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United States securities and exchange commission logo
August 25, 2022
Lin Li
Chief Executive Officer
Northann Corp.
9820 Dino Drive, Suite 110
Elk Grove, CA 95624
Re: Northann Corp.
Draft Registration
Statement on Form S-1
Submitted July 29,
2022
CIK No. 0001923780
Dear Mr. Li:
We have reviewed your 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 amending your registration
statement and providing the
requested information. 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 any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Confidential Draft Registration Statement on Form S-1
Cover Page
1. Please disclose
prominently on the prospectus cover page that you are not a Chinese
operating company but a
Nevada holding company with operations conducted by your
subsidiaries based in
China and that this structure involves unique risks to investors. If
true, disclose that
these contracts have not been tested in court. Provide a cross-reference
to your detailed
discussion of risks facing the company and the offering as a result of this
structure.
2. Provide prominent
disclosure about the legal and operational risks associated with being
based in or having the
majority of the company s operations in China. Your disclosure
should make clear
whether these risks could result in a material change in your operations
and/or the value of the
securities you are registering for sale or could significantly limit or
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FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
August
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completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless. Your disclosure
should address how recent statements and regulatory actions by China
s government, such
as those related to the use of variable interest entities and data
security or anti-monopoly
concerns, have or may impact the company s ability to conduct its
business, accept
foreign investments, or list on a U.S. or other foreign exchange.
Please disclose whether
your auditor is subject to the determinations announced by the PCAOB
on December 16,
2021 and whether and how the Holding Foreign Companies Accountable Act
and related
regulations will affect your company. Your prospectus summary should
address, but not
necessarily be limited to, the risks highlighted on the prospectus
cover page.
3. Please clearly disclose how you will refer to the holding company,
subsidiaries, and other
entities when providing the disclosure throughout the document so that
it is clear to
investors which entity the disclosure is referencing and which
subsidiaries or entities are
conducting the business operations. Refrain from using terms such as
"we" or "our" when
describing activities or functions of a subsidiary or other entity.
4. Provide a description of how cash is transferred through your
organization and disclose
your intentions to distribute earnings or settle amounts owed under
the applicable
agreements. State whether any transfers, dividends, or distributions
have been made to
date between the holding company, its subsidiaries, and consolidated
entities, or to
investors, and quantify the amounts where applicable.
Prospectus Summary, page 3
5. In your summary of risk factors, disclose the risks that your
corporate structure and being
based in or having the majority of the company s operations in China
poses to investors.
In particular, describe the significant regulatory, liquidity, and
enforcement risks with
cross-references to the more detailed discussion of these risks in the
prospectus. For
example, specifically discuss risks arising from the legal system in
China, including risks
and uncertainties regarding the enforcement of laws and that rules and
regulations in
China can change quickly with little advance notice; and the risk that
the Chinese
government may intervene or influence your operations at any time, or
may exert more
control over offerings conducted overseas and/or foreign investment in
China-based
issuers, which could result in a material change in your operations
and/or the value of the
securities you are registering for sale. Acknowledge any risks that
any actions by the
Chinese government to exert more oversight and control over offerings
that are conducted
overseas and/or foreign investment in China-based issuers could
significantly limit or
completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
6. Disclose each permission or approval that you or your subsidiaries are
required to obtain
from Chinese authorities to operate your business and to offer the
securities being
registered to foreign investors. State whether you or your
subsidiaries are covered by
permissions requirements from the China Securities Regulatory
Commission (CSRC),
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FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
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Cyberspace Administration of China (CAC), or any other governmental
agency that is
required to approve your or your subsidiaries operations, and state
affirmatively whether
you have received all requisite permissions or approvals and whether
any permissions or
approvals have been denied. Please also describe the consequences to
you and your
investors if you or your subsidiaries: (i) do not receive or maintain
such permissions or
approvals, (ii) inadvertently conclude that such permissions or
approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and
you are required to
obtain such permissions or approvals in the future.
7. Provide a clear description of how cash is transferred through your
organization. Disclose
your intentions to distribute earnings or settle amounts owed under
your operating
structure. Quantify any cash flows and transfers of other assets by
type that have occurred
between the holding company and its subsidiaries, and direction of
transfer. Quantify any
dividends or distributions that a subsidiary has made to the holding
company and which
entity made such transfer, and their tax consequences. Similarly
quantify dividends or
distributions made to U.S. investors, the source, and their tax
consequences. Your
disclosure should make clear if no transfers, dividends, or
distributions have been made to
date. Describe any restrictions on foreign exchange and your ability
to transfer cash
between entities, across borders, and to U.S. investors. Describe any
restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries, to the parent company and U.S. investors as well as the
ability to settle
amounts owed under applicable agreements.
8. Disclose that trading in your securities may be prohibited under the
Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or investigate
completely your auditor, and that as a result an exchange may
determine to delist your
securities. Disclose whether your auditor is subject to the
determinations announced by
the PCAOB on December 16, 2021.
