Kingold Jewelry Reports Financial Results for the Third Quarter and Nine Months Ended September 30, 2019
WUHAN CITY, China, Nov. 12, 2019 /PRNewswire/ -- Kingold Jewelry, Inc. ("Kingold" or the "Company") (NASDAQ: KGJI), one of China's leading manufacturers and designers of high quality 24-karat gold jewelry, ornaments and investment-oriented products, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2019.
2019 Third Quarter and Subsequent Financial Highlights (all results compared to prior year period)
- 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. | |||||||||||
For the nine months ended | For the three months ended | ||||||||||
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 | - | |||
SOURCE Kingold Jewelry, Inc.
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