020, bearing 3.75% annual interest, maturing June 18, 2050[129](index=129&type=chunk) [Note 11 - Related Party Transactions](index=29&type=section&id=Note%2011%20-%20Related%20Party%20Transactions) The company engaged in transactions with its CEO, including a showroom lease and commission payments to a CEO-owned firm - Diamond Bar leased a showroom from the Company's CEO, renewing the lease for an additional year on April 1, 2021, at a cost of $34,561[130](index=130&type=chunk) Commission Expense to Consulting Firm (Owned by CEO) | Period | Amount ($) | | :--- | :--- | | Nine months ended Sep 30, 2021 | 304,958 | | Nine months ended Sep 30, 2020 | 155,905 | | Three months ended Sep 30, 2021 | 93,156 | | Three months ended Sep 30, 2020 | 90,402 | [Note 12 - Stockholders' Equity](index=30&type=section&id=Note%2012%20-%20Stockholders'%20Equity) The company established a new equity incentive plan and raised capital through a registered direct offering of shares and warrants - The Company's **2021 Equity Incentive Plan**, approved by stockholders on May 28, 2021, authorizes 3,000,000 shares for stock rewards to attract and retain personnel[132](index=132&type=chunk) - On July 23, 2021, the Company completed a registered direct offering of 1,114,508 common shares and issued unregistered warrants to purchase an equal number of shares, generating **net proceeds of approximately $2.76 million**[134](index=134&type=chunk) Warrant Activity (Nine Months Ended Sep 30, 2021) | Metric | Number of Warrants | Average Exercise Price ($) | | :--- | :--- | :--- | | Outstanding at Jan 1, 2021 | - | - | | Granted | 1,225,959 | 3.50 | | Outstanding at Sep 30, 2021 | 1,225,959 | 3.50 | | Exercisable at Sep 30, 2021 | - | 5.97 | - Unrecognized share-based compensation expense was **$6,317** as of September 30, 2021[145](index=145&type=chunk) [Note 13 - Geographical Analysis](index=34&type=section&id=Note%2013%20-%20Geographical%20Analysis) North America drove sales growth for the nine-month period, while sales in Asia declined sharply due to COVID-19 lockdowns Geographical Distribution of Sales (Nine Months Ended Sep 30, 2021 vs. 2020) | Geographical Areas | 2021 ($) | 2020 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | North America | 9,237,435 | 7,365,659 | +25.41% | | Asia (excluding China) | 248,118 | 422,336 | -41.25% | | Other countries | 312,601 | 25,824 | +1110.54% | | **Total** | **9,798,154** | **7,813,819** | **+25.39%** | Geographical Distribution of Sales (Three Months Ended Sep 30, 2021 vs. 2020) | Geographical Areas | 2021 ($) | 2020 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | North America | 2,850,262 | 3,099,042 | -8.03% | | Asia (excluding China) | (2,028) | 213,954 | -100.95% | | Other countries | 68,337 | 2,677 | +2459.84% | | **Total** | **2,916,571** | **3,315,673** | **-12.03%** | - **North America remains the largest market**, showing a 25.41% increase in sales for the nine months ended September 30, 2021, while sales to Asia significantly decreased due to COVID-19 lockdowns in Malaysia[149](index=149&type=chunk)[236](index=236&type=chunk) [Note 14 - Lease](index=34&type=section&id=Note%2014%20-%20Lease) The company extended its main U.S. facility lease for five years, resulting in increased operating lease expenses - The Company extended its main U.S. office, warehouse, storage, and distribution space lease for another five years, expiring October 31, 2026, with a monthly rental payment of $42,000 and an annual 3% increase[150](index=150&type=chunk) Operating Lease Expense | Period | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Nine months ended Sep 30 | 603,764 | 384,108 | | Three months ended Sep 30 | 203,388 | 107,745 | Maturities of Operating Lease Liabilities (as of Sep 30, 2021) | Period | Amount ($) | | :--- | :--- | | 12 months ending Sep 30, 2022 | 820,461 | | 2023 | 731,242 | | 2024 | 675,690 | | Total undiscounted cash flows | 2,227,393 | | Present value of lease liabilities | 2,076,545 | [Note 15 - Commitments and Contingencies](index=35&type=section&id=Note%2015%20-%20Commitments%20and%20Contingencies) The company is managing several legal actions, including a class action lawsuit nearing a settlement funded by insurance - The Company executed a Term Sheet to settle the Barney Action, a federal putative class action lawsuit, for **$750,000**. Most, if not all, of the settlement is expected to be funded by Nova's insurance carrier[157](index=157&type=chunk)[160](index=160&type=chunk)[273](index=273&type=chunk) - Two shareholder derivative lawsuits (Jie Action and Samuels Action) were filed against current and former executives and directors, alleging securities violations and self-dealing. These actions are currently stayed pending the resolution of the Barney Action[162](index=162&type=chunk)[163](index=163&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk) [Note 16 - Subsequent Events](index=37&type=section&id=Note%2016%20-%20Subsequent%20Events) No material subsequent events were identified after the reporting period that required disclosure - The Company has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements and identified **no material subsequent events**[166](index=166&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management provides its perspective on financial results, operational factors, and liquidity for the reported periods [Overview](index=38&type=section&id=Overview) The company distributes contemporary furniture globally and is expanding into health-oriented product lines - Nova LifeStyle is a global distributor of contemporary residential and commercial furniture, operating through subsidiaries like Diamond Sofa, Nova Malaysia, and Nova HK[171](index=171&type=chunk)[174](index=174&type=chunk) - The