Northann (NYSE: NCL) Q1 revenue up 44% as losses, going-concern risks persist
Filing Impact
Filing Sentiment
Form Type
10-Q
Northann Corp. reported Q1 2026 revenue of $4.96 million, up from $3.44 million, driven by SuperOak 3D-printed flooring placements at major U.S. retail chains. Despite this growth, cost pressures and launch-related expenses produced a negative gross margin of 10.0% and a net loss of $2.90 million.
Cash fell to $239,641 with working capital of $4.22 million, and management disclosed substantial doubt about the ability to continue as a going concern. Liquidity is supported by an EB-5 loan facility with $24 million capacity, of which $1.65 million is drawn, and by subscription receivable collections. One customer represented 76.6% of Q1 revenue, and disclosure controls and procedures remain ineffective due to previously identified material weaknesses.
Positive
- None.
Negative
- None.
Insights
Strong revenue growth is offset by negative margins, going-concern doubt, and heavy customer concentration.
Northann delivered Q1 2026 revenue of $4.96 million, up 44.3% year over year, mainly from SuperOak product rollout into major U.S. retailers. However, cost of revenues exceeded sales, producing a gross margin of -10.0% and signaling that launch economics are not yet sustainable.
Operating expenses fell 20.5%, but higher depreciation and amortization from software intangibles and weak gross profit left a net loss of $2.90 million. Management cites substantial doubt about the company’s ability to continue as a going concern, despite working capital of $4.22 million and an EB-5 facility with $22.35 million undrawn.
Liquidity depends on ongoing subscription receivable collections and access to related-party financing. Risk is amplified by customer concentration, with one customer contributing 76.6% of revenue and 77.1% of accounts receivable. Internal control weaknesses over disclosure controls remain unresolved, so investors must rely on future filings for evidence of margin recovery and remediation progress.
Key Figures
Q1 2026 Revenue: $4,961,778
Q1 2025 Revenue: $3,437,727
Q1 2026 Gross Margin: -10.0%
+5 more
8 metrics
Q1 2026 Revenue
$4,961,778
Three months ended March 31, 2026
Q1 2025 Revenue
$3,437,727
Three months ended March 31, 2025
Q1 2026 Gross Margin
-10.0%
Gross profit as % of revenue
Q1 2026 Net Loss
$2,895,325
Three months ended March 31, 2026
Cash Balance
$239,641
As of March 31, 2026
Working Capital
$4,216,792
As of March 31, 2026
Undrawn EB-5 Capacity
$22,349,500
Remaining under $24,000,000 facility at 1.00% interest
Customer Concentration
76.6% of revenue
Single customer share of Q1 2026 revenue
Key Terms
going concern, EB-5 loan, reverse stock split, material weaknesses, +2 more
6 terms
going concern financial
"these factors gave rise to substantial doubt that the Company would continue as a going concern"
A going concern is a business that is expected to continue its operations and meet its obligations for the foreseeable future, rather than shutting down or selling off assets. This assumption matters to investors because it indicates stability and ongoing profitability, making the business a more reliable investment. Think of it as believing a restaurant will stay open and serve customers, rather than closing down suddenly.
EB-5 loan financial
"3D PRINTING entered into an EB-5 loan agreement with 3DFLOR Chairman and controlling shareholder"
reverse stock split financial
"Effective on October 7, 2025, the Company implemented a 1-for-8 reverse stock split"
A reverse stock split is when a company reduces the number of its shares outstanding, making each share more valuable. For example, if you own 100 shares worth $1 each, a 1-for-10 reverse split would turn your 100 shares into 10 shares worth $10 each. Companies often do this to boost their stock price and appear more stable to investors.
material weaknesses regulatory
"disclosure controls and procedures were not effective due to material weaknesses previously disclosed"
Material weaknesses are significant flaws in a company’s systems for ensuring its financial reports are accurate and reliable. Like a broken lock on a safe, they increase the chance that financial statements contain big errors or omissions, which can mislead investors about performance and risk; discovering one often raises questions about management oversight, may lead to restated results, and can affect investor confidence and a company’s valuation.
operating lease right-of-use assets financial
"Operating lease right-of-use assets, net $1,372,742 as of March 31, 2026"
An operating lease right-of-use (ROU) asset is an accounting entry that shows the value of a leased item you have the legal right to use—like a building, vehicle, or equipment—recorded on a company’s balance sheet along with the corresponding lease obligation. Investors care because it adds to reported assets and liabilities, changing measures like leverage and return on assets much like bringing a long-term rental onto the company’s financial snapshot, which can affect credit terms and valuation.
subscription receivable financial
"During the three months ended March 31, 2026, the Company has received partial payments toward the subscription receivable balance"
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2026
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File No. 001-41816
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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On
May 15
, 2026, the registrant had shares of common stock and 625,000 shares of Series A Preferred Stock outstanding.
Northann Corp.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION | F-1 | |
Item 1. | Financial Statements | F-1 |
Consolidated Balance Sheets | F-1 | |
Consolidated Statements of Operations and Comprehensive Income Loss | F-2 | |
Consolidated Statements of Shareholders’ (Deficit) | F-3 | |
Consolidated Statements of Cash Flows | F-4 | |
Notes to Consolidated Financial Statements | F-5 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 9 |
Item 4. | Control and Procedures | 9 |
PART II – OTHER INFORMATION | 9 | |
Item 1. | Legal Proceedings | 9 |
Item 1A. | Risk Factors | 9 |
Item 2. | Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities | 9 |
Item 3. | Defaults Upon Senior Securities | 10 |
Item 4. | Mine Safety Disclosures | 10 |
Item 5. | Other Information | 10 |
Item 6. | Exhibits | 10 |
SIGNATURES | 11 | |
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PART I – FINANCIAL INFORMATION
NORTHANN CORP.
CONSOLIDATED BALANCE SHEETS
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March 31, |
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December 31, |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
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Accounts receivable, net |
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Inventory |
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Prepaid expense |
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Other receivables and other current assets |
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Tax recoverable |
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Due from related party |
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Total Current Assets |
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Property, plant and equipment, net |
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Construction in progress |
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Intangible assets, net |
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Operating lease right-of-use assets, net |
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Security deposits |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts and other payables and accruals |
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Unearned revenue |
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Operating lease liabilities, current |
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Loan payable, current |
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Tax payable |
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Total Current Liabilities |
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Operating lease liabilities, non-current |
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Loan payable, non-current |
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TOTAL LIABILITIES |
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Commitments and contingencies |
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Stockholders' Equity |
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Preferred stock – Series A: $ |
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Preferred stock – Undesignated: |
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Common stock: $ |
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Subscription receivable |
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Additional paid-in Capital |
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Accumulated deficit |
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Accumulated other comprehensive income |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
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* |
Retroactively reflect 1-for-8 reverse stock split effective on October 7, 2025. (Note 16) |
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
NORTHANN CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In U.S. dollars)
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Three Months Ended |
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March 31, |
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2026 |
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2025 |
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Revenue |
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$ |
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$ |
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Cost of revenue |
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Gross Profit |
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Operating Expenses |
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Selling |
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General and administrative |
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Research and development |
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Total Operating Expenses |
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LOSS FROM OPERATIONS |
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Other Income (Expense) |
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Interest income |
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Interest expense |
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Other expense |
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Total other income (expense) |
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LOSS BEFORE TAXES |
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Income tax expense |
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NET LOSS |
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$ |
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Other comprehensive income |
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Foreign currency translation adjustment |
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Total comprehensive loss |
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Basic and dilutive earnings per share |
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Weighted average common shares outstanding - basic* |
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Weighted average common shares outstanding - diluted* |
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* Retroactively reflect 1-for-8 reverse stock split effective on October 7, 2025. (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
NORTHANN CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In U.S. dollars)
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Accumulated |
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Preferred Stock |
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Common Stock |
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Additional |
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Other |
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Total |
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Number of Shares* |
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Par Value |
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Number of Shares* |
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Par Value |
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Subscription Receivable |
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Paid-in Capital |
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Accumulated Deficit |
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Comprehensive Income (Loss) |
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Stockholders' Equity |
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Balance - December 31, 2024 |
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$ |
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Issuance of common stock |
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Net loss |
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Accrued compensation expense |
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- |
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Accumulated other comprehensive income |
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Balance - March 31, 2025 |
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$ |
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$ |
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$ |
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Accumulated | ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Additional | Other | Total | ||||||||||||||||||||||||||||||||
Number of Shares* | Par Value | Number of Shares* | Par Value | Subscription Receivable | Paid-in Capital | Accumulated Deficit | Comprehensive Income (Loss) | Stockholders' Equity | ||||||||||||||||||||||||||||
Balance - December 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||
Issuance of common stock for cash | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Issuance of common stock for services | - | - | - | - | - | |||||||||||||||||||||||||||||||
Issuance of common stock for capitalized software | - | - | - | - | - | |||||||||||||||||||||||||||||||
Accumulated other comprehensive income | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Balance - March 31, 2026 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||
* | Retroactively reflect |
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
NORTHANN CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
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Three Months Ended |
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2025 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net loss |
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Net income from discontinued operations |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Share-based Compensation |
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Lease expense |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory |
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Other receivable |
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Prepayments |
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Accounts payable |
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Accruals and other payables |
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Unearned revenue |
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Accrued interest |
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Operating lease payment |
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Tax payable |
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Due to related party |
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Net Cash (Used in) Operating Activities |
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Purchase of equipment |
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Payments for construction |
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Net Cash (Used in) Investing Activities |
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Issuance of common stocks |
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Stock Subscription Receivable |
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Amounts received from related parties |
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Proceeds from bank borrowings |
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Repayments of loan payable, current |
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Net Cash Provided by (Used in) Financing Activities |
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EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS |
|
|
|
|
|
|
( |
) |
|
Net change in cash and cash equivalents |
|
|
( |
) |
|
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|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
||||||
|
Cash paid for income taxes |
|
$ |
|
|
|
$ |
|
|
|
Cash paid for interest |
|
$ |
|
|
|
$ |
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|
|
|
|
|
|
|
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|
|
|
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
||||||
|
Issuance of common stock for capitalized software |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025
(In U.S. dollars)
1. | ORGANIZATION AND BUSINESS |
The Company commenced operations in August 2013 with the establishment of Northann Building Solutions LLC. (“NBS”) in Delaware. In December 2013, Northann (Changzhou) Construction Products Ltd (“NCP”) was established in China. All of its products were manufactured through NCP.
