Nova Lifestyle, Inc.

Previous wording

The following discussion and analysis are based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). All references to the first quarter and first three months of 2025 and 2024 mean the three-month periods ended March 31, 2025 and 2024. In addition to historical information, the following discussion and other parts of this report contain certain forward-looking information. When used in this discussion, the words, “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of risks, uncertainties and factors beyond our control. We do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding the various factors that affect the company’s business, which are described in this section and elsewhere in this report. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2024 Form 10-K.

Current wording

The following discussion and analysis are based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Form 10-K”). All references to the second quarter and first six months of 2025 and 2024 mean the three and six-month periods ended June 30, 2025 and 2024. In addition to historical information, the following discussion and other parts of this report contain certain forward-looking information. When used in this discussion, the words, “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of risks, uncertainties and factors beyond our control. We do not undertake to publicly update or revise any of these forward-looking statements, even if experience or future changes show that the indicated results or events will not be realized. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Readers also are urged to carefully review and consider our discussions regarding the various factors that affect the company’s business, which are described in this section and elsewhere in this report. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2024 Form 10-K.

Previous wording

We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. In July 2021, we completed a registered direct offering of our shares of common stock and received offering gross proceeds of $3,120,622. In May 2024, August 2024 and October 2024, we completed three private placements for gross proceeds of $750,000. During the first quarter of 2025, the Company completed three private placements for gross proceeds of $500,000. The Company also repaid $217,000 debt with its shares of common stock during the first quarter of 2025. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months. However, in the event that we do need to raise capital in the future, the instability in the securities markets could adversely affect our ability to raise additional capital.

Current wording

We do not have access to a revolving credit facility. On May 4, 2020, the Company received loan proceeds in the amount of approximately $139,802 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. On May 5, 2020, Diamond Bar Outdoors Inc. (“Diamond Bar”) was granted a loan from Cathay Bank in the aggregate amount of $176,294, pursuant to the Paycheck Protection Program. On June 19, 2020, Diamond Bar was granted a U.S. Small Business Administration (SBA) loan in the aggregate amount of $150,000, pursuant to the Economic Injury Disaster Loan. In July 2021, we completed a registered direct offering of our shares of common stock and received offering gross proceeds of $3,120,622. In May 2024, August 2024 and October 2024, we completed three private placements for gross proceeds of $750,000. During the first six months of 2025, the Company completed three private placements for gross proceeds of $500,000. The Company also repaid $217,000 debt with its shares of common stock during the first quarter of 2025. We currently believe that our financial resources will be adequate to finance our operations in the next 12 months. However, in the event that we do need to raise capital in the future, the instability in the securities markets could adversely affect our ability to raise additional capital.

