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Kingold Jewelry Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2019

November 13, 2019 GMT

WUHAN CITY, China, Nov. 12, 2019 /PRNewswire/ -- Kingold Jewelry, Inc. (“Kingold” or the “Company”) (NASDAQ: KGJI), one of China’s leading manufacturers and designers of high quality 24-karat gold jewelry, ornaments and investment-oriented products, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2019.

2019 Third Quarter and Subsequent Financial Highlights (all results compared to prior year period)

Outlook for 2019

2019 THIRD QUARTER AND NINE MONTH OPERATIONAL REVIEW

Metric Tons of Gold Processed


Three Months Ended:


September 30, 2019

September 30, 2018


Volume

% of Total

Volume

% of Total

Branded*

9.3

68.0%

16.6

56.1%

Customized**

4.4

32.0%

13.0

43.9%

Total

13.7

100.0%

29.6

100.0%


Nine Months Ended:


September 30, 2019

September 30, 2018


Volume

% of Total

Volume

% of Total

Branded*

35.3

55.5%

46.5

57.7%

Customized**

28.3

45.5%

34.0

42.3%

Total

63.6

100.0%

80.5

100.0%


* Branded Production:

The Company acquires gold from the Shanghai Gold Exchange to produce branded products.


** Customized Production:

Clients who purchase customized products supply gold to the Company for processing.

During three months ended September 30, 2019, Kingold processed a total of 13.7 metric tons of gold, of which branded production accounted for 9.3 metric tons (68.0%) and customized production accounted for 4.4 metric tons (32.0%). During the three months ended September 30, 2018, the Company processed a total of 29.6 metric tons of gold, of which branded production accounted for 16.6 metric tons (56.1%) and customized production accounted for 13 metric tons (43.9%).

During the nine months ended September 30, 2019, Kingold processed a total of 63.6 metric tons of gold, of which branded production accounted for 35.3 metric tons (55.5%) and customized production accounted for 28.3 metric tons (45.5%). During the nine months ended September 30, 2018, the Company processed a total of 80.5 metric tons of gold, of which branded production accounted for 46.5 metric tons (57.7%) and customized production accounted for 34.0 metric tons (42.3%).

2019 THIRD QUARTER FINANCIAL REVIEW

Net Sales

Net sales for the three months ended September 30, 2019 were approximately $382.8 million, a decrease of approximately $243.4 million, or 38.9%, from net sales of $626.2 million for the three months ended September 30, 2018. The overall decrease in revenue was mainly the result of the following reason:

The sales volume decrease was offset somewhat by an increase in average per selling unit price for both branded and customized production gold products.

Gross Profit

Gross profit for the three months ended September 30, 2019 was approximately $15.2 million, a decrease of approximately $46.0 million, or 75.2%, from $61.2 million for the same period in 2018. The decrease in gross profit was primarily due to lower sales volumes for the period, offset by an increase in average unit selling price for branded and customized production sales.

Gross Margin

For the three months ended September 30, 2019 and 2018, gross margin was 4.0% and 9.8%, respectively.

Net Income

The Company reported a net loss of approximately $24.0 million, or $2.18 per diluted share based on weighted average number of common shares outstanding – diluted of 11,018,955 for the three months ended September 30, 2019, as compared to a net income of approximately $13.2 million, or $1.20 per diluted share based on 11,020,225 weighted average number of common shares outstanding – diluted for the three months ended September 30, 2018. The decrease in our net income was a result of decreased revenue, increased interest expense and decreased taxable income as discussed above.

2019 NINE MONTH FINANCIAL REVIEW

Net Sales

Net sales for the nine months ended September 30, 2019 were $1.43 billion, compared to net sales of $1.84 billion for the nine months ended September 30, 2018.

Gross Profit

Gross profit for the nine months ended September 30, 2019 was approximately $140.0 million, compared to $189.3 million for the same period in 2018.

