# XMax Inc.: Form 10-Q for the period ended Sep 30, 2024

- Company: [XMax Inc.](/companies/xmax.md) (CIK 1473334)
- Form: 10-Q
- Filed: 2024-11-14
- Accepted by EDGAR: Nov 14, 2024, 16:00 ET
- Period: 2024-09-30
- Accession: 0001493152-24-045787
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1473334/000149315224045787/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1473334/000149315224045787/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $2.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $7.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-07-01 to 2024-09-30 | $1.4m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $4.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $1.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $3.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | −$2.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$4.4m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $211 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $5.1k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | −$2.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | −$4.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.72 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.64 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | −$0.72 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$1.64 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 3,446,032 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 2,743,021 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | −$1.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-09-30 | $162.3k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $3.1m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $5.1m | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $4.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $6.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-09-30 | −$895.9k | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,210 characters.

### Safe Harbor Declaration

*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 condensed consolidated financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). All references to the third quarter and first nine months of 2024 and 2023 mean the three and nine-month periods ended September 30, 2024 and 2023. 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 2023 Form 10-K.*

### Overview

Nova LifeStyle, Inc. is a distributor of contemporary styled residential and commercial furniture incorporated into a dynamic marketing and sales platform offering retail as well as online selection and global purchase fulfillment. We monitor popular trends and products to create design elements that are then integrated into our product lines that can be used as both stand-alone or whole-room and home furnishing solutions. Through our global network of retailers, e-commerce platforms, stagers and hospitality providers, Nova LifeStyle also sells (through an exclusive third-party manufacturing partner) a managed variety of high quality bedding foundation components.

Nova LifeStyle’s brand family currently includes Nova LifeStyle, Diamond Sofa (www.diamondsofa.com) and Nova Living.

Our customers principally consist of distributors and retailers with specific geographic territories that deploy middle to high end private label home furnishings which have very little competitive overlap with our specific furnishing products or product lines. Nova LifeStyle is constantly seeking to integrate new sources of distribution and manufacturing that are properly aligned with our growth strategy. This allows us to continually focus on building both our overall distribution and manufacturing relationships through a deployment of popular, as well as trend-based, furnishing solutions worldwide.

We are a U.S. holding company with no material assets in the U.S. other than the ownership interests of our wholly owned subsidiaries through which we market, design and sell residential and commercial furniture worldwide: Nova Furniture Limited domiciled in the British Virgin Islands (“Nova Furniture”), Nova Furniture Ltd. domiciled in Samoa (“Nova Samoa”), Diamond Bar Outdoors, Inc. domiciled in California (“Diamond Bar”), Nova Living (M) SDN. BHD. domiciled in Malaysia (“Nova Malaysia”) and Nova Living (HK) Group Limited domiciled in Hong Kong (“Nova HK”). The Company had three former subsidiaries Bright Swallow International Group Limited domiciled in Hong Kong (“Bright Swallow” or “BSI”) which was sold in January 2020, and Nova Furniture Macao Commercial Offshore Limited domiciled in Macao (“Nova Macao”) which was de-registration and liquidation in January 2021. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.

On December 7, 2017, we incorporated i Design Blockchain Technology, Inc. (“i Design”) under the laws of the State of California. The purpose of i Design is to build our own blockchain technology team. i Design is in the planning stage and has had minimum operations to date. On December 12, 2019, we became the sole shareholder of Nova Living (M) SDN. BHD. (“Nova Malaysia”), a company incorporated on July 26, 2019 under the laws of Malaysia. Nova Malaysia markets and sells high-end physiotherapeutic jade mats for use in therapy clinics, hospitality, and real estate projects in Malaysia and other regions in Southeast Asia.

On November 5, 2020, Nova LifeStyle, Inc. acquired Nova Living (HK) Group Limited (“Nova HK”) which was incorporated in Hong Kong on November 6, 2019. This company had minimal operations. In February 2022, Nova HK entered a de-registration process and transferred all its assets and business to Nova Malaysia. The process of de-registration and liquidation of Nova HK was completed in February 2023.

Our experience developing and marketing products for international markets has enabled us to develop the scale, logistics, marketing, manufacturing efficiencies and design expertise that serve as the foundation for us to expand aggressively into the highly attractive U.S., Canada, South America, Asia and Middle Easter markets.

