Attached files
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EX-32.1 - KINGOLD JEWELRY, INC. | v204226_ex32-1.htm |
EX-31.2 - KINGOLD JEWELRY, INC. | v204226_ex31-2.htm |
EX-32.2 - KINGOLD JEWELRY, INC. | v204226_ex32-2.htm |
EX-31.1 - KINGOLD JEWELRY, INC. | v204226_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 2)
þ
|
|
For the
quarterly period ended:
September
30, 2010
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934
|
For the
transition period from: _____________ to _____________
KINGOLD
JEWELRY, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
001-15819
|
13-3883101
|
(State
or Other Jurisdiction
|
(Commission
|
(I.R.S.
Employer
|
of
Incorporation)
|
File
Number)
|
Identification
No.)
|
15
Huangpu Science and Technology Park
Jiang’an
District
Wuhan,
Hubei Province, PRC 430023
(Address
of Principal Executive Office) (Zip Code)
(011)
86 27 65694977
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. þ Yes ¨ No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer., or a smaller reporting
company.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). ¨ Yes þ No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As of
November 30, 2010, there were 42,343,073 shares of common stock outstanding, par
value $0.001.
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. ¨ Yes ¨ No
Explanatory
Note
Kingold Jewelry, Inc. (which may be
referred to herein as we, us or the Company) is filing this Amendment No. 2
to its Quarterly Report on Form 10-Q (this “Form 10-Q/A”) for the three month
period ended September 30, 2010 (the “Quarterly Report”) to (a) replace the
Consolidated Statements of Cash Flows contained in Item 1 with an updated
Consolidated Statements of Cash Flows which reclassifies certain deferred
offering costs under financing activity rather than under operating activity,
(b) to replace Item 2 which contains management’s discussion of the three and
nine months ended September 30, 2010 results to reflect the updated Consolidated
Statements of Cash Flows described above, and (c) to revise the Certifications
of the Company’s Chief Executive Officer and Chief Financial Officer, which
pursuant to Rule 12b-15 under the Securities Exchange Act of 1934 (the “Exchange
Act”) are currently dated.
The
remainder of the Quarterly Report filed with the Securities and Exchange
Commission on November 12, 2010 remains unchanged and this Form 10-Q/A should be
read in conjunction with the Form 10-Q.
2
Item 1. Financial
Statements
KINGOLD
JEWELRY INC.
(FORMERLY
ACTIVEWORLDS CORP.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 9,484,044 | $ | 7,964,120 | ||||
Restricted
cash
|
- | 1,462,587 | ||||||
Accounts
receivable
|
334,749 | 485,399 | ||||||
Inventories
|
50,660,556 | 31,756,009 | ||||||
Other
current assets and prepaid expenses
|
455,536 | 101,189 | ||||||
Deferred
offering costs
|
125,994 | - | ||||||
Value
added tax recoverable
|
4,287,164 | 5,792,014 | ||||||
Total
Current Assets
|
65,348,044 | 47,561,318 | ||||||
PROPERTY
AND EQUIPMENT, NET
|
13,525,483 | 14,126,950 | ||||||
OTHER
ASSETS
|
||||||||
Other
assets
|
144,280 | 141,198 | ||||||
Intangible
assets, net
|
499,958 | 497,572 | ||||||
Total
other assets
|
644,238 | 638,770 | ||||||
TOTAL
ASSETS
|
$ | 79,517,765 | $ | 62,327,038 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Short
term loans
|
$ | 8,967,055 | $ | 8,775,522 | ||||
Other
payables and accrued expenses
|
1,375,197 | 368,196 | ||||||
Income
tax payable
|
2,004,715 | 1,347,295 | ||||||
Other
taxes payable
|
61,757 | 192,415 | ||||||
Total
Current Liabilities
|
12,408,723 | 10,683,428 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, $0.001 par value, 500,000 shares
|
||||||||
authorized,
none issued or outstanding
|
||||||||
as
of June 30, 2010 and December 31, 2009
|
- | - | ||||||
Common
stock $0.001 par value, 100,000,000 shares
|
||||||||
authorized,
42,343,073 and 41,766,404 shares issued and outstanding
|
||||||||
as
of September 30, 2010 and December 31, 2009, respectively
|
42,343 | 41,766 | ||||||
Additional
paid-in capital
|
31,076,541 | 31,077,118 | ||||||
Retained
earnings
|
||||||||
Unappropriated
|
29,108,122 | 15,669,257 | ||||||
Appropriated
|
940,528 | 878,911 | ||||||
Accumulated
other comprehensive income
|
4,476,027 | 3,156,305 | ||||||
Total
Stockholders' Equity
|
65,643,561 | 50,823,356 | ||||||
Noncontrolling
interest
|
1,465,482 | 820,254 | ||||||
Total
Equity
|
67,109,042 | 51,643,610 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 79,517,765 | $ | 62,327,038 |
The
accompanying notes are an integral part of these unaudited Condensed
Consolidated Financial Statements
3
KINGOLD
JEWELRY INC.
(FORMERLY
ACTIVEWORLDS CORP.)
