F-1/A: Carbon Zero Technologies International Files for Nasdaq IPO, Targeting $40 Million to Expand China's Recycling Ecosystem Amidst Operational Losses

Carbon Zero Technologies International Inc., a Cayman Islands holding company operating a technology-driven renewable resources recycling platform in China, is seeking to raise approximately $40 million through an initial public offering on Nasdaq to fund expansion into new recycling categories and downstream operations, despite reporting a net loss and negative cash flow from operations in 2024.

Summary

• Carbon Zero Technologies International Inc. (CZTI), established in 2016, is a technology-driven renewable resources recycling company and system provider in China, operating an Online to Offline (O2O) model.
• The company is the largest waste household appliance recycling platform in China, with a market share of approximately 1.04% in 2023, having recycled about 21.8 million units of waste household appliances since inception to December 31, 2023.
• Total recycled household waste (including appliances, plastic, paper, and scrap vehicles) reached approximately 34.1 million units since inception to December 31, 2024.
• CZTI's main revenue is generated from waste metallic resources and household waste, with total revenues reaching RMB 4.0 billion in 2023 and RMB 4.5 billion (US$0.6 billion) in 2024, representing an 11.8% year-over-year growth.
• The company operates an extensive nationwide 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 proprietary technology includes Boolv ShouShou (mini-program for recycling information from sales personnel and end consumers), Boolv Collect (app for recycling personnel to bid and accept orders), and Boolv Sorting Center (app for inventory management and settlement at recycling stations).
• CZTI is offering 3,335,000 American Depositary Shares (ADSs) representing 26,680,000 Class A ordinary shares in its initial public offering, with an expected price range of $11.00 to $13.00 per ADS, aiming to raise approximately $36.4 million net proceeds.
• A selling shareholder is also registering 750,000 ADSs (representing 6,000,000 Class A ordinary shares) for resale, from which the company will not receive any proceeds.
• The company reported a net loss of RMB 24.8 million (US$3.4 million) for the year ended December 31, 2024, compared to a net income of RMB 2.8 million in 2023.
• Net cash used in operating activities was approximately RMB 68.4 million (US$9.4 million) for the year ended December 31, 2024, worsening from RMB 47.9 million in 2023.
• Merchandise costs increased by 16.5% to RMB 4,402.8 million in 2024, primarily due to increased recycling volume and competitive pricing to expand market share, leading to merchandise costs as a percentage of total product revenue increasing to 98.4% in 2024 from 94.5% in 2023.
• The company has a dual-class voting structure, with CEO Baitong Tang controlling approximately 82.24% of the combined voting power post-offering, making it a controlled company under Nasdaq rules.
• The company has identified two material weaknesses in its internal control over financial reporting as of December 31, 2024, related to insufficient competent financial reporting personnel and lack of formal internal control policies.

Sentiment

Score: 4

Explanation: While the company shows strong revenue growth and a leading market position in a growing industry, the significant shift from net income to a substantial net loss and increasing negative cash flow from operations in 2024, coupled with identified material weaknesses in internal controls and high operational risks, indicates a concerning financial performance trend despite the IPO. The dual-class structure and PRC regulatory risks also add to the caution.

Positives

• Largest waste household appliance recycling platform in China with a 1.04% market share in 2023, demonstrating significant industry presence.
• Achieved 11.8% year-over-year revenue growth in 2024, reaching RMB 4.5 billion (US$0.6 billion), driven by increased recycling volume.
• Established an extensive nationwide recycling network covering over 500 cities with approximately 3,800 third-party recycling stations and over 35,000 registered recycling personnel.
• Proprietary O2O technology system (Boolv ShouShou, Boolv Collect, Boolv Sorting Center) enhances efficiency, traceability, and standardization in the recycling process.
• Ministry of Commerce of the PRC invited the company to share and promote its traceability system to other local governments, indicating recognition of its innovation.
• Strategic partnerships with over 15 downstream waste dismantling and disposal companies and more than 10 steel production companies ensure seamless integration and distribution channels.
• Expansion into new recycling categories (e.g., lithium-ion batteries) and downstream dismantling businesses (e.g., scrapped vehicles) is underway, aiming to increase gross profit margin and profitability.
• Obtained Product Carbon Footprint Certification/PCF Certification of Registration in the PRC, positioning the company for future participation in carbon trading markets.
• Received National High Tech Enterprise title and listed as a Key Enterprise for Resources Recycling by the Ministry of Commerce of China.

Negatives

• Reported a net loss of RMB 24.8 million (US$3.4 million) in 2024, a significant decline from a net income of RMB 2.8 million in 2023.
• Experienced negative net cash flows from operating activities of RMB 68.4 million (US$9.4 million) in 2024, indicating a cash burn.
• Merchandise costs as a percentage of total product revenue increased to 98.4% in 2024 from 94.5% in 2023, reflecting lower profit margins on sales.
• Identified material weaknesses in internal control over financial reporting, specifically lacking sufficient competent financial reporting personnel and formal internal control policies.
• Reliance on dividends and distributions from PRC subsidiaries, which are subject to PRC regulations and potential restrictions on cash transfers out of China.
• The company has not declared or paid any cash dividends in the past and does not plan to in the foreseeable future, meaning investors must rely on stock price appreciation for returns.
• Significant concentration of revenue from top customers (39.7% from top five in 2024) and accounts receivable from related parties (RMB 44.6 million in 2024).

