At December 31, 2016 and 2015, warrants to purchase 858,334 and 2,050,001 shares of common stock were outstanding and exercisable, respectively. For the years ended December 31, 2016 and 2015, 858,334 and 2,050,001 shares purchasable under warrants were excluded from EPS, respectively, as their effects were anti-dilutive. For all the periods presented, the unvested restricted stock 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.
Two major customers accounted for 21% (11% and 10% for each) of the Company’s sales for the year ended December 31, 2016. No customer accounted for 10% or more of the Company’s sales for the year ended December 31, 2015.
The Company purchased its products from five major vendors during the years ended December 31, 2016, and from four major vendors during the years ended December 31, 2015, accounting for a total of 80% (22%, 19%, 16%, 12% and 11% for each) and 75% (22%, 21%, 16%, and 16% for each) of the Company’s purchases, respectively. Accounts payable to these vendors were $446,428 and $4,294,228 as of December 31, 2016 and 2015, respectively.
Prior to its divestment of its PRC subsidiaries, the operations of the Company were located principally in China and the U.S. Accordingly, the Company’s Chinese subsidiaries’ business, financial condition and results of operations were, from time to time influenced by the political, economic and legal environments in China, as well as by the general state of the PRC economy.
The Company’s operations in the PRC were subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These included risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchase and expense transactions in China are denominated in Chinese Yuan Renminbi (“RMB”), and all of the assets and liabilities of the Company’s former subsidiaries in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
Statement of Cash Flows
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations is calculated based upon local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.
Fair Value of Financial Instruments
Some of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities and short-term debt, have carrying amounts that approximate their fair values due to their short maturities. 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 Company analyzes all financial instruments with features of both liabilities and equity under ASC Topic 480, “Distinguishing Liabilities from Equity,” and ASC Topic 815, “Derivatives and Hedging.”
The carrying value of cash, accounts receivable, advance to suppliers, other receivables, accounts payable, lines 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.
The carrying value of the warrant liability is determined using the Binomial Lattice option pricing model. Certain assumptions used in the calculation of the warrant liability represent Level-3 unobservable inputs. The Company did not have any assets or liabilities categorized as Level 1 or 2 as of December 31, 2016.
The following table summarizes the activity of Level 3 inputs measured on a recurring basis:
Fair Value Measurements of Common Stock Warrants Using Significant Unobservable Inputs (Level 3)
|
|
For the Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
-
|
|
|
$
|
1,465,019
|
|
Adjustment resulting from change in fair value (a) and extinguishment of warrants recognized in earnings
|
|
|
-
|
|
|
|
767,096
|
|
1,053,670 common shares issued in exchange of surrender of 1,062,912 warrants
|
|
|
|
|
|
|
(2,232,115
|
)
|
Balance at December 31
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
Adjustment resulting from change in fair value
is the amount of total gains or losses for the period attributable to the change in unrealized gains or losses relating to liabilities held at the reporting date. The unrealized gain or loss is recorded in change in fair value of warrant liability in the accompanying consolidated statements of income.
Foreign Currency Translation and Transactions
The consolidated financial statements are presented in USD. The functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Nova Macao, Bright Swallow and Diamond Bar is the United States Dollar (“$” or “USD”).
The functional currency of Nova Dongguan, Nova Museum and Ding Nuo is RMB. The functional currencies of the Company’s foreign operations are translated into USD for balance sheet accounts using the current exchange rates in effect as of the balance sheet date, except for the equity account using the historical exchange rate, and for revenue and expense accounts using the weighted-average exchange rate during the fiscal year. The translation adjustments are recorded in the consolidated statements of income and comprehensive income, captioned “Accumulated other comprehensive income.” Gains and losses resulting from transactions denominated in foreign currencies are included in “Other income (expenses)” in the consolidated statements of income and comprehensive income. There have been no significant fluctuations in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The RMB to USD exchange rates in effect as of October 25, 2016 (date of disposal of subsidiaries) and December 31, 2015, were RMB6.7641 = USD$1.00 and RMB6.4936 = USD$1.00, respectively. The weighted-average RMB to USD exchange rates in effect for the period from January 1, 2016 to October 25, 2016 (date of disposal of subsidiaries) and 2015 were RMB6.5904= USD$1.00 and RMB6.1738= USD$1.00, respectively. The exchange rates used in translation from RMB to USD were published by the People’s Bank of the People’s Republic of China.
Comprehensive Income
The Company follows FASB ASC 220 “Reporting Comprehensive Income.” Comprehensive income is comprised of net income and all changes to the consolidated statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income for the years ended December 31, 2016 and 2015 included net income and foreign currency translation adjustments.
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 based in Hong Kong focusing on customers in Canada, and Nova Macao is a furniture distributor based in Macao focusing on international customers. They are all operated under the same senior management of the Company, and management views the operations of Diamond Bar, Bright Swallow and Nova Macao as a whole for making business decisions
Prior to the disposal of Nova Dongguan, the Company’s furniture products sold through Nova Dongguan, Nova Macao, and Ding Nuo were created with similar production processes, in the same facilities, under the same regulatory environment and sold to customers using similar distribution systems. Although Nova Museum was principally engaged in the dissemination of the culture and history of furniture in China, it also served a function of promoting and marketing the Company’s image and products by providing a platform and channel for consumers to be exposed to the Company and its products, it was operated under the same management with the same resources and in the same location as Nova Dongguan, and it was an additive and supplemental unit to the Company’s main operations, the design and sale of furniture.
Until the disposal of Nova Dongguan and its subsidiaries, all of the Company’s long-lived assets for production were located at its facilities in Dongguan, Guangdong Province, China, and operated within the same environmental, safety and quality regulations governing furniture manufacturers. After the disposal of Nova Dongguan and its subsidiaries, 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 US; if the customer directs the Company to ship its products to China, the sales are recorded as sold in China.
New Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Presentation of Financial Statements — Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In July 2015, the FASB issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not anticipate that this adoption will have a significant impact on its consolidated financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on the consolidated financial statements.
In May 2014, the FASB issued No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect that these ASUs will have on its consolidated financial statements and related disclosures.
On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which includes amendments to accounting for income taxes at settlement, forfeitures, and net settlements to cover withholding taxes. The amendments in ASU 2016-09 are effective for public companies for fiscal years beginning after December 31, 2016, and interim periods within those annual periods. Early adoption is permitted but requires all elements of the amendments to be adopted at once rather than individually. The Company is evaluating the effect that ASU No. 2016-09 will have on the Company’s consolidated financial statements and related disclosures.
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, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.
In October 2016, the FASB issued ASU No. 2016-16—Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17 Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control. This update amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. This ASU is effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should be applied using a retrospective transition method to each period presented. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The standard should be applied prospectively on or after the effective date. The Company will evaluate the impact of adopting this standard prospectively upon any transactions of acquisitions or disposals of assets or businesses.
In January 2017, the FASB issued ASU 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.
Note 3 - Discontinued Operations
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 Donguan’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. The purchase price of $8,500,000 was fully paid on October 6, 2016.
On November 10, 2016, Nova Furniture entered into a Trademark Assignment Agreement with Kuka Design BVI. Pursuant to the terms of the Trademark Assignment Agreement, Nova Furniture agreed to assign to Kuka Design BVI its full right to, and title in, the NOVA trademark in China for $6,000,000 (the “Assignment Fee”). Kuka Design BVI shall pay the Assignment Fee in two installments: $1,000,000 on or before November 30, 2016, and $5,000,000 on or before December 31, 2016. As the result of the assignment of NOVA trademark in China, Nova Furniture and its affiliated companies, including Nova Macao, will cease to use the NOVA trademark and brand in their business in China. Assignment Fee of $4,750,000 has been received as of December 31, 2016, and the remaining balance of $1,250,000 has been fully settled in January 2017.