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(IN
US DOLLARS)
(UNAUDITED)
For the three months ended September 30,
|
For the nine months ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
NET
SALES
|
$ | 169,706,497 | $ | 93,703,615 | $ | 338,062,808 | $ | 192,036,951 | ||||||||
COST
OF SALES
|
||||||||||||||||
Cost
of sales
|
(160,792,165 | ) | (89,797,397 | ) | (315,574,745 | ) | (181,600,448 | ) | ||||||||
Depreciation
|
(277,204 | ) | (278,001 | ) | (832,288 | ) | (833,781 | ) | ||||||||
Total
cost of sales
|
(161,069,369 | ) | (90,075,398 | ) | (316,407,033 | ) | (182,434,229 | ) | ||||||||
GROSS
PROFIT
|
8,637,128 | 3,628,217 | 21,655,775 | 9,602,722 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Selling,
general and administrative expenses
|
1,007,909 | 376,917 | 2,133,475 | 1,107,683 | ||||||||||||
Depreciation
|
30,665 | 31,799 | 86,942 | 91,153 | ||||||||||||
Amortization
|
2,792 | 2,762 | 8,330 | 8,286 | ||||||||||||
Total
Operating Expenses
|
1,041,366 | 411,478 | 2,228,747 | 1,207,122 | ||||||||||||
INCOME
FROM OPERATIONS
|
7,595,762 | 3,216,739 | 19,427,028 | 8,395,600 | ||||||||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
Other
income
|
14,881 | 3,328 | 18,933 | 4,292 | ||||||||||||
Interest
income
|
926 | 1,492 | 3,232 | 2,471 | ||||||||||||
Interest
expense
|
(135,638 | ) | (175,340 | ) | (405,174 | ) | (589,256 | ) | ||||||||
Other
expenses
|
(1,469 | ) | (83,993 | ) | (1,469 | ) | (183,767 | ) | ||||||||
Total
Other Expenses, net
|
(121,300 | ) | (254,513 | ) | (384,477 | ) | (766,260 | ) | ||||||||
INCOME
FROM OPERATIONS BEFORE TAXES
|
7,474,462 | 2,962,226 | 19,042,551 | 7,629,340 | ||||||||||||
PROVISION
FOR INCOME TAXES
|
(1,979,290 | ) | (730,493 | ) | (4,925,385 | ) | (1,873,422 | ) | ||||||||
NET
INCOME
|
$ | 5,495,172 | $ | 2,231,733 | $ | 14,117,166 | $ | 5,755,918 | ||||||||
Less:
net income attribute to the noncontrolling interest
|
(247,601 | ) | - | (616,684 | ) | - | ||||||||||
NET INCOME
ATTRIBUTABLE TO COMMON
STOCKHOLDERS
|
$ | 5,247,571 | $ | 2,231,733 | $ | 13,500,482 | $ | 5,755,918 | ||||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||||||||||
Total
foreign currency translation gains
|
895,091 | 34,589 | 1,348,265 | 72,366 | ||||||||||||
Less:
foreign currency translation gains
|
||||||||||||||||
attributable
to noncontrolling interest
|
(19,388 | ) | - | (28,543 | ) | - | ||||||||||
Foreign
currency translation gains
|
||||||||||||||||
attributable
to common stockholders
|
875,703 | 34,589 | 1,319,722 | 72,366 | ||||||||||||
COMPREHENSIVE
INCOME
|
$ | 6,123,274 | $ | 2,266,322 | $ | 14,820,204 | $ | 5,828,284 | ||||||||
Earnings
per share
|
||||||||||||||||
Basic
|
$ | 0.13 | $ | 0.07 | $ | 0.32 | 0.17 | |||||||||
Diluted
|
$ | 0.12 | $ | 0.07 | $ | 0.31 | 0.17 | |||||||||
Weighted
average number of shares
|
||||||||||||||||
Basic
|
41,861,457 | 33,104,234 | 41,798,205 | 33,104,234 | ||||||||||||
Diluted
|
44,222,499 | 33,104,234 | 43,932,055 | 33,104,234 |
The
accompanying notes are an integral part of these unaudited Condensed
Consolidated Financial Statements
4
KINGOLD
JEWELRY INC.
(FORMERLY
ACTIVEWORLDS CORP.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN
US DOLLARS)
(UNAUDITED)
For the nine months ended September 30,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
income
|
$ | 14,117,166 | $ | 5,755,918 | ||||
Adjusted
to reconcile net income to cash provided by (used in)
|
||||||||
operating
activities:
|
||||||||
Depreciation
and amortization
|
919,230 | 924,934 | ||||||
Amortization
of intangible assets
|
8,330 | 8,286 | ||||||
Changes
in operating assets and liabilities
|
||||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
158,509 | 1,053,595 | ||||||
Inventories
|
(17,902,549 | ) | 540,624 | |||||
Other
current assets and prepaid expenses
|
(348,268 | ) | 75,044 | |||||
Value
added tax recoverable
|
1,603,596 | (3,649,907 | ) | |||||
Increase
(decrease) in:
|
||||||||
Other
payables and accrued expenses
|
997,823 | (39,907 | ) | |||||
Income
tax payable
|
678,071 | (756,856 | ) | |||||
Value
added tax payable
|
- | (910,936 | ) | |||||
Other
taxes payable
|
(193,280 | ) | 124,722 | |||||
Net
cash provided by (used in) operating activities
|
38,627 | 3,125,517 | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase
of property and equipment
|
(24,862 | ) | (5,979 | ) | ||||
Net
cash used in investing activities
|
(24,862 | ) | (5,979 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Restricted
cash
|
1,469,160 | (6,553 | ) | |||||
Deferred
offering costs
|
(125,994 | ) | - | |||||
Proceeds
from bank loans
|
5,876,639 | 5,845,808 | ||||||
Repayments
of bank loans
|
(5,876,639 | ) | (11,253,180 | ) | ||||
Capital
Contribution by stockholders
|
- | 9,360,009 | ||||||
Net
cash provided by financing activities
|
1,343,166 | 3,946,084 | ||||||
EFFECT
OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS
|
162,992 | 5,581 | ||||||
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
1,519,924 | 7,071,203 | ||||||
CASH
AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
7,964,120 | 281,994 | ||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 9,484,044 | $ | 7,353,197 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
||||||||
Cash
paid for interest expense
|
$ | 357,198 | $ | 589,256 | ||||
Cash
paid for income tax
|
$ | 4,267,965 | $ | 2,630,279 |
The
accompanying notes are an integral part of these unaudited Condensed
Consolidated Financial Statements
5
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 — BASIS OF PRESENTATION
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the financial
statements of Kingold Jewelry Inc. (Kingold), its wholly owned subsidiaries,
Dragon Lead Group Limited (“Dragon Lead”) and Wuhan Vogue-Show Jewelry Co.,
Limited (“Wuhan Vogue-Show”) and Wuhan Kingold Jewelry Co., Limited (“Wuhan
Kingold”), its 95.83% contractually controlled affiliate. The noncontrolling
interests represent the minority stockholders’ 4.17% proportionate share of the
results of Wuhan Kingold. All significant inter-company balances and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of the financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand and demand deposits with a bank with an
original maturity of less than three months.