In 2019, we developed a line of high-end physiotherapeutic jade mats with China-based manufacturing partners for use in therapy clinics, hospitality, and real estate projects in Asia. We launched our first flagship showroom/retail store in Kuala Lumpur, Malaysia in late 2019, which, after a COVID-19 related closing, was reopened in May 2020. On August 28, 2020, after few months reopening, Malaysia government extended Movement Control Order to prohibit the businesses to open to public until March 5, 2021 to contain the spread of COVID-19. After the re-opening on March 5, 2021, Malaysia imposed a new nationwide lockdown on May 12, 2021 until early June 2021 which was subsequently extended to early October 2021. In October 2021, the Order was lifted for people who are fully vaccinated and our store has been reopened since. In April 2022, Malaysia has reopened the border for foreign visitors. In June 2023, everything is back to normal in Malaysia. Due to the negative impact caused by COVID-19 from 2020 to 2022, the Company eventually sold the entire jade mats inventory for $2.00 million in liquidation sales in June 2023. We exited from Jade Mats business in 2023. Nova Malaysia has engaged in the development of an innovative home decoration design, showroom and payment IT software systems. We have limited experience with operations in Southeast Asia and considerable management attention and resources may be required to manage these new markets and product lines. We may be subject to additional risks including credit risk, inflation, currency exchange rate fluctuations, foreign exchange controls, import and export requirements, potentially adverse tax consequences and higher costs associated with doing business internationally.

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 and August 2024, we completed two private placements for gross proceeds of $600,000. 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.

On April 18, 2024, the Company received written notice from the NASDAQ Stock Market (“NASDAQ”) stating that the Company does not meet the requirement of maintaining a minimum of $2,500,000 in stockholders’ equity for continued listing on the NASDAQ Capital Market, as set forth in NASDAQ Listing Rule 5550(b)(1), the Company also does not meet the alternative of market value of listed securities of $35 million under NASDAQ Listing Rule 5550(b)(2) or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years under NASDAQ Listing Rule 5550(b)(3), and the Company is no longer in compliance with the NASDAQ Listing Rules.

The NASDAQ notification letter provides the Company until June 6, 2024 to submit a plan to regain compliance. If the plan is accepted, NASDAQ can grant the Company an extension up to 180 calendar days from the date of NASDAQ letter to demonstrate compliance. If NASDAQ does not accept the Company’s compliance plan, the Company will have the opportunity to appeal that decision to a Hearing Panel per NASDAQ Listing Rule 5815(a).

The Company submitted its plan of compliance on May 28, 2024 and a supplemental letter to the plan of compliance on June 20, 2024. On June 27, 2024, the Company received a notification letter from NASDAQ Listing Qualification Staff (“Staff”). Based on the review of the letters submitted by the Company, Staff has determined to grant the Company an extension until October 14, 2024 to regain compliance with the Rule and the Company must complete its initiatives and provide evidences for the compliance with the Rule as required by NASDAQ.

The Company and Nova Samoa have entered into orders to purchase inventories in total amount of $4,650,000, which will be paid in 3,321,429 shares (“Transaction”) of common stock of the Company at US$1.40 per share, as disclosed in the Form 8-K filed by the Company with SEC on October 11, 2024 (the “Form 8-K”). The Company believes it has regained compliance with the stockholders’ equity requirement based upon the Transaction.

Based on the Form 8-K, staff of NASDAQ (“Staff”) has determined that the Company complies with the Listing Rule 5550(b)(1). However, as noted in its letter dated, June 27, 2024, if the Company fails to evidence compliance upon filing its next periodic report covering the period of the Transaction, it may be subject to delisting. At that time, Staff will provide written notification to the Company, which may then appeal Staff’s determination to a Hearings Panel.

### Principal Factors Affecting Our Financial Performance

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 2024 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 product. 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 tariffs imposed by the United States on certain products manufactured in China; and (iv) the recovery from the COVID-19 outbreak throughout the world; and (v) 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 certain 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 unaffected by the 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 our manufacturing has been transitioned to Malaysia and India starting in 2020 and we expect that more of our manufacturing will be transitioned to one or more of these venues. Some of our manufacturing will continue to be performed in China because the intellectual know-how necessary to manufacture certain products is not generally available in other Asian countries. Consumer preference trends favoring high quality and stylish products and lifestyle-based furniture suites should also allow us at least to maintain our gross profit margins. The markets in North America is challenging because such markets are experiencing a slow-down and may be entering a recession due to high interest rate and inflation.