Previous wording

Since 2019, we have moved away from low margin products and this move was intended to improve our gross profit margin, receivable collections and net profitability, and to increase our return on long-term equity. We terminated sales and marketing efforts to customers that represented a high purchase volume but low profit margin, and we adjusted our product line, which included the launch of our Summer 2023 Collection in the Las Vegas and High Point Markets, with a view to attracting a higher-end ultimate customer. The core focus of the Company’s direction today is entirely centered on our products. Identifying a fashion-driven generational shift in the general perception and consumption of furniture and being more aware of actual consumer tastes and how best to fulfill and engage that need. Closely integrating product development alongside marketing results in appealing products that adheres to the scope of our target demographic of decision makers in the design, staging and retail fields. A process that is continually refined upon each release cycle, maintaining a singular, cohesive vision. In short, we have better identified our customers and how to cater to them – in the process gaining greater traction with every product launch considerably more so on an international level than ever previous. We believe these new strategies, will provide us with significant long term growth opportunities. Significant factors that we believe could affect our operating results are the (i) prices of our products to our domestic and international retailer and wholesaler customers and their markups to end consumers; (ii) general economic conditions in the U.S., Chinese, and other international markets; and (iii) trade war and tariffs imposed by the United States on products manufactured in China and other Asian countries where we purchase our products; and (iv) high interest rate, inflation and slow- down in real estate market. We believe most of our customers are willing to pay for our high quality and stylish products, timely delivery, and strong production capacity at price levels which we expect will allow us to maintain a relatively high gross profit margin for our products. We do not manufacture our products, but instead we utilize third-party manufacturers. In response to the tariffs imposed by the United States on products manufactured in China, we are in the process of shifting a portion of our product manufacturing from third-party manufacturers located in China to third-party manufacturers located in other parts of Asia, such as Vietnam, India and/or Malaysia, countries with lower tariffs. Implementation of a relocation of manufacturing (which by necessity includes an assessment of the factory’s ability to deliver the quantity of the product, in accordance with the Company’s specifications, and in accordance with the Company’s quality control requirements) is time-consuming, but a portion of suppliers manufacturing our products has been transitioned to…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Since 2019, we have moved away from low margin products and this move was intended to improve our gross profit margin, receivable collections and net profitability, and to increase our return on long-term equity. We terminated sales and marketing efforts to customers that represented a high purchase volume but low profit margin, and we adjusted our product line, which included the launch of our Summer 2023 Collection in the Las Vegas and High Point Markets, with a view to attracting a higher-end ultimate customer. The core focus of the Company’s direction today is entirely centered on our products. Identifying a fashion-driven generational shift in the general perception and consumption of furniture and being more aware of actual consumer tastes and how best to fulfill and engage that need. Closely integrating product development alongside marketing results in appealing products that adheres to the scope of our target demographic of decision makers in the design, staging and retail fields. A process that is continually refined upon each release cycle, maintaining a singular, cohesive vision. In short, we have better identified our customers and how to cater to them – in the process gaining greater traction with every product launch considerably more so on an international level than ever previous. We believe these new strategies, will provide us with significant long term growth opportunities. Significant factors that we believe could affect our operating results are the (i) prices of our products to our domestic and international retailer and wholesaler customers and their markups to end consumers; (ii) general economic conditions in the U.S., Chinese, and other international markets; and (iii) trade war and tariffs imposed by the United States on products manufactured in China and other Asian countries where we purchase our products; and (iv) high interest rate, inflation and slow- down in real estate market. We believe most of our customers are willing to pay for our high quality and stylish products, timely delivery, and strong production capacity at price levels which we expect will allow us to maintain a relatively high gross profit margin for our products. We do not manufacture our products, but instead we utilize third-party manufacturers. In response to the tariffs imposed by the United States on products manufactured in China, we have been in the process of seeking and shifting a portion of our product manufacturing from third-party manufacturers located in China to third-party manufacturers located in other parts of Asia, such as Vietnam, India and/or Malaysia, countries with lower tariffs. However, due to the quality issue and recent increaseof tariff announced by President Trump on products from India and other southeastern Asian countries, we still purchase most of our products from China. Implementation of a relocation of manufacturing (which by necessity includes an assessment of the factory’s ability to deliver the quantity of th…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Our accounts receivable arises from product sales. We do not adjust receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We do not expect to collect receivables greater than one year from the time of sale. Our policy is to maintain an allowance for expected credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. We maintained an allowance for expected credit loss of $654 and $367 as of March 31, 2025 and December 31, 2024, respectively. During the three months ended March 31, 2025 and 2024, expected credit losses provision was $287 and $841, respectively. As of March 31, 2025, we had gross receivable of $65,430 of which $2,419 was over 90 days past due. The allowance for expected credit losses is our best estimate of the amount of expected credit losses in our existing trade accounts receivable. We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns.

Current wording

Our accounts receivable arises from product sales. We do not adjust receivables for the effects of a significant financing component at contract inception if we expect to collect the receivables in one year or less from the time of sale. We do not expect to collect receivables greater than one year from the time of sale. Our policy is to maintain an allowance for expected credit losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. We maintained an allowance for expected credit loss of $361 and $367 as of June 30, 2025 and December 31, 2024, respectively. During the six months ended June 30, 2025 and 2024, expected credit losses provision (reversal) was ($6) and ($83), respectively; $293 and ($924) for the three months ended June 30, 2025 and 2024, respectively. As of June 30, 2025, we had gross receivable of $36,115 of which $2,419 was over 90 days past due. The allowance for expected credit losses is our best estimate of the amount of expected credit losses in our existing trade accounts receivable. We determine the allowance based on historical bad debt experience, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns.