Restricted
cash
The
Company’s financing facilities require a minimum cash deposit as security for
borrowings outstanding under its demand financing facilities. The restricted
cash amount is classified as a current asset in the balance sheets since the
borrowings it secures are classified as current liabilities. As of September 30,
2010 the balance was $0, compared to the balance of $1,462,587 as of December
31, 2009. Because of our accumulated good credit record, the restricted cash is
currently waived by the financing facilities.
Accounts
Receivables
The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on managements’ assessment of the credit history
with the customers and current relationships with them. As of September 30, 2010
and December 31, 2009, the Company has not recorded any write off of customer
receivables and there was no allowance for doubtful accounts established. The
Company considers all the accounts receivable fully collectible.
Inventories
Inventories
are stated at the lower of cost or market value, cost being calculated on the
weighted average basis. The cost of inventories comprises all costs of
purchases, costs of fixed and variable production
6
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – (continued)
overheads
and other costs incurred in bringing the inventories to their present location
and condition. The Company provides inventory allowances based on excess and
obsolete inventories determined principally by customer demand. The Company has
not recorded any write down of inventory as a result of the Company’s entire
inventory is turned over usually within thirty to sixty days. Therefore, the
Company has determined no allowance for inventories is considered necessary for
the nine months ended September 30, 2010 and 2009.
Property
and equipment
Property
and equipment are stated at cost, less accumulated depreciation. Expenditures
for additions, major renewals and betterments are capitalized and expenditures
for maintenance and repairs are charged to expense as incurred.
Depreciation
is provided on a straight-line basis, less estimated residual value over the
assets’ estimated useful lives. The estimated useful lives are as
follows:
Estimated
Useful Life
|
|||
Buildings
|
30
years
|
||
Plant
and machinery
|
15
years
|
||
Motor
vehicles
|
10
years
|
||
Office
furniture and electronic equipment
|
5 – 10
years
|
Long-lived
assets
The
Company accounts for long-lived assets under the FASB Codification Topic 360
(ASC Topic 360) “Accounting for Goodwill and Other Intangible Assets” and
“Accounting for Impairment or Disposal of Long-Lived Assets.” In accordance with
ASC Topic 360, indefinite-lived intangible assets held and used by the Company
are reviewed for impairment annually in the fourth quarter or more frequently if
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Finite-lived assets and intangibles are also reviewed
for impairment test when circumstance requires it. For purposes of evaluating
the recoverability of long-lived assets, when undiscounted future cash flows
will not be sufficient to recover an asset’s carrying amount, the asset is
written down to its fair value. The long-lived assets of the Company, which are
subject to evaluation, consist primarily of property, plant and equipment and
land use rights. No impairment loss is recorded for the nine months ended
September 30, 2010 and 2009.
Fair
value of financial instruments
FASB
Codification Topic 825 (“ASC Topic 825”), “Disclosure about Fair Value of
Financial Instruments,” requires certain disclosures regarding the fair value of
financial instruments. Fair value of financial instruments is made at a specific
point in time, based on relevant information about financial markets and
specific financial instruments. As these estimates are subjective in nature,
involving uncertainties and matters of significant judgment, they cannot be
determined with precision. Changes in assumptions can significantly affect
estimated fair values.
The
carrying value of accounts receivable, other current assets and prepaid
expenses, other payables and accrued expenses approximate their fair values
because of the short-term nature of these instruments. The management of the
Company is of the opinion that the Company is not exposed to significant
interest or credit risks arising from these financial instruments.
7
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – (continued)
Revenue
recognition
Net sales
are primarily composed of sales of products to wholesale and retail customers
and subcontracting fees. The Company recognizes revenues under the FASB
Codification Topic 605 (“ASC Topic 605”), Revenue is recognized when all of the
following have occurred: persuasive evidence of arrangement with the customer,
services has been performed, fees are fixed or determinable and collectability
of the fees is reasonably assured. These criteria as related to the Company’s
revenues are considered to have been met as follows:
Sales
of products
The
Company recognizes revenue on sales of products when the goods are delivered and
title to the goods passes to the customers provided that: there are no
uncertainties regarding customer acceptance; persuasive evidence of an
arrangement exists; the sales price is fixed and determinable; and
collectability is deemed probable.
Sub-contracting
fees
The
Company also provides sub-contracting services to its customers based on a
fixed-price contract. The Company recognizes services-based revenue from all its
contracts when the services have been performed, the customers have approved the
completion of services, invoices have been issued and collectability is deemed
probable. The revenues from sub-contracting services only consist of
approximately 3.98% of the total revenue recognized.
Income
taxes
The
Company accounts for income taxes under the FASB Codification Topic 740-10-25
(“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized as income in the period included the
enactment date.
On
January 1, 2007, the Company adopted the provisions of ASC 740-10-25,
“Accounting for Uncertainty in Income Taxes.” ASC 740-10-25 prescribes a
more-likely-than-not threshold for consolidated financial statement recognition
and measurement of a tax position taken (or expected to be taken) in a tax
return. This Interpretation also provides guidance on the recognition of income
tax assets and liabilities, classification of current and deferred income tax
assets and liabilities, accounting for interest and penalties associated with
tax positions, accounting for interest and penalties associated with tax
positions. The adoption of ASC 740-10-25 has not resulted in any material impact
on the Company’s financial position or results.
The
Company records interest and penalties as a general and administrative expense.
The statute of limitations for the Company’s U.S. federal income tax returns and
certain state income tax returns remain open for tax years 2007 and after. The
Company’s foreign tax returns, mainly PRC, remain open for tax years 2008 and
after.
Foreign
currency translation
Kingold
and Dragon Lead maintain their accounting records in the United States Dollars
(“US$”), whereas Wuhan Vogue-Show and Wuhan Kingold maintain their accounting
records in the currency of Renminbi (“RMB”), being the primary currency of the
economic environment in which their operations are conducted.
8
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – (continued)
The
Company’s principal country of operations is the PRC. The financial position and
results of operations of the Company are determined using the local currency
(“RMB”) as the functional currency. The results of operations and the statement
of cash flows denominated in foreign currency are translated at the average rate
of exchange during the reporting period. Assets and liabilities denominated in
foreign currencies at the balance sheet date are translated at the applicable
rates of exchange in effect at that date. The equity denominated in the
functional currency is translated at the historical rate of exchange at the time
of capital contribution. Because cash flows are translated based on the average
translation rate, amounts related to assets and liabilities reported on the
statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet. Translation adjustments arising
from the use of different exchange rates from period to period are included as a
component of stockholders’ equity as “Accumulated Other Comprehensive
Income.”