### Critical Accounting Policies

While our significant accounting policies are described more fully in Note 2 to our accompanying unaudited condensed consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this Management’s Discussion and Analysis.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

### Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for Nova LifeStyle and its subsidiaries, Diamond Bar, i Design, Nova Furniture, Nova Samoa, Nova Malaysia and its former subsidiary, Nova HK.

### Reverse Split

On May 22, 2023, the Company filed a Certificate of Change with the Secretary of State of Nevada with an effective date of May 22, 2023, at which time a 1-for-5 reverse stock split of the Company’s authorized shares of common stock, par value $0.001, accompanied by a corresponding decrease in the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), was effected. All references to shares and per share data have been retroactively restated to reflect such split.

### Amendments to Articles of Incorporation

On September 5, 2023, the Company filed the Certificate of Change (the “Amendment”) with the Secretary of State for the State of Nevada to amend its Articles of Incorporation to increase the amount of authorized shares of its common stock, par value $0.001 per share, from 3,000,000 to 250,000,000. The Amendment was approved by the Company’s Board of Directors (the “Board”) on June 28, 2023 and by the shareholders at a special meeting of the Company’s shareholders held on August 31, 2023. The Amendment does not affect the rights of the Company’s shareholders and was effective immediately upon filing.

### Use of Estimates

In preparing condensed consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the condensed consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include, but are not limited to, revenue recognition, the allowance for bad debt, valuation of inventories, the valuation of stock-based compensation, income taxes and unrecognized tax benefits, valuation allowance for deferred tax liabilities, assumptions used in assessing impairment of long-lived assets and goodwill, and loss contingencies. Actual results could differ from those estimates.

### Accounts Receivable

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 $1,281 and $532 as of September 30, 2024 and December 31, 2023, respectively. During the nine months ended September 30, 2024 and 2023, expected credit losses provision (reversal) was $749 and ($2,222), respectively; ($832) and ($2,026) for the three months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, we had gross receivable of $128,081 of which $2,546 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.

### Advances to Suppliers

Advances to suppliers represent amounts paid to suppliers in advance for goods that are yet to be delivered and from which future economic benefits are expected to flow to the Company within the normal operating cycle. Based on our historical records and in normal circumstances, we generally receive goods within 4 to 6 months from the date the advance payment is made.

### Income Taxes

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 nine months ended September 30, 2024 and 2023 are $5,087 and $149,771, respectively; and $211 and $147,371 for the three months ended September 30, 2024 and 2023, respectively.

Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under the provisions of ASC Topic 740, when tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

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%.

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 nine months ended September 30, 2024, 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.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a modified territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous income tax provisions, such as relaxing limitations on the deductibility of interest and the use of net operating losses (NOLs) arising in taxable years beginning after December 31, 2017.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Furthermore, in anticipation of the new provision taking effect, we have analyzed the provision and worked with our advisors to evaluate its application to our business. Since all research and development expenditures were incurred within the U.S. and the amount is immaterial, we do not anticipate it having any material impact to our provision.

As of September 30, 2024 and December 31, 2023, the accumulated undistributed earnings generated by its foreign subsidiaries were approximately $25.4 million and $25.4 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.

As of September 30, 2024 and 2023, unrecognized tax benefits were approximately $0. The total amount of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate was $0 as of September 30, 2024 and 2023.

A reconciliation of unrecognized tax benefits excluding interest and penalties (“Gross UTB”) for the nine months ended September 30, 2024 and 2023, is as follows:

|  | Gross UTB 2024 | 2023 |
| --- | ---: | ---: |
| Balance – January 1 and September 30 | $- | $- |

At September 30, 2024 and December 31, 2023, the Company had cumulatively accrued approximately $0 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 $0 and $0 for the nine and three ended September 30, 2024 and 2023, respectively, related to the Company’s continuing operations. The Company does not anticipate any significant changes to its unrecognized tax benefits within the next 12 months.