In March 2014, Benchwich Construction Products Ltd (“Benchwick”) was established in Hong Kong. All wholesales to distributors are conducted through Benchwick.
In April 2014, Changzhou Macro Merit International Trading Co., Ltd. (“MARCO”) was established in China. All the import/export of our products are conducted through MARCO.
In February 2016, Northann Distribution Center Inc. (“NDC”) was established in California. NDC is a distribution center in the United States and maintains a small inventory for retail sales.
In September 2017, Changzhou Ringold International Trading Co., Ltd. (“Ringold”) was established in China. All of the raw material are procured from third parties through Ringold.
In September 2018, Crazy Industry (Changzhou) Industry Technology Co., Ltd. (“Crazy Industry”) was established in China. Crazy Industry is the research and development hub.
In June 2020, Dotfloor Inc. (“Dotfloor”) was established in California.
Dotfloor is a U.S. distribution subsidiary of the Company
.In March 2022, Northann Corp. (“Northann”), the current ultimate holding company, was incorporated in Nevada as part of the restructuring transactions in contemplation of our initial public offering. In connection with its incorporation, in April 2022, we completed a share swap transaction and issued common stock and Series A Preferred Stock of Northann to the then existing shareholders of NBS, based on their then respective equity interests held in NBS. NBS then became our wholly owned subsidiary. In accordance to ASC 805-50-30-5 and ASC 805-50-45-1 through 45-5, the series of restructuring transactions have been accounted for as transactions between entities under common control; accordingly, the Company’s historical capital structure has been retroactively restated to the first period presented.
On October 23, 2023, the Company consummated the initial public offering (the “IPO”) of 1,200,000 shares of common stock, par value $0.001 per share at an offering price of $5.00 per share. On October 25, 2023, the underwriters of the IPO fully exercised the over-allotment option granted by the Company and purchased additional 180,000 shares of Common Stock at $5.00 per share. The closing of the Over-Allotment Option took place on October 26, 2023.
In October and November 2024, the Company acquired Cedar Modern Limited and Raleigh Industries Limited, respectively.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2026, the Company had a working capital of $4,216,792 and net cash used in operating activities of $1,401,161 for the three months ended March 31, 2026. The Company may not have adequate liquidity to remain solvent and settle its obligations when payment become due; these factors gave rise to substantial doubt that the Company would continue as a going concern. Management is closely monitoring its financial position, especially its working capital and cash position, as well as its gross profit margins where its positive results of operations will allow the Company to continue as going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainly.
In February 2026, the Company received a purchase order of approximately $2.0 million from a leading Midwest home improvement retailer for Benchwick flooring products. This order, together with the Company’s existing vendor relationships with several major North American home improvement retail chains, demonstrates the growing market acceptance of the Company’s 3D-printed flooring products.
During the three months ended March 31, 2026, the Company has received partial payments toward the subscription receivable balance. Management has obtained payment commitments from the subscription holders and expects substantially all of the remaining subscription receivable balance to be collected during the first and second quarters of fiscal year 2026. The collection of these amounts will significantly strengthen the Company’s cash position and liquidity, extending the Company’s cash runway well beyond twelve months from the date of these financial statements. Management believes the subscription receivable is fully collectible based on the following factors: (i) the subscription holders have demonstrated their intent and ability to pay through partial payments received subsequent to the balance sheet date; (ii) the subscription agreements are legally binding and enforceable; (iii) the Company has maintained active communication with all subscription holders regarding payment schedules; and (iv) management is not aware of any indicators of financial distress or inability to pay on the part of any subscription holder. Accordingly, no allowance for credit losses has been recorded against the subscription receivable as of March 31, 2026.
| F-5 |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), and include the assets, liabilities, revenues, expenses and cash flows of all subsidiaries. All significant inter-company transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Use of Estimates
The preparation of these consolidation financial statements requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (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) the Company satisfies the performance obligation.
Revenue for sales of products which are primarily comprised of hardwood floors and three-dimensional printed flooring are recognized at the time of delivery of the products set forth in contracts with customers. At the time of delivery, physical and legal control of the asset is passed from the Company to its customer, at which time the Company believes it has satisfied the single performance obligation to complete a sales transaction in order to recognize revenue. The Company’s contracts do not allow for returns, refunds, or warranties; however, it is customary in the industry to manufacturers to ship a small portion of extra product to allow for product quality issues. Also, as matter of good business practice, under very specific situations, the Company has historically agreed to provide minor discounts to customers who made complaints on products purchased. The Company has recorded these costs as period expenses when incurred as the Company is not able to reliably estimate such future expenses.
Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Practical expedients and exemption
The Company has not incurred any costs to obtain contracts and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
| F-6 |
The Company typically enters into agreements with its customers where its set forth the product to be sold, the price, payment terms, and any antecedent terms such as shipping and delivery specifications; these terms and conditions are most typically specified in purchase order issued by its customers to the Company. The Company typically recognizes revenue at point in time, which is when physical possession and legal title are transferred to the customer, this may be a shipping port or a specified destination; at this point the Company reasonably expect to paid for the product, or in the event where it was paid advance, the Company’s performance obligations have been satisfied and those funds are considered earned by the Company. If the Company
sells products on account to customers, they are typically paid within 90 days. Any funds received in advance for the products yet to be transferred to its customer are contract liabilities that are recorded as unearned revenue on the Company’s consolidated balance sheets. $674,690
and $nil were recognized as revenue from unearned revenue during the three months ended March 31, 2026 and 2025.
Taxation
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction with majority of the tax provision effective after December 31, 2017. Certain activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on the Company when its subsidiaries, controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal Revenue Code beginning after December 31, 2017.
The Company accounts for an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company considers and estimates interest and penalties related to the gross unrecognized tax benefits and includes as part of its income tax provision based on the applicable income tax regulations.