The value
of RMB against US$ and other currencies may fluctuate and is affected by, among
other things, changes in China’s political and economic conditions, Any
significant revaluation of RMB may materially affect the Company’s financial
condition in terms of US$ reporting.
Other
comprehensive income
The
foreign currency translation gain or loss resulting from translation of the
financial statements expressed in HK$ and RMB to US$ is reported as other
comprehensive income in the statements of operations and stockholders’
equity.
Other
comprehensive income for the nine months ended September 30, 2010 and 2009 was
$1,319,723 and $72,366, respectively, and for three months ended September 30,
2010 and 2009 was $875,704 and $34,589, respectively.
Earnings
per share
The
Company computes earnings per share (“EPS”) in accordance with ASC 260 “Earnings
per Share” (“ASC 260”). ASC 260 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as net income
divided by the weighted average common shares outstanding for the period.
Diluted EPS is similar to basic EPS but presents the dilutive effect on a per
share basis of potential common shares (e.g., convertible securities, options
and warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later. Potential common shares that have an
anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from the calculation of diluted EPS.
Segments
The
Company operates in only one segment. As a result, segment disclosure is not
presented.
Recent
Accounting Pronouncements
In May
2009, the FASB issued ASC 855-10, “Subsequent Events” (“ASC 855-10”), which
establishes principles and standards related to the accounting for and
disclosure of events that occur after the balance sheet date but before the
financial statements are issued. ASC 855-10 requires an entity to recognize, in
the financial statements, subsequent events that provide additional information
regarding conditions that existed at the balance sheet date. Subsequent events
that provide information about conditions that did not exist at the balance
sheet date shall not be recognized in the financial statements under ASC 855-10.
ASC 855-10 was effective for interim and annual reporting periods on or after
June 15, 2009. The adoption of ASC 855-10 did not have a material effect on the
Company’s financial position or results of operations.
9
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – (continued)
In
February 2010, the FASB issued ASU 2010-09 “Subsequent Events — Amendments to
Certain Recognition and Disclosure Requirements” (“ASU 2010-09”), which removed
the requirements in ASC 855-10 for an SEC filer to disclose the date through
which subsequent events have been evaluated for both issued and revised
financial statements. ASU 2010-09 became effective upon issuance and the
adoption of ASU 2010-09 did not have a material effect on the Company’s
financial position or results of operations.
NOTE
3 — INVENTORIES, NET
Inventories
are consisted of the following:
As
of
|
||||||
September
30,
2010
|
December
31,
2009
|
|||||
Raw
materials
|
$
|
12,555,076
|
$
|
9,645,402
|
||
Work-in-progress
|
31,463,714
|
17,894,676
|
||||
Finished
goods
|
6,641,766
|
4,215,931
|
||||
Total
inventory
|
$
|
50,660,556
|
$
|
31,756,009
|
For the
nine months ended September 30, 2010 and 2009, no provision for obsolete
inventories was recorded by the Company.
NOTE
4 — PROPERTY AND EQUIPMENT, NET
The
following is a summary of property and equipment as of September 30, 2010 and
December 31, 2009:
As
of
|
||||||||
September
30,
2010
|
December
31,
2009
|
|||||||
Buildings
|
$ | 1,876,132 | $ | 1,881,339 | ||||
Plant
and machinery
|
17,603,672 | 17,325,868 | ||||||
Motor
vehicles
|
39,396 | 38,555 | ||||||
Office
and electric equipment
|
604,812 | 423,658 | ||||||
Subtotal
|
20,124,012 | 19,669,420 | ||||||
Less:
accumulated depreciation
|
(6,598,529 | ) | (5,542,470 | ) | ||||
Property
and equipment, net
|
$ | 13,525,483 | $ | 14,126,950 |
Depreciation
expense for the nine months ended September 30, 2010 and 2009 were $919,230 and
$924,934, respectively. Depreciation expense for the three months ended
September 30, 2010 and 2009 were $307,868 and $309,800,
respectively.
NOTE
5 — OTHER ASSETS
Other
assets as of September 30, 2010 and December 31, 2009 consist of the Company’s
investment in the membership certificates at Shanghai Diamond Exchange and
Shanghai Gold Exchange.
In
accordance with ASC 940-340, membership certificates at Shanghai Diamond
Exchange and Shanghai Gold Exchange owned by the Company are originally carried
at cost, or, if another-than-temporary impairment in value has occurred, at
adjusted cost. In determining whether another-than-temporary decline in value
has occurred, the Company uses ASC 320, ASC 958 and Section M of Topic 5 of the
SEC Staff Accounting Bulletin series (“SAB 59”) as analogous guidance. There was
no impairment of these assets as of September 30, 2010 and December 31,
2009.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
6 — INTANGIBLE ASSETS, NET
Intangible assets as of September 30, 2010 and
December 31, 2009 consist of land use rights and computer software program
acquired. The Company has the right to use the land for fifty years and the
right to use the software for five years and the Company amortizes the assets on
a straight line basis over its terms from the acquisition date. Amortization
expense was $ 8,330 and $8,286 for the nine months ended September 30, 2010 and
2009, respectively, and was $2,792 and $2,762 for the three months ended
September 30, 2010 and 2009, respectively.
NOTE
7 — SHORT TERM LOANS
The
Short term loans include the following:
As
of
|
|||||||
September
30,
2010
|
December
31,
2009
|
||||||
a)
Loan payable to Pufa bank
|
5,978,037
|
5,850,348
|
|||||
b)
Loan payable to Xinye Bank, Hanzhengjie branch
|
2,989,018
|
2,925,174
|
|||||
Total
short term loans
|
$
|
8,967,055
|
$
|
8,775,522
|
a)
Loan payable to Pufa bank, Jiangan branch was originally one year term from May
2009 to May 2010 at the interest rate of 5.31% per year. The loan was paid off
by the due date, and then, as customary in China, the principal was re-borrowed
for another one year term from May 2010 to May, 2011 at the interest rate of
5.5755% per year pursuant to a new note. This loan has been guaranteed by the
buildings, plants and machinery of the Company.
b)
Loan payable to Xinye bank, Hanzhengjie branch was one year term from December
2009 to December 2010 at the interest rate of 4.425% per year. This loan has
been guaranteed by a non-related third party.