Nova Lifestyle and Diamond Bar are subject to U.S. federal and state income taxes and tax years 2020-2023 remain open to examination by tax authorities in the U.S.

### Intangible Assets

Intangible assets consist primarily of computer software acquired for internal use. Acquired intangible assets are initially recorded at the acquisition-date fair value. Intangible assets are amortized on a straight-line basis over their estimated useful lives and are carried at cost less accumulated amortization. The estimated useful life of computer software is generally 5 years.

### Revenue Recognition

We recognize revenues when our customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. We recognize revenues following the five step model prescribed under ASU No. 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs upon shipment to the customer. We expense incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have recognized is one year or less or the amount is immaterial.

Revenue from product sales is recorded net of reserves established for applicable discounts and allowances that are offered within contracts with our customers.

Product revenue reserves, which are classified as a reduction in product revenues, are generally characterized in the following categories: discounts, returns and rebates. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable as the amount is payable to our customer.

Our sales policy allows for the return of product within the warranty period if the product is defective and the defects are our fault. As alternatives for the product return option, the customers have the option of asking us for a discount for products with quality issues, or of receiving replacement parts from us at no cost. The amount of reserves for return of products, the discount provided to the customers, and cost for the replacement parts were immaterial for the nine and three months ended September 30, 2024 and 2023.

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling expenses on our unaudited condensed consolidated statements of operations.

### Foreign Currency Translation and Transactions

The accompanying unaudited condensed consolidated financial statements are presented in United States Dollar (“$” or “USD”), which is also the functional currency of Nova LifeStyle, Nova Furniture, Nova Samoa, Diamond Bar, and i Design.

The Company’s subsidiary with operations in Malaysia uses its local currency, Malaysian Ringgit (“RM”), as its functional currency. An entity’s functional currency is the currency of the primary economic environment in which it operates, which is normally the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements.

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the statements of operations.

The financial statements are presented in U.S. dollars. Assets and liabilities are translated into U.S. dollars at the current exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average of the exchange rates in effect during the reporting period. Stockholders’ equity accounts are translated using the historical exchange rates at the date the entry to stockholders’ equity was recorded, except for the change in retained earnings during the period, which is translated using the historical exchange rates used to translate each period’s income statement. Differences resulting from translating functional currencies to the reporting currency are recorded in accumulated other comprehensive income in the balance sheets.

Translation of amounts from RM into U.S. dollars has been made at the following exchange rates:

|  |  |
| --- | --- |
| Balance sheet items, except for equity accounts |  |
| September 30, 2024 | RM4.12 to 1 |
| December 31, 2023 | RM4.59 to 1 |
| Income statement and cash flow items |  |
| For the nine months ended September 30, 2024 | RM4.63 to 1 |
| For the nine months ended September 30, 2023 | RM4.51 to 1 |

### 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.

We determined that our operations constitute a single reportable segment in accordance with ASC 280. We operate exclusively in one business and industry segment: the design and sale of furniture.

We concluded that we had one reportable segment under ASC 280 because Diamond Bar is a furniture distributor based in California focusing on customers in the US and Nova Malaysia is a furniture retailer and distributor focusing on customers primarily in Malaysia and Asia. Each of our subsidiaries is operated under the same senior management of our company, and we view the operations of Diamond Bar and Nova Malaysia as a whole for making business decisions. Our long-lived assets are mainly property, plant and equipment located in the United States and Malaysia for administrative purposes.

Net sales to customers by geographic area are determined by reference to the physical product shipment delivery locations requested by our customers. For example, if the products are delivered to a customer in the U.S., the sales are recorded as generated in the U.S.; if the customer directs us to ship its products to China, the sales are recorded as sold in China.

### New Accounting Pronouncements

#### Recently Adopted Accounting Standards

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). This Update is effective for smaller reporting companies for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2022, which is required to be applied prospectively from the date of adoption. The Company adopted ASU 2017-04 for its interim and annual goodwill impairment tests beginning January 1, 2023. The adoption of ASU 2017-04 did not have any impact on our unaudited condensed consolidated financial statements.

