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United States securities and exchange commission logo
July 7, 2022
Reinout Schakel
Chief Financial Officer and Chief Strategy Officer
Luckin Coffee Inc.
28th Floor, Building T3, Haixi Jingu Plaza
1-3 Taibei Road
Siming District, Xiamen City, Fujian
People s Republic of China, 361008
Re: Luckin Coffee Inc.
Annual Report on
Form 20-F
Filed April 14,
2022
File No. 001-38896
Dear Mr. Schakel:
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.
Annual Report on Form 20-F for Fiscal Year Ended December 31, 2021
Item 3. Key Information, page 1
1. Please disclose
prominently 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 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
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FirstName LastNameReinout Schakel
Luckin Coffee Inc.
Comapany
July 7, 2022NameLuckin Coffee Inc.
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value of the securities you are registering for sale, 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 and the
offering as a result of this
structure.
2. Please provide prominent disclosure about the legal and operational
risks associated with
being based in or having the majority of your 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 the securities you are registering for sale 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, 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.
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, the
Accelerating Holding Foreign Companies Accountable Act and related
regulations will
affect your company. In this light, we note that you have been added
to the conclusive list
of issuers identified under the HFCAA, available at www.sec.gov/hfcaa.
This section
should address, but not necessarily be limited to, the risks
highlighted in the forward-
looking statements section.
3. We note your definitions in the Introduction section on page ii.
Please disclose clearly
how you will refer to the holding company, subsidiaries, and VIEs 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 VIE. For example, disclose, if true, that your
subsidiaries and/or the VIE
conduct operations in China, that the VIE is consolidated for
accounting purposes but is
not an entity in which you own equity, and that the holding company
does not conduct
operations. Disclose clearly the entity (including the domicile) in
which investors are
purchasing an interest. Also, we note your definition of "China" and
"PRC" excludes
Taiwan, Hong Kong, and Macau. Please revise to remove this exclusion.
4. Please provide a description of how cash is transferred through your
organization and
disclose your intentions to distribute earnings or settle amounts owed
under the VIE
agreements. State whether any transfers, dividends, or distributions
have been made to
date between the holding company, its subsidiaries, and consolidated
VIEs, or to
investors, and quantify the amounts where applicable. Provide
cross-references to the
condensed consolidating schedule and the consolidated financial
statements.
5. Please amend your disclosure here, in the summary risk factors, and
risk factors sections
to state that, to the extent cash in the business is in the PRC/Hong
Kong or a PRC/Hong
Kong entity, the funds may not be available to fund operations or for
other use outside of
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the PRC/Hong Kong due to interventions in or the imposition of
restrictions and
limitations on the ability of you, your subsidiaries, or the
consolidated VIEs by the PRC
government to transfer cash. Please provide cross-references to these
other discussions.
6. Please discuss whether there are limitations on your ability to
transfer cash between you,
your subsidiaries, the consolidated VIEs or investors. Provide a
cross-reference to your
discussion of this issue in your summary, summary risk factors, and
risk factors sections,
as well.
7. To the extent you have cash management policies that dictate how funds
are transferred
between you, your subsidiaries, the consolidated VIEs or investors,
please summarize the
policies, and disclose the source of such policies (e.g., whether they
are contractual in
nature, pursuant to regulations, etc.); alternatively, state that you
have no such cash
management policies that dictate how funds are transferred.
8. Please disclose clearly that the company uses a structure that
involves a VIE based in
China and what that entails, and provide early in the summary a
diagram of the company s
corporate structure, identifying the person or entity that owns the
equity in each depicted
entity. Describe 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. Describe the relevant contractual agreements
between the
entities and how this type of corporate structure may affect investors
and the value of their
investment, including how and why the contractual arrangements may be
less effective
than direct ownership and that the company may incur substantial costs
to enforce the
terms of the arrangements. Disclose the uncertainties regarding the
status of the rights of
the Cayman Islands holding company with respect to its contractual
arrangements with the
VIE, its founders and owners, and the challenges the company may face
enforcing these
contractual agreements due to legal uncertainties and jurisdictional
limits. Additionally,
please revise the dashed line from the Beijing WFOE to the VIE to
remove the arrow.
9. We note your disclosure that you are a Cayman Islands holding company
and Beijing
WFOE has entered into a series of contractual arrangements with the
VIE and its
shareholders, which enable you to "(i) exercise effective control over
the VIE, (ii) receive
substantially all of the economic benefits of the VIE, and (iii) have
an exclusive option to
purchase all or part of the equity interests and assets in the VIE
when and to the extent
permitted by PRC law. As a result of these contractual arrangements,
we have control
over and are the primary beneficiary of the VIE and hence consolidate
its financial results
under U.S. GAAP." However, 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 VIE.
