F-1/A: Carbon Zero Technologies International Files for IPO Amidst Expanding China Recycling Operations and Mounting Losses

Carbon Zero Technologies International Inc., a Cayman Islands holding company operating primarily in China's renewable resources recycling sector, is seeking to raise capital through an initial public offering of 3,335,000 American Depositary Shares, despite reporting a significant net loss and negative cash flow from operations in 2024.

Summary

• Carbon Zero Technologies International Inc. (CZTI), a Cayman Islands holding company, is conducting an initial public offering (IPO) of 3,335,000 American Depositary Shares (ADSs), each representing eight Class A ordinary shares, with an expected price range of $11.00 to $13.00 per ADS.
• A selling shareholder is also offering 750,000 ADSs, representing 6,000,000 Class A ordinary shares, from which the company will not receive any proceeds.
• The company reported total revenues of RMB 4,483.6 million (US$614.3 million) in 2024, an 11.8% increase from RMB 4,008.9 million in 2023.
• Despite revenue growth, the company incurred a net loss of RMB 24.754 million (US$3.392 million) in 2024, a significant decline from a net income of RMB 2.825 million in 2023.
• Operating expenses increased by 12.6% to RMB 4,499.4 million in 2024, primarily due to a 16.5% increase in merchandise costs, which outpaced revenue growth.
• The company experienced negative net cash flows from operating activities of RMB 68.418 million (US$9.373 million) in 2024, worsening from RMB 47.863 million in 2023.
• CZTI operates an Online-to-Offline (O2O) model for renewable resources recycling in China, focusing on waste metallic resources and household waste, and claims to be the largest waste household appliance recycling platform in China with a 1.04% market share in 2023.
• The company has established an extensive recycling network covering over 500 cities with approximately 3,800 third-party recycling stations and over 35,000 registered recycling personnel as of December 31, 2024.
• Key technology platforms include Boolv ShouShou (for collecting recycling information), Boolv Collect (for on-site collection by personnel), and Boolv Sorting Center (for inventory management and settlement).
• The company's CEO, Baitong Tang, will hold approximately 82.24% of the combined voting power post-offering, making CZTI a controlled company under Nasdaq listing standards.
• The company has identified material weaknesses in its internal control over financial reporting related to insufficient U.S. GAAP accounting personnel and lack of formal internal control policies.

Sentiment

Score: 4

Explanation: The company shows strong growth in revenue and has a compelling business model in a growing industry, backed by technology and strategic partnerships. However, the significant shift from net income to a substantial net loss, worsening negative operating cash flow, and high merchandise costs in 2024 are major concerns. The high dilution for new investors and numerous PRC-related regulatory and operational risks, including potential delisting under HFCAA, contribute to a cautious outlook. While there's growth potential, the current financial performance and inherent risks weigh heavily on the sentiment.

Positives

• Total revenues increased by 11.8% year-over-year in 2024, reaching RMB 4,483.6 million (US$614.3 million).
• Product revenues from ferrous metals sales increased by 22.0% in 2024, driven by a higher recycling volume of approximately 1.2 million tons.
• The company has an extensive nationwide recycling network covering over 500 cities with approximately 3,800 third-party recycling stations and over 35,000 registered recycling personnel, enabling efficient recycling and effective supply sourcing.
• Proprietary technology solutions (Boolv ShouShou, Boolv Collect, Boolv Sorting Center) provide a digitized recycling ecosystem, enhancing efficiency, traceability, and transparency.
• The company's traceability system for renewable resources has been recognized by the Ministry of Commerce of the PRC, which invited CZTI to share and promote it to other local governments.
• Strategic partnerships with over 15 downstream waste dismantling and disposal companies and more than 10 steel production companies ensure seamless integration of the recycling life cycle.
• Expansion into downstream dismantling business, including the acquisition of Jiangxi Jingchuang Scrapped Vehicle Recycling and Dismantling Co., Ltd and investment in Hubei Jinke, aims to increase gross profit margin and strengthen value proposition.
• The company obtained a Product Carbon Footprint Certification/PCF Certification of Registration in the PRC, positioning it for potential future profit growth through carbon trading.