Gross Margin

For the nine months ended September 30, 2019 and 2018, gross margin was 9.8% and 10.3%, respectively. The overall decrease in gross profit and gross margin reflected the above combined factors that impacted the Company during the third quarter.

Net Income

For the foregoing reasons, Kingold reported a net loss of approximately $5.0 million, or $0.46 per diluted share based on 11,018,955 weighted average number of shares - diluted for the nine months ended September 30, 2019, compared to net income of $40.0 million, or $3.62 per diluted share based on 11,051,897 weighted average number of shares - diluted for the nine months ended September 30, 2018.

Balance Sheet Highlights

As of September 30, 2019, Kingold had approximately $0.7 million in cash and approximately $16.3 million restricted cash. The Company also had short-term investments of approximately $195.1 million because it used the excessive cash on hand to purchase interest-bearing wealth management financial products from a Trust company and such short-term investments are redeemable at any time.

These short-term investments are highly liquid and can be used as working capital when needed. Kingold has financed its operations with cash flow generated from operations and primarily through borrowings from various financial institutions as well as from related parties.

OUTLOOK FOR 2019

Based on its existing resources and capacity along with the shift in demand for 24-karat gold products in China, the Company estimates gold processed will be around 110 metric tons during 2019.

About Kingold Jewelry, Inc.

Kingold Jewelry, Inc. (NASDAQ: KGJI), centrally located in Wuhan City, one of China’s largest cities, was founded in 2002 and today is one of China’s leading designers and manufacturers of 24-karat gold jewelry, ornaments, and investment-oriented products. The Company sells both directly to retailers as well as through major distributors across China. Kingold has received numerous industry awards and has been a member of the Shanghai Gold Exchange since 2003. For more information, please visit www.kingoldjewelry.com.

Business Risks and Forward-Looking Statements

This press release contains forward-looking statements that are subject to the safe harbors created under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. You can identify these forward - looking statements by words such as “expects,” “believe,” “project,” “anticipate,” or similar expressions. The forward-looking statements in this release include statements regarding Kingold’s outlook with respect to its 2019 outlook for gold processing. Readers are cautioned that actual results could differ materially from those expressed in any forward-looking statements. Forward-looking statements are subject to a number of risks, including those contained in Kingold’s SEC filings available at www.sec.gov, including Kingold’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made. Kingold undertakes no obligation to update or revise any forward-looking statements for any reason.

Company Contact
Kingold Jewelry, Inc.
Bin Liu, CFO
Phone: +1-847-660-3498 (US) / +86-27-6569-4977 (China)
bl@kingoldjewelry.com

Investor Relations Counsel:
The Equity Group Inc.
Adam Prior (in US)
Phone: +212 836-9606
aprior@equityny.com

Lucy Ma (in China)
Phone: 86-10 5661 7012
lma@equityny.com

KINGOLD JEWELRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(LOSS) AND COMPREHENSIVE INCOME (LOSS)
(IN U.S. DOLLARS)
(UNAUDITED)



For the nine months ended
September 30,



For the three months ended
September 30,



2019



2018



2019



2018

NET SALES

$

1,434,337,556


$

1,844,491,390


$

382,790,132


$

626,171,072

COST OF SALES












Cost of sales


(1,293,608,652)



(1,654,427,318)



(367,382,898)



(564,685,762)

Depreciation


(724,359)



(801,384)



(235,731)



(255,546)

Total cost of sales


(1,294,333,011)



(1,655,228,702)



(367,618,629)



(564,941,308)













GROSS PROFIT


140,004,545



189,262,688



15,171,503



61,229,764













OPERATING EXPENSES












Selling, general and administrative expenses


11,617,494



7,399,734



2,265,898



2,424,458

Stock compensation expenses


5,364



16,092



-



5,364

Depreciation


258,110



406,962



92,438



146,475

Amortization


8,261



8,703



2,690



2,767

Lease expense


62,943



197,811



20,500



62,888

Total operating expenses


11,952,172



8,029,302



2,381,526



2,641,952













INCOME FROM OPERATIONS


128,052,373



181,233,386



12,789,977



58,587,812













OTHER INCOME (EXPENSES)