Accordingly, please refrain
from implying that the contractual agreements are equivalent to equity
ownership in the
business of the VIE. Additionally, your disclosure should clarify that
you are the primary
beneficiary of the VIE for accounting purposes. Please also disclose,
if true, that the VIE
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agreements have not been tested in a court of law. Please make
conforming changes
throughout your filing.
10. Please revise to provide a summary of risk factors, and 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 cross-references to the more detailed
discussion of these risks
in the filing. 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 the securities you are registering for sale. 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.
11. We note your risk factor disclosure on page 40. In this section,
please revise to disclose
each permission or approval that you, your subsidiaries, or the VIEs
are required to obtain
from Chinese authorities to operate your business and to offer the
securities being
registered 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. Please also update
your risk factor
disclosure, as appropriate.
12. We note that you do not appear to have relied upon an opinion of
counsel with respect to
your assessment of the permissions and approvals required to operate
your business and to
offer securities to investors. If true, please state as much and
explain why such an opinion
was not obtained.
13. In this section, please provide a clear description of how cash is
transferred through your
organization. Disclose your intentions to distribute earnings or
settle amounts owed under
the VIE agreements. Quantify any cash flows and transfers of other
assets by type that
have occurred between the holding company, its subsidiaries, and the
consolidated VIEs,
and direction of transfer. Quantify any dividends or distributions
that a subsidiary or
consolidated VIE have made to the holding company and which entity
made such transfer,
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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 and/or the
consolidated VIEs, to
the parent company and U.S. investors as well as the ability to settle
amounts owed under
the VIE agreements. Provide cross-references to the condensed
consolidating schedule
and the consolidated financial statements.
14. We note that the consolidated VIE constitutes a material part of your
consolidated financial statements. Please provide in tabular form a
condensed
consolidating schedule that disaggregates the operations and depicts
the financial position,
cash flows, and results of operations as of the same dates and for the
same periods for
which audited consolidated financial statements are required. The
schedule should
present major line items, such as revenue and cost of goods/services,
and subtotals and
disaggregated intercompany amounts, such as separate line items for
intercompany
receivables and investment in subsidiary. The schedule should also
disaggregate the
parent company, the VIEs and its consolidated subsidiaries, the WFOEs
that are the
primary beneficiary of the VIEs, and an aggregation of other entities
that are
consolidated. The objective of this disclosure is to allow an investor
to evaluate the nature
of assets held by, and the operations of, entities apart from the VIE,
as well as the nature
and amounts associated with intercompany transactions. Any
intercompany amounts
should be presented on a gross basis and when necessary, additional
disclosure about such
amounts should be included in order to make the information presented
not misleading.
15. Please 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 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 and that you have been
added to the
conclusive list of issuers identified under the HFCAA, available at
www.sec.gov/hfcaa.
Item 3.D. Risk Factors, page 1
16. We note your risk factor disclosure regarding the VIE on page 32.
Please revise to
acknowledge that if the PRC government determines that the contractual
arrangements
constituting part of the VIE structure do not comply with PRC
regulations, or if these
regulations change or are interpreted differently in the future, the
securities you are
registering may decline in value or become worthless if the
determinations, changes, or
interpretations result in your inability to assert contractual control
over the assets of your
PRC subsidiaries or the VIEs that conduct all or substantially all of
your operations.
17. We note your disclosure about the Holding Foreign Companies
Accountable Act on page
38. Please expand your risk factors to disclose that the United States
Senate has passed
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Luckin Coffee Inc.
July 7, 2022
Page 6
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. In this
light, we note
that you have been added to the conclusive list of issuers identified
under the HFCAA,
available at www.sec.gov/hfcaa. Your disclosure should address, but not
necessarily be
limited to, the risks highlighted in the forward-looking statements
section.
18. We note your disclosure on pages 41-42 regarding 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 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.
General
19. In an appropriate place in your annual report, for example, in your risk
factor where you
discuss service of legal process on page 32, please name the directors,
officers, or
members of senior management located in the PRC/Hong Kong and include a
separate
"Enforceability" section that addresses whether or not investors may
bring actions under
the civil liability provisions of the U.S. federal securities laws
against you, your officers or
directors who are residents of a foreign country, and whether investors
may enforce these
civil liability provisions when your assets, officers, and directors are
located outside of the
United States.
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.
Please contact Cara Wirth at (202) 551-7127 or Dietrich King at (202)
551-8071 with any
questions.
Sincerely,
FirstName LastNameReinout Schakel
Division of
Corporation Finance
Comapany NameLuckin Coffee Inc.
Office of Trade &
Services
July 7, 2022 Page 6
cc: Li He
FirstName LastName