Negatives

• The company reported a net loss of RMB 24.754 million (US$3.392 million) in 2024, a significant deterioration from a net income of RMB 2.825 million in 2023.
• Operating expenses increased by 12.6% in 2024, primarily due to a 16.5% increase in merchandise costs, which outpaced revenue growth and led to an operating loss.
• The company has experienced negative net cash flows from operating activities in both 2023 (RMB 47.863 million) and 2024 (RMB 68.418 million), raising concerns about financial performance and sustainability.
• Merchandise costs as a percentage of total product revenue increased to 98.4% in 2024 from 94.5% in 2023, indicating reduced profitability per unit of product sold.
• Household waste offline sales decreased by 5.2% in 2024, primarily due to a lower average selling price per unit.
• The company has limited insurance coverage, lacking business interruption or product transportation insurance, which could expose it to significant costs and business disruption.
• The company has identified material weaknesses in its internal control over financial reporting, including a lack of sufficient competent financial reporting and accounting personnel with U.S. GAAP knowledge and a lack of formal internal control policies.

Risks

• The rapidly evolving renewable resources recycling industry in China, with limited established systems, absence of standards, and regulatory uncertainties, may hinder the anticipated success and acceptance of the company's business model.
• Inability to meet talent recruitment needs for technological development, expanding recycling categories, and business expansion could impede growth.
• Misalignment between technological development and business plans, particularly regarding digital systems, IT capabilities, traceability management, and financial inventory systems, could hinder growth.
• Market risks associated with expanding into new renewable resources recycling categories and downstream operations, including the ability to maintain and attract customers, could adversely affect financial condition.
• The potential deterioration of relationships with key business partners (e.g., sales businesses, recycling personnel, dismantling enterprises) could adversely affect business prospects and operations.
• The company's negative net cash flows from operating activities may continue, leading to substantial losses and unforeseen expenses.
• Fluctuations or declines in the price differences between merchandise costs and sales of renewable resources, or in service fees, would harm financial condition.
• Expansion into new recycling categories and services may expose the company to new challenges, regulatory risks, and intensified competition.
• Failure to obtain or renew required filings, approvals, licenses, permits, and certificates for business operations in China could materially and adversely affect the business.
• Risks related to the interpretation and enforcement of PRC laws, rules, and regulations, including potential rapid changes and increased government oversight, could result in material changes to operations or cause ADS value to decline or become worthless.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listings, could adversely impact the business, especially if the company were deemed to hold personal information of more than one million users or affect national security.
• PRC regulations on loans and direct investment by offshore holding companies to PRC subsidiaries may delay or prevent the use of offshore financing proceeds for capital contributions, affecting liquidity.
• Restrictions on the remittance of Renminbi into and out of China and governmental control of currency conversion may limit the ability to pay dividends and affect investment value.
• The company may be classified as a PRC resident enterprise for PRC income tax purposes, which could result in unfavorable tax consequences for the company and non-PRC shareholders.
• Trading of the ADSs could be prohibited in the United States under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect the company's auditor for two consecutive years, leading to delisting.
• The dual-class voting structure, where the CEO holds over 82% of voting power, will limit other shareholders' ability to influence corporate matters and could discourage change of control transactions.
• There has been no public market for the ADSs prior to this offering, and an active trading market may not develop, potentially limiting resale ability.
• New investors will experience immediate and substantial dilution of approximately US$10.67 per ADS, as the IPO price is significantly higher than the net tangible book value per share.
• The trading price of the ADSs is likely to be volatile due to various factors, including market and industry conditions, company-specific factors, and negative publicity regarding Chinese listed companies.
• The company currently does not expect to pay dividends in the foreseeable future, meaning investors must rely on price appreciation for returns.
• The company's reliance on third-party cloud service providers exposes it to risks of service disruptions, increased costs, and potential business interruptions.
• The success of the business depends on the continuing and collaborative efforts of the management team, and loss of key personnel could severely disrupt operations.
• The leasehold interests of some operating entities in real property have not been registered with PRC government authorities, potentially exposing them to fines or required relocation.
• Potential non-compliance with anti-monopoly laws and regulations, especially concerning past or future acquisitions, could result in investigations, fines, or rescinded transactions.
• The company's processing and storage of data expose it to cyber-attacks and unauthorized access, leading to potential data breaches, reputational harm, and legal/regulatory risks.
• Uncertainties in the Hong Kong legal system could limit legal protections for the company's Hong Kong subsidiaries.
• Failure to comply with PRC regulations regarding employee stock incentive plans may subject participants or the company to fines and sanctions.
• Inflation in the PRC and increased labor costs could negatively affect profitability if not passed on to customers.
• Tension in international trade, particularly between the U.S. and China, may adversely impact business if the company expands internationally.

