Graphex Group Limited - Interim / Quarterly Report 2021

==> picture [35 x 40] intentionally omitted <==

==> picture [372 x 83] intentionally omitted <==

(Formerly known as Earthasia International Holdings Limited)

==> picture [279 x 55] intentionally omitted <==

==> picture [43 x 136] intentionally omitted <==

2 Financial Highlights

3 Corporate Information
4 Unaudited Interim Condensed Consolidated Statement of Profit or Loss
5 Unaudited Interim Condensed Consolidated Statement of Comprehensive Income
6 Unaudited Interim Condensed Consolidated Statement of Financial Position
8 Unaudited Interim Condensed Consolidated Statement of Changes in Equity
10 Unaudited Interim Condensed Consolidated Statement of Cash Flows
12 Notes to Unaudited Interim Condensed Consolidated Financial Statements
39 Management Discussion and Analysis
50 Other Information

FINANCIAL HIGHLIGHTS

==> picture [469 x 8] intentionally omitted <==

Results	For the 2021 HK$’000	six months ended 30 June 2020 Change HK$’000
Revenue Graphene products business Landscape architecture business Catering Adjusted EBITDA* Graphene products business Landscape architecture business Catering Loss before tax Loss attributable to owners of the parent Basic loss per share attributable to ordinary equity holders of the parent	182,622	155,173 +17.7% 84,507 +27.0% 64,605 +8.2% 6,061 -10.7% 32,052 -1.19% 19,149 +25.1% 10,556 -37.0% 2,347 -54.6% (63,879) +12.2% (49,146) +31.7% HK cents (10.19) +31.9%
	107,297 69,910 5,415	84,507 64,605 6,061
	31,670
	23,951 6,654 1,065	19,149 10,556 2,347
	(71,659) (64,701) HK cents (13.44)

==> picture [19 x 18] intentionally omitted <==

==> picture [469 x 8] intentionally omitted <==

Results	At 30 June	At 31 December
	2021	2020	Change
	HK$’000	HK$’000
Total assets	1,089,074	1,104,239	-1.4%
Net assets	143,960	168,530	-14.6%
Shareholder’s equity	152,768	171,517	-10.9%
Cash and bank balances	28,445	37,709	-24.6%
Debt	551,949	546,649	+1.0%

==> picture [19 x 18] intentionally omitted <==

* Non-IFRS Measure

To supplement our consolidated financial statements which are presented in accordance with International Financial Reporting Standards (“IFRSs”), adjusted EBITDA is used as an additional financial measure throughout this interim report. The financial measure is presented because it is used by management to evaluate operating performance. The Company believes that non-IFRS measure may provide useful information to help investors and others understand and evaluate the Company’s consolidated results of operations in the same manner as management and in comparing financial results across accounting periods and to those of our peer companies. However, non-IFRS financial measure does not have a standardised meaning prescribed by IFRSs and therefore may not be comparable to similar measures presented by other companies.

Adjusted EBITDA used herein is defined as earnings before interest expense, taxation, depreciation and amortisation, and excludes fair value change on financial assets at fair value through profit or loss, written off of goodwill, impairment losses of other intangible assets and property, plant and equipment, share of losses of associates and joint ventures and impairment losses on financial and contract assets and corporate expenses.

Please refer to note 4 to the consolidated financial statements in this interim report for reconciliation of loss before tax, an IFRS measure, to adjusted EBITDA.

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Mr. Lau Hing Tat Patrick Mr. Chan Yick Yan Andross Mr. Tian Ming Mr. Yang Liu Mr. Qiu Bin

Non-executive Directors

Mr. Ma Lida

Mr. Tu Wenzhe (appointed on 28 January 2021 and resigned on 5 August 2021)

CORPORATE WEBSITE

www.graphexgroup.com

AUTHORISED REPRESENTATIVES

Mr. Kwok Ka Hei Mr. Chan Yick Yan Andross

ALTERNATES TO AUTHORISED REPRESENTATIVES

Mr. Tian Ming Mr. Lau Hing Tat Patrick

Independent non-executive Directors

Ms. Tam Ip Fong Sin Mr. Wang Yuncai Mr. Liu Kwong Sang Mr. Tang Zhaodong Mr. Chan Anthony Kaikwong

PRINCIPAL BANKERS

Bank of China (Hong Kong) Bank of Communication Industrial Bank Co., Ltd. The Bank of East Asia The Hongkong and Shanghai Banking

COMPANY SECRETARY

Mr. Kwok Ka Hei

REGISTERED OFFICE

Windward 3 Regatta Office Park PO box 1350 Grand Cayman KY1-1108 Cayman Islands

HEADQUARTER, HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

11/F COFCO Tower 262 Gloucester Road Causeway Bay Hong Kong

AUDIT COMMITTEE

Mr. Liu Kwong Sang (Chairman) Ms. Tam Ip Fong Sin Mr. Wang Yuncai Mr. Ma Lida

REMUNERATION COMMITTEE

Ms. Tam Ip Fong Sin (Chairlady) Mr. Wang Yuncai Mr. Chan Yick Yan Andross

PRINCIPAL SHARE REGISTRAR OFFICE

Ocorian Trust (Cayman) Limited Windward 3 Regatta Office Park PO box 1350 Grand Cayman KY1-1108 Cayman Islands

HONG KONG SHARE REGISTRAR

Tricor Investor Services Limited Level 54, Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

ADR (LEVEL 1) PROGRAMME DEPOSITARY

Bank of New York Mellon (Ticker on OTCQX market : GRFXY)

INVESTOR RELATIONS

Email: [email protected]

LEGAL ADVISER AS TO HONG KONG

Hastings & Co.

NOMINATION COMMITTEE

Mr. Lau Hing Tat Patrick (Chairman) Mr. Wang Yuncai Ms. Tam Ip Fong Sin

AUDITOR

Crowe (HK) CPA Limited

Graphex Group Limited Interim Report 2021

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

==> picture [469 x 8] intentionally omitted <==

		For the six months ended 30 June	For the six months ended 30 June
		2021	2020
		(Unaudited)	(Unaudited)
	Notes	HK$’000	HK$’000
REVENUE	3	182,622	155,173
Cost of sales		(111,761)	(90,264)
GROSS PROFIT		70,861	64,909
Other income and gains	5	8,033	6,921
Selling and marketing expenses		(6,235)	(8,017)
Administrative expenses		(100,317)	(74,298)
Impairment losses on financial and contract assets, net		(10,460)	(6,394)
Impairment loss of property, plant and equipment		(3,926)	(6,530)
Written off of goodwill		—	(3,278)
Impairment loss of other intangible assets		—	(10,844)
Fair value loss on financial assets at fair value through profit or loss		—	(1,182)
Finance costs	6	(29,439)	(24,978)
Share of losses of associates		(176)	(188)
LOSS BEFORE TAX	7	(71,659)	(63,879)
Income tax credit	8	4,542	5,775
LOSS FOR THE PERIOD		(67,117)	(58,104)
Attributable to:
Owners of the parent		(64,701)	(49,146)
Non-controlling interests		(2,416)	(8,958)
		(67,117)	(58,104)
LOSS PER SHARE ATTRIBUTABLE TO ORDINARY
EQUITY HOLDERS OF THE PARENT	10
Basic
– For loss for the period		HK(13.44) cents	HK(10.19) cents
Diluted
– For loss for the period		HK(13.44) cents	HK(10.19) cents

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

==> picture [469 x 8] intentionally omitted <==

	For the six months	ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
LOSS FOR THE PERIOD	(67,117)	(58,104)
OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive loss that may be reclassified to profit or loss in
subsequent periods:
Exchange differences on translation of foreign operations	8,492	(15,722)
Net other comprehensive loss that may be reclassified to	8,492	(15,722)
profit or loss in subsequent periods	8,492	(15,722)
OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE PERIOD, NET OF TAX	8,492	(15,722)
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD	(58,625)	(73,826)
Attributable to:
Owners of the parent	(56,155)	(64,901)
Non-controlling interests	(2,470)	(8,925)
	(58,625)	(73,826)

Graphex Group Limited Interim Report 2021

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

==> picture [469 x 8] intentionally omitted <==

FINANCIAL POSITION
		30 June 2021	31 December 2020
		(Unaudited)	(Audited)
	Notes	HK$’000	HK$’000
NON-CURRENT ASSETS
Property, plant and equipment		80,699	92,507
Goodwill Other intangible assets		101,939 622,130	101,939 639,336
Investments in associates	11	689	854
Equity investments designated at fair value
through other comprehensive income		1,250	1,235
Prepayments and deposits		2,166	3,387
Deferred tax assets		3,942	2,475
Total non-current assets		812,815	841,733
CURRENT ASSETS
Inventories Trade and bills receivables Prepayments, other receivables and other assets	12	52,057 117,465 36,302	28,323 69,808 72,347
Contract assets Tax recoverable		41,016 556	47,547 556
Pledged bank deposits		418	6,216
Cash and cash equivalents		28,445	37,709
Total current assets		276,259	262,506
CURRENT LIABILITIES
Trade payables	13	20,398	16,138
Other payables and accruals		89,839	82,985
Lease liabilities Interest-bearing borrowings	14	10,307 134,854	11,182 172,274
Tax payable		34,968	34,357
Dividends payable		—	4
Total current liabilities		290,366	316,940
NET CURRENT LIABILITIES		(14,107)	(54,434)
TOTAL ASSETS LESS CURRENT LIABILITIES		798,708	787,299

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

==> picture [469 x 8] intentionally omitted <==

		30 June 2021	31 December 2020
		(Unaudited)	(Audited)
	Notes	HK$’000	HK$’000
NON-CURRENT LIABILITIES
Promissory note	15	306,879	298,089
Convertible notes	16	24,558	—
Interest-bearing borrowings	14	85,658	76,286
Lease liabilities		57,920	62,197
Consideration payable		86,500	86,500
Deferred tax liabilities		93,233	95,697
Total non-current liabilities		654,748	618,769
NET ASSETS		143,960	168,530
EQUITY
Equity attributable to owners of the parent
Share capital	17	4,883	4,823
Treasury shares	17	—	(99)
Other reserves		147,885	166,793
		152,768	171,517
Non-controlling interests		(8,808)	(2,987)
TOTAL EQUITY		143,960	168,530

Graphex Group Limited Interim Report 2021

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2021

==> picture [469 x 8] intentionally omitted <==

	Attributable to owners of the parent Share capital Treasury shares *Share** premium account Fair value reserve Capital reserve *Reserve** funds Share-based payment reserve Convertible notes-equity component reserve *Exchange** fluctuation reserve Accumulated losses Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000*
At 1 January 2021 As previously reported Loss for the period Other comprehensive loss for the period: Exchange differences on translation of foreign operations

	4,823 (99) 342,643 (1,482) 5 10,701 — — 30,786 (215,860) 171,517 (2,987) 168,530
	— — — — — — — — — (64,701) (64,701) (2,416) (67,117)

	— — — — — — — — 8,546 — 8,546 (54) 8,492
Total comprehensive loss for the period Issue of convertible notes Issue of shares upon conversion of convertible notes Equity-setted share-based transactions Dividend paid to non-controlling interests
	— — — — — — — — 8,546 (64,701) (56,155) (2,470) (58,625)
	— — — — — — — 21,827 — — 21,827 — 21,827
	60 — 3,815 — — — — (2,363) — — 1,512 — 1,512
	— 99 5,762 — — — 8,206 — — — 14,067 — 14,067
	— — — — — — — — — — — (3,351) (3,351)
At 30 June 2021 (Unaudited)
	4,883 — 352,220 (1,482) 5 10,701 8,206 19,464 39,332 (280,561) 152,768 (8,808) 143,960

These reserve accounts as at 30 June 2021 comprise the consolidated reserves of HK$147,885,000 (31 December 2020: HK$166,793,000) in the condensed consolidated statement of financial position.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2021

==> picture [469 x 8] intentionally omitted <==

	Attributable to owners of the parent Share capital Treasury shares Share premium account Fair value reserve Capital reserve Reserve funds Exchange fluctuation reserve Accumulated losses Total Non- controlling interests Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
At 1 January 2020 As previously reported Loss for the period Other comprehensive loss for the period: Exchange differences on translation of foreign operations	4,823 (99) 342,643 (1,818) 5 10,701 (11,400) (124,164) 220,691 456 221,147 — — — — — — — (49,146) (49,146) (8,958) (58,104) — — — — — — (15,755) — (15,755) 33 (15,722)
Total comprehensive loss for the period Derecognition of non-controlling interests upon disposal of a subsidiary Release of exchange fluctuation reserve upon disposal of a subsidiary	— — — — — — (15,755) (49,146) (64,901) (8,925) (73,826) — — — — — — — — — 682 682 — — — — — — (28) — (28) — (28)
At 30 June 2020 (Unaudited)	4,823 (99) 342,643 (1,818) 5 10,701 (27,183) (173,310) 155,762 (7,787) 147,975

==> picture [20 x 18] intentionally omitted <==

These reserve accounts as at 30 June 2020 comprise the consolidated reserves of HK$151,038,000 (31 December 2019: HK$215,967,000) in the condensed consolidated statement of financial position.

