The accompanying notes are an integral
part of these consolidated financial statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Kingold Jewelry, Inc. (“Kingold”
or “the Company”) was incorporated in the State of Delaware on September 5, 1995.
Dragon Lead Group Limited (“Dragon
Lead”) was incorporated in the British Virgin Islands (“BVI”) on July 1, 2008 as a holding company and was 100%
controlled by Kingold. Wuhan Vogue-Show Jewelry Co., Limited (“Wuhan Vogue-Show”), which is principally engaged in
design and manufacture of gold and platinum ornaments in the People’s Republic of China (“PRC”), was incorporated
in the PRC as a wholly-owned foreign enterprise on February 16, 2009, and was 100% owned by Dragon Lead. Wuhan Vogue-Show’s
business permit expires on February 16, 2019, and is renewable upon expiration. Wuhan Kingold Jewelry Co., Limited (“Wuhan
Kingold”) was incorporated in the PRC on August 2, 2002 as a limited liability company. On October 26, 2007, Wuhan Kingold
was restructured as a joint stock company limited by shares and its business activities are the same as those of Wuhan Vogue-Show.
Wuhan Kingold’s business permit expires on July 1, 2052 and is renewable upon expiration.
Wuhan Kingold is effectively controlled
by Wuhan Vogue-Show through a series of agreements and Amendment Agreements (collectively referred to as the Restructuring Agreements).
In accordance with the Agreements and Amendments, shareholders holding 100% of the outstanding equity of Wuhan Kingold were parties
to the agreements such that Wuhan Kingold has agreed to pay 100% of its after-tax profits to Wuhan Vogue-Show and shareholders
owning 100% of Wuhan Kingold’s shares have pledged and delegated their voting power in Wuhan Kingold to Wuhan Vogue-Show.
These contractual arrangements enable
Wuhan Vogue-Show to:
|
·
|
exercise
effective control over Wuhan Kingold;
|
|
·
|
receive
substantially all of the economic benefits from Wuhan Kingold; and
|
|
·
|
have
an exclusive option to purchase 100% of the equity interest in Wuhan Kingold, when and
to the extent permitted by PRC law.
|
Through such arrangements, Wuhan Kingold
has become Wuhan Vogue-Show’s contractually controlled affiliate. Kingold is empowered, through its wholly owned subsidiaries
Dragon Lead and Wuhan Vogue-Show, with the ability to control and substantially influence Wuhan Kingold’s daily operations
and financial affairs, appoint its senior executives and approve all matters requiring shareholders’ approval. Kingold is
also obligated to absorb a majority of expected losses of Wuhan Kingold, which enables Kingold to receive a majority of expected
residual returns from Wuhan Kingold, and because Kingold has the power to direct the activities of Wuhan Kingold that most significantly
impact Wuhan Kingold’s economic performance, Kingold, through its wholly-owned subsidiaries, accounts for Wuhan Kingold
as its Variable Interest Entity (“VIE”) under ASC 810-10-05-8A. Accordingly, Kingold consolidates Wuhan Kingold’s
operating results, assets and liabilities.
In April 2015, Wuhan Kingold Jewelry Co.,
Inc. (“Wuhan Kingold”) established a new subsidiary Wuhan Kingold Internet Co., Ltd. (“Kingold Internet”),
of which Wuhan Kingold holds a 55% ownership interest and a third-party minority shareholder holds the remaining 45% ownership
interest. Kingold Internet engaged in promoting the online sales of jewelry products through cooperation with Tmall.com, a large
business-to-consumer online retail platform owned by Alibaba Group. In May 2015, Kingold Internet also established a new subsidiary
Yuhuang Jewelry Design Co., Ltd (“Yuhuang”).
On December 14, 2016, Wuhan Kingold transferred
its 55% ownership interest in Kingold Internet to Wuhan Kingold Industrial Group Co., Ltd., a related party, for a consideration
of $79,196 (RMB 550,000), which was the same amount Wuhan Kingold originally invested. After the transfer, Kingold Internet and
Yuhuang were no longer the subsidiaries of Wuhan Kingold.
Kingold, Dragon Lead, Wuhan Vogue-Show
and Wuhan Kingold, are hereinafter collectively referred to as the “Company.”
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial
statements include the financial statements of Kingold, Dragon Lead, Wuhan Vogue-Show and Wuhan Kingold. All inter-company balances
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial
statements in conformity with U.S. 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 consolidated financial statements
as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be made
by management include, but are not limited to, useful lives of property, plant and equipment, intangible assets, the recoverability
of long-lived assets, inventory valuation, allowance for doubtful accounts, deferred income tax, deferred debt issuances cost,
allowance for investments in gold and share based compensation. Actual results could differ from those estimates.
Cash
Cash includes cash on hand and demand
deposits in accounts maintained with commercial banks within the PRC. The Company considers all highly liquid investments with
original maturities of three months or less when purchased to be cash equivalents. The Company maintains most of the bank accounts
in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Restricted Cash
As of December 31, 2017 and 2016, the
Company had restricted cash of $ 12,927,272 and $60,344,430, respectively. As of December 31, 2017, all restricted cash was related
to the various loans with banks and financial institutions – see Note 5 - Loans.
As of December 31, 2016, approximately
total of $9.9 million restricted cash was related to the various loans with banks and financial institutions. Approximately total
of $28.8 million was used to guarantee a thirty party to obtain a bank loan - see Note 9 - Third Party Loan. Approximately total
of $21.6 million was related to the gold lease deposits with Shanghai Pudong Development Bank (“SPD Bank”) and China
Construction Bank (“CCB”) - see Note 18 - Gold Lease Transactions.
Accounts Receivable
The Company generally receives cash payment
upon delivery of a product, but may extend unsecured credit to its customers in the ordinary course of business. The Company 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 management’s assessment of the credit history of the customers and current relationships
with them. At December 31, 2017 and 2016, there was no allowance recorded as the Company considers all of the accounts receivable
fully collectible.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of
cost or market value, and cost is calculated on the weighted average basis. As of December 31, 2017 and December 31, 2016, there
was no lower of cost or market adjustment because the carrying value of the Company’s inventories was lower than the current
and expected market price of gold. The cost of inventories comprises all costs of purchases, costs of fixed and variable production
overhead and other costs incurred in bringing the inventories to their present condition.
Property and equipment
Property and equipment are stated at cost,
less accumulated depreciation. Expenditures for additions 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 an asset’s estimated useful life. The estimated useful lives used in connection
with the preparation of the financial statements 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
|
Leasehold
improvements
|
5 years
|
Land Use Right
Under PRC law, all land in the PRC is
owned by the government and cannot be sold to an individual or company. The government grants individuals and companies the right
to use parcels of land for specified periods of time. These land use rights are sometimes referred to informally as “ownership.”
Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using
the straight-line method. Estimated useful life is 50 years, and is determined in connection with the term of the land use right.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Long-lived assets
Certain assets such as property, plant
and equipment and construction in progress, are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. Recoverability of assets that are held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount exceeds the fair value of the asset. There were no events or changes in circumstances that triggered a review of impairment
of long-lived assets as of December 31, 2017 and 2016.
Fair value of financial instruments
The Company follows the provisions of
Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures.” ASC 820 clarifies
the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify
the inputs used in measuring fair value as follows:
Level 1-Observable inputs such as unadjusted
quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs other than quoted prices
that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities
in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by
observable market data.