The Company did no t accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the consolidated statements of operations for the three months ended March 31, 2026. The Company had no
Foreign Currency and Foreign Currency Translation
The functional currency of the Company is the Chinese Yuan (“RMB”), as their functional currencies. An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is 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.
| F-7 |
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 comprehensive loss.
The consolidated 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 consolidated balance sheets.
Translation of amounts from RMB and HKD into U.S. dollars has been made at the following exchange rates:
Balance sheet items, except for equity accounts | |||||
March 31, 2026 | RMB | HKD | |||
December 31, 2025 | RMB | HKD | |||
Income statement and cash flows items | |||||
For the three months ended March 31, 2026 | RMB | HKD | |||
For the three months ended March 31, 2025 | RMB to $ | HKD |
Cash
Cash consists of cash on hand and at banks and highly liquid investments, which are unrestricted from withdrawal or use, and which have original maturities of three months or less when purchased.
Accounts Receivable, Net
Accounts receivable is stated at the historical carrying amount net of allowance for doubtful accounts. The Company determines the allowance for doubtful accounts on an individual basis taking into consideration various factors including but not limited to historical collection experience and creditworthiness of the debtors as well as the age of the individual receivables balance.
Additionally, the Company would make specific bad debt provisions based on any specific knowledge the Company has acquired that might indicate that an account is uncollectible. The facts and circumstances of each account may require the Company to use judgment in assessing its collectability.
Allowance for doubtful accounts was nil and nil as of March 31, 2026 and December 31, 2025.
Long-Lived Assets
Long-lived assets consist primarily of equipment and intangible assets.
Equipment
Equipment is recorded at cost less accumulated depreciation and accumulated impairment. Depreciation is computed using the accelerated depreciation method over the estimated useful lives of the assets.
| F-8 |
Estimated useful lives (years) | |||
Office and computer equipment | |||
Manufacturing equipment | |||
Automobile |
Expenditure for maintenance and repairs is expensed as incurred.
The gain or loss on the disposal of equipment is the difference between the net sales proceeds and the lower of the carrying value or fair value less cost to sell the relevant assets and is recognized in general and administrative expenses in the consolidated statements of comprehensive loss.
Land Use Rights, Net
Land use rights are a form of intangible assets in the PRC. They are recorded at cost less accumulated amortization with no residual value. Amortization of land use rights are computed using the straight-line method over their estimated useful lives.
The estimated useful lives of the Company’s land use rights are as listed below:
Estimated useful lives (years) | |||
Land use right |
Impairment of Long-lived Assets
In accordance with ASC 360-10-35, the Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Based on the existence of one or more indicators of impairment, the Company measures any impairment of long-lived assets using the projected discounted cash flow method at the asset group level. The estimation of future cash flows requires significant management judgment based on the Company’s historical results and anticipated results and is subject to many factors. The discount rate that is commensurate with the risk inherent in the Company’s business model is determined by its management. An impairment loss would be recorded if the Company determined that the carrying value of long-lived assets may not be recoverable. The impairment to be recognized is measured by the amount by which the carrying values of the assets exceed the fair value of the assets. No
6
and 2025
Net earnings per share of common stock
The Company has adopted ASC Topic 260, “Earnings per Share,” (“EPS”) which requires presentation of basic EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation. In the accompanying consolidation financial statements, basic earnings (loss) per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
March 31, | ||||||||
2026 | 2025 | |||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Weighted average number of shares of common stock outstanding - basic* | ||||||||
Add: potentially dilutive effect of shares issuable | ||||||||
Weighted average number of shares of common stock outstanding - diluted* | ||||||||
Net loss per ordinary share | ||||||||
-Basic | $ | ( | ) | $ | ( | ) | ||
-Diluted | $ | ( | ) | $ | ( | ) | ||
* Retrospectively restated for the effect of 1-for-8 reverse stock split. (Note 16)
| F-9 |
Segments
The Company evaluates a reporting unit by first identifying its operating segments, and then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meets the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has only one major reportable segment in the periods presented. The Company’s chief operation decision maker is the Company’s Chief Executive Officer.
Shipping and Handling Costs
Outbound shipping and handling costs are expenses as incurred and charged to the selling expense. Inbound shipping and freight are charged for raw material and components are accounted for as cost of revenues.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly observable in the market place.
Level 3 – unobservable inputs which are supported by little or no market activity.
The carrying value of the Company’s financial instruments, including cash, accounts and other receivables, other current assets, accounts and other payables, and other short-term liabilities approximate their fair value due to their short maturities.
In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.
As of December 31, 2025 and 2024, the Company had no
Leases
In February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.
The Company adopted ASC Topic 842 using the modified retrospective transition method effective January 1, 2019. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, the Company recognized a lease liability and right-of-use asset for each of the existing lease arrangement. The adoption of the new lease standard does not have a material impact on the consolidated income statements or the consolidated statements of cash flows.
| F-10 |
The Company determines if an arrangement is a lease at inception. The lease payments under the lease arrangements are fixed. Non-lease components include payments for building management, utilities and property tax. It separates the non-lease components from the lease components to which they relate.
Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company generally uses the base, non-cancellable, lease term when determining the lease assets and liabilities.
Recent accounting pronouncements
Recently adopted accounting pronouncements
In November 2023, the FASB issued ASU 2023-07. The amendments improve reportable segment disclosure requirements. Main provisions include: (1) significant segment expenses—public entities are required to disclose significant segment expenses by reportable segment if they are regularly provided to the CODM and included in each reported measure of segment profit or loss; (2) other segment items—public entities are required to disclose other segment items by reportable segment. Such a disclosure would constitute the difference between reported segment revenues less the significant segment expenses (disclosed) less reported segment profit or loss; (3) multiple measures of a segment’s profit or loss—public entities may disclose more than one measure of segment profit or loss used by the CODM, provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with GAAP measurement principles; (4) CODM-related disclosures—disclosure of the CODM’s title and position is required on an annual basis, as well as an explanation of how the CODM uses the reported measure(s) and other disclosures; (5) entities with a single reportable segment—public entities must apply all of the ASU’s disclosure requirements, as well as all existing segment disclosure and reconciliation requirements in ASC Topic 280,
Segment Reporting
; (6) recasting of prior-period segment information to conform to current-period segment information—recasting is required if segment information regularly provided to the CODM is changed in a manner that causes the identification of significant segment expenses to change. The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023. Early adoption is permitted. A public entity should apply the amendments in this update retrospectively to all prior periods presented in the financial statements. The Company adopted this update beginning January 1, 2024.In December 2023, the FASB issued ASU 2023-09, which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The ASU amends ASC 740-10-50-12 to require public business entities (“PBEs”) to disclose a reconciliation between the amount of reported income tax expense (or benefit) from continuing operations and the amount computed by multiplying the income (or loss) from continuing operations before income taxes by the applicable statutory federal (national) income tax rate of the jurisdiction (country) of domicile. If PBE is not domiciled in the United States, the federal (national) income tax rate in such entity’s jurisdiction (country) of domicile shall normally be used in the rate reconciliation. The amendments prohibit the use of different income tax rates for subsidiaries or segments. Further, PBEs that use an income tax rate in the rate reconciliation that is other than the U.S. income tax rate must disclose the rate used and the basis for using it. The ASU also adds ASC 740-10-50-12A, which requires entities to annually disaggregate the income tax rate reconciliation between the following eight categories by both percentages and reporting currency amounts: (1) State and local income tax, net of federal (national) income tax effect; (2) Foreign tax effects; (3) Effect of changes in tax laws or rates enacted in the current period; (4) Effect of cross-border tax laws; (5) Tax credits; (6) Changes in valuation allowances; (7) Nontaxable or nondeductible items; (8) Changes in unrecognized tax benefits. PBEs must apply the ASU’s guidance to annual periods beginning after December 15, 2024 (2025 for calendar-year-end PBEs). Early adoption is permitted. Entities may apply the amendments prospectively or may elect retrospective application. The Company adopted this update beginning January 1, 2025.
Recently issued accounting pronouncements not yet adopted
| F-11 |
In November 2024, the FASB issued ASU 2024-03 “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)”. The amendments in this update intend to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, selling, general and administrative expenses, and research and development). ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and interim periods beginning after December 15, 2027. The Company is currently evaluating the impact from the adoption of this ASU on its consolidated financial statements.
3. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable consist of the following:
March 31, 2026 | December 31, 2025 | |||||||
Gross accounts receivable | $ | $ | ||||||
Total | $ | $ | ||||||
There was no
4. | OTHER RECEIVABLES |
Other receivables consist of the following:
March 31, 2026 | December 31, 2025 | |||||||
Deposit and other assets | $ | $ | ||||||
Total | $ | $ | ||||||
5. | INVENTORY, NET |
Inventories, net, consist of the following:
March 31, 2026 | December 31, 2025 | |||||||
Raw materials and components | $ | $ | ||||||
Finished goods | ||||||||
Total | ||||||||
less: Impairment | ||||||||
Inventories, net | $ | $ | ||||||
6. | EQUIPMENT, NET |
Equipment, net consists of the following:
March 31, 2026 | December 31, 2025 | |||||||
Manufacturing equipment | ||||||||
Office equipment | ||||||||
Motor v ehicles | ||||||||
Less: Accumulated depreciation | ||||||||
Total | $ | $ | ||||||
| F-12 |
Depreciation expenses charged to the consolidated statements of operations for the three months ended March 31, 2026 and 2025 were $152,203 and $239,511 , respectively.
7. | INTANGIBLE ASSETS, NET |
March 31, 2026 | December 31, 2025 | |||||||
Land use right | $ | $ | ||||||
Software | ||||||||
less: Accumulated amortization | ||||||||
$ | $ | |||||||
The Company has pledged its land use rights at No. 199, Newtag, Wujin District, Changzhou, Jiangsu Province, China, 213000 to Industrial and Commercial Bank of China Limited as a collateral for securing its loans.
8. | LOAN PAYABLE |
Short-term and long-term loans as of March 31, 2026 and December 31, 2025 represent mainly bank borrowings obtained from financial institutions in the PRC.
The short-term and long-term bank borrowings were secured by land use right. The weighted average interest rate for the bank borrowings for the three months ended March 31, 2026 and 2025 was approximately 4.04 % and 5.72 %, respectively.
Current
Bank | Loan period | Interest rate | Balance at March 31, 2026 | Balance at December 31, 2025 | ||||||||||
Jiangnan Rural Commercial Bank | % | |||||||||||||
Auto Loan, current | From | % | ||||||||||||
Total | $ | $ | ||||||||||||
Non-current
Bank | Loan period | Interest rate | Balance at March 31, 2026 | Balance at December 31, 2025 | ||||||||||
Industrial and Commercial Bank of China | % | $ | $ | |||||||||||
Industrial and Commercial Bank of China | % | |||||||||||||
EIDL Loan | From | % | ||||||||||||
Auto Loan, non-current | From | % | ||||||||||||
Total | $ | $ | ||||||||||||
| F-13 |
9. | BALANCES WITH RELATED PARTY |
1) | Related party transactions |
For the three months ended March 31, 2026 and 2025, the Company’s related party provided working capital to support the Company’s operations when needed. The borrowings were unsecured, due on demand, and interest free. The following table summarizes borrowing transactions with the Company’s related party:
2) | Related party balances |
Accounts | Name of Related Party | Note | March 31, 2026 | December 31, 2025 | ||||||||
Amount due (from) to related party | Lin Li, Chief Executive Officer and Chairman of the Board | $ | $ | |||||||||
All the above balances are due on demand, interest-free and unsecured. The Company used the funds for its operations.
10. | EQUITY |
Preferred Stock
The Company is authorized to issue 500,000,000 shares of capital stock, consisting of 400,000,000 shares of common stock, par value US$0.001 per share, and 100,000,000 shares of preferred stock, par value US$0.001 per share. 20,000,000 shares were designated to be series A preferred stock (the “Series A Preferred Stock”) out of the 100,000,000 shares of blank check preferred stock. Each share of common stock is entitled to one vote and each share of Series A Preferred Stock is entitled to ten votes on any matter on which action of the stockholders of the corporation is sought. The Series A Preferred Stock will vote together with the common stock. Common stock and Series A Preferred Stock are not convertible into each other. Holders of Series A Preferred Stock are not entitled to receive dividends. The Series A Preferred Stock does not have liquidation preference over the Company’s Common Stock, and therefore ranks pari passu with the Common Stock in the event of liquidation.
Common Stock
The Company is authorized to issue 400,000,000 shares of common stock with par value of US$0.001 per share. Each share of common stock entitles the holder to one vote . For the sake of comparability, the share structure as of the date of this report has been carried back in the Company’s statement of stockholders’ equity as if they had been issued and outstanding from the beginning of the first period presented.
11. | INCOME TAXES |
United States of America
The Company is subject to taxation in the United States (USA) at the tax rate of 21 %.
Hong Kong
Two-tier Profits Tax Rates
The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (the “Ordinance”) of Hong Kong became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate for the first HKD 2 million (approximately $257,868 ) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25 % while the remaining assessable profits will be subject to the legacy tax rate, 16.5 %. The Ordinance only allows one entity within a group of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50 % of the issued share capital) of the same entity; (3) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business. Since Benchwick is wholly owned and under the control of Northann, it is a connected entity. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected Benchwick to be subject to the two-tier profits tax rates.
| F-14 |
The provision for current income and deferred taxes of Benchwick has been calculated by applying the new tax rate of 8.25 %.
PRC
In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 25
Uncertain tax positions
The Company did no
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.
The amounts of uncertain tax liabilities listed above are based on the recognition and measurement criteria of ASC Topic 740, and the balance is presented as current liability in the consolidated financial statements as of March 31, 2026. The Company anticipated that the settlements with the taxing authority are remitted within one year.
Our policy is to include interest and penalty charges related to uncertain tax liabilities as necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil
The statute of limitations for the Internal Revenue Services to assess the income tax returns on a taxpayer expires three years from the due date of the profits tax return or the date on which it was filed, whichever is later.
In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but extendable to 10 years in the case of potential underpayment or evasion.
In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.
|
12. |
CHINA CONTRIBUTION PLAN |
During
the three months ended March 31, 2026 and 2025, the Company contributed a total of $|
13. |
OPERATING LEASE |
The Company has an operating lease for its office facilities. The lease is located at 9820 Dino Drive, Suite 110, Elk Grove, California, 95624, which consist of approximately 3,653 square feet. The initial lease term commenced on August 1, 2020 and ended on August 31, 2023. The lease was renewed for additional 36 months to end on August 31, 2026 .
The Company has an operating lease for its 106,610 square feet. The lease term commenced on August 20, 2024 and will end on August 31, 2029 .
office,
warehouse and factory
facilities. The facilities are
located at 2251 Catawba River Road, Fort Lawn, SC, which consist of approximately Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.
| F-15 |
The following table provides a summary of leases by balance sheet location as of March 31, 2026 and December 31, 2025:
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Assets/liabilities |
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March 31, 2026 |
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December 31, 2025 |
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Assets |
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Operating lease right-of-use assets |
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$ |
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$ |
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Liabilities |
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Operating lease liability - current |
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$ |
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$ |
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Operating lease liability - non-current |
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Total lease liabilities |
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$ |
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$ |
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The operating lease expenses for the three months ended March 31, 2026 and 2025 were as follows:
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Lease Cost |
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Classification |
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March 31, 2026 |
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March 31, 2025 |
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|||
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Operating lease expense |
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General and administrative expenses |
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$ |
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$ |
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|
|
Maturities of operating lease liabilities as of March 31, 2026 were as follows:
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Maturity of Lease Liabilities |
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Operating Leases |
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Within one year |
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$ |
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Within a period of more than one year but not more than two years |
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Within a period of more than two year but not more than three years |
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Within a period of more than three year but not more than four years |
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Within a period of more than four years but not more than five years |
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More than five years |
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Total lease commitment |
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$ |
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|
|
Less: interest |
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|
( |
) |
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Present value of lease payments |
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$ |
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|
Lease liabilities include lease and non-lease component such as management fee.
