Specific Use of Proceeds from Initial Public Offering

Zhejiang Xinxing Tools Co., Ltd.

Specific Use of Proceeds from Initial Public Offering

Shenzhen Stock Exchange:

Zhejiang Xinxing Tools Co., Ltd. (hereinafter referred to as the "Company") is applying for an initial public offering (IPO) and listing on the ChiNext market. In accordance with the "Administrative Measures for the Registration of Initial Public Offerings," the "Guidelines for the Content and Format of Information Disclosure by Companies Offering Securities to the Public No. 58 — Application Documents for Initial Public Offering and Listing," and other relevant regulations, the specific use of proceeds is explained as follows:

As determined by the 2024 Annual General Meeting and to be implemented by the Board of Directors, the proceeds will be primarily used for the following investment project:

Unit: 10,000 RMB

I. Main Construction Content of the Project

The total investment for the project is 560 million RMB, which will be used to build new factory buildings, warehouses, an R&D center building, and auxiliary facilities to increase the Company's CNC tool production capacity and improve its R&D capabilities. Upon completion and reaching full production, the Company will add a production capacity of 6.6 million units/year of precision CNC tool series products.

II. Necessity of Project Construction

(I) Enriching product structure to meet the needs of rapid market growth

The Company's hole-making tools are widely used in steel structure engineering, rail transit, shipbuilding, energy equipment, machinery manufacturing, petroleum engineering, and other manufacturing and CNC machining fields. In recent years, as downstream end-users have shifted their production concepts from "relying on cheap labor" to "improving processing methods to increase efficiency," and with the transformation and upgrading of the CNC machine tool market, the demand for and performance requirements of high-efficiency tools have increased rapidly. During the reporting period, the Company timely grasped the changing trends in market demand and actively introduced advanced production equipment to increase capacity. However, capacity utilization is already basically saturated, making capacity expansion an urgent task for the Company's further development. Through the implementation of this proceeds-funded project, the Company will expand its new production base and introduce advanced domestic and foreign production equipment, thereby effectively solving the bottleneck in CNC tool production capacity and meeting the needs of rapid market growth.

In addition, through this proceeds-funded project, the Company will add production capacity for thread tools, indexable head tools, solid carbide drills, precision fixtures, and other CNC tools and supporting products, laying a solid foundation for the future transformation into a globally leading supplier of tool processing technology solutions.

(II) Production intelligence transformation

With the transformation and upgrading of global manufacturing, China's cutting tool manufacturing industry will usher in a comprehensive digital and intelligent transformation and upgrading. In recent years, the Company's product specifications have continued to enrich, and the design data and process parameters contained in the products have accumulated rapidly, which puts higher requirements on the Company's production management. Upgrading the manufacturing system to make production facilities intelligent has become an inevitable choice for the Company's development. This proceeds-funded project plans to increase the intelligence of production equipment and the digital upgrading of production lines, and through modern information-based intelligent control systems, further improve the consistency and stability of the Company's CNC tool product performance, and enhance the market competitiveness of the Company's products.

(III) The need to maintain technical leadership and enhance corporate competitiveness