EX-99.1 10 tm1919546d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

Kingold Jewelry Reports Financial Results for the Third Quarter and

Nine Months Ended September 30, 2019

 

 

WUHAN CITY, China, November 12, 2019 - 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)

 

·Net sales were approximately $382.8 million, a decrease from the prior year due to lower sales volume partially offset by higher gold prices
·Processed a total of 13.7 metric tons of 24-karat gold products
·Lower sales volume was the result of an upward trajectory in the price of gold leading customers to delay gold purchases
·Kingold completed a reverse stock split of the Company’s issued and outstanding shares of common stock in October 2019, and after giving effect to the reverse stock split, there were approximately 11,018,955 shares of common stock outstanding as of September 30, 2019
·Net loss was approximately $24.0 million, or $2.18 per diluted share (retrospectively restated for effect of 1-for-6 reverse stock split)

 

Outlook for 2019

·The Company has seen gold demand begin to recover following the conclusion of the quarter as gold prices have stabilized
·As a result of the shift in demand, the Company is revising guidance to around 110 metric tons of 24-karat gold products in 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:

·Total sales volume (in terms of quantity sold) decreased from 29.6 metric tons in three months ended September 30, 2018 to 13.7 metric tons in three months ended September 30, 2019. The decrease in sales volume was affected by customers’ perception of the investment in gold. Usually when the market average selling price per gram of gold rises, customers reduce their gold purchases and wait until the unit price of gold drops in the near future. The Company has since seen this gold demand return as the market price has stabilized.

 

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)

[email protected]

 

Investor Relations Counsel:

The Equity Group Inc.

Adam Prior (in US)

Phone: +212 836-9606

[email protected]

 

Lucy Ma (in China)

Phone: 86-10 5661 7012

[email protected]

 

 

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    -