United States securities and exchange commission logo
December 23, 2022
Yi Zhang
Chief Executive Officer
Zhangmen Education Inc.
No.1666 North Sichuan Road
Hongkou District , Shanghai 200080
People s Republic of China
Re: Zhangmen Education
Inc.
Form 20-F for
Fiscal Year Ended December 31, 2021
Filed May 3, 2022
File No. 001-40455
Dear Yi Zhang:
We have reviewed your filing 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 these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for Fiscal Year Ended December 31, 2021
Introduction, page ii
1. We note that your
definition of China and the PRC excludes Hong Kong, Macau and
Taiwan. Please revise
to clarify that the legal and operational risks associated with
operating in China also
apply to operations in Hong Kong and Macau. This disclosure
may appear in the
definition itself or in another appropriate discussion of legal and
operational risks
applicable to the company.
Item 3. Key Information, page 1
2. Please refer to the
section captioned "Contractual Arrangements and Corporate Structure."
Please disclose
prominently here that you are not a Chinese operating company but a
Cayman Islands holding
company with operations conducted by your subsidiaries and
through contractual
arrangements with a variable interest entity (VIE) based in China and
Yi Zhang
Zhangmen Education Inc.
December 23, 2022
Page 2
that this structure involves unique risks to investors. If true,
disclose that these contracts
have not been tested in court. Explain whether the VIE structure is
used to provide
investors with exposure to foreign investment in China-based companies
where Chinese
law prohibits direct foreign investment in the operating companies,
and disclose that
investors may never hold equity interests in the Chinese operating
company. Your
disclosure should acknowledge that Chinese regulatory authorities
could disallow this
structure, which would likely result in a material change in your
operations and/or a
material change in the value of your securities, including that it
could cause the value of
such securities to significantly decline or become worthless. Provide
a cross-reference to
your detailed discussion of risks facing the company as a result of
this structure.
3. Please refer to the section captioned "Contractual Arrangements and
Corporate Structure."
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 the value of your securities 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, education and after-school
tutoring and data security
or anti-monopoly concerns, have or may impact the company s ability
to conduct its
business, accept foreign investments, or list on a U.S. or other
foreign exchange. In this
regard, we note that the Alleviating Burden Opinion materially and
adversely affected and
may continue to affect your business, operations and financial
condition. Please revise to
specifically discuss and, to the extent possible, quantify the
significant negative impacts
such as the impacts on the company's revenues and any other material
impacts on property
and equipment, intangible assets, goodwill, etc. The significant
negative impacts should
be presented in such a manner to allow investors to fully understand
the negative impacts
the Alleviating Burden Opinion had and will have on the company's
business, operations
and financial performance.
4. Please refer to the section captioned "Contractual Arrangements and
Corporate
Structure." Please revise to provide a diagram of the company s
corporate structure,
identifying the person or entity that owns the equity in each depicted
entity. Describe in
greater detail all contracts and arrangements through which you claim to
have economic
rights and exercise control that results in consolidation of the VIE s
operations and
financial results into your financial statements. Identify clearly the
entity in which
investors are purchasing their interest and the entity(ies) in which the
company s
operations are conducted. With respect to any contractual arrangements
with the VIEs,
the diagram should use dashed lines without any arrows.
FirstName LastNameYi Zhang
5. Please refer to the section captioned "Transfer of Funds and Other
Assets." Please revise
Comapany NameZhangmen Education Inc.
to provide cross-references to the condensed consolidating schedule and
the consolidated
December 23, 2022
financial Page 2
statements.
FirstName LastName
Yi Zhang
FirstName
Zhangmen LastNameYi Zhang
Education Inc.
Comapany23,
December NameZhangmen
2022 Education Inc.
December
Page 3 23, 2022 Page 3
FirstName LastName
6. Please refer to the section captioned "Implication of the Holding
Foreign Companies
Accountable Act." Where you discuss the HFCAA, please revise to also
discuss the
Accelerating HFCAA and the respective time frames for both.
7. Please revise to discuss the applicable laws and regulations in Hong
Kong as well as the
related risks and consequences. Disclose here how regulatory actions
related to data
security or anti-monopoly concerns in Hong Kong have or may impact the
company s
ability to conduct its business, accept foreign investment or list on
a U.S. or foreign
exchange. Include risk factor disclosure explaining whether there are
laws or regulations
in Hong Kong that result in oversight over data security, how this
oversight impacts the
company s business, and to what extent the company believes that it
is compliant with the
laws, regulations or policies that have been issued.