The following table summarizes the net assets of Nova Dongguan, Nova Museum and Nova Ding Nuo at the date of disposal (October 25, 2016):
Cash and equivalents
|
|
$
|
43,873
|
|
Accounts receivable, net
|
|
|
4,667,943
|
|
Advance to suppliers, net
|
|
|
69,161
|
|
Inventories
|
|
|
2,600,856
|
|
Prepaid expenses and other receivables
|
|
|
564,517
|
|
Taxes receivable
|
|
|
6,589
|
|
Heritage and cultural assets
|
|
|
119,875
|
|
Property, plant and equipment, net
|
|
|
13,293,530
|
|
Lease deposit
|
|
|
48,936
|
|
Deposits for equipment and factory construction
|
|
|
624,935
|
|
Intangible assets, net
|
|
|
1,746,856
|
|
Deferred tax assets
|
|
|
392
|
|
Accounts payable
|
|
|
(3,456,101
|
)
|
Lines of credit
|
|
|
(1,049,659
|
)
|
Advance from customers
|
|
|
(49,379
|
)
|
Accrued liabilities and other payables
|
|
|
(718,793
|
)
|
Deferred rental payable
|
|
|
(84,682
|
)
|
Noncurrent FIN 48 liability
|
|
|
(7,403
|
)
|
Net assets of Nova Dongguan and subsidiaries upon disposal
|
|
|
18,421,446
|
|
Consideration received
|
|
|
(13,250,000
|
)
|
Consideration receivable as of December 31, 2016
|
|
|
(1,250,000
|
)
|
Loss on disposal of subsidiaries
|
|
$
|
(3,921,446
|
)
|
As a result, the operations of Nova Dongguan, Nova Museum and Ding Nuo are now accounted for as discontinued operations in the accompanying consolidated financial statements for all periods presented.
The following table presents the components of discontinued operations reported in the consolidated statements of operations:
|
|
For the years ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Sales from external customers
|
|
$
|
14,796,374
|
|
|
$
|
18,876,697
|
|
Intrasegment sales
|
|
|
1,632,079
|
|
|
|
1,860,710
|
|
Cost of goods sold
|
|
|
(14,255,611
|
)
|
|
|
(17,626,626
|
)
|
Operating expenses
|
|
|
(3,469,576
|
)
|
|
|
(4,191,133
|
)
|
Loss before income taxes
|
|
|
(1,542,815
|
)
|
|
|
(814,022
|
)
|
Loss on disposal of subsidiaries
|
|
|
(3,921,446
|
)
|
|
|
-
|
|
Income tax benefit (expense)
|
|
|
4,638,044
|
|
|
|
(390,143
|
)
|
Income (loss) from discontinued operations
|
|
$
|
826,217
|
|
|
$
|
(1,204,165
|
)
|
The following table presents the major classes of assets and liabilities of discontinued operations of
Nova Dongguan, Nova Museum and Ding Nuo reported in the consolidated balance sheets:
|
|
December 31, 2015
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67,802
|
|
Accounts receivable, net
|
|
|
7,767,406
|
|
Advance to suppliers
|
|
|
22,729
|
|
Inventories
|
|
|
2,739,710
|
|
Prepaid expenses and other receivables
|
|
|
662,959
|
|
Current assets of discontinued operations
|
|
|
11,260,606
|
|
|
|
|
|
|
Heritage and cultural assets
|
|
|
124,868
|
|
Plant, property and equipment, net
|
|
|
15,001,318
|
|
Lease deposit
|
|
|
50,975
|
|
Deposits for equipment and factory construction
|
|
|
143,758
|
|
Intangible assets, net
|
|
|
1,815,168
|
|
Deferred tax asset
|
|
|
8,451
|
|
Assets of discontinued operations, non-current
|
|
|
17,144,538
|
|
|
|
|
|
|
Accounts payable
|
|
|
4,114,598
|
|
Lines of credit
|
|
|
2,756,560
|
|
Advance from customers
|
|
|
123,570
|
|
Accrued liabilities and other payables
|
|
|
1,146,517
|
|
Taxes payable
|
|
|
5,773
|
|
Liabilities of discontinued operations
|
|
|
8,147,018
|
|
|
|
|
|
|
Deferred rent payable
|
|
|
89,904
|
|
Income tax payable
|
|
|
4,641,444
|
|
Liabilities of discontinued operations, non-current
|
|
$
|
4,731,348
|
|
|
|
|
|
|
Note 4 - Inventories
The inventories as of December 31, 2016 and 2015, totaled $2,781,123 and $2,514,319, respectively, were all finished goods.
Note 5 - Advance to Suppliers
As of December 31, 2016 and 2015, the Company had an advance to suppliers of $13,669,752 and $7,936,141, respectively. During the year ended December 31, 2014, the Company made certain advance payments to one of its suppliers totaling $5,000,000 to secure a favorable pricing structure on purchase orders submitted. As a result of production delays, on July 1, 2014, the Company entered into an agreement with this supplier to charge interest on these advances at an annual rate of 4.75% with maturity on March 31, 2015, interest to be paid monthly. Shipments received from the supplier were to be credited against the advance payments. The supplier had the option to repay the short-term advances for any product that it would not be able to deliver at any time. Initial shipments against these purchase orders were received by the Company in July 2014. The advance was paid in full on January 21, 2015. During the years ended December 31, 2016 and 2015 (prior to the date of payment in full), the supplier paid interest of $0 and $3,870 to the Company, respectively.
Note 6 - Plant, Property and Equipment, Net
As of December 31, 2016 and 2015, plant, property and equipment consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Computer and office equipment
|
|
$
|
274,735
|
|
|
$
|
261,240
|
|
Decoration and renovation
|
|
|
110,015
|
|
|
|
110,015
|
|
Less: accumulated depreciation
|
|
|
(213,474
|
)
|
|
|
(171,178
|
)
|
|
|
$
|
171,276
|
|
|
$
|
200,077
|
|
Depreciation expense from continuing operations was $42,297 and $46,111 for the years ended December 31, 2016 and 2015, respectively. Depreciation expense from discontinued operations was $1,120,559 and $1,318,842 for the years ended December 31, 2016 and 2015, respectively.
Note 7 - Intangible Assets
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 for 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 estimated life was 15 years.
The Company’s eCommerce platform is a website through which customers are able to browse and place orders online for the Company’s products. For the downloadable mobile application, customers are able to download the application onto their own mobile devices to browse the Company’s product offerings. The Nova sales kit application is used on mobile devices to enable the Company’s sales representatives to display the Company’s products and inventory to customers. The total cost associated with the development, programming, design and roll-out of the Company’s eCommerce platform, downloadable mobile application, and Nova sales kit application is approximately $1.20 million. The Company’s eCommerce platform, downloadable mobile application, and Nova sales-kit application were completed and put into operation in 2015. These intangible assets are amortized using the straight-line method with estimated lives of 10 years for each.
Intangible assets consisted of the following as of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
eCommerce platform
|
|
$
|
1,208,200
|
|
|
$
|
1,208,200
|
|
Customer relationship
|
|
|
6,150,559
|
|
|
|
6,150,559
|
|
Trademarks
|
|
|
200,000
|
|
|
|
200,000
|
|
Less: accumulated amortization
|
|
|
(1,872,136
|
)
|
|
|
(1,311,278
|
)
|
|
|
$
|
5,686,623
|
|
|
$
|
6,247,481
|
|
Amortization of intangible assets from continuing operations was $560,858 and $466,773 for the years ended December 31, 2016 and 2015, respectively. Amortization of intangible assets from discontinued operations was $31,247 and $28,872 for the years ended December 31, 2016 and 2015, respectively.