Graphex Group Limited Interim Report 2021

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2021

==> picture [469 x 8] intentionally omitted <==

	For the six months ended 30 June	For the six months ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax Adjustments for:	(71,659)	(63,879)
Finance costs	29,439	24,978
Share of losses of associates	176	188
Interest income	(356)	(1,094)
Amortisation and depreciation	33,782	34,674
Equity settled share-based payment expenses	14,067	—
Dividend income from equity instruments at fair value
through other comprehensive income	—	(245)
Loss/(gain) on disposal of property, plant and equipment	29	(499)
Impairment loss of property, plant and equipment	3,926	6,530
Provision for impairment loss of trade receivables	5,967	1,903
Provision for impairment loss of contract assets	4,042	1,890
Impairment loss of other receivables and other assets	451	2,601
Impairment loss of other intangible assets	—	10,844
Written off of goodwill	—	3,278
Fair value loss on financial assets at fair value through profit or loss	—	1,182
Write-down of inventory	—	189
Exchange (gain)/loss	(263)	786
Gain on disposal of a subsidiary	—	(710)
	19,601	22,616
Increase in inventories	(23,411)	(4,579)
(Increase)/decrease in trade and bills receivables	(52,665)	15,176
Decrease/(increase) in contract assets	3,000	(4,675)
Decrease/(increase) in prepayments, deposits and other receivables	37,481	(17,657)
Increase/(decrease) in trade payables	4,090	(7,216)
Increase in other payables and accruals	4,288	10,062
(Decrease)/increase in contract liabilities	(3,810)	8,530
Cash (used in)/generated from operations	(11,426)	22,257
Interest received	106	13
Income tax received	—	275
Income tax paid	(192)	(5,660)
Net cash flows (used in)/generated from operating activities	(11,512)	16,885

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2021

==> picture [469 x 8] intentionally omitted <==

	For the six months	ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received	—	1,081
Placement of restricted bank deposits	—	(5,777)
Repayment of restricted bank deposits	5,803	—
Purchases of items of property, plant and equipment	(539)	(9,883)
Repayment of a loan from a joint venture	4,569	11,506
Loan advanced to joint ventures	(4,174)	(7,070)
Repayment of a loan to an associate	—	174
Loan advanced to an associate	—	(1,275)
Additions to other intangible assets	—	(1,587)
Dividend from equity instruments at fair value
through other comprehensive income	—	245
Net cash flows generated from/(used in) investing activities	5,659	(12,586)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of corporate bonds	8,000	78,500
Repayment of corporate bonds	(36,500)	(55,500)
Corporate bonds issue expense	(560)	(5,145)
Proceeds from issue of convertible notes	46,500	—
Proceeds from new bank loan	6,009	—
New other borrowings	—	21,000
Repayment of bank overdrafts	(3,445)	(52,244)
Interest paid	(6,590)	(8,116)
Repayment of lease liabilities	(8,740)	(6,507)
Dividend paid to shareholders	(4)	—
Dividend paid to non-controlling interests	(3,351)	—
Loan from a joint venture	909	—
Repayment of a loan to joint ventures	(6,549)	—
Net cash flows used in financing activities	(4,321)	(28,012)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(10,174)	(23,713)
Cash and cash equivalents at beginning of period	37,709	53,882
Effect of foreign exchange rate changes, net	910	(2,288)
CASH AND CASH EQUIVALENTS AT END OF PERIOD	28,445	27,881

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

1. CORPORATE AND GROUP INFORMATION

Graphex Group Limited (formerly known as Earthasia International Holdings Limited) (the “Company”) was incorporated as an exempted company with limited liability in the Cayman Islands on 25 November 2013. The registered office address of the Company is Windward 3, Regatta Office Park, P.O. Box 1350, Grand Cayman KY11108, Cayman Islands.

The principal activities of the Group are the business of processing and sale of graphite and graphene related products in Mainland China (“Graphene products business”), landscape architecture business mainly in Hong Kong and Mainland China and catering business in Mainland China.

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

2.1 Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2021 have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2020. These financial statements are presented in Hong Kong dollars (“HK$”) and all values are rounded to the nearest thousand except when otherwise indicated.

All intra-group transactions and balances have been eliminated on consolidation.

Going concern

During the period ended 30 June 2021, the Group incurred a loss attributable to owners of the parent of HK$64,701,000 and, as at 30 June 2021, the Group’s current liabilities exceeded its current assets by HK$14,107,000. In view of these circumstances, the directors of the Company have given consideration to the future liquidity and performance of the Group and its available sources of finance in assessing whether the Group will have sufficient financial resources to continue as a going concern.

When preparing the interim condensed consolidated financial statements as of 30 June 2021, the directors of the Company concluded that a going concern basis of preparation was appropriate after analysing the forecasted cash flows for the next twelve months from 30 June 2021 which indicates that the Group will have sufficient liquidity during the next twelve months from cash flows generated by operations and currently available fund. In preparing the forecasted cash flows analysis, the directors consider that the Company has entered into a subscription agreement with the subscriber for the issue of convertible notes and warrants up to the aggregate amount not exceeding USD15 million on 19 January 2021 and the Company has already issued and received proceeds of convertible notes with an aggregate amount of USD8.09 million. The analysis indicates that the Group will have the financial resources to settle borrowings and payables that will be due in the next twelve months.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

(Continued)

2.2 Changes in accounting policies and disclosures

The accounting policies adopted in the preparation of the interim condensed consolidated financial information are consistent with those applied in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2020, except for the adoption of the following revised standards effective as of 1 January 2021 for the first time for the current period’s financial information.

Amendments to IFRS 9, IAS 39, IFRS 7, Interest Rate Benchmark Reform – Phase 2 IFRS 4 and IFRS 16 Amendments to IFRS 16 Covid-19-Related Rent Concessions

The adoption of the above revised IFRSs has had no significant financial effect on these financial statements.

3. REVENUE

An analysis of revenue is as follows:

==> picture [446 x 8] intentionally omitted <==

	For the six months	ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Type of goods or services
– Sales of graphene and related products	107,297	84,507
– Landscape architecture services	69,910	64,605
– Catering revenue	3,552	4,250
– Catering management services	1,863	1,811
Total Revenue	182,622	155,173
Geographical markets
– Mainland China	169,785	140,530
– Hong Kong	12,406	12,477
– Others	431	2,166
Total Revenue	182,622	155,173
Timing of revenue recognition
– Goods transferred at a point in time	107,297	88,758
– Services transferred over time	75,325	66,415
Total Revenue	182,622	155,173

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION

For management purposes, the Group has identified the following three major reportable segments. Certain segments have been aggregated to form the following reportable segments:

(a) Processing and sales of graphite and graphene related products (“Graphene products segment”);
(b) Providing landscape architecture services (“Landscape architecture segment”); and
(c) The catering business focuses on operation of restaurants (“Catering segment”).

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit/loss before tax. The adjusted profit/loss before tax is measured consistently with the Group’s profit/loss before tax except that finance costs, as well as head office and corporate income and expenses are excluded from such measurement.

Segment assets exclude deferred tax assets, cash and bank balances and other unallocated head office and corporate assets as these assets are managed on a group basis.

Segment liabilities exclude tax payable, deferred tax liabilities and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis.

Intersegment revenue is eliminated on consolidation. Intersegment sales and transfers are transacted with reference to the service prices used for sales made to third parties at the then prevailing market prices.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION (Continued)

The following tables present revenue and profit/loss information for the Group’s operating segments for the six months ended 30 June 2021 and 2020.

Six months ended 30 June 2021 (Unaudited)

==> picture [446 x 8] intentionally omitted <==

	Graphene	Landscape
	products	architecture
	business	service	Catering	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue
Revenue	107,297	69,910	5,415	182,622
Segment results	(4,719)	(9,850)	(4,379)	(18,948)
Reconciliations:
Unallocated income and gains				365
Unallocated expenses				(26,574)
Unallocated finance costs Share of losses of associates				(26,326) (176)
Loss before tax				(71,659)
Adjusted EBITDA (note (i))	23,951	6,654	1,065	31,670

Six months ended 30 June 2020 (Unaudited)

==> picture [446 x 8] intentionally omitted <==

	Graphene	Landscape
	products	architecture
	business	service	Catering	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Segment revenue
Revenue	84,507	64,605	6,061	155,173
Segment results	(7,100)	379	(25,433)	(32,154)
Reconciliations:
Unallocated income and gains				2,007
Unallocated expenses				(11,554)
Unallocated finance costs				(21,990)
Share of losses of associates				(188)
Loss before tax				(63,879)
Adjusted EBITDA (note (i))	19,149	10,556	2,347	32,052

==> picture [19 x 18] intentionally omitted <==

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION (Continued)

The following tables present assets and liabilities information for the Group’s operating segments as at 30 June 2021 and 31 December 2020.

30 June 2021 (Unaudited)

==> picture [446 x 8] intentionally omitted <==

Graphene	Landscape
products	architecture
business	service	Catering	Total
HK$’000	HK$’000	HK$’000	HK$’000
Segment assets 920,967 Reconciliations: Elimination of inter segment receivables Unallocated assets	177,441	9,290	1,107,698 (811,370) 792,746
Total assets			1,089,074
Segment liabilities 98,429 Reconciliations: Elimination of inter segment payables Unallocated liabilities	166,393	76,176	340,998 (811,370) 1,415,486
Total liabilities			945,114

31 December 2020 (Audited)

==> picture [446 x 8] intentionally omitted <==

	Graphene	Landscape
	products	architecture
	business	service	Catering	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Segment assets	908,640	211,866	21,768	1,142,274
Reconciliations:
Elimination of inter segment receivables				(87,592)
Unallocated assets				49,557
Total assets				1,104,239
Segment liabilities	93,555	77,287	77,120	247,962
Reconciliations:
Elimination of inter segment payables				(87,592)
Unallocated liabilities				775,339
Total liabilities				935,709

==> picture [19 x 18] intentionally omitted <==

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION (Continued)

The following tables present other segment information for the Group’s operating segments for the six months ended 30 June 2021 and 2020.

Six months ended 30 June 2021 (Unaudited)

==> picture [446 x 8] intentionally omitted <==

Graphene	Landscape
products	architecture
business	service	Catering	Total
HK$’000	HK$’000	HK$’000	HK$’000
Other segment information Share of losses of associates unallocated Impairment losses recognised in the statement of profit or loss — Depreciation and amortisation 26,147 Reconciliation: Unallocated	10,009 6,009	4,377 935	176 14,386 33,091 691
Total			33,782
Income and gains allocated 133 Finance costs allocated 2,523 Fair value loss unallocated	7,333 457	202 133	7,668 3,113 —
Capital expenditure (note (ii)) — Reconciliation: Unallocated	473	—	473 —
Total			473

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION (Continued)

Six months ended 30 June 2020 (Unaudited)

==> picture [446 x 8] intentionally omitted <==

	Graphene	Landscape
	products	architecture
	business	service	Catering	Total
	HK$’000	HK$’000	HK$’000	HK$’000
Other segment information
Share of losses of associates
unallocated				188
Impairment losses recognised
in the statement of profit or loss	—	3,793	23,442	27,235
Depreciation and amortisation	23,837	6,122	4,024	33,983
Reconciliation:
Unallocated				691
Total				34,674
Income and gains allocated	2	4,065	847	4,914
Finance costs allocated	2,412	262	314	2,988
Fair value loss unallocated				1,182
Capital expenditure (note (ii))	8,688	1,396	1,386	11,470
Reconciliation:
Unallocated				—
Total				11,470

==> picture [19 x 19] intentionally omitted <==

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

4. OPERATING SEGMENT INFORMATION (Continued)

Note:

(i) Adjusted EBITDA is defined as earnings before interest expense, taxation, depreciation and amortisation, and excludes fair value change on financial assets at fair value through profit or loss, written off of goodwill, impairment losses of other intangible assets and property, plant and equipment, share of losses of associates and joint ventures and impairment losses on financial and contract assets and corporate expenses.

