COMMERCE, Calif. - Nova LifeStyle, Inc. (OTCBB: STVS) (website: www.novaLifeStyle.com), an emerging leader in the U.S. and worldwide in self designed and manufactured urban contemporary furniture which is sold under NOVA brand names, today reported results for its first quarter ended March 31, 2012.

Sales in the first quarter rose 95% year over year on a 44% increase in volume to $11.0 million, up from $5.6 million a year earlier. These increases reflect, in particular, successful implementation of plans to aggressively grow indirect sales of Nova branded furniture lines in the U.S. following last year's acquisition of Diamond Sofa (www.diamondsofa.com). The Company also plans to substantially increase direct sales in China, where as of the end of the first quarter the Company had established 59 franchise stores under its Colorful World brand out of a planned network of 200 franchises throughout China by year end.

Net Income and Per Share Results

At the same time, the Company reported net income in the first quarter declined slightly to $0.98 million, or $0.05 per share, on 18.7 million diluted average shares outstanding. This compared with $1.01 million, or $0.10 per share, on 9.7 million diluted average shares outstanding in the first quarter last year. The increase in the number of diluted average shares outstanding is primarily a consequence of two successful private placements completed in late 2011 and early 2012 which netted the Company a combined $5.61 million for future growth. If per share results in 2011 were calculated on the same number of shares in 2012, EPS in the 2011 first quarter would be approximately $0.05 per share.

Increased Sales Have Led to Increased Third Party Manufacturing

A key reason for the slight decline in net income was a decline in gross margins in the quarter to 27% compared with a year earlier 32%. This was due primarily to the need generated by rapid sales growth to purchase an increased amount of product from third party manufacturers which produced lower margins than sales of Nova's higher margin self-manufactured products. The cost of sales for self-manufactured products at the Company's recently built, highly efficient factory in Dongguan, China, declined 44 % in the first quarter this year to $1.2 million. In the same period, the cost of sales for products purchased from third parties rose nearly 300% to $6.79 million. The net result was an increase in the overall cost of sales ratio in the quarter to 73% compared with 68% in the same period of 2011.

The year over year decline in net margin from 18% to 9% in the first quarter of 2012 also was affected, in particular, by higher SG&A costs. Selling and marketing expense increased, as anticipated, in connection with the rapid sales growth in the U.S. and China. Additional cost increases stemmed from compliance costs related to becoming a U.S. public company, costs related to the successful financing in January, and acquisition costs relating to the acquisition of Diamond Sofa.

Transition to Successful Global Branded Furniture Company Continued

Commenting on these results, Tawny Lam, president of Nova LifeStyle, stated, "In the 2012 first quarter, we added another exciting chapter to the Nova growth story. Our key goal is to build shareholder value, which will come mainly from continued rapid growth. Our key strategy for achieving this is aggressive expansion of our branded sales, which was a key achievement in the quarter. Our U.S. sales grew more than 300% year over year to $5.2 million, almost half of total sales in the quarter, up from about $1.3 million a year earlier. Our acquisition of Diamond Sofa in the U.S. has thus far proved very successful, as we increasingly are recognized by buyers and owners at the top 100 furniture stores throughout the country for our exciting, high quality line of urban contemporary furniture. Our coordinated collections clearly strike a chord with customers looking to enhance their hectic lifestyles, as the country slowly emerges from difficult economic times."

Ms. Lam continued, "In China, we also have seen a strong growth opportunity with the rise of a new middle class, and our sales there were second only to the U.S. in the quarter. In line with our strategy, the most important development in China for us was the continued expansion of our franchises which, in the quarter, accounted for 26% of all our sales in China. Our ongoing shift from sales to private label retailers to direct branded sales -- through our franchises and the planned second quarter startup of Internet sales -- provides us with much greater pricing flexibility that enhances our profit outlook."

"Of course," Ms. Lam added, "we are focused on bottom line growth as well as growth in sales. Our goal is to improve gross margins to about the 30% level by sticking to our strategy of broadening our product mix to include higher margin items in our direct sales and to pass on costs that seem to continue to climb in the U.S. and China especially."

Capacity Expansion Underway

During the quarter, the Company continued to focus on expanding its production capacity with ongoing construction of its more than $6 million Phase II factory expansion that it expects will add 20% to existing capacity by year end and reduce its reliance on third party manufacturers. The Company said it is studying other capacity expansion plans but it is too soon to disclose details.