Level 3-Inputs are unobservable inputs
which reflect management’s assumptions based on the best available information.
The carrying value of accounts receivable,
other current assets and prepaid expenses, short-term loans, other payables and accrued expenses approximate their fair values
because of the short-term nature of these instruments. The Company determined that the carrying value of the long term loans approximated
their fair value by comparing the stated loan interest rate to the rate charged by similar financial institutions. The Company
uses quoted prices in active markets to measure the fair value of investments in gold.
Investments in Gold
The Company pledged the gold leased from
related party and part of its own gold inventory to meet the requirements of bank loans. The pledged gold will be available for
sale upon the repayment of the bank loans. The Company classified these pledged gold as investments in gold, and carried at fair
market value, with the unrealized gains and losses, included in the determination of comprehensive income (loss) and reported
in equity. The fair market value of the investments in gold is determined by quoted market prices at Shanghai Gold Exchange.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue recognition
Net sales are primarily composed of sales
of branded products to wholesale and retail customers, as well as fees generated from customized production. In customized production,
a customer supplies the Company with the raw materials and the Company creates products per that customer’s instructions,
whereas in branded production the Company generally purchases gold directly and manufactures and markets the products on its own.
The Company recognizes revenues under ASC 605 as follows:
Sαles of brαnded products
The Company recognizes revenue on sales
of branded products when the goods are delivered and title to the goods passes to the customer 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.
Customized production fees
The Company recognizes services-based
revenue (the processing fee) from such contracts for customized production when: (i) the contracted services have been performed
and (ii) collectability is reasonably assured.
Income taxes
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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized.
The provisions of ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes,” prescribe 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, and related disclosures. The Company does not believe that
there was any uncertain tax position at December 31, 2017 and 2016.
To the extent applicable, 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 remains open for tax years 2012 and after. As of December 31,
2017, the tax years ended December 31, 2012 through December 31, 2017 for the Company’s PRC subsidiaries remain open for
statutory examination by PRC tax authorities.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currency translation
Kingold, as well as its wholly owned subsidiary,
Dragon Lead, maintain accounting records in United States Dollars (“US$”), whereas Wuhan Vogue-Show and Wuhan Kingold
maintain their accounting records in Renminbi (“RMB”), which is the primary currency of the economic environment in
which their operations are conducted. The Company’s principal country of operations is the PRC. The financial position and
results of its operations are determined using RMB, the local currency, 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 the PRC’s political and economic conditions.
Any significant revaluation of RMB may materially affect the Company’s financial condition in terms of US$ reporting. The
following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this
report:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Balance sheet items, except for share capital, additional paid in capital and retained
earnings, as of the period ended
|
|
|
US$1=RMB 6.5064
|
|
|
|
US$1=RMB
6.9448
|
|
|
|
US$1=RMB
6.4917
|
|
Amounts included in the statements of income and cash flows for the period
|
|
|
US$1=RMB 6.7570
|
|
|
|
US$1=RMB
6.6441
|
|
|
|
US$1=RMB
6.2288
|
|
Comprehensive income (loss)
Comprehensive income (loss) consists of
two components, net income (loss) and other comprehensive income (loss). The unrealized gain or loss resulting from the change
of the fair market value from the gold investments and the foreign currency translation gain or loss resulting from translation
of the financial statements expressed in RMB to US$ are reported in other comprehensive income (loss) in the consolidated statements
of income and comprehensive income.
Earnings per share (“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 (i.e., 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.
Share or Stock-Based compensation
The Company follows the provisions of
ASC 718, “Compensation — Stock Compensation,” which establishes the accounting for employee stock-based awards.
For employee stock-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award
and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award.
For the non-employee stock-based awards, the fair value of the awards to non-employees are measured every reporting period based
on the value of the Company’s common stock.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Debts issuance cost
Debt issuance cost related to a recognized
debt liability are presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent
with debt discounts. Amortization of debt issuance costs is calculated using the effective interest method and is included as
a component of interest expense.
Risks and Uncertainties
The jewelry industry generally is affected
by fluctuations in the price and supply of diamonds, gold, and, to a lesser extent, other precious and semi-precious metals and
stones. The Company potentially has exposure to the fluctuation in gold commodity prices as part of its normal operations. In
the past, the Company has not hedged its requirement for gold or other raw materials through the use of options, forward contracts
or outright commodity purchasing. A significant increase in the price of gold could increase the Company’s production costs
beyond the amount that it is able to pass on to its customers, which would adversely affect the Company’s sales and profitability.
A significant disruption in the Company’s supply of gold, or other commodities, could decrease its production and shipping
levels, materially increase its operating costs, and materially and adversely affect its profit margins. Shortages of gold, or
other commodities, or interruptions in transportation systems, labor strikes, work stoppages, war, acts of terrorism, or other
interruptions to or difficulties in the employment of labor or transportation in the markets in which the Company purchases its
raw materials, may adversely affect its ability to maintain production of its products and sustain profitability. Although the
Company generally attempts to pass on increased commodity prices to its customers, there may be circumstances in which it is not
able to do so. In addition, if the Company were to experience a significant or prolonged shortage of gold, it would be unable
to meet its production schedules and to ship products to its customers in a timely manner, which would adversely affect its sales,
margins and customer relations.
Furthermore, the value of the Company’s
inventory may be affected by commodity prices. The Company records the value of its inventory using the lower of cost or market
value, cost calculated on the weighted average method. As a result, decreases in the market value of precious metals such as gold
would result in a lower stated value of the Company’s inventory, which may require it to take a charge for the decrease
in the value of its inventory.
The Company also allocated significant
portion of its inventories as investment in gold and pledged as collateral to secure loans from banks and financial institutions,
so there is a risk that the Company is unable to utilize its inventories, and there could be a disruption in the Company’s
supply of gold which could decrease its production and shipping levels. In addition, the investment in gold may be deficient if
the fair market value of the pledged gold in connection with the loans declines, then the Company may need to increase the pledged
gold inventory for the loan collateral or increase restricted cash.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Risks and Uncertainties (continued)
The Company’s operations are located
in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the
political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s
operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North
America and Western Europe. These include risks associated with, among others, the political, economic and legal environment,
and foreign currency exchange. The Company’s results may be adversely affected by changes in the political, regulatory and
social conditions in the PRC, and by changes in governmental policies or interpretations with respect to laws and regulations,
anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things. In
addition, the Company only controls Wuhan Kingold through a series of agreements. Although the Company believes the contractual
relationships through which it controls Wuhan Kingold comply with current licensing, registration and regulatory requirements
of the PRC, it cannot assure you that the PRC government would agree, or that new and burdensome regulations will not be adopted
in the future. If the PRC government determines that the Company’s structure or operating arrangements do not comply with
applicable law, it could revoke the Company’s business and operating licenses, require it to discontinue or restrict its
operations, restrict its right to collect revenues, require it to restructure its operations, impose additional conditions or
requirements with which the Company may not be able to comply, impose restrictions on its business operations or on its customers,
or take other regulatory or enforcement actions against the Company that could be harmful to its business. If such agreements
were cancelled, modified or otherwise not complied with, the Company would not be able to retain control of this consolidated
entity and the impact could be material to the Company’s operations. Although the Company has not experienced losses from
these situations and believes that it is in compliance with existing laws and regulations, including the organization and structure
disclosed in Note 1, this may not be indicative of future results.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU
2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the
transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S.