#### Recently Issued But Not Yet Adopted Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01, Lease (Topic 842): Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with leases between entities under common control (hereinafter referred to as common control lease). ASU 2023-01 requires entities to amortize leasehold improvements associated with common control lease over the useful life to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset through a lease, and to account for any remaining leasehold improvements as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the underlying asset. This ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. An entity may apply ASU 2023-01 either prospectively or retrospectively. The Company is currently evaluating the impact that the adoption of ASU 2023-01 will have on our condensed consolidated financial statement presentations and disclosures.

ln December 2023, the FASB issued Accounting Standards Update No.2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation,(2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3)income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual period beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures.

We do not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on our financial statement presentation or disclosures.

### Results of Operations

### Comparison of Three Months Ended September 30, 2024 and 2023

The following table sets forth the results of our operations for the three months ended September 30, 2024 and 2023. Certain columns may not add due to rounding.

|  | Three Months Ended September 30, 2024 $% of Sales |  | 2023 $% of Sales |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $2,615,807 |  | $2,476,134 |  |
| Cost of sales | (1,436,552) | (55)% | (1,411,573) | (57)% |
| Gross profit | 1,179,255 | 45% | 1,064,561 | 43% |
| Operating expenses | (3,586,122) | (137)% | (2,115,498) | (85)% |
| Loss from operations | (2,406,867) | (92)% | (1,050,937) | (42)% |
| Other expenses, net | (58,986) | (2)% | (90,321) | (4)% |
| Income tax expenses | (211) | -% | (147,371) | -% |
| Net loss | (2,466,064) | (94)% | (1,288,629) | (52)% |

### Net Sales

Net sales for the three months ended September 30, 2024 were $2.62 million, an increase of 6% from $2.48 million for the same period of 2023. This increase in net sales resulted primarily from 19% increase in average selling price, while partially offset by 11% decrease in sales volume. Our three largest selling product categories for the three months ended September 30, 2024 were sofas, beds and coffee tables, which accounted for approximately 50%, 13% and 8% of sales, respectively. For the three months ended September 30, 2023, the three largest selling categories were sofas, beds and chairs, which accounted for approximately 44%, 17% and 10% of sales, respectively.

The $0.14 million increase in net sales for the three months ended September 30, 2024, compared to the same period of 2023, was mainly due to increased sales to North America. Sales to North America increased by 5% to $2.55 million for the three months ended September 30, 2024, compared to $2.43 million for the same period of 2023, such increase mainly due to more sales order received from our customers in North America. Also, sales to other countries increased by $29,330 to $64,208 for the three months ended September 30, 2024, from $34,878 for the same period of 2023, primary due to more direct container sales in other countries. However, the increase in net sales was partially offset by the decrease in sales to Asia. Sales to Asia decreased by 100% to $0 million for the three months ended September 30, 2024, compared to $0.01 million for the same period of 2023, such decreased mainly due to our liquidation sales of the entire inventory of jade mats by Nova Malaysia for $1.99 million in Malaysia during the second quarter of 2023.

### Cost of Sales

Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales increased by 2% to $1.44 million for the three months ended September 30, 2024, compared to $1.41 million for the same period of 2023. Cost of sales as a percentage of sales decreased to 55% for the three months ended September 30, 2024, compared to 57% for the same period of 2023. 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 two factors: (a) we sold less direct containers which came with low profit margin since we shift to focus on high quality product with high profit margin; and (b) our decreased inventory write down (reversal) of ($2,618) for the three months ended September 30, 2024, compared to inventory write down of $23,544 for the same period of 2023.

### Gross Profit

Gross profit was $1.18 million for the three months ended September 30, 2024, compared to $1.06 million for the same period of 2023, representing an increase in gross profit of $0.11 million. Our gross profit margin was 45% for the three months ended September 30, 2024, compared to 43% for the same period of 2023. The increase in gross profit and gross profit margin was mainly a result of sales of high-quality products which came with high profit margin during the three months ended September 30, 2024.

