Northann (NCL) - 2024 Q4 - Annual Report

PART I ITEM 1. BUSINESS Northann Corp. aims to be a global one-stop decorating solutions provider, leveraging 3D printing for innovative, eco-friendly vinyl flooring and decorative products under the 'Benchwick' brand - Northann Corp.'s vision is to become a world-class one-stop decorating solutions provider, focusing on additive manufacturing (3D printing) for innovative building solutions[19][20] Revenue Breakdown by Product Type (FY2024 vs. FY2023) | Product Type | FY2024 Revenue Share | FY2023 Revenue Share | | :------------- | :------------------- | :------------------- | | Vinyl Flooring Products & Other Decorative Panels | 94.8% | 86.2% | Revenue Breakdown by Geographic Region (FY2024 vs. FY2023) | Region | FY2024 Revenue Share | FY2023 Revenue Share | | :------- | :------------------- | :------------------- | | United States | 100% | 98.2% | | Canada | 0% | 1.3% | | Europe | 1.3% | 0.5% | - The company's subsidiaries (NBS, NCP, Crazy Industry) own a portfolio of over 80 granted, pending, or published patents on 3D printing technology for decorative products[20][77][90] - Northann is establishing a new 3D printing manufacturing facility in Fort Lawn, South Carolina, with an expected cost of $24 million, financed partly by a $24 million EB-5 loan from a related party (3DFLOR OPPORTUNITY, LP), aiming to reduce logistics costs, tariffs, and improve brand recognition, with manufacturing expected to start in June 2025[34][36][100] - The company acquired Cedar Modern Limited and Raleigh Industries Limited in October and November 2024, respectively, through the issuance of common stock, to expand sales[41][43] - The Oneflow Private Placement, closed on March 31, 2025, involved the issuance of 40,000,000 shares of common stock, reducing CEO Lin Li's voting power from a majority to 44.3%, causing the company to cease qualifying as a 'controlled company' under NYSE American rules[59][60] - The company dismissed WWC, P.C. as its independent registered public accounting firm on May 24, 2025, and appointed LAO Professionals on May 29, 2025[68][71] - NBS has developed 'Envision,' a patent-approved AI learning system capable of generating decorative patterns for floor, wall, and ceiling panels, aiming to save design time and cost while offering more customization options[88][101][124] ITEM 1A. RISK FACTORS The company faces significant risks, including reliance on subsidiary dividends, exchange rate fluctuations, and potential adverse impacts from U.S. trade policies on imports from China - The company is a holding company and relies on dividends from its subsidiaries, which could be limited by debt restrictions or tax implications, affecting its ability to pay expenses or dividends to stockholders[134][135] - The company's financial statements contain an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern due to a working capital deficit and limited net cash from operating activities[140][207] - Recent U.S. trade policies, including reciprocal tariffs (e.g., 65% on imports from China as of April 9, 2025), are likely to significantly reduce imported goods volume and could materially reduce sales in primary markets, impacting the company's business and results of operations[183][184] Major Customer Concentration (FY2024 vs. FY2023) | Fiscal Year | Number of Major Customers | Total Revenue Accounted For | | :------------ | :------------------------ | :-------------------------- | | 2024 | 2 | 76.61% | | 2023 | 2 | 91% | Major Supplier Concentration (FY2024 vs. FY2023) | Fiscal Year | Number of Major Suppliers | Total Cost of Revenues Accounted For | | :------------ | :------------------------ | :----------------------------------- | | 2024 | 3 | 38.58% | | 2023 | 3 | 32% | - The company's common stock may be delisted or prohibited from trading on a national exchange under the HFCA Act if the PCAOB is unable to inspect its auditors for two consecutive years, although its current auditor is U.S.-based and subject to PCAOB inspection[218][221][226] ITEM 1B. UNRESOLVED STAFF COMMENTS This section states that there are no unresolved staff comments applicable to the company - Not applicable[248] ITEM 1C. CYBERSECURITY Northann Corp. manages cybersecurity risks through continuous monitoring, security assessments, and enhancements to protect its systems and data - The company continuously monitors its information systems to assess, identify, and manage cybersecurity risks, utilizing routine security assessments and security measure enhancements[249] - Cybersecurity risks associated with third-party service providers are managed through vendor management processes and cybersecurity risk evaluation during vendor selection[250] - Management, led by the CEO, is responsible for identifying and assessing cybersecurity risks, with the Board of Directors providing overall risk management oversight[252][253] - The company has not experienced any cyber incidents that have materially affected its business or financial condition[251] ITEM 2. PROPERTIES