Generally Accepted Accounting Principles when it becomes effective and permits the use of either the retrospective or cumulative
effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of
revenue and cash flows arising from customer contracts. The guidance in ASU 2014-09 will be effective for annual reporting periods
beginning after December 15, 2017 (including interim reporting periods within those periods), which means it will be effective
for the Company’s fiscal year beginning January 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal
versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation
guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU
No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity
when applying the guidance for identifying performance obligations and improves the operability and understandability of the license
implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients”
(“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation
of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements
to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor
improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a
significant administrative cost to most entities. The amendments are intended to address implementation and provide additional
practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective
date as the new revenue standard. The Company’s current revenue recognition policies are generally
consistent with the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures
are not expected to be pervasive to the majority of the Company’s contracts.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
(continued)
In January 2017, the FASB issued ASU No.
2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business". The amendments in this ASU clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. Basically these amendments provide a screen to determine
when a set is not a business. If the screen is not met, the amendments in this ASU first, require that to be considered a business,
a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to
create output and second, remove the evaluation of whether a market participant could replace missing elements. These amendments
take effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods within those periods.
The adoption of this guidance will not have a material impact on its consolidated financial statements.
In February 2017, the FASB issued ASU
No. 2017-05 (“ASU 2017-05”) to provide guidance for recognizing gains and losses from the transfer of nonfinancial
assets and in-substance nonfinancial assets in contracts with non-customers, unless other specific guidance applies. The standard
requires a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in
substance nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains
a noncontrolling ownership interest, the company is required to measure any noncontrolling interest it receives or retains at
fair value. The guidance requires companies to recognize a full gain or loss on the transaction. As a result of the new guidance,
the guidance specific to real estate sales in ASC 360-20 will be eliminated. ASU 2017-05 is effective for annual periods beginning
after December 15, 2017, including interim periods within that reporting period. The effective date of this guidance coincides
with revenue recognition guidance. The adoption of this guidance will not have a material impact on its consolidated financial
statements.
In May 2017, the Financial Accounting
Standards Board (the “FASB”) issued ASU No. 2017-09 (“ASU 2017-09”) to provide guidance to clarify when
to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification
accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability)
changes as a result of the changes in terms or conditions. ASU 2017-09 is effective for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. The adoption of this guidance will not have a material impact on its
consolidated financial statements.
In September 2017, the FASB has issued
ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),
and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and
Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption
date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. The effective date is the same
as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02. The adoption of this guidance
will not have a material impact on its consolidated financial statements.
The FASB has issued Accounting Standards
Update (ASU) No. 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income.” The
ASU amends ASC 220,
Income Statement — Reporting Comprehensive Income
, to “allow a reclassification from
accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.”
In addition, under the ASU, an entity will be required to provide certain disclosures regarding stranded tax effects. The ASU
is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
The adoption of this guidance will not have a material impact on its consolidated financial statements.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – INVENTORIES
Inventories as of December 31, 2017 and December 31, 2016 consisted
of the following:
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials (A)
|
|
$
|
-
|
|
|
$
|
7,167,391
|
|
Work-in-progress (B)
|
|
|
90,406,021
|
|
|
|
78,813,685
|
|
Finished goods (C)
|
|
|
44,636,692
|
|
|
|
33,454,519
|
|
Total inventory
|
|
$
|
135,042,713
|
|
|
$
|
119,435,595
|
|
|
(A)
|
Included
Nil Au9999 gold as of December 31, 2017 and 185,000 grams of Au9999 gold as of December
31, 2016.
|
|
(B)
|
Included
2,508,182 grams of Au9999 gold as of December 31, 2017 and 2,358,178 grams of Au9999
gold as of December 31, 2016.
|
|
(C)
|
Included
1,231,586 grams of Au9999 gold as of December 31, 2017 and 993,699 grams of Au9999 gold
as of December 31, 2016.
|
No lower of cost or net realizable value
adjustment was recorded at December 31, 2017, 2016 and 2015.
NOTE 4 - PROPERTY AND EQUIPMENT, NET
The following is a summary of property and equipment as of
December 31, 2017 and December 31, 2016:
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Buildings
|
|
$
|
2,415,577
|
|
|
$
|
2,208,918
|
|
Plant and machinery
|
|
|
18,615,951
|
|
|
|
17,401,084
|
|
Motor vehicles
|
|
|
254,228
|
|
|
|
97,549
|
|
Office and electric equipment
|
|
|
1,415,194
|
|
|
|
687,901
|
|
Leasehold improvements
|
|
|
1,623,027
|
|
|
|
1,185,433
|
|
Subtotal
|
|
|
24,323,977
|
|
|
|
21,580,885
|
|
Less: accumulated depreciation
|
|
|
(17,024,334
|
)
|
|
|
(14,356,187
|
)
|
Property and equipment, net
|
|
$
|
7,299,643
|
|
|
$
|
7,224,698
|
|
Depreciation expense for the years ended
December 31, 2017, 2016 and 2015 was $ $1,637,750, $1,403,688 and $1,388,389, respectively.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS
Short term loans consist of the following:
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
(a)
|
|
Loan payable to Minsheng Trust
|
|
$
|
-
|
|
|
$
|
51,693,353
|
|
(b)
|
|
Loans payable to National Trust - gross amount
|
|
|
-
|
|
|
|
143,992,628
|
|
|
|
Loans payable to National Trust - deferred financing cost
|
|
|
-
|
|
|
|
(4,480,085
|
)
|
(c)
|
|
Loan payable to Aijian Trust
|
|
|
46,108,447
|
|
|
|
43,197,788
|
|
(d)
|
|
Loans payable to Evergrowing Bank - Qixia Branch
|
|
|
153,694,824
|
|
|
|
-
|
|
(e)
|
|
Loans payable to Evergrowing Bank - Yantai Huanshan Road Branch
|
|
|
153,233,739
|
|
|
|
287,986
|
|
(f)
|
|
Loans payable to Sichuan Trust-gross amount
|
|
|
230,542,236
|
|
|
|
-
|
|
|
|
Loans payable to Sichuan Trust-deferred financing cost
|
|
|
(2,239,292
|
)
|
|
|
-
|
|
(g)
|
|
Loans payable to China Aviation Capital - gross amount
|
|
|
44,571,499
|
|
|
|
-
|
|
|
|
Loans payable to China Aviation Capital - deferred financing cost
|
|
|
(457,926
|
)
|
|
|
-
|
|
(h)
|
|
Loans payable to Huarong Trust - gross amount
|
|
|
146,163,777
|
|
|
|
-
|
|
|
|
Loans payable to Huarong Trust - deferred financing cost
|
|
|
(1,324,677
|
)
|
|
|
-
|
|
(i)
|
|
Loans payable to China Construction Investment Trust - gross amount
|
|
|
46,108,447
|
|
|
|
-
|
|
|
|
Loans payable to China Construction Investment Trust - deferred financing cost
|
|
|
(167,796
|
)
|
|
|
-
|
|
(j)
|
|
Loans payable to Zheshang Jinhui Trust
|
|
|
84,532,153
|
|
|
|
-
|
|
(k)
|
|
Loans payable to Zhongjiang International Trust
|
|
|
61,477,929
|
|
|
|
-
|
|
|
|
Loans payable to Zhongjiang International Trust - deferred financing cost
|
|
|
(141,614
|
)
|
|
|
-
|
|
|
|
Total short term loans
|
|
$
|
962,101,746
|
|
|
$
|
234,691,670
|
|
(a) Loan payable to Minsheng Trust
A Trust Loan Agreement with the Minsheng
Trust was fully repaid upon maturity and the pledged gold and restricted deposit were released and refunded upon the repayment.
