KINGOLD JEWELRY INC.

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Kingold Jewelry Reports Financial Results for The Fourth Quarter and Year Ended December 31, 2018

Company to Hold Conference Call with Accompanying Slide Presentation at 8:30 a.m. ET on April 3, 2019

PR Newswire

WUHAN CITY, China, April 2, 2019

WUHAN CITY, China, April 2, 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 financial results for the fourth quarter and year ended December 31, 2018.

2018 Financial and Operating Highlights (all results are compared to prior year)

Net sales were approximately $2.48 billion, increased by 41% from approximately $2.01 billion.
Processed a total of 114.2 metric tons [one metric ton = 35,274 ounces] of 24-karat gold products in 2018, an increase of 10.4% compared to 103.4 metric tons. This result exceeded the Company's previously announced estimate of between 100 metric tons and 110 metric tons.
Gross profit increased by 32% to $264.3 million from $199.9 million.
Gross margin was 10.7% compared to 9.9%.
Net income was $49.5 million, or $0.75 per diluted share, increased by 89% from $26.2 million, or $0.39 per diluted share.
Book value per diluted share was $9.64 at December 31, 2018, compared to $5.91 at December 31, 2017.

2018 Fourth Quarter Financial Highlights (all results compared to prior year period)

Net sales were $631.2 million, compared to $657.1 million.
Processed a total of 33.7 metric tons of 24-karat gold products, compared to 31.2 metric tons.
Net income was $9.5 million, or $0.14 per diluted share, compared to $10.5 million, or $0.15 per diluted share.

Outlook for 2019

The Company expects to process between 110 metric tons and 120 metric tons of 24-karat gold products in 2019.

Management Commentary

Mr. Zhihong Jia, Chairman and CEO of the Company, commented, "We are proud to have achieved all aspects of financial and operational growth for the year 2018 and surpassed our previously provided processing volume while gaining double-digit percentage growth in all indices. According to the World Gold Council, in 2018 the annual jewelry demand in China increased by 3% as the retail industry continued to expand and innovate. Based on the management's analysis on the gold market trend, Kingold intends to continue to expand market coverage by diversifying our sales channels for gold jewelry and investment products and continue to explore gold investment to further implement our strategic expansion. Meanwhile, Kingold expects to explore both upstream and downstream markets to optimally utilize resources within China's gold industry, thus to advance our Company's position as a leader in furtherance of the gold industry development, along with our peers."

2018 OPERATIONAL REVIEW

Metric Tons of Gold Processed
	Three Months Ended:
	December 31, 2018		December 31, 2017
	Volume	% of Total	Volume	% of Total
Branded*	16.4	48.7%	16.8	53.8%
Customized**	17.3	51.3%	14.4	46.2%
Total	33.7	100.0%	31.2	100%
	Year Ended:
	December 31, 2018		December 31, 2017
	Volume	% of Total	Volume	% of Total
Branded*	62.9	55.1%	51.5	49.8%
Customized**	51.3	44.9%	51.9	50.2%
Total	114.2	100.0%	103.4	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.

For the three months ended December 31, 2018, the Company processed a total of 33.7 metric tons of gold, of which branded production was 16.4 metric tons, representing 48.7% of total gold processed, and customized production was 17.3 metric tons, representing 51.3% of total gold processed in the fourth quarter of 2018. In the fourth quarter of 2017, the Company processed a total of 31.2 metric tons, of which branded production was 16.8 metric tons, or 53.8% of the total gold processed, and customized production was 14.4 metric tons, or 46.2% of total gold processed.

For the year ended December 31, 2018, Kingold processed a total of 114.2 metric tons of gold, of which branded production was 62.9 metric tons, or 55.1% of total gold processed, and customized production was 51.3 metric tons, or 44.9% of total gold processed. In 2017, the Company processed a total of 103.4 metric tons of gold, of which branded production was 51.5 metric tons, or 49.8% of the total, and customized production was 51.9 metric tons, or 50.2% of the total.

2018 FINANCIAL REVIEW

Net Sales

Net sales for the three months ended December 31, 2018 was approximately $631.2 million, representing a decrease of approximately $26 million, or 3.9%, from approximately $657.1 million for the same period in 2017.