Strong Growth Outlook

The Company's growth strategy is focused on maintaining strong relationships and a continuing presence in the European economy, while accelerating efforts to grow sales in the U.S. and China. In these countries, consumer spending on refurbishing their homes appears to be growing, and with it, so is demand for the Company's well priced, high quality furniture designed for urban contemporary living.

Ms. Lam added, "In this early stage of executing our growth strategy, we believe our near term optimism is well grounded, barring any dramatic economic reversals, although we believe we are diversified enough to withstand possible setbacks in any one geographical location. We also believe we are in a strong financial position that supports our future growth plans."

"Longer term," Ms. Lam concluded, "we also see significant opportunity, particularly from the anticipated consolidation in the furniture industry worldwide, and remain alert to opportunities that may be appropriate for us."

 

NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011
March 31, December 31,
2012 2011
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 1,864,010 $ 2,505,179
Accounts receivable 19,972,873 18,974,612
Accounts receivable - related party -- 28,289
Due from factor -- 203,351
Advance to suppliers 255,982 349,767
Inventories 1,762,186 1,848,081
Prepaid expenses and other receivable 191,157 113,853
Deferred tax asset 157,101 156,974
Total Current Assets 24,203,309 24,180,106
Noncurrent Assets
Heritage and cultural assets 128,822 128,687
Plant, property and equipment, net 8,496,251 8,721,186
Construction in progress 757,907 91,466
Construction deposit -- 634,830
Goodwill 218,606 218,606
Intangible assets, net 1,253,880 724,465
Deferred tax asset 187,925 118,144
Total Noncurrent Assets 11,043,391 10,637,384
Total Assets $ 35,246,700 $ 34,817,490
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011
March 31, December 31,
2012 2011
(Unaudited)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 3,636,742 $ 6,758,058
Advance from customers 119,032 91,021
Accrued liabilities and other payables 1,162,609 834,128
Taxes payable 326,898 198,984
Total Current Liabilities 5,245,281 7,882,191
Noncurrent Liabilities
Deferred rent payable 62,409 58,949
Deferred tax liability, net 69,788 --
Income tax payable 4,121,182 4,016,266
Total Noncurrent Liabilities 4,253,379 4,075,215
Total Liabilities 9,498,660 11,957,406
Contingencies and Commitments
Stockholders' Equity
Common stock, $0.001 par value; 75,000,000 shares authorized, 18,486,567 and 17,898,267 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively 18,487 17,898
Additional paid-in capital 18,970,395 17,074,535
Subscription receivable (1,950,000 ) (1,950,000 )
Statutory reserves 6,241 6,241
Accumulated other comprehensive income 2,151,819 2,138,974
Retained earnings 6,551,098 5,572,436
Total Stockholders' Equity 25,748,040 22,860,084
Total Liabilities and Stockholders' Equity $ 35,246,700 $ 34,817,490
NOVA LIFESTYLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31,
2012 2011
(Unaudited)
Net Sales
(Including sales to related parties of $0 and $364,402 during the three months ended March 31, 2012 and 2011, respectively) $ 10,999,254 $ 5,632,790
Cost of Sales 7,988,979 3,843,629
Gross Profit 3,010,275 1,789,161
Operating Expenses
Selling expenses 689,907 220,476
General and administrative expenses 1,051,215 326,553
Loss on disposal of plant, property and equipment 123,775 --
Total Operating Expenses 1,864,897 547,029
Income From Operations 1,145,378 1,242,132
Other Income (Expenses)
Non-operating income 2,299 4,962
Foreign exchange transaction gain (loss) 8,312 (23,198 )
Financial expense (10,812 ) (9,389 )
Total Other Expenses, Net (201 ) (27,625 )
Income Before Income Tax 1,145,177 1,214,507
Income Tax Expense 166,515 208,965
Net Income 978,662 1,005,542
Other Comprehensive Income
Foreign currency translation 12,845 104,388
Comprehensive Income $ 991,507 $ 1,109,930
Basic weighted average shares outstanding 18,377,031 9,685,000
Diluted weighted average shares outstanding 18,691,250 9,685,000
Basic net earnings per share $ 0.05 $ 0.10
Diluted net earnings per share $ 0.05 $ 0.10

Source: Nova LifeStyle

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