distutils spits out a warning:

package init file 'xxx/__init__.py' not found (or not a regular file)

... when using Cythonized __init__.pyx instead. However, the installed package works absolutely fine, it can be imported & used perfectly, so this warning seems bogus.

I checked, and this warning is generated inside distutils/command/build_py.py in the build_py class in method check_package(). I suggest that this warning isn't generated in case a C extension is found for the __init__ module, checked in whatever way is appropriate at this stage (e.g. by seeing if there's an __init__.pyx)

Distutils is now deprecated (see PEP 632) and all tagged issues are being closed. From now until removal, only release blocking issues will be considered for distutils.

If this issue does not relate to distutils, please remove the component and reopen it. If you believe it still requires a fix, most likely the issue should be re-reported at https://github.com/pypa/setuptools