SEC Company Response from XMax Inc. (XMAX) (CIK 0001473334) (XMAX) — Dec 17, 2014
XMax Inc. (XMAX) (CIK 0001473334)
Date: Dec. 17, 2014 · CIK: 0001473334 · Accession: 0001185185-14-003381
AI Filing Summary & Sentiment
Reasoning
Referenced dates: November 19, 2014
Letter
Via EDGAR United States Securities and Exchange Commission Division of Corporation Finance Re: Nova LifeStyle, Inc. Form 10-K Filed March 31, 2014 File No. 1-36259
Dear Mr. O'Brien:
Nova LifeStyle, Inc. (“Nova” or the “Company” and sometimes referred to as “we” or “our”) is filing a response to the SEC Comment Letter, dated December 8, 2014, in connection with complying with the issues and outstanding disclosure items set forth therein. For convenience of reference, we have included, in this response letter, the same caption and paragraph number, as well as the text of the comment, set forth in your Comment Letter followed by our response.
Form 10-Q for the period ended September 30, 2014
Liquidity and Capital Resources, page 30
1. We have read your response to comment 3 in our letter dated November 19, 2014 and re-issue the part of our comment asking for your analysis regarding the adequacy of the allowance for doubtful accounts. Please explain to us how you determined an allowance of $355,960 was adequate as of September 30, 2014 given the $10.5 million accounts receivable that were older than 90 days as of that date. Also tell us how much of the $10.5 million is from customers in China compared to those outside of China and whether the bank has excluded any of the receivables in computing the borrowing base referenced on page 17. Please provide a roll forward showing activity in the allowance for 2012, 2013 and 2014 so we can assess charge-off activity, or include this information in a Schedule II pursuant to Rule 5-04(c) of Regulation S-X. Finally, explain to us how the material weakness in controls impacts your ability to account for bad debts in accordance with US GAAP.
Response:
The Company reviewed the composition of accounts receivable and analyzed historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. In addition, please refer to roll-forward allowance table below, the Company has constantly experienced actual bad debt expense that was less than 1% of total accounts receivable. Based on historical collection activity, the Company determined to maintain its bad debt allowance on the level of 1% of its total accounts receivable balance.
Of $10.5 million accounts receivable over 90 days, $7.48 million was from the customers outside of China and $3.02 million was from customers in mainland China. For accounts receivable from the customers outside of China, they were insured by an export insurance company with the insurance policy as follows:
Accounts receivable within 90 days, if default, the insurance will reimburse 90% of accounts receivable amount,
Accounts receivable over 90 days but within 180 days, if default, the insurance will reimburse 50% of account receivable amount,
Accounts receivable over 180 days, if default, the Company assumes the loss of default.
Default means that the credit insurance company was unable to collect the Company’s over-due invoices after they had made all of their efforts.
It is infrequent for the Company to utilize the credit insurance. The Company only utilized once for the period from January 1, 2012 to September 30, 2014 as indicated in below table.
The following table is to show the status of collection for the over 90 days accounts receivable of Dongguan and Macao as of September 30, 2014 on December 9, 2014, the over 90 days accounts receivables for other subsidiaries were not material:
Dogguan
Over 90 days AR as of 9/30/2014
Collected as of 12/9/2014
Uncollected as of 12/9/2014
Note
March
275,158
(275,158)
-
April
530,822
(530,822)
-
May
929,907
(929,907)
-
June
1,286,132
1,286,132
We anticipate that all of them will be collected by the end of 2014
Macao
March
1,180,761
(1,180,761)
-
April
2,047,841
(2,047,841)
-
May
1,696,457
1,696,457
We anticipate that all of them will be collected by the end of 2014
June
2,559,565
2,559,565
We anticipate that about $500,000 will be collected by the end of 2014, the rest will be collected in Q1/2015.
Total
10,506,643
(4,964,490)
5,542,153
The bank did not exclude any of the receivables in computing the borrowing based referenced on page 17.