Interest
expense for the nine months ended September 30, 2010 and 2009 was $405,174 and
$589,256, respectively. Interest expense for the three months ended September
30, 2010 and 2009 was $135,638 and $175,340, respectively.
NOTE
8 — INCOME TAXES
The
Company is subject to income taxes on an entity basis on income arising in or
derived from the tax jurisdiction in which each entity is
domiciled.
Kingold
was incorporated in the United States and has incurred net operating loss for
income tax purpose for 2009 and 2008. Kingold had loss carry forwards of
approximately $586,000 for U.S. income tax purposes available for offset against
future taxable U.S. income expiring in 2029. Management believes that the
realization of the benefits from these losses is uncertain due to the Company’s
limited operating history and continuing losses. Accordingly, a full valuation
allowance has been provided and no deferred tax asset benefit has been recorded.
The valuation allowance as of September 30, 2009 was approximately
$200,000.
Dragon
Lead was incorporated in the BVI and under current laws of the BVI; income
earned is not subject to income tax.
Wuhan
Vougue-Show and Wuhan Kingold were incorporated in the PRC and are subject to
PRC income tax which is computed according to the relevant laws and regulations
in the PRC. The applicable tax rate is 25% for the nine months ended September
30, 2010 and 2009.
The
Company does not have any deferred tax assets or liabilities from its foreign
operations.
11
Significant
components of the income tax provision were as follows for the nine months ended
September 30, 2010 and 2009:
For
the Three Months
Ended
September 30,
|
For
the Nine Months
Ended
September 30,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
||||||||||||
Current
tax provision
|
|||||||||||||||
Federal
|
—
|
—
|
—
|
—
|
|||||||||||
State
|
—
|
—
|
—
|
—
|
|||||||||||
Foreign
|
$
|
1,979,290
|
$
|
730,493
|
$
|
4,925,385
|
$
|
1,873,422
|
|||||||
Total
current tax provision
|
$
|
1,979,290
|
$
|
730,493
|
$
|
4,925,385
|
$
|
1,873,422
|
|||||||
Deferred
tax provision
|
|
|
|
|
|||||||||||
Federal
|
—
|
—
|
—
|
—
|
|||||||||||
State
|
—
|
—
|
—
|
—
|
|||||||||||
Foreign
|
—
|
—
|
—
|
—
|
|||||||||||
Total
deferred tax provision
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
—
|
|||||||
Income
tax provision
|
$
|
1,979,290
|
$
|
730,493
|
$
|
4,925,385
|
$
|
1,873,422
|
Income from continuing operations were allocated
between the United States and foreign components for the nine months ended
September 30, 2010 and 2009 as follows:
For
the Nine Months Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
United
States
|
$ | (210,690 | ) | $ | — | |||
Foreign
|
$ | 14,327,857 | $ | 5,755,918 | ||||
Total
|
$ | 14,117,167 | $ | 5,755,918 |
ASC
740-10 clarifies the accounting and reporting of income taxes recognized in the
financial statements and provides how tax benefits may be recognized. Income tax
positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized in subsequent periods. On January 1, 2007, we
adopted the provisions of this topic. At September 30, 2010 and December 31,
2009 we had no unrecognized tax benefits.
The
Company recognizes interest and penalties accrued related to unrecognized tax
benefits and penalties, if any, as income tax expense. The Company files income
tax returns with U.S. Federal Government, as well as Delaware State and the
Company files returns in foreign jurisdictions of BVI and PRC China. With few
exceptions, the Company is subject to U.S. federal and state income tax
examinations by tax authorities for years on or after 1995.
The
Company’s foreign subsidiaries also file income tax returns with both the
National Tax Bureau (with its branches in Wuhan) and the Local Tax Bureaus
(Hubei Provincial Tax Bureau and Wuhan Municipal Tax Bureau). The Company is
subject to income tax examinations by these foreign tax authorities. The Company
has passed all tax examinations by both National and Local tax authorities since
the inception of the Company in 2002.
12
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8 — INCOME TAXES – (continued)
The
following table reconciles the U.S. statutory rates to the Company’s effective
rate for the nine months ended September 30, 2010 and
2009:
For
the Nine Months Ended September 30,
|
||||||
2010
|
2009
|
|||||
US
Statutory rate
|
34
%
|
34
%
|
||||
Foreign
Income not recognized in USA
|
(-34)%
|
(-34)%
|
||||
China
income tax
|
25
%
|
25
%
|
||||
Effective
tax rate
|
25
%
|
25
%
|
NOTE
9 — EARNINGS PER SHARE
In
December 23, 2009, the Company entered into a reverse merger transaction with
Dragon Lead. The Company computes the weighted-average number of common shares
outstanding in accordance with ASC 805. ASC 805 states that in calculating the
weighted average shares when a reverse merger took place in the middle of the
year, the number of common shares outstanding from the beginning of that period
to the acquisition date shall be computed on the basis of the weighted-average
number of common shares of the legal acquiree (the accounting acquirer)
outstanding during the period multiplied by the exchange ratio established in
the merger agreement. The number of common shares outstanding from the
acquisition date to the end of that period will be the actual number of common
shares of the legal acquirer (the accounting acquiree) outstanding during that
period.