A reconciliation of Adjusted EBITDA to consolidated loss before income tax is provided as follows:

==> picture [423 x 8] intentionally omitted <==

	30 June 2021 (Unaudited) HK$’000	30 June 2020 (Unaudited) HK$’000
Loss before tax Add: Finance costs Amortisation and depreciation – property, plant and equipment – right-of-use assets – other intangible assets		(63,879) 24,978 2,939 8,061 23,674
	(71,659)

	29,439

	2,722
	6,542
	24,518
EBITDA Written off of goodwill Impairment loss of property, plant and equipment Impairment loss of other intangible assets Impairment loss of trade receivables, net Impairment loss of contract assets, net Impairment loss of other receivables, net Fair value changes on financial asset at fair value through profit or loss (Gain)/loss on disposal of items of property, plant and equipment Write-down of inventories to net realisable value Share of losses of associates and joint ventures Corporate expenses – Directors and corporate staff salaries – Auditor’s remuneration – Others Unallocated income and gains – Dividend income from equity investments at fair value through other comprehensive income – Interest income – Gain on disposal of subsidiaries – Others		(4,227) 3,278 6,530 10,844 1,903 1,890 2,601 1,182 (499) 189 188
	(8,438)

	—
	3,926
	—
	5,967
	4,042
	451
	—
	29
	—
	176

	17,577	5,010 322 4,848
	679
	7,626
	25,882	10,180

	—	(245) (1,050) (710) (2)
	(356)
	—
	(9)
	(365)	(2,007)
Adjusted EBITDA		32,052
	31,670

(ii) Capital expenditure consists of additions to property, plant and equipment and other intangible assets except for right-of-use assets.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

5. OTHER INCOME AND GAINS

An analysis of other income and gains is as follows:

==> picture [446 x 8] intentionally omitted <==

	For the six months ended 30 June	For the six months ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Other income
Service income Dividend income from equity instruments	6,154	1,375
at fair value through other comprehensive income	—	245
Interest income	356	1,094
Government grants (note)	862	1,722
	7,372	4,436
Gains
Gain on disposal of a subsidiary	—	710
Gain on disposal of property, plant and equipment	—	499
Others	661	1,276
	661	2,485
	8,033	6,921

Note:

Government grants were received from government departments for promoting the Group’s business in the local area. There are no unfulfilled conditions or contingencies relating to these grants.

6. FINANCE COSTS

An analysis of finance costs is as follows:

==> picture [446 x 8] intentionally omitted <==

	For the six months ended 30 June	For the six months ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Interest on interest-bearing other borrowings	12,784	10,540
Interest on promissory note	12,271	11,587
Interest on lease liabilities	2,905	2,851
Interest on convertible notes	1,457	—
Interest on bank loan	22	—
	29,439	24,978

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

7. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging:

==> picture [446 x 8] intentionally omitted <==

	For the six months ended 30 June 2021 2020 (Unaudited) (Unaudited) HK$’000 HK$’000	For the six months ended 30 June 2021 2020 (Unaudited) (Unaudited) HK$’000 HK$’000
Cost of inventories Cost of services Cost of sales Amortisation and depreciation – property, plant and equipment – right-of-use assets – other intangible assets Research and development cost Lease payments for leases less than 12 months Auditor’s remuneration Employee benefit expense (including directors and chief executive’s remuneration): – wages and salaries – equity-settled share-based payment expenses – pension scheme contributions (defined contribution scheme) – welfare and other benefits Equity-settled share-based payment for services Foreign exchange differences, net Impairment loss of financial and contract assets Impairment loss of trade receivables Impairment loss of contract assets (Reversal of)/Impairment loss of financial assets included in prepayments, deposits and other receivables Fair value loss on financial assets at fair value through profit or loss Written off of goodwill Write-down of inventories to net realisable value* Impairment loss of other intangible assets Impairment loss of property, plant and equipment Loss/(gain) on disposal of property, plant and equipment
	69,786	64,184 26,080
	41,975
	111,761	90,264 34,674
	33,782
	2,722	2,939 8,061 23,674
	6,542
	24,518
	12,937	4,138 867 322
	706
	793

	53,304	46,516 — 4,735 610
	11,688
	8,978
	702
	74,672	51,861 — 786
	2,379
	(263)

	5,967	1,903 1,890 2,601
	4,042
	451
	10,460	6,394 1,182 3,278 189 10,844 6,530 (499)
	—
	—
	—
	—
	3,926
	29

The write-down of inventories to net realisable value is included in “Cost of sales” in the consolidated statement of profit or loss.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

8. INCOME TAX

Hong Kong profits tax has been provided at the rate of 16.5% (2020: 16.5%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictions in which the Group operates.

泛亞景觀設計 (上海) 有限公司 continued to be granted with the qualification of High and New Technology Enterprises (“HNTE”) on 18 November 2020 and is entitled to a preferential corporate income tax rate of 15% (2020: 15%) for a period of three years ending 31 December 2022.

前海泛亞景觀設計 (深圳) 有限公司 has been provided at the rate of 15% (2020: 15%) on the estimated assessable profits as its main principal activities, of engaging in interior design and landscape, are recognised as encouraged industries in Qianhai district, Shenzhen in Mainland China.

黑龍江省牡丹江農墾湠奧石墨烯深加工有限公司 is qualified for High and New Technology Enterprises and is entitled to a preferential corporate income tax rate of 15% (2020:15%) for a period of three years ending 31 December 2021.

Other subsidiaries located in Mainland China were subject to corporate income tax at the statutory rate of 25% for the year (2020: 25%) under the income tax rules and regulations in the PRC.

Thai Gallery SRL is required to pay tax equivalent to 27.9% of taxable income, including 24% for the standard rate of Italy corporate tax (“IRES”) and 3.9% for the Italian regional production tax rate (“IRAP”).

==> picture [446 x 8] intentionally omitted <==

	For the six months ended 30 June	For the six months ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Current tax:
Hong Kong	—	295
Mainland China	441	1,792
Italy	—	115
	441	2,202
Deferred tax	(4,983)	(7,977)
Total tax credit for the period	(4,542)	(5,775)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

9. DIVIDEND

The board of directors of the Company does not recommend the payment of any interim dividend (six months ended 30 June 2020: nil) for the six months ended 30 June 2021.

10. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic loss per share amount is based on the loss for the period attributable to ordinary equity holders of the parent of HK$64,701,000 (six months ended 30 June 2020: HK$49,146,000), and the weighted average number of ordinary shares of 481,397,723 (six months ended 30 June 2020: 482,290,000) issued during the period.

==> picture [446 x 8] intentionally omitted <==

	Number of shares	Number of shares
	For the six months ended 30 June
	2021	2020
	(Unaudited)	(Unaudited)
Shares
Weighted average number of ordinary shares in issue during the period
used in the basic loss per share calculation	481,397,723	482,290,000

For the period ended 30 June 2021, no adjustment has been made to the basic loss per share amounts presented for the period in respect of a dilution as the impact of the share options and convertible notes outstanding had an anti-dilution effect on the basic loss per share amounts presented. No adjustment has been made to the basic loss per share amount presented for the six months ended 30 June 2020 in respect of a dilution as the Group had no potential dilutive ordinary shares in issue during the period ended 30 June 2020.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

11. INVESTMENTS IN ASSOCIATES

==> picture [446 x 8] intentionally omitted <==

30 June	31 December	31 December
2021		2020
(Unaudited)		(Audited)
HK$’000		HK$’000
Share of net assets 689		854

Particulars of the Group’s associates are as follows:

==> picture [446 x 8] intentionally omitted <==

Name Particulars of issued shares held/ paid-up capital Place of registration and business	Percentage of Ownership interest Voting power Profit sharing Principal activity
上海泰迪朋友投資管理有限公司 (Shanghai Teddy Friends Investment Management Limited#) (“Teddy”) Registered capital of RMB27,000,000 Mainland China 蘇州蘇迪投資發展有限公司 (Suzhou Sudi Investment and Development Limited#) (“Sudi”) Registered capital of RMB28,000,000 Mainland China	20 20 20 Investment holding 10 10 10 Operating a theme park facility in Mainland China

==> picture [19 x 18] intentionally omitted <==

Teddy and its subsidiary, Sudi, are indirectly held by the Company.

The English names of these companies represent the best effort made by the management of the Company to directly translate their Chinese names as these companies do not register any official English name.

The Group has 20% equity interest in Teddy, and but the Group accounts for Teddy as an associate as the Group still has the significant influence on the board of directors as well as the operating and financial policies of this entity.

Teddy and Sudi, which are considered as associates of the Group, are accounted for using the equity method.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

11. INVESTMENTS IN ASSOCIATES (Continued)

The following table illustrates the summarised financial information in respect of Teddy, adjusted for any differences in accounting policies and reconciled to the carrying amount in the financial statements:

	Teddy	Group
	30 June	31 December
	2021		2020
	HK$’000		HK$’000
Current assets	7,336		8,598
Non-current assets	32,191		31,961
Current liabilities	(29,736)		(29,490)
Non-controlling interests	5,799		6,250
Equity attributable to the owners of the parent	3,993		4,819
Reconciliation to the Group’s interest in the associate:
Proportion of the Group’s ownership	20%		20%
Group’s share of net assets of the associates	799		964
Offset related party transactions	(110)		(110)
Carrying amount of the investment	689		854
Revenue	338		2,026
Loss for the year	(1,401)		(2,097)
Other comprehensive income	—		—
Total comprehensive loss for the year	(1,401)		(2,097)

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

12. TRADE AND BILLS RECEIVABLES

==> picture [446 x 8] intentionally omitted <==

	30 June	31 December
	2021	2020
	(Unaudited)	(Audited)
	HK$’000	HK$’000
Trade and bills receivables	172,848	118,650
Provision for lifetime expected credit losses	(55,383)	(48,842)
	117,465	69,808

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is normally required. The credit period is two months, extending up to six months for major customers. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade and bills receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade and bills receivable balances. Trade and bills receivables are non-interest- bearing.

An ageing analysis of trade and bills receivables as at the end of the reporting period, based on the invoice date, and net of allowance for lifetime expected credit losses, is as follows:

==> picture [446 x 8] intentionally omitted <==

	30 June	31 December
	2021	2020
	(Unaudited)	(Audited)
	HK$’000	HK$’000
Within 6 months	100,475	53,796
Over 6 months but within 1 year	11,648	6,955
Over 1 year but within 2 years	2,395	7,472
Over 2 years but within 3 years	2,947	1,585
	117,465	69,808

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

13. TRADE PAYABLES

An aged analysis of trade payables as at the end of the reporting period, based on the invoice date, is as follows:

==> picture [446 x 8] intentionally omitted <==

30 June	31 December
2021	2020
(Unaudited)	(Audited)
HK$’000	HK$’000
Within 1 year 14,542	10,775
Over 1 year but within 2 years 2,267	2,880
Over 2 years but within 3 years 1,135	1,539
Over 3 years 2,454	944
20,398	16,138

The trade payables are non-interest-bearing and are normally settled within three months.

