F-1/A: Xinzi Reports Net Loss Amidst Industry Contraction, Proceeds with Nasdaq IPO to Fund Expansion

Xinzi, a Cayman Islands holding company operating through its PRC subsidiaries in the solar photovoltaic film industry, reported a net loss of $0.34 million in 2024, a significant decline from a net income of $0.46 million in 2023, as it proceeds with its initial public offering on the Nasdaq Capital Market.

Summary

• Xinzi is a Cayman Islands holding company that conducts its operations through PRC-based entities, primarily Hangzhou Xinzi, which specializes in the development, production, and sales of transparent photovoltaic component encapsulation films.
• The company is pursuing an Initial Public Offering (IPO) of 3,750,000 ordinary shares on the Nasdaq Capital Market under the symbol XZ, with an expected price range of $4.00 to $6.00 per share.
• Revenue decreased by approximately 23.47% from $32,853,544 in 2023 to $25,141,927 in 2024, primarily due to industry contraction, price reductions by leading competitors, and a significant decrease in POE prices.
• The company shifted from a net income of $458,573 in 2023 to a net loss of $340,050 in 2024.
• Gross profit declined from $3,668,864 in 2023 to $2,667,496 in 2024, with gross margin decreasing from 11.17% to 10.61%.
• Net cash used in operating activities was $761,836 in 2024, a substantial change from $5,397,384 provided by operating activities in 2023.
• Current liabilities exceeded current assets by $3,747,522 as of December 31, 2024, and the company had an accumulated deficit of $394,067.
• The company plans to use approximately 30% of the IPO net proceeds for raw material and factory equipment purchases, 20% for factory expansion, 10% for internal control improvements, 10% for brand recognition and marketing, 10% for working capital, 10% for employee compensation and training, and 10% for emergency funds.
• Xinzi faces significant risks related to its PRC operations, including potential government intervention, uncertainties in legal interpretation, and compliance with overseas listing regulations like the HFCA Act.
• The company has a high customer concentration, with one customer accounting for 32% of sales in 2024 and 55% in 2023, and relies on purchase orders rather than long-term contracts.
• A material weakness in internal control over financial reporting was identified due to a lack of sufficient financial reporting and accounting personnel.

Sentiment

Score: 4

Explanation: The company faces significant financial headwinds, including a shift to net loss and substantial revenue decline, coupled with high customer concentration and ongoing PRC regulatory uncertainties. While growth strategies and industry alignment offer long-term potential, the immediate financial performance and regulatory hurdles present considerable risks.

Positives

• The company's business aligns with China's national strategy for new green energy, particularly carbon peaking by 2030 and carbon neutrality by 2060, indicating strong market potential for solar power generation.
• Hangzhou Xinzi has accumulated 14 years of expertise in solar cell packaging materials, providing a competitive advantage in the photovoltaic industry.
• Significant investment in research and development, maintaining its status as a national high-tech enterprise and obtaining certifications from Hangzhou Municipal Enterprise Technology Research and Development Center and Zhejiang Province Specialized and New Enterprise Certification.
• Possesses 5 invention patents, 1 software copyright, and 19 utility model patents, demonstrating strong intellectual property.
• Offers a complete range of PV film products, including high-transmittance, functional, POE co-extrusion, and EPE co-extrusion white films, with a focus on customized products and cost control.
• Achieved TUV certifications for EVA (valid until January 10, 2026) and POE (valid until December 5, 2027) films, demonstrating compliance with international quality and safety standards.
• Successfully reduced product quality loss rate from 0.3% in 2020 to 0.01% in 2022 and maintained this level, indicating improved production processes.
• Established a production base in Suqian Development Zone with government support, aiming to increase production capacity to 15GW from current 3GW and target 10-15% market share.
• Actively exploring overseas markets, with a target of $3 million in exports for 2024 and a cooperation agreement in Vietnam.
• Maintained a stable top-ten customer base, with sales share from these customers increasing from 42% in 2020 to 87% in 2023 and 2024.
• Received green factory certification on April 28, 2024, highlighting commitment to environmental responsibility and energy efficiency.
• Management believes the company has sufficient funds for sustainable operation for the next 12 months from the issuance of the consolidated financial statements, based on cash flow projections and recent bank loans.