Future Outlook

The company plans to pursue rapid business growth by enhancing integrated system capabilities and expanding recycling categories to include lithium-ion batteries. It aims to integrate business chain verticals by establishing or acquiring dismantling businesses to increase gross profit margins and profitability. The company also intends to expand its online and offline customer base, adding approximately 3,000 traditional offline recycling stations in the next three years to cover over 6,000 stations. Furthermore, it plans to strengthen business collaborations with major manufacturing enterprises and third-party systems, and capitalize on collected data for carbon trading to drive future profit growth.

Management Comments

• "We intend to transform the entire renewable resources recycling business in China as we develop and deploy our Online to Offline system (O2O system) through online applications and offline sites in the traditional recycling business."
• "Our goal is to establish comprehensive, digitized, and standardized waste recycling services, covering all categories of recyclable materials."
• "We believe that our companys ability to create significant value for each player in our system means that every partner has an incentive to cooperate."
• "We believe that a robust and sustainable business is a good business, but a business that does good for society beyond generating shareholder return is a great business."
• "We believe that the value of a business lies in solving social problems and creating social value."
• "Our management believes that our current levels of cash and cash flows will be sufficient to meet our anticipated cash needs for at least the next 12 months from the date of this prospectus."

Industry Context

The Chinese renewable resources recycling industry is experiencing steady growth, with recycled waste increasing from 283 million tons in 2017 to 418 million tons in 2022 (8.1% CAGR), projected to reach 590.3 million tons by 2027. This growth is driven by the emergence of online platforms, expanding volumes of renewable resources (e.g., waste household appliances volume increased by 20.9% CAGR from 2017-2022), and favorable government policies promoting circular economy and carbon neutrality. The industry is highly fragmented with over 90,000 companies, but leading players are becoming comprehensive solution providers. CZTI positions itself as an innovator leading digitization in this sector, aiming to redefine the overlooked industry by creating an end-to-end value chain infrastructure.

Comparison to Industry Standards

• CZTI claims to be the largest waste household appliance recycling platform in China with a market share of approximately 1.04% in 2023, indicating a fragmented market where even the largest player holds a relatively small share.
• The company's O2O model, integrating online technology with offline networks, is presented as an innovative approach compared to the traditional scattered offline channels prevalent in the industry.
• CZTI's ability to complete on-site collection within 24 hours after orders are placed is highlighted as a leading competitive edge in nationwide recycling services in China, suggesting superior efficiency compared to traditional methods.
• The company's industry-leading traceability system for renewable resources, which tracks product details, sources, destinations, and sales records, is a key differentiator, with the Ministry of Commerce inviting them to share this system with other local governments.
• Unlike many competitors that focus on specific sub-sectors, CZTI aims to be a comprehensive waste recycling solution provider by expanding into diverse categories and integrating downstream operations, aligning with the trend of leading companies in the fragmented Chinese market.
• The company's strategic partnerships with over 15 downstream waste dismantling and disposal companies and more than 10 steel production companies demonstrate a more integrated approach compared to fragmented traditional players.

