Kingold Jewelery (NASDAQ:KGJI)

On December 29, 2011, Kingold Jewelry, Inc. (the “Company”) issued 2,783,527 unregistered shares of its common stock (the “Shares”) to Hai Gao Holdings Limited (“Holdings Limited”) pursuant to the terms of a subscription agreement, dated December 29, 2011 (the “Agreement”). Holdings Limited is controlled by Mr. Yang Wen, a citizen of the PRC. On August 15, 2011, Mr. Yang Wen purchased in a transaction 4.17% of the equity interest of Wuhan Kingold Jewelry Company Limited (“Wuhan Kingold”), the Company’s controlled operating subsidiary in the PRC, for RMB 30 million (approximately $4.8 million). This equity interest in Wuhan Kingold was previously held by Beijing Shouchuang Investment Co. Ltd, a PRC State Owned Enterprise, until August 9, 2011 when it sold this interest through a public statutory auction process in the PRC.

Third Quarter 2011 Results

On August 8, 2011, the Company increased its full year 2011 revenue guidance to a range of between $800 million and $850 million, up from prior guidance of between $720 million and $780 million. The Company also raised its full year 2011 net income guidance to a range of between $32 million and $34 million, up from prior guidance of between of $30 million and $32 million. Based on management's estimate of weighted average diluted share count for 2011, the guidance corresponds to earnings per diluted share of $0.63 to $0.67.  

The Company's guidance assumes, among other things, relatively stable gold prices for the remainder of the year, no additional capital raises in 2011, and meaningful contribution from its new line of investment-oriented gold products in the second half of 2011.    

(NASDAQ:KGJI - News), a leading Chinese manufacturer and designer of 24-karat gold jewelry and ornaments, today announced that Mr. Zhihong Jia, the Company's Chairman and Chief Executive Officer, has entered into a Rule 10b5-1 plan, under which he intends to purchase up to $500,000 of the Company's common stock. Once the maximum dollar amount of shares has been purchased under the plan, the Chairman currently intends to enter into a subsequent Rule 10b5-1 plan to purchase up to an additional $1 million of the Company's common stock, for a total investment of up to $1.5m.

WUHAN CITY, China, May 2, 2011 /PRNewswire-Asia/ -- Kingold Jewelry, Inc. ("Kingold" or the "Company") today released an open letter to shareholders from the Company's Chairman, Zhihong Jia, discussing Kingold's platform for sustainable growth and dedication to strong corporate governance.

Dear Kingold Shareholders,

I am writing to thank you for your ongoing commitment to Kingold Jewelry, especially during the challenging current market environment for reverse mergers ("RTOs/reverse takeovers") of China based operating companies that trade on United Statesexchanges.  The problems that have surfaced among China RTOs appear to emanate largely from failures in corporate governance practices and, in a few cases, reflect blatant fraud.  In the hope of allaying any concerns you may have, I would like to review ways in which Kingold has built a solid platform for sustainable growth while maintaining rigorous corporate governance standards.

Kingold operates a sustainable, low risk business model.

We have established a market leading position in China's gold jewelry industry, which only opened to the private sector in 2002.  Unlike many of our peers who are conglomerates or who operate in the broader non-gold jewelry category, Kingold focuses exclusively on 24-karat gold products.  Furthermore, we have specialized in design and manufacturing, rather than branching out into wholesale distribution and retailing businesses.  We have placed a strong emphasis on product quality and serving our valued customers.  Importantly, we have not made a single acquisition to date and we plan to continue on an organic growth strategy going forward.  

We are proud of our progress in developing our new line of investment-oriented gold products as well as our line of proprietary MGold brand jewelry.  We believe our current capital base and cash flow are sufficient to meet our near-term capital requirements.

A major benefit of our business model is a low level of accounts receivable.  We set the price for our products at the time a customer places a purchase order, we then buy the gold to produce the products ordered and are paid in full when we deliver the finished goods to the customer.  Kingold had less than $1.2 million of accounts receivable as of December 31, 2010, a negligible amount for a business that generated $523 million in 2010 revenues.