Previous wording

In its interim financial statements, the Company follows the guidance in ASC 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby the Company utilizes the expected annual effective rate in determining its income tax provision. The income tax expense for the three months ended March 31, 2025 is $686 which is mainly attributable to California state taxes. The income tax expense for the three months ended March 31, 2024 is $9,571 which is primarily related to forecasted annual income generated from foreign operation. Since the projected annual tax expense of $686 is not material to the financial statements, management has decided to pass on recording it for the three months ended March 31, 2025.

Current wording

In its interim financial statements, the Company follows the guidance in ASC 270 “Interim Reporting” and ASC 740 “Income Taxes” whereby the Company utilizes the expected annual effective rate in determining its income tax provision. The income tax (benefit) expense for the six months ended June 30, 2025 and 2024 are ($63,257) and $4,876, respectively; and ($997) and $4,876 for the three months ended June 30, 2025 and 2024, respectively, which are mainly attributable to California state taxes. The income tax expense for the three months ended June 30, 2024 is $9,571 which is primarily related to forecasted annual income generated from foreign operation. Since the projected annual tax expense of $1,116 is not material to the financial statements, management has decided to pass on recording it for the six months ended June 30, 2025.

Previous wording

Nova Lifestyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI and Nova Samoa was incorporated in Samoa. There is no income tax for companies domiciled in the BVI and Samoa. Accordingly, the Company’s condensed consolidated financial statements do not present any income tax provisions related to the BVI and Samoa tax jurisdictions where Nova Furniture BVI and Nova Samoa are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes at the statutory rate of 24%. Nova Living (HK) Group Limited (“Nova HK”) is incorporated in Hong Kong and is subject to Hong Kong income taxes at the statutory rate of 16.5%. In February 2023, Nova HK was deregistered.

Current wording

Nova Lifestyle, Inc. and Diamond Bar are subject to U.S. federal and state income taxes. Nova Furniture BVI was incorporated in the BVI and Nova Samoa was incorporated in Samoa. There is no income tax for companies domiciled in the BVI and Samoa. Accordingly, the Company’s unaudited condensed consolidated financial statements do not present any income tax provisions related to the BVI and Samoa tax jurisdictions where Nova Furniture BVI and Nova Samoa are domiciled. Nova Malaysia is incorporated in Malaysia and is subject to Malaysia income taxes at the statutory rate of 24%.

Previous wording

The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the three months ended December 31, 2025, the Company has calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.

Current wording

The Tax Cuts and Jobs Act of 2017 (the “Act”) created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the six months ended June 30, 2025, the Company has calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.

Previous wording

As of March 31, 2025 and December 31, 2024, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $22.2 million and $22.2 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, or GILTI. Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

Current wording

As of June 30, 2025 and December 31, 2024, the accumulated undistributed loss generated by its foreign subsidiaries were approximately $22.2 million and $22.2 million of which substantially all was previously subject to U.S. tax, the one-time transition tax on foreign unremitted earnings required by the Tax Act, or GILTI. Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.

Previous wording

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the three months ended March 31, 2025 and 2024, is as follows:

Current wording

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the six months ended June 30, 2025 and 2024, is as follows:

Previous wording

At March 31, 2025 and December 31, 2024, the Company had cumulatively accrued approximately nil and nil for estimated interest and penalties related to unrecognized tax benefits. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled nil and nil for the three months ended March 31, 2025 and 2024, respectively, related to the Company’s operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.

Current wording

At June 30, 2025 and December 31, 2024, the Company had cumulatively accrued approximately nil and nil for estimated interest and penalties related to unrecognized tax benefits. The Company recorded interest and penalties related to unrecognized tax benefits as a component of income tax benefit, which totaled nil and nil for the six and three months ended June 30, 2025 and 2024, respectively, related to the Company’s operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.

Previous wording

Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales increased by 5% to $1.43 million for the three months ended March 31, 2025, compared to $1.36 million for the same period of 2024. Cost of sales as a percentage of sales decreased to 54% for the three months ended March 31, 2025, compared to 57% for the same period of 2024. The increase in cost of sales in dollar term was mainly due to increased net sales. The decrease in cost of sales as a percentage of sales is a result of selling more products with higher profit margin.