Net sales for the year ended December 31, 2018 was approximately $2.48 billion, an increase of 41% from approximately $2.01 billion reported in the year of 2017. The overall increase was mainly due to the following combined factors: (1) the total sales volume (in terms of quantity sold) for branded production increased from 51.5 metric tons in 2017 to 62.9 metric tons in 2018, causing 11.4 metric tons or 22.1% of increase. However, the average unit selling price for branded production remained stable in 2018, which was RMB 254.8 per gram in 2018, compared to RMB 257.2 per gram in 2018, resulting in a slightly decrease of 0.9%. (2) The total sales volume (in terms of quantity sold) for customized production remained stable in 2018, which was 51.3 metric tons in 2018, compared to 51.8 metric tons in 2017. However, the average unit selling price for customized production increased from RMB 6.38 per gram in 2017 to RMB 6.89 per gram in 2018, causing an 8.1% increase.

Gross Profit

Gross profit for the three months ended December 31, 2018 was approximately $75.1 million, compared to $56.4 million for the same period in 2017.

Gross profit was approximately $264.3 million for the year ended December 31, 2018, compared to approximately $199.9 million for year of 2017. The increase in gross profit was mainly due to the following factors: (1) the increased sales volume from 103.4 metric tons in 2017 to 114.2 metric tons in 2018, which has impacted the Company's gross profit and gross margin for the year ended December 31, 2018; and (2) the increase in unit selling price of customized productions, which has impacted the gross margin.

Gross Margin

The Company's gross margin was 11.9% for the three months ended December 31, 2018, compared to 8.6% in the prior year period.

The Company's gross margin for the year ended December 31, 2018 was 10.7%, compared to 9.9% in the prior year period. The slight increase was due to above reasons.

Net Income

Net income for the three months ended December 31, 2018 was approximately $9.5 million, or $0.14 per diluted share based on 66.1 million weighted average diluted shares outstanding, compared to net income of $10.5 million in the prior year period, or $0.15 per diluted share based on 66.8 million weighted average diluted shares outstanding in the prior year period.

Net income for the year ended December 31, 2018 was approximately $49.5 million, or $0.75 per diluted share based on 66.2 million weighted average diluted shares outstanding, compared to net income of approximately $26.2 million in the prior year, or $0.39 per diluted share based on 66.5 million weighted average diluted shares outstanding in the prior year.

Balance Sheet and Cash flow


(in millions except for percentages)	12/31/2018	12/31/2017	% Changed

Cash	$ 0.23	$ 5.0	(95.4)%
Inventories (gold)	$ 127.0	$ 135.0	(5.9)%
Working Capital	$ 837.3	$ 768.3	9.0%
Stockholders' Equity	$ 638.3	$ 390.2	63.6%

The net cash provided by operating activities for the year ended December 31, 2018 was approximately $365.7 million, compared to approximately $25.7 million of net cash used in operating activities in 2017. The increase of net cash provided by operating was mainly due to the increase in net income, the decrease in inventory purchased of approximately $205.2 million because approximately $769.3 million of gold for investment was released to inventory and processed during the year ended December 31, 2018, collections from value added tax recoverable of $78.0 million, an increase in income tax payable of $17.6 million, offset by our decrease in other payable and accrued expense of $3.7 million.

Kingold's net cash from operating activities can fluctuate significantly due to changes in inventories. Other factors that may vary significantly include our accounts payable, purchases of gold and income taxes. The Company expects the net cash that it generates from operating activities to continue to fluctuate as the Company's inventories, receivables, accounts payables and the other factors described above change with increased production and the purchase of larger or smaller quantities of raw materials. These fluctuations could cause net cash from operating activities to decrease, even if Kingold's net income grows as the Company continue to expand.

OUTLOOK FOR 2019

Based on its existing resources and capacity along with strong demand for 24-karat gold products in China, the Company believes that its gold sales are expected to be between 110 metric tons and 120 metric tons during 2019. This guidance is based solely on current projected, organic growth.

Conference Call Details

Kingold also announced that it will discuss these financial results in a conference call on April 3, 2019, at 8:30 a.m. ET. The dial-in numbers are:

Live Participant Dial In (Toll Free): 877-407-9038
Live Participant Dial In (International): 201-493-6742

The conference call will also be webcast live. To listen to the call, please go to the Investor Relations section of Kingold's website at www.kingoldjewelry.com, or click on the following link: https://78449.themediaframe.com/dataconf/productusers/kgji/mediaframe/29332/indexl.html.

The Company will also have an accompanying slide presentation available in PDF format on its homepage prior to the conference call.