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 business model.
• Inability to meet talent recruitment needs for technological development, expanding recycling categories, and business expansion could impede growth.
• Risk of misalignment between technological development and business plans if enhanced compatibility and functionality in digital systems, IT capabilities, traceability management, and financial inventory systems are not achieved.
• Market risks in implementing business strategy, including category expansion and downstream operations, if investments, market risks, and operational management are not carefully evaluated.
• Potential deterioration of relationships with business partners in the recycling value chain (e.g., suppliers, dismantling companies) could adversely affect business prospects and operations.
• Continued negative net cash flows from operating activities may hinder the ability to support future growth and business plans.
• Fluctuations or decline in the differences between merchandise costs and sales prices, and fees charged for online services, could harm financial condition.
• Risk of mishandling personal information, lack of confidence in privacy and security, and potential data breaches could deter users, harm reputation, and result in legal/regulatory risks.
• Expansion into new recycling categories and services may expose the company to new challenges, regulatory risks, and intensified competition.
• Any failure to obtain or renew certain filings, approvals, licenses, permits, and certificates required for business operations may materially and adversely affect the business.
• Uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations, and rapid changes in policies, could adversely affect operations and the value of ADSs.
• The Chinese government may exercise significant oversight and discretion over the conduct of subsidiaries' business and may intervene or influence their operations at any time.
• Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact the business and offering.
• PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject the company to liability or penalties, limiting capital injection or profit distribution.
• Reliance on dividends and other distributions from PRC operating entities, which may be restricted by PRC government interventions or limitations on cash transfers out of China.
• Trading of ADSs may be prohibited in the United States under the Holding Foreign Companies Accountable Act (HFCAA) if the PCAOB is unable to inspect the auditor for two consecutive years.
• No public market for ADSs prior to this offering, leading to potential volatility and inability to resell at or above the offering price.
• Dual-class voting structure limits the ability of Class A ADS holders to influence corporate matters, as CEO Baitong Tang holds significant voting power.
• Failure to establish and maintain proper internal financial reporting controls could impair the ability to produce accurate financial statements or comply with regulations.
• Certain recent IPOs with smaller public floats have experienced extreme stock price volatility, which could make it difficult for investors to assess the rapidly changing value of the ADSs.
• ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement or related to the ADSs, potentially leading to less favorable outcomes.
• Claims relating to ordinary shares or ADSs may be submitted to arbitration, which could limit access to judicial forums.
• Potential for substantial future sales or perceived potential sales of ADSs by existing shareholders after the offering could cause the price to decline.
• Inflation in the PRC could negatively affect profitability and growth if costs cannot be passed on to customers.
• Exposure to foreign currency risk due to RMB not being freely convertible and potential fluctuations in exchange rates.
• Financial distress experienced by business partners and other contract counterparties could have an adverse impact.
• Increased labor costs, inability to retain suitable employees, or unfavorable labor relations may adversely affect the business.
• Interruptions or failures that impair access to information technology systems could adversely affect the business.
• Uncertainty regarding the accuracy and completeness of third-party industry data and projections.

Future Outlook

The company plans to adhere to two strategic priorities for the next three to five years: rapid business growth by enhancing integrated system capabilities and expanding recycling categories while integrating business chain verticals. This includes strengthening technology innovation, increasing R&D investments in data analysis, traceability, IoT, and LBS, and expanding online and offline customer bases by adding approximately 3,000 traditional offline recycling stations to cover over 6,000. The company also aims to increase the proportion of downstream disposal and dismantling segments in total revenue and profit, and participate in carbon trading markets for 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."
• "I 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."

Industry Context

China's renewable resources recycling industry has experienced steady growth, with recycled resources increasing from 283 million tons in 2017 to 418 million tons in 2022 (CAGR of 8.1%), primarily driven by iron and steel scrap. The industry is expected to reach 590.3 million tons by 2027 (CAGR of 7.1%). The sector is characterized by fragmented traditional offline channels and information asymmetry. The company positions itself as an innovator leveraging an O2O model to digitize the ecosystem, addressing inefficiencies and promoting transparency. Favorable government policies, such as the 14th Five-Year Plan for Circular Economy Development and dual carbon goals (carbon peak by 2030, carbon neutrality by 2060), are supportive of industry growth. The industry is highly fragmented with over 90,000 companies in 2022, with individual recyclers still dominant but online platforms gaining market share.