Current wording

Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales decreased by 15% to $1.27 million for the three months ended June 30, 2025, compared to $1.49 million for the same period of 2024. Cost of sales as a percentage of sales decreased to 50% for the three months ended June 30, 2025, compared to 56% for the same period of 2024. The decrease in cost of sales in dollar term was mainly due to decreased net sales. The decrease in cost of sales as a percentage of sales is a result of selling more products with higher profit margin.

Previous wording

Gross profit was $1.20 million for the three months ended March 31, 2025, compared to $1.02 million for the same period of 2024, representing an increase in gross profit of $0.19 million. Our gross profit margin was 46% for the three months ended March 31, 2025, compared to 43% for the same period of 2024. The increase in gross profit and gross profit margin was mainly a result of selling more products with higher profit margin.

Current wording

Gross profit was $1.28 million for the three months ended June 30, 2025, compared to $1.19 million for the same period of 2024, representing an increase in gross profit of $0.09 million. Our gross profit margin was 50% for the three months ended June 30, 2025, compared to 44% for the same period of 2024. The increase in gross profit and gross profit margin was mainly a result of selling more products with higher profit margin.

Previous wording

As a result of the foregoing, our net loss was $0.34 million for the three months ended March 31, 2025, compared to $1.46 million of net loss for the same period of 2024.

Current wording

As a result of the foregoing, our net loss was $0.29 million for the three months ended June 30, 2025, compared to $0.56 million of net loss for the same period of 2024.

Previous wording

Net sales for the three months ended March 31, 2025 were $2.64 million, an increase of 11% from $2.38 million for the same period of 2024. This increase in net sales resulted primarily from 26% increase in average selling price, while partially offset by 12% decrease in sales volume. Our three largest selling product categories for the three months ended March 31, 2025 were sofas, chairs and beds, which accounted for approximately 55%, 10% and 9% of sales, respectively. For the three months ended March 31, 2024, the three largest selling categories were sofa, beds, and chairs, which accounted for approximately 53%, 12% and 8% of sales, respectively.

Current wording

Net sales for the six months ended June 30, 2025 were $5.19 million, an increase of 3% from $5.06 million for the same period of 2024. This increase in net sales resulted primarily from 32% increase in average selling price, while partially offset by 22% decrease in sales volume. Our three largest selling product categories for the six months ended June 30, 2025 were sofas, beds and coffee tables, which accounted for approximately 54%, 13% and 10% of sales, respectively. For the six months ended June 30, 2024, the three largest selling categories were sofas, beds and chairs, which accounted for approximately 51%, 12% and 8% of sales, respectively.

Previous wording

The $0.26 million increase in net sales for the three months ended March 31, 2025, compared to the same period of 2024, was mainly due to increased sales to North America. Sales to North America increased by 12% to $2.62 million for the three months ended March 31, 2025, compared to $2.33 million for the same period of 2024, such increase mainly due to increase our average selling price by 26% from the customers in North America. However, the increase in net sales in North America was partially offset by the decrease in sales to other countries. Sales to other countries decreased by $0.03 million to $0.02 million for the three months ended March 31, 2025, from $0.05 million for the same period of 2024, primary due to less sales order received from our customers in other countries.

Current wording

The $0.13 million increase in net sales for the six months ended June 30, 2025, compared to the same period of 2024, was mainly due to increased sales to North America. Sales to North America increased by 4% to $5.17 million for the six months ended June 30, 2025, compared to $4.96 million for the same period of 2024, such increase mainly due to increase our average selling price by 32% from the customers in North America. However, the increase in net sales in North America was partially offset by the decrease in sales to other countries. Sales to other countries decreased by $0.09 million to $0.02 million for the six months ended June 30, 2025, from $0.11 million for the same period of 2024, primary due to less sales order received from our customers in other countries.