14. INTEREST-BEARING BORROWINGS

==> picture [446 x 8] intentionally omitted <==

30 June 2021 (Unaudited) Effective interest rate Maturity Note (%) HK$’000	30 June 2021 (Unaudited) Effective interest rate Maturity Note (%) HK$’000
Current Bank loans 4.785 2022 Other borrowing – unsecured (a) 18 2021 Other borrowing – unsecured (a) 12 2021 Other borrowing – unsecured (a) 8 2021 Other borrowing – unsecured (a) 4 2021 Corporate bonds – unsecured (b) 9 2021 Corporate bonds – unsecured (b) 9.13 2021 Corporate bonds – unsecured (b) 10.04 2021

	6,009
	6,000
	965
	4,507
	2,079
	13,551
	5,000
	73,936
	36,358
	115,294

	134,854
Non-current Other borrowing – unsecured (a) Free 2023 Corporate bonds – unsecured (b) 10.04 2022 Corporate bonds – unsecured (b) 10.04 2023

	245
	77,844
	7,569
	85,413

	85,658

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

14. INTEREST-BEARING BORROWINGS (Continued)

31 December 2020	31 December 2020
Notes Effective interest rate (%) Maturity	HK$’000
Current Bank overdrafts On demand Other borrowing – unsecured (a) 18 2020 Other borrowing – unsecured (a) 8 2021 Other borrowing – unsecured (a) 12 2021 Other borrowing – unsecured (a) 4.75 2021 Current portion of corporate bonds – unsecured (b) 6-10.04 2021 Non-current Corporate bonds – unsecured (b) 10.04 2022 Other borrowing – unsecured (a) Free 2023

	3,445
	6,000
	4,456
	6,605
	2,056
	149,712

	172,274


	76,041
	245

	76,286

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

14. INTEREST-BEARING BORROWINGS (Continued)

The corporate bonds recognised in the consolidated financial statements are calculated as follows:

==> picture [446 x 8] intentionally omitted <==

	HK$6%	HK$6%	HK$6%	HK$9%	HK$6%	HK$6%	HK$6%	HK$6%
	Corporate	Corporate	Corporate	Corporate	Corporate	Corporate	Corporate	Corporate
	Bonds	Bonds	Bonds	Bonds	Bonds	Bonds	Bonds	Bonds
	due 2019	due 2020	due 2021	due 2021	due 2021	due 2021	due 2022	due 2023	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(note c)		(note d)	(note e)	(note d)	(note f)
Carrying amount
as at 1 January 2020	14,000	41,352	101,031	5,000	34,539	—	—	—	195,922
Issuance during the year	—	—	—	—	—	5,000	79,500	—	84,500
Transaction costs	—	—	—	—	—	—	(5,565)	—	(5,565)
Repayment	(14,000)	(41,500)	—	—	—	—	—	—	(55,500)
Interest charged	—	148	9,236	450	3,457	254	5,897	—	19,442
Interest paid and interest
payable included in other
payables and accruals	—	—	(6,331)	(450)	(2,220)	(254)	(3,791)	—	(13,046)
Carrying amount
as at 31 December 2020	—	—	103,936	5,000	35,776	5,000	76,041	—	225,753
Carrying amount
as at 1 January 2021	—	—	103,936	5,000	35,776	5,000	76,041	—	225,753
Issuance during the year	—	—	—	—	—	—	—	8,000	8,000
Transaction costs Repayment	— —	— —	— (31,500)	— —	— —	— (5,000)	— —	(560) —	(560) (36,500)
Interest charged	—	—	4,349	223	1,683	46	4,831	361	11,493
Interest paid and interest
payable included in other
payables and accruals	—	—	(2,849)	(223)	(1,101)	(46)	(3,028)	(232)	(7,479)
Carrying amount
as at 30 June 2021	—	—	73,936	5,000	36,358	—	77,844	7,569	200,707

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

14. INTEREST-BEARING BORROWINGS (Continued)

Notes:

(a) The Group’s all other borrowings were unsecured, of which, HK$6,586,000 (2020: HK$6,512,000) was denominated in Renminbi with duration of one year from the date issued. HK$6,965,000 (2020: HK$12,605,000) and HK$245,000 (2020: HK$245,000) were denominated in Hong Kong dollars, with duration of two months to one year and five years, respectively, from the date issued.
The loans from joint ventures included in the Group’s current liabilities of HK$965,000 (2020: HK$6,605,000) and HK$4,507,000 (2020: HK$4,456,000), carry interest at 12% and 8% per annum, respectively and are repayable within one year.
(b) The Group’s corporate bonds were denominated in Hong Kong dollars, with duration of one to two years from the date subscribed.
(c) On 7 December 2018, the Company issued HK$110,000,000 corporate bonds with a nominal value of HK$110,000,000, of which HK$105,500,000 was received in 2019. The bonds carry interest at a rate of 6%, which is accumulated daily on the 365 daily basis and payable annually after the period.
(d) On 25 November 2019, the Company issued HK$150,000,000 corporate bonds with a nominal value of HK$150,000,000, of which HK$79,500,000 and HK$37,000,000 was received in 2020 and 2019, respectively. The bonds carry interest at a rate of 6%, which is accumulated daily on the 365 daily basis and payable annually after the period.
(e) On 26 February 2020, the Company issued HK$5,000,000 corporate bonds with a nominal value of HK$5,000,000, of which HK$5,000,000 was received in 2020. The bonds carry interest at a rate of 6% per annum and payable annually after the period.
(f) On 6 January 2021, the Company issued HK$8,000,000 corporate bonds with a nominal value of HK$8,000,000, of which HK$8,000,000 was received in 2021. The bonds carry interest at a rate of 6% per annum and payable annually after the period.
(g) The effective interest rates of HK$105,500,000 6% corporate bonds due in 2021 and HK$124,500,000 6% corporate bonds due in 2021 and 2022 were 9.13% and 10.04%, respectively.

15. PROMISSORY NOTE

==> picture [446 x 8] intentionally omitted <==

	30 June	31 December
	2021	2020
	(Unaudited)	(Audited)
	HK$’000	HK$’000
At the beginnng of the period Issuance of promissory note (note (a)) Effective interest charged (note (b)) Interest payable and included in other payables and accruals	298,089 — 12,271 (3,481)	281,307 — 23,743 (6,961)
At the end of the period	306,879	298,089

Note:

(a) On 7 August 2019, the Company issued 4 –year unsecured promissory note with nominal value of HK$348,080,000 demoninated in Hong Kong dollars. The interest for the promissory note is 2% per annum. The effective interest rate of the promissory note is 8.4% per annum. The fair value of the promissory note at acquisition date was estimated to be approximately HK$275 million.
(b) The promissory note is measured at amortised cost using the effective rate method with the effective rate at 8.4% per annum.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

16. CONVERTIBLE NOTES

The convertible notes recognised in the consolidated statement of financial position are bifurcated into two components for accounting purposes, namely the liability component and the equity component, and the movements in these components during the reporting period are as follows:

==> picture [446 x 8] intentionally omitted <==

	Equity	Liability
	component	component	Total
	HK$’000	HK$’000	HK$’000
As at 1 January 2021	—	—	—
Issue of convertible notes (note (a))	21,827	24,673	46,500
Effective interest charged (note (b))	—	1,457	1,457
Interest payable and included in other payable and accruals	—	(60)	(60)
Conversion to shares (note (c))	(2,363)	(1,512)	(3,875)
At the 30 June 2021	19,464	24,558	44,022

==> picture [19 x 18] intentionally omitted <==

Note:

(a) Pursuant to the Subscription Agreement entered into between the Company and Lexinter International Inc. (“Lexinter”) on 19 January 2021, the Company shall issue the Convertible Notes and Warrants in tranches up to the aggregate principal amount not exceeding the total Commitment of US$15,000,000 (equivalent to HK$116,250,000) but not less than the Minimum Commitment of US$5,000,000 (equivalent to HK$38,750,000) which are secured by the Share Charge. The initial conversion price is HK$0.65 per conversion shares and the conversion note will bear the interest of 5.5% per annum and will be due on the second anniversary of their issue dates. The purchase of the Warrant at the price of US$1.00 (equivalent to HK$7.75). During the period ended 30 June 2021, the Company issued various Convertible Notes in tranches in an aggregate amount of US$6,000,000 (HK$46,500,000) to Lexinter and two assignees of the Lexinter, EMA Financial, LLC and Masan Multi Strategy Fund SPC — Masan Hong Kong Equity Fund (“Masan Fund”).
(b) The fair value of the convertible notes as a whole was HK$46,500,000 on the issue date of each tranche of convertible notes which the fair value of the liability portion of the Convertible notes was HK$24,672,689 and the equity portion was HK$21,827,311. The convertible notes are measured at amortised cost using effective rate method with the effective rate at 1.05% to 4.74%. During the period ended June 30, 2021, HK$356,000 interest was waived by Lexinter and its assignees.
(c) On 5 March 2021, the convertible note of USD$500,000 (equivalent HK$3,875,000) was converted into 5,961,538 ordinary shares.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

17. SHARE CAPITAL AND TREASURY SHARES

==> picture [446 x 9] intentionally omitted <==

30 June 2021 (Unaudited) HK$’000	31 December 2020 (Audited) HK$’000
Issued and fully paid 488,251,538 (2020: 482,290,000) ordinary shares 4,883	4,823
A summary of movements in the Company’s share capital is as follows:

Number of issued and fully paid shares Nominal value of shares HK$’000	Share premium account HK$’000
As at 1 January 2021 482,290,000 4,823 Issue of shares upon conversion of convertible notes (note (a)) 5,961,538 60	355,685 3,815
As at 30 June 2021 488,251,538 4,883	359,500

Note:

==> picture [19 x 18] intentionally omitted <==

(a) On 5 March 2021, the Company allotted and issued a total of 5,961,538 conversion shares to Masan Fund, a convertible notes holder.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

17. SHARE CAPITAL AND TREASURY SHARES (Continued)

Treasury shares

A summary of movements in the Company’s treasury shares is as follows:

==> picture [446 x 8] intentionally omitted <==

	Number of
	issued and	Nominal	Share
	fully paid	value of	premium
	shares	shares	account
		HK$’000	HK$’000
As at 1 January 2021	(9,881,275)	(99)	(13,042)
Granting of shares under the share award scheme (note (b))	9,931,275	99	5,762
As at 30 June 2021	50,000	—	(7,280)

==> picture [19 x 18] intentionally omitted <==

Note:

(b) On 28 January 2021, 9,931,275 shares were granted, accepted and vested to certain directors and other participants. The fair value of the 9,931,275 shares at grant date was approximately HK$5,859,000 (HK$0.59 each). The fair value in excess of the par value of these shares of approximately HK$5,762,000 was credited to the share premium account.

Share award scheme

On 21 August 2014, the Company adopted a share award scheme. The specific objectives of the share award scheme are (i) to recognise the contributions by certain employees and to provide them with incentives in order to retain them for the continual operation and development of the Group; and (ii) to attract suitable personnel for further development of the Group.

Subject to any early termination as may be determined by the board of directors of the Company (the “Board”) pursuant to the rules of the share award scheme (the “Scheme Rules”), the share award scheme shall be valid and effective for a term of 10 years commencing on 21 August 2014.

The share award scheme shall be subject to the administration of the Company’s board of directors (the “Board”) and the trustee in accordance with the Scheme Rules and the trust deed as appointed by the Company. The trustee shall hold the trust fund in accordance with the terms of the trust deed.

The board of directors may from time to time cause to be paid the fund to the trust by way of settlement or otherwise contribution by the Company or any subsidiary as directed by the Board which shall constitute part of the trust fund, for the purchase of the Company’s shares and other purposes set out in the Scheme Rules and the trust deed. Subject to the Scheme Rules, the Board may from time to time instruct the trustee in writing to purchase the Company’s shares. Once purchased, the Company’s shares are to be held by the trustee for the benefit of employees under the trust on and subject to the terms and conditions of the share award scheme and the trust deed. On each occasion, when the Board instructs the trustee to purchase the Company’s shares, it shall specify the maximum amount of funds to be used and the range of prices at which such shares of the Company are to be purchased. The trustee may not incur more than the maximum amount of funds or purchase any shares of the Company at a price falling outside the range of prices so specified unless with the prior written consent of the Board.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

17. SHARE CAPITAL AND TREASURY SHARES (Continued)

Share award scheme (Continued)

Subject to the provision of the share award scheme, the Board may, from time to time at its absolute discretion, select any eligible person who contributes to the success of the Group’s operations (“Eligible Person”) other than those excluded for participation in the share award scheme, and grant awarded shares to the selected Eligible Person at no consideration in a number and on terms and conditions as it may determine at its absolute discretion.

