20-F: Golden Heaven Group Holdings Ltd. Reports Fiscal Year 2023 Results

Golden Heaven Group Holdings Ltd. releases its annual report for the fiscal year ended September 30, 2023, detailing financial performance and future strategies.

Summary

• Golden Heaven Group Holdings Ltd. reported a decrease in revenue from US$41.79 million in 2022 to US$31.79 million in 2023.
• Net income also decreased from US$14.33 million in 2022 to US$6.55 million in 2023.
• The company's number of guest visits decreased from 2.41 million in 2022 to 1.87 million in 2023.
• The company is building three additional amusement parks with an estimated total investment of RMB590 million.
• The company closed its IPO on April 14, 2023, raising approximately US$6.19 million in net proceeds.
• Mangshi Jinsheng Amusement Park has been temporarily closed since September 30, 2023, for strategic business development exploration.
• Three securities class action lawsuits have been filed against the company.
• The company's disclosure controls and procedures were deemed ineffective due to material weaknesses in U.S. GAAP and SEC reporting knowledge.
• The company has appointed Assentsure PAC as its new independent registered public accounting firm, replacing B F Borgers CPA PC.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While the company completed its IPO and is expanding, the significant decrease in revenue and net income, along with ongoing lawsuits and control weaknesses, contribute to a negative outlook.

Positives

• The company successfully completed its IPO, raising US$6.19 million in net proceeds.
• The company is expanding its business by investing in three new amusement parks.
• The company has a new independent registered public accounting firm.

Negatives

• Revenue and net income decreased significantly in 2023 compared to 2022.
• Park attendance decreased in 2023.
• Mangshi Jinsheng Amusement Park has been temporarily closed.
• The company faces three securities class action lawsuits.
• The company's disclosure controls and procedures were deemed ineffective due to material weaknesses.

Risks

• Adverse changes in economic, political, and social conditions in China could negatively impact the company's business.
• The PRC legal system is not fully developed, leading to uncertainties in legal protection.
• The Chinese government exerts substantial influence over the company's business activities.
• Failure to obtain necessary approvals from PRC government authorities could hinder the company's operations.
• Greater oversight by the Cyberspace Administration of China (CAC) over data security could adversely impact the company's business.
• PRC regulations relating to offshore special purpose companies may subject the company to liability or penalties.
• The company may rely on dividends and other distributions from operating entities in the PRC, which may be restricted.
• The company may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws.
• Restrictions on the remittance of Renminbi into and out of China may limit the company's ability to pay dividends and other obligations.
• Fluctuations in exchange rates could result in foreign currency exchange losses.
• The enforcement of the PRC Labor Contract Law and other labor-related regulations may adversely affect the company's business.
• The custodians or authorized users of the company's controlling non-tangible assets may fail to fulfill their responsibilities.
• If the company is classified as a PRC resident enterprise for PRC income tax purposes, it could face unfavorable tax consequences.
• The company's business may be materially and adversely affected if any of the operating entities declares bankruptcy.
• If the operating entities are not in compliance with the relevant PRC tax laws and regulations, the company's financial condition may be negatively affected.
• The company may be subject to scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies.
• It may be difficult for overseas regulators to conduct investigations or collect evidence within China.
• Shareholder claims or regulatory investigations that are common in the United States generally are difficult to pursue as a matter of law or practicality in China.
• You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management based on foreign laws.
• The operating entities may not be able to maintain or increase the cost-effectiveness of their entertainment offerings.
• Declines in discretionary guest spending and guest confidence, or changes in guest tastes and preferences, could affect the profitability of the operating entities business.
• The operating entities may be unable to contract with third-party suppliers for rides and attractions, and construction delays may occur and impact attraction openings.
• Financial distress experienced by business partners and other contract counterparties could have an adverse impact on the operating entities.
• The high fixed cost structure of park operations can result in significantly lower margins if revenues decline.
• If the operating entities are unable to conduct marketing activities in a cost-effective manner, the company's results of operations may be materially and adversely affected.
• The operating entities operate in a competitive industry and their revenues, profits or market share could be harmed if they are unable to compete effectively.
• The operating entities may not be able to fund capital investment in future projects and may not achieve the desired outcome of their growth initiatives.
• Increased labor costs, inability to retain suitable employees, or unfavorable labor relations may adversely affect the business.
• If the operating entities lose key personnel, their business may be adversely affected.
• The parks managed by the operating entities are located on leased properties, and there is no assurance that the operating entities will be able to renew the leases.
• If the operating entities intellectual property rights are infringed on by third-parties, it may adversely affect the business.
• The operating entities business depends on the continued success of their brand, and if they fail to maintain and enhance the recognition of their brand, they may face difficulty expanding their business.
• Adverse litigation judgments or settlements resulting from legal proceedings could reduce the profits or negatively affect the business operations.
• Bad or extreme weather conditions can reduce park attendance.
• Significant revenue is generated in Hunan Province, China. Therefore, any risks affecting that area may materially adversely affect the business.
• The insurance coverage maintained by the operating entities may not be adequate to cover all possible losses.
• Interruptions or failures that impair access to information technology systems could adversely affect the business.
• The COVID-19 pandemic has disrupted the operating entities business and will adversely affect our results of operations.
• Recent joint statement by the SEC and the PCAOB proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act passed by the U.S. Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our future offerings.
• The dual class structure of our ordinary shares has the effect of concentrating voting control with our Chairman, and her interests may not be aligned with the interests of our other shareholders.
• Since we are a controlled company within the meaning of the Nasdaq listing rules, we may follow certain exemptions from certain corporate governance requirements that could adversely affect our public shareholders.
• The trading price of the Class A Ordinary Shares is likely to be volatile, which could result in substantial losses to investors.
• We are subject to securities class action suits.
• If securities or industry analysts cease to publish research or reports about our business, the market price for the Class A Ordinary Shares and trading volume could decline.
• Substantial future sales or perceived potential sales of the Class A Ordinary Shares in the public market could cause the price of the Class A Ordinary Shares to decline.
• We currently do not expect to pay dividends in the foreseeable future and you must rely on price appreciation of the Class A Ordinary Shares for return on your investment.
• You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
• Certain judgments obtained against us by our shareholders may not be enforceable.
• There can be no assurance that we will not be a passive foreign investment company (PFIC) for United States federal income tax purposes for any taxable year, which could subject United States holders of our Class A Ordinary Shares to significant adverse United States federal income tax consequences.
• For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
• We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
• If we fail to establish and maintain proper internal financial reporting controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
• Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
• As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards.
• The requirements of being a public company may strain our resources and divert managements attention.
• We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
• The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
• The price of our Class A Ordinary Shares could be subject to rapid and substantial volatility.
• There can be no assurance that an active market in Class A Ordinary Shares will develop or be sustained.