The following is a table of the roll-forward showing activity in the bad debt allowance for 2012, 2013 and 2014 by quarters:
Invoices written off
Bad Debt Allowance Reserved (Reversal)
Balance
Note
Beginning of 2012
-
No bad debt reserve was recorded.
1st Q of 2012
-
No bad debt reserve was recorded.
2nd Q of 2012
223,859
223,859
3rd Q of 2012
(39,557)
184,302
62,696
246,998
4th Q of 2012
(48,197)
198,801
27,336
226,137
1st Q of 2013
(2,154)
223,983
2nd Q of 2013
(66,519)
157,463
62,541
220,004
3rd Q of 2013
30,269
250,273
4th Q of 2013
(58,479)
191,794
Actual bad debt was $508,479, However, the insurance reimbursed $450,000 of this amount.
88,261
280,055
1st Q of 2014
(33,036)
247,019
2nd Q of 2014
(6,656)
240,363
75,641
316,004
3rd Q of 2014
39,956
355,960
There is a material weakness in our internal control over financial reporting. Specifically, we currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. However, we do have the accounting policy for the reserve of bad debt allowance and the reviewing process to make sure of the adequacy of such reserve. We first record 1% of total accounts receivable as bad debt allowance, and we further analyze each individual customer with aging over 90 days to further assess the likelihood of collectability. We then report the conclusion of this analysis to our CFO and CEO for approval of the bad debt allowance amount. Given the facts that the actual historical bad debt expense has been insignificant (see table above), and that the collectability of the amounts of AR with aging over 90 days are reasonably assured based on our assessment, we believe the reserve of 1% of the total accounts receivable outstanding as bad debt allowance was sufficient. Therefore, the material weakness in controls did not have an impact on the company’s ability to account for bad debts in accordance with US GAAP.
If you have any further comments or require any further information or if any questions should arise in connection with this submission, please email me at jeffrey_wong@novalifestyle.com
Very truly yours,
/s/ Ya Ming Wong
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CORRESP
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novalifestyle-corresp121714.htm
Nova LifeStyle, Inc.
December 17, 2014
Via EDGAR
United States Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549-0405
Attn: Terence O'Brien Branch Chief
Re:
Nova LifeStyle, Inc.
Form 10-K
Filed March 31, 2014
File No. 1-36259
Dear Mr. O'Brien:
Nova LifeStyle, Inc. (“Nova” or the “Company” and sometimes referred to as “we” or “our”) is filing a response to the SEC Comment Letter, dated December 8, 2014, in connection with complying with the issues and outstanding disclosure items set forth therein. For convenience of reference, we have included, in this response letter, the same caption and paragraph number, as well as the text of the comment, set forth in your Comment Letter followed by our response.
Form 10-Q for the period ended September 30, 2014
Liquidity and Capital Resources, page 30
1. We have read your response to comment 3 in our letter dated November 19, 2014 and re-issue the part of our comment asking for your analysis regarding the adequacy of the allowance for doubtful accounts. Please explain to us how you determined an allowance of $355,960 was adequate as of September 30, 2014 given the $10.5 million accounts receivable that were older than 90 days as of that date. Also tell us how much of the $10.5 million is from customers in China compared to those outside of China and whether the bank has excluded any of the receivables in computing the borrowing base referenced on page 17. Please provide a roll forward showing activity in the allowance for 2012, 2013 and 2014 so we can assess charge-off activity, or include this information in a Schedule II pursuant to Rule 5-04(c) of Regulation S-X. Finally, explain to us how the material weakness in controls impacts your ability to account for bad debts in accordance with US GAAP.
Response:
The Company reviewed the composition of accounts receivable and analyzed historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. In addition, please refer to roll-forward allowance table below, the Company has constantly experienced actual bad debt expense that was less than 1% of total accounts receivable. Based on historical collection activity, the Company determined to maintain its bad debt allowance on the level of 1% of its total accounts receivable balance.