Annual amortization expense is expected to be approximately $527,524 over each of the next five years.
Note 8 - Receivables from an Unrelated Party, Prepaid Expenses and Other Receivables
(a)
|
On September 22, 2016, in order to promote the Company’s image and extend its customer reach, the Company entered into a memorandum of understating with an unrelated party (“MOU”) whereby the Company agreed to pay a total fee of $16,000,000 for a period of twelve months, commencing on December 31, 2016, to finance the establishment and promotion of the unrelated party’s Academic E-commerce platform and integrated training center in Hong Kong (the “Platform”). As of December 31, 2016, the Company prepaid $7,000,000 to the unrelated party.
|
After December 31, 2016, the Company further prepaid $6,835,000 to the unrelated party. However, having considered the recent market situation and the status of the establishment and promotion of the Platform, the Company does not wish to continue to finance the promotion of the Platform. On March 20, 2017, the Company and the unrelated party terminated the MOU and released both parties from all the obligations and liabilities under the MOU. The Company agreed to bear the costs of $800,000 incurred by the unrelated party on the Platform. The prepaid amount should be repaid in two instalments. The Company received the first instalment of $8,225,000 on April 11, 2017. The remaining balance of $5,610,000 is to be repaid by the unrelated party to the Company on or before April 30, 2017.
(b)
|
Prepaid Expenses and Other Receivables consisted of the following at December 31, 2016 and 2015:
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
573,005
|
|
|
$
|
479,091
|
|
Other receivables
|
|
|
69,886
|
|
|
|
29,908
|
|
Total
|
|
$
|
642,891
|
|
|
$
|
508,999
|
|
Note 9 - Accrued Liabilities and Other Payables
Accrued liabilities and other payables consisted of the following as of December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Other payables
|
|
$
|
47,790
|
|
|
$
|
46,598
|
|
Salary payable
|
|
|
30,207
|
|
|
|
80,639
|
|
Financed insurance premiums
|
|
|
66,314
|
|
|
|
66,960
|
|
Accrued consulting fees
|
|
|
-
|
|
|
|
19,078
|
|
Accrued rents
|
|
|
102,269
|
|
|
|
135,673
|
|
Accrued commission
|
|
|
494,108
|
|
|
|
460,475
|
|
Accrued marketing expense
|
|
|
-
|
|
|
|
450,000
|
|
Accrued expenses, others
|
|
|
40,272
|
|
|
|
178,682
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
780,960
|
|
|
$
|
1,438,105
|
|
As of December 31, 2016 and 2015, other accrued expenses mainly included legal and professional fees, transportation expenses and utilities. Other payables represented other tax payable and meal expense.
Note 10 - Lines of Credit
Diamond Bar entered into an agreement with a bank in California for a line of credit of up to $5,000,000 with annual interest of 4.25% and maturity on June 1, 2015. On June 8, 2015, the bank extended and modified the terms of the loan agreement to extend the line of credit up to a maximum of $6,000,000 until July 31, 2015 and $5,000,000 thereafter with an annual interest rate of 4.25% and maturity on September 1, 2015 (the term of which the bank allowed to extend until the renewal described in the following sentence while the bank conducted its own audit associated therewith). On September 28, 2015, Diamond Bar extended the line of credit up to a maximum of $6,000,000 with annual interest of 3.75% (4% from December 17, 2015) and maturity on June 1, 2017. On January 20, 2016, Diamond Bar increased the line of credit up to a maximum of $8,000,000 with annual interest of 3.75%. The line of credit is
secured by all of the assets of Diamond Bar and is guaranteed by
Nova LifeStyle
.
As of December 31, 2016 and 2015, Diamond Bar had $6,129,841 and $5,659,357 outstanding on the line of credit, respectively. During the years ended December 31, 2016 and 2015, the Company recorded interest expense of $213,967 and $199,874, respectively. As of December 31, 2016, Diamond Bar had $1,870,159 available for borrowing without violating any covenants.
The Diamond Bar loan has the following covenants: (i) maintain a minimum tangible net worth of not less than $10 million; (ii) maintain a ratio of debt to tangible net worth not in excess of 2.500 to 1.000; (iii) the pre-tax income must be not less than 1.000% of total revenue quarterly; and (iv) maintain a current ratio in excess of 1.250 to 1.000. As of December 31, 2016, Diamond Bar was in compliance with the stated covenants. In addition, the loan agreement provides for a cross default provision whereby an event of default on this loan will cause the Nova Macao loan, which is described below, to also be in default, as both loans are from the same lender.
On January 22, 2015, Nova Macao renewed a line of credit, with an annual interest rate of 4.25% and principal of up to $6,500,000, with a commercial bank in Hong Kong to extend the maturity date to January 29, 2016. On February 16, 2016, Nova Macao extended the maturity date of line of credit to January 31, 2017, with an annual interest rate of 4% and principal of up to $6,500,000. The loan requires monthly payment of interest and that the interest rate will be adjusted annually. The loan was secured by assignment of Sinosure (China Export and Credit Insurance Company) credit insurance and is guaranteed by Nova LifeStyle and Diamond Bar. As of December 31, 2016 and 2015, Nova Macao had $1,848,000 outstanding on the line of credit. During the years ended December 31, 2016 and 2015, Nova Macao paid interest of $69,830 and $79,631, respectively. As of December 31, 2016, the Company had $4,652,000 available for borrowing without violating any covenants. The Company did not extend the line of credit and paid off in February 2017.
The Nova Macao loan has the following covenants: (i) total outstanding under working capital advance shall not exceed the lesser of (a) the credit commitment of $6,500,000, (b) the insurance claim limit and (c) borrowing base allowed of 80% advance rate against certain eligible accounts receivable; (ii) eligible accounts receivable are insured buyers by Sinosure assigned to the bank and within established insurance limit; (iii) the bank has an absolute right to exclude any portion of the accounts receivable from the aging report for computation of the borrowing base as it deems fit; (iv) in case the aggregate outstanding amount of credit facilities exceeds the available amount of facilities conferred by the aforesaid computation of borrowing base, the excess amount shall be settled within 7 days by Nova Macao. As of December 31, 2016, Nova Macao was in compliance with the stated covenants.
On April 25, 2012, Nova Dongguan entered into an agreement with a commercial bank in Dongguan for a line of credit of up to $3,016,045 (RMB 20 million) with maturity on April 24, 2015. On November 20, 2014, the Company paid off the line of credit and entered into a new agreement with a reduced line of credit of up to $1,508,023 (RMB 10 million) with a maturity on May 19, 2015. On May 5, 2015, Nova Dongguan extended the line of credit of $527,808 (RMB 3.5 million) and $980,215 (RMB 6.5 million) with maturities on September 6, 2015 and October 18, 2015, respectively. On September 21, 2015, Nova Dongguan paid off the lines of credit and entered into a new agreement with an increased line of credit of up to $3,016,045 (RMB 20 million) for a period up to September 20, 2018. As of the date of disposal of Nova Dongguan and December 31, 2015, Nova Dongguan had $1,049,659 (RMB 7.10 million) and $2,756,560 (RMB 17.9 million) outstanding, respectively. The loan of $1,931,773 (RMB 12.9 million) bears monthly interest of 0.51458% and requires monthly payment of the interest. The loan is due for repayment on September 24, 2016. On September 23, 2016, this line of credit was extended to October 24, 2016. On October 24, 2016, Nova Dongguan paid off this loan. On November 10, 2015, Nova Dongguan borrowed an additional $748,750 (RMB 5.0 million), which bears monthly interest of 0.47125% and requires monthly payment of the interest with maturity date on November 9, 2016. On January 26, 2016, Nova Dongguan borrowed an additional $314,475 (RMB 2.1 million), which bears monthly interest of 0.47125% and requires monthly payment of the interest with maturity date on January 25, 2017. The loans are secured by the buildings of Nova Dongguan and are guaranteed by the Company’s former CEO. During the years ended December 31, 2016 and 2015, the Company recorded interest expense of $145,645 and $112,465, respectively, for discontinued operations related to the applicable line of credit agreements. This line of credit had been disposed as a result of disposal of subsidiaries (See Note 3 – Discontinued Operations).
