Special Procedures Performed by Nova LifeStyle, Inc.’s Auditor Reveal No Evidence of Fictitious Sales or Customers, and Def...
March 29 2019 - 7:00AM
Nova LifeStyle, Inc. (NASDAQ:
NVFY) today
announced the results of special procedures performed by the
Company’s Auditors at the direction of the Audit Committee.
The special procedures revealed no evidence of fictitious sales or
of fictitious customers, and definitively disprove the malicious
assertions set forth in Andri Capital’s self-styled research report
regarding the Company (the “Andri Report”) published by Seeking
Alpha on December 21, 2018.
On January 2, 2019, the Company announced that it had engaged
its independent auditors to perform special procedures following
the publication of the Andri Report. The Andri Report
contains a “Sell” recommendation, and purports to present evidence
that a substantial portion of the Company’s sales made to four of
the Company’s largest customers during the relevant past were not
legitimate, and further posits that, as a consequence of such
sales, the Company’s operating results have been substantially
overstated. One month earlier Andri Capital published a
report on Seeking Alpha that concluded that the Company’s common
stock was significantly undervalued. Within the month
preceding the Andri Report and before Andri Capital published the
reversal in its advice that the stock was substantially
undervalued, Andri Capital accumulated a large short position which
Andri Capital disclosed in its December 21, 2018 Report.
Following the publication of the Andri Report, the market price of
the Company’s common stock suffered a rapid decline, and a putative
class action complaint, largely parroting the assertions set forth
in the Andri Report, followed.
The Audit Committee acted promptly to address the concerns
raised in the Andri Report, to ensure the integrity of the 2018
audit, and to rebuild the market confidence that was damaged by the
issuance of the Andri Report. The Audit Committee engaged the
Company’s auditors to perform special procedures to confirm the
reported sales. The special procedures included the
examination and testing of all customer purchase orders, packing
lists, bills of lading, sales invoices, vouchers, and related
documents, for the four customers targeted in the Andri Report for
years 2015, 2016, 2017 and 2018. Those procedures included,
among others, 100% sampling of all transactions between the Company
and the subject customers, the receipt of written confirmations
from each of the subject customers of all sales transactions to
that customer, in-person interviews of senior officials of three of
the four subject customers1, and independent searches verifying the
existence of the subject customers. The special procedures
have been performed, and the results have been communicated to the
Audit Committee. The Auditor performed the special procedures
with respect to a total of 2,222 sales transactions between the
Company and the subject customers. The Company’s
independent auditor has reported to the Audit Committee that with
respect to the four subject customers the special procedures
resulted in no evidence of fictitious sales or of fictitious
customers.
Senior officials of the customers during
in-person interviews provided clarity regarding the legal entities
(related to the customers) that were involved in the sales
transactions with the Company. With respect to each of
Merlino group of companies and Shanxi Wanqing, while the Company’s
public reporting of sales to the specific customer entities did not
state the accurate names of those entities, the customer officials
confirmed that the sales were made to entities associated with
those two respective groups of companies. The Company’s customer,
High Fashion Home, is a furniture distributor, and not the
furniture store suggested in the Andri Report.
Finally, the Company has discovered that there was a
computational error in the narrative portion of the Company’s 2016
Annual Report on Form 10-K (the “2016 Annual Report”). The
Company 2015 and 2016 financial statements included in the 2016
Annual Report were unaffected. While the Company believes the
error was immaterial, the Company is disclosing the error in the
interest of transparency. The 2016 Annual Report (page 5)
disclosed that “Our two largest customers in 2015…. accounted for
11.8% of our sales in 2015.” It should have disclosed that
“Our two largest customers in 2015 in total accounted for 16.3% of
our sales from continuing operations.”
The audit of the Company’s 2018 financial statements is ongoing,
and the Company expects to file its Annual Report on Form 10-K for
the year ended December 31, 2018 on or before April 1, 2019.
About Nova LifeStyle Nova LifeStyle, Inc., a
NASDAQ Global Market listed company headquartered in California, is
a fast growing, innovative designer and distributor of modern
LifeStyle furniture; primarily sofas, dining rooms, cabinets,
office furniture and related components, bedrooms, and various
accessories in matching collections. Nova's family of brands
include Diamond Sofa and Bright Swallow. Nova's products feature
urban contemporary styles that integrate comfort and functionality,
incorporating upscale luxury designs appeals to middle and upper
middle-income consumers in the USA, China, Europe, and elsewhere in
the world. Visit Nova LifeStyle’s website
at www.NovaLifeStyle.com.
Contact: Investor Relations Nova LifeStyle,
Inc. info@novalifestyle.comTel: 1 702 606 6822
Safe Harbor for Forward-Looking Statements
Information in this release regarding the
Company’s forecasts, business outlook, expectations and beliefs are
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. These statements are not guarantees of future
performance and actual results could differ materially from our
current expectations. Factors that could cause or contribute to
such differences include the review and assessment of the Audit
Committee's special procedures; the impact of such procedures on
the Company's prior and future financial statements; the
identification of additional errors or adjustments not known to the
Company as of the date hereof, and other risks and uncertainties of
the Company's business detailed from time to time in the Company's
filings with the SEC (without regard to any financial information
described therein to the extent it relates to the restatement
periods). The Company assumes no obligation and does not intend to
update the forward-looking statements provided, whether as a result
of new information, future events or otherwise.
1 While the Auditors sought to interview
senior officials of all four of the subject customers, senior
officials of one customer refused requests for an in-person
interview because it no longer does business with the
Company. That customer did however provide written
confirmation of all sales transactions between the Company and
it.
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