company is expanding into health-oriented furniture, launching high-end physiotherapeutic jade mats in Malaysia, with showrooms reopening in October 2021 after COVID-19 lockdowns[180](index=180&type=chunk)[181](index=181&type=chunk) - **COVID-19 caused significant operational disruptions**, including showroom closures, shipping delays from Asia, and increased costs, with the full financial impact remaining uncertain[181](index=181&type=chunk) [Discontinued Operations](index=40&type=section&id=Discontinued%20Operations) The company ceased its Canadian marketing efforts and sold its Bright Swallow subsidiary in early 2020 - The company discontinued its marketing efforts in Canada and **disposed of Bright Swallow on January 7, 2020, for $2.5 million** cash consideration[184](index=184&type=chunk) - Operations of Bright Swallow were reported as discontinued operations in the financial statements for all periods presented[184](index=184&type=chunk) [Principal Factors Affecting Our Financial Performance](index=40&type=section&id=Principal%20Factors%20Affecting%20Our%20Financial%20Performance) Financial performance is influenced by a strategic shift to higher-margin products, economic conditions, and trade tariffs - The company is **transitioning its business from low-margin products to higher-end offerings** to improve gross profit margin and net profitability, which is expected to impact revenue and net profit in the short-term[185](index=185&type=chunk) - Key factors affecting financial performance include product pricing, general economic conditions (U.S., China, international), trade tariffs on Chinese products, and the ongoing impact of the COVID-19 pandemic, including shipping delays and increased costs from Asia[185](index=185&type=chunk) - In response to tariffs, the company is **shifting manufacturing from China to other Asian countries** like Vietnam, India, and Malaysia, with some manufacturing already transitioned since 2020[185](index=185&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies and estimates remain consistent with its 2020 annual report - **No material changes** to critical accounting policies and estimates were reported compared to the Annual Report on Form 10-K for fiscal year 2020[187](index=187&type=chunk) - Significant estimates include revenue recognition, allowance for bad debt, inventory valuation, stock-based compensation, income taxes, and impairment of long-lived assets and goodwill[190](index=190&type=chunk) - The company adopted ASU 2019-12 (Income Taxes) and ASU 2020-06 (Convertible Instruments) effective January 1, 2021, with **no material impact** on financial statement presentation or disclosures[213](index=213&type=chunk)[214](index=214&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of operational results for the three and nine-month periods of 2021 and 2020 [Comparison of Three Months Ended September 30, 2021 and 2020](index=46&type=section&id=Comparison%20of%20Three%20Months%20Ended%20September%2030%2C%202021%20and%202020) The company's gross profit improved dramatically in Q3 2021 due to the absence of large inventory write-downs Key Financial Highlights (Three Months Ended Sep 30, 2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | Change (YoY) | % of Sales (2021) | % of Sales (2020) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | 2,916,571 | 3,315,673 | -12.03% | 100% | 100% | | Cost of Sales | 1,517,032 | 9,905,852 | -84.67% | 52% | 299% | | Gross Profit (Loss) | 1,399,539 | (6,590,179) | +121.24% | 48% | (199)% | | Operating Expenses | 2,546,381 | 1,652,777 | +54.07% | 87% | 50% | | Loss from Operations | (1,146,842) | (8,242,956) | +86.00% | (39)% | (249)% | | Net Loss | (1,396,632) | (8,177,010) | +82.92% | (48)% | (247)% | - Net sales **decreased by 12% to $2.92 million**, primarily due to a 25.63% decrease in sales volume, partially offset by an 18.28% increase in average selling price[221](index=221&type=chunk) - **Gross profit significantly improved to $1.40 million** from a gross loss of $6.59 million, mainly due to no inventory write-downs in Q3 2021 compared to $7.77 million in Q3 2020[224](index=224&type=chunk)[226](index=226&type=chunk) - Operating expenses **increased by 54% to $2.55 million**, driven by a 153% increase in selling expenses (marketing and advertising) and an 8% increase in general and administrative expenses (R&D)[227](index=227&type=chunk) [Comparison of Nine Months Ended September 30, 2021 and 2020](index=49&type=section&id=Comparison%20of%20Nine%20Months%20Ended%20September%2030%2C%202021%20and%202020) Net sales grew for the nine-month period, while gross loss narrowed due to lower inventory write-downs Key Financial Highlights (Nine Months Ended Sep 30, 2021 vs. 2020) | Metric | 2021 ($) | 2020 ($) | Change (YoY) | % of Sales (2021) | % of Sales (2020) | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | 9,798,154 | 7,813,819 | +25.39% | 100% | 100% | | Cost of Sales | 11,025,436 | 12,753,072 | -13.55% | 113% | 163% | | Gross Loss | (1,227,282) | (4,939,253) | +75.19% | (13)% | (63)% | | Operating Expenses | 6,964,266 | 4,663,111 | +49.37% | 71% | 60% | | Loss from Operations | (8,191,548) | (9,602,364) | +14.69% | (84)% | (123)% | | Net Loss | (8,505,696) | (10,031,756) | +15.21% | (87)% | (128)% | - Net sales **increased by 25% to $9.80 million**, driven by a 16.25% increase in average selling price and a 7.86% increase in sales volume[235](index=235&type=chunk) - **Gross loss decreased by $3.71 million**, primarily due to a lower inventory write-down of $5.53 million in 2021 compared to $7.77 million in 2020[237](index=237&type=chunk)[240](index=240&type=chunk) - Operating expenses **increased by 49% to $6.96 million**, mainly due