As
of September 30, 2010, the Company had outstanding warrants to acquire 2,685,241
shares of common stock. 2,560,241 warrants have an excise price of $0.996, while
125,000 warrants have an exercise price of $1.196. As of September 30, 2010, all
the outstanding warrants were considered dilutive and were included in the
weighted average shares-diluted calculation using the treasury stock method. The
following table presents a reconciliation of basic and diluted net income per
share:
For
the Three Months
Ended
September 30,
|
For
the Nine Months
Ended
September 30,
|
|||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||
Net
income attributable to Common stockholders
|
$
|
5,247,572
|
$
|
2,231,733
|
$
|
13,500,483
|
$
|
5,755,918
|
||||
Weighted
average number of common shares
outstanding – Basic
|
41,861,457
|
33,104,234
|
41,798,205
|
33,104,234
|
||||||||
Diluted
earnings per share:
|
||||||||||||
Effect
of diluted warrants
|
2,361,042
|
—
|
2,361,042
|
—
|
||||||||
Weighted
average number of common shares outstanding – Diluted
|
44,222,499
|
33,104,234
|
43,932,055
|
33,104,234
|
||||||||
Earnings
per share – Basic
|
$
|
0.13
|
$
|
0.07
|
$
|
0.32
|
$
|
0.17
|
||||
Earnings
per share – Diluted
|
$
|
0.12
|
$
|
0.07
|
$
|
0.31
|
$
|
0.17
|
On June
7, 2010, the Company’s Board of Directors authorized a one-for-two reverse split
of its common stock. The reverse split was effective on August 10, 2010. All
shares and per share data provided herein give effect to this stock split and
have been applied retroactively.
13
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
10 — STOCKHOLDERS’ EQUITY
(1)
Issuance of Common Stock for recapitalization
Before
the acquisition of Dragon Lead, the Company had 3,125,018 shares of common stock
issued and outstanding. In addition, the Company has outstanding warrants issued
to former officers and consultants to purchase up to a maximum of 775,000 shares
of common stock, which were amended to increase the exercise price changed to
$1.196 per share.
On
December 23, 2009, the Company issued 33,104,234 shares of common stock in
connection with the acquisition of Dragon Lead for the recapitalization of
Dragon Lead and re-organization of Kingold.
On
December 23, 2009, 416,668 shares of common stock were issued to a consultant
for advisory services related to the acquisition of Dragon Lead. This expense is
recorded at fair value of $0.996 per share at the grant date for a total of
$415,001.
(2)
Issuance of Common Stock in Private Placement
In
accordance with the Securities Purchase Agreement (“Securities Purchase
agreement”) entered into between the Company and a group of accredited investors
(as defined under Rule 501 (a) of Regulation D promulgated under the Securities
Act) (“investors”) on December 23, 2009, the Company received $5,100,000 (or
$4,472,482 net proceeds after deducting the offering expenses and reverse merger
service expense) from the Investors for an issuance of 5,120,484 shares of
restricted common stock at $0.996 by a private placement and warrants to
purchase 1,024,096 shares of Common stock at an exercise price of $0.996 per
share, exercisable within five years of the date of issue. The Company relied on
an exemption from registration pursuant to Section 4(2) under the Securities Act
of 1933 in connection with the issuance of these shares.
In
connection with the private placement and pursuant to the Securities Purchase
Agreement, the placement agent and advisors received the following compensation:
(i) $368,518 cash as an engagement and documentation fee; (ii) $200,000 as a
placement commission; (iii) $59,000 cash as reverse merger service fee, and (iv)
warrants to purchase up to 1,536,145 shares of Common Stock with the same term
of the warrants issued to investors.
After the
reverse merger, the Company has 41,766,404 shares of common stock issued and
outstanding and warrant to purchase of 3,335,241 shares of common
stock.
In
September 2010, 650,000 warrants (2008 warrants) were exercised and 576,660
shares were issued. Pursuant to the cashless exercise provision, an additional
73,340 were issued, surrendered and canceled to reflect the payment of the
exercise price on the 650,000 warrants. As of September 30, 2010, the Company
has 42,343,073 shares of common stock issued and outstanding and warrants to
purchase up to 2,685,241 shares of common stock.
(3)
Appropriated retained earnings
The
Company is required to make appropriations to the statutory surplus reserve
based on the after-tax net income determined in accordance with the laws and
regulations of the PRC. Prior to January 1, 2006 the appropriation to the
statutory surplus reserve should be at least 10% of the after tax net income
determined in accordance with the laws and regulations of the PRC until the
reserve is equal to 50% of the entities’ registered capital. Appropriations to
the statutory public welfare fund are at 5% to 10% of the after tax net income
determined by the Board of Directors. Effective January 1, 2006, the Company is
only required to contribute to one statutory reserve fund at 10 percent of net
income after tax per annum, such contributions not to exceed 50 percent of the
respective company’s registered capital.
14
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
10 — STOCKHOLDERS’ EQUITY – (continued)
The
statutory reserve funds cannot be used to set off against prior period losses,
expansion of production and operation or for the increase in the registered
capital of the Company. These reserves are not transferable to the Company in
the form of cash dividends, loans or advances. These reserves are therefore not
available for distribution except in liquidation.
For the
nine months ended September 30, 2010 and 2009, the Company appropriated $61,617
and $380,440, respectively to the reserves funds based on its net income in
accordance with the laws and regulations of the PRC.
Note
11 — WARRANTS
In
October 2008, prior to the acquisition of Dragon Lead, the Company issued
warrants to formers officers and consultants to purchase up to 775,000 shares of
common stock, the original exercise price was $0.32 per share, exercisable
within 5 years of the date of issue, in connection with the acquisition, the
exercise price changed to $1.196 per share with all other terms the
same.
The
Company has determined that the warrants meet the conditions for equity
classification pursuant to ASC 815. Therefore, these warrants were classified as
equity and included in Additional Paid-in Capital. The fair value of the
warrants was calculated using the Black-Scholes options pricing model using the
following assumptions: volatility 100%, risk free interest rate 1.51% (no
dividend yield) and expected term of four years. The fair value of those
warrants was recalculated at the reverse merge date at $1,119,172.
In
conjunction with the private placement, warrants were issued to investor and
placement agent to purchase a total of 2,560,241 shares of common stock at an
exercise price of $0.996 per share, exercisable within five years of the date of
issue. No separate consideration was paid for such warrants. The exercise price
of such warrant is subject to adjustments under certain circumstances and the
warrants permit cashless exercise by the holders. This expense directly related
to private placement is recorded as Additional Paid-in Capital in the
accompanying financial statements. The Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act for the issuance of
common stock and warrants to the placement agent. The warrants issued to the
placement agent, qualify as permanent equity, the value of which warrants has
created offsetting debit and credit entries to additional paid-in
capital.
The
Company has determined that the warrants meet the conditions for equity
classification pursuant to ASC 815, “Derivatives and Hedging”. Therefore, these
warrants were classified as equity and included in Additional Paid-in Capital.