Note 11 - Income Taxes
Taxes payable consisted of the following at December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
Tax receivable
|
|
$
|
14,893
|
|
|
|
8,494
|
|
Income tax payable - current
|
|
$
|
-
|
|
|
$
|
-
|
|
Income tax payable – noncurrent
|
|
$
|
2,136,788
|
|
|
$
|
2,160,449
|
|
The components of income (loss) before income taxes from continuing operations consisted of the following for the years ended December 31, 2016 and 2015:
|
2016
|
|
2015
|
|
|
|
|
|
|
Loss subject to domestic income taxes only
|
|
$
|
(2,614,069
|
)
|
|
$
|
(920,468
|
)
|
Income subject to foreign income taxes only
|
|
|
1,485,413
|
|
|
|
4,486,318
|
|
Total
|
|
$
|
(1,128,656
|
)
|
|
$
|
3,565,850
|
|
The (benefit) provision for income taxes on income (
loss)
from continuing operations
consisted
of the following:
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
(137,833
|
)
|
|
$
|
105,879
|
|
State
|
|
|
800
|
|
|
|
17,610
|
|
PRC
|
|
|
114,173
|
|
|
|
90,696
|
|
|
|
|
(22,860
|
)
|
|
|
214,185
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(751,351
|
)
|
|
|
(48,369
|
)
|
State
|
|
|
(62,409
|
)
|
|
|
(4,373
|
)
|
Total (benefit) provision for income taxes
|
|
$
|
(836,620
|
)
|
|
$
|
161,443
|
|
The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income (loss) before income taxes from
continuing operations
:
|
|
2016
|
|
|
2015
|
|
Tax at Federal Statutory rate
|
|
$
|
(383,743
|
)
|
|
$
|
1,212,389
|
|
Foreign Rate Differential
|
|
|
(168,882
|
)
|
|
|
(403,625
|
)
|
Change in fair value and extinguishment of warrant liability
|
|
|
-
|
|
|
|
260,813
|
|
ASC 740-10 Uncertain Tax Position
|
|
|
(23,660
|
)
|
|
|
141,502
|
|
Tax exemption
|
|
|
(336,158
|
)
|
|
|
(1,121,724
|
)
|
Stock Based Compensation
|
|
|
96,963
|
|
|
|
122,666
|
|
Others
|
|
|
(21,140
|
)
|
|
|
(50,578
|
)
|
|
|
$
|
(836,620
|
)
|
|
$
|
161,443
|
|
The following presents the aggregate dollar and per share effects of the Company’s tax exemption:
The aggregate dollar effect of tax holiday
|
|
2016
|
|
|
2015
|
|
Aggregate dollar effect of tax holiday
|
|
$
|
336,158
|
|
|
$
|
1,121,724
|
|
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:
|
|
2016
|
|
|
2015
|
|
Non-Current Deferred Tax Assets:
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
87,826
|
|
|
|
94,468
|
|
Fed & CA amortization
|
|
|
49,197
|
|
|
|
44,330
|
|
Stock compensation
|
|
|
116,748
|
|
|
|
116,332
|
|
U.S. NOL
|
|
|
882,939
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Current Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(217,852
|
)
|
|
|
(134,701
|
)
|
Fed & CA depreciation
|
|
|
(44,099
|
)
|
|
|
(56,872
|
)
|
Purchase accounting
|
|
|
-
|
|
|
|
(2,557
|
)
|
|
|
|
|
|
|
|
|
|
Net Non-Current Deferred Tax Assets (Liabilities) before Valuation Allowance
|
|
|
874,759
|
|
|
|
61,000
|
|
Less: Valuation Allowance
|
|
|
-
|
|
|
|
-
|
|
Non-Current Deferred Tax Assets (Liabilities), Net:
|
|
|
874,759
|
|
|
|
61,000
|
|
|
|
|
|
|
|
|
|
|
Total Deferred Assets, Net:
|
|
$
|
874,759
|
|
|
$
|
61,000
|
|
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. 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 $2.39 million and $0, at December 31, 2016 and 2015, respectively.
For U.S. California income tax purpose, the Company has net operating loss, or NOL carryforwards of approximately $1.71 million and $0, at December 31, 2016 and 2015, respectively.
Nova Dongguan, Nova Museum and Ding Nuo are governed by the Enterprise Income Tax Law of the PRC, Nova Museum and Ding Nuo are subject to a 25% corporate income tax, while Nova Dongguan is subject to a 15% corporate income tax rate. As of June 5, 2014, Nova Dongguan was approved by PRC taxing authorities for High-Tech enterprise status, which is taxed at preferential income tax rate of 15% for period from January 1, 2014 to December 31, 2015. 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 Museum is subject to a 25% corporate income tax in the first year and allowed to apply for tax-exempt status in the second year following its incorporation. Nova Macao is an income tax-exempt entity incorporated and domiciled in Macao.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $31 million as of December 31, 2016. 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.
Note 12 - Related Party Transactions
On September 30, 2011, Diamond Bar leased a showroom in High Point, North Carolina from the Company’s president. The lease is to be renewed at the beginning of each year. On March 16, 2017, the Company renewed the lease for an additional one year term. The lease was $32,916 for one year and only for use during two furniture exhibitions to be held between April 1, 2017 and March 31, 2018. During the years ended December 31, 2016 and 2015, the Company paid rental amounts of $32,916, and are included in selling expenses from continuing operations.
Note 13 - Deferred Rent Payable
Deferred rent payable represented supplemental payments the Company must pay to the residents who originally lived on the land in Dongguan, Guangdong Province, China, to which the Company acquired land use rights for commercial use.
The Company is required to pay an annual management fee of RMB 1,500 ($226) per mu for a total 17.97 mu, or 11,977.42 square meters, from 2016 for 60 years for a total of approximately $315,000 (RMB 2.10 million). The payment will be made annually with a 5% increase every 5 years. The Company records such fees as expenses on a straight-line basis.
With respect to the supplemental payments the Company must pay the residents who originally lived on the land in Dongguan, Guangdong Province, China, as described in the first sentence of this Note 9, the Company is required to pay an annual amount at RMB 800 ($121) per mu for a total of 60 mu (or 40,000 square meters) starting from 2003 for 60 years for a total of approximately $768,000 (RMB 5.13 million). The payment increases 10% every 5 years. The Company records such expense on a straight-line basis. During the years ended December 31, 2016 and 2015, the Company recorded expense of $15,337 and $19,474, respectively, from discontinued operations. As of December 31, 2016 and 2015, the Company had $0 and $89,904 of deferred rent payable, respectively.
