United States securities and exchange commission logo
January 13, 2022
Andross Chan
Chief Executive Officer
Graphex Group Ltd
11/F COFCO Tower
262 Gloucester Road
Causeway Bay, Hong Kong
Re: Graphex Group Ltd
Draft Registration
Statement on Form F-1
Filed December 15,
2021
File No. 377-05794
Dear Mr. Chan:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form F-1
General
1. We note your references
throughout your registration statement to industry analysts and
third-party industry
studies. Please tell us whether you commissioned any of studies or
reports for use in the
registration statement. If so, please identify in your disclosure that
you commissioned the
study and file a consent(s) as an exhibit to the registration
statement. See
Securities Act Rule 436.
2. We note your disclosure
on page 115 that you rely on equity investment with your WFOE
subsidiary to operate
your business in the PRC. Please clearly identify your WFOE
Andross Chan
FirstName LastNameAndross Chan
Graphex Group Ltd
Comapany
January 13,NameGraphex
2022 Group Ltd
January
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subsidiary.
3. We note your disclosure that you expect the global energy storage
market to grow at a
53% compound annual growth rate from 6.48 GW in 2019 to approximately
83 GW by
2025. We also note your disclosure that you believe the global SG
market will continue to
grow at a CAGR of close to 20% and exceed US$4 billion by 2023. Please
provide a basis
for these statements.
Cover Page
4. Please disclose prominently on the prospectus cover page that you are
not a Chinese
operating company but a Cayman Islands holding company with operations
conducted by
your subsidiaries based in China and that this structure involves
unique risks to investors.
Provide a cross-reference to your detailed discussion of risks facing
the company and the
offering as a result of this structure.
5. Provide prominent disclosure about the legal and operational risks
associated with being
based in or having the majority of the company s operations in
China. Your disclosure
should make clear whether these risks could result in a material
change in your operations
and/or the value of your ADSs or could significantly limit or
completely hinder your
ability to offer or continue to offer securities to investors and
cause the value of such
securities to significantly decline or be worthless. Your disclosure
should address how
recent statements and regulatory actions by China s government, such
as those related to
the use of variable interest entities and data security or
anti-monopoly concerns, has or
may impact the company s ability to conduct its business, accept
foreign investments, or
list on an U.S. or other foreign exchange. Please disclose whether
your auditor is subject
to the determinations announced by the PCAOB on December 16, 2021 and
whether and
how the Holding Foreign Companies Accountable Act and related
regulations will affect
your company. Your prospectus summary should address, but not
necessarily be limited
to, the risks highlighted on the prospectus cover page.
6. Clearly disclose how you will refer to the holding company,
subsidiaries, and other
entities when providing the disclosure throughout the document so that
it is clear to
investors which entity the disclosure is referencing and which
subsidiaries or entities are
conducting the business operations. Refrain from using terms such as
we or our when
describing activities or functions of a subsidiary or other entities.
Disclose clearly the
entity (including the domicile) in which investors are purchasing
their interest.
7. Provide a description of how cash is transferred through your
organization and disclosure
regarding your intentions to distribute earnings or settle amounts
owed under your
agreements. State whether any transfers, dividends, or distributions
have been made to
date.
Prospectus Summary, page 1
8. In your summary of risk factors, disclose the risks that your
corporate structure and being
Andross Chan
FirstName LastNameAndross Chan
Graphex Group Ltd
Comapany
January 13,NameGraphex
2022 Group Ltd
January
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based in or having the majority of the company s operations in China
poses to investors.
In particular, describe the significant regulatory, liquidity, and
enforcement risks with
cross-references to the more detailed discussion of these risks in the
prospectus. For
example, specifically discuss risks arising from the legal system in
China, including risks
and uncertainties regarding the enforcement of laws and that rules and
regulations in
China can change quickly with little advance notice; and the risk that
the Chinese
government may intervene or influence your operations at any time, or
may exert more
control over offerings conducted overseas and/or foreign investment in
China-based
issuers, which could result in a material change in your operations
and/or the value of
your ADSs. Acknowledge any risks that any actions by the Chinese
government to exert
more oversight and control over offerings that are conducted overseas
and/or foreign
investment in China-based issuers could significantly limit or
completely hinder your
ability to offer or continue to offer securities to investors and
cause the value of such
securities to significantly decline or be worthless.
9. Disclose each permission or approval that you or your subsidiaries are
required to obtain
from Chinese authorities to operate your business and to offer the
securities being
registered to foreign investors. State whether you or your
subsidiaries are covered by
permissions requirements from the China Securities Regulatory
Commission (CSRC),
Cyberspace Administration of China (CAC) or any other governmental
agency that is
required to approve your or your subsidiaries operations, and state
affirmatively whether
you have received all requisite permissions or approvals and whether
any permissions or
approvals have been denied. Please also describe the consequences to
you and your
investors if you or your subsidiaries: (i) do not receive or maintain
such permissions or
approvals, (ii) inadvertently conclude that such permissions or
approvals are not required,
or (iii) applicable laws, regulations, or interpretations change and
you are required to
obtain such permissions or approvals in the future.