Negatives

• The company incurred a net loss of $340,050 for the fiscal year ended December 31, 2024, a significant decline from a net income of $458,573 in the prior year.
• Revenue decreased by approximately 23.47% or $7.71 million from $32,853,544 in 2023 to $25,141,927 in 2024.
• Gross profit decreased by approximately 27.3% from $3,668,864 in 2023 to $2,667,496 in 2024, with gross margin declining from 11.17% to 10.61%.
• Net cash used in operating activities was $761,836 in 2024, a substantial negative shift from $5,397,384 provided in 2023.
• Current liabilities exceeded current assets by $3,747,522 as of December 31, 2024, indicating a negative working capital position.
• The company has a high customer concentration, with one customer accounting for approximately 32% of sales in 2024 and 55% in 2023, posing a significant risk if this relationship changes.
• The company relies on purchase orders rather than long-term contracts with customers, increasing revenue uncertainty.
• The photovoltaic film industry is experiencing contraction and intense competition, with leading enterprises lowering prices and eroding market share, impacting Xinzi's gross margin.
• The average selling prices of key raw materials (EVA and POE) and photovoltaic film itself experienced significant year-on-year declines in 2024.
• The company identified a material weakness in its internal control over financial reporting due to a lack of sufficient financial reporting and accounting personnel.
• The company does not intend to pay dividends in the foreseeable future, meaning investors must rely solely on share price appreciation for returns.
• The company does not maintain property insurance for its equipment and facilities, business interruption insurance, general third-party liability insurance, product liability insurance, or key-man insurance, which could expose it to significant uninsured losses.

Risks

• The Chinese government exerts substantial influence over business activities, may intervene at any time, or exert more control over overseas offerings and foreign investment, which could materially change operations or cause share value to decline or become worthless.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, and quick changes in policies, could limit legal protection for the company and investors.
• The company is required to obtain approval from Chinese authorities (CSRC) for its U.S. listing, and failure to obtain or maintain such approval could significantly decline or render worthless the value of its Ordinary Shares.
• Recent greater oversight by the Cyberspace Administration of China (CAC) over data security, particularly for companies seeking foreign listings, could adversely impact the business and offering, despite the company's current assessment of not being subject to cybersecurity review.
• PRC regulations on offshore special purpose companies by PRC residents may subject operating entities to penalties, limit capital injection, or restrict profit distribution.
• Cash transfers from PRC operating entities to the Cayman Islands holding company are subject to PRC regulations, including statutory reserves and currency conversion controls, which may limit dividend payments.
• Cash transfers from the Cayman Islands holding company to PRC operating entities are subject to PRC laws and regulations on loans and direct investment, potentially delaying or preventing the use of offshore financing proceeds.
• The company may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws.
• Fluctuations in exchange rates between Renminbi and the U.S. dollar could result in foreign currency exchange losses and affect the value of investments and dividends.
• Substantial amounts of assets are located in China, and most senior executive officers and directors reside in China, making it difficult for investors to effect service of legal process, enforce foreign judgments, or bring actions in China based on foreign laws.
• The company may be classified as a passive foreign investment company (PFIC) for United States federal income tax purposes, which could subject U.S. holders to significant adverse tax consequences.
• There has been no public market for the company's Ordinary Shares prior to this offering, and there is no assurance an active trading market will develop or that the price will not decline below the IPO price.
• Purchasers in this offering will experience immediate and substantial dilution in the net tangible book value per share.
• The trading price of the Ordinary Shares is likely to be volatile due to broad market factors, industry performance, and company-specific factors.
• Substantial future sales or perceived potential sales of Ordinary Shares in the public market could cause the price to decline.
• The company's status as an emerging growth company and foreign private issuer allows for reduced reporting requirements, which could affect investor confidence and limit publicly available information.
• The laws of the Cayman Islands may not provide shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
• The COVID-19 pandemic has disrupted the operating entities' business and could continue to adversely affect results of operations.
• The company may not be able to fund capital investment in future projects or achieve desired outcomes from growth initiatives.
• The company may not succeed in its cost-saving strategies, leading to unnecessary costs or operational inefficiencies.
• Financial distress experienced by business partners and other contract counterparties could adversely impact operations.
• Increased labor costs, inability to retain suitable employees, or unfavorable labor relations may adversely affect the business.
• Loss of key personnel could adversely affect the business.
• Intellectual property rights may be infringed by third parties, or the company may be alleged to infringe on others' IP, leading to litigation and costs.
• Turbulence in global financial markets and economies may adversely affect the solar industry and demand for products.
• Advances in solar power technology could render products uncompetitive or obsolete.
• Problems with product quality or performance could result in increased costs, damage to reputation, and loss of revenue.
• Non-compliance with environmental regulations can be expensive and may result in adverse publicity and significant monetary damages and fines.
• Market demand fluctuations for solar energy products can impact the company's PV film sales.
• The company's PRC operating entities purchased certain fixed assets without obtaining a VAT invoice, which could lead to non-deductible depreciation for income tax purposes, though no penalties have been imposed to date.