The fair value of the warrants was calculated using the Black-Scholes options
pricing model using the following assumptions: volatility 100%, risk free
interest rate 2.51% (no dividend yield) and expected term of five years. The
fair value of those warrants at the grant date was calculated at
$4,020,876.
In
September 2010, 650,000 warrants (2008 warrants) were exercised and 576,660
shares were issued. Pursuant to the cashless exercise provision, an additional
73,340 were issued, surrendered and canceled to reflect the payment of the
exercise price on the 650,000 warrants.
Warrants
Outstanding
|
Weighted
Average Exercise Price
|
Average
Remaining Life in Years
|
Aggregate
Intrinsic Value
|
|||||||||
Outstanding,
January 1, 2010
|
3,335,241
|
1.04
|
4.77
|
471,084
|
||||||||
Granted
|
|
|
|
|||||||||
Forfeited
|
|
|
|
|||||||||
Exercised
|
650,000
|
|
|
|
||||||||
Outstanding,
September 30, 2010
|
2,685,241
|
1.01
|
4.02
|
21,628,783
|
15
KINGOLD
JEWELRY, INC.
(FORMERLY
ACTIVEWORLDS CORP.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
12 — COMMITMENTS AND CONTINGENCIES
Escrowed
share arrangement
In
accordance with the Securities Purchase Agreement, a majority stockholder of
Dragon Lead, immediately following the closing of the reverse merger
acquisition, entered into a make good escrow agreement with the Investors,
pursuant to which a total of 1,895,609 of their beneficially owned shares of
common stock were delivered to an escrow agent in order to secure the Company’s
obligations under the Securities Purchase Agreement to deliver additional common
stock to the private placement investors in the event the Company fails to
achieve certain after-PRC — tax net income of Wuhan Kingold targets for fiscal
years 2009, 2010 and 2011 (“Make Good Escrow Shares”). Those targets are RMB65
million, RMB100 million and RMB150 million in after-tax net income for the
fiscal years ended December 31, 2009 and ending December 31, 2010 and 2011,
respectively. In the event the Company is not able to achieve the net income
target, the Company is obligated to transfer 1,895,609 shares of common stock to
the Investors on a pro-rata basis. Of the 33,104,234 shares of common stock
issued in the Share Exchange, 1,895,609 have been deposited by the majority
stockholder of Dragon Lead into escrow to secure these obligations.
As the
performance threshold was met for fiscal year 2009, 631,869 escrowed shares will
be returned to stockholders in 2009, the remaining 1,263,740 shares will be
released in fiscal years 2010 and 2011 if the performance thresholds for fiscal
years 2010 and 2011 are also met.
Liquidated
damages
Pursuant
to the Securities Purchase Agreement, the Company was obligated to make efforts
to file a registration statement with the SEC for the registration of 5,120,484
shares of common stock offered by selling stockholders to be declared effective
by the SEC on or before June 23, 2010. After June 23, 2010 and for each monthly
anniversary date thereafter in which the registration statement fails to be
declared effective, the Company shall pay liquidated damages to investors equal
to 1% of the funds raised, subject to a cap of 6% of total funds raised.
Majority of the Investors have waived their registration rights and the Company
will not pay for the penalty as the result. Accordingly, the Company has not
accrued for these liquidated damages.
16
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Three
and Nine Months Ended September 30, 2010
Net
Sales
Net sales
for the three months ended September 30, 2010 increased to $169.7 million, an
increase of $76.0 million, or 81.1%, from net sales of $93.7 million for the
three months ended September 30, 2009. The increase in net sales was primarily
driven by the increased amount of products sold as well as by the increase in
the price of gold. Of the $76.0 million increase, $51 million was attributable
to increases in production and $25 million was attributable to the increase in
the price of gold.
Net sales
for the nine months ended September 30, 2010 increased to $338.1 million, an
increase of $146.0 million, or 76%, from net sales of $192.0 million for the
nine months ended September 30, 2009. The increase in net sales was primarily
driven by the increased amount of products sold as well as by the increase in
the price of gold. Of the $146.0 million increase, $88 million was attributable
to increases in production and $58 million was attributable to the increase in
the price of gold.
The
increase in revenue was mainly attributable to the following factors: (1) for
the three months ended September 30, 2009, we were still privately held, had
relatively lower brand name recognition than we currently do, and our market
coverage was smaller than is currently the case, which is in direct contract to
the fact that for the three months ended September 30, 2010, we were a public
company in the US, and have experienced greater brand recognition, which, in
turn, has helped us to enhance our market coverage and attract more customers;
(2) our increased working capital has allowed us to take advantage of the
increase in demand for the items that we manufacture; (3) we have expanded our
business operations into additional geographic areas which, in turn, has
broadened sales opportunities, thus allowing us to gain market share in new
geographical areas by securing relationships with regional jewelry wholesalers
and distributors, such as Shenyang Xinglong Jewelry, Fuzhou Xingfulong Jewelry
and Hangzhou Junhao Jewelry; and. (4) we have also made efforts to grow our
business in the 24K gold ornament market.
Cost
of sales
Cost of
sales for the three months ended September 30, 2010 increased to $160.8 million,
an increase of $70.9 million, or 79.1% from $89.8 million for the same period in
2009. The increase was primarily due to the increased price of gold and the
increased amount of gold required to fulfill our increased sales volume for the
three months ended September 30, 2010. Of the $70.9 million increase, the
increased cost attributable to increased gold price was $24.2 million, and the
increased cost attributable to the increase in the amount of gold purchased for
expanded production was $46.7 million during the three months ended September
30, 2010 as compared to the corresponding 2009 period. Cost of sales as a
percentage of revenue decreased to 94.7% for the three months ended September
30, 2010 as compared to 95.8% for the corresponding period in 2009, mainly
because of economic of scale.
