20-F/A: Golden Heaven Group Holdings Amends 20-F Filing Following SEC Comments, Cites Material Weaknesses in Internal Controls

Golden Heaven Group Holdings Ltd. files an amendment to its annual report on Form 20-F to address SEC comments, acknowledging material weaknesses in internal control over financial reporting.

Summary

• Golden Heaven Group Holdings Ltd. is filing Amendment No. 1 on Form 20-F/A to its annual report for the fiscal year ended September 30, 2024, to address comments from the SEC staff.
• The amendment revises sections related to controls and procedures, and exhibits.
• The company acknowledges that its disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses.
• Three material weaknesses were identified in internal control over financial reporting: insufficient personnel with U.S. GAAP expertise, ineffective oversight, and inadequate design of internal controls.
• The company is taking steps to strengthen internal controls, including hiring qualified resources, implementing training programs, establishing effective oversight, and enhancing the internal audit function.
• Management concluded that the material weaknesses in internal control over financial reporting had not been remediated as of September 30, 2024.
• The company's CEO and CFO concluded that the company's internal control over financial reporting as of September 30, 2024 was ineffective.
• The company engaged a consultant with U.S. GAAP knowledge and experience to supplement current internal accounting personnel and assist in the preparation of financial statements.
• The company also engaged an internal control consulting firm in 2024 to review, test and improve internal accounting controls and internal control over financial reporting.
• The company is implementing policies, procedures and practices recommended in the report of the consultant and have arranged training of internal control for our employees and management on disclosure controls and procedures.
• The annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.
• There were no changes in the company's internal controls over financial reporting that occurred during the period covered by the annual report that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting.
• As of September 30, 2024, the company had 4,123,604 Class A ordinary shares and 200,000 Class B ordinary shares outstanding.
• On September 19, 2024, the Company has authorized and approved a 1-for-50 reverse stock split of the Company's authorized Class A shares of common stock from 1,800,000,000 shares to 36,000,000 shares, par value of $0.005 per share and Class B shares of common stock from 300,000,000 shares to 6,000,000 shares, par value of $0.005 per share.

Sentiment

Score: 3

Explanation: The document reveals significant weaknesses in internal controls, which is a major concern for investors. While the company is taking steps to address these issues, the overall sentiment is negative due to the identified risks and potential for financial misstatements.

Positives

• The company is taking steps to address the identified material weaknesses in internal control over financial reporting.
• The company engaged a consultant with U.S. GAAP knowledge and experience to supplement current internal accounting personnel and assist in the preparation of financial statements.
• The company also engaged an internal control consulting firm in 2024 to review, test and improve internal accounting controls and internal control over financial reporting.
• The company is implementing policies, procedures and practices recommended in the report of the consultant and have arranged training of internal control for our employees and management on disclosure controls and procedures.

Negatives

• The company acknowledges that its disclosure controls and procedures were not effective as of September 30, 2024, due to material weaknesses.
• Three material weaknesses were identified in internal control over financial reporting: insufficient personnel with U.S. GAAP expertise, ineffective oversight, and inadequate design of internal controls.
• Management concluded that the material weaknesses in internal control over financial reporting had not been remediated as of September 30, 2024.
• The company's CEO and CFO concluded that the company's internal control over financial reporting as of September 30, 2024 was ineffective.
• The annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.

Risks

• The identified material weaknesses in internal control over financial reporting could lead to material misstatements in the company's financial statements.
• The company's failure to remediate these weaknesses could result in regulatory scrutiny and penalties.
• The company's reliance on consultants to supplement its internal accounting personnel may not be a sustainable solution.
• There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with customers in certain circumstances.

Future Outlook

The company expects to invest an additional amount of $23.39 million in three construction projects and plans to use cash flow from operations and may rely on future financing to fund the construction.

Management Comments

• Based on managements assessment, our CEO and CFO concluded that our internal control over financial reporting as of September 30, 2024 was ineffective.
• We believe the measures described above will remediate the material weakness.
• The Company continues to make efforts to implementing its existing and newly adopted procedures to improve our disclosure controls and internal controls over financing reporting.

Industry Context

The amusement park industry is highly competitive and subject to seasonal fluctuations. Companies in this sector often face challenges related to capital expenditures, regulatory compliance, and changing consumer preferences. Maintaining effective internal controls is crucial for ensuring accurate financial reporting and investor confidence.

Comparison to Industry Standards

• Comparable companies in the amusement park industry, such as Six Flags Entertainment Corporation and Cedar Fair, L.P., are expected to maintain robust internal controls over financial reporting.
• The identified material weaknesses at Golden Heaven Group Holdings Ltd. are a significant deviation from industry best practices and could raise concerns among investors and regulators.
• Companies like Disney and Universal Studios also invest heavily in internal controls and compliance to ensure the integrity of their financial statements.

Legal Proceedings

• Three putative class action lawsuits were filed on December 8, 2023, December 19, 2023 and January 17, 2024 by certain shareholders against the Company, our former Chief Executive Officer, Qiong Jin, our then Chief Financial Officer, Jinguang Gong and our independent directors in the Supreme Court of the State of New York (Case No. 161978/2023) and United States District Court for the Central District of California (Case No. 2:23-cv-10619-HDV-SK and Case No. 2:24-cv-00423-SVW-AJR).
• Two complaints filed in United States District Court for the Central District of California on behalf of persons or entities who purchased or otherwise acquired publicly traded securities of the Company during the class period assert claims that plaintiffs were economically damaged, and generally allege that the referenced defendants violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, by making allegedly false and misleading statements regarding, among other matters, the Companys business operations, management, financial condition and prospects.
• One complaint filed in the Supreme Court of the State of New York on behalf of persons or entities who purchased or otherwise acquired publicly traded securities of the Company during the class period asserts claims that the plaintiffs were economically damaged, and generally alleges that the defendants violated sections 11 and 15 of the Securities Exchange Act of 1933, as amended, by making allegedly inaccurate, untrue and misleading statements regarding, among other matters, the Companys business operations, management, financial condition and prospects.

Related Party Transactions

• As of September 30, 2024, the amount due to the related parties consisted of $5,000 to Shareholders for repurchase of ordinary shares.
• As of September 30, 2023, the amount due to the related parties consisted of $602,355 to Qiong Jin (Former Chairman of the Company) for other payables and $5,000 to Shareholders for repurchase of ordinary shares.

Stakeholder Impact

• Shareholders may be concerned about the identified material weaknesses in internal control over financial reporting.
• Employees may be affected by the company's efforts to strengthen internal controls, including training programs and changes to procedures.
• Customers may not be directly impacted by the identified weaknesses, but the company's financial stability could affect its ability to invest in park improvements and maintain service quality.
• Creditors may be concerned about the company's ability to repay its debts if the identified weaknesses are not addressed.

Next Steps

• The company will continue to undertake steps to strengthen its internal control over financial reporting.
• The company plans to implement policies, procedures and practices recommended in the report of the consultant and have arranged training of internal control for our employees and management on disclosure controls and procedures.
• The Company will use the proceeds from issuance of Class A Ordinary Shares for acquisition, upgrade, development, operation and maintenance of parks.

Key Dates

Keywords

internal control, material weakness, financial reporting, disclosure controls, U.S. GAAP, SEC, amendment, Form 20-F, Golden Heaven Group