Future Outlook

Xinzi aims to become a leading provider of specialized solar photovoltaic (PV) module encapsulation films, recognized for innovative products and sustainable practices. The company plans to progressively grow its market presence through Hangzhou Xinzi, targeting an annual sales growth rate of over 30% and expanding its maximum production capacity from 3GW to 15GW within the next five to eight years. This expansion will be supported by equipment upgrades, increased digitalization, and enhanced R&D into new film products for advanced battery cells. The company also intends to actively explore overseas markets, targeting up to $3 million in exports in 2024, and establish production bases in photovoltaic cluster areas with government support.

Management Comments

• Management believes Hangzhou Xinzi is well positioned to capitalize on the growth potential of the solar power generation sector due to China's carbon neutrality goals.
• Management believes that the quality control of PV Film is the key link to ensure the stable performance and long life of photovoltaic modules.
• Management believes that the current product structure (45% POE extruded film, 15% white/black film, 40% other transparent films) is reasonable and in line with current market development and requirements.
• Management believes that with increased production capacity and continued success in market technical tests, Hangzhou Xinzi can meet the needs of front-line customers.
• Management believes that investing in the Suqian Economic Development Zone, which lacks adhesive film enterprises, has important commercial value as Hangzhou Xinzi can fill this gap.
• Management believes that the new co-extruded film production in Suqian will enable Hangzhou Xinzi to quickly enter first-line photovoltaic enterprises and lay a solid foundation for future development.
• Management believes that the substantial doubt about the company's ability to continue as a going concern within one year after the financial statements are issued has been alleviated due to optimizing cash flows, securing financing, and enhancing operational efficiency.

Industry Context

The transparent photovoltaic film industry is an emerging sector aligned with national strategies for green energy and carbon neutrality, particularly in China, which is a global leader in the industry. The market is characterized by continuous technological advancements, leading to increased efficiency and lower costs of solar modules. However, it also faces intense competition, with an oligopolistic structure where leading enterprises are consolidating the industry by lowering prices. The industry gross margin for photovoltaic film has shown a downward trend since 2023, influenced by raw material prices (like EVA and POE, which saw significant price declines in 2024) and supply-demand imbalances. The global demand for clean energy is increasing, driving the growth of solar cells and transparent photovoltaic thin films, which are also benefiting from the expansion of flexible electronics applications.

Comparison to Industry Standards

• Hangzhou Xinzi identifies itself as having 'third-tier production capacity' (between 10GW to 30GW) in the photovoltaic film industry, indicating it is not among the largest producers.
• The company's market share has been 'somewhat eroded by the head enterprises' due to intense market competition and price reductions by larger players.
• The industry gross margin of photovoltaic film showed a 'downward trend from 2023', which is consistent with Xinzi's reported decline in gross margin from 11.17% in 2023 to 10.61% in 2024.
• Hangzhou Xinzi's accounts receivable turnover ratios (5.51% in 2024, 4.70% in 2023, and 5.14% in 2022) have 'consistently outperformed industry benchmarks', reflecting strong collection efficiency.
• The company's current maximum production capacity of 3 gigawatts (GW) accounts for only 2-3% of the market share, which is significantly lower than the 40GW production capacity in the Suqian Development Zone where it is establishing a new base, highlighting its smaller scale relative to the broader industry demand.
• Major players in the Chinese transparent photovoltaic thin film market in 2023 include Hangzhou Foster Applied Materials Co., LTD, NexPower, Lianhong New Material Technology Co., LTD, Shanghai Haiyouwei New Material Co., LTD, Changzhou Baijia Era Film Technology Co., LTD, Suzhou Saiwu Application Technology Co., LTD, Jiang Suswick New Materials Co., LTD, and Suzhou Saiwu Application Technology Co., LTD, with Hangzhou Xinzi Optoelectronics Technology Co. LTD ranking in the top 10.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in various legal, administrative, and regulatory proceedings, including claims for breach of contract against suppliers, manufacturers, business partners, or customers who failed to make timely payments.
• While the company is generally successful in receiving favorable judgments and rarely encounters counterclaims, the outcomes of current or future litigation are uncertain.
• Litigation can incur substantial legal costs and divert management resources, potentially affecting business and financial condition.
• PRC legal counsel has advised that current proceedings and outstanding payment liabilities do not materially adversely affect the business or financial condition.