Northann Corp. operates manufacturing facilities in Changzhou, China, with land use rights until 2064/2065, and a new U.S. headquarters and manufacturing facility in South Carolina - NCP's manufacturing facilities in Changzhou, China, cover 47,500 square meters, with land use rights until 2064 and 2065[254] - The China facilities house 88 units of 3D printing equipment, with a production capacity exceeding 18,000 square meters of vinyl flooring per day[104][254] - A second phase of the factory in China, costing $5.39 million, is under construction and expected to complete in June 2025, adding approximately 250,000 square feet[255] - The company leased a 106,610 square foot facility in Fort Lawn, South Carolina, starting November 1, 2024, which includes office and industrial space, and relocated its headquarters there in December 2024[256][257] ITEM 3. LEGAL PROCEEDINGS Northann Corp. has faced minor legal issues, including environmental penalties in China and an ongoing breach of contract claim by its subsidiary NDC - In May 2022, NCP received administrative penalties of approximately $36,782 from the Changzhou Bureau of Ecology and Environment for environmental violations related to exhaust gas and wastewater discharge, which were paid in full[259] - In November 2024, NDC commenced legal proceedings against Ocean Networking and International Trading, LLC for breach of contract, with the claim currently ongoing[260] ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company - Not applicable[261] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Northann Corp.'s common stock trades on the NYSE American under 'NCL', with 14 record shareholders as of June 30, 2025, and no dividends planned - Northann Corp.'s common stock is quoted on the NYSE American under the symbol 'NCL'[263] Common Stock Information | Metric | Value | | :-------------------- | :------------------- | | Closing Price (June 27, 2025) | $0.1732 | | Shareholders of Record (June 30, 2025) | 14 | | Common Stock Outstanding (June 30, 2025) | 95,464,400 shares | | Series A Preferred Stock Outstanding (June 30, 2025) | 5,000,000 shares | - The company does not intend to pay dividends for the foreseeable future, planning to retain earnings for business operations and expansion[264][232] - The IPO in October 2023 generated $6,000,000 in gross proceeds, which have been used for general corporate and working capital purposes[265][266] - There were no repurchases of the company's securities during the year ended December 31, 2024[267] ITEM 6. [RESERVED] This item is reserved and contains no information - This item is reserved[268] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Northann Corp.'s FY2024 financial performance showed increased revenues and gross profit but a net loss, with ongoing 'going concern' uncertainty due to working capital deficit - The company's revenue mainly consists of wholesale and retail of vinyl flooring products, primarily marketed and sold in the United States and Canada[277] - Key factors affecting results include innovation, client payment default risks, growth management, brand recognition, labor/raw material costs, competition, and rising inflation[279] - Revenue is recognized when customers obtain control of promised goods, typically at the time of delivery, with no provisions for returns, refunds, or warranties in contracts[281][282] Key Financial Highlights (FY2024 vs. FY2023) | Metric | FY2024 (USD) | FY2023 (USD) | Change (USD) | Change (%) | | :-------------------------------- | :----------- | :----------- | :----------- | :--------- | | Revenues | 15,349,854 | 13,971,729 | 1,378,125 | 10.0% | | Cost of Revenues | 11,351,170 | 12,744,474 | (1,393,304) | (10.9%) | | Gross Profit | 3,979,826 | 1,214,364 | 2,765,462 | 227.7% | | Gross Margin | 25.9% | 8.7% | 17.2% | - | | Selling Expenses | 1,071,633 | 1,158,467 | (86,834) | (7.5%) | | General & Administrative Expenses | 3,798,777 | 2,920,303 | 878,474 | 30.1% | | Research & Development Expenses | 783,356 | 1,899,299 | (1,115,943) | (58.8%) | | Loss from Operations | (1,673,940) | (4,763,705) | 3,089,765 | (64.9%) | | Impairment Loss on Goodwill | 2,507,455 | - | 2,507,455 | - | | Net Loss | (4,379,875) | (7,132,573) | 2,752,698 | (38.6%) | | Total Comprehensive Loss | (2,556,422) | (7,138,523) | 4,582,101 | (64.2%) | - The company recognized an impairment charge of $2,507,455 on goodwill in FY2024, resulting from the acquisitions of Cedar Modern Limited and Raleigh Industries Limited[303] Cash Flow Summary (FY2024 vs. FY2023) | Cash Flow Type | FY2024 (USD) | FY2023 (USD) | | :-------------------------------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | (1,233,491) | (4,678,716) | | Net cash used in investing activities | (296,363) | - | | Net cash (used in) provided by financing activities | (1,186,585) | 5,376,489 | - As of December 31, 2024, the company had a working capital deficit of $5,781,202 and net cash provided by operating activities of $243,506, raising substantial doubt about its ability