Cost of
sales for the nine months ended September 30, 2010 increased to $315.6 million,
an increase of $134 million, or 73.8% from $181.6 million for the same period in
2009. The increase was primarily attributable to the increased price of gold and
the increased amount of gold required to fulfill our increased sales volume for
the nine months ended September 30, 2010. Of the $134 million increase, the
increased cost due to increased gold price was $50 million, and the increased
cost due to increased amount of gold purchased for expanded production was $84
million during the nine months ended September 30, 2010 as compared to the
corresponding 2009 period. Cost of sales as a percentage of revenue decreased to
93.3% for the nine months ended September 30, 2010 as compared to 94.6% for the
corresponding period in 2009, mainly because of economic of
scale.
17
Gross
profit
Gross
profit for the three months ended September 30, 2010 increased to $8.6 million,
an increase of $5.0 million, or 138.1%, from $3.6 million for the same period in
2009. Gross margin as a percentage of sales for the three months ended September
30, 2010 increased to 5.1%, compared to 3.9% for the same period in 2009. The
increase in our gross profit and the increase in our gross margin were primarily
due to the increase in production and sales volume of gold, as well as
lower cost of sales attributable to economics of scale. In addition, we have
continued to focus on production of our proprietary brands (MGold in particular)
that have higher profit margins as compared to our other products. Our increased
gross margin reflects this shift in focus.
Gross
profit for the nine months ended September 30, 2010 increased to $21.7 million,
an increase of $12.1 million, or 125.5%, from $9.6 million for the same period
in 2009. Gross margin for the nine months ended September 30, 2010 increased to
6.4%, compared to 5.0% for the same period in 2009. The increase in our gross
profit and the increase in our gross margin were primarily due to the increase
in production and sales volume of gold, as well as lower cost of sales stemming
from our increase realization of economics of scale. In addition, we have
continued to focus on production of our proprietary brands (MGold in particular)
that have higher profit margins as compared to our other products. Our increased
gross margin reflects this shift in focus.
Expenses
Total
operating expenses for the three months ended September 30, 2010 were $1.04
million, an increase of $0.63 million or 151.3%, from $0.41 million for the same
period in 2009. The increase in operating expenses during the 2010 period was
primarily due to increased sales and administration expenses of $0.33 million
and expenses of $0.3 million related to operating a public company in the United
States.
Total
operating expenses for the nine months ended September 30, 2010 were $2.23
million, an increase of $1.02 million or 84.6%, from $1.21 million for the same
period in 2009. The increase in operating expenses during the 2010 period was
primarily due to increased sales and administration expenses of $0.52 million
and expenses of $0.5 million related to operating a public company in the United
States.
Interest
expenses were $0.135 million for three months ended September 30, 2010, a
decrease of $0.04 million or 22.6%, from $0.175 million for same period in 2009.
The decrease in interest expense was primarily a result of a decrease of the
average loan balance for the three months ended September 30, 2010.
Interest
expenses were $0.405 million for nine months ended September 30, 2010, a
decrease of $0.184 million or 31.2%, from $0.589 million for same period in
2009. The decrease in interest expense was primarily a result of a decrease of
the average loan balance for the nine months ended September 30,
2010.
Our
provision for income tax expense was $1.98 million for the three months ended
September 30, 2010, an increase of $1.25 million, or 171%, from $0.73 million
for the same period in 2009. The increase was primarily due to our increased
income from operations during these three months ended September 30,
2010.
Our
provision for income tax expense was $4.93 million for the nine months ended
September 30, 2010, an increase of $3.05 million, or 162.9%, from $1.87 million
for the same period in 2009. The increase was primarily due to our increased
income from operations during these nine months ended September 30,
2010.
Net
Income
Net
income attributable to common stockholders increased to $5.25 million for the
three months ended September 30, 2010 from $2.23 million for the same period in
2009, an increase of $3.02 million, or 135.1% as result of the matters described
above.
18
Net
income attributable to common stockholders increased to $13.5 million for the
nine months ended September 30, 2010 from $5.76 million for the same period in
2009, an increase of $7.74 million, or 134.5% as result of the matters described
above.
Cash
Flow
Net cash provided
by (used in) operating activities. Net cash provided by
operating activities was $38,627 for the nine months ended September 30, 2010,
compared to net cash provided by operating activities of $3.1 million for the
same period in 2009. This decrease was primarily because we purchased a
comparatively higher amount of gold at comparatively higher prices during the
nine month period ended September 30, 2010 to meet the growing demand for our
products. Additionally, as compared to our inventory balance as of December 31,
2009, our inventory increased by $17.9 million over the nine months ending
September 30, 2010.
Analysis and
Expectations.
Our net cash from operating activities can fluctuate significantly due to
changes in our inventories. Other factors that may vary significantly include
our accounts payable, purchases of gold and income taxes. Looking forward, we
expect the net cash that we generate from operating activities to continue to
fluctuate as our inventories, receivables, accounts payables and the other
factors described above change with increased production and the purchase of
larger quantities of raw materials. These fluctuations could cause net cash from
operating activities to fall, even if, as we expect, our net income grows as we
continue to expand. Although we expect that net cash from operating activities
will rise over the long term, we cannot predict how these fluctuations will
affect our cash flow in any particular quarter.
Net cash used in
investing activities. Net cash used in investing
activities amounted to $24,862 for the nine months ended September 30, 2010,
compared to net cash used in investing activities of $5,979 for the nine months
ended September 30, 2009. The increase in net cash used in investing activities
resulted from an increase in the purchase of property and
equipment.
Analysis and
Expectations.
Our net cash used in investing activities did not fluctuate significantly in the
comparable periods. We do not expect that cash used in investing activities will
increase significantly in the short term future.
Net cash provided
by financing activities. Net cash provided by
financing activities was $1.34 million for the nine months ended September 30,
2010, compared to net cash provided by financing activities of $3.9 million for
the nine months ended September 30, 2009. The change reflects our repayment of
bank loans and the release of a bank loan guarantee, as well as new capital
contributions from three institutional investors and one individual investor in
September 2009.
Analysis and
Expectations. We
expect that cash generated from financing activities may increase significantly
as a result of additional financing being obtained.
19
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Date:
December 1, 2010
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Kingold
Jewelry, Inc.
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By:
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/s/
Zhihong Jia
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Zhihong
Jia
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||
Chairman,
Chief Executive Officer and
Principal
Executive Officer
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By:
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/s/
Bin Liu
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Bin
Liu
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||
Chief
Financial Officer and Principal
Accounting
Officer
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20