Kingold is dedicated to transparency and strong financial and operational controls.

Our business model is inherently transparent as Kingold produces only 24-karat gold products and we purchase our gold exclusively from the Shanghai Gold Exchange (the "Exchange"). All these purchases can be independently verified. In addition, some of our gold is supplied by our customers for customized production. In 2010, we produced a total of 26 tons of gold products, of which approximately 14.7 tons of gold was purchased from the Exchange and 11.3 tons was supplied by customers.  

Moreover, our tax records in China are transparent and match the numbers reported in the United States.  As a result of our focused business model, the fair market value of our inventory, which is comprised entirely of 24-karat gold, can be easily determined.  

Finally, stringent financial controls are a company-wide priority, from the ground up to our Board of Directors ("Board"), and finally to me. We recently hired a well-regarded consulting firm in China to bolster our internal controls and 404 compliance who conducted an in-depth review of our internal control over financial reporting and continues to support us regarding financial controls. When we had an issue with a non-cash stock compensation expense resulting from the issuance of 100,000 shares of restricted common stock that was previously disclosed, we hired a Big 4 accounting firm to evaluate the effect of the expense on our financial statements which resulted in a de minimis charge. Our decisive action demonstrates our commitment to achieving a very high standard of corporate governance. Our goal is to have the best corporate governance of any Chinese company listed on a U.S. exchange.      

Kingold has a dedicated management team and board of directors.

I started Kingold shortly after liberalization of the jewelry industry in 2002; I was attracted to the sector as a result of my previous experience managing gold mines on behalf of the PRC army. I have worked hard to surround myself with the best possible team to help me realize what I believe to be a unique opportunity, that of becoming the undisputed leader in China's 24-karat gold jewelry manufacturing industry.

The day to day operations of Kingold are managed by our general manager, Bin Zhao, an industry veteran with close to 20 years of experience, together with a highly skilled team of professionals. Our CFO, Bin Liu, has more than 15 years of global capital markets experience and, before joining us, served as a vice president of Citigroup's Financial Institution Cards business.  I have no family members involved in any aspect of Kingold's business nor do I have any other businesses.

Kingold also is distinguished by a strong Board with independent directors that include Professor H. David Sherman, a U.S. Certified Public Accountant who serves as Chairman of our audit committee. Since 1985, Dr. Sherman has been a Professor atNortheastern University, College of Business. In addition, Dr. Sherman, who earned his MBA and doctorate at the Harvard Graduate School of Business Administration, was on the faculty of the MIT Sloan School of Management, an Adjunct Professor of INSEAD (France) and an Adjunct Professor of Tufts Medical School, Department of Public Health. He also served as an Academic Fellow at the Securities and Exchange Commission from 2004 through 2005. Our other independent directors are Binnan Zhang, Vice President and Secretary-General of the China Gold Association and a Director of the Beijing Gold Economic Research Center, and Xaixiao Xu, Director of Cinda Securities Co., Ltd. in Beijing.

We invite inquiries from shareholders who have an interest in better understanding our business and also welcome prospective investors, analysts and other interested parties to visit our facility and management team in Wuhan, to see first-hand the quality of our 24-karat gold manufacturing operations. If you are interested in reviewing our Chinese tax records and/or our gold purchases from the Exchange, please contact our CFO, Bin Liu, on 212-509-1700 or by e-mail at bl@kingoldjewelry.com to set up an appointment.

Fourth Quarter Results:

• Revenue increased 216.6% to $184.9 million from $58.4 million in fourth quarter 2009    
• Gross profit rose 55.8% to $9.5 million from $6.1 million in fourth quarter 2009
• Net income attributable to common stockholders grew 83.6% to $5.3 million, or $0.12 per diluted share, from $2.9 million, or $0.09 per diluted share, in fourth quarter 2009.