Note 14 - Stockholders’ Equity
Warrants
Following is a summary of the warrant activity for the years ended December 31, 2016 and 2015:
|
|
Number of
Warrants
|
|
|
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term in Years
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2015
|
|
|
1,241,462
|
|
|
|
7.90
|
|
|
|
2.99
|
|
Exercisable at January 1, 2015
|
|
|
1,241,462
|
|
|
|
7.90
|
|
|
|
2.99
|
|
Granted
|
|
|
2,000,001
|
|
|
|
2.71
|
|
|
|
5.50
|
|
Exercised/surrendered
|
|
|
(1,062,912
|
)
|
|
|
2.1
|
|
|
|
-
|
|
Expired
|
|
|
(128,550
|
)
|
|
|
4.50
|
|
|
|
-
|
|
Outstanding at January 1, 2016
|
|
|
2,050,001
|
|
|
|
2.74
|
|
|
|
4.82
|
|
Exercisable at January 1, 2016
|
|
|
2,050,001
|
|
|
|
2.74
|
|
|
|
4.82
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised / surrendered
|
|
|
(1,141,667
|
)
|
|
|
2.71
|
|
|
|
-
|
|
Expired
|
|
|
(50,000
|
)
|
|
|
4.00
|
|
|
|
-
|
|
Outstanding at December 31, 2016
|
|
|
858,334
|
|
|
|
2.71
|
|
|
|
3.92
|
|
Exercisable at December 31, 2016
|
|
|
858,334
|
|
|
|
2.71
|
|
|
|
3.92
|
|
Shares issued to IR Firm
On July 1, 2014, the Company entered into a contract with an investor relations firm. The Company agreed to issue 100,000 shares of the Company’s common stock to the firm for 12 months of investor relation services. The fair value of the 100,000 shares of common stock was $462,000; the fair value was calculated based on the stock price of $4.62 per share on July 1, 2014, and was amortized over the service term. During the years ended December 31, 2016 and 2015, the Company amortized $0 and $231,000 as IR expenses, respectively.
Shares and Warrants issued to Consultants
On July 1, 2013, the Company entered into a consulting agreement with a consulting firm in China for providing management M&A, business strategy and financing consultation services effective July 15, 2013. The Company agreed to issue 50,000 shares of the Company’s common stock to the firm for 12 months of consulting services starting on July 15, 2013. The Company also agreed to issue three-year warrants for the firm to purchase 50,000 shares of the Company’s common stock with an exercise price of $4 per share. Both the common stock and warrants were issued to the consultant or its designees within seven business days upon execution of the Agreement. The fair value of the 50,000 shares of common stock was $200,000 at July 1, 2013, and that amount was amortized over the service term.
The warrants issued to the consulting firm are exercisable for a fixed number of shares, and are classified as equity instruments. The Company accounted for the warrants issued 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 three years, volatility of 353%, risk-free interest rate of 0.66% and dividend yield of 0%. No estimate of forfeitures was made as the Company has a short history of granting options and warrants. Because these equity-classified warrants are vested immediately and are non-forfeitable; based on ASC 505-50, the performance commitment had been reached at the grant date, and accordingly, the measurement date is the grant date. The fair value of the warrants issued to the consulting firm at grant date was $194,989, and that amount was amortized over the service term in 2014. The warrants expired on July 14, 2016.
On August 15, 2014, the Company entered into a consulting agreement with a consulting firm for general business advisory, marketing and administration, and business strategy consulting services effective on September 1, 2014. The Company agreed to issue 10,000 shares of common stock to the firm for 12 months of consulting services starting on September 1, 2014. The fair value of the 10,000 shares of common stock was $42,000, which was calculated based on the stock price of $4.20 per share on September 1, 2014, and was amortized over the service term. During the years ended December 31, 2016 and 2015, the Company amortized $0 and $26,250 as consulting expenses, respectively.
On December 1, 2014, the Company entered into a consulting agreement with a consulting firm for management consulting services effective on December 1, 2014. The Company agreed to issue 60,000 shares of the Company’s common stock to the firm for three years of consulting services. The shares will be issued according to the following vesting schedule set forth as follows: The initial 10,000 shares were required to be issued within 30 days upon signing of the agreement; for the remaining 50,000 shares, the Company has issued or will issue to the consultant 10,000 shares of common stock on or before each of June 1, 2015, December 1, 2015, June 1, 2016, December 1, 2016 and June 1, 2017. The Company or the consultant may terminate the agreement at any time by 90 days’ written notice to the other party. The fair value of the 60,000 shares was $224,400, which was calculated based on the stock price of $3.74 per share on December 1, 2014 and will be amortized over the service term. During the years ended December 31, 2016 and 2015, the Company amortized $74,800 as consulting expenses in each year.
On March 1, 2015, the Company entered into a marketing agreement with a consultant for marketing and product promotion services effective on March 1, 2015. The Company agreed to grant the consultant $100,000 worth of shares of the Company’s common stock for 12 months of consulting services starting on March 1, 2015. The shares vested immediately on March 1, 2015. The share price was calculated as the average closing price per share for ten trading days immediately prior to the execution of the agreement and was amortized over the service term. On March 9, 2015, the Company issued 38,745 shares at an average price of $2.581 per share to the consultant. During the years ended December 31, 2016 and 2015, the Company amortized $16,667 and $83,333 as consulting expenses, respectively.
On September 14, 2015, the Company entered into a business marketing advisory agreement with a consultant for marketing and general consulting services effective on August 15, 2015. The Company agreed to pay the consultant a monthly fee of $5,000 and also granted 18,348 shares of the Company’s common stock to the consultant for 12 months of services starting on August 15, 2015. Twenty-five percent (25%) of those shares vested on November 15, 2015, 25% on February 15, 2016, 25% on May 15, 2016 and the remaining 25% vest on August 15, 2016. The fair value of the 18,348 shares was $45,870, which was calculated based on the stock price of $2.50 per share on August 15, 2015 and will be amortized over the service term. During the years ended December 31, 2016 and 2015, the Company amortized $28,669 and $17,201 as consulting expenses, respectively.
On February 1, 2016, the Company entered into a marketing agreement with a consultant for marketing development strategies and consulting services for 15 months. The Company agreed to grant the consultant 10,000 shares of the Company’s common stock per month, for a total commitment of 150,000 shares of common stock. The fair value of the 150,000 shares was $204,000, which was calculated based on the stock price of $1.36 per share on February 1, 2016, the date the agreement was executed, and will be amortized over the service term. During the year ended December 31, 2016, the Company amortized $149,600 as consulting expenses.
On February 1, 2016, the Company entered into an agreement with a consultant for E-Commerce consulting service with a term of 24 months. The Company agreed to grant the consultant 10,000 shares of the Company’s common stock per month, for a total commitment of 240,000 shares. Twelve and half percent (12.5%) of those shares vested or will vest 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 240,000 shares was $326,400, which was calculated based on the stock price of $1.36 per share on February 1, 2016, the date the agreement was executed, and will be amortized over the service term. During the year ended December 31, 2016, the Company amortized $149,600 as consulting expenses.
On February 1, 2016, the Company entered into a consulting agreement with a consultant for planning, coordinating and strategy implementation services for a term of 6 months. The Company agreed to grant the consultant $10,000 worth of shares of the Company’s common stock per month. During the years ended December 31, 2016, 83,386 shares vested, based on the stock prices as of the end of each month commencing February 2016 and concluding September 2016. During the year ended December 31, 2016, the Company amortized $60,000 as consulting expense.