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Lease Term and Discount Rate |
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March 31, 2026 |
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December 31, 2025 |
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Weighted-average remaining lease term (years) |
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Operating leases |
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Weighted-average discount rate (%) |
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Operating leases |
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% |
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% |
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14. |
CONCENTRATIONS AND CREDIT RISK |
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(a) |
Concentrations |
During the three months ended March 31, 2026, one customer accounted for approximately 76.6 % of the Company’s revenues. During the three months ended March 31, 2025, two customers accounted for nearly 74 % of the Company’s revenues. No 10
| F-16 |
As of March 31, 2026, one customer accounted for approximately 77.1 % of the Company’s accounts receivable. As of December 31, 2025, one customer accounted for 78 % of the Company’s accounts receivable. No 10
During the three months ended March 31, 2026, one supplier accounted for approximately 10.0 % of the Company’s cost of revenues. During the three months ended March 31, 2025, no supplier accounts for over 10 % of the Company’s cost of revenues. No other supplier accounted for over 10 % of the Company’s cost of revenues in the three months ended March 31, 2026.
As of March 31, 2026, one supplier accounted for approximately 11.2 % of the Company’s accounts payable.
As of March 31, 2025, no supplier accounted for over 10 % of the Company’s accounts payable. No other supplier accounted for over 10 % of the Company’s accounts payable in the three months ended March 31, 2026.
|
(b) |
Credit risk |
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash. As of March 31, 2026 and December 31, 2025, substantially all of the Company’s cash were held by major financial institutions located in the PRC, Hong Kong, and the United States, which management believes are of high credit quality. Deposits in the United States up to $250,000 are insured by the Federal Depository Insurance Corporation.
For the credit risk related to trade accounts receivable, the Company performs ongoing credit evaluations of its customers and, if necessary, maintains reserves for potential credit losses. Historically, such losses have been within management’s expectations.
|
15. |
CAPITAL COMMITMENTS |
On July 26, 2021, the Company has contracted Changzhou Wanyuan Construction Engineering Co. to build a second phase of its factory. The amount required in the contract is $10 million. Construction is expected to take approximately one and half year, and the second phase of the factory will be approximately 250,000 square feet.
|
16. |
STOCK SPLIT |
Effective on October 7, 2025, the Company implemented a 0.001 each. Except as otherwise indicated, all information in the consolidated financial statements concerning share and per share data gives retroactive effect to the 179,797,995 and immediately after the reverse split was 22,474,784 . The total number of outstanding preferred shares immediately before the reverse split was 5,000,000 and immediately after the reverse split was 625,000 .
1-for-8
reverse stock split of the issued and outstanding shares. Under the reverse split, every eight issued and outstanding shares were converted into one share of the same kind, with a par value of $1-for-8
reverse stock split. The total number of outstanding common shares immediately before the reverse split was |
17. |
SECURED BORROWING ARRANGEMENT |
In July 2023, the Company signed a secured borrowing agreement with a financial institution in the United States, in which the Company borrowed $1,000,000 secured by its accounts receivable amounted $1,491,000 .
It is scheduled under the agreement that the Company pays $49,700 per week for thirty weeks to the financial institution to repay the loan.
On January 21, 2025, 3D PRINTING entered into an EB-5 loan agreement with 3DFLOR Chairman and controlling shareholder, Lin Li (“3DFLOR”), pursuant to which 3DFLOR agreed to provide 3D PRINTING a loan, with an initial maximum principal amount of $24,000,000 at an interest rate of 1.00 % per year.
| F-17 |
|
18. |
SUBSEQUENT EVENT |
The Company has analyzed its operations subsequent to March 31, 2026 and up through May 15, 2026 which is the date these consolidation financial statements were issued, except as disclosed herein, there is no material subsequent events to disclose in these consolidated financial statements.
|
19. |
UNRESTRICTED NET ASSETS |
The following presents condensed financial information of Northann Corp:
Condensed Financial Information on Financial Position
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March 31, |
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December 31, |
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2026 |
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2025 |
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(Unaudited) |
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Cash |
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$ |
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$ |
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Amounts due from subsidiaries |
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Total current assets |
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All other non-current assets |
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Interests in a subsidiary |
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Total Assets |
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Liabilities and Stockholders’ Equit y |
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All other current liabilities |
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Amounts due to subsidiaries |
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Total current liabilities |
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Non-current liabilities |
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Total Liabilities |
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Stockholders’ Equity (Deficit) |
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Preferred stock – Series A, $ |
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Common stock, $ |
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Subscription receivable |
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( |
) |
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( |
) |
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Additional Paid-in Capital |
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(Accumulated deficit) retained earnings |
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( |
) |
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( |
) |
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Accumulated other comprehensive loss |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity |
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$ |
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$ |
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Retroactively reflects |
Condensed Financial Information on Results of Operations
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For the three months ended March 31, |
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|||||
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2026 |
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2025 |
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||
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Revenue |
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$ |
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$ |
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|
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Cost or revenues |
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Operating expenses |
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Income taxes |
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Loss – Parent only |
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( |
) |
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( |
) |
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Income (loss)– Subsidiaries with unrestricted net assets |
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( |
) |
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( |
) |
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Loss – Subsidiaries with restricted net assets |
|
|
( |
) |
|
|
( |
) |
|
Net loss – Consolidated |
|
$ |
( |
) |
|
$ |
( |
) |
| F-18 |
Condensed Financial Information on Cash Flows
For the three months ended March 31, | ||||||||
2026 | 2025 | |||||||
Cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
Cash used in investing activities | - | |||||||
Cash provided by financing activities | ||||||||
Net cash flows | ||||||||
Beginning cash balance | ||||||||
Ending cash balance | $ | $ | ||||||
(i) | Basis of presentation |
The condensed financial information reflects the accounts of the Company. The condensed financial information should be read in connection with the consolidated financial statements and notes thereto. The condensed financial information is presented as if the incorporation of the Company were in effect since January 1, 2020,
(ii) | Restricted Net Assets |
Schedule I of Rule 5-04 of Regulation S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign government, etc.). The Company’s only assets are its equity interests in its subsidiaries. Unrestricted net assets are held in the Company’s subsidiaries located in the US and Hong Kong. The Company does maintain substantial assets and operating subsidiaries in China; therefore, the ability for operating subsidiaries to pay dividends or transfer assets to the Company may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries.
As of March 31, 2026 and December 31, 2025, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company, except for those which have been separately disclosed in the Consolidated Financial Statements, if any.
| F-19 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and Annual Report on Form 10-K for the year ended December 31, 2025.
The information set forth in this section contains certain “forward-looking statements”, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements. Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.
You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this prospectus.
US Dollars are denoted herein by “USD”, “$” and “dollars”
Overview
We commenced operations in August 2013 with the establishment of NBS in Delaware.
In December 2013, NCP was established in China. Most of our products are manufactured through NCP.
In March 2014, Benchwick was established in Hong Kong. All the wholesale and distribution operations are conducted through Benchwick.
In April 2014, MARCO was established in China. All the import/export of our products is conducted through MARCO.
In February 2016, NDC was established in California. NDC is a distribution center in the United States and maintains a small inventory for retail sales.
In September 2017, Ringold was established in China. All of the raw materials are procured from third parties through Ringold.
In September 2018, Crazy Industry was established in China. Crazy Industry is the research and development hub.
In March 2022, Northann, our current ultimate holding company, was incorporated in Nevada as part of the restructuring transactions in contemplation of our initial public offering. In connection with its incorporation, in April 2022, we completed a share swap transaction and issued common stock and Series A Preferred Stock of Northann to the then existing shareholders of NBS, based on their then respective equity interests held in NBS. NBS then became our wholly owned subsidiary.
In October 2023, the Company consummated the initial public offering of 1,380,000 shares of common stock (including over allotment to underwriters), par value $0.001 per share, at an offering price of $5.00 per share.
| 2 |
Our revenue mainly consists of wholesale and retail of the vinyl flooring products, which are primarily marketed and sold in the United States and Canada.
Our cost refers to the cost of material and labor cost. The percentage of direct material was over 90% of the total cost of revenue. If the availability of direct materials (raw materials, packaging, sourced products, energy) decreases, or these costs increase, and we are unable to either offset or pass along increased costs to our customers, our financial condition, liquidity or results of operations could be adversely affected.
