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United States securities and exchange commission logo
January 11, 2023
Lin Li
Chief Executive Officer
Northann Corp.
9820 Dino Drive, Suite 110
Elk Grove, CA 95624
Re: Northann Corp.
Amendment No. 3 to
Draft Registration
Statement on Form S-1
Submitted December
27, 2022
CIK No. 0001923780
Dear Lin Li:
We have reviewed your amended draft registration statement and
have the following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Amendment No. 3 to Draft Registration Statement on Form S-1
Risks Related to Our Business and Industry
Our financial statements contain an explanatory paragraph regarding
uncertainty as our ability to
raise capital and...as a going concern., page 28
1. Refer to your
disclosure of the amounts for working capital deficit and accumulated
deficit as of September
30, 2022 and December 31, 2021. Please reconcile with the
respective amounts
disclosed in the financial statements. For example, we note
your working capital
deficit was $4,131,950 and $6,905,031 at September 30, 2022 and
December 31, 2021,
respectively, and that you have retained earnings rather than an
accumulated deficit at
each balance sheet date. To the extent your reference to
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
January 11,NameNorthann
2023 Corp.
January
Page 2 11, 2023 Page 2
FirstName LastName
accumulated deficit should instead mean stockholders' deficit, we note
you had
stockholders' equity at September 30, 2022 and a deficit at December
31, 2021. Please
revise or advise accordingly.
Capitalization, page 37
2. We note several inconsistencies between the amounts presented in the
capitalization table
and the amounts shown on your September 30, 2022 balance sheet on page
F-23,
including the amounts presented for total bank borrowings, accumulated
paid-in capital,
retained earnings and total stockholders' equity. Please revise to
resolve the
inconsistencies, or advise us. In addition, revise the table to
include your Convertible
Notes as part of your capitalization.
Dilution, page 38
3. Refer to the dilution table on page 38. Given that you have
stockholders' equity as
of September 30, 2022, please provide us with your computation of the
line item net
tangible book value per share as of September 30, 2022 of $(1.25).
Your response should
include detailed amounts obtained from the September 30, 2022 balance
sheet at page F-
23 along with the number of common shares used in the computation.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations: Comparison for the Nine Months Ended September 30, 2022
and 2021,
page 44
4. Refer to your discussion of revenues on page 44. Please expand to
discuss the reasons for
the lower turnover of inventory which caused a decrease in sales
volume. Explain why
your sales of products decreased in both terms of dollars and volume.
5. Refer to your discussion of selling expenses on page 45, where you
indicate that salaries
and social insurance decreased in the nine months ended September 30,
2022, but in the
next sentence you refer to an increase in that line item during the
same period. Please
revise to eliminate this inconsistency. In addition, revise to clarify
whether tariffs paid are
part of your selling expenses and if so, where they are presented on
the table on page 45.
Otherwise, please move the disclosure to the appropriate section of
the Results of
Operations discussion.
6. Refer to your discussion of general and administrative expenses on
page 45. Please revise
the second sentence to clarify that these expenses increased by
$1,286,137 to $2,061,898
for the nine months ended September 30, 2022. In addition, given the
material increase in
bad debt expense during the period, expand your discussion to clearly
describe the
circumstances that resulted in that increase. For example, consider
including here and
expanding upon the disclosures included on page F-33. Also, discuss
whether the increase
in the allowance for doubtful accounts during the period related to
one or more customer
accounts and disclose the circumstances that led to management's
determination that an
allowance relating to these past due accounts was required. Tell us
whether the impacted
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
January 11,NameNorthann
2023 Corp.
January
Page 3 11, 2023 Page 3
FirstName LastName
customers were part of the five customers that accounted for 91% of
your accounts
receivable at December 31, 2021, and update your concentration of
credit risk disclosures
in your financial statements, as appropriate.
7. Refer to your discussion of net income on page 46, and please revise
the second sentence
to clarify that your net income decreased, rather than increased, for
the nine months ended
September 30, 2022.
Liquidity and Capital Resources, page 48
8. We note instances of inconsistent and confusing disclosure in your
discussion of your
Liquidity and Capital Resources. Please revise to address the
following:
In the first sentence of the second paragraph of your
discussion of operating
activities, clarify that net cash was used in operating
activities for the nine months
ended September 30, 2022, and reconcile the amounts disclosed for
changes in
accounts receivable for both 2022 and 2021 with the amounts in
the statements of
cash flows on page F-26.