Subject to the terms and conditions of the share award scheme and the fulfilment of all vesting conditions to the vesting of the awarded shares on such selected Eligible Person as specified in the share award scheme and the grant notice, the respective awarded shares held by the trustee on behalf of the selected Eligible Person pursuant to the provision hereof shall vest to such selected Eligible Person in accordance with the vesting schedule (if any) as set out in the grant notice, and the trustee shall cause the awarded shares to be transferred to such selected Eligible Person on the vesting date.

Prior to the vesting date, any award made pursuant to the share award scheme shall be personal to the selected Eligible Person to whom it is made and shall not be assignable and no selected Eligible Person shall in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any other person over or in relation to the awarded shares referable to him/her pursuant to such award.

The Board may at its discretion, with or without further conditions, grant additional shares of the Company or cash award out of the trust fund representing all or part of the income or distributions (including but not limited to cash income or dividends, cash income or net proceeds from sales of non-cash and non-scrip distributions, bonus shares and scrip dividends) declared by the Company or derived from such awarded shares during the period from the date of award to the vesting date to a selected Eligible Person upon the vesting of any awarded shares.

On 28 January 2021, the Group granted an aggregate 9,931,275 shares to 10 selected participants pursuant to the Company Share Award Scheme. The vesting date of the shares was 28 January 2021.

18. SHARE OPTION SCHEME

A share option scheme (the “Share Option Scheme”) was conditionally approved by the Company on 3 June 2014 for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations and the Share Option Scheme became effective on 25 June 2014. Eligible participants of the Share Option Scheme are the directors, including independent non-executive directors, of the Company and any entity in which the Group holds at least 20% of its shares (the “Invested Entity”), other employees of the Group or the Invested Entity, suppliers of goods or services to the Group or the Invested Entity, the customers of the Group or the Invested Entity, person that provides technological support to the Group or the Invested Entity, shareholders of the Group or the Invested Entity, holders of any securities issued by the Group or the Invested Entity, the advisor or consultant to the Group or the Invested Entity, and any non-controlling shareholder in the Company’s subsidiaries.

The maximum number of unexercised share options currently permitted to be granted under the Share Option Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue from time to time. The maximum number of shares issuable under share options to each eligible participant in the scheme within any 12-month period is limited to 1% of the shares of the Company in issue from time to time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

18. SHARE OPTION SCHEME (Continued)

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 21 days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors which shall not exceed ten years from the offer date subject to the provisions of early termination thereof.

The exercise price of share options is determinable by the directors, but may not be less than the highest of (i) the closing price of the shares on the Stock Exchange as stated in the Stock Exchange’s daily quotation sheet on the offer date; (ii) the average of the closing prices of the shares as stated in the stock exchange’s daily quotation sheets for the five trading days immediately preceding the offer date; and (iii) the nominal value of the shares on the offer date.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

On 28 January 2021, 25,500,000 share options were granted, accepted and vested to certain directors and employees under the Share Option Scheme. The exercise price of the options is HK$0.65. These share options granted were vested on 28 January 2021 with an exercise period from 28 January 2021 to 27 January 2026. The fair value at grant date is estimated using a binomial pricing model, taking into account the terms and conditions upon which the options were granted.

According to HKFRS 2, the fair value of share options granted to employees is recognized as an employee cost with a corresponding increase in a capital reserve within equity. The fair value is measured at grant date using binomial pricing model, taking into account the terms and conditions upon which the options were granted.

The fair value of options granted during the six months ended 30 June 2021 was estimated on the date of grant using the following assumptions:

==> picture [446 x 8] intentionally omitted <==

	Directors	Employee
Dividend yield (%)	—	—
Expected volatility (%)	73.28%	73.28%
Risk-free interest rate (%)	0.73%	0.73%
Exercise multiple	2.8	2.2
Fair value of the share options (HK$ per share)	0.30	0.28

==> picture [19 x 18] intentionally omitted <==

Since the binomial pricing model requires input of highly subjective assumptions, any change in the subjective input assumptions may materially affect the estimation of the fair value of an option.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

18. SHARE OPTION SCHEME (Continued)

There were 25,500,000 share options granted, accepted and vested to certain directors and employees during the six months ended 30 June 2021. The fair value of the share options granted during the six month ended 30 June 2021 was approximately HK$7.7 million. For the six months ended 30 June 2021, the Group recognised share option expense of approximately HK$7.7 million (30 June 2020: nil) in the statement of profit or loss.

At the end of the reporting period, the Company had 25,500,000 share options outstanding under the Share Option Scheme, which represented approximately 5.29% of the Company’s shares in issue as at that date. The exercise in full of the outstanding share options would, under the present capital structure of the Company, result in the issue of 25,500,000 additional ordinary shares of the Company for a total cash proceeds of approximately HK$16,575,000.

The table below disclose movement of share options granted under the Share Option Scheme:

==> picture [446 x 8] intentionally omitted <==

		Number of	Exercise
Movement in share options	Exercise period	options	price
As at 1 January 2021		—	—
New share options granted under the scheme (note (a))	28 January 2021 to	25,500,000	HK$0.65
	27 January 2026
As at 30 June 2021		25,500,000

Note:

==> picture [19 x 18] intentionally omitted <==

(a) On 28 January 2021, 25,500,000 share options were granted and accepted by certain eligible participants under the share option scheme. Each share options gives the holder the right to subscribe for one ordinary share of the Company. The share options were vested at 28 January 2021. No share options were exercised during the six months ended 30 June 2021 (2020: nil).

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

19. MATERIAL RELATED PARTY TRANSACTIONS

The Group had the following material transactions with related parties during the period:

==> picture [446 x 8] intentionally omitted <==

		For the six months	ended 30 June
		2021	2020
		(Unaudited)	(Unaudited)
	Note	HK$’000	HK$’000
Loan to Earthasia Worldwide Holdings Limited (“EA Trading”)	(i)	—	2,100
Loan to大連鵬亞國際貿易有限公司(“Dalian Trading”)	(ii)	—	4,970
Loan to上海奕桂品牌管理有限公司(“Yigui”)	(iii)	4,569	—
Loan from EA Trading		909	—
Repayment of loan from EA Trading	(i)	—	6,315
Repayment of loan to Yigui	(iii)	4,174	—
Repayment of loan to EA Trading		6,549	—
Interest income from EA Trading		—	156
Repayment of loan from Dalian Trading	(ii)	—	5,191
Interest income from Dalian Trading		—	35
Interest income from Yigui		76	—
Interest expenses to EA Trading		39	—
Interest expenses to Yigui		176	—

(i) The Group granted a revolving loan in aggregate of HK$2,100,000 during the period ended 30 June 2020 to EA Trading, a joint venture of the Group, to support its business operation with a one-year term which is unsecured and bears interest at 12% per annum (six months ended 30 June 2020: 12%). The revolving loan at all times with a balance did not exceed HK$50,000,000.

(ii) The Group entered into the loan agreements with Dalian Trading during 2020, and the total principals amounted to RMB4,500,000 at 12% interest rate per annum.

(iii) The Group granted short-term loan in aggregate of RMB3,810,000 to Yigui, a joint venture of the Group during the year. The interest rate was 8% per annum. The outstanding balance of the loan was RMB1,480,000 as at 30 June 2021.

Graphex Group Limited Interim Report 2021

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

30 June 2021

20. EVENTS AFTER THE REPORTING PERIOD

On 1 August 2021, Chengdu Taihaowei Catering Co. Ltd., an indirect non-wholly owned subsidiary of the Company, which is engaged in catering business through operating a Thai cuisine restaurant in the mainland China has decided to cease its operations due to its ongoing loss-making position coupled with weakened demand of customers and uncertain business prospects since the outbreak of the novel coronavirus pandemic.

On 4 August 2021, the Company has submitted a draft registration statement Form F-1 on a confidential basis with the U.S. Securities and Exchange Commission (“SEC”) in relation to the proposed initial public offering of its American Depository Shares (“ADS”) representing its ordinary shares in the United States (the “Offering”). The number of ADS to be offered and the price range for the Offering have not yet been determined. The Offering is subject to the registration statement being declared effective and the approval by The Stock Exchange of Hong Kong Limited in compliance with the requirements under the Listing Rules. The Company intends to apply for the listing of the ADS on Nasdaq Capital Market if the conditions for such listing are satisfied.

21. COMPARATIVE FIGURES

Certain comparative information has been restated to conform with the current period’s presentation.

22. APPROVAL OF THE INTERIM FINANCIAL INFORMATION

The financial statements were approved and authorised for issue by the board of directors on 30 August 2021.

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

This year, the Company has changed its name to Graphex Group Limited to appropriately reflect the corporate mission of developing technologies and processes for the enhancement of renewable energy. The graphene products business of the Group continued to be the major contributor of revenues to the Group during the reporting period. While the landscape architecture business of the Group remains steady, the catering business has been adversely affected by the COVID-19 pandemic. Following the shutdown of catering business in Italy in 2020, the revenues of the Group were derived from PRC and Hong Kong only.

Graphene Products Business

For the six months ended 30 June 2021, the graphene products business contributed revenue of approximately HK$107.3 million, representing approximately 58.8% of the Group’s total revenue, with an adjusted EBITDA of approximately HK$24.0 million. Comparing to the six months ended 30 June 2020, the revenue and the adjusted EBITDA increased by approximately 27% and 25% respectively.

The main product of graphene products business is natural spherical graphite which is an essential material to produce anodes of lithium-ion batteries for electric vehicles and energy storage systems. In addition to our production facilities in Jixi, Heilongjiang, PRC, the Group has implemented its 3-year plan to increase its production capacity to 40,000 tons by implementing new production facilities in Qitaihe, Heilongjiang, PRC. The Group has also set up a company in the United States of America, namely Graphex Technologies, LLC., to explore business opportunities outside of PRC.

The Group has continued to invest in research and development of new technologies to enhance its graphene products. During the reporting period, the graphene products segment has spent HK$10.7 million in research and development which represents approximately 10.0% of the revenue of the graphene products business.

The demand for spherical graphite will be driven by the growing popularity of electric vehicles, grid energy storage systems and other applications which use batteries as power sources. It is a great opportunity for the Group to further develop its graphene products business to become one of the major players in the industry.

Landscape Architecture Business

The Group maintains its market position as one of the leading landscape architecture providers predominantly in the PRC and Hong Kong. It offers landscape architecture services to clients including governments, private property developers, state-owned property developers, design services companies and engineering companies in the PRC and Hong Kong.

The revenue of the Group’s landscape architecture segment increased to approximately HK$69.9 million for the six months ended 30 June 2021, representing an increase of approximately 8.2%, as compared with that of approximately HK$64.6 million for the six months ended 30 June 2020. The increase in revenue was primarily due to the fact that the progress of landscape architecture projects, as well as billings, were speed up in the first half of 2021, picking up from what have been slowed down by COVID-19 pandemic in 2020.

Graphex Group Limited Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

For the six months ended 30 June 2021, the Group entered into 49 new contracts with a total contract sum of approximately HK$58.9 million for projects located in the PRC and 20 new contracts with a total contract sum of approximately HK$9 million for projects located in Hong Kong. Geographically, approximately 86.7% of the new contract sum represented projects located in the PRC and approximately 13.3% represented projects located in Hong Kong in terms of contract sum.

The number of new contracts and contract sum entered by the Group compared with last reporting period are set out as follows:

==> picture [469 x 8] intentionally omitted <==

Six months ended 30 June	No. of new contracts	Contract sum
		(HK$’million)
2021	69	67.9
2020	64	144.2

==> picture [19 x 18] intentionally omitted <==

The new contract sum decreased to approximately HK$67.9 million for the six months ended 30 June 2021, representing an decrease of approximately 52.9%, as compared with that of approximately HK$144.2 million for the last reporting period mainly due to an one-off large project recorded in last period.