(b) Loans payable to National Trust
Two Trust Loan Agreements with National
Trust Ltd. (“National Trust”) have been fully repaid upon maturity and the pledged gold and restricted deposit were
released and returned upon the repayment.
The Company paid approximately $10 million
(RMB 69.3 million) as loan origination fee for obtaining the loans. As of December 31, 2017, the deferred financing cost was fully
amortized.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
(c) Loan payable to Aijian Trust
On April 28, 2016, Wuhan Kingold and Shanghai
Aijian Trust Co., Ltd. (“Aijian Trust”) entered into a gold income right transfer and repurchase agreement. According
to the agreement, Aijian Trust acquired the income rights from Wuhan Kingold for Wuhan Kingold’s Au9999 gold worth at least
RMB 412.5 million based on the closing price of gold on the most recent trading day at the Shanghai Gold Exchange (the “Gold
Income Right”). Aijian Trust’s acquisition price for the Gold Income Right was approximately $46.1 million (RMB 300
million) (the “Acquisition Price”). Wuhan Kingold is required to repurchase the Gold Income Right back from Aijian
Trust with installments and the last installment shall be within the 24 months. The repurchase price is equal to the Acquisition
Price with annual return of 10% for the period from the agreement date and the last repayment date. The repurchase obligation
may be accelerated under certain conditions, including upon breach of representations or warranties, certain cross-defaults, upon
the occurrence of certain material events affecting the financial viability of Wuhan Kingold, and other customary conditions.
Wuhan Kingold pledged the 1,542 kilograms of related Au9999 gold under the Gold Income Right to Aijian Trust with carrying value
of approximately $55.1 million (RMB 358.5 million) as collateral. The agreement is also personally guaranteed by Mr. Zhihong Jia,
our CEO and Chairman. The Company also made a restricted deposit of $0.5 million (RMB 3 million) to secure these loans. The deposit
will be refunded when the loan is repaid upon maturity. Since Wuhan Kingold has a right to repurchase the Gold Income Right in
12 months, the loan is treated as a short-term loan.
(d) Loans payable to Evergrowing Bank
– Qixia Branch
In January 2016, Wuhan Kingold signed
two Loan Agreements of Circulating Funds with the Qixia Branch of Evergrowing Bank for loans of approximately $123 million (RMB
800 million) in aggregate. The purpose of the loans is for purchasing gold. The terms of loans are two years and bear fixed interest
rates of 7.5% per year. The loans are secured by 5,000 kilograms of Au9999 gold in aggregate with carrying value of approximately
$178.7 million (RMB 1.2 billion) and are guaranteed by the CEO and Chairman of the Company. Both loans are due in January 2018.
The repayment of the loans may be accelerated under certain conditions, including upon a default of principal or interest payment
when due, breach of representations or warranties, certain cross-defaults, upon the occurrence of certain material events affecting
the financial viability of Wuhan Kingold, and other customary conditions.
In February 2017, Wuhan Kingold further
entered into a loan agreement with the Qixia Branch of Evergrowing Bank in the amount of approximately $30.7 million (RMB 200
million). The loan has one year term from February 24, 2017 to February 19, 2018, and bears fixed annual interest of 4.75%. The
Company pledged 1,300 kilograms of Au9999 gold with carrying value of approximately $46.5 million (RMB 302.3 million) as collateral
to secure this loan. The loan is also guaranteed by the CEO and Chairman of the Company and the related party Wuhan Huayuan Technology
Development Co., Ltd.
The Company subsequently fully repaid
loan to Evergrowing Bank – Qixia Branch upon maturity and the pledged gold was subsequent returned to the Company.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
(e) Loans payable to Evergrowing Bank
- Yantai Huangshan Road Branch
From February 24, 2016 to March 24, 2016,
Wuhan Kingold signed ten Loan Agreements with the Yantai Huangshan Road Branch of Evergrowing Bank for loans of approximately
$153.7 million (RMB 1 billion) in aggregate. The purpose of the loans is for purchasing gold. The terms of loans are two years
and bear fixed interest of 7% per year. The loans are secured by 5,550 kilograms of Au9999 gold in aggregate with carrying value
of approximately $198.3 million (RMB 1.3 billion) and are guaranteed by the CEO and Chairman of the Company. Based on the loan
repayment plan as specified in the loan agreements, approximately $153,695 (RMB 1 million) was repaid in August 2016, approximately
$153,695 (RMB 1 million) was repaid on February 23, 2017 and another $153,695 (RMB 1 million) was repaid on August 23, 2017.
The repayment of the loans may be accelerated under certain conditions, including upon a default of principal or interest payment
when due, breach of representations or warranties, certain cross-defaults, upon the occurrence of certain material events affecting
the financial viability of Wuhan Kingold, and other customary conditions.
The Company subsequently repaid $76.4
million (RMB 497 million) to Evergrowing bank Yantai Huangshan Road Branch upon maturity. For the remaining $76.8 million (RMB
500 million) to be matured on March 9, 2018 and March 21, 2018, respectively, the Company subsequently entered into a loan extension
agreement with the bank to extend the loan borrowing period for additional seven months until October 2018, with the same interest
rate of 7% per year.
(f) Loans payable to Sichuan Trust
On September 7, 2016, the Company entered
into two trust loan agreements with the Sichuan Trust Ltd. (“Sichuan Trust”) to borrow a maximum of approximately
$307.4 million (RMB 2 billion) as working capital loan. The loan period is 24 months from receiving. For the loan obtained the
Company is required to make interest payments calculated based on a fixed annual interest rate of 7.25%. The Company is required
to make the first interest payment equal to 1.21% of the principle received as loan origination fee, then the rest of interest
payments are calculated based on a fixed interest rate of 7.25%. The Company pledged 7,258 kilograms of Au9999 gold with carrying
value of approximately $259.4 million (RMB 1.7 billion) as collateral to secure this loan. The loan is guaranteed by the CEO and
Chairman of the Company. The Company also made a restricted deposit of approximately $2.3 million (RMB 15 million) to secure these
loans. The deposit will be refunded when the loan is repaid upon maturity. As of December 31, 2017, the Company received an aggregate
of approximately $230.5 million (RMB 1.5 billion) from the loan.