Previous wording

Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $1.40 million for the three months ended March 31, 2025, compared to $2.50 million for the same period of 2024. Selling expenses decreased by 41%, or $0.23 million, to $0.33 million for the three months ended March 31, 2025, from $0.56 million for the same period of 2024, primarily due to decreased marketing and advertising expenses. Also, general and administrative expenses decreased by 10%, or $0.12 million, to $1.07 million for the three months ended March 31, 2025, from $1.19 million for the same period of 2024, primarily due to a decrease in stock compensation of $0.16 million and insurance of $0.04 million, while the decrease was partially offset by an increase in license fee of $0.05 million and consulting fee of $0.07 million. In addition, research and development decreased by 100%, or $0.75 million to $390 for the three months ended March 31, 2025, from $0.75 million for the same period of 2024, primary due to our spending less on our AI and IT system.

Current wording

Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $2.88 million for the six months ended June 30, 2025, compared to $4.20 million for the same period of 2024. Selling expenses decreased by 34%, or $0.33 million, to $0.64 million for the six months ended June 30, 2025, from $0.96 million for the same period of 2024, primarily due to decreased marketing and advertising expenses. Also, general and administrative expenses decreased by 10%, or $0.24 million, to $2.24 million for the six months ended June 30, 2025, from $2.48 million for the same period of 2024, primarily due to a decrease in stock compensation of $0.32 million and design fee of $0.06 million, while the decrease was partially offset by an increase in legal and professional fee of $0.09 million and consulting fee of $0.08 million. In addition, research and development decreased by 100%, or $0.75 million to $910 for the six months ended June 30, 2025, from $0.75 million for the same period of 2024, primary due to our spending less on our AI and IT system.

Previous wording

Other expenses, net was $207,771 for the three months ended March 31, 2025, compared to other income, net of $25,635 for the same period of 2024, representing an increase in other expenses of $233,406. The increase in other expenses was due primarily to an increase in loss on impairment of goodwill by $218,606 to $218,606 for the three months ended March 31, 2025, from loss on impairment of goodwill of nil for the same period of 2024. The increase in loss on impairment of goodwill in 2025 was mainly a result of wrote off our entire goodwill of $218,606 because our inability to generate future operating income without substantial sales volume increase.

Current wording

Other expenses, net was $302,181 for the six months ended June 30, 2025, compared to other income, net of $35,314 for the same period of 2024, representing an increase in other expenses of $266,867. The increase in other expenses was due primarily to an increase in loss on impairment of goodwill by $218,606 to $218,606 for the six months ended June 30, 2025, from loss on impairment of goodwill of nil for the same period of 2024. The increase in loss on impairment of goodwill in 2025 was mainly a result of wrote off our entire goodwill of $218,606 due to our inability to generate future operating income without substantial sales volume increase.

Previous wording

Income tax benefit was $62,260 and $0 for the three months ended March 31, 2025 and 2024, respectively. The income tax benefit for the three months ended March 31, 2025 was mainly due to true up the tax deduction that we wrote off Jade Mats for inventory impairment over the prior years in Nova Malaysia.

Current wording

Income tax benefit (expense) was $63,257 and ($4,876) for the six months ended June 30, 2025 and 2024, respectively. The income tax benefit for the six months ended June 30, 2025 was mainly due to true up the tax deduction that we wrote off Jade Mats for inventory impairment over the prior years in Nova Malaysia.

Previous wording

We had working capital of $5,989,081 at March 31, 2025, an increase of $3,882,917 from net working capital of $2,106,164 at December 31, 2024. The ratio of current assets to current liabilities was 2.37-to-1 at March 31, 2025.

Current wording

We had working capital of $5,755,700 at June 30, 2025, an increase of $3,649,536 from net working capital of $2,106,164 at December 31, 2024. The ratio of current assets to current liabilities was 2.28-to-1 at June 30, 2025.

Previous wording

The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2025 and 2024:

Current wording

The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2025 and 2024:

Previous wording

Net cash used in operating activities was $0.32 million for the three months ended March 31, 2025, an increase in cash outflow by $0.10 million from $0.22 million of cash used in operating activities for the same period of 2024.

Current wording

Net cash used in operating activities was $0.23 million for the six months ended June 30, 2025, a decrease in cash outflow by $0.46 million from $0.69 million of cash used in operating activities for the same period of 2024.