Catering Business

The Group’s catering business is mainly represented by Carbonaphene Holdings Limited and its subsidiaries which included Thai Gallery restaurants serving Thai cuisine in the PRC and provision of management services to restaurant. The Group’s catering revenue decreased to approximately HK$5.4 million for the six months ended 30 June 2021, representing a decrease of approximately 10.7%, as compared with that of approximately HK$6.1 million for the six months ended 30 June 2020. The catering segment contributed approximately 3% of the Group’s total revenues. The decrease in revenue from the catering segment was mainly due to cease and/or downscale of operation of restaurants in China due to the continuous deterioration in market environment since the outbreak of the COVID-19 pandemic.

The COVID-19 pandemic has had a significant impact across our catering business since 2020. As a result, we discontinued operations of our restaurant in Chengdu, China in August 2021. We currently only provide management services to one restaurant in Shanghai. We do not intend to further expand the catering business.

FINANCIAL REVIEW

Revenue

The Group’s total revenue rose to approximately HK$182.6 million in first half of 2021, compared with HK$155.2 million for the six months ended 30 June 2020, representing year-on-year growth of approximately 17.7%.

In line with the new direction of the Group, during the reporting period the Group exhibited strong growth, driven by the graphene products segment. The graphene products segment contributed revenue of approximately HK$107.3 million, representing an increase of approximately 27%, compared with HK$84.5 million for the six months ended 30 June 2020. The landscape architecture segment contributed revenue of approximately HK$69.9 million, representing an increase of approximately 8.2%, compared with HK$64.6 million for the six months ended 30 June 2020.

MANAGEMENT DISCUSSION AND ANALYSIS

Cost of sales

Cost of sales increased to approximately HK$111.8 million for the six months ended 30 June 2021, representing an increase of approximately 23.8%, as compared with that of approximately HK$90.3 million for the same period in 2020.

Cost of sales mainly represented cost of inventories in respect of graphene products business and catering business and project staff cost in respect of landscape architecture segment. The increase in cost of sales was in line with the increase in revenue derived from graphene products segment and landscape architecture segment.

Gross profit and gross profit margin

Gross profit increased to approximately HK$70.9 million for the six months ended 30 June 2021, representing an increase of approximately 9.2%, as compared with that of approximately HK$64.9 million for the same period in 2020.

Gross profit margin decreased to approximately 38.8% for the six months ended 30 June 2021, as compared with that of approximately 41.8% for the same period in 2020. The slight decrease was mainly attributable to the slowdown of new contract sum awarded in landscape architecture segment.

Selling and marketing expenses

Selling and marketing expenses decreased to approximately HK$6.2 million for the six months ended 30 June 2021, representing a decrease of approximately 22.2%, as compared with that of approximately HK$8.0 million for the same period in 2020. The decrease was mainly due to the downscale of catering business.

Administrative expenses

Administrative expenses increased to approximately HK$100.3 million for the six months ended 30 June 2021, representing an increase of approximately 35.0%, as compared with that of approximately HK$74.3 million for the same period in 2020. The increase was mainly due to (i) the increase in share-based payment expenses including share options granted and share awards to directors, employees and consultants in 2021 while no such share-based payment expenses in 2020; (ii) the increase in research and development cost for new graphene products, and (iii) increase in auditors’ remuneration and professional fees in relation to the proposed initial public offering in the United States.

Impairment loss on financial and contract assets

The impairment loss, which represented impairment loss of trade receivables, contract assets, and other receivables, increased to approximately HK$10.5 million for the six months ended 30 June 2021, representing an increase of approximately 63.6%, as compared with that of approximately HK$6.4 million for the same period in 2020. The increase mainly reflected the Group’s increase in credit loss under the less favourable market and economic environment which negatively affected the Group’s collectability on financial and contract assets related to landscape architecture segment.

Impairment loss of property, plant and equipment

Impairment loss of property, plant and equipment decreased to approximately HK$3.9 million for the six months ended 30 June 2021, representing a decrease of approximately 39.9%, as compared with that of approximately HK$6.5 million for the same period in 2020. The impairment loss for the six months ended 30 June 2021 was arisen from the cease of operations of a restaurant in Chengdu, China in August 2021.

Graphex Group Limited Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

Impairment loss of Goodwill and Other Intangible Assets

There was a reduction of impairment loss on goodwill and other intangible assets in 2021 since the negative impact of COVID-19 had on the Group’s catering segment was reflected in 2020. Details of the impairment loss are set out as follows:

==> picture [469 x 8] intentionally omitted <==

	2021	2020
	HK$’000	HK$’000
Goodwill	—	3,278
Intangible assets	—	10,844
Financial assets at fair value through profit and loss	—	1,182
Total	—	15,304

==> picture [19 x 18] intentionally omitted <==

Net loss

As a result of the foregoing, the loss attributable to owners of the Company was approximately HK$64.7 million for the six months ended 30 June 2021, as compared with that of a loss attributable to owners of the Company of approximately HK$49.1 million for the same period in 2020.

Liquidity, financial resources and gearing

The Group’s objectives for capital management are to safeguard the Group’s ability to continue as a going concern in order to maintain an optimal capital structure and reduce the cost of capital, while maximizing the return to shareholders through improving the debt and equity balance.

==> picture [469 x 8] intentionally omitted <==

	As at	As at
	30 June	31 December
	2021	2020
	HK$’000	HK$’000
Current assets	276,259	262,506
Current liabilities	290,366	316,940
Current ratio	0.95x	0.8x

==> picture [19 x 18] intentionally omitted <==

The current ratio of the Group at 30 June 2021 was approximately 0.95 times as compared to that of approximately 0.8 times at 31 December 2020 as a result of the convertible notes issued which allowed the Company to redeem the mature debt securities.

MANAGEMENT DISCUSSION AND ANALYSIS

At 30 June 2021, the Group had total cash and bank balances of approximately HK$28.4 million (31 December 2020: HK$37.7 million).

At 30 June 2021, the Group’s gearing ratio (represented by total interest-bearing bank and other borrowings at the end of the period divided by total equity at the end of the respective period multiplied by 100%) was approximately 383.4% (31 December 2020: 324.4%).

The capital structure of the Company mainly comprises issued ordinary shares and debt securities. As of 30 June 2021, the Company had outstanding issued corporate bonds of approximately HK$200.7 million, issued promissory notes of approximately HK$306.9 million, issued convertible notes (as liability) of approximately HK$24.6 million and 488,251,538 ordinary shares in issue.

Contingent liabilities

The Group had no significant contingent liabilities as at 30 June 2021.

Pledge of assets

On 19 January 2021, Think High Global Limited, an indirect wholly-owned subsidiary of the Company established under the laws of the British Virgin Islands, which directly holds 100% of the equity interest of the graphene products business was charged in favour of Lexinter International Inc., a corporation incorporated under the laws of the Province of Ontario which is wholly owned by Jeffrey Abramovitz, an individual carrying Canadian nationality, who shall subscribe the convertible notes and warrants issued by the Company in the aggregate principal amount of US$15,000,000 pursuant to the subscription agreement and supplemental agreement entered into on 19 January 2021 and 24 May 2021 respectively.

More details of the pledge were set out in the announcements of the Company dated 19 January 2021 and 24 May 2021, and circular of the Company dated 30 June 2021.

Capital commitment

The Group had no significant capital commitment as of 30 June 2021.

Foreign exchange exposure

The Group mainly operates and invests in Hong Kong and the PRC and most of the transactions are denominated and settled in HKD and RMB. No significant foreign currency risk has been identified for the financial assets in the PRC as they were basically denominated in a currency same as the functional currencies of the group entities to which these transactions relate. Nevertheless, the Directors will closely monitor the Group’s foreign currency position and consider natural hedge technique to manage its foreign currency exposures by non-financial methods, managing the transaction currency, leading and lagging payments, receivables management, etc. Save for meeting working capital needs, the Group only holds minimum foreign currency.

Graphex Group Limited Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

Human resources and employees’ remuneration

As at 30 June 2021, the Group had 472 employees. Employees are remunerated according to nature of the job, market trend, and individual performance. Employee bonus is distributable based on the performance of the respective subsidiaries and the employees concerned.

The Group offers competitive remuneration and benefit package to employees. Employee benefits include mandatory provident fund, employee pension schemes in the PRC, contributions to social security system, medical coverage, insurance, training and development programs.

A share option scheme (the “Share Option Scheme”) was adopted by the Company on 3 June 2014 and became effective on 25 June 2014. During the six months ended 30 June 2021, 25,500,000 share options were granted, accepted and vested to certain directors and employees (six months ended 30 June 2020: nil) under the Share Option Scheme.

On 21 August 2014, the Company adopted a share award scheme (the “Share Award Scheme”). The principal objectives of the Share Award Scheme are (i) to recognise the contributions by employees and to provide them with incentives in order to retain them for the continual operation and development of the Group; and (ii) to attract suitable personnel for further development of the Group. Details of the Share Award Scheme were set out in the announcements of the Company dated 21 August 2014, 5 January 2015 and 7 September 2015.

On 19 January 2021, Earthasia (International) Limited, an indirect wholly-owned subsidiary of the Company, also adopted a share award scheme (the “EIL Share Award Scheme”). The purposes and objectives of the EIL Share Award Scheme are to recognise the contributions made or to be made by certain participants and to provide them with incentives in order to retain them for the continual operation and development of the Earthasia (International) Limited group and to attract suitable personnel for further development of the Earthasia (International) Limited group. Details of the EIL Share Award Scheme were set out in the announcement of the Company dated 19 January 2021.

MANAGEMENT DISCUSSION AND ANALYSIS

ADVANCES TO AN ENTITY

As disclosed in the announcements of the Company dated 20 September 2016, 24 January 2017, 8 December 2017 and 25 June 2019 (the “Announcements”), the Company as the Lender entered into a loan agreement (the “Loan Agreement”) on 25 June 2019 with the borrower pursuant to which the Lender agreed to provide an unsecured revolving loan facility (the “Revolving Loan Facility”) in the amount of HK$50,000,000 at an interest rate of 12% per annum during the availability period from 25 June 2019 to 31 December 2021. Subject to the terms and conditions, the Revolving Loan Facility can be drawn down at any time for one year during the availability period. Set out below are the principal terms of the loan agreement:

==> picture [469 x 8] intentionally omitted <==

	Third
	Renewal Agreement
Date of agreement:	25 June 2019
Borrower:	Earthasia Worldwide Holdings Limited
Revolving facility amount:	Up to HK$50,000,000
Interest rate per annum:	12%
Availability period:	25 June 2019 to 31 December 2021
Repayment term:	One year
Repayment:	Borrower shall repay the interests with the principal amount at loan maturity
Early repayment:	The Borrower may prepay all or any part of a drawdown prior to the maturity date
	without penalty. Any prepayment of a drawdown will refresh the available amount
	of the Revolving Loan Facility for drawing. Any early repayment shall first settle all
	interests accrued.
Collateral:	Nil
Other terms and conditions:	The Lender shall have absolute discretion as to whether to make available any sum
	for any drawdown under the loan agreement.

==> picture [19 x 18] intentionally omitted <==

The advance was made on the basis of the Company’s credit assessments on the Borrower’s financial strength, repayment history and the tenure of the advance. The Company considered that the risks and return involved in the advance to the Borrower are justifiable. For further details, please refer to the Announcements. As of 30 June 2021, there was zero outstanding loan balance due from the Borrower group to the Company.

