F-1/A: CN Energy Faces Going Concern Amid Losses, Strategic Shift

CN Energy Group. Inc. reports a significant net loss for fiscal year 2024 and a 'going concern' warning, despite an interim net income for H1 2025 driven by asset disposal and a strategic shift towards activated carbon deep processing.

Summary

• The company filed a Pre-Effective Amendment No. 1 to Form F-3 on Form F-1 for the resale of up to 1,977,302 Class A Ordinary Shares by selling securityholders, from which the company will not receive any proceeds.
• For the six months ended March 31, 2025, the company reported a net income of $6.9 million, a significant improvement from a net loss of $3.0 million in the prior-year period.
• Revenue for the six months ended March 31, 2025, decreased by 47.7% to $16.4 million from $31.3 million in the same period of the prior year, primarily due to a decrease in activated carbon sales volume from 25,496 tons to 14,744 tons.
• Gross profit for the six months ended March 31, 2025, increased by 632.9% to $479,230, with the gross profit margin improving to 2.9% from 0.2% in the prior-year period, mainly due to a decrease in average unit cost.
• For the fiscal year ended September 30, 2024, the company reported a net loss of $14.0 million, an increase from a net loss of $5.6 million in fiscal year 2023.
• Gross profit for fiscal year 2024 shifted to a loss of $0.18 million from a profit of $0.79 million in fiscal year 2023, primarily due to a 20.7% decrease in the average selling price of activated carbon.
• Operating cash flow improved in fiscal year 2024, with net cash used in operating activities decreasing to $2.4 million from $30.2 million in fiscal year 2023.
• The company received a 'going concern' warning from its auditor due to the net loss, accumulated deficit of $16.7 million, and negative operating cash flow for the year ended September 30, 2024.
• A 1-for-25 reverse stock split was effected on May 19, 2025, to increase the market price per share and regain compliance with Nasdaq's minimum bid price requirement.
• The company completed the acquisition of 45% equity in Ynong International Group Limited on April 30, 2025, for a total consideration of $40,913,370, including 2,000,000 Class A shares, assignment of $24,548,022 in accounts receivable, and a $6,365,348 cash payment.
• Biomass electricity production ceased in fiscal year 2024 due to insufficient heat generated from activated carbon production, eliminating this revenue source.
• The construction of a new facility in Manzhouli City, Inner Mongolia, was suspended and sold due to an inability to secure raw materials, resulting in a $1.29 million loss on disposal of subsidiaries in fiscal 2024.
• A new facility in Lishui for R&D, processing, marketing, and sale of activated carbon for water purification is now operational, with a targeted annual output capacity of 36,000 tons.

Sentiment

Score: 3

Explanation: The company faces significant financial distress, evidenced by a substantial net loss in fiscal year 2024 and a 'going concern' warning from its auditor. While interim results for H1 2025 show a net income, this is largely driven by a reversal of allowance for receivables due to an acquisition, rather than core operational profitability. Revenue is declining, and the company has ceased biomass electricity production. Operational challenges include an expired pollutant discharge license and suspended construction of a new facility due to raw material sourcing issues. The company's reliance on a limited number of customers and suppliers, coupled with the inherent regulatory and political risks of operating primarily in China, adds considerable uncertainty. The dual-class share structure concentrates voting power, limiting minority shareholder influence. Despite recent capital raises and a reverse stock split to maintain Nasdaq listing, the underlying business fundamentals and liquidity concerns suggest a high-risk investment with significant downside potential.

Positives

• Net income for the six months ended March 31, 2025, was $6.9 million, a significant improvement from a net loss of $3.0 million in the prior-year period.
• Gross profit margin increased to 2.9% for the six months ended March 31, 2025, from 0.2% in the prior-year period, driven by a decrease in average unit cost.
• Operating cash flow improved significantly in fiscal year 2024, with net cash used in operating activities decreasing to $2.4 million from $30.2 million in fiscal year 2023.
• Successful acquisition of 45% equity in Ynong International Group Limited, expanding business into Indonesia.
• A new facility in Lishui for R&D, processing, marketing, and sale of activated carbon for water purification is now operational with a targeted annual output capacity of 36,000 tons.
• General and administrative expenses decreased by 44.4% in fiscal year 2024 due to cost-cutting measures and headcount reduction.
• Research and development expenses decreased by 86.3% in fiscal year 2024 due to cost-cutting measures.
• Regained compliance with Nasdaq's Market Value of Publicly Held Shares (MVPHS) requirement as of October 9, 2024.
• A 1:25 reverse stock split was successfully effected on May 19, 2025, to address Nasdaq bid price deficiency.
• The company has positive working capital of $60.0 million and net assets of $96.9 million as of September 30, 2024.