The Company paid approximately $5.7 million
(RMB 36.3 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017 and 2016, approximately $3.1 million (RMB 20 million) and
$0.3 million (RMB 1.8 million) deferred financing cost was amortized, respectively. As of December 31, 2017, the unamortized deferred
financing cost related to obtaining this loan was approximately $2.2 million (RMB 14.6 million).
g) Loans payable to China Aviation Capital
On September 7, 2016, the Company entered
into a trust loan agreement with China Aviation Capital Investment Management (Shenzhen) ("China Aviation Capital")
to borrow a maximum of approximately $92.2 million (RMB 600 million) as working capital loan. The first installment of the loan
is approximately $44.6 million (RMB 290 million) with a period of 24 months from September 7, 2016 to September 7, 2018. For the
loan obtained the Company is required to make interest payments are calculated based on a fixed annual interest rate of 7.5% and
a one-time consulting fee of 3% based on the principal amount received as loan origination fee. The Company pledged 1,473 kilograms
of Au9999 gold with carrying value of approximately $52.6 million (RMB 342.5 million) as collateral to secure this loan. The loan
is guaranteed by the CEO and Chairman of the Company. As of December 31, 2017, the Company received an aggregate of approximately
$44.6 million (approximately RMB 290 million) from the loan.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
g) Loans payable to China Aviation Capital
(continued)
The Company paid approximately $1.3 million
(RMB 8.7 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017 and 2016, approximately $0.7 million (RMB 4.4 million) and
$0.2 million (RMB 1.4 million) deferred financing cost was amortized, respectively. As of December 31, 2017, the unamortized deferred
financing cost related to obtaining this loan was approximately $0.4 million (RMB 3 million). According to the maturity date of
the loan, the loan balance with unamortized deferred financing cost was classified as short-term.
(h) Loans payable to Huarong Trust
On July 28, 2017, the Company entered
into a loan agreement with Huarong International Trust Co. Ltd. (“Huarong Trust”) to borrow a maximum of approximately
$153.7 million (RMB 1 billion) as working capital loan. The loan has a 12-month term starting from the date of releasing the loan
and 2.5% of the principal amount is required to be repaid after 6 months from releasing date. The Company is required to pay a
special interest as loan origination fee equivalent to 1.5% of the principal amount received and bears normal interest at a fixed
rate of 7% per annum. The loan is also guaranteed by the CEO and Chairman of the Company. The Company pledged 4,975 kilograms
of Au9999 gold with carrying value of approximately $180.8 million (RMB 1,176 million) as collateral to secure this loan. The
loan is guaranteed by the CEO and Chairman of the Company. The Company was also required to pledge approximately $1.5 million
(RMB 9.5 million) restricted cash with Huarong Trust as collateral. As of December 31, 2017, the Company received an aggregate
of approximately $146.2 million (RMB 951 million) from the loan. The Company subsequently repaid approximately $3.8 million (RMB
23.8 million) in February 2018.
The Company paid approximately $2.2 million
(RMB 14.3 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.9 million (RMB 5.7 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$1.3 million (RMB 8.6 million).
(i) Loans payable to China Construction
Investment Trust
On August 29, 2016, the Company entered
into a trust loan agreement with China Construction Investment Trust to borrow a maximum of approximately $46.1 million (RMB 300
million) as working capital loan for the purpose of purchasing of gold solely with a period of 24 months from October 9, 2016
to October 9, 2018. For the loan obtained the Company is required to make interest payments are calculated based on a fixed annual
interest rate. The interest payment is divided into two parts: (1) 1% of the principal amount received need to be paid before
December 25, 2016 as loan origination fee; (2) the rest of interest payments are calculated based on a fixed interest rate of
7.5% and due on quarterly basis. The Company pledged 1,447 kilograms of Au9999 gold with carrying value of approximately $51.7
million (RMB 336.5 million) as collateral to secure this loan. The loan is guaranteed by the CEO and Chairman of the Company.
The Company also made a restricted deposit of approximately $0.5 million (RMB 3 million) to secure the loan. As of December 31,
2017, the full amount of the loan was received by the Company.
The Company paid approximately $0.5 million
(RMB 3 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing cost
against the loan balance. For the year ended December 31, 2017 and 2016, approximately $0.23 million (RMB 1.5 million) and approximately
$0.1 million (RMB 0.4 million) deferred financing cost was amortized, respectively. As of December 31, 2017, the unamortized deferred
financing cost related to obtaining this loan was approximately $0.2 million (RMB 1.1 million).
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
(j) Loans payable to Zheshang Jinhui
Trust
On November 7, 2016, the Company entered
into a trust loan agreement with Zheshang Jinhui Trust to borrow a maximum of approximately $84.5 million (RMB 550 million) for
purchasing gold with a period of 24 months from principle receiving date November 15, 2016 to November 15, 2018. For the loan
obtained, the Company is required to make interest payments calculated based on a fixed annual interest rate of 7.8% based on
the principal amount received. The Company pledged 2,708 kilograms of Au9999 gold with carrying value of approximately $96.8 million
(RMB 629.6 million) as collateral to secure this loan. The loan is guaranteed by the CEO and Chairman of the Company. The Company
also made a restricted deposit of approximately $0.8 million (RMB 5.5 million) to secure these loans. The deposit will be refunded
when the loan is repaid upon maturity.
(k) Loans payable to Zhongjiang International
Trust
On December 23, 2016, the Company entered
into a trust loan agreement with Zhongjiang International Trust to borrow a maximum of approximately $61.5 million (RMB 400 million)
for purchasing gold with a period of 24 months from December 23, 2016 to December 22, 2018. For the loan obtained the Company
is required to make interest payments calculated based on a fixed annual interest rate of 8.75% on the principal amount received.
The Company pledged 2,104 kilograms of Au9999 gold with carrying value of approximately $75.2 million (RMB 489.2 million) as collateral
to secure this loan. The loan is guaranteed by the CEO and Chairman of the Company.
The Company paid approximately $0.29 million
(RMB 1.9 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.15 million (RMB 1.0 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$0.14 million (RMB 0.9 million).
Interest expense for all of the short
term loans for the years ended December 31, 2017, 2016 and 2015 was $68.8 million, $14.8 million and $2.2 million, respectively.
The weighted average interest rate for the year ended December 31, 2017, 2016 and 2015 was 7.0%, 9.4% and 11.5%, respectively.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
Long term loans consist of the following:
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
(l)
|
|
Loans payable to Evergrowing Bank - Qixia Branch
|
|
$
|
-
|
|
|
$
|
115,194,102
|
|
(m)
|
|
Loans payable to Evergrowing Bank - Yantai Huanshan Road Branch
|
|
|
-
|
|
|
|
143,560,650
|
|
(n)
|
|
Loans payable to Minsheng Trust - gross amount
|
|
|
-
|
|
|
|
28,798,526
|
|
|
|
Loans payable to Minsheng Trust - deferred financing cost
|
|
|
-
|
|
|
|
(563,984
|
)
|
(o)
|
|
Loans payable to Sichuan Trust - gross amount
|
|
|
-
|
|
|
|
215,988,941
|
|
|
|
Loans payable to Sichuan Trust - deferred financing cost
|
|
|
-
|
|
|
|
(2,359,280
|
)
|
(p)
|
|
Loans payable to China Aviation Capital - gross amount
|
|
|
-
|
|
|
|
41,757,862
|
|
|
|
Loans payable to China Aviation Capital - deferred financing cost
|
|
|
-
|
|
|
|
(1,055,387
|
)
|
(q)
|
|
Loans payable to China Construction Investment Trust - gross amount
|
|
|
-
|
|
|
|
43,197,788
|
|
|
|
Loans payable to China Construction Investment Trust - deferred financing cost
|
|
|
-
|
|
|
|
(371,697
|
)
|
(r)
|
|
Loans payable to Hubei Assets Management
|
|
|
-
|
|
|
|
43,197,788
|
|
(s)
|
|
Loans payable to Zheshang Jinhui Trust
|
|
|
-
|
|
|
|
79,195,945
|
|
(t)
|
|
Loans payable to Zhongjiang International Trust
|
|
|
-
|
|
|
|
57,597,051
|
|
(u)
|
|
Loans payable to Anxin Trust
|
|
|
461,084,471
|
|
|
|
431,977,883
|
|
(v)
|
|
Loans payable to Chang'An Trust - gross amount
|
|
|
153,694,824
|
|
|
|
28,654,533
|
|
|
|
Loans payable to Chang'An Trust - deferred financing cost
|
|
|
(1,563,230
|
)
|
|
|
-
|
|
(w)
|
|
Loans payable to China Aviation Trust - gross amount
|
|
|
47,645,395
|
|
|
|
-
|
|
|
|
Loans payable to China Aviation Trust - deferred financing cost
|
|
|
(761,674
|
)
|
|
|
|
|
(x)
|
|
Loans payable to National Trust – gross amount
|
|
|
53,793,188
|
|
|
|
-
|
|
|
|
Loans payable to National Trust - deferred financing cost
|
|
|
(228,068
|
)
|
|
|
-
|
|
(y)
|
|
Loans payable to Zheshang Jinhui Trust (new) - gross amount
|
|
|
76,847,412
|
|
|
|
-
|
|
|
|
Loans payable to Zheshang Jinhui Trust (new) - deferred financing cost
|
|
|
(1,102,181
|
)
|
|
|
|
|
|
|
Total long term loans, net of deferred financing costs
|
|
$
|
789,410,137
|
|
|
$
|
1,224,770,721
|
|
(l) Loans payable to Evergrowing Bank
– Qixia Branch (see Note 5 (d) above)
(m) Loans payable to Evergrowing Bank
- Yantai Huanshan Road Branch (see Note 5 (e) above)
(n) Loan payable to Minsheng Trust
On June 24, 2016, Wuhan Kingold entered
into a loan agreement with Minsheng Trust, with an aggregate amount of approximately $30.7 million (RMB 200 million), with a maturity
date of June 22, 2018. During the year ended December 31, 2017, the Company fully repaid the loan. The pledged gold and restricted
deposit were released and refunded upon the repayment.