8. Please revise to provide a summary of risk factors; disclose the risks
that your corporate
structure and being 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 specific cross-references (title and page) to
the more detailed
discussion of these risks in the annual report. 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 or
foreign investment in China-based issuers, which could result in a
material change in your
operations and/or the value of your securities. Acknowledge any risks
that any actions by
the Chinese government to exert more oversight and control over
offerings that are
conducted overseas 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, your subsidiaries, or
the VIEs are required
to obtain from Chinese authorities to offer securities to foreign
investors. State whether
you, your subsidiaries, or VIEs 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 the VIE
s 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, your subsidiaries, or
the VIEs: (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. In this regard, we note the sections captioned "Recent
Regulatory Development
Draft Cybersecurity Measures" and "Potential CSRC Approval Required
for the Listing of
our ADS" contains certain information applicable to these permissions
and approvals.
However, the sections only generally describe the new or proposed laws
and regulations
Yi Zhang
Zhangmen Education Inc.
December 23, 2022
Page 4
but do not evaluate how the company will actually be impacted by the
new or proposed
laws and regulations. Revise to clarify and specifically address if
you believe you will be
subject to a cybersecurity review. To the extent you do not believe
you will be subject to
a cybersecurity review, discuss how you came to that conclusion
including the underlying
facts and circumstances which support that determination. Please
revise as applicable so
investors can clearly understand how these new or proposed laws and
regulations will
impact the company and its business and any future offerings.
Material Licenses and Permits, page 2
10. We note your disclosure that "[your] PRC subsidiaries and the VIEs
have obtained all
material licenses and approvals required for our operations in China."
The disclosure here
should not be qualified by materiality. Please make appropriate
revisions to your
disclosure.
11. With respect to the disclosure in this section, we note that you do
not appear to have relied
upon an opinion of counsel with respect to your conclusions that you
do not need any
additional permissions and approvals to operate your business. If
true, state as much and
explain why such an opinion was not obtained.
Risk Factors, page 11
12. Please refer to the first paragraph and your statement that "[this]
structure allows us to
exercise effective control over the VIEs, and is designed to replicate
substantially the
same economic benefits as would be provided by direct ownership."
Neither the investors
in the holding company nor the holding company itself have an equity
ownership in, direct
foreign investment in, or control of, through such ownership or
investment, the VIEs.
Accordingly, please refrain from implying that the contractual
agreements are equivalent
to equity ownership in the business of the VIEs. Any references to
control or benefits that
accrue to you because of the VIEs should be limited to a clear
description of the
conditions you have satisfied for consolidation of the VIE under U.S.
GAAP.
Additionally, your disclosure should clarify that you are the primary
beneficiary of the
VIEs for accounting purposes. Please revise the annual report
throughout as applicable.
13. 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 the value of your securities. Also, given
recent statements
by the Chinese government indicating an intent to exert more oversight
and control over
offerings that are conducted overseas and foreign investment in
China-based issuers,
FirstName LastNameYi Zhang
acknowledge the risk that any such action could significantly limit or
completely hinder
Comapany
yourNameZhangmen
ability to offer orEducation Inc.
continue to offer securities to investors and
cause the value of such
securities
December 23, 2022to significantly
Page 4 decline or be worthless.
FirstName LastName
Yi Zhang
FirstName
Zhangmen LastNameYi Zhang
Education Inc.
Comapany23,
December NameZhangmen
2022 Education Inc.
December
Page 5 23, 2022 Page 5
FirstName LastName
14. In light of recent events indicating greater oversight by the
Cyberspace Administration of
China (CAC) 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 any future 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.
General
15. If you have one or more directors, officers or members of senior
management located in
the PRC or Hong Kong, state that is the case and identify the relevant
individuals. Include
a separate Enforceability section and a risk factor addressing
the challenges of bringing
actions and enforcing liabilities against such individuals.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Blaise Rhodes at (202) 551-3774 or Angela Lumley at
(202) 551-
3398 if you have questions regarding comments on the financial statements and
related
matters. Please contact Rucha Pandit at (202) 551-6022 or Donald Field at (202)
551-3680 with
any other questions.
Sincerely,
Division of
Corporation Finance
Office of Trade &
Services