Comparison to Industry Standards

• The company claims to be the largest waste household appliance recycling platform in China with a market share of approximately 1.04% in 2023, recycling about 21.8 million units of waste household appliances since inception to December 31, 2023.
• The company states it is the only company in China to have fully connected the entire industry chain by establishing a nationwide recycling system and having comprehensive regional disassembly capabilities, differentiating itself from competitors in upstream recycling (traditional stations, similar platforms) and downstream (dismantling companies).
• The company's O2O model and digitized technology are presented as competitive advantages, enabling efficient recycling (on-site collection within 24 hours), effective supply sourcing, full category business expansion, and cost reduction/efficiency enhancement through strategic partnerships with over 15 downstream waste dismantling/disposal companies and more than 10 steel production companies.

Management Changes

Corporate Governance

Legal Proceedings

• As of the date of the prospectus, neither the company nor any of its subsidiaries is a party to any pending legal proceedings, nor are they aware of any such proceedings threatened against them.

Related Party Transactions

• The company has various transactions with related parties, including accounts receivable from, advances to, accounts payable to, sales to, services provided for, and purchases from related parties.
• Accounts receivable from related parties totaled RMB 44.6 million (US$6.1 million) as of December 31, 2024, primarily from Hubei Jinke.
• Accounts payable to related parties totaled RMB 157.3 million (US$21.5 million) as of December 31, 2024, primarily for household waste purchases from Jiujiang Lichuang, Jiujiang Xinchuang, GQC Yi An, GQC Siyi, GQC Yucan, Jiujiang Chen An, and Nanchang Lvshang.
• Sales to and services provided for related parties amounted to RMB 134.3 million (US$18.4 million) in 2024, mainly from Hubei Jinke.
• Purchases of products and services from related parties amounted to RMB 518.7 million (US$71.1 million) in 2024, primarily household waste from various entities.
• Due from related parties totaled RMB 20.5 million (US$2.8 million) as of December 31, 2024, including loans to Henan ZYR, HNHY, Henan Jiataihong Environmental, Shanghai Zhongyao, Jiangxi Yuchuang, and Ms. Hong Wang.
• Due to related parties totaled RMB 40.0 million (US$5.5 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 101.1 million (US$13.9 million) as of December 31, 2024, primarily to BJ ABGreen RSC, maturing on June 30, 2028, and January 1, 2026.

Stakeholder Impact

• **Shareholders:** Potential for dilution from the IPO, limited influence on corporate matters due to dual-class voting structure, reliance on stock price appreciation for returns as no dividends are planned, and exposure to significant PRC regulatory and operational risks.
• **Employees:** Increased compensation and benefit packages, and investment in vocational training are planned, potentially improving employee welfare and retention.
• **Customers:** Enhanced service efficiency and convenience through the O2O system, broader recycling categories, and improved traceability, potentially leading to increased customer satisfaction and engagement.
• **Suppliers:** Integration into a digitized ecosystem and extensive downstream network offers quick turnaround and profit realization for recycling stations and personnel.
• **Creditors:** Increased debt from bank loans and related party loans, but management believes current cash and cash flows are sufficient for the next 12 months. Pledging of assets for bank borrowings noted.
• **Regulatory Bodies:** The company is subject to extensive and evolving PRC regulations, including those related to cybersecurity, data security, foreign investment, and overseas listings, with potential for fines or operational restrictions if non-compliant.

Next Steps

• Expand recycling operations in categories beyond household waste, ferrous metals, lithium batteries, and electronic devices to increase market share and service range.
• Expand downstream operations to vertically extend the business, including dismantling of household appliances, plastic granulation, lithium batteries, and automobiles.
• Pursue mergers and acquisitions involving downstream companies engaged in dismantling, granulation, and recycling.
• Enhance research and development systems, increase investments in digital technology, and emphasize research on data analysis, traceability management, IoT, LBS, and unique product identifiers.
• Grow user base and promote innovation and capabilities of the technology system and recycling ecosystem.
• Expand online and offline customer services by establishing a larger network of third-party physical locations, aiming to add approximately 3,000 traditional offline recycling stations in the next three years to cover over 6,000.
• Strengthen business collaborations with major manufacturing enterprises and third-party systems (property management, appliance repair, home cleaning, charitable foundations) to diversify sourcing and expand user base.
• Capitalize on collected data and information to accumulate carbon quotas for future profit growth by participating in international/domestic carbon markets.
• Remediate identified material weaknesses in internal control over financial reporting by hiring qualified personnel, organizing regular training, formulating U.S. GAAP accounting policies, and improving financial closing procedures.
• Complete foreign direct investment fund registration with local government in the PRC for recent acquisitions and settle outstanding cash considerations before August 2025.

Key Dates

Recommendation

Keywords

Renewable Resources Recycling, Waste Management, Environmental Technology, O2O Platform, China Market, Household Appliance Recycling, Metallic Waste Recycling, IPO, Nasdaq, SEC Filing, Sustainability, Circular Economy, Data Security, PRC Regulations