Management Changes

Corporate Governance

Related Party Transactions

• The company had accounts receivable from related parties, including RMB 44.395 million from Hubei Jinke and RMB 0.240 million from ABGreen BJ as of December 31, 2024.
• Advance to suppliers from related parties amounted to RMB 0.500 million from Zhoukou Bolv as of December 31, 2024.
• Accounts payable to related parties totaled RMB 157.287 million as of December 31, 2024, primarily from various entities controlled by Mr. Qi Yu (e.g., Jiujiang Lichuang, Jiujiang Xinchuang, GQC Yi An).
• Sales to and services provided for related parties amounted to RMB 134.321 million in 2024, primarily from Hubei Jinke (RMB 134.095 million) and ABGreen BJ (RMB 0.226 million).
• Purchases of products and services from related parties totaled RMB 518.717 million in 2024, mainly from entities controlled by Mr. Qi Yu (e.g., Jiujiang Xinchuang, Jiujiang Lichuang) and Tianjiu.
• Due from related parties amounted to RMB 20.500 million as of December 31, 2024, including loans to Henan ZYR, HNHY, Henan Jiataihong Environmental, Shanghai Zhongyao, Jiangxi Yuchuang, Ms. Hong Wang, and Jiangxi New Difeng.
• Due to related parties amounted to RMB 40.012 million as of December 31, 2024, including short-term working capital loans from Mr. Baitong Tang, Zhoukou Bolv, SZ ARSC(LP), Ms. Meixia Zhang, China Link, Mr. Qi Yu, Jiangxi Yuchuang, Ms. Xiangying Xiang, Mr. Renlu Dong, Shanghai Zhongyao, and Jiangxi New Difeng.
• Long-term loan payable to related parties was RMB 101.141 million as of December 31, 2024, primarily from BJ ABGreen RSC, with an annual interest rate of 5.5% and maturity on June 30, 2028, and a new loan at 5% maturing January 1, 2026.

Stakeholder Impact

• **Shareholders (Existing & New):** Existing shareholders will experience significant dilution from the IPO. New investors face immediate and substantial dilution. All shareholders are exposed to the risks associated with operating in China, including regulatory intervention, data security, and potential delisting under HFCAA. The dual-class voting structure limits the influence of Class A shareholders.
• **Employees:** The company plans to increase employee compensation and benefit packages, recruit high-level talent, and invest in vocational training, which is positive for employees. However, the company's negative net cash flow and losses could impact long-term job security or future compensation growth.
• **Customers & Suppliers:** The company's O2O model and extensive network aim to provide more convenient and efficient recycling services for consumers and suppliers. Strategic partnerships with downstream dismantling and steel companies ensure distribution channels. However, potential deterioration of relationships with business partners or issues with third-party service providers could negatively impact service quality and supply chain efficiency.
• **Creditors:** The company has significant outstanding bank loans and related party loans. Its negative net cash flow from operations and net loss could raise concerns about its ability to service debt, although management believes current cash and cash flows are sufficient for the next 12 months.

Next Steps

• Complete the initial public offering and listing of ADSs on the Nasdaq Global Market under the symbol CZTI, contingent on Nasdaq approval.
• Update filing documents with the CSRC within three business days if any material or significant events occur between the Filing Completion Notice and the completion of the offering.
• Report offering information to the CSRC within 15 business days upon completion of the offering.
• Expand recycling operations in categories beyond household waste, ferrous metals, lithium batteries, and electronic devices.
• Expand downstream operations, including the dismantling of household appliances, plastic granulation, lithium battery recycling and dismantling.
• Pursue mergers and acquisitions involving downstream companies in the recycling and dismantling sectors.
• Enhance research and development systems, increasing investments in digital technology and research on data analysis, IoT, LBS, unique product identifiers, and digital supply chain technologies.
• Increase employee compensation and benefit packages, recruit high-level talent, and invest in vocational training.
• Add approximately 3,000 traditional offline recycling stations in the next three years to expand coverage to over 6,000 stations.
• Strengthen business collaborations with major manufacturing enterprises and third-party systems (property management, appliance repair, home cleaning, charitable foundations).
• Capitalize on collected data and information to accumulate carbon quotas for future profit growth by participating in international/domestic carbon markets.

Key Dates

Recommendation

Keywords

Renewable Resources Recycling, Waste Management, Circular Economy, O2O Model, Online to Offline, Household Waste Recycling, Metallic Resources Recycling, Electronic Waste, Scrap Vehicles, China Market, ESG, Carbon Trading, IPO, ADS, Nasdaq, PRC Regulations, Cybersecurity, Data Security, HFCAA, Controlled Company