On November 15, 2016, the Company entered into a consulting and strategy service agreement with a consultant for marketing and general consulting services effective on November 14, 2016. The Company agreed to grant 100,000 shares of the Company’s common stock to the consultant for 12 months of services starting on November 14, 2016. Twenty-five percent (25%) of those shares vested on December 15, 2016, 25% on February 15, 2017, 25% on May 15, 2017 and the remaining 25% vest on August 15, 2017. The fair value of the 100,000 shares was $294,000, which was calculated based on the stock price of $2.94 per share on November 15, 2016 and will be amortized over the service term. During the years ended December 31, 2016, the Company amortized $37,858 as consulting expenses.
On November 15, 2016, the Company entered into a consulting agreement with a consultant for business development and financial advisory service for a term of 12 months. The Company agreed to grant the consultant 100,000 shares of the Company’s common stock. The fair value of the 100,000 shares was $294,000, which was calculated based on the stock price of $2.94 per share on November 15, 2016 and will amortized over the service term. During the year ended December 31, 2016, the Company amortized $36,750 as consulting expense.
On November 15, 2016, the Company entered into a consulting agreement with a consultant for business advisory service for a term of 12 months. The Company agreed to compensate the consultant a one-time amount of $20,000 worth of shares of the Company’s common stock based on the price per share on November 15, 2016. The Company also granted the consultant $15,000 worth of shares of the Company’s common stock per month starting from December 1, 2016 for 12 months. During the year ended December 31, 2016, the Company amortized $17,500 as consulting expense.
Shares and Warrants issued through Private Placement
Private Placement on April 14, 2014
On April 14, 2014, the Company entered into a Securities Purchase Agreement with certain purchasers (the “Buyers”) pursuant to which the Company sold to the Buyers, in a registered direct offering, an aggregate of 1,320,059 shares of common stock, par value $0.001 per share, at a negotiated purchase price of $6.78 per share, for aggregate gross proceeds to the Company of $8.95 million,
before deducting fees to the placement agent of $716,000 and other estimated offering expenses of $20,000 payable by the Company
.
As part of the transaction, the Buyers also received (i) Series A warrants to purchase up to 660,030 shares of common stock in the aggregate at an exercise price of $8.48 per share (the “Series A Warrants”); (ii) Series B warrants to purchase up to 633,628 shares of common stock in the aggregate at an exercise price of $6.82 per share (the “Series B Warrants”); and (iii) Series C warrants to purchase up to 310,478 shares of common stock in the aggregate at an exercise price of $8.53 per share (the “Series C Warrants” and together with the Series A Warrants and the Series B Warrants, the “Warrants”). According to FASB ASC 815-40-15, these Warrants will be classified as a liability on the balance sheet, initially recorded at fair value with changes in fair value recorded in earnings at each reporting period as they had a settlement provision for adjusting the strike price if new equity is issued at a later date at a price below the strike price.
The Series A Warrants had a term of four years and are exercisable by the holders at any time after the date of issuance. The Series B Warrants had a term of six months and are exercisable by the holders at any time after the date of issuance. All of the Series B Warrants expired on October 14, 2014 and none of the Series B warrants have been exercised. The Series C Warrants have a term of four years and are exercisable by the holders at any time after the date of issuance. After the six month anniversary of the issuance date of the Series C Warrants, to the extent that a holder of Series C Warrant exercised less than 70% of such holder’s Series B Warrants and the closing sale price of the common stock was equal to or greater than $9.81 for a period of ten consecutive trading days, and the Company could purchase the entire then-remaining portion of such holder’s Series C Warrants for $1,000. On October 14, 2014, the Company’s closing sale price of the common stock was not equal to or greater than $9.81 for a period of ten consecutive trading days, accordingly, the Company cannot purchase the entire then-remaining portion of such holder’s Series C Warrants for $1,000.
In addition, at the closing, the Company granted the placement agent or its designees warrants to purchase that number of shares of common stock of the Company equal to seven percent (7%) of the aggregate number of shares placed in the placement (the “Placement Agent Warrants”). The Placement Agent Warrants had the same terms, including exercise price, anti-dilution and registration rights, as the warrants issued to the investors in the placement. At the closing, the placement agent and its designees received Placement Agent Warrants to purchase up to 92,404 shares of common stock.
The Company recorded $0 and $767,096 as expense from change in fair value and extinguishment of the warrant liability for the years ended December 31, 2015 and 2016, respectively.
In connection with a Securities Purchase Agreement entered into on May 28, 2015, the Company issued 660,030 shares of common stock to the holders of the Company’s Series A Warrants in exchange for the termination and surrender of such warrants, 310,478 shares of the Company’s common stock was issued to the holders of the Company’s Series C Warrants in exchange for the surrender and termination of such warrants, and 92,404 shares of the Company’s common stock were issued to the placement agent of the Company’s Placement Agent Warrants in exchange for the surrender and termination of such warrants. As of December 31, 2016, there were no warrants from the April 14, 2014 private placement outstanding.
Private Placement on May 28, 2015
On May 28, 2015, the Company entered into a Securities Purchase Agreement with certain purchasers (the “Purchasers”) pursuant to which the Company offered to the Purchasers, in a registered direct offering, an aggregate of 2,970,509 shares of common stock, par value $0.001 per share. Of these, 2,000,001 shares were sold to the Purchasers at a negotiated purchase price of $2.00 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 entered on April 14, 2014, the outstanding 2014 Series A Warrants were exchanged for 660,030 shares of common stock, and the outstanding 2014 Series C Warrants were exchanged for 310,478 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 $2.71 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 Issued to Independent Directors
In July 2014, the Company entered into restricted stock award agreements under the 2014 Omnibus Long-Term Incentive Plan with four independent directors of the Board. The Company agreed to grant 5,000 shares of the Company’s common stock to one independent director and 4,000 shares to each of its other three independent directors, in each case with a grant date of July 9, 2014. The restricted period lapsed as to 25% of the restricted stock on each of the three-month, six-month, nine-month and twelve-month anniversaries of the grant date. The fair value of these shares was $75,990, which was calculated based on the stock price of $4.47 per share on July 9, 2014. During the years ended December 31, 2016 and 2015, the Company amortized $0 and $33,566 as directors’ stock compensation expenses, respectively.
In March 2015, the Company entered into restricted stock award agreements under the 2014 Omnibus Long-Term Incentive Plan with three independent directors of the Board. The Company agreed to grant 12,195 shares of the Company’s common stock to each of these independent directors with a grant date of March 24, 2015. The restricted period lapses as to 25% of the restricted stock on September 30, 2015, December 31, 2015, March 31, 2016 and September 30, 2016, subject to the director remaining in the continuous service of the Company or its affiliates on each applicable vesting date. The fair value of these shares was $119,999, which was calculated based on the stock price of $3.28 per share on March 24, 2015. During the years ended December 31, 2016 and 2015, the Company amortized $26,959 and $93,040 as directors’ stock compensation expenses, respectively.
In May 2015, the Company entered into a restricted stock award agreement under the 2014 Omnibus Long-Term Incentive Plan with a new independent director. The Company agreed to grant 12,195 shares of the Company’s common stock to the new independent director with a grant date of May 19, 2015. The restricted period lapses as to 25% of the restricted stock on September 30, 2015, December 31, 2015, March 31, 2016 and September 30, 2016, subject to the director remaining in the continuous service of the Company or its affiliates on each applicable vesting date. The fair value of these shares was $38,292, which was calculated based on the stock price of $3.14 per share on May 19, 2015. During the years ended December 31, 2016 and 2015, the Company amortized $14,477 and $23,815 as directors’ stock compensation expenses, respectively.