Of $10.5 million accounts receivable over 90 days, $7.48 million was from the customers outside of China and $3.02 million was from customers in mainland China. For accounts receivable from the customers outside of China, they were insured by an export insurance company with the insurance policy as follows:
Accounts receivable within 90 days, if default, the insurance will reimburse 90% of accounts receivable amount,
Accounts receivable over 90 days but within 180 days, if default, the insurance will reimburse 50% of account receivable amount,
Accounts receivable over 180 days, if default, the Company assumes the loss of default.
Default means that the credit insurance company was unable to collect the Company’s over-due invoices after they had made all of their efforts.
It is infrequent for the Company to utilize the credit insurance. The Company only utilized once for the period from January 1, 2012 to September 30, 2014 as indicated in below table.
The following table is to show the status of collection for the over 90 days accounts receivable of Dongguan and Macao as of September 30, 2014 on December 9, 2014, the over 90 days accounts receivables for other subsidiaries were not material:
Dogguan
Over 90 days AR as of 9/30/2014
Collected as of 12/9/2014
Uncollected as of 12/9/2014
Note
March
275,158
(275,158)
-
April
530,822
(530,822)
-
May
929,907
(929,907)
-
June
1,286,132
1,286,132
We anticipate that all of them will be collected by the end of 2014
Macao
March
1,180,761
(1,180,761)
-
April
2,047,841
(2,047,841)
-
May
1,696,457
1,696,457
We anticipate that all of them will be collected by the end of 2014
June
2,559,565
2,559,565
We anticipate that about $500,000 will be collected by the end of 2014, the rest will be collected in Q1/2015.
Total
10,506,643
(4,964,490)
5,542,153
The bank did not exclude any of the receivables in computing the borrowing based referenced on page 17.
The following is a table of the roll-forward showing activity in the bad debt allowance for 2012, 2013 and 2014 by quarters:
Invoices written off
Bad Debt Allowance Reserved (Reversal)
Balance
Note
Beginning of 2012
-
No bad debt reserve was recorded.
1st Q of 2012
-
No bad debt reserve was recorded.
2nd Q of 2012
223,859
223,859
3rd Q of 2012
(39,557)
184,302
62,696
246,998
4th Q of 2012
(48,197)
198,801
27,336
226,137
1st Q of 2013
(2,154)
223,983
2nd Q of 2013
(66,519)
157,463
62,541
220,004
3rd Q of 2013
30,269
250,273
4th Q of 2013
(58,479)
191,794
Actual bad debt was $508,479, However, the insurance reimbursed $450,000 of this amount.
88,261
280,055
1st Q of 2014
(33,036)
247,019
2nd Q of 2014
(6,656)
240,363
75,641
316,004
3rd Q of 2014
39,956
355,960
There is a material weakness in our internal control over financial reporting. Specifically, we currently lack sufficient accounting personnel with the appropriate level of knowledge, experience and training in U.S. GAAP and SEC reporting requirements. However, we do have the accounting policy for the reserve of bad debt allowance and the reviewing process to make sure of the adequacy of such reserve. We first record 1% of total accounts receivable as bad debt allowance, and we further analyze each individual customer with aging over 90 days to further assess the likelihood of collectability. We then report the conclusion of this analysis to our CFO and CEO for approval of the bad debt allowance amount. Given the facts that the actual historical bad debt expense has been insignificant (see table above), and that the collectability of the amounts of AR with aging over 90 days are reasonably assured based on our assessment, we believe the reserve of 1% of the total accounts receivable outstanding as bad debt allowance was sufficient. Therefore, the material weakness in controls did not have an impact on the company’s ability to account for bad debts in accordance with US GAAP.
If you have any further comments or require any further information or if any questions should arise in connection with this submission, please email me at jeffrey_wong@novalifestyle.com
Very truly yours,
/s/ Ya Ming Wong
Ya Ming Wong, Chief Executive Officer
Nova LifeStyle, Inc.
cc: Tawny Lam, President, Nova LifeStyle, Inc.
Sammy Ho, Chief Financial Officer, Nova LifeStyle, Inc.
Thomas Wardell, Esq.