Graphex Group Limited Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

In relation to the provision of financial assistance by the Company to the Borrower, a combined statement of financial position of the Borrower group as at 30 June 2021 required to be disclosed under Rule 13.22 of Chapter 13 of the Listing Rules is set out below:

==> picture [469 x 8] intentionally omitted <==

2021	HK$’000
Cash and cash equivalents	899
Other current assets	21,126
Current assets	22,025
Non-current assets	131
Current liabilities	(55,670)
Non-current liabilities	(2,822)
Net assets/(deficiency in assets)	(36,336)
Reconciliation to the Group’s interests in the joint venture:
Proportion of the Group’s ownership	30%
Carrying amount of the investment	—
Revenue	27,006
Interest expense	(2,764)
Loss for the year	(4,880)
Loss and total comprehensive loss for the year	(4,880)

==> picture [19 x 18] intentionally omitted <==

SIGNIFICANT INVESTMENTS HELD, MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES, AND FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

Save for those disclosed in this interim report, there were no other significant investments held, nor were there material acquisitions or disposals of subsidiaries during the period under review. Apart from those disclosed in this interim report, there was no plan authorised by the Board for other material investments or additions of capital assets at the date of this interim report.

ISSUE OF CONVERTIBLE NOTES AND USE OF PROCEEDS

For the purpose of settling the debt instruments due in 2021 issued by the Company and the development of the Group’s graphene products business, the Company has been engaging in fund raising exercise in Hong Kong and in the United States. On 19 January 2021, the Company and Lexinter International Inc. (the “Subscriber”) entered into the subscription agreement for the subscription of convertible notes. On 24 May 2021, the Company and the Subscriber entered into the supplemental agreement to amend certain terms and conditions of the subscription agreement.

MANAGEMENT DISCUSSION AND ANALYSIS

The principal terms of the convertible notes pursuant to the subscription agreement, as amended by the supplemental agreement, are as follow:

Aggregate principal amount of : US$15,000,000 the convertible notes Principal amount issued : First Note — US$500,000 during the reporting period Other Initial Notes — US$5,500,000 Issue price : 100% of the principal amount Maturity date : The date falling on the second (2nd) anniversary of the date of issue of the convertible notes Interest rate : 5.5% per annum Conversion period : The period commencing on the issue date of the convertible notes to the close of business in Hong Kong on the date falling one business day prior to the maturity date (both days inclusive). Conversion price : Initially at HK$0.65 per conversion share (subject to adjustment)

During the six months ended 30 June 2021, the Company and the Subscriber had closed the First Note of the amount of US$500,000 and nine Other Initial Notes with an aggregate amount of US$5,500,000 under the general mandate. Set out below is a table showing the dates of the closing of the First Note and the nine Other Initial Notes and their respective noteholders:-

==> picture [469 x 8] intentionally omitted <==

Description	Issue date	Principal amount	Name of noteholder
		(US$)
First Note	1 February 2021	500,000	The Subscriber
Other Initial Note	1 March 2021	500,000	EMA (Note 1)
Other Initial Note	1 March 2021	500,000	Masan Fund (Note 2)
Other Initial Note	15 March 2021	500,000	The Subscriber
Other Initial Note	12 April 2021	500,000	The Subscriber
Other Initial Note	26 April 2021	500,000	The Subscriber
Other Initial Note	10 May 2021	500,000	The Subscriber
Other Initial Note	27 May 2021	1,250,000	The Subscriber
Other Initial Note	7 June 2021	750,000	The Subscriber
Other Initial Note	30 June 2021	500,000	The Subscriber

==> picture [19 x 19] intentionally omitted <==

Notes

EMA is an assignee of the Subscriber under the Subscription Agreement to be the holder of the Other Initial Note for the principal amount of US$500,000 subscribed by the Subscriber. To the best of the Director’s information, EMA is 100% owned by Felicia Preston.
Masan Fund is an assignee of the Subscriber under the Subscription Agreement to be the holder of the Other Initial Note for the principal amount of US$500,000 subscribed by the Subscriber. To the best of the Director’s information, Masan Fund is ultimately owned as to 55% by Hui Nok Yi, 25% by Liem Chi Kit Kevin and 20% by Yau Wai Chung.

Graphex Group Limited Interim Report 2021

MANAGEMENT DISCUSSION AND ANALYSIS

During the six months ended 30 June 2021, the net proceeds raised from the convertible notes issued was approximately US$5.9 million (equivalent to approximately HK$45.5 million). The intended use, utilised and remaining balance of the net proceeds as of 30 June 2021, respectively, are summarised below:

==> picture [469 x 8] intentionally omitted <==

		Utilised net	Remaining
		proceeds up to	balance as of
Uses	Intended use	30 June 2021	30 June 2021
	HK$ million	HK$ million	HK$ million
Redemption of outstanding debt securities	34.1	35.3	—
Working capital	11.4	10.2	—
Total	45.5	45.5	—

==> picture [19 x 18] intentionally omitted <==

Please also refer to note 16 to the Interim Condensed Consolidated Financial Statements in this interim report.

More details of the convertible notes were set out in the announcements of the Company dated 19 January 2021 and 24 May 2021, and the circular of the Company dated 30 June 2021.

PROSPECTS

As the world begins to heal from the COVID-19 pandemic, we maintain a positive business outlook for 2021. Whilst there is always risk of renewed infection waves and potential new virus variants, national vaccinations programs are broadly underway, and governments are signalling that the world will be returning to a degree of normality by the summer. The International Monetary Fund is forecasting robust global growth, at 5.5% in 2021 and 4.2% in 2022. Personal savings rates are elevated which should support consumer spending, oil prices have stabilized and with a new administration in Washington, China-US trade tensions appear to be improving. This economic backdrop should be constructive for the Group.

Within our graphene products segment, we believe enhanced consumer spending together with global initiatives for sustainable energy will provide strong macro-economic drivers for our spherical graphite product. Government initiatives encouraging consumers to switch to from internal combustion engines to electric vehicles will bolster demand for lithiumion batteries and positively impact the Lithium-ion supply chain, which includes our material. Initiatives to reduce global emissions and reverse climate change should further support Lithium-ion battery demand for renewable energy storage, as the world continues its transition from fossil fuel based electrical power generation to sustainable electrical power.

Further, we will continue to invest in the development and commercialisation of graphene volume production and graphene applications. The unique materials science properties of graphene offer extraordinary engineering solutions across medical, industrial, aerospace and consumer sectors.

MANAGEMENT DISCUSSION AND ANALYSIS

In relation to our landscape architecture segment, the various external and domestic factors that affected Hong Kong’s economy last year has somewhat abated. However, we believe any unforeseen future impact on the Group will be mild given the segment’s relatively stable contract backlog of design projects. If necessary, employees can work from home during any disruptions. Furthermore, it is expected that the China may increase expenditure on public infrastructure to power economic recovery from the coronavirus, which will likely have a positive impact on our landscape architecture business.

As to the catering segment, the Group will continue to focus on the profitable operation and does not intend to grow the segment further.

2021 will certainly not be without its challenges, but we are optimistic about the opportunities the year presents. The Directors believe with the joint effort of our management and staff, we can grow the revenue streams of the Group and implement process and efficiency improvements. Furthermore, the Directors will continue to explore growth and investment opportunities that may generate additional income for the Group.

Graphex Group Limited Interim Report 2021

OTHER INFORMATION

DISCLOSURE OF INTERESTS

Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company and its associated corporations

As at 30 June 2021, the interests and short positions of the Directors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of the associated corporations (within the meaning of Part XV of the SFO) which (i) are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (ii) are required, pursuant to section 352 of the SFO, to be entered in the register as referred to therein; or (iii) are required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange are as follows:

Long position in the Shares and underlying Shares

==> picture [469 x 9] intentionally omitted <==

Name of Director Capacity	Number of Shares Number of underlying Shares held under the Share Option Scheme Total Approximate % of shareholding Personal interest Family interest Corporate interest Other interest
Chan Yick Yan Andross Beneficial owner, interest of controlled corporation Lau Hing Tat Patrick Beneficial owner, interest of spouse, interest of controlled corporation Tian Ming Beneficial owner Tu Wenzhe3 Beneficial owner Yang Liu Beneficial owner Qiu Bin Beneficial owner	4,204,000 — 93,716,8871 — 4,000,000 101,920,887 20.87% 7,232,000 1,980,000 46,003,4442 — 4,000,000 59,215,444 12.13% 4,930,000 — — — 4,000,000 8,930,000 1.83% 1,000,000 — — — 4,000,000 5,000,000 1.02% — — — — 4,000,000 4,000,000 0.82% — — — — 4,000,000 4,000,000 0.82%

==> picture [19 x 18] intentionally omitted <==

Notes:

Such interests are held by CYY Holdings Limited, a company incorporated in the British Virgin Islands, of which Mr. Chan Yick Yan Andross is interested in the entire issued share capital.
Such interests are held by LSBJ Holdings Limited, a company incorporated in the British Virgin Islands, of which Mr. Lau Hing Tat Patrick is interested in the entire issued share capital.
Mr. Tu Wenzhe ceased to be a director on 5 August 2021.

OTHER INFORMATION

Long position in the shares of associated corporations of the Company

==> picture [469 x 8] intentionally omitted <==

			Number of shares
	Name of associated		and class of	Approximate %
Name of director	corporation	Nature of interest	shares held	of shareholding
Chan Yick Yan Andross	Ease Global Limited	Beneficial owner	9 (ordinary shares)	9.90%
	Earthasia (International)	Beneficial owner	50 (ordinary shares)	0.98%
	Limited
Lau Hing Tat Patrick	Earthasia (International)	Beneficial owner	50 (ordinary shares)	0.98%
	Limited

==> picture [19 x 18] intentionally omitted <==

Saved as disclosed above, as at 30 June 2021, none of the Directors and the chief executive of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they have taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares

As at 30 June 2021, so far as the Directors and chief executive of the Company are aware, other than the interests of the Directors and chief executive of the Company as disclosed in the section titled “Directors’ and chief executive’s interests and short positions in shares, underlying shares and debentures of the Company and its associated corporations”, the following persons had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange.

Graphex Group Limited Interim Report 2021

OTHER INFORMATION

Long position in the shares

==> picture [469 x 8] intentionally omitted <==

	Capacity/nature		Approximate %
Name of shareholder	of interest	Number of Shares	of shareholding
CYY Holdings Limited 1	Beneficial owner	93,716,887	19.19%
PBLA Limited 2	Beneficial owner	75,223,669	15.41%
Pubang Landscape Architecture	Interest of controlled	75,223,669	15.41%
(HK) Company Limited 2	corporation
Pubang Landscape Architecture	Interest of controlled	75,223,669	15.41%
Company Limited 2	corporation
LSBJ Holdings Limited 3	Beneficial owner	46,003,444	9.42%
Gao Xin 4	Beneficial owner, interest of	31,848,000	6.52%
	controlled corporation
Profit King Investment Development Limited4	Beneficial owner	27,000,000	5.53%

==> picture [19 x 18] intentionally omitted <==

Notes:

CYY Holdings Limited is 100% beneficially owned by Mr. Chan Yick Yan Andross. Accordingly, Mr. Chan Yick Yan Andross is deemed to be interested in the shares of the Company held by CYY Holdings Limited under the SFO.
PBLA Limited is 100% beneficially owned by Pubang Landscape Architecture (HK) Company Limited, which is in turn 100% beneficially owned by Pubang Landscape Architecture Company Limited. Accordingly, each of Pubang Landscape Architecture (HK) Company Limited and Pubang Landscape Architecture Company Limited is deemed to be interested in the Shares held by PBLA Limited under the SFO.
LSBJ Holdings Limited is 100% beneficially owned by Mr. Lau Hing Tat Patrick. Accordingly, Mr. Lau Hing Tat Patrick is deemed to be interested in the shares of the Company held by LSBJ Holdings Limited under the SFO.
Mr. Gao Xin holds 4,848,000 Shares by himself and 27,000,000 Shares through Profit King Investment Development Limited, a company incorporated in the British Virgin Islands. The issued share of Profit King Investment Development Limited is wholly owned by Mr. Gao Xin.

OTHER INFORMATION

DIRECTORS’ INTERESTS IN COMPETING INTERESTS

Save as Mr. Ma Lida and Mr. Tu Wenzhe, our non-executive Directors nominated by Pubang Landscape Architecture Co., Ltd., whom are required to declare their conflict of interests and barred from participation or voting on issue if there is any potential conflict of interest between the Group and Pubang Landscape Architecture Co., Ltd., the Directors are not aware of any business or interest of the Directors, the controlling shareholder and their respective associates (as defined under the Listing Rules) that compete or may compete with the business of the Group and any other conflict of interest which any such person has or may have with the Group during the six months ended 30 June 2021.