Negatives

• Net loss for the fiscal year ended September 30, 2024, increased to $14.0 million from $5.6 million in fiscal year 2023.
• Gross profit shifted to a loss of $0.18 million for fiscal year 2024 from a profit of $0.79 million in fiscal year 2023, primarily due to decreasing activated carbon selling prices.
• Revenue for the six months ended March 31, 2025, decreased by 47.7% compared to the same period last year, mainly due to reduced sales volume.
• Biomass electricity production ceased in fiscal year 2024, eliminating a revenue source.
• A significant increase in allowance for receivables and inventories in fiscal year 2024 ($8.98 million vs. $0.2 million in 2023) indicates deteriorating collectability.
• Construction of a new facility in Manzhouli City, Inner Mongolia, was suspended and sold due to an inability to secure raw materials, resulting in a $1.29 million loss on disposal of subsidiaries in fiscal 2024.
• Khingan Forasen's License of Pollutant Discharges expired in February 2023, leading to temporary cessation of related productions.
• The company received a Nasdaq bid price deficiency notice on May 28, 2024, requiring compliance by November 25, 2024, later extended to May 27, 2025.
• Significant concentration risk exists with major customers (two accounted for 52% of activated carbon sales in FY2024) and suppliers (top three accounted for 37%, 12%, and 9% of raw materials in FY2024).
• Reliance on dividends from PRC subsidiaries is subject to PRC regulations and currency controls, potentially limiting fund transfers.
• The company's auditor issued a 'going concern' warning due to net loss, accumulated deficit, and negative operating cash flow in fiscal year 2024.
• Significant reduction in R&D spending and no employees in the R&D department as of September 30, 2024, indicating a halt in internal innovation efforts.
• Non-compliance with PRC regulations relating to employee benefit plans (social insurance and housing provident fund payments) may lead to penalties.

Risks

• The operating entities' financial results could be materially and adversely affected by an interruption of supply of raw materials, as they depend on a variety of raw materials from a limited number of suppliers.
• Increases in the prices of raw materials could materially and adversely affect financial results if not fully passed on to customers.
• A majority of activated carbon sales are currently derived from a small number of customers, making the company vulnerable to business disruptions or decreased sales from these customers.
• A disruption or delay in production at existing facilities due to maintenance, power failures, equipment failures, natural disasters, or labor disputes could materially and adversely affect financial results.
• Reliance on third-party manufacturers for some activated carbon products poses risks related to timely production, quality control, and supply shortages.
• Future construction projects may incur delays and budget overruns due to various factors, including insufficient capital, material shortages, unforeseen problems, or regulatory delays.
• Uncertainties regarding future environmental and health and safety laws and regulations in China could materially and adversely affect demand for the company's products.
• Disclosure of trade secrets or failure to adequately protect intellectual property rights could result in increased competition and adverse financial effects.
• Third parties may claim infringement of their intellectual property rights, leading to litigation costs, damages, or restrictions on product sales.
• Compliance with environmental laws and regulations could result in significant costs and liabilities, as evidenced by the expired pollutant discharge license for Khingan Forasen.
• The company's operations are subject to various litigation risks, including environmental damage, intellectual property, and employee-related matters.
• Inability to keep up with competitive changes in the activated carbon industry, characterized by evolving standards, new products, and changing customer demand.
• The activated carbon industry is highly competitive, and failure to compete effectively with existing and new entrants could adversely affect business and financial results.
• Development of competitive technologies could materially and adversely affect demand for activated carbon products.
• Failure to hire, train, and retain qualified managerial and other employees could adversely affect business and results of operations.
• Lease agreements for operating entities' properties have not been registered with relevant PRC government authorities, potentially exposing them to fines.
• Unexpected termination or unfavorable renewal terms of leases could materially and adversely affect business and financial condition.
• Dependence on third parties for construction, maintenance, engineering, transportation, warehousing, and logistics services introduces operational risks.
• Future acquisitions may have adverse effects due to integration challenges, unforeseen liabilities, or diversion of resources.
• A severe or prolonged slowdown in the Chinese economy could materially and adversely affect business and financial condition.
• Changes in the policies, regulations, rules, and enforcement of laws by the PRC government may be quick with little advance notice and significantly impact profitability.
• The Chinese government's significant oversight and discretion over business could lead to intervention or influence at any time, causing material changes to operations or affecting securities value.
• Uncertainty exists regarding future requirements for PRC government permission to list on U.S. exchanges, which could hinder the ability to offer securities.
• Greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listings, could adversely impact business and offerings.
• The 'Opinions on Severely Cracking Down on Illegal Securities Activities According to Law' may subject the operating entities to additional compliance requirements.
• Tariffs by the U.S. government and the trade war between the U.S. and China may dampen global growth and negatively impact business operations and revenue.
• Increases in labor costs in the PRC may adversely affect business and profitability.
• Non-compliance with PRC regulations relating to employee benefit plans (social insurance and housing funds) may result in penalties.
• Due to BVI incorporation and PRC operations, it may be difficult for investors to bring action against the company or its officers/directors in the United States or for overseas regulators to conduct investigations in China.
• The Holding Foreign Companies Accountable Act (HFCA Act) could prohibit trading in the company's shares on a national exchange if its auditor is not subject to PCAOB inspection for two consecutive years, leading to delisting.
• PRC regulations relating to offshore investment activities by PRC residents (SAFE Circular 37) may limit PRC subsidiaries' ability to increase registered capital or distribute profits.
• Reliance on dividends and other distributions from PRC subsidiaries to fund cash requirements is subject to limitations and taxes imposed by PRC laws and currency controls.
• PRC regulation of loans to and direct investment in PRC entities by offshore holding companies may delay or prevent the use of future financing proceeds.
• Exchange rate fluctuations between RMB and U.S. dollars may affect the company's assets and operating results when presented in U.S. dollars.
• Classification as a PRC resident enterprise under the EIT Law could result in unfavorable tax consequences for the company and its non-PRC shareholders.
• Uncertainty exists with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies (SAT Bulletin 7), potentially leading to tax liabilities.
• The company may become subject to scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, which could harm business operations, stock price, and reputation.
• The M&A Rules and other PRC regulations establish complex procedures for certain acquisitions, which could make it more difficult to pursue growth through acquisitions in China.
• The sale of a substantial amount of Class A Ordinary Shares by the Selling Shareholders in the public market could adversely affect the market price of the shares.
• The company does not expect to pay dividends in the foreseeable future, requiring investors to rely on price appreciation for return on investment.
• Lack of securities analyst coverage may negatively impact the market price of Class A ordinary shares.
• The trading price of Class A ordinary shares is likely to be volatile, which could result in substantial losses to investors.
• Techniques employed by short sellers may drive down the market price of Class A ordinary shares.
• The requirements of being a public company may strain resources and divert management's attention.
• If the company ceases to qualify as a foreign private issuer, it would incur significant additional legal, accounting, and other expenses.
• Reliance on British Virgin Islands home country corporate governance practices may provide less protection than U.S. standards.
• Inability to satisfy, or continue to satisfy, the continued listing requirements and other rules of the Nasdaq Capital Market could lead to delisting.
• The dual-class structure of ordinary shares concentrates voting control with Ms. Yefang Zhang, whose interests may not always align with other shareholders.