"We are very pleased to report record fourth quarter revenue and earnings, capping off an excellent year for Kingold Jewelry. In 2010, our first full year as a publicly traded company, we launched a successful line of proprietary branded jewelry, MGold, up-listed our shares to NASDAQ, accomplished robust earnings growth, and positioned the company for continued success in 2011," said Mr. Zhihong Jia, Kingold's Chairman and CEO.

In 2011, the Company anticipates revenue of between $720 million and $780 million and net income of between $30 million and $32 million. The Company's guidance assumes, among other things, relatively stable gold prices for the remainder of the year, no additional capital raises in 2011, and meaningful contribution from its new line of financially-oriented gold products starting in the second half of 2011.  

WUHAN CITY, China, March 17, 2011 /PRNewswire-Asia/ -- Kingold Jewelry, Inc. ("Kingold" or the "Company") (Nasdaq: KGJI), one of China's leading manufacturers and designers of 24-Karat gold jewelry and ornaments, today announced selected estimated unaudited financial results for the year ended December 31, 2010.

The Company expects 2010 revenue to be approximately $523 million, or more than double 2009 reported revenue of $250.5 million. 2010 net income attributable to common stockholders is expected to be approximately $18 million, or more than double the prior year number of $8.7 million.

"We are pleased to announce strong preliminary 2010 results, including robust top and bottom line growth, driven by solid demand for our high quality 24-K gold jewelry and ornaments," said Mr. Zhihong Jia, Kingold's Chairman and CEO.

Separately, the Company announced that it has filed Form 12b-25, Notification of Late Filing, with the Securities and Exchange Commission, which will give the Company until March 31, 2011 to file its annual report on Form 10-K for the year ended December 31, 2010 (the "Form 10-K"). Upon filing on or before March 31, 2011, the Company's Form 10-K will be deemed to be timely filed. The additional time required to file the Form 10-K is a direct result of the additional requirements of Section 404 of the Sarbanes-Oxley Act of 2002, to which the Company became subject to for the first time with respect to its Form 10-K for the year ended December 31, 2010.

WUHAN, China, Feb. 3, 2011 /PRNewswire-Asia/ -- Kingold Jewelry, Inc. today announces that H. David Sherman, an expert on developing and using financial and non-financial measures to evaluate and manage performance with over 25 years of expertise in academia and business, has joined the Kingold's Board of Directors.

Professor Sherman replaces Dr. Vince Orza who resigned as a director as of January 28, 2011. Dr. Orza resigned from the Board due to a disagreement over Kingold's equity offering which he did not support at the $3.19 per share offering price. He felt that Kingold was undervalued at such price.  Kingold's previously announced US$22.9 million equity offering closed on January 13, 2011.

Update:

KGJI shares  have fallen hard this moring, down $1.40 in early trading to $4.65. Recall that we recently published an article on KJGI when the stock price was $8.87, alerting investors with some of our concerns surrounding this story.   We are assuming that the fall in price may have something to do with a potential offering due to the existence of an S-1 filing.  If KGJI was to offer stock at current levels it would be doing so at a trailing P/E of 11.92 which is still a premium to the ChinaHybrid space. If it were to trade on par with other ChinaHyrbid stocks, a potential stock offering would have to be priced much lower.

by Maj Soueidan

As indicated in my recent article, Limit Risk While You Invest in ChinaHybrids (U.S. Listed Chinese Stocks),  I track daily new highs in an attempt to identify momentum value plays.  A trend I have noticed is that even as the RTO stocks have once again corrected many ADRs, some with premium multiples are attaining new 52 week highs. Short investors have asserted that ADRs are of higher quality than their RTO counterparts and that their PRC filings match SEC filings.