The Company paid approximately $0.8 million
(RMB 5.3 million) as loan origination fee for obtaining the loan. For the years ended December 31, 2017 and 2016, approximately
$0.6 million (RMB 3.9 million) and $0.2 million (RMB 1.4 million) deferred financing cost was amortized, respectively. As of December
31, 2017, the deferred financing cost was fully amortized.
(o) Loans payable to Sichuan Trust
(see Note 5 (f) above)
(p) Loans payable to China Aviation
Capital (see Note 5 (g) above)
(q) Loans payable to China Construction
Investment Trust (see Note 5 (i) above)
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
(r) Loans payable to Hubei Assets
Management
On September 30, 2016, the Company entered
into an Entrust Loan Agreement with the Hubei Asset Management Co., Ltd. to borrow from Industrial and Commercial Bank of China
Wuhan Jiang'an Branch of a maximum of approximately $46.1 million (RMB 300 million) as a working capital loan in the later period.
During the year ended December 31, 2017, the Company fully repaid the loan. The pledged gold was released to the Company upon
the repayment.
(s) Loans payable to Zheshang Jinhui
Trust (see Note 5 (j) above)
(t) Loans payable to Zhongjiang International
Trust (see Note5 (k) above)
(u) Loans payable to Anxin Trust Co.,
Ltd
In January 2016, Wuhan Kingold signed
a Collective Trust Loan Agreement with Anxin Trust Co., Ltd. (“Anxin Trust”). The agreement allows the Company to
access of approximately $461.1 million (RMB 3 billion) within 60 months. Each individual loan will bear a fixed annual interest
of 14.8% or 11% with various maturity dates from February 19, 2019 to October 12, 2019. The purpose of this trust loan is to provide
working capital for the Company to purchase gold. The loan is secured by 15,450 kilograms of Au9999 gold in aggregate with carrying
value of approximately $552.1 million (RMB 3.6 billion). The loan is also guaranteed by the CEO and Chairman of the Company. As
of December 31, 2017, the Company received full amount from the loan. The Company also made a restricted deposit of approximately
$4.6 million (RMB 30 million) to secure these loans. The deposit will be refunded when the loan is repaid upon maturity.
(v) Loans payable to Chang’An
Trust
On March 9, 2016, Wuhan Kingold entered
into a Trust Loan Contract with Chang’An International Trust Co., Ltd. (“Chang’An Trust”). The agreement
allows the Company to access a total of approximately $46.1 million (RMB 300 million) for the purpose of working capital needs.
During the year ended December 31, 2017, the Company fully repaid the loan. As of December 31, 2017, the restricted deposit was
refunded to the Company.
In September 2017, Wuhan Kingold entered
into a new Trust Loan Contract with Chang’An Trust. The agreement allows the Company to access a total of approximately
$153.7 million (RMB 1 billion) for the purpose of working capital needs. The loan bears a fixed annual interest of 10% with a
term of 24 months and is secured by 4,784 kilograms of Au9999 gold in aggregate with carrying value of approximately $172.7 million
(RMB 1.1 billion). The loan is also guaranteed by the CEO and Chairman of the Company. As of December 31, 2017, the Company received
full amount from the loan. The Company also made a restricted deposit of approximately $1.5 million (RMB 10 million) to secure
these loans. The deposit will be refunded when the loan is repaid upon maturity.
The Company paid approximately $1.7 million
(RMB 11.0 million) as loan origination fee for obtaining the new loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.1 million (RMB 0.8 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$1.6 million (RMB 10.2 million).
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – LOANS (continued)
(w) Loans payable to China Aviation
Trust
On January 25, 2017, Wuhan Kingold entered
into a trust loan agreement with China Aviation Trust Ltd. to borrow a maximum of approximately $47.6 million (RMB 310 million)
for working capital with a period of 24 months from the date of releasing the loan. For the loan obtained, the Company is required
to make interest payments that are calculated based on a fixed annual interest rate of 8% based on the principal amount received.
The Company pledged 1,647 kilograms of Au9999 gold with carrying value of approximately $58.2 million (RMB 378.4 million) as collateral
to secure this loan. The loan is guaranteed by the CEO and Chairman of the Company. The Company also made a restricted deposit
of approximately $0.5 million (RMB 3.1 million) to secure these loans. The deposit will be refunded when the loan is repaid upon
maturity.
The Company paid approximately $1.4 million
(RMB 9.3 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.7 million (RMB 4.3 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$0.8 million (RMB 5.0 million).
(x) Loans payable to National Trust
On February 28, 2017, Wuhan Kingold entered
into a trust loan agreement with National Trust Ltd. (“National Trust”) to borrow a maximum of approximately $53.8
million (RMB 350 million) for working capital with a period of 24 months from the date of releasing the loan. For the loan obtained,
the Company is required to make interest payments that are calculated based on a fixed annual interest rate of 8.617% based on
the principal amount received. The Company pledged 1,745 kilograms of Au9999 gold with carrying value of approximately $62.7 million
(RMB 408 million) as collateral to secure this loan. The loan is guaranteed by the CEO and Chairman of the Company.
The Company paid approximately $0.39 million
(RMB 2.6 million) as loan origination fee for obtaining the loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.16 million (RMB 1.1 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$0.23 million (RMB 1.5 million).