Future Outlook

The company plans to complete construction of three new amusement parks by March 2025 and September 2024, funded by cash flow from operations and potential future financing.

Industry Context

The company competes in the Chinese amusement park industry, facing competition based on location, scale, and the variety and quality of rides and attractions.

Comparison to Industry Standards

• The report does not provide a direct comparison to industry standards.
• However, it mentions that the company benefits from limited direct amusement park competition due to factors such as limited real property, substantial capital investment requirements, long development lead-time, and regulatory restrictions.
• Competitors would require a capital investment ranging from RMB10 million to RMB180 million and take a minimum of one to two years to complete construction of a comparable amusement park.

Legal Proceedings

• Three putative class action lawsuits were filed against the company, its CEO, CFO, and independent directors in December 2023 and January 2024.
• Yueyang Jinsheng Amusement Development Co., Ltd. reached a settlement with two parties with respect to a dispute over a contract with contractors.
• Changde Jinsheng Amusement Development Co., Ltd. was involved in a dispute in which Changde Jinsheng was alleged to have infringed on the opposing partys information network transmission rights.

Related Party Transactions

• Qiong Jin provided interest-free advances for working capital purposes to the company.
• Xuezheng Chen was a co-borrower for a loan obtained by Changde Jinsheng Amusement Development Co., Ltd.
• The company's corporate headquarters is located on leased real property from Fujian Haichuan Pharmaceutical Technology Development Co., Ltd. without rental payments.
• The company owed $5,000 to the selling shareholders, including JINZHENG INVESTMENT CO PTE. LTD., Qingyu Investment Ltd., HONG KONG GREATER POWER VENTURES LIMITED, WONG Kei Kai, CHEN Yong, Xinyue Holding Ltd., SanShan Group Holdings Co. LTD., YITONG ASIA INVESTMENT PTE. LTD., HUARONG HOLDING PTE. LTD., YUNG HOI TSIT, HUACHEN CONSULTING PTE. LTD., JOYGRACE INVESTMENT PTE. LTD., HENG YANG INVESTMENT MANAGEMENT CO. PTE. LTD., Hengrui Investment Holding Ltd., ZHUOHUA INVESTMENT HOLDINGS PTE. LTD, HENG YU CAPITAL INVESTMENT PTE. LTD., Jinqiu Investment Holding Co. Ltd, and HUANYU TRADING INVESTMENT PTE. LTD. due to share redemptions.

Stakeholder Impact

• Shareholders face potential risks due to the company's financial performance, legal proceedings, and control weaknesses.
• Employees may be affected by potential disciplinary actions related to insider trading policy violations.
• Customers may experience changes in park offerings due to the temporary closure of Mangshi Jinsheng Amusement Park and ongoing construction projects.
• Suppliers and creditors may be impacted by the company's financial performance and ability to meet its obligations.

Next Steps

• Complete construction of Yangming Lake Glacier Tribe Amusement Park by September 2024.
• Complete construction of Seven Rainbow Park by March 2025.
• Complete construction of Linli Jinzheng Amusement Park by March 2025.
• Refurbish virtual reality experience halls in all parks, expected to open in the second half of 2024.
• Explore future business development of Mangshi Jinsheng Amusement Park, potentially re-opening with a new business model.

Key Dates

Keywords

amusement parks, financial results, annual report, revenue, net income, IPO, China