On August 9, 2016, the Board approved a restricted stock award agreement under the 2014 Omnibus Long-Term Incentive Plan with four independent directors. The Company agreed to grant $40,000 worth of stocks to each of its four independent directors. The restricted period lapses as of 25% of the restricted stock granted and vested on September 30, 2016 based on the closing price of common stock on Nasdaq as of August 9, 2016, 25% of the restricted stock granted and vested on December 31, 2016 based on the closing price of common stock on Nasdaq as of September 30, 2016, 25% of the restricted stock granted and vested on March 31, 2017 based on the closing price of common stock on Nasdaq as of December 31, 2016, and 25% of the restricted stock granted and vested on June 30, 2016 based on the closing price of common stock on Nasdaq as of March 31, 2017. During the year ended December 31, 2016, the Company amortized $63,562 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 240,000 shares of the Company’s common stock. Twenty five percent (25%) of those shares vested or will vest 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 $0.54 per share on May 18, 2016, the date the agreement was executed, and will be amortized over the service term. During the year ended December 31, 2016, the Company amortized $121,433 as stock compensation expenses, respectively.
On May 20, 2016, the Company entered into restricted stock award agreements under the 2014 Omnibus Long-Term Incentive Plan with the Company’s non-director employees for their hard work and dedication over the past years. The Company’s agreed to grant an aggregate 600,000 shares of the Company’s common stock to the Company’s employees on May 20, 2016. The shares were fully vested as of the grant date. The fair value of these shares was $366,000, which was calculated based on the stock price of $0.61 per share on May 20, 2016. During the year ended December 31, 2016, the Company recorded $366,000 as stock compensation expenses, respectively.
On November 14, 2016, the Company entered into an employment agreement with an executive for one year. The Company agreed to grant an award of 30,000 restricted Stock Units to Executive pursuant to the Company’s 2014 Omnibus Long-Term Incentive Plan. The fair value of these shares was $92,100, which was calculated based on the stock price of $3.07 per share on November 11, 2016, the date the awards were determined by the Compensation Committee of the Board. Twenty-five percent (25%) of those shares vested on December 30, 2016, 25% on March 31, 2017, 25% on June 30, 2017 and the remaining 25% vest on September 30, 2017. During the year ended December 31, 2016, the Company amortized $12,112 as stock compensation.
On November 15, 2016, the Company entered into an agreement with a designer for furniture design services effective on November 15, 2016 for 1 year. The Company agreed to grant the designer 100,000 shares of the Company’s common stock. The fair value of the 100,000 shares was $294,000, which was calculated based on the stock price of $2.94 per share on November 15, 2016 and will be amortized over the service term. Twenty-five percent (25%) of those shares vested on February 15, 2017, 25% on May 15, 2017, 25% on August 15, 2017 and the remaining 25% vest on November 15, 2017. During the year ended December 31, 2016, the Company amortized $36,750 as stock compensation.
Note 15 - 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 PRC laws and regulations described below that require such annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as a general statutory reserve fund, Nova Macao is restricted in its ability to transfer a portion of its net assets to the Company as a dividend.
Surplus Reserve Fund
Prior to the Company’s divestment of Nova Dongguan and Ding Nuo were required to transfer 10% of net income, as determined under PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of the subsidiary’s registered capital. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issuance is not less than 25% of the registered capital.
At December 31, 2016 and 2015, 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 16 - Geographical Sales
Geographical distribution of sales consisted of the following for the years ended December 31, 2016 and 2015:
Geographical Areas
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
58,203,291
|
|
|
$
|
75,447,905
|
|
Europe
|
|
|
12,488,328
|
|
|
|
10,579,444
|
|
China*
|
|
|
10,002,059
|
|
|
|
-
|
|
Australia
|
|
|
4,871,892
|
|
|
|
535,145
|
|
Asia**
|
|
|
4,349,661
|
|
|
|
2,676,669
|
|
Hong Kong
|
|
|
2,499,418
|
|
|
|
384,832
|
|
Other countries
|
|
|
233,546
|
|
|
|
319,420
|
|
|
|
$
|
92,648,195
|
|
|
$
|
89,943,415
|
|
* excluding Hong Kong
** excluding China and Hong Kong
|
|
Note 17 - Commitments and Contingencies
Lease Commitments
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. The monthly rental payment is $42,000 with an annual 3% increase. The rent is recorded on a straight-line basis over the term of the lease.
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 expiring 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. The Company renewed the contract for another one-year term on November 30, 2014. On October 1, 2015, the Company extended the contract for a one-year term with expiration on October 31, 2016. On November 1, 2016, the Company extended the contract for one-year term with expiration on October 31, 2017. The sublease income was recorded against the rental expense. During the years ended December 31, 2016 and 2015, the Company recorded $73,902 and $75,301 sublease income, respectively.
On September 19, 2013, Bright Swallow entered into a lease agreement for office space in Hong Kong with a two year term, commencing on October 1, 2013 and expiring on September 30, 2015. On September 15, 2015, Bright Swallow renewed the lease for another two year term, commencing on October 1, 2015 and expiring on September 30, 2017. The monthly rental payment is 20,000 Hong Kong Dollars ($2,578).
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 expense from continuing operations for the years ended December 31, 2016 and 2015 was $675,717 and $670,347, respectively. The rental expense is recorded on a straight-line basis over the term of the lease.
The total minimum future lease payments are as follows:
12 Months Ended December 31,
|
|
Amount
|
|
2017
|
|
$
|
576,713
|
|
2018
|
|
|
472,714
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
1,049,427
|
|
Employment Agreements
On May 3, 2013, the Company entered into an amended and restated employment agreement with Thanh H. Lam to serve as the Company’s president for a five-year term. The agreement provides for an annual salary of $80,000, a grant of 200,000 shares of the Company’s common stock and an annual bonus at the sole discretion of the Board. The 200,000 shares to be issued to Ms. Lam are subject to the terms of a stock award agreement. The first 50,000 shares of common stock were vested immediately, and the remaining shares vest at 50,000 shares per year for three years on each anniversary of the effective date of the stock award agreement. The fair value of the shares was based on the stock price of $3.82 per share on May 3, 2013. During the years ended December 31, 2016 and 2015, the Company recorded $64,626 and $191,000, as stock-based compensation to Ms. Lam, respectively.
On November 10, 2014, the Company’s Board of Directors ratified the 2015 annual compensation of the Company’s Chief Executive Officer, Chief Financial Officer and President as approved by the Company’s Compensation Committee, and, upon the recommendation of the Company’s Compensation Committee, approved the grant of Restricted Stock Units to the Company’s CEO, CFO and President. The cash compensation for such officers remained the same as in 2014 ($100,000 for CEO, $80,000 for CFO and $80,000 for the President). In addition, each of them received a grant of 46,403 Restricted Stock Units (“RSU”). The fair value of the 46,403 shares of RSU was $200,000, which was calculated based on the stock price of $4.31 per share on October 27, 2014, the date the awards were determined by the Compensation Committee. The RSU grants vested 25% on March 30, 2015, 25% on June 30, 2015, 25% on September 30, 2015 and 25% on December 31, 2015. During the nine months ended September 30, 2016 and 2015, the Company recorded $0 and $450,000, respectively, as stock-based compensation to the officers. During years ended December 31, 2016 and 2015, the Company recorded $0 and $600,000 as stock-based compensation to the officers, respectively.