Other Income


-



64,433



-



64,433

Interest Income


908,416



1,384,438



271,304



562,294

Interest expense, including amortization of debt issuance costs of $2,187,956 and $3,482,031 for the three months, and $6,738,816 and $8,042,451 for the nine months ended September 30, 2019 and 2018, respectively


(135,252,496)



(128,898,077)



(44,911,067)



(41,479,730)

Total other expenses, net


(134,344,080)



(127,449,206)



(44,639,763)



(40,853,003)













INCOME (LOSS) FROM OPERATIONS BEFORE TAXES


(6,291,707)



53,784,180



(31,849,786)



17,734,809













INCOME TAX PROVISION (BENEFIT)












Current


17,292,113



9,214,312



6,481,926



1,787,717

Deferred


(18,549,129)



4,523,643



(14,327,255)



2,699,588

Total income tax provision (benefit)


(1,257,016)



13,737,955



(7,845,329)



4,487,305













NET INCOME (LOSS)


(5,034,691)



40,046,225



(24,004,457)



13,247,504













OTHER COMPREHENSIVE INCOME (LOSS)












Unrealized gain (loss) related to investments in gold, net of tax


363,076,281



(56,908,875)



209,005,270



(18,935,552)

Foreign currency translation loss


(43,484,477)



(19,080,264)



(41,688,955)



(13,077,661)

Total other comprehensive income (loss)

$

319,591,804


$

(75,989,139)


$

167,316,315


$

(32,013,213)













COMPREHENSIVE INCOME (LOSS)

$

314,557,113


$

(35,942,914)


$

143,311,858


$

(18,765,709)

Earnings (loss) per share












Basic

$

(0.46)


$

3.63


$

(2.18)


$

1.20

Diluted

$

(0.46)


$

3.62


$

(2.18)


$

1.20

Weighted average number of shares*












Basic


11,018,955



11,018,955



11,018,955



11,018,955

Diluted


11,018,955



11,051,897



11,018,955



11,020,225













* Retrospectively restated for effect of 1-for-6 reverse stock split


KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN U.S. DOLLARS)

(UNAUDITED)








September 30,


December 31,


2019


2018







ASSETS












Cash

$

651,318


$

233,391

Restricted cash


14,632,279



4,798,185

Accounts receivable


654,455



451,059

Inventories


268,214,300



127,034,673

Investments in gold


2,323,335,559



1,593,557,391

Value added tax recoverable


242,624,812



259,582,324

Short-term investments


195,062,420



-

Prepaid expenses and other current assets


374,843



87,590

Total current assets


3,045,549,986



1,985,744,613







Property and equipment, net


4,420,547



5,395,330

Restricted cash


1,681,073



7,766,372

Investments in gold


267,177,647



700,225,896

Land use right


373,324



395,719

Other noncurrent assets


459,524



285,768

Total long-term assets


274,112,115



714,069,085

TOTAL ASSETS

$

3,319,662,101


$

2,699,813,698







LIABILITIES AND STOCKHOLDERS' EQUITY












CURRENT LIABILITIES












Short term loans

$

1,423,679,826


$

1,034,947,774

Related party loan


69,832,280



72,699,779

Due to related party


4,410,957



3,976,742

Income tax payable


18,050,006



18,504,197

Other taxes payable


2,184,430



2,577,102

Convertible notes payable


599,739



-

Derivative liabilities


267,000



-

Accrued expenses and other payables


17,682,301



15,749,564

Total current liabilities


1,536,706,539



1,148,455,158







Deferred tax liabilities


127,501,207



24,218,911

Related party loans


534,228,724



373,327,862

Long term loans


168,107,252



515,477,020

Other long-term liability


154,098



-

TOTAL LIABILITIES


2,366,697,820



2,061,478,951







COMMITMENTS AND CONTINGENCIES


-



-

SHAREHOLDERS' EQUITY






Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of September 30, 2019 and December 31, 2018