Related Party Transactions

• The company historically loaned funds to related parties for business purposes, with balances typically interest-free and due upon demand. As of December 31, 2024, $135,629 was due from related parties (down from $1,231,768 in 2023).
• Advances from various related parties for working capital are unsecured, non-interest bearing, and due on demand. As of December 31, 2024, $455,209 was due to related parties (down from $470,502 in 2023).
• Hangzhou Yiyang sold 90% of its subsidiary, Yangzhou Taixinni Material Co., Ltd, to Hangzhou Suori intelligent equipment Co., Ltd (a related party) for RMB 270,000 (approximately $37,522) on March 25, 2024.
• Sales to related parties (without VAT) amounted to $116,641 in 2024 and $19,209 in 2023.
• Purchases from related parties (without VAT) amounted to $1,835,531 in 2024 and $1,034,369 in 2023.
• The company entered into an EVA equipment purchases contract with Yangzhou Suoyi Intelligent Equipment Technology Co., Ltd. (a related party) for RMB 9.9 million on January 10, 2025, with payment deferred until July 2026.
• Another EVA equipment purchases contract was signed with Yangzhou Suoyi Intelligent Equipment Technology Co., Ltd. for RMB 3.06 million on January 15, 2025.
• The company engaged in various loan agreements with banks that are guaranteed by key individuals (Yanling Meng, Jianhua Ma, Jianguo Lin) and related entities (Hangzhou Xinzi Industrial Co., Ltd., Hangzhou Yiyang Solar Technology Co., Ltd., Hangzhou Xinzi New Energy Co., Ltd., Suqian Taijing New Material Technology Co., Ltd.).

Stakeholder Impact

• **Shareholders**: Will experience immediate and substantial dilution upon IPO. Returns will depend solely on price appreciation as no dividends are expected. Subject to significant risks related to PRC regulations, potential delisting under HFCA Act, and volatility. Existing shareholders' voting power will decrease post-IPO.
• **Employees**: Compensation and benefit packages are expected to increase, and investment in job training is planned, potentially improving employee welfare and retention.
• **Customers**: The company's focus on personalized product customization and improved production processes aims to reduce defective rates and meet diverse needs. However, high customer concentration poses a risk if key customer relationships change.
• **Suppliers**: The company aims to optimize supply chain management through increased digitalization, strengthening communication and ensuring timely raw material supply, which could benefit suppliers. However, the company's strategic disposal of stockpiled raw materials indicates potential for fluctuating demand from the company.
• **Creditors**: The company relies on external borrowings and has multiple credit lines with banks, often secured by personal guarantees from management and company assets. The company's shift to a net loss and negative operating cash flow in 2024 could increase perceived credit risk, although management believes it has sufficient funds for sustainable operation.

Next Steps

• Complete the CSRC filing procedures and obtain approval for overseas listing.
• Secure Nasdaq Capital Market listing approval for Ordinary Shares.
• Proceed with the initial public offering and sale of 3,750,000 Ordinary Shares.
• Utilize IPO net proceeds for raw material and factory equipment purchases, factory expansion, internal control improvements, marketing, working capital, and employee compensation/training.
• Continue to expand production capacity towards the 15GW target over the next five to eight years.
• Increase digitalization to enhance production capacity, quality control, and supply chain management.
• Expand research and development into new film products for calcium carbide battery cells and heterojunction batteries.
• Actively explore and expand marketing and sales opportunities in overseas markets, particularly Vietnam.
• Continue establishing production bases in photovoltaic cluster areas, such as the Suqian Development Zone, and leverage government support.
• Address the identified material weakness in internal control over financial reporting by hiring qualified personnel and formalizing procedures.

Key Dates

Recommendation

Keywords

Photovoltaic Film, Solar Energy, Renewable Energy, EVA Film, POE Film, EPE Co-Extruded Films, Encapsulation Film, Solar Panels, New Energy Technology, China, Nasdaq IPO, SEC Filing, F-1/A, Risk Factors, Corporate Governance, Financial Performance, Manufacturing, Green Technology