### Operating Expenses

Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $3.59 million for the three months ended September 30, 2024, compared to $2.12 million for the same period of 2023. Selling expenses decreased by 30%, or $0.18 million, to $0.42 million for the three months ended September 30, 2024, from $0.59 million for the same period of 2023, primarily due to decreased marketing and advertising expenses. On the other hand, general and administrative expenses increased by 28%, or $0.43 million, to $1.95 million for the three months ended September 30, 2024, from $1.52 million for the same period of 2023, primarily due to an increase in consulting fees of $0.93 million and travel of $0.04 million, while the increase was partially offset by a decrease in bad debt of $0.19 million, depreciation of $0.12 million and stock compensation of $0.16 million. In addition, research and development increased by $1.22 million to $1.22 million for the three months ended September 30, 2024, from $0 million for the same period of 2023, primarily due to acquisitions of IT systems for integrating with our existing IT system during the three months ended September 30, 2024.

### Other Expenses, Net

Other expenses, net was $58,986 for the three months ended September 30, 2024, compared to other expenses, net of $90,321 for the same period of 2023, representing a decrease in other expenses of $31,335. The decrease in other expenses was due primarily to a decrease in foreign exchange loss by $43,664 to $74 for the three months ended September 30, 2024, from foreign exchange loss of $43,738 for the same period of 2023. The decrease in foreign exchange loss was mainly a result of the depreciation of U.S. dollar against Malaysian Ringgit on acquisition of two IT systems in U.S. dollars.

### Income Tax Expenses

Income tax expenses were $211 for the three months ended September 30, 2024, compared to income tax expense of $147,371 for the same period of 2023, representing a decrease in income tax expense of $147,160. The decrease in income tax expenses were primarily due to no taxable income from Nova Malaysia. During the three months ended September 30, 2023, the income tax expense was primarily due to the net taxable income from Nova Malaysia. The net taxable income was resulted from the income from debt forgiveness to Nova Malaysia from Nova HK, while offset with inventory impairment loss incurred in Malaysia, current operating loss and prior year net operating loss in Nova Malaysia.

### Net Loss

As a result of the foregoing, our net loss was $2.47 million for the three months ended September 30, 2024, compared to $1.29 million for the same period of 2023.

### Comparison of Nine Months Ended September 30, 2024 and 2023

The following table sets forth the results of our operations for the nine months ended September 30, 2024 and 2023.

|  | Nine Months Ended September 30, 2024 $% of Sales |  | 2023 $% of Sales |  |
| --- | ---: | ---: | ---: | ---: |
| Net sales | $7,680,733 |  | $8,813,128 |  |
| Cost of sales | (4,290,351) | (56)% | (5,639,925) | (64)% |
| Gross profit | 3,390,382 | 44% | 3,173,203 | 36% |
| Operating expenses | (7,783,304) | (101)% | (5,785,987) | (66)% |
| Loss from operations | (4,392,922) | (57)% | (2,612,784) | (30)% |
| Other expenses, net | (94,300) | (1)% | (286,970) | (3)% |
| Income tax expenses | (5,087) | -% | (149,771) | -% |
| Net loss | (4,492,309) | (58)% | (3,049,525) | (34)% |

40

### Net Sales

Net sales for the nine months ended September 30, 2024 were $7.68 million, a decrease of 13% from $8.81 million for the same period of 2023. This decrease in net sales resulted primarily from 43% decrease in sales volume, while partially offset by 53% increase in average selling price. Our three largest selling product categories for the nine months ended September 30, 2024 were sofas, beds and coffee tables, which accounted for approximately 51%, 13% and 8% of sales, respectively. For the nine months ended September 30, 2023, the three largest selling categories were sofa, jade mats, and beds, which accounted for approximately 34%, 22% and 13% of sales, respectively.

The $1.13 million decrease in net sales for the nine months ended September 30, 2024, compared to the same period of 2023, was mainly due to decreased sales to Asia. Sales to Asia decreased by 100% to $0 million for the nine months ended September 30, 2024, compared to $2.00 million for the same period of 2023, such decrease mainly due to our liquidation sales of the entire inventory of jade mats by Nova Malaysia for $2.00 million in Malaysia during nine months ended September 30, 2023. Also, sales to other countries decreased by $14,019 to $172,076 for the nine months ended September 30, 2024, from $186,095 for the same period of 2023, primarily due to less direct container sales in other countries. However, the decrease in net sales in Asia and other countries was partially offset by the increase in sales to North America. Sales to North America increased by $0.89 million to $7.51 million for the nine months ended September 30, 2024, from $6.62 million for the same period of 2023, primary due to more sales order received from our customers in North America.