Made in the United States, page 7
9. Please revise to clarify what steps are involved to implement the
plans discussed in this
section, what steps you have already taken and what steps remain, the
sources from which
you will obtain capital and raw materials and any material hurdles you
expect to encounter
in implementing your disclosed plans. Also revise to clarify how your
plans relate to your
current and historical operations. For example, you disclose that you
manufacture your
products in China. Will you continue to do so after completion of your
plan?
Vertical Integration, page 7
10. Please revise to clarify the meaning of the disclosures in this
section and how it relates to
the caption. For example, it is unclear how the "algorithm" will have
the effects you note,
how "uploading pictures" will achieve the benefits you claim and how
these actions relate
to "vertical integration."
Implications of Being an "Emerging Growth Company", page 13
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
August
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FirstName LastName
11. Revise to reconcile the disclosure on page 14 that you intend to take
advantage of all of
the JOBS Act reduced reporting requirements and exemptions, other than
the longer
phase-in periods for the adoption of new or revised financial
accounting standards, with
the information disclosed on page 46 that pursuant to the JOBS Act you
are electing to
delay the adoption of new or revised accounting standards. In
addition, please revise to
correct the disclosure indicating that you will file annual reports on
Form 20-F in future
periods, or advise us.
The Offering, page 15
12. If all outstanding convertible or exercisable securities will remain
outstanding after this
offering, please revise to state so.
Risk Factors, page 16
13. We note your disclosure about the Holding Foreign Companies
Accountable Act. Please
expand your risk factors to disclose that the United States Senate has
passed the
Accelerating Holding Foreign Companies Accountable Act, which, if
enacted, would
decrease the number of non-inspection years from three years to
two years, and thus,
would reduce the time before your securities may be prohibited from
trading or delisted.
Update your disclosure to reflect that the Commission adopted rules to
implement the
HFCAA and that, pursuant to the HFCAA, the PCAOB has issued its report
notifying the
Commission of its determination that it is unable to inspect or
investigate completely
accounting firms headquartered in mainland China or Hong Kong.
14. Given the Chinese government s significant oversight and discretion
over the conduct of
your business, please revise to highlight separately the risk that the
Chinese government
may intervene or influence your operations at any time, which could
result in a material
change in your operations and/or the value of the securities you are
registering. Also,
given recent statements by the Chinese government indicating an intent
to exert more
oversight and control over offerings that are conducted overseas
and/or foreign investment
in China-based issuers, acknowledge the risk that any such action
could significantly limit
or completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
15. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China (CAC) over data security, particularly for companies seeking to
list on a foreign
exchange, please revise your disclosure to explain how this oversight
impacts your
business and your offering and to what extent you believe that you are
compliant with the
regulations or policies that have been issued by the CAC to date.
16. Please add a risk factor describing the risks related to anti-takeover
provisions in your
governing documents. We note, for example, your ability to issue
preferred stock.
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
August
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FirstName LastName
17. Please disclose the risks that the company s multi-class structure
may render its shares
ineligible for inclusion in certain stock market indices, and thus
adversely affect share
price and liquidity.
If the availability of direct materials (raw materials, packaging, sourced
products, energy)
decreases..., page 26
18. We note your risk factors that your supply chain may be impacted by
the availability of
direct materials and disruption to suppliers of raw materials. Update
your risks
characterized as potential if recent supply chain disruptions have
impacted your
operations, including from the Russian invasion of Ukraine and
COVID-19. We note
specifically your disclosure on page 7 regarding supply chain
disruption and increased
shipping costs.
19. Please revise to clarify the "concentration of sourced products in an
emerging market" by
identifying the products and the market. Also explain why that
concentration subjects you
to the risks you disclose.
Capitalization, page 36
20. Revise the table to include your outstanding indebtedness as of the
most recent balance
sheet date, including bank borrowings which amounted to approximately
$6.4 million
at December 31, 2021. In addition, revise the table captions and
related amounts in the
Actual column to be consistent with your balance sheet. For example,
it appears that you
have reversed the amounts shown for common stock and preferred stock,
and the amounts
shown for retained earnings, and total stockholders' equity are not
reflective of your
December 31, 2021 balance sheet. Lastly, please replace the line item
entitled "Total
Liabilities and Stockholders Equity" with a line item showing your
total
capitalization, comprising your total indebtedness and total
stockholders' equity/(deficit).
Dilution, page 37
21. Revise the last sentence on page 38 to correct the reference to your
"net income book
value", or tell us how that term relates to your Net tangible book
value discussed in the
Dilution section.
22. Please expand the disclosure to explain how the numbers and
percentages in the table on
page 38 would change, assuming the conversion or exercise of all
outstanding securities.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, page
39
23. We note your disclosure that your revenues and results of operation
could differ due to
inflationary conditions. Please expand to identify the principal
factors contributing to the
inflationary pressures the company has experienced and clarify the
resulting impact to the
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FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
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company. Also identify actions planned or taken, if any, to mitigate
inflationary
pressures.
24. In an appropriate section of your document, revise to discuss the
impact of the tariffs and
import tax mentioned on page 7 on your results of operation.