ADR/ADS stocks listed on major exchanges that attained 52 new highs even as the Chinese RTO space has pulled back:

51 Job Adr (NASDAQ:JOBS)
China Digital Tv Holding Adr (NYSE:STV)
7 Days Group Holdings Adr (NYSE:SVN)
Global Sources (NASDAQ:GSOL)
China Techfaith Wireless Adr (NASDAQ:CNTF)
3 Sbio Inc Ads (NASDAQ:SSRX)
Hollysys Automation Tech (NASDAQ:HOLI)
Fabrinet (NYSE:FN)
Elong Adr (NASDAQ:LONG)
China Yuchai Intl (NYSE:CYD)

A couple well-followed RTO stocks have recently attained new highs:

Lihua Intl (NASDAQ:LIWA)
Puda Coal (NYSE AMEX:PUDA)

The following stocks on the BB have recently attained new highs, most on light volume:

China Electronics (OTC BB:CEHD)
Horiyoshi Worldwide (OTC BB:HHWW)
Shun Cheng HK (OTC BB:BRBH)
Zhongchai Machinery (OTC BB:EQPI)
China Agri-Business (OTC BB:CHBU)
Gfr Pharmaceuticals (OTC BB:GFRP)
Sino Oriental (OTC BB:SMPN)
China Shesays Med (OTC BB:CSAY)
Jinhao Motor Co Common (OTC BB:GIMC)
Asia Pacific Wire & Cabl (OTC BB:AWRCF)

I also like to observe stocks that are within striking distance of a 52 week new high. One such RTO stock caught my attention due to the fact that it sports a trailing P/E multiple of over 20 that most RTO stocks would kill for.  I was obviously excited, thinking that the market had placed its quality stamp of approval on Kingold Jewelery (NASDAQ:KGJI).  Shares have risen from a 52 week low of $0.56 to $8.87, off its high of $11.95 in August 2010.

The company also claims to be the leader in its industry:

"Kingold Jewelry, Inc. is one of the leading professional designers and manufacturers of gold jewelry in the central part of China including Hubei, Hunan, Henan, Jiangxi, Anhui and Sichuan Provinces. According to statistics provided by Gems and Jewelry Trade Association of China, KGJI ranked first and second in the PRC's gold industry nationwide in total volume of production in 2007 and 2006, respectively."

As a precaution, I now run many of my potential ChinaHybrid stock selections through my Chinese attorney I call "Bob" in order to respect his privacy. Recall that Bob was instrumental in my article, The SEC vs SAIC Fact Finding Mission, published on August 25, 2010.  I asked Bob if he was aware of KGJI.  He was, and the news was quite interesting.

Bob writes:

KGJI tried to list in Shenzhen stock exchange in China in 2008.  However, it was rejected by China Securities Regulatory Commission on Aug 4th. 2008 (http://www.csrc.gov.cn/pub/zjhpublic/G00306202/200810/t20081027_34946.htm). 

KGJI planned to sell 33,340,000 shares which would have equated to 25% of the total shares after the planned IPO.  The book value per share before the IPO is RMB 1.59 yuan. As the IPO is rejected by China Securities Regulation Commission, we do not know what the planned price was. However, if we assume KGJI would have applied a 20 P/E (China market has a high P/E), the price shall be around RMB 0.30 per share.

Translation from CSRC site:

"China Securities Regulatory Commission, the Audit Committee issued its 115th meeting in 2008 at the August 4, 2008 meeting, the meeting reviewed the results now announced as follows: Wuhan Golden Phoenix Jewelry Co., Ltd. is not approved."

I am 100% percent sure this KGJI Wuhan Golden Phoenix Jewelry are one the same. Wuhan Golden Phoenix Jewelry has the same address, same legal representative and financial statements as well. In its prospectus submitted to CSRC, KGJI applied its English name as "Kingold Jewelry" on the cover which is the same as KGJI. Wuhan Golden Phoenix Jewelry is the direct translation of its Chinese name. When you say the logo of KGJI, it is a golden phoenix.