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 high quality 24-karat gold jewelry, ornaments, and investment-oriented products. The Company sells its products both directly to retailers and 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 and investment. 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
The Equity Group Inc.
Katherine Yao, Senior Associate
Phone: +86-10-5661-7012
[email protected]

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

	For the three months ended December 31,
	2018		2017
NET SALES	$	631,174,702	$	657,065,727
COST OF SALES
Cost of sales		(555,777,346)		(600,235,997)
Depreciation		(337,266)		(387,406)
Total cost of sales		(556,114,612)		(600,623,403)

GROSS PROFIT		75,060,090		56,442,324

OPERATING EXPENSES
Selling, general and administrative expenses		3,966,740		2,897,969
Stock compensation expenses		5,364		5,364
Depreciation		169,878		77,185
Amortization, other		2,723		2,858
Total operating expenses		4,144,705		2,983,376

INCOME FROM OPERATIONS		70,915,385		53,458,948

OTHER INCOME (EXPENSES)
Other income, net		(984)		484
Interest income		379,157		427,048
Interest expense (Amortization of debt issuance costs $12,247,690) $490,870 of amortization of financing costs for the years ended December 31, 2017, 2016 and 2015		(43,794,691)		(39,790,115)
Total other expenses, net		(43,416,518)		(39,362,583)

INCOME FROM OPERATIONS BEFORE TAXES		27,498,867		14,096,365

INCOME TAX PROVISION (BENEFIT)
Current		17,757,847		4,682,155
Deferred		240,531		(1,063,593)
Total income tax provision		17,998,378		3,618,562

NET INCOME		9,500,489		10,477,803

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain related to investments in gold, net of tax		137,914,883		(17,285,438)
Total foreign currency translation gain (loss)		(7,285,556)		9,934,925
Total Other comprehensive gain		54,640,188		(7,350,513)

COMPREHENSIVE INCOME	$	130,629,327	$	3,127,290

Earnings per share
Basic	$	0.14	$	0.16
Diluted	$	0.14	$	0.16

Weighted average number of shares
Basic		66,113,502		66,113,502
Diluted		66,113,502		66,773,097

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

	For the years ended December 31,
	2018		2017
NET SALES	$	2,475,666,092	$	2,009,732,643
COST OF SALES
Cost of sales		(2,210,204,664)		(1,808,612,014)
Depreciation		(1,138,650)		(1,193,453)
Total cost of sales		(2,211,343,314)		(1,809,805,467)

GROSS PROFIT		264,322,778		199,927,176

OPERATING EXPENSES
Selling, general and administrative expenses		11,564,285		13,444,222
Stock compensation expenses		21,456		33,014
Depreciation		576,840		444,297
Amortization, other		11,426		11,188
Total operating expenses		12,174,007		13,932,721

INCOME FROM OPERATIONS		252,148,771		185,994,455

OTHER INCOME (EXPENSES)
Other income, net		63,449		66,642
Interest income		1,763,595		2,251,972
Interest expense, including $12,247,690 and $10,958,016 of amortization of financing costs for the years ended December 31, 2018 and 2017		(172,692,768)		(152,945,558)
Total other expenses, net		(170,865,724)		(150,626,944)

INCOME FROM OPERATIONS BEFORE TAXES		81,283,047		35,367,511

INCOME TAX PROVISION (BENEFIT)
Current		26,972,159		17,678,757
Deferred		4,764,174		(8,503,898)
Total income tax provision		31,736,333		9,174,859

NET INCOME		49,546,714		26,192,652

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain related to investments in gold, net of tax		81,006,008		58,650,446
Total foreign currency translation gain (loss)		(26,365,820)		22,752,426
Total Other comprehensive gain		54,640,188		81,402,872

COMPREHENSIVE INCOME	$	104,186,902	$	107,595,524

Earnings per share
Basic	$	0.75	$	0.40
Diluted	$	0.75	$	0.39

Weighted average number of shares
Basic		66,113,502		66,050,498
Diluted		66,192,537		66,472,046

KINGOLD JEWELRY, INC. CONSOLIDATED BALANCE SHEETS (IN U.S. DOLLARS)

	December 31,		December 31,
	2018		2017

ASSETS

Cash	$	233,391	$	4,997,125
Restricted cash		4,798,185		5,534,551
Accounts receivable		451,059		768,167
Inventories		127,034,673		135,042,713
Investments in gold		1,593,557,391		1,562,943,153
Other current assets and prepaid expenses		87,590		100,592
Value added tax recoverable		259,582,324		353,732,758
Total current assets		1,985,744,613		2,063,119,059