Previous wording

The increase in cash outflow was attributable primarily to (i) an increase in cash outflow of $0.75 million for research and development to $0 million cash outflow for the three months ended March 31, 2025, from $0.75 million cash inflow for the same period of 2024, such increase in cash outflow being mainly due to no our common stocks were issued to purchase various IT and AI systems which are integrated with our current existing IT system; (ii) an increase in cash outflow of $0.59 million for accounts payable to $0.44 million cash outflow for the three months ended March 31, 2025, from $0.14 million cash inflow for the same period of 2024, such increase in cash outflow due to we paid our suppliers more timely; and (iii)an increase in cash outflow of $0.79 million for accrued liabilities and other payables to $0.60 million cash outflow for the three months ended March 31, 2025, from $0.19 million cash inflow for the same period of 2024, such increase in cash outflow being mainly due to made payments to our service providers more timely. The increase in operating cash outflow was partially offset by an increase in cash inflow of $1.05 million for inventories to $0.72 million cash inflow for the three months ended March 31, 2025, from $0.34 million cash outflow for the same period of 2024, such increase in cash inflow being mainly due to less purchases made from our suppliers.

Current wording

The decrease in cash outflow was attributable primarily to (i) decrease in cash outflow of $1.39 million of net loss to $0.63 million for the six months ended June 30, 2025, from the net loss of $2.03 million for the same period of 2024; (ii) increase in cash inflow of $1.21 million for the inventory for the six months ended June 30, 2025, from $0.03 million cash inflow for the same period of 2024, such increase in cash inflow being mainly due to less products being purchased due to reciprocal tariff took effective in April 2025. The decrease in operating cash outflow was partially offset by an increase in cash outflow of 0.44 million for accounts payable to $0.57 million cash outflow for the six months ended June 30, 2025, from $0.13 million cash outflow for the same period of 2024, such increase in cash outflow being mainly due to we made our payments to our suppliers on time.

Previous wording

Net cash provided by investing activities was $0 for the three months ended March 31, 2025 and 2024.

Current wording

Net cash provided by investing activities was $0 for the six months ended June 30, 2025 and 2024.

Previous wording

Net cash provided by financing activities was $0.28 million for the three months ended March 31, 2025, compared to $0.2 million for the same period of 2024. During the three months ended March 31, 2025, we sold one million shares of common stock with the proceeds of $0.50 million for our working capital, while we paid off one of loans from shareholder by issued 434,000 shares of our common stocks which was equivalent in the value of $0.22 million. During the three months ended March 31, 2024, we borrowed $0.20 million from an unrelated third party.

Current wording

Net cash provided by financing activities was $0.48 million for the six months ended June 30, 2025, compared to $0.76 million for the same period of 2024. During the six months ended June 30, 2025, we borrowed $0.20 million from a shareholder and sold one million shares of common stock with the proceeds of $0.50 million for our working capital, while we paid off one of loans to shareholder by issued 434,000 shares of our common stocks which was equivalent in the value of $0.22 million. During the six months ended June 30, 2024, we borrowed $0.36 million from a shareholder and sold 200,000 shares of common stock with the proceeds of $0.40 million for our working capital.

Previous wording

As of March 31, 2025, we had gross accounts receivable of $65,430 of which $50,009 was not yet past due and $13,002 was less than 90 days past due. We had an allowance for expected credit losses of $654. As of May 7, 2025, 77% of accounts receivable outstanding as of March 31, 2025 had been collected.

Current wording

As of June 30, 2025, we had gross accounts receivable of $36,115 of which $25,520 was not yet past due and $8,177 was less than 90 days past due. We had an allowance for expected credit losses of $361. As of August 6, 2025, 93% of accounts receivable outstanding as of June 30, 2025 had been collected. As of August 6, 2025, 93% of our accounts receivable outstanding at December 31, 2024 had been collected.

Previous wording

As of May 7, 2025, $0 or 0% and $10,224 or 0.2% of our advances to suppliers outstanding at March 31, 2025 and December 31, 2024 had been delivered to us in the form of purchases of furniture, respectively.

Current wording

As of August 6, 2025, $0 or 0% and $33,924 or 0.7% of our advances to suppliers outstanding at June 30, 2025 and December 31, 2024 had been delivered to us in the form of purchases of furniture, respectively.