Bob goes on to comment:

The media reported that possible reasons for the rejection dealt with falsified financial books.  There were several reasons applied to challenge the prospectus submitted to China Securities Regulatory Commission (CSRC) by KGJI (Prospectus: http://www.csrc.gov.cn/n575458/n776436/n804920/n2466277/n10731196.files/n10731195.pdf). 

At first, it has been speculated that the company intentionally increased (forged) the value in its asset appraisal report for machinery and raw materials invested by Zhihong Jia, CEO, in 2004. Secondly, the increase of the revenues from 2006 to the first season of 2008 was challenged.   Thirdly, it has been speculated that suspicious share transactions from Zhihong Jia to other shareholders existed.  (http://money.163.com/08/0805/03/4II6GVGS00251RJ2.html)

I read the prospectus of KGJI in China (2008), the reverse merger documents and its S-1.  Apparently, the annual increase rate of revenue of KGJI is more than 100% for three years.  The Chinese media challenged the increase in 2008.  The financials in the PRC prospectus, reverse merger documents and the S-1 match, so the company used the same filings submitted to the CSRC.  Now, we need to figure out more details in 2010.

To be clear, the CRSC did not mention that it rejected the application for the IPO due to fraud allegations.

In addition to Bob’s findings and with help from a new due diligence panel I have assembled, I have provided the following information that investors may find useful:

• Right after their reverse merger in February, KGJI hired Baker Tilly Hong Kong, respected auditor that also audits Chinacast Education (NASDAQ:CAST).  Then, only a month later, they switched to Friedman LLP.
  http://www.sec.gov/Archives/edgar/data/1089531/000135448810000845/awld_8k.htm
  
• Share structure : 
  
  6,250,010 Shares Pre-RM
  66,208,466 Shares Issued to Owners in RM
  10,240,964 Shares sold in PP at $0.498/share
  833,335 shares issued to advisors
  1,550,000 warrants at $0.598/share
  5,120,482 warrants at $0.498/share
  Total diluted O/S after all transactions: 90,203,257 shares or 45,101,628 post 1 for 2 reverse split.
  
  http://www.sec.gov/Archives/edgar/data/1089531/000111650209001960/awld_8k.htm
  http://www.sec.gov/Archives/edgar/data/1089531/000135448810001889/kgji_pre14c.htm

• It looks like the Company will tap the equity market, as determined by a recently amended S-1 and a blurb in the 2010 third quarter 10Q -

“We expect that cash generated from financing activities may increase significantly as a result of additional financing being obtained.”

We will continue our probe into the KGJI story in order to confirm or refute fraud allegations.   We welcome input from investors.

We believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital, for the next 12 months.

Contradictory statement in the same filing:

We expect that cash generated from financing activities may increase significantly as a result of additional financing being obtained.

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.

Activeworlds Corp. Completes Acquisition of Chinese Gold Jewelry Manufacturer, Wuhan Kingold Jewelry Co., Ltd.

Transaction Details

Shares Structure Pre-reverse Merger

• 6.2 million common
• Modified Terms of Existing Warrants: 1.6 million shares with an exercise price of  $0.598

Share Structure Post Merger

• Shares Issued in transaction: ~66 million
• It is contemplated that in connection with the Reverse Acquisition and simultaneous with the Closing, ActiveWorlds shall conduct a private placement to accredited investors of 10,041,687 shares of ActiveWorlds Common Stock and 5,020,844 five year warrants with an exercise price of $0.498 per share for a total price of $5,000,000
• Estimated Fully Diluted Outstanding Shares: ~90 million

Wuhan Kingold Jewelry Co., Ltd. Information:

• China`s leading manufacturer of 24K gold jewelry sold by weight.
• Nine months ending September 30, 2009 Kingold had revenues of $192,036,951 versus 57,184,660 in 2008
• Nine months ending September 30, 2009 $5,755,918  versus $3,825,753 in 2008

Source: SEC Form 8K (October 5, 2009)