### Cost of Sales

Cost of sales consists primarily of costs of finished goods purchased from third-party manufacturers. Total cost of sales decreased by 24% to $4.29 million for the nine months ended September 30, 2024, compared to $5.64 million for the same period of 2023. Cost of sales as a percentage of sales decreased to 56% for the nine months ended September 30, 2024, compared to 64% for the same period of 2023. 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 two factors: (a) the decrease in average purchase cost; and (b) the liquidation sales of the jade mats in Malaysia which came with high cost and low profit margin in the second quarter of 2023.

### Gross Profit

Gross profit was $3.39 million for the nine months ended September 30, 2024, compared to $3.17 million for the same period of 2023, representing an increase in gross profit of $0.22 million. Our gross profit margin was 44% for the nine months ended September 30, 2024, compared to 36% for the same period of 2023. The increase in gross profit and gross profit margin was mainly a result of the liquidation sales of the jade mats in Malaysia which came with low profit margin during the nine months ended September 30, 2023.

### Operating Expenses

Operating expenses consisted of selling, general and administrative expenses, and research and development. Operating expenses were $7.78 million for the nine months ended September 30, 2024, compared to $5.79 million for the same period of 2023. Selling expenses decreased by 26%, or $0.49 million, to $1.38 million for the nine months ended September 30, 2024, from $1.87 million for the same period of 2023, primarily due to decreased marketing and advertising expenses. On the other hand, general and administrative expenses increased by 13%, or $0.05 million, to $4.43 million for the nine months ended September 30, 2024, from $3.90 million for the same period of 2023, primarily due to an increase in consulting fee of $0.95 million and stock compensation of $0.17 million, while the increase was partially offset by a decrease in bad debt of $0.19 million and depreciation of $0.16 million. In addition, research and development increased by 193%, or $1.96 million to $1.97 million for the nine months ended September 30, 2024, from $10,144 for the same period of 2023, primary due to our spending on two IT systems and AI-Calculation engine which are for integrating with our AI and IT system.

### Other Expenses, Net

Other expenses, net was $94,300 for the nine months ended September 30, 2024, compared to other expenses, net of $286,970 for the same period of 2023, representing a decrease in other expenses of $192,670. The decrease in other expenses was due primarily to an increase in foreign exchange gain by $247,974 to $70,575 for the September months ended September 30, 2024, from foreign exchange loss of $177,399 for the same period of 2023. The increase in foreign exchange gain in 2024 from foreign exchange in 2023 loss was mainly a result of the appreciation of U.S. dollar against Malaysian Ringgit on acquisition of two IT systems and AI-Calculation engine in U.S. dollars during the nine months ended September 30, 2024.

### Income Tax Expenses

Income tax expenses were $5,087 and $149,771 for the nine months ended September 30, 2024 and 2023, respectively. The income tax expenses for the nine months ended September 30, 2024 were mainly due to minimum California state tax incurred in US subsidiaries. The income tax expenses for the nine months ended September 30, 2023 were primarily due to the net taxable income from Nova Malaysia. The net taxable income was resulted from the income from debt forgiveness to Nova Malaysia from Nova HK, while offset with inventory impairment loss incurred in Malaysia, current operating loss and prior year net operating loss in Nova Malaysia.

### Net Loss

As a result of the foregoing, our net loss was $4.49 million for the nine months ended September 30, 2024, compared to $3.05 million for the same period of 2023.

### Liquidity and Capital Resources

Our principal demands for liquidity are related to our efforts to increase sales and purchase inventory, and for expenditures related to sales distribution and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to purchase of inventories and the expansion of our business, primarily through cash flow provided by operations, collections of accounts receivable, and credit facilities from banks.

We rely primarily on internally generated cash flow and available working capital to support growth. We may seek additional financing in the form of bank loans or other credit facilities or funds raised through offerings of our equity or debt, if and when we determine such offerings are required. As of September 30, 2024, we do not have any credit facilities. We believe that our current cash and cash equivalents and anticipated cash receipts from sales of products will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months.