Key Factors that Affect Results of Operations
The Company believes the key factors affecting its financial condition and results of operations include the following:
|
· |
We may fail to innovate or offer new products which align with changing market and customer demand. |
|
· |
Our business may face risks of clients’ default on payment. |
|
· |
We may not manage our growth effectively, and our profitability may suffer. |
|
· |
Our reputation and brand recognition is crucial to our business. Any harm to our reputation or failure to enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations. |
|
· |
Increases in labor costs and market price of raw materials may adversely affect our gross margin and results of operations. |
|
· |
Certain of our products have historically faced significant competition both in the United States and Canada markets, and we have successfully competed against our competitors with our customer service, quality products and rapid fulfilment of customer orders. However, our business could be adversely affected by competitors who reduce prices, improve quality of the products they offer or take other competitive actions, which may reduce our customers’ purchases of products from us. |
|
· |
Rising inflation rate may adversely affect our results of operation. Recently, inflation has trended significantly higher than in prior periods, which may negatively impact our business. Ongoing labor shortages and surge of oil and gas price, driven in part by the COVID-19 pandemic, geopolitical issues and the war in Ukraine, continue to have adverse macroeconomics impact and may result in our cost overruns. In an effort to mitigate the impact, we have raised the price of products to cover increase in costs and slowed down investments on products with low profit-margins. |
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of these consolidated financial statements requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Revenue Recognition
The Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09: (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) the Company satisfies the performance obligation.
| 3 |
Revenue for sales of products which are primarily comprised of hardwood floors and three-dimensional printed flooring are recognized at the time of delivery of the products set forth in contracts with customers. At the time of delivery, physical and legal control of the asset is passed from the Company to its customer, at which time the Company believes it has satisfied the single performance obligation to complete a sales transaction in order to recognize revenue. The Company’s contracts do not allow for returns, refunds, or warranties; however, it is customary in the industry to manufacturers to ship a small portion of extra product to allow for product quality issues. Also, as matter of good business practice, under very specific situations, the Company has historically agreed to provide minor discounts to customers who made complaints on products purchased. The Company has recorded these costs as period expenses when incurred as the Company is not able to reliably estimate such future expenses.
Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Practical expedients and exemption
The Company has not incurred any costs to obtain contracts and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
The Company typically enters into agreements with its customers where it’s set forth the product to be sold, the price, payment terms, and any antecedent terms such as shipping and delivery specifications; these terms and conditions are most typically specified in purchase order issued by its customers to the Company. The Company typically recognizes revenue at point in time, which is when physical possession and legal title are transferred to the customer, this may be a shipping port or a specified destination; at this point the Company reasonably expect to be paid for the product, or in the event where it was paid advance, the Company’s performance obligations have been satisfied and those funds are considered earned by the Company. If the Company sells products on account to customers, they are typically paid within 90 days. Any funds received in advance for the products yet to be transferred to its customer are contract liabilities that are recorded as unearned revenue on the Company’s consolidated balance sheets. $674,690 and nil were recognized as unearned revenue during the three months ended March 31, 2026 and 2025, respectively.
Fair Value of Financial Instruments
U.S. GAAP establishes a three-tier hierarchy to prioritize the inputs used in the valuation methodologies in measuring the fair value of financial instruments. This hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three-tier fair value hierarchy is:
Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – include other inputs that are directly or indirectly observable in the marketplace.
Level 3 – unobservable inputs which are supported by little or no market activity.
The carrying value of the Company’s financial instruments, including cash, accounts receivable, other current assets, accounts payable, and accruals and other payable approximate their fair value due to their short maturities.
In accordance with ASC 825, for investments in financial instruments with a variable interest rate indexed to performance of underlying assets, the Company elected the fair value method at the date of initial recognition and carried these investments at fair value. Changes in the fair value are reflected in the accompanying consolidated statements of operations and comprehensive loss as other income (expense). To estimate fair value, the Company refers to the quoted rate of return provided by banks at the end of each period using the discounted cash flow method. The Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.
As of March 31, 2026 and December 31, 2025, the Company had no investments in financial instruments.
Income tax
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
| 4 |
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
The Company accounts for an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company considers and estimates interest and penalties related to the gross unrecognized tax benefits and includes as part of its income tax provision based on the applicable income tax regulations.
The Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the consolidated statements of operations for the three months ended March 31, 2026. The Company had no uncertain tax position for the three months ended March 31, 2026 and 2025.
Recent Accounting Pronouncements
See the discussion of the recent accounting pronouncements contained in Note 2 to the consolidated financial statements, “Summary of Significant Accounting Policies”.
Results of Operations
Comparison of Three Months Ended March 31, 2026, and 2025
The following table sets forth key components of our results of operations during the three months ended March 31, 2026 and 2025, both in dollars and as a percentage of our revenues.
|
|
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Three Months Ended March 31, |
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2026 |
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2025 |
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Amount |
|
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% of Revenue |
|
|
Amount |
|
|
% of Revenue |
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||||
|
Revenues |
|
|
4,961,778 |
|
|
|
100.0 |
% |
|
|
3,437,727 |
|
|
|
100.0 |
% |
|
Cost of revenues |
|
|
5,456,431 |
|
|
|
110.0 |
% |
|
|
3,047,069 |
|
|
|
88.6 |
% |
|
Gross profit |
|
|
(494,653 |
) |
|
|
(10.0 |
)% |
|
|
390,658 |
|
|
|
11.4 |
% |
|
Operating expenses |
|
|
|
|
||||||||||||
|
Selling expenses |
|
|
388,664 |
|
|
|
7.8 |
% |
|
|
1,021,999 |
|
|
|
29.7 |
% |
|
General and administrative expenses |
|
|
1,734,321 |
|
|
|
35.0 |
% |
|
|
1,481,255 |
|
|
|
43.1 |
% |
|
Research and development expenses |
|
|
233,754 |
|
|
|
4.7 |
% |
|
|
462,062 |
|
|
|
13.4 |
% |
|
Loss from operations |
|
|
(2,851,392 |
) |
|
|
(57.5 |
)% |
|
|
(2,574,658 |
) |
|
|
(74.9 |
)% |
|
Other Income (expenses) |
|
|
|
|
||||||||||||
|
Interest expense |
|
|
(43,935 |
) |
|
|
(0.9 |
)% |
|
|
(56,056 |
) |
|
|
(1.6 |
)% |
|
Impairment loss on goodwill |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Interest income |
|
|
2 |
|
|
|
0.0 |
% |
|
|
- |
|
|
|
- |
|
|
Other expenses |
|
|
- |
|
|
|
- |
|
|
|
(15 |
) |
|
|
(0.0 |
)% |
|
Loss before taxes |
|
|
(2,895,325 |
) |
|
|
(58.4 |
)% |
|
|
(2,630,729 |
) |
|
|
(76.5 |
)% |
|
Income tax expenses |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Net loss |
|
|
(2,895,325 |
) |
|
|
(58.4 |
)% |
|
|
(2,630,729 |
) |
|
|
(76.5 |
)% |
|
Other comprehensive income |
|
|
|
|
||||||||||||
|
Foreign currency translation adjustment |
|
|
49,665 |
|
|
|
1.0 |
% |
|
|
(204,395 |
) |
|
|
(5.9 |
)% |
|
Total comprehensive loss |
|
|
(2,845,660 |
) |
|
|
(57.4 |
)% |
|
|
(2,835,124 |
) |
|
|
(82.5 |
)% |
| 5 |
Revenues.
Revenues were $4,961,778 for the three months ended March 31, 2026, an increase of $1,524,051, or 44.3%, from $3,437,727 for the comparable period of 2025. The increase was primarily driven by the onboarding of the Company's SuperOak brand of 3D-printed hybrid wood flooring products by several major U.S. national retail chains during the quarter, alongside continued sales of the Company's Benchwick branded products. In February 2026, the Company received a $2.0 million purchase order from a leading Midwest U.S. home-improvement retail chain for the SuperOak product line, which the Company began to fulfill during the quarter; the Company also commenced initial shipments of SuperOak products to additional major U.S. retail accounts. The quarter represented the strongest year-over-year revenue growth since the Company's IPO and, in management's view, demonstrates the growing acceptance of the Company's branded products by the major U.S. retail-chain channel
.
|
|
|
For the Three Months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2026 |
|
|
2025 |
|
||
|
Sales of products |
|
$ |
4,961,778 |
|
|
$ |
3,437,727 |
|
|
Total |
|
$ |
4,961,778 |
|
|
$ |
3,437,727 |
|
Cost of Revenue.