to continue as a going concern[207][445] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a 'smaller reporting company,' Northann Corp. is not required to provide extensive market risk disclosures but highlights significant credit risk concentrations in cash, accounts receivable, and supplier relationships - The company is a 'smaller reporting company' and is not required to provide extensive market risk disclosures[321] Customer Concentration of Revenues and Accounts Receivable (FY2024) | Metric | Percentage | | :-------------------- | :----------- | | Two major customers accounted for | ~72% of revenues | | Five customers accounted for | 94% of accounts receivable | Supplier Concentration of Cost of Revenues and Accounts Payable (FY2024) | Metric | Percentage | | :-------------------- | :----------- | | Five suppliers accounted for | 48% of cost of revenues | | One supplier accounted for | >10% of accounts payable | - Credit risk is concentrated in cash held by major financial institutions in the PRC, Hong Kong, and the United States, and in accounts receivable, for which the company performs ongoing credit evaluations[319][320][541][542] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section refers to the company's financial statements and supplementary data, which are provided in pages F-1 through F-26 of the Annual Report on Form 10-K - Financial statements and supplementary data are located in pages F-1 through F-26 of the Annual Report[322] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE This section states that there were no changes in or disagreements with accountants on accounting and financial disclosure - None[323] ITEM 9A. CONTROLS AND PROCEDURES Northann Corp.'s management concluded that its disclosure controls and procedures were not effective as of December 31, 2024, due to a material weakness in internal control over financial reporting - As of December 31, 2024, the company's disclosure controls and procedures were deemed not effective at the reasonable assurance level[325] - A material weakness in internal control over financial reporting was identified, stemming from insufficient staffing and a lack of formalized policies and procedures for accounting and financial reporting, which hindered timely management review and approval of financial information[328] - The company, as a smaller reporting company, is not subject to attestation by its registered public accounting firm regarding the effectiveness of its internal control over financial reporting[330] - There were no changes in internal control over financial reporting during the year ended December 31, 2024, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[331] ITEM 9B. OTHER INFORMATION This section reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during 2024[332] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS This section states that there are no disclosures regarding foreign jurisdictions that prevent inspections - None[333] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Northann Corp.'s executive team includes Lin Li (Chairman, CEO), Sunny S. Prasad (Interim CFO), and Kurtis W. Winn (COO), with a five-member Board of Directors Executive Officers and Directors | Name | Age | Position | | :------------------ | :-- | :--------------------------------------------------- | | Lin Li | 45 | Chairman of the Board, Chief Executive Officer, President, Secretary, Treasurer | | Sunny S. Prasad | 51 | Interim Chief Financial Officer | | Kurtis W. Winn | 59 | Chief Operating Officer and Director | | Bradley C. Lalonde | 71 | Independent Director; Chair of Audit Committee | | Umesh Patel | 68 | Independent Director; Chair of Compensation Committee | | Jing Zhang | 45 | Independent Director; Chair of Nominating and Corporate Governance Committee | - The Audit Committee consists of Bradley C. Lalonde (Chair), Umesh Patel, and Jing Zhang, all of whom are independent directors, with Bradley C. Lalonde qualified as an audit committee financial expert[344] - The Compensation Committee consists of Umesh Patel (Chair), Bradley C. Lalonde, and Jing Zhang; the Nomination Committee consists of Jing Zhang (Chair), Bradley C. Lalonde, and Umesh Patel[345][346] - The company has adopted a Code of Ethics and an Insider Trading Policy to promote ethical conduct and compliance[346][355] - Directors did not comply with Section 16(a) beneficial ownership reporting requirements in 2024 due to late filings[357] ITEM 11. EXECUTIVE COMPENSATION Executive compensation for FY2024 included base salaries for Lin Li and Kurtis W. Winn, with no bonuses or stock awards reported for named executive officers Summary Compensation Table (FY2024 vs. FY2023) | Name and Principal Position | Fiscal Year | Salary (US$) | Bonus (US$) | Stock Awards (US$) | All Other Compensation (US$) | Total (US$) | | :-------------------------- | :---------- | :----------- | :---------- | :----------------- | :--------------------------- | :---------- | | Lin Li | 2024 | 120,000 | - | - | - | 120,000 | | | 2023 | 120,000 | - | - | - | 120,000 | | Sunny S. Prasad | 2024 | - | - | - | - | - | | | 2023 | - | - | - | - | - | | David M. Kratochvil | 2024 | 20,000 | - | - | - | 20,000 | | | 2023 | 20,000 | - | - | - | 20,000 | | Kurtis W. Winn | 2024 | 100,000 | - | - | - | 100,000 | | | 2023 | 100,000 | - | - | - | 100,000 | Non-Employee Director Compensation (2024) | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Total ($) | | :-------------------- | :------------------------------ | :--------------- | :-------- | | Bradley C. Lalonde | 20,000 | 30,000 | 50,000 | | Umesh Patel | 9,058 | 18,750 | 27,808 | | Jing Zhang | - | - | - | | Charles James Schaefer IV | 12,500 | 18,750 | 31,250 | | Scott Powell | 20,000 | 30,000 | 50,000 | - The 2023 Equity Incentive Plan was amended on December 31, 2024, to increase the maximum aggregate number of shares of common stock available for awards from 4,000,000 to 12,000,000[26][27][371][377] - As of December 31, 2024, no outstanding equity awards (options or restricted stock units) were reported for the named executive officers[373] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of June 30, 2025, CEO Lin Li beneficially owned 15.1% of common stock and 100% of Series A Preferred Stock, giving him 44.3% of total voting power Beneficial Ownership as of June 30, 2025 | Name | Common Stock Beneficially Owned (%) | Series A Preferred Stock Beneficially Owned (%) | Percentage of Voting Power (%) | | :------------------------------------ | :-------------------------------- | :------------------------------------------ | :----------------------------- | | Lin Li | 15.1% | 100% | 44.3% | | All Directors and Executive Officers as a Group | 15.1% | 100% | 44.3% | | GAGEONE LLC | 8.4% | - | 5.5% | | LIZAQUEEN ACQUISITION INC. | 8.4% | - | 5.5% | | ONEFLOW LLC | 8.4% | - | 5.5% | | WENJUE WANG | 8.4% | - | 5.5% | | YE MO | 8.4% | - | 5.5% | - Each share of common stock entitles the holder to one vote, and each share of Series A Preferred Stock entitles the holder to ten votes[393] Equity Compensation Plan Information (as of December 31, 2024) | Plan Category | Number of securities to be issued upon exercise of outstanding options and restricted stock units | Weighted-average exercise price of outstanding options and restricted stock units | Number of securities remaining available for future issuance under equity compensation plans | | :------------------------------------------ | :----------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | - | - | 8,000,000 | | Equity compensation plans not approved by security holders | - | - | - | | Total | - | - | 8,000,000 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Northann Corp. engaged in related party transactions, including unsecured, interest-free loans from CEO Lin Li and a $24 million EB-5 loan from a related party for a new manufacturing facility - Lin Li, CEO and Chairman, provided unsecured, interest-free loans to the company's subsidiaries for working capital, totaling $1,062,551 in FY2024 and $118,883 in FY2023. The amount due to Lin Li as of December 31, 2024, was $2,565,494[402][518] - On January 21, 2025, 3D PRINTING, a subsidiary, entered into an EB-5 loan agreement with 3DFLOR OPPORTUNITY, LP, a related party controlled by Lin Li, for an initial maximum principal amount of $24,000,000 at 1.00% interest per year. The loan is intended to finance a new 3D printing manufacturing facility in South Carolina[36][403][547][548] - The EB-5 loan is secured by a pledge of all 49 million Class A Units of 3D PRINTING owned by Benchwick LLC, a fully-owned subsidiary of the company, in favor of 3DFLOR[38][405][550] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Northann Corp. changed its independent registered public accounting firm in May 2025, with WWC, P.C. rendering services for FY2024 and FY2023 - WWC, P.C. was dismissed as the independent registered public accounting firm on May 24, 2025, and LAO Professionals was appointed on May 29, 2025[68][71][407] Principal Accountant Fees (FY2024 vs. FY2023) | Fee Type | 2024 (USD) | 2023 (USD) | | :--------------- | :--------- | :--------- | | Audit Fees | 135,000 | 165,000 | | Audit-Related Fees | 50,000 | 80,000 | | Tax Fees | - | - | | All Other Fees | - | - | | Total | 145,000 | 245,000 | - The Audit Committee has implemented pre-approval procedures for all audit and permitted non-audit services, with delegation authority to the chairman for interim approvals[407] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES This section provides a comprehensive list of exhibits, financial statements, and schedules filed as part of the Annual Report on Form 10-K - The section lists various exhibits, including corporate governance documents (Articles of Incorporation, Bylaws), employment agreements, loan agreements (e.g., EB-5 Loan Agreement), share purchase agreements (e.g., Cedar Modern, Raleigh, Oneflow, X29, Caitlin), and certifications[410][411] ITEM 16. FORM 10-K SUMMARY This section indicates that no Form 10-K summary is provided - None[412]