(y) Loans payable to Zheshang Jinhui
Trust (new)
In November 2017, Wuhan Kingold entered
into a new Trust Loan Contract with Zheshang Jinhui Trust. The agreement allows the Company to access a total of approximately
$153.7 million (RMB 1 billion) for the purpose of working capital needs. The loan bears a fixed annual interest of 7.7% with a
term of 24 months and is secured by 2,540 kilograms of Au9999 gold in aggregate with carrying value of approximately $91.8 million
(RMB 597.4 million). The loan is also guaranteed by the CEO and Chairman of the Company. As of December 31, 2017, the Company
received an aggregate of approximately $76.9 million (RMB 0.5 billion) from the loan. The Company also made a restricted deposit
of approximately $0.8 million (RMB 5 million) to secure these loans. The deposit will be refunded when the loan is repaid upon
maturity.
The Company paid approximately $1.15 million
(RMB 7.5 million) as loan origination fee for obtaining the new loan. The loan origination fee was recorded as deferred financing
cost against the loan balance. For the year ended December 31, 2017, approximately $0.05 million (RMB 0.3 million) deferred financing
cost was amortized. As of December 31, 2017, the unamortized deferred financing cost related to obtaining this loan was approximately
$1.1 million (RMB 7.2 million).
Total Interest for the long term loans
in the amount of $59.7 million, $52.3 million and $3.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The weighted average interest rate for the years ended December 31, 2017, 2016 and 2015 was 11.6%, 11.2% and 11.5%, respectively.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 6 – INVESTMENTS IN GOLD
As of December 31, 2017 and 2016, the
Company allocated total of 59,523,000 and 54,677,490 grams of Au9999 gold in its inventories with carrying value of approximately
$2,131.6 million and $1,830.6 million as investments in gold for obtaining various loans from banks and financial institutions.
(See Note 5)
During the year ended December 31, 2017,
the Company leased a total of 10,225 kilograms of gold and pledged as guarantee for Wuhan Kangbo Biotech Limited (“Kangbo”),
a related party which is controlled by the CEO and Chairman of the Company, for obtaining total amount of RMB 2 billion loan from
Evergrowing Bank Huanshan Road Branch. (See Note 10)
During the year ended December 31, 2017,
the Company leased a total of 523 kilograms of gold and pledged as collateral for obtaining total amount of RMB 100 million loan
from Wuhan Huayuan Technology Development Limited (“Huayuan”), a related party which is controlled by the CEO and
Chairman of the Company. (See Note 10)
During the year ended December 31, 2017,
the Company also leased a total of 4,000 kilograms of Au9999 gold in aggregate with carrying value of approximately $138.9 million
(RMB 903.6 million) from Wuhan Shuntianyi Investment Management Ltd. (“Shuntianyi”), a related party. The leased gold
was fully returned by the Company to Shuntianyi as of March 31, 2017. (See Note 7)
As of December 31, 2017, a total of 70,271
kilograms of Au9999 gold investments with a change of fair market value of $3.3 million after the exchange rate adjustment , which
resulted in net unrealized gain of $2.5 million, net of tax, as of December 31, 2017. The Company recorded the change in unrealized
gain as other comprehensive income, net of tax.
As of December 31, 2017, the total of
26,689 kilograms of Au9999 gold with fair market value of approximately $957.1 million was pledged for long-term bank loans, and
therefore classified as non-current investments in gold. The remaining investments in gold of 43,582 kilograms of Au9999 gold
with fair market value of approximately $1,562.9 million was classified as current assets as of December 31, 2017.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – GOLD LEASE PAYABLE –
RELATED PARTY
On January 3, 2017, the Company entered
into a gold lease agreement with Shuntianyi, a related party which was controlled by the CEO and the Chairman of the Company,
to lease a total of 4,000 kilograms of Au9999 gold in aggregate with carrying value of approximately $138.9 million. This lease
was from January 3, 2017 to February 28, 2017. The Company recorded this transaction as gold lease payable – related party.
The leased gold was fully returned by the Company to Shuntianyi as of March 31, 2017. There were no additional gold lease activates
with related parties in 2017.
During the year ended December 31, 2016,
the Company entered into multiple gold lease agreements with Wuhan Shuntianyi Investment Management Ltd. (“Shuntianyi”),
a related party which is controlled by the CEO and the Chairman of the Company, to lease a total of 16,000 kilograms of Au9999
gold in aggregate with carrying value of approximately $538.6 million (RMB 3,740 million). The Company recorded these transactions
as gold lease payable – related party. The leased gold was fully returned by the Company to Shuntianyi as of December 31,
2016.
NOTE 8 – GOLD LEASE PAYABLE –
BANK
The Company allocated a significant amount
of gold in its inventories as investments in gold and pledged as collateral to secure loans from banks and financial institutions.
In order to meet the Company’s production needs, the Company also utilized 185,000 grams of leased Au9999 gold in aggregate
with carrying value of approximately $7.2 million (RMB 49.8 million) from Shanghai Pudong Development Bank (“SPD Bank”),
and recorded this transaction as gold lease payable – bank. The leased gold from SPD Bank was returned when the lease expired
in June 2017. (See Note 18)
Note 9 - THIRD PARTY LOAN
On April 12, 2016, the Company entered
into a loan agreement with Yantai Runtie Trade Ltd. for a total loan of approximately $30.7 million (RMB 200 million). In April
2017, the Company fully repaid the loan and the restricted deposit was refunded upon the repayment.
NOTE 10 – RELATED PARTIES LOANS
(a) Loans payable to Wuhan Kangbo Biotech
Limited
On January 13, 2017, Wuhan Kingold entered
into a loan agreement with Wuhan Kangbo Biotech Limited (“Kangbo”), a related party which is controlled by the CEO
and Chairman of the Company, for a loan of approximately $153.7 million (RMB 1,000 million). The loan has one-year term from January
12, 2017 to January 10, 2018, and bears fixed interest of 4.75%. In order for Kangbo to obtain the loan from the bank, Wuhan Kingold
signed the guarantee agreement with Evergrowing Bank - Yantai Huangshan Road Branch on January 11, 2017. As a guarantor of the
bank loan, Wuhan Kingold pledged 5,470 kilograms of gold in aggregate with carrying value of approximately $193.2 million (RMB
1.3 billion) as collateral.
On February 20, 2017, Wuhan Kingold entered
into a second loan agreement with Kangbo for a loan of approximately $153.7 million (RMB 1,000 million). The loan has one-year
term from February 20, 2017 to February 20, 2018, and bears fixed interest of 4.75%. In order for Kangbo to obtain the loan from
the bank, Wuhan Kingold signed the guarantee agreement with Evergrowing Bank - Yantai Huangshan Road Branch on February 16, 2017.
As a guarantor of the bank loan, Wuhan Kingold pledged 4,755 kilograms of gold in aggregate with carrying value of approximately
$173 million (RMB 1.1 billion) as collateral.
As of December 31, 2017, the aggregated borrowing amount from
Kangbo was $307.4 million (RMB 2,000 million). The Company classified these loans as current liabilities. Total interest expense
for above related party loans was approximately $12.9 million for the year ended December 31, 2017.