CHANGES IN INFORMATION OF DIRECTORS

Pursuant to Rule 13.51(B)(1) of the Listing Rules, the changes in information of Directors are set out below:

==> picture [469 x 8] intentionally omitted <==

Directors	Details of Changes
Tu Wenzhe	Appointed as a non-executive Director since 28 January 2021
	Appointed as a non-executive Director of Pubang Landscape Architecture
	Company Limited (stock code: 002663) since 1 April 2021
	Ceased to be a non-executive Director on 5 August 2021

==> picture [19 x 18] intentionally omitted <==

SHARE OPTION SCHEME

A share option scheme (the “Share Option Scheme”) was adopted by the Company on 3 June 2014 and became effective on 25 June 2014. The Board may at its discretion grant share options to any qualifying participants to subscribe for shares in the Company, subject to the terms and conditions stipulated therein.

Summary of the share option scheme

Purposes To provide incentives and rewards to eligible participants who contribute to the success of the Group’s operations.
Qualifying participants

Any director, including independent non-executive director, of the Company and any entity in which the Group holds at least 20% of its shares (the “Invested Entity”), other employees of the Group or the Invested Entity, suppliers of goods or services to the Group or the Invested Entity, customers of the Group or the Invested Entity, person that provides technological support to the Group or the Invested Entity, shareholders of the Group or the Invested Entity, holders of any securities issued by the Group or the Invested Entity, advisor or consultant to the Group or the Invested Entity, and any non-controlling shareholder in the Company’s subsidiaries.

Maximum number of shares The maximum number of unexercised share options currently permitted to be granted under the Share Option Scheme is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue as at the listing date (i.e. 40,000,000 shares).

Graphex Group Limited Interim Report 2021

OTHER INFORMATION

Maximum entitlement of each participant
The maximum number of shares issuable under share options to each eligible participant in the scheme within any 12-month period is limited to 1% of the shares of the Company in issue from time to time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

Any share options granted to a substantial shareholder or an independent nonexecutive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5 million, within any 12-month period, are subject to shareholders’ approval in a general meeting.

Option period The exercise period of the share options granted is determinable by the Board which shall not exceed ten years from the offer date subject to the provisions of early termination thereof. There is no minimum period for which a share option must be held before it can be exercised.
Acceptance of offer The offer of a grant of share options may be accepted within 21 days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee.
Exercise price
The exercise price of share options is determinable by the Board, but may not be less than the highest of (i) the closing price of the shares on the Stock Exchange as stated in the Stock Exchange’s daily quotation sheet on the offer date; (ii) the average of the closing prices of the shares as stated in the Stock Exchange’s daily quotation sheets for the five trading days immediately preceding the offer date; and (iii) the nominal value of the shares on the offer date.
Remaining life of the scheme It shall be valid and effective for a period of 10 years commencing on 3 June 2014.

All the options forfeited before expiry of the Share Option Scheme will be treated as lapsed options which will not be added back to the number of shares available to be issued under the Share Option Scheme.

OTHER INFORMATION

A summary of the movements of the outstanding share options during the six months ended 30 June 2021 are as follows:

==> picture [469 x 8] intentionally omitted <==

Grantees Date of grant Vesting date Exercisable period Exercise price (HK$)	Number of Share Options
	As at 01/01/2021 Granted Exercised Cancelled/ Lapsed As at 30/06/2021
Directors Lau Hing Tat Patrick1 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Chan Yick Yan Andross2 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Tian Ming 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Yang Liu 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Qiu Bin 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Tu Wenzhe3 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65 Employee(s) Other employee(s) 28/1/2021 28/1/2021 28/1/2021 to 27/1/2026 0.65	– 4,000,000 – – 4,000,000 – 4,000,000 – – 4,000,000 – 4,000,000 – – 4,000,000 – 4,000,000 – – 4,000,000 – 4,000,000 – – 4,000,000 – 4,000,000 – – 4,000,000 – 1,500,000 – – 1,500,000
Total	– 25,500,000 – – 25,500,000

==> picture [19 x 18] intentionally omitted <==

Notes:

Mr. Lau Hing Tat Patrick was also a substantial shareholder of the Company during the reporting period.
Mr. Chan Yick Yan Andross was also the chief executive officer and a substantial shareholder of the Company during the reporting period.
Mr. Tu Wenzhe ceased to be a director on 5 August 2021.
The closing price of the Shares immediately before the date on which the options were granted was HK$0.6.
No share options were cancelled or lapsed during the reporting period.

Save as disclosed above, at no time during the period under review was the Company or its subsidiaries a party to any arrangement that enabled the Directors or any of their associates to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

Graphex Group Limited Interim Report 2021

OTHER INFORMATION

SHARE AWARD SCHEME

On 28 January 2021, 9,931,275 Shares were granted, accepted and vested to certain directors and other participants, which represented approximately 2.06% of the Company’s shares in issue at that date. The fair value of the Shares granted was approximately HK$5.9 million. For the six months ended 30 June 2021, the Group recognised expenses of approximately HK$5.9 million (30 June 2020: nil) in the statement of profit and loss. Movements of the Share Award Scheme are also set out in note 17 to the Interim Condensed Consolidated Financial Statements in this interim report.

A summary of the movements of the share awards during the six months ended 30 June 2021 are as follows:

==> picture [469 x 8] intentionally omitted <==

Grantees Date of grant Vesting date	Number of Share Awards
	As at 01/01/2021 Granted Vested As at 30/06/2021
Directors Tian Ming 28/1/2021 28/1/2021 Tu Wenzhe1 28/1/2021 28/1/2021 Other participants Other employee(s) 28/1/2021 28/1/2021 Consultant(s) 28/1/2021 28/1/2021	– 1,000,000 1,000,000 – – 1,000,000 1,000,000 – – 3,899,275 3,899,275 – – 4,032,000 4,032,000 –
Total	– 9,931,275 9,931,275 –

==> picture [19 x 18] intentionally omitted <==

Notes:

Mr. Tu Wenzhe ceased to be a director on 5 August 2021.
The closing price of the Shares on the date and immediately before the date on which the share awards were granted was HK$0.59 and HK$0.6 respectively.
No share awards were cancelled or lapsed during the reporting period.

OTHER INFORMATION

EIL SHARE AWARD SCHEME

On 28 January 2021, 100 shares were granted, accepted and vested to certain directors. Earthasia (International) Limited has allotted 100 new shares under the EIL Share Award Scheme, which represented approximately 1.96% of its enlarged shares in issue at that date. The fair value of the shares granted was approximately HK$0.5 million. For the six months ended 30 June 2021, the Group recognised expenses of approximately HK$0.5 million (30 June 2020: nil) in the statement of profit and loss.

A summary of the movements of the EIL share awards during the six months ended 30 June 2021 are as follows:

==> picture [469 x 8] intentionally omitted <==

Grantees Date of grant Vesting date	Number of EIL Share Awards
	As at 01/01/2021 Granted Vested and allotted As at 30/06/2021
Directors Lau Hing Tat Patrick 1 28/1/2021 28/1/2021 Chan Yick Yan Andross 2 28/1/2021 28/1/2021	– 50 50 – – 50 50 –
Total	– 100 100 –

==> picture [19 x 18] intentionally omitted <==

Notes:

Mr. Lau Hing Tat Patrick was also a substantial shareholder of the Company during the reporting period.
Mr. Chan Yick Yan Andross was also the chief executive officer and a substantial shareholder of the Company during the reporting period.
No EIL share awards were cancelled or lapsed during the reporting period.

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

The Company has complied with the applicable code provisions as set out in the Corporate Governance Code (the “CG Code”) stated in Appendix 14 to the Listing Rules during the six months ended 30 June 2021. The Company reviews its corporate governance practices regularly to ensure compliance with the CG Code.

Graphex Group Limited Interim Report 2021

OTHER INFORMATION

COMPLIANCE WITH MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 to the Listing Rules as its own code of conduct for dealing in securities of the Company by the Directors. After specific enquiry made by the Company, all of the Directors confirmed that they had complied with the required standard set out in the Model Code during the six months ended 30 June 2021.

PURCHASE, SALES OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

During the six months ended 30 June 2021, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities.

AUDIT COMMITTEE

The Company has established the Audit Committee to review and supervise the financial reporting process and internal Control procedures of the Group with written terms of reference in compliance with Rule 3.21 of the Listing Rules and the CG Code. The Audit Committee consists of four members namely, Mr. Liu Kwong Sang (an independent nonexecutive Director), Ms. Tam Ip Fong Sin (an independent non-executive Director), Mr. Wang Yuncai (an independent non-executive Director) and Mr. Ma Lida (a non-executive Director). The chairman of the Audit Committee is Mr. Liu Kwong Sang.

REVIEW OF INTERIM RESULTS

The Group’s interim results for the six months ended 30 June 2021 have not been reviewed by external auditor but have been reviewed by the audit committee of the Company that the preparation of such results complied with the applicable accounting standards and requirements as well as the Listing Rules and that adequate disclosures have been made.

INTERIM DIVIDEND

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2021 (six months ended 30 June 2020: nil).

APPRECIATION

Finally, we would like to express our gratitude to the Shareholders, business partners, subconsultants and customers for their continuous support. We would also like to thank our dedicated staff for their contributions to the success of the Group.

Lau Hing Tat Patrick

Chairman

Hong Kong, 30 August 2021

AI assistant

Graphex Group Limited — Interim / Quarterly Report 2021

50979_rns_2021-09-13_47e51b00-6d2c-4a7a-965c-e32f3d2fe6af.pdf

CONTENTS

2 Financial Highlights

FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

* Non-IFRS Measure

CORPORATE INFORMATION

BOARD OF DIRECTORS

Executive Directors

Non-executive Directors

CORPORATE WEBSITE

AUTHORISED REPRESENTATIVES

ALTERNATES TO AUTHORISED REPRESENTATIVES

Independent non-executive Directors

PRINCIPAL BANKERS

COMPANY SECRETARY

REGISTERED OFFICE

HEADQUARTER, HEAD OFFICE AND PRINCIPAL PLACE OF BUSINESS IN HONG KONG

AUDIT COMMITTEE

REMUNERATION COMMITTEE

PRINCIPAL SHARE REGISTRAR OFFICE

HONG KONG SHARE REGISTRAR

ADR (LEVEL 1) PROGRAMME DEPOSITARY

INVESTOR RELATIONS

LEGAL ADVISER AS TO HONG KONG

NOMINATION COMMITTEE

AUDITOR

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. CORPORATE AND GROUP INFORMATION

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

2.1 Basis of Preparation

Going concern

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

2.2 Changes in accounting policies and disclosures

3. REVENUE

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. OPERATING SEGMENT INFORMATION

4. OPERATING SEGMENT INFORMATION (Continued)

Six months ended 30 June 2021 (Unaudited)

Six months ended 30 June 2020 (Unaudited)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. OPERATING SEGMENT INFORMATION (Continued)

30 June 2021 (Unaudited)

31 December 2020 (Audited)

4. OPERATING SEGMENT INFORMATION (Continued)

Six months ended 30 June 2021 (Unaudited)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. OPERATING SEGMENT INFORMATION (Continued)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. OPERATING SEGMENT INFORMATION (Continued)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. OTHER INCOME AND GAINS

6. FINANCE COSTS

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7. LOSS BEFORE TAX

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. INCOME TAX

9. DIVIDEND

10. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. INVESTMENTS IN ASSOCIATES

The English names of these companies represent the best effort made by the management of the Company to directly translate their Chinese names as these companies do not register any official English name.

11. INVESTMENTS IN ASSOCIATES (Continued)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. TRADE AND BILLS RECEIVABLES

13. TRADE PAYABLES

14. INTEREST-BEARING BORROWINGS

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14. INTEREST-BEARING BORROWINGS (Continued)

14. INTEREST-BEARING BORROWINGS (Continued)

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Graphex Group Limited Interim / Quarterly Report 2021