10. Provide a clear description of how cash is transferred through your
organization. Disclose
your intentions to distribute earnings or settle amounts owed under
your operating
structure. Quantify any cash flows and transfers of other assets by
type that have occurred
between the holding company and its subsidiaries, and direction of
transfer. Quantify any
dividends or distributions that a subsidiary has made to the holding
company and which
entity made such transfer, and their tax consequences. Similarly
quantify dividends or
distributions made to U.S. investors, the source, and their tax
consequences. Your
disclosure should make clear if no transfers, dividends, or
distributions have been made to
date. Describe any restrictions on foreign exchange and your ability
to transfer cash
between entities, across borders, and to U.S. investors. Describe any
restrictions and
limitations on your ability to distribute earnings from the company,
including your
subsidiaries, to the parent company and U.S. investors as well as the
ability to settle
amounts owed under agreements.
11. Disclose that trading in your securities may be prohibited under the
Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot
inspect or investigate
Andross Chan
FirstName LastNameAndross Chan
Graphex Group Ltd
Comapany
January 13,NameGraphex
2022 Group Ltd
January
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completely your auditor, and that as a result an exchange may
determine to delist your
securities. Disclose whether your auditor is subject to the
determinations announced by
the PCAOB on December 16, 2021.
12. Please disclose your history of net losses.
13. We note the diagrams included on pages 50 to 53. Please also include
one organizational
chart of your entire business.
Risk Factors, page 14
14. Please include risk factor disclosure that your auditor has expressed
substantial doubt
about your ability to continue as a going concern.
15. Given the Chinese government s significant oversight and discretion
over the conduct of
your business, please revise to highlight separately the risk that the
Chinese government
may intervene or influence your operations at any time, which could
result in a material
change in your operations and/or the value of the securities you are
registering. Also,
given recent statements by the Chinese government indicating an intent
to exert more
oversight and control over offerings that are conducted overseas
and/or foreign investment
in China-based issuers, acknowledge the risk that any such action
could significantly limit
or completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
16. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China over data security, particularly for companies seeking to list
on a foreign exchange,
please revise your disclosure to explain how this oversight impacts
your business and your
offering and to what extent you believe that you are compliant with
the regulations or
policies that have been issued by the CAC to date.
17. Please expand your risk factors to disclose that the United States
Senate has passed the
Accelerating Holding Foreign Companies Accountable Act, which, if
enacted, would
decrease the number of non-inspection years from three years to
two years, and thus,
would reduce the time before your securities may be prohibited from
trading or delisted.
Update your disclosure to reflect that the Commission adopted rules to
implement the
HFCAA and that, pursuant to the HFCAA, the PCAOB has issued its report
notifying the
Commission of its determination that it is unable to inspect or
investigate completely
accounting firms headquartered in mainland China or Hong Kong.
Use of Proceeds, page 43
18. We note that a certain portion of the proceeds of this offering will
be used to reduce
indebtedness. Please disclose the interest rate and maturity of such
indebtedness and, for
indebtedness incurred within the past year, the uses to which the
proceeds of such
indebtedness were put. Refer to Item 3.C.4 of Form 20-F.
REGULATIONS, page 115
Andross Chan
Graphex Group Ltd
January 13, 2022
Page 5
19. Please disclose the material effects that the government regulations
described in this
section have on the company s business.
Compensation of Directors and Executive Officers, page 131
20. Please update your compensation disclosure as of the fiscal year ended
December 31,
2021.
Related Party Transactions, page 137
21. Please disclose the transactions between the comapny and Lexinter
International, Inc.
and/or Jeffrey Abramovitz. Please disclose the contractual limitations
that prevent Mr.
Abramovitz from holding more than thirty percent (30%) of your
ordinary shares issued
and outstanding. Please refer to Item 7.B of Form 20-F. Please also
file the Subscription
Agreement, Convertible Note and Warrant Agreement as exhibits to your
registration
statement.
Notes to the Consolidated Financial Statements
Note 12 - Other Intangible Assets, page F-68
22. We note that your asset impairment disclosures on pages F-69 and F-70
reference several
terms defined in IAS 36, including recoverable amount, value in use,
and cash-generating
unit ("CGU"). Please tell us how your asset impairment accounting
policies comply with
U.S. GAAP. As necessary, revise your accounting treatment and
disclosures.
Exhibits
23. Please file as exhibits your agreements that reflect your profit
guarantee arrangements
for the acquisition of your graphene products business.
You may contact Effie Simpson at (202) 551-3346 or Andrew Blume at
(202) 551-
3254 if you have questions regarding comments on the financial statements and
related
matters. Please contact Bradley Ecker at (202) 551-4985 or Asia Timmons-Pierce
at (202) 551-
3754 with any other questions.
FirstName LastNameAndross Chan Sincerely,
Comapany NameGraphex Group Ltd
Division of
Corporation Finance
January 13, 2022 Page 5 Office of
Manufacturing
FirstName LastName