Future Outlook

The company intends to retain future earnings to finance business expansion and does not anticipate paying cash dividends in the foreseeable future. It may seek additional capital through equity, debt, or credit facilities. Operationally, the company plans to improve accounts receivable management, implement strategic business restructuring by divesting loss-making units, focus on profitable segments, and pursue new technologies or market share through M&A. It also aims for technological innovation, digital transformation, market expansion, and optimizing sales strategies. The company expects to apply for new pollutant discharge licenses to resume certain production activities and will continue to search for alternative feedstocks. Furthermore, it plans to strategically establish or acquire companies in downstream activated carbon sectors like environment restoration, water purification, and air cleaning.

Management Comments

• We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.
• Our management believes that income generated from our current operations can satisfy our daily working capital needs over the next 12 months.
• The Company intends to continue to actively monitor its compliance with the Bid Price Rule and, as appropriate, will consider available options to resolve any deficiencies and regain compliance.
• The Company initiated cost cutting measures to revive the business.
• The operating entities will focus on the deep processing and activation of activated carbon.

Industry Context

The activated carbon industry is characterized by evolving standards, changing regulations, frequent product enhancements, and new product introductions. A significant market driver for activated carbon and biomass electricity in China is the government's 'Work Plan for Greenhouse Gas Emission Control During the 14th Five-Year Plan Period,' which supports clean energy and restricts industrial pollutants. There is increased demand for activated carbon in water, food, beverage, and pharmaceutical industries due to industrial technology development, stricter environmental regulations, and food safety concerns. The company faces intense competition from other PRC producers and importers, including both wood-based and coal-based activated carbon manufacturers. A potential shift away from coal-burning technology could diminish future demand for certain activated carbon products. The Chinese government's significant oversight and discretion, including recent regulatory actions in other sectors and strengthened anti-monopoly supervision, could impact the company's industry.

Comparison to Industry Standards

• The company's wood-based activated carbon, produced through physical activation, is of higher quality than coal-based activated carbon produced through chemical activation, making it suitable for pharmaceutical and food/beverage industries which require higher purity.
• The company's Cogeneration Process is described as more efficient and less polluting compared to traditional steam activation, as it utilizes synthesis gas to generate biomass electricity, offering an additional revenue source (though biomass electricity production has ceased).
• No specific comparable companies, projects, or global benchmarks are provided for a direct quantitative assessment against industry standards in the filing.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not a party to any material legal proceeding.