Cost
of revenues was $5,456,431 for the three months ended March 31, 2026, compared to $3,047,069 for the
comparable
period
of
2025.
The increase
was primarily due to
(i) higher
sales volume
associated with the initial roll-out of SuperOak products to several major U.S. national retail chains; (ii) one-time vendor-setup, listing, compliance and inbound-freight costs to retailer distribution centers; and (iii) higher U.S.
tariffs
on
goods imported from China
— tariffs paid were $358,901 for Q1 2026, compared to $104,928 for Q1 2025. Direct materials represented over 90% of cost of revenues
.
Gross
Profit
and Gross Margin.
Gross
profit was
$(
494,653
)
for the three months ended March 31, 2026, compared
to
$390,658 for the
comparable
period
of
2025. Gross margin
was (
10.0
%), compared
to
11.4%. The decrease in gross margin reflects three principally transitional factors associated with the launch phase
of
the Company's SuperOak brand into several major U.S. national retail chains: (i) vendor-setup, listing
and
inbound-freight costs
to
retailer distribution centers absorbed in cost of revenues ahead of full-volume run-rate; (ii) initial introductory pricing extended to these retail partners to support placement
and
sell-through during the launch phase; and (iii) higher U.S. tariffs on China-origin inputs. Management expects gross margin to recover as these new retail relationships transition to steady-state run-rate over the balance of 2026.
Selling Expenses.
Selling expenses
decreased by $633,335
, or 62.0%,
to $388,664 for
the
three months ended March 31, 2026, from $1,021,999 for the
comparable period of
2025
. The
decrease
was primarily due to a
$506,250
decrease
in share-based compensation, a
$117,198
decrease
in advertising
fees, and
a
$21,663
decrease
in freight,
partially offset by
a $15,897
increase
in salaries and social insurance.
|
|
|
Three Months Ended March 31, |
|
|||||||||||||||||||||
|
|
|
2026 |
|
|
2025 |
|
|
Fluctuation |
|
|||||||||||||||
|
|
|
Amount |
|
|
Proportion |
|
|
Amount |
|
|
Proportion |
|
|
Amount |
|
|
Proportion |
|
||||||
|
Salaries and social insurance |
|
$ |
145,216 |
|
|
|
37.4 |
% |
|
$ |
129,319 |
|
|
|
12.7 |
% |
|
$ |
15,897 |
|
|
|
12.3 |
% |
|
Share-based compensation |
|
|
- |
|
|
|
- |
% |
|
|
506,250 |
|
|
|
49.5 |
% |
|
|
(506,250 |
) |
|
|
(100.0 |
)% |
|
Freight |
|
|
21,341 |
|
|
|
5.5 |
% |
|
|
43,004 |
|
|
|
4.2 |
% |
|
|
(21,663 |
) |
|
|
(50.4 |
)% |
|
Rent |
|
|
146,800 |
|
|
|
37.7 |
% |
|
|
150,981 |
|
|
|
14.8 |
% |
|
|
(4,181 |
) |
|
|
(2.8 |
)% |
|
Advertising fee |
|
|
37,508 |
|
|
|
9.7 |
% |
|
|
154,706 |
|
|
|
15.1 |
% |
|
|
(117,198 |
) |
|
|
(75.8 |
)% |
|
Travel fee |
|
|
37,272 |
|
|
|
9.6 |
% |
|
|
37,739 |
|
|
|
3.7 |
% |
|
|
(467 |
) |
|
|
(1.2 |
)% |
|
Others |
|
|
527 |
|
|
|
0.1 |
% |
|
|
- |
|
|
|
- |
% |
|
|
527 |
|
|
|
- |
% |
|
Total selling expenses |
|
$ |
388,664 |
|
|
|
100.0 |
% |
|
$ |
1,021,999 |
|
|
|
100.0 |
% |
|
$ |
(633,335 |
) |
|
|
(62.0 |
)% |
General and Administrative Expenses.
General
and administrative expenses increased by $253,066 to $1,734,321 for the three months ended March 31, 2026, from $1,481,255 for the
comparable
period
of
2025. The increase was
primarily due to a $914,442
increase
in depreciation and amortization resulting from the newly acquired software
intangibles (see Note 7) and a $458,700
increase
in share-based compensation,
partially offset by a
$755,977
decrease in
professional and
service fees
, a
$112,224
decrease in office
expenses, an $82,709
decrease in
salaries
and social insurance
, and
a
$42,549
decrease in rent
.
| 6 |
|
|
|
Three Months Ended March 31, |
|
|||||||||||||||||||||
|
|
|
2026 |
|
|
2025 |
|
|
Fluctuation |
|
|||||||||||||||
|
|
|
Amount |
|
|
Proportion |
|
|
Amount |
|
|
Proportion |
|
|
Amount |
|
|
Proportion |
|
||||||
|
Salary and social insurance |
|
$ |
35,835 |
|
|
|
2.1 |
% |
|
$ |
118,544 |
|
|
|
8.0 |
% |
|
$ |
(82,709 |
) |
|
|
(69.8 |
)% |
|
Share-Based Compensation-G&A |
|
|
458,700 |
|
|
|
26.4 |
% |
|
|
- |
|
|
|
- |
% |
|
|
458,700 |
|
|
|
- |
% |
|
Service fees |
|
|
170,429 |
|
|
|
9.8 |
% |
|
|
926,406 |
|
|
|
62.6 |
% |
|
|
(755,977 |
) |
|
|
(81.6 |
)% |
|
Royalty fee |
|
|
8,326 |
|
|
|
0.5 |
% |
|
|
5,653 |
|
|
|
0.4 |
% |
|
|
2,673 |
|
|
|
47.3 |
% |
|
Entertainment expenses |
|
|
20,481 |
|
|
|
1.2 |
% |
|
|
15,424 |
|
|
|
1.0 |
% |
|
|
5,057 |
|
|
|
32.8 |
% |
|
Taxation |
|
|
- |
|
|
|
- |
% |
|
|
477 |
|
|
|
- |
% |
|
|
(477 |
) |
|
|
(100.0 |
)% |
|
Depreciation and amortization |
|
|
939,026 |
|
|
|
54.2 |
% |
|
|
24,584 |
|
|
|
1.7 |
% |
|
|
914,442 |
|
|
|
3,719.7 |
% |
|
Rent |
|
|
9,947 |
|
|
|
0.6 |
% |
|
|
52,496 |
|
|
|
3.5 |
% |
|
|
(42,549 |
) |
|
|
(81.1 |
)% |
|
Travel fee |
|
|
315 |
|
|
|
- |
% |
|
|
6,968 |
|
|
|
0.5 |
% |
|
|
(6,653 |
) |
|
|
(95.5 |
)% |
|
Office expenses |
|
|
28,369 |
|
|
|
1.6 |
% |
|
|
140,593 |
|
|
|
9.5 |
% |
|
|
(112,224 |
) |
|
|
(79.8 |
)% |
|
Other |
|
|
62,893 |
|
|
|
3.6 |
% |
|
|
190,110 |
|
|
|
- |
|
|
|
(127,217 |
) |
|
|
(66.9 |
)% |
|
Total general and administrative expenses |
|
$ |
1,734,321 |
|
|
|
100.0 |
% |
|
$ |
1,481,255 |
|
|
|
100.0 |
% |
|
$ |
253,066 |
|
|
|
17.1 |
% |
Research and
Development Expenses.
Research
and development expenses were $233,754 for the three months ended March 31, 2026, compared to $462,062 for the
comparable
period
of
2025
, primarily reflecting completion of
the
Company's
2025 patent-
prosecution
cycle
. The Company maintains its 43-patent portfolio supporting its 3D-printing flooring technology
.
Net
Loss.