On March 21, 2016, the Company granted Restricted Stock Units to the Company’s CEO, CFO and President. Each of them will receive a grant of 100,000 Restricted Stock Units (“RSU”). The fair value of the 300,000 shares of RSU was $360,000, which was calculated based on the stock price of $1.20 per share on March 21, 2016. The RSU grants vested 25% on March 30, 2016 and 25% on September 30, 2016; the remaining RSU grants will vest according to the following schedule: 25% on September 30, 2016 and 25% on December 31, 2016. During the years ended December 31, 2016, the Company recorded $360,000 as stock-based compensation to the officers.
On March 25, 2016, the Company entered into one-year employment agreements, effective as of November 11, 2015, with Mr. Ya Ming (Jeffrey) Wong and Mr. Yuen Ching (Sammy) Ho to serve as the Company’s CEO and CFO, respectively. These agreements are in substantially the same form as the previous one-year employment agreements entered into on March 25, 2015 (which expired by their terms), and provide for annual salaries of $100,000 for Mr. Wong and $80,000 for Mr. Ho, and annual bonuses at the sole discretion of the Board of Directors. The employment agreements also reflect the RSU grants described in the immediately preceding paragraph. On October 3, 2016, Mr. Wong resigned his position as CEO, terminated his employment agreement, and forfeited 25,000 RSUs granted to him under such agreement.
Note 18 - Subsequent Events
The Company has evaluated all events through the issuance of the consolidated financial statements and no subsequent event is identified.
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: April 14, 2017
|
By:
|
/s/ Thanh H. Lam
|
|
|
|
Thanh H. Lam
Chairperson and Chief Executive Officer
(Principal Executive Officer)
|
|
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thanh H. Lam and Yuen Ching Ho, 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
|
|
April 14, 2017
|
Thanh H. Lam
|
|
(Principal Executive Officer)
|
|
|
/s/ Yuen Ching Ho
|
|
Chief Financial Officer and Director
|
|
April 14, 2017
|
Yuen Ching Ho
|
|
(Principal Financial and Accounting Officer)
|
|
|
|
|
|
|
|
/s/ Bin Liu
|
|
Director
|
|
April 14, 2017
|
Bin Liu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Umesh Patel
|
|
Director
|
|
April 14, 2017
|
Umesh Patel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Huy P. La
|
|
Director
|
|
April 14, 2017
|
Huy P. La
|
|
|
|
|
|
|
|
|
|
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)
|
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)
|
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)
|
4.14
|
|
Form of Series A Warrant (Incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on April 14, 2014)
|
4.15
|
|
Form of Series B Warrant (Incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on April 14, 2014)
|
4.16
|
|
Form of Series C Warrant (Incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on April 14, 2014)
|
10.1
|
|
Option to Purchase Agreement, dated September 30, 2009 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-163019) filed on November 10, 2009)
|
10.2
|
|
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)
|
10.3
|
|
Intellectual Property Rights Transfer Agreement by and between Nova Furniture (Dongguan) Co., Ltd. and Ya Ming Wong, dated January 7, 2011 (Incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)
|
10.4
|
|
Form of Product Franchise Agreement (Incorporated herein by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)
|
10.5
|
|
Promissory Note, dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on June 30, 2011)
|
10.6
|
|
Lock-Up Agreement between Ya Ming Wong and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.9 to the First Amendment to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 10, 2011)
|
10.7
|
|
Lock-Up Agreement between Yuen Ching Ho and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.10 to the First Amendment to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 10, 2011)
|
10.8
|
|
Lock-Up Agreement between Jun Jiang and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.11 to the First Amendment to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 10, 2011)
|
10.9
|
|
Lock-Up Agreement between Qiang Liu and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.12 to the First Amendment to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on August 10, 2011)
|
10.10
|
|
Stock Purchase Agreement between Nova LifeStyle, Inc. and Jun Zhang, dated August 31, 2011 (Incorporated herein by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on September 6, 2011)
|
10.11
|
|
Trademark Purchase and Assignment Agreement by and between St. Joyal and Nova LifeStyle, Inc., dated August 31, 2011 (Incorporated herein by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on September 6, 2011)
|
10.12
|
|
First Amendment to Intellectual Property Rights Transfer Agreement by and between Nova Furniture (Dongguan) Co., Ltd. and Ya Ming Wong, dated September 21, 2011 (Incorporated herein by reference to Exhibit 10.16 to the Company’s Registration Statement on Form S-1 (File No. 333-177353) filed on October 17, 2011)
|
10.13
|
|
Stock Acquisition Agreement by and between Nova LifeStyle, Inc. and Bright Swallow International Group Limited, dated March 22, 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 March 26, 2013)
|
10.14
|
|
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)
|
10.15#
|
|
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)
|
10.16#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Ya Ming Wong, dated November 7, 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 November 12, 2013)
|
10.17#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Yuen Ching Ho, dated November 7, 2013 (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on November 12, 2013)
|
10.18
|
|
First Amendment to Lock-Up Agreement between Ya Ming Wong and Nova LifeStyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.19
|
|
First Amendment to Lock-Up Agreement between Yuen Ching Ho and Nova LifeStyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.20
|
|
First Amendment to Lock-Up Agreement between Jun Jiang and Nova LifeStyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.21
|
|
First Amendment to Lock-Up Agreement between Qiang Liu and Nova LifeStyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.22
|
|
Lock-Up Agreement between Ah Wan Wong and Nova LifeStyle, Inc., dated June 30, 2011 (Incorporated herein by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.23
|
|
Lock-Up Agreement between Man Shek Ng and Nova LifeStyle, Inc., dated August 18, 2011 (Incorporated herein by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.24
|
|
First Amendment to Lock-Up Agreement between Ah Wan Wong and Nova Lifestyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.25
|
|
First Amendment to Lock-Up Agreement between Man Shek Ng and Nova Lifestyle, Inc., dated March 25, 2014 (Incorporated herein by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K (File No. 333-163019) filed on March 31, 2014)
|
10.26
|
|
Stock Award Agreement between Tanh 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)
|
10.27
|
|
Securities Purchase Agreement by and among Nova LifeStyle, Inc. and each of the investors listed on the Schedule of Buyers attached thereto, dated April 14, 2014 (Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on April 14, 2014)
|
10.28
|
|
Placement Agent Agreement by and between Nova LifeStyle, Inc. and FT Global Capital, Inc., dated March 31, 2014 (Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 333-163019) filed on April 14, 2014)
|
10.29#
|
|
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)
|
10.30#
|
|
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)
|
10.31#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Ya Ming Wong, dated March 25, 2015 and effective as of November 10, 2014 (Incorporated herein by reference to Exhibit 10.31 to the Company’s annual report on Form 10-K filed on March 26, 2015)
|
10.32#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Yuen Ching Ho, dated March 25, 2015 and effective as of November 10, 2014 (Incorporated herein by reference to Exhibit 10.32 to the Company’s annual report on Form 10-K filed on March 26, 2015)
|
10.33#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Ya Ming Wong, dated March 25, 2016 and effective as of November 11, 2015
|
10.34#
|
|
Employment Agreement between Nova LifeStyle, Inc. and Yuen Ching Ho, dated March 25, 2016 and effective as of November 11, 2015
|
10.35†
|
|
|
10.36†
|
|
|
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)
|
21.1†
|
|
|
23.1†
|
|
|
24.1†
|
|
|
31.1†
|
|
|
31.2†
|
|
|
32.1‡
|
|
|
101.INS†
|
|
XBRL Instance Document
|
101.SCH†
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL†
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF†
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB†
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE†
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
# Indicates management contract or compensatory plan, contract or arrangement.
† Filed herewith.
‡ Furnished herewith.