We had working capital deficit of $1,278,453 at September 30, 2024, a decrease of $1,338,510 from net working capital of $60,057 at December 31, 2023. The ratio of current assets to current liabilities was 0.71-to-1 at September 30, 2024.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2024 and 2023:

| Cash (used in) provided by: | 2024 | 2023 |
| --- | ---: | ---: |
| Operating activities | $(1,128,330) | $1,520,147 |
| Investing activities | - | (2,437,727) |
| Financing activities | 960,000 | - |

Net cash used in operating activities was $1.13 million for the nine months ended September 30, 2024, an increase in cash outflow by $2.65 million from $1.52 million of cash provided by operating activities for the same period of 2023.

The increase in cash outflow was attributable primarily to (i) an increase in cash inflow of $3.13 million for inventory to $0.27 million cash outflow for the nine months ended September 30, 2024, from $2.86 million cash inflow for the same period of 2023, such increase in cash outflow being mainly a result of more purchase were made during the nine months ended September 30, 2024. (ii) an increase in cash outflow of $0.32 million for accounts receivable to $0.08 million cash outflow for the nine months ended September 30, 2024, from 0.22 million cash inflow for the same period of 2023, such increase in cash outflow being mainly due to more credit sales, especially the credit sales of the direct containers for the nine months ended September 30, 2024. The increase in operating cash outflow was partially offset by an increase in cash inflow of $1.96 million for research and development to $1.96 million cash inflow for the nine months ended September 30, 2024, from $0 million cash inflow for the same period of 2023, such increase in cash inflow being mainly due to issued our common stocks instead of cash to purchase various IT systems which are integrated with our current existing IT system.

Net cash used in investing activities was $0 million for the nine months ended September 30, 2024, a decrease in cash outflow of $2.47 million from $2.47 million of cash used in investing activities for the same period of 2023. We incurred cash outflow of $2.47 million from the virtual tour and web augmented reality experience software project during the nine months ended September 30, 2023.

Net cash provided by financing activities was $0.96 million for the nine months ended September 30, 2024, compared to $0 for the same period of 2023. During the nine months ended September 30, 2024, we borrowed $0.36 million from a shareholder and sold 325,000 shares of common stock with the proceeds of $0.60 million for our working capital.

As of September 30, 2024, we had gross accounts receivable of $128,081 of which $35,682 was not yet past due and $89,852 was less than 90 days past due. We had an allowance for expected credit losses of $1,281. As of November 4, 2024, 61.6% or $78,930 of accounts receivable outstanding as of September 30, 2024 had been collected.

100% of our accounts receivable outstanding at December 31, 2023 had been collected during the nine months ended September 30, 2024.

As of September 30, 2024 and December 31, 2023, we had advances to suppliers of $132,678 and $93,740, respectively. These supplier prepayments are made for goods before we actually receive them.

For a new product, the normal lead time from new product R&D, prototype, and mass production to delivery of goods from our suppliers to us is approximately six to nine months after we make advance payments to our suppliers. For other products, the typical time is 4-6 months after our advance payment. We will consider the need for a reserve when and if a supplier fails to fulfill our orders within the time frame as stipulated in the purchase contracts.

As of November 4, 2024, $32,203 or 41% and $93,740 or 100% of our advances to suppliers outstanding at September 30, 2024 and December 31, 2023 had been delivered to us in the form of purchases of furniture.

### Other Long-Term Liabilities

As of September 30, 2024, we recorded long-term taxes payable of $0.64 million, consisting of an income tax payable of $0.64 million, primarily arising from a one-time transition tax recognized in the fourth quarter of 2017 on our post-1986 foreign unremitted earnings, as ASC 740 specifies that tax positions for which the timing of the ultimate resolution is uncertain should be recognized as long-term liabilities.

We elected to pay the one-time transition tax over the eight years commencing April 2018.

### Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to shareholders.

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholders’ equity or that are not reflected in our condensed consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

## Controls and procedures

As filed, 1,823 characters.

### Evaluation of Disclosure Controls and Procedures

We have evaluated, under the supervision of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of September 30, 2024. Based on this evaluation, our CEO and CFO concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (a) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (b) is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as described above.

### Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during or subsequent to the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Filed Nov 14, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-045787. Last ingested by Listed: Nov 3, 2026, 08:40 ET. No prices; not investment advice.