Net
loss was $2,895,325 for the three months ended March 31, 2026
, compared to
$2,630,729 for the
comparable
period
of
2025. The
change
was primarily due to the decrease in gross profit
described above and a $914,442 non-cash increase in depreciation and amortization from the newly acquired software intangibles, partially
offset by
a $608,577, or 20.5%,
decrease in
total
operating expenses.
Liquidity and Capital Resources
As of March 31, 2026
, the Company
had cash and cash equivalents
of $239,641 and working capital of $4,216,792, compared to cash of
$1,030,612 at December 31, 2025. The Company has
financed its
operations through a combination of operating cash flow
, borrowings from stockholders and
related and unrelated parties, and proceeds from its
IPO. In addition, on January 21, 2025, the Company's subsidiary 3D Printing Dev, LLC entered into an EB-5 loan facility with 3DFLOR Opportunity, LP (an entity affiliated with the Company's Chairman and Chief Executive Officer, Mr. Lin Li), providing for up to $24,000,000 of committed capacity at a stated interest rate of 1.00% per annum; $1,650,500 had been drawn as of March 31, 2026, leaving $22,349,500 of undrawn capacity. During the three months ended March 31, 2026, the Company also received $826,700 of partial payments on the subscription receivable.
The Company believes that its current levels of cash and cash flows from operations will be sufficient to meet its anticipated cash needs for at least the next twelve months. However, it may need additional cash resources in the future if it finds and wishes to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If it determines that its cash requirements exceed its amounts of cash on hand or if it decides to further optimize its capital structure, it may seek to issue additional debt or equity securities or obtain credit facilities or other sources of funding.
The following table set forth a summary of its cash flows for the periods indicated:
|
|
|
For the Three months Ended |
|
|||||
|
|
|
March 31, |
|
|||||
|
|
|
2026 |
|
|
2025 |
|
||
|
Net cash used in operating activities |
|
$ |
(1,401,161 |
) |
|
$ |
(1,010,467 |
) |
|
Net cash used in investing activities |
|
$ |
(210,579 |
) |
|
$ |
(149,042 |
) |
|
Net cash provided by financing activities |
|
$ |
818,294 |
|
|
$ |
3,148,197 |
|
Operating Activities
Net cash used in operating activities was $1,401,161 for the three months ended March 31, 2026.
The net cash used in operating activities for the three months ended March 31, 2026 was mainly due to our net loss of $2,895,325 adjusted for (i) a net increase of non-cash items of $1,533,737 which consisted primarily of share-based compensation, and depreciation and amortization, and (ii) a net decrease of $39,573 in changes in operating assets and liabilities. The net decrease in changes in operating assets and liabilities was attributable primarily to a decrease of $674,981 in unearned revenue, a decrease of $658,282 in due to related party, an increase of $355,528 in accounts receivable, and an increase of $127,112 in prepayments, partially offset by an increase of $1,598,187 in accounts payable, a decrease of $142,449 in inventory, and an increase of $34,094 in accruals and other payables.
| 7 |
The net cash used in operating activities for the three months ended March 31, 2025 was mainly due to our net loss of $2,630,728 adjusted for (i) a net increase of non-cash items of $1,064,442 which consisted primarily of share-based compensation and depreciation and amortization, and (ii) a net increase of $555,819 in operating assets and liabilities. The net increase in changes in operating assets and liabilities was attributable primarily to an increase of $1,081,442 in accounts payable and increase of $1,200,076 in accruals and other payables, and partially offset by an increase in accounts receivable of $641,101 and a decrease in tax payable of $635,568.
Investing Activities
Net cash used in investing activities was $210,579 for the three months ended March 31, 2026. The net cash used in investing activities for the three months ended March 31, 2025 mainly included the payments for construction in progress and purchasing equipment.
Net cash used in investing activities was $
149,042
for the three months ended March 31, 2025. The net cash used in investing activities for the three months ended March 31, 2025 was mainly attributable to payment for construction in progress.Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 was $818,294. The net cash provided by financing activities was mainly from the receipts of $826,700 from stock subscription receivable, partly offset by net repayment for loan payable of $8,406.
Net cash provided by financing activities for the three months ended March 31, 2025 was $3,148,197. Net cash provided by financing activities was mainly from the net proceeds of $3,332,150 f
r
om issuance of common stocks, proceeds of $79,276 from bank borrowings, partially offset by repayments to related party of $263,229.Contractual Obligations
The Company’s subsidiary NDC has two operating leases for its corporate office and warehouse. The lease contracts were within three years and the renewal was at landlord’s discretion.
Operating lease expenses were $111,712 and $86,294 for the three months ended March 31, 2026 and 2025, respectively.
| 8 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Based on management's evaluation, the CEO and CFO have concluded that, as of March 31, 2026, disclosure controls and procedures were not effective due to material weaknesses previously disclosed in Item 9A of the FY2025 10-K. Management is evaluating remediation steps.
There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a smaller reporting company, we are not required to make disclosures under this item.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
The Company has disclosed unregistered sale of equity securities by current reports on form 8-K.
| 9 |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
|
Exhibit No. |
|
Description |
|
31.1*
|
Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
31.2*
|
Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
32.1**
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
32.2**
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
101.INS
|
|
Inline XBRL Instance Document
|
|
101.SCH
|
|
Inline XBRL Taxonomy Extension Schema Document
|
|
101.CAL
|
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
104
|
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
|
*
|
Filed herewith.
|
|
**
|
Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filings of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
|
|
^ |
Certain terms have been omitted pursuant to Item 601(b)(2)(ii) of Regulation S-K. The Registrant hereby undertakes to furnish copies of any of the terms upon request by the SEC.
|
|
† |
Exhibits and schedules to this Exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
|
| 10 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Northann Corp. |
||
|
|
|
|
|
Date:
May 19 , 2026 |
By:
|
/s/ Lin Li
|
|
Name:
|
Lin Li
|
|
|
Title:
|
Chief Executive Officer
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
Date:
May 19 , 2026 |
By:
|
/s/ Sunny S. Prasad
|
|
Name:
|
Sunny S. Prasad
|
|
|
Title:
|
Interim Chief Financial Officer
|
|
|
|
(Principal Accounting and Financial
Officer) |
|
| 11 |
FAQ
How did Northann Corp (NCL) perform financially in Q1 2026?
Northann reported Q1 2026 revenue of $4,961,778, up from $3,437,727 a year earlier, but posted a net loss of $2,895,325. Gross margin turned negative at -10.0% as cost of revenues exceeded sales, reflecting launch-related costs and tariffs.
What is the going concern status of Northann Corp (NCL)?
Management states there is substantial doubt about Northann’s ability to continue as a going concern. As of March 31, 2026, the company had a net loss of $2.90 million, cash of $239,641, and relies on subscription receivable collections and related-party financing.
How concentrated are Northann Corp (NCL)’s revenues and receivables?
Customer concentration is high: in Q1 2026, a single customer contributed about 76.6% of revenue and 77.1% of accounts receivable. No other customer exceeded 10%, meaning financial performance is heavily dependent on this key relationship.
What liquidity resources does Northann Corp (NCL) have as of March 31, 2026?
Northann held $239,641 in cash and had working capital of $4,216,792. It also has an EB-5 loan facility with $24,000,000 capacity at 1.00% interest; $1,650,500 is drawn, leaving $22,349,500 undrawn.
How did Northann Corp (NCL)’s margins and operating expenses change year over year?
Gross margin declined from 11.4% in Q1 2025 to -10.0% in Q1 2026 due to higher costs and launch expenses. Total operating expenses fell 20.5%, helped by lower selling costs, but higher depreciation and share-based compensation kept overall losses elevated.
What are the key debt and lease obligations for Northann Corp (NCL)?
As of March 31, 2026, Northann had current loans of $1,318,477 and non-current loans of $3,003,953, largely secured by land use rights. Operating lease liabilities totaled $1,372,742, with weighted-average remaining lease term of 3.39 years.
Are Northann Corp (NCL)’s internal controls effective as of Q1 2026?
No. Management concluded that disclosure controls and procedures were not effective as of March 31, 2026, due to material weaknesses previously disclosed in the FY2025 Form 10-K. Management is still evaluating remediation steps to address these deficiencies.