Property and equipment, net		5,395,330		7,299,643
Restricted cash		7,766,372		7,392,721
Investments in gold		700,225,896		957,124,267
Other assets		285,768		302,072
Deferred income tax assets		-		6,677,675
Land use right		395,719		429,915
Total long-term assets		714,069,085		979,226,293
TOTAL ASSETS	$	2,699,813,698	$	3,042,345,352

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Short term loans	$	1,034,947,774	$	962,101,746
Other payables and accrued expenses		15,749,564		18,913,863
Related party loan		72,699,779		307,389,647
Due to related party, shareholder		3,976,742		2,630,301
Income tax payable		18,504,197		1,208,742
Other taxes payable		2,577,102		2,615,463
Total current liabilities		1,148,455,158		1,294,859,762
Deferred income tax liability		24,218,911		-
Related party loans		373,327,862		567,843,066
Long term loans		515,477,020		789,410,137
TOTAL LIABILITIES		2,061,478,951		2,652,112,965
COMMITMENTS AND CONTINGENCIES
EQUITY
Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of December 31, 2018 and 2017		-		-
Common stock $0.001 par value, 100,000,000 shares authorized, 66,113,502 shares issued and outstanding as of December 31, 2018 and 2017		66,113		66,113
Additional paid-in capital		224,292,907		80,377,449
Retained earnings
Inappropriate		353,213,325		303,666,611
Appropriated		967,543		967,543
Accumulated other comprehensive income, net of tax		59,794,859		5,154,671
Total Equity		638,334,747		390,232,387

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,699,813,698	$	3,042,345,352

KINGOLD JEWELRY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN U.S. DOLLARS)

	For the years ended December 31,
	2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	49,546,714	$	26,192,652
Adjusted to reconcile net income to cash provided by (used in) operating activities:
Depreciation		1,715,490		1,637,750
Amortization of intangible assets		11,426		11,188
Share based compensation for services		21,456		33,014
Amortization of debt issuance costs included in interest expense		12,247,690		10,958,016
Deferred tax (benefit) provision		4,764,174		(7,683,962)
Changes in operating assets and liabilities
Accounts receivable		286,534		(50,154)
Inventories		205,234,765		(7,279,205)
Other current assets and prepaid expenses		7,900		620,730
Value added tax recoverable		78,022,977		(60,195,642)
Other payables and accrued expenses		(3,736,015)		4,143,958
Customer deposits		(144,978)		185,434
Income tax payable		17,585,797		4,718,786
Other taxes payable		106,862		957,521
Net cash provided by (used in) operating activities		365,670,792		(25,749,914)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(145,507)		(1,241,172)
Investments in gold		-		(551,958,950)
Net cash used in investing activities		(145,507)		(553,200,122)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from other loans - short term		214,833,064		170,341,868
Repayments of other loans - short term		(749,080,980)		(304,869,025)
Proceeds from other loans - long term		423,197,255		319,668,492
Proceeds from related parties loans – short term		-		295,989,344
Proceeds from related parties loans – long term		545,924,459		821,370,431
Repayments of related parties loans		(791,834,472)		(748,170,175)
Payments of loan origination fees		(11,959,140)		(9,572,415)
Repayment of third parties loans		-		(29,598,934)
(Repayments of) borrowings from related party		1,346,835		(4,738,508)
Proceeds from exercise of warrants		-		113,562
Net cash (used in) provided by financing activities		(367,572,979)		510,534,640
EFFECT OF EXCHANGE RATES ON CASH AND RESTRICTED CASH		(3,078,755)		4,662,170
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH		(5,126,449)		(63,753,226)
CASH AND RESTRICTED CASH, BEGINNING OF YEAR		17,924,397		81,677,623
CASH AND RESTRICTED, END OF YEAR	$	12,797,948	$	17,924,397

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense	$	163,182,925	$	128,823,958
Cash paid for income tax	$	10,262,316	$	13,091,812

NON-CASH INVESTING AND FINANCING ACTIVITIES
Investments in gold obtained in a lease from a related party	$	-	$	133,721,408
Investments in gold transferred to inventories	$	769,308,629	$	417,937,474
Unrealized gain on investments in gold	$	81,006,008	$	58,650,446
Forgiveness of debt by shareholder allocated to capital contribution	$	143,894,002	$	-

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SOURCE Kingold Jewelry, Inc.

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