Item 4.02(a) Non-Reliance on Previously Issued Financial
Statements or a Related Audit Report or Completed Interim Report
In connection with its review of the consolidated financial
statements for the fiscal year ended December 31, 2016, management of the Company determined that the previously issued financial
statements contained in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016
and September 30, 2016 should be amended to correct errors in those financial statements.
On March 30, 2017, management presented its findings and recommendation
to the Audit Committee of the Board of Directors, which approved the recommendation of management to restate the financial statements
for the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016. The decision to restate these financial statements
was made after management’s discovery and analysis of several transactions that should have been reflected in such quarters'
financial statements. Management discussed these matters with the Audit Committee, which approved the recommendation of management
to restate the financial statements. The Audit Committee discussed the issues related to the non-reliance and restatement with
the Company’s independent auditor, Friedman LLP. Drafts of the Company’s current report on Form 8-K dated March 30,
2017 and amendment dated April 7, 2017 were provided to such auditor for review prior to filing. These below corrections had no
impact on the Company’s financial statements in periods prior to the quarter ended March 31, 2016.
First, several related and third party loans, gold leases and
pledges were not properly recorded during the quarters in question. The Company borrowed money to finance its purchase of gold,
which gold was then pledged to secure the loans. In some cases, the unrestricted gold available for production was insufficient
to provide adequate security for such loans, which in turn required the Company to lease gold from related parties to satisfy its
loan conditions and conduct its operations.
Second, because bank loans required the Company to pledge gold
in favor of the lenders, such pledged gold should have been reflected as investment in gold (restricted). The Company determined
that certain gold reflected as inventory for production in 2016 should instead be reflected as investment in gold (restricted)
since the Company had excess gold not to be used for production. The result of this reclassification is to record the value of
such gold at the market value of the gold, rather than at the lower of cost or market value, as would be the case for inventory
used for production. Because the market value of gold has increased during the affected periods, such reclassification resulted
in an unrealized gain and therefore caused an increase in equity.
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Restated
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Restated
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Restated
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March 31, 2016
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March 31, 2016
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June 30, 2016
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June 30,
2016
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September 30, 2016
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September 30, 2016
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Restricted cash
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-
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-
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46,107,680
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233,224,217
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111,471,928
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295,575,852
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Other current assets and prepaid expenses
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-
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-
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4,954,662
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5,085,631
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4,766,011
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5,048,363
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Inventories
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503,893,855
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136,963,786
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786,485,088
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144,999,808
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1,097,089,498
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164,560,088
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Investment in gold - current
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-
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63,621,396
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-
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218,002,680
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-
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248,359,383
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Investment in gold - non-current
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-
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459,160,847
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-
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711,321,165
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-
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1,181,039,779
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Restricted cash - non-current
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-
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-
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1,040,130
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-
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3,296,753
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Gold lease payable – related party
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-
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138,287,308
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-
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219,495,527
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-
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438,349,470
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Related party loans payable
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-
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-
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150,525,333
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-
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149,920,542
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Third party loans payable
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-
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-
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37,631,334
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-
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37,480,135
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The Company has made a preliminary determination of the results
of these adjustments, which are subject to change prior to filing amendments on Form 10-Q for each of the affected quarters.
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For Three Months ended
March 31, 2016
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For Six Months ended
June 30, 2016
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For Nine Months ended
September 30, 2016
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Restated
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Restated
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Restated
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Interest income
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683,423
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816,488
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1,900,120
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2,182,472
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Change in unrealized gain related to investment in gold
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-
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17,564,866
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-
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68,343,038
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-
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58,520,282
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Foreign currency translation (loss)
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-
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-
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(6,659,687
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)
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(6,661,783
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)
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(7,990,100
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)
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(7,993,962
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)
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As a result of these corrections, management has recommended
and the Audit Committee has approved the restatement of its previously issued financial statements through the filing of an amended
Form 10-Q for each of the quarters ended March 31, 2016, June 30, 2016 and September 30, 2016. These corrections will also be reflected
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Form 10-K”). The
Company is working diligently to complete its review of these matters and to quantify the full impact of the necessary adjustments
on each of the affected prior periods. Due to the time and effort involved in determining the effect of these adjustments, the
Company will file a Form 12b-25 to delay the filing of its 2016 Form 10-K. The Company expects to file the 2016 Form 10-K on or
before April 17, 2017.