Related Party Transactions

• As of September 30, 2024, the company owed Yefang Zhang (principal shareholder) $611,327, consisting of a $311,150 loan and $300,177 for payment of expenses on behalf of the company. This balance is interest-free, unsecured, and due upon demand.
• On September 16, 2025, Weastfinace Group Inc. (100% owned by Xinyang Wang, a director) granted Ms. Yefang Zhang an irrevocable proxy to vote 631,391 Class B Ordinary Shares owned by Weastfinace, consolidating voting power.
• On August 1, 2025, Weastfinace Group Inc. purchased 631,391 Class B Ordinary Shares from the company at $2.30 per share for $1,452,200.
• Zhejiang New Material entered into a lease agreement with Hangzhou Forasen Energy Technology Co., Ltd. (controlled by Mr. Zhengyu Wang, spouse of Ms. Yefang Zhang) for office space, with an annual rent of RMB454,043 (approximately $61,619).

Stakeholder Impact

• Shareholders face potential dilution from future equity raises, market price volatility due to financial performance and regulatory risks, and limited influence due to concentrated voting power. No cash dividends are anticipated.
• Employees have been impacted by headcount reductions as part of cost-cutting measures, and there is a risk of penalties due to non-compliance with PRC employee benefit plans.
• Customers may experience potential disruptions due to supply chain issues or delays in production facilities, although the company is focusing on customer relationships and customized products.
• Suppliers are subject to tightening vendor prepayment policies and increased monitoring of unrealized prepayments, which could affect their business relationship with the company.
• Creditors, particularly holders of convertible notes, have seen conversions into equity and forbearance agreements, indicating potential challenges in debt repayment.

Next Steps

• Selling Shareholders may sell up to 1,977,302 Class A Ordinary Shares from time to time.
• The company intends to continue to actively monitor its compliance with the Nasdaq Bid Price Rule.
• Operating entities may apply for new pollutant discharge licenses to resume related production activities, a process expected to span three to six months.
• The company plans to improve accounts receivable management, strengthen collection, and optimize credit policy.
• Strategic adjustments are planned through business restructuring, divesting loss-making businesses, and focusing on profitable ones.
• The company intends to acquire new technologies or market share through mergers and acquisitions or collaborations.
• Technological innovation and digital transformation are planned to improve production efficiency and product competitiveness.
• The company aims to increase income through expanding the market, entering new markets, or launching new products.
• Increased R&D efforts are planned by seeking partnerships with research institutes.
• The company will continue to search for alternative feedstock to enhance raw material availability and reduce costs.
• The company plans to strategically establish or acquire companies in downstream activated carbon sectors such as environment restoration, water purification, and air cleaning.
• PWAN will appoint an individual designated by the company to serve on its board of directors on or prior to June 30, 2025.
• The company will pay Ynong Group a post-closing payment of $6,365,348 in cash on or prior to June 30, 2025.
• The company agreed to file a registration statement covering the resale of Warrant Shares no later than February 21, 2025, related to warrant inducement agreements.
• The company agreed to file a registration statement with the SEC within 45 days from the initial closing (April 8, 2025) for registration of the resale of Commitment Shares, Purchase Shares, and any other Ordinary Shares issuable pursuant to the April 4, 2025 Purchase Agreement.

Key Dates

Recommendation

The company faces significant financial distress, evidenced by a substantial net loss in fiscal year 2024 and a 'going concern' warning from its auditor. While interim results for H1 2025 show a net income, this is largely driven by a reversal of allowance for receivables due to an acquisition, rather than core operational profitability. Revenue is declining, and the company has ceased biomass electricity production. Operational challenges include an expired pollutant discharge license and suspended construction of a new facility due to raw material sourcing issues. The company's reliance on a limited number of customers and suppliers, coupled with the inherent regulatory and political risks of operating primarily in China, adds considerable uncertainty. The dual-class share structure concentrates voting power, limiting minority shareholder influence. Despite recent capital raises and a reverse stock split to maintain Nasdaq listing, the underlying business fundamentals and liquidity concerns suggest a high-risk investment with significant downside potential.

Keywords

Activated Carbon, Biomass Electricity, SEC Filing, F-1/A, Resale Offering, China Operations, Nasdaq Listing, Going Concern, Reverse Stock Split, Corporate Restructuring, Acquisition, Private Placement, PRC Regulations, Supply Chain, Environmental Compliance, Corporate Governance, Shareholder Voting, Financial Performance, Risk Factors