Refer to the discussion of investing activities and clarify in
the first sentence of the
first paragraph that net cash was provided by investing
activities during the nine
months ended September 30, 2022.
Refer to the discussion of financing activities for the nine
months ended September
30, 2022 and reconcile the short-term loan borrowings obtained of
$831,500 with the
proceeds from bank borrowings of $713,816 shown on page F-26.
Executive Compensation, page 81
9. Please update your disclosure to be as of your most recently completed
fiscal year.
Expert, page 102
10. Please revise to also reference the review report issued by WWC, P.C.
on your unaudited
interim financial statements as of September 30, 2022 and for the nine
months
ended September 30, 2022 and 2021. Also, file as Exhibit 15.1 a letter
from WWC, P.C.
acknowledging awareness of the inclusion and use of their review
report in this
registration statement. Refer to Item 601(b)(15) of Regulation S-K.
Consolidated Statements of Stockholders' Deficit, page F-25
11. Please revise to also include a statement of stockholders' deficit or
equity for the
comparative nine months ended September 30, 2021, as indicated in the
Index to the
financial statements on page F-1. Refer to Rule 8-03(a)(5) and Rule
3-04 of Regulation S-
X.
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
January 11,NameNorthann
2023 Corp.
January
Page 4 11, 2023 Page 4
FirstName LastName
Consolidated Statements of Cash Flows, page F-26
12. Please describe to us the transactions that resulted in the $925,000
capital contribution
from shareholders during the nine months ended September 30, 2022.
Revise to include
appropriate disclosure in a note to the financial statements.
Note 1. Organization and Business
Going Concern, page F-27
13. Please revise the second sentence to correctly indicate that as of
September 30, 2022, you
reported total stockholders' equity of $2,217,912, and not a
stockholders' deficit as
currently disclosed.
Note 2. Summary of Significant Accounting Policies
Net earnings per share of common stock, page F-31
14. Please expand the table to include comparative data for the nine
months ended September
30, 2021. Further, disclose in the last paragraph whether or not there
is a dilutive effect to
earnings per share for the nine months ended September 30, 2022 for
the contingently
issuable shares from the Convertible Debentures issued in May 2022.
Note 11. Convertible Notes, page F-37
15. Please expand to clearly disclose the total gross and net proceeds
received from issuance
of the Convertible Notes in May 2022 and tell us where the proceeds
have been reflected
in the Statements of Cash Flows on page F-26. We note disclosure on
page 86 and in Item
15 on page II-2 that you received gross proceeds of $1,000,000 before
deducting
placement agent fees and expenses. Also, include a table to disclose
the components of
the Convertible Notes, net amount presented on your September 30, 2022
balance sheet.
16. In addition, revise the Recent Accounting Pronouncements section of
Note 2 on page F-32
to include the disclosures required by SAB Topic 11M (SAB 74)
concerning the potential
effects of your adoption of ASU 2020-06 - 'Debt -- Debt with
Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging -- Contracts in
Entity s Own
Equity (Subtopic 815-40)'. Please include disclosure of when you will
adopt the update
and how you intend to apply the guidance in ASU 2020-06 to your
Convertible Notes.
Note 18 - Unrestricted Net Assets, page F-42
17. Please revise the Condensed Financial Information on Cash Flows
presented on page F-43
to only include cash flows relating to the activities of the parent
company. We note from
page F-42 that you reported parent company cash of $218 at September
30, 2022, while
the cash flow activities reported here resulted in an ending cash
balance of $35,722 at the
same date. Please refer to the guidance in Rule 12-04 of Regulation
S-X and revise
accordingly, or advise us.
Lin Li
Northann Corp.
January 11, 2023
Page 5
You may contact Beverly Singleton at 202-551-3328 or Martin James at
202-551-3671 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Alex King at 202-551-8631 or Geoffrey Kruczek at 202-551-3641 with any
other
questions.
Sincerely,
FirstName LastNameLin Li
Division of
Corporation Finance
Comapany NameNorthann Corp.
Office of
Manufacturing
January 11, 2023 Page 5
cc: Jason Ye
FirstName LastName