Nova LifeStyle(NVFY) - 2023 Q2 - Quarterly Report

Financial Performance - Net sales from continuing operations for Q2 2023 were $4.46 million, a 17% increase from $3.81 million in Q2 2022, primarily driven by a 149% increase in sales volume[243]. - Cost of sales decreased by 59% to $3.02 million in Q2 2023, compared to $7.36 million in Q2 2022, with cost of sales as a percentage of sales dropping to 68% from 193%[246]. - Gross profit for Q2 2023 was $1.45 million, compared to a gross loss of $3.55 million in Q2 2022, resulting in a gross profit margin of 32% versus a gross loss margin of 93%[248]. - Operating expenses decreased by 14% to $1.83 million in Q2 2023 from $2.13 million in Q2 2022, with selling expenses down by 27%[250]. - Loss from continuing operations was $0.54 million in Q2 2023, significantly reduced from $5.69 million in Q2 2022[253]. - Net loss for Q2 2023 was $0.54 million, compared to a net loss of $5.69 million in Q2 2022[255]. - For the six months ended June 30, 2023, net sales were $6.34 million, down from $7.48 million in the same period of 2022[257]. - Gross profit for the six months ended June 30, 2023, was $2.11 million, compared to a gross loss of $2.02 million in the same period of 2022[257]. - Loss from operations for the six months ended June 30, 2023, was $1.56 million, a decrease from $6.50 million in the same period of 2022[257]. - The net loss was $1.76 million for the six months ended June 30, 2023, compared to a net loss of $6.59 million for the same period in 2022[269]. Revenue and Sales Trends - Net sales from continuing operations for the six months ended June 30, 2023, were $6.34 million, a decrease of 15% from $7.48 million for the same period in 2022, primarily due to a 46% decrease in average selling price, partially offset by a 56% increase in sales volume[258]. - Sales to North America decreased by 41% to $4.19 million for the six months ended June 30, 2023, compared to $7.10 million for the same period in 2022, mainly due to inflation and reduced purchasing power[259]. Operational Changes - Nova LifeStyle transitioned away from low-margin products to improve gross profit margins, which is expected to adversely impact revenue and net profit in the short term[198]. - The company is shifting a portion of its manufacturing from China to other Asian countries such as Vietnam and India to mitigate the impact of U.S. trade tariffs[198]. - The company launched a line of high-end physiotherapeutic jade mats in 2019, targeting therapy clinics and hospitality sectors in Southeast Asia[193]. - The company has limited experience in Southeast Asia, which may require considerable management attention and resources[193]. Financial Position and Cash Flow - As of June 30, 2023, the gross accounts receivable amounted to $1,206,030, with $208,478 being over 90 days past due[205]. - The allowance for bad debt was maintained at $2,718 as of June 30, 2023, compared to $2,104 as of June 30, 2022[205]. - Net cash provided by operating activities was $1.43 million for the six months ended June 30, 2023, an increase of $2.75 million from cash used in operating activities for the same period in 2022[273]. - Net cash used in investing activities was $2.47 million for the six months ended June 30, 2023, an increase from $1,487 used in the same period in 2022, primarily due to a software project[275]. Regulatory and Compliance - The company completed the de-registration and liquidation of Nova HK in February 2023, transferring its assets to Nova Malaysia[190]. - The company adopted ASU 2016-13 and ASU 2022-02 effective January 1, 2023, with no impact on the financial statement presentation or disclosures[235]. - The company recorded long-term taxes payable of $0.64 million as of June 30, 2023, primarily arising from a one-time transition tax recognized in 2017[282]. - No off-balance sheet arrangements that materially affect financial condition or results of operations[284]. - No financial guarantees or commitments to guarantee third-party payment obligations[285]. Market Conditions - The markets in North America (excluding the U.S.) are experiencing a slowdown, potentially entering a recession due to high interest rates and inflation[198]. - Nova LifeStyle's operations in Malaysia faced multiple closures due to COVID-19, with the showroom reopening on March 5, 2021, after a nationwide lockdown[194]. - The exchange rate for translating Malaysian Ringgit (RM) to U.S. dollars was RM4.67 to 1 as of June 30, 2023[229].