to a 170% increase in selling expenses (marketing and advertising) and a 12% increase in general and administrative expenses (legal fees and rent)[241](index=241&type=chunk) [Liquidity and Capital Resources](index=52&type=section&id=Liquidity%20and%20Capital%20Resources) The company's working capital decreased, while a direct offering provided additional capital for operational needs - The company's principal liquidity demands are for sales growth, inventory purchases, sales distribution, and general corporate purposes, primarily met through cash flow from operations, accounts receivable collections, and credit facilities[247](index=247&type=chunk)[248](index=248&type=chunk) Cash Flow Summary (Nine Months Ended Sep 30, 2021 vs. 2020) | Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Operating activities | (3,129,345) | (1,091,885) | | Investing activities | (155,156) | (360,084) | | Financing activities | 2,760,973 | 466,096 | | Discontinued operations | - | 1,037,800 | - Net working capital **decreased by $6.25 million to $35.02 million** at September 30, 2021, from $41.27 million at December 31, 2020[249](index=249&type=chunk) - The company completed a registered direct offering in July 2021, **raising $2.76 million in net proceeds**, and has a shelf registration statement for up to $60 million in securities[252](index=252&type=chunk)[259](index=259&type=chunk) [Off-Balance Sheet Arrangements](index=54&type=section&id=Off-Balance%20Sheet%20Arrangements) The company reports no off-balance sheet arrangements that could materially affect its financial condition - The company has **no off-balance sheet arrangements** that have, or are reasonably likely to have, a material adverse effect on its financial condition, revenues, or liquidity[262](index=262&type=chunk) - The company has not entered into any financial guarantees, derivative contracts indexed to its shares, or variable interests in unconsolidated entities[263](index=263&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=54&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Disclosures about market risk are not required for the company - Quantitative and qualitative disclosures about market risk are not required for the company[264](index=264&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and internal financial reporting controls [Evaluation of Disclosure Controls and Procedures](index=54&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of the end of the period - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective as of September 30, 2021**[265](index=265&type=chunk) - Disclosure controls are designed to provide reasonable assurance that information required for SEC reports is recorded, processed, summarized, and reported timely[266](index=266&type=chunk) [Changes in Internal Control over Financial Reporting](index=56&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes to the company's internal control over financial reporting occurred during the reporting period - There were **no changes in internal control over financial reporting** that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting during or subsequent to the period covered by this report[268](index=268&type=chunk) PART II. OTHER INFORMATION This part covers legal proceedings, exhibits filed with the report, and official signatures [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) The company is managing ongoing legal matters, including a class action and two shareholder derivative lawsuits - The company is involved in the Barney Action, a federal putative class action lawsuit alleging securities law violations and inflated sales from December 2015 to December 2018[270](index=270&type=chunk)[271](index=271&type=chunk) - A Term Sheet was executed to settle the Barney Action for **$750,000**, with most of the settlement expected to be covered by the company's insurance carrier[273](index=273&type=chunk) - Two shareholder derivative lawsuits (Jie Action and Samuels Action) were filed against current and former executives and directors, alleging similar securities violations and self-dealing. These actions are **stayed pending the resolution of the Barney Action**[274](index=274&type=chunk)[275](index=275&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists the certifications and interactive data files filed as exhibits with the report - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[279](index=279&type=chunk) [Signatures](index=59&type=section&id=Signatures) The report is duly signed by the company's authorized officers as required - The report is signed by Thanh H. Lam, Chairperson and Chief Executive Officer, and Jeffery Chuang, Chief Financial Officer, on November 15, 2021[281](index=281&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (State or other jurisdiction of incorporation or organization) 6565 E. Wa ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) Nevada 90-0746568 (IRS Empl ...

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, 2020 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: 333-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (State or other jurisdiction of ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 011-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (State or other jurisdiction of incorporation or organization) 6565 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 011-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (State or other jurisdiction of incorporation or organization) 6565 E. Wa ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 011-36259 NOVA LIFESTYLE, INC. (Exact name of registrant as specified in its charter) Nevada 90-0746568 (State or other jurisdiction of incorporation or organization) 6565 E. W ...