-



-

Common stock, $0.001 par value, 100,000,000 shares authorized, 11,018,955 shares issued and outstanding as of September 30, 2019 and December 31, 2018*


11,019



11,019

Additional paid-in capital


224,420,422



224,348,001

Retained earnings






Unappropriated


348,178,634



353,213,325

Appropriated


967,543



967,543

Accumulated other comprehensive income, net of tax


379,386,663



59,794,859

Total Shareholders' Equity


952,964,281



638,334,747







TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

3,319,662,101


$

2,699,813,698







* Retrospectively restated for effect of 1-for-6 reverse stock split, see Note 15


KINGOLD JEWELRY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN U.S. DOLLARS)

(UNAUDITED)





September 30, 2019


September 30, 2018

CASH FLOWS FROM OPERATING ACTIVITIES






Net (loss) income

$

(5,034,691)


40,046,225


Adjustments to reconcile net (loss) income to cash (used in) provided by operating activities:







Depreciation of property and equipment


982,469


1,208,346



Amortization of intangible assets


8,261


8,703



Amortization of debt issuance costs included in interest expense


6,738,816


8,042,451



Interest expense of convertible notes


4,292


-



Amortization of deferred financing cost associated with convertible notes issuance

39,505


-



Share based compensation for services and warrants expense


5,364


16,092



Deferred tax (benefit) provision


(18,549,129)


4,523,643


Changes in operating assets and liabilities







Accounts receivable


(228,675)


558,165



Inventories


(63,300,010)


321,200,297



Other current assets and prepaid expenses


(493,635)


(752,148)



Value added tax recoverable


7,776,713


84,623,088



Other payables and accrued expenses


2,749,526


769,590



Investment income from short-term investment


(72,862)


-



Income tax payable


(212,447)


748,416



Other taxes payable


(310,511)


359,224


Net cash (used in) provided by operating activities


(69,897,014)


461,352,092







CASH FLOWS FROM INVESTING ACTIVITIES






Purchase of property and equipment


(326,565)


(491,136)


Purchase of short-term investments


(246,592,662)


-


Redemption of short-term investments


43,790,262


-


Net cash used in investing activities


(203,128,965)


(491,136)







CASH FLOWS FROM FINANCING ACTIVITIES






Proceeds from other loans - short term


349,034,006


-


Repayments of other loans - short term


(382,829,071)


(554,840,248)


Proceeds from other loans - long term


131,130,344


435,804,951


Repayment of related party loans- short-term


(220,916)


(230,227,311)


Proceeds from related party loan- long-term


306,582,758


443,110,831


Repayment of related party loan- long-term


(125,056,810)


(534,050,005)


Repayment of loan origination fees


(2,163,651)


(6,578,966)


Gross proceeds from issuance of convertible notes


1,000,000


-


Payments of deferred financing costs associated with convertible notes


(110,000)


-


Borrowings from related party


508,202


965,643


Net cash provided by (used in) financing activities


277,874,862


(445,815,105)













EFFECT OF EXCHANGE RATES ON CASH AND RESTRICTED CASH


(682,161)


(4,229,857)

NET INCREASE IN CASH AND RESTRICTED CASH


4,166,722


10,815,994

CASH AND RESTRICTED CASH, BEGINNING OF PERIOD


12,797,948


17,924,397

CASH AND RESTRICTED CASH, END OF PERIOD

$

16,964,670


28,740,391






SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION






Cash paid for interest expense

$

126,137,400


120,133,935


Cash paid for income tax

$

17,504,560


8,465,896







NON-CASH INVESTING AND FINANCING ACTIVITIES






Investments in gold transferred to inventories

$

497,824,202


557,866,549


Inventories transferred to investments in gold

$

416,042,035


502,451,549


Unrealized gain (loss) on investments in gold, net of tax

$

363,076,281


(56,908,875)


Right-of-use assets obtained in exchange for operating lease obligations

$

184,192


-

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SOURCE Kingold Jewelry, Inc.