Impact of COVID-19 on Our Operations and Financial Performance, page 40
25. Please revise the disclosure in this section to explain clearly and
specifically how COVID-
19 and related shutdowns has impacted your business, financial
condition and liquidity,
quantifying the impact to the extent possible. As one example only, we
note the
references to disruptions to the supply chain, higher raw material
costs and higher
shipping costs on pages 7 and 44. Also, if you reasonably expect it
will have a material
effect on your business in the future, revise to explain those
effects. Ensure your
disclosure also addresses any actions you have taken or will take to
mitigate the effects,
and any material risks presented by your mitigation efforts.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Critical Accounting Policies, Judgments and Estimates, page 41
26. To eliminate investor confusion, revise this section heading to read
"Critical Accounting
Estimates", consistent with the guidance in Item 303(b)(3) of
Regulation S-K, and
only include in the section a discussion of those critical accounting
estimates that involve
a significant level of estimation uncertainty and have had or are
reasonably likely to have
a material impact on your financial condition or results of
operations. Please consider, for
example, whether the section should continue to include the
disclosures of basis of
presentation, principles of consolidation, and research and
development, as the section
is not intended to be duplicative of the significant accounting
polices disclosed in the
audited financial statements.
Results of Operations, page 43
27. For each line item presented, revise to explain the reasons underlying
the changes you
mention. For example, explain the cause or causes underlying the
revenue increase.
Similarly, explain the reasons for the changes to your gross margin
despite higher sales.
Liquidity and Capital Resources, page 45
28. Your current disclosure regarding your cash flows simply recites
changes without
explanation. Please revise to explain the reasons driving the changes
noted in your
disclosure.
United States Federal Income Tax Considerations, page 86
29. Regarding your disclosure here and page 71 and exhibits 8.1 and 8.2,
please revise to
name counsel and state that the disclosure is their opinion.
Lin Li
FirstName LastNameLin Li
Northann Corp.
Comapany
August 25, NameNorthann
2022 Corp.
August
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Audited Financial Statements
Consolidated Statements of Operations, page F-4
30. Revise your computation of basic and diluted earnings per share to
remove weighted
average preferred shares outstanding from the denominator. Refer to
ASC 260-10-45-10
and 45-16, where net income available to common stockholders on a per
share basis
should be based on the weighted average number of common shares
outstanding and
common stock equivalents. Please revise all sections of the filing, as
appropriate, including the computations and disclosures on page F-11.
Note 1. Organization and Business, page F-7
31. Please revise the Going Concern discussion to eliminate the
inconsistency between the
December 31, 2021 working capital deficit $(7,091,694) and accumulated
deficit
of $(511,557) disclosed here and the amounts presented on or
calculated from the
December 31, 2021 audited balance sheet. Otherwise, advise us.
32. Refer to the paragraph discussing the events of March 2022, and please
expand to disclose
whether the restructuring was reflected for accounting purposes as a
transfer of interests
among entities under common control and that the financial statements
for all periods are
presented at historical cost. Refer to ASC 805-50-30-5 and ASC
805-50-45-1 through 45-
5.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition, page F-8
33. Revise the second paragraph to describe the nature of your goods or
services that are
recognized at a point in time versus those recognized over time.
Consistent with ASC
606-10-50-12, also discuss whether there are single or multiple
performance obligations
and how they are satisfied, including your policy for warranties,
refunds and discounts.
For those goods or services recognized at a point in time, disclose
when that occurs, such
as upon shipment, delivery, other. For those goods or services
recognized over time,
disclose the input or output measures used to satisfy the performance
obligation for
recognizing revenue. Refer to ASC 606-10-25-30 through 32. Please
revise the
discussion currently included on page 41, as appropriate, to reflect
the expanded
disclosure.
Note 17. Parent Only Financial Statements, page F-21
34. Refer to paragraph (i), basis of presentation. Please revise the first
sentence to provide a
complete and concluding sentence, and clarify if references in this
paragraph to NDS,
should instead be to NBS. Further, provide condensed statements of
cash flows pursuant
Lin Li
Northann Corp.
August 25, 2022
Page 8
to Rule 12-04(a) of Regulation S-X. Also, explain to us why the parent
company's net
assets appear to exceed the consolidated net assets as of December 31,
2021.
Signatures, page II-6
35. Please revise this page to conform to the requirements of Form S-1.
36. Please revise to indicate who will sign in the capacity of principal
financial officer and
principal accounting officer/controller. While we note the disclosure
regarding appointing
a CFO after this offering, Form S-1 requires the signatures of the
persons serving in those
capacities prior to and at effectiveness.
General
37. Please disclose whether you are subject to material cybersecurity risks
in your supply
chain based on thirdparty products, software, or services used in your
products, services,
or business and how a cybersecurity incident in your supply chain could
impact your
business. Discuss the measures you have taken to mitigate these risks.
38. On page 18, you refer to a section titled "Enforceability of Civil
Liabilities," but it appears
no such section is included in your document. Please revise.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
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
August 25, 2022 Page 8
cc: Jason Ye
FirstName LastName