The Company subsequently repaid $230.5 million (RMB 1,500 million)
loans to Kangbo upon maturity in January 2018 and February 2018, respectively. 7,870 kilograms of pledged gold in Evergrowing
Bank - Yantai Huanshan Road Branch were released to the Company accordingly. For the remaining $76.8 million (RMB 500 million)
loan matured on March 2, 2018, the Company entered into a loan extension agreement with Kangbo to extend the loan borrowing period
for additional seven months until October 2, 2018.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – RELATED PARTIES LOANS
(continued)
(b) Loans payable to Wuhan Kingold Industrial
Group
Between November 23, 2016 and November
29, 2016, the Company entered into multiple loan agreements with Wuhan Kingold Industrial Group, a related party which is controlled
by the CEO and Chairman of the Company, as working capital loans in order to subsequently purchase raw material of gold. The aggregated
borrowing amount as of December 31, 2016 was approximately $460.8 million (RMB 3,200 million) with a term of 5 years and free of
interest.
On February 22, 2017, the Company signed
a non-interest bearing credit line agreement with Wuhan Kingold Industrial Group for additional loan of $123 million (RMB 800
million) with a 5 year maturity to February 21, 2022.
In April 2017, the Company signed three
additional non-interest bearing credit line agreements with Wuhan Kingold Industrial Group for additional loans totaling $207.5
million (RMB 1.35 billion) with 5 year maturity to April 2022.
During the year ended December 31, 2017,
the Company repaid loans totaling $776.2 million (RMB 5.05 billion) and obtained loans totaling $837.6 million (RMB 5.45 billion).
As of December 31, 2017, the aggregate
borrowing amount from Wuhan Kingold Industrial Group was $553.3 million (RMB 3.6 billion). The Company classified these loans
as non-current liabilities.
The Company subsequently signed additional
non-interest bearing credit line agreement with Wuhan Kingold Industrial Group to borrow additional $322.8 million (RMB 2.1 billion)
loan as working capital with 5 year maturity to January 2023 (see Note 21).
(c) Loans payable to
Wuhan Huayuan Technology Development Limited
On June 8, 2017, Wuhan Kingold signed
a loan agreement with Wuhan Huayuan Technology Development Limited (“Wuhan Huayuan”), a related party which is controlled
by the CEO and Chairman of the Company, for a loan of $15.3 million (RMB 100 million). The purpose for the loans is for working
capital and purchasing gold. The loan has four years term from June 8, 2017 to June 8, 2021, and bears fixed interest of 7%. The
Company also pledged 523 kilograms of Au9999 gold with carrying value of approximately $19.1 million (RMB 124.4 million) as collateral
to secure this loan. During the year ended December 31, 2017, the Company repaid $0.8 million (RMB 5.4 million), results in the
outstanding balance of $14.5 million (RMB 94.6 million) as of December 31, 2017. Interest expense of $574,228 was recorded for
this loan for the year ended December 31, 2017.
NOTE 11 – OTHER RELATED PARTY
TRANSACTIONS
During the year ended December 31, 2017,
the Company made sales of totalling $127.2 million (RMB 0.86 billion) to Wuhan Kingold Industrial Group, a related party which
is controlled by the CEO and Chairman of the Company.
During the years ended December 31, 2017
and 2016, the Company received working capital from the CEO and Chairman of the Company, to pay certain expenses to various service
providers on behalf of the Company. Such proceeds are unsecured and payable on demand with no interest. As of December 31, 2017
and December 31, 2016, the amount due to this related party was $2,630,301 and $7,223,321, respectively.
On June 27, 2016, Wuhan Kingold signed
certain 5 years lease agreements with Wuhan Huayuan, a related party which is controlled by the CEO and Chairman of the Company,
to rent office and store space at the Jewelry Park, commencing in July 2016 and October 2016, respectively, with aggregate annual
rent of approximately $0.3 million (RMB 2.3 million). On July 1, 2017, Wuhan Kingold signed another 5 years lease agreement with
Wuhan Huayuan to rent additional office space at the Jewelry Park commencing in July 2017 with aggregate annual rent of approximately
$85,245 (RMB 576,000). The lease agreement with Wuhan Huayuan has been amended on November 16, 2017, pursuant to which two office
spaces and a dormitory were no longer leased. As of December 31, 2017, the Company had lease payable to Wuhan Huayuan of $263,740,
which was included in other payables and accrued expenses.
For the years ended December 31, 2017,
2016 and 2015, the Company recorded $211,692, $132,600 and $Nil rent expense, respectively.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - 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 is incorporated in the United
States and has incurred net operating loss for income tax purposes for 2017 and 2016. The Company has loss carry forwards of approximately
$18,100,000 for U.S. income tax purposes available for offsetting against future taxable U.S. income, expiring in 2037. Management
believes that the realization of the benefits from these losses is uncertain due to its history of continuing losses in the United
States. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been
recorded. The valuation allowance as of December 31, 2017, 2016 and 2015 was approximately $6,152,000, $5,699,000 and $5,335,000,
respectively. The net increase in the valuation allowance for the years ended December 31, 2017, 2016 and 2015 was approximately
$453,000, $364,000 and $623,000, respectively.
Dragon Lead is incorporated in the BVI, and under current laws
of the BVI, income earned is not subject to income tax.
Wuhan Vogue-Show and Wuhan Kingold are
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 years ended December 31, 2017, 2016 and 2015. The Company recorded $6,677,675
and $Nil deferred income tax assets as of December 31, 2017 and 2016, respectively.
The Company intends to reinvest its foreign
profits indefinitely in order to avoid a tax liability upon repatriation to the United States. Since the U.S. holding company
does not have any earnings and profits, distributions made in 2014 were deemed as a return of capital for U.S. income tax purpose.
On December 22, 2017, the Tax Cuts and
Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. Changes
include, but are not limited to, a U.S. corporate tax rate decrease from 35% to 21% effective for tax years beginning after December
31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition
tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has determined that
the Company’s VIE in PRC does not qualify as a reportable controlled foreign corporation (“CFC”) in accordance
with its understanding of the Act and guidance available as of the date of this filing and as a result the Company assessed there
was no significant income tax impact during the period in which the legislation was enacted. On December 22, 2017, Staff
Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant
does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete
the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has determined that the Company’s
VIE in PRC does not qualify as a reportable CFC, therefore it is not necessary to record any income tax provision in connection
with the transition tax on the mandatory deemed repatriation of foreign earnings at December 31, 2017. Additional work is necessary
to do a more detailed analysis of the Act as well as potential correlative adjustments. Any subsequent adjustment to these amounts
will be recorded to current tax expense in fiscal 2018 when the analysis is complete.
Income (loss) from continuing operations
before income taxes was allocated between the U.S. and foreign components for the year ended December 31, 2017, 2016 and 2015:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
(1,331,862
|
)
|
|
$
|
(1,010,848
|
)
|
|
$
|
(1,833,064
|
)
|
Foreign
|
|
|
36,699,373
|
|
|
|
126,541,875
|
|
|
|
29,733,565
|
|
|
|
$
|
35,367,511
|
|
|
$
|
125,531,027
|
|
|
$
|
27,900,501
|
|
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES (continued)
Significant components of the income tax
provision were as follows for the years ended December 31, 2017, 2016 and 2015:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
17,678,757
|
|
|
|
33,055,811
|
|
|
|
4,488,815
|
|
|
|
$
|
17,678,757
|
|
|
$
|
33,055,811
|
|
|
$
|
4,488,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
(8,503,898
|
)
|
|
|
(428,101
|
)
|
|
|
1,849,910
|
|
|
|
|
(8,503,898
|
)
|
|
|
(428,101
|
)
|
|
|
1,849,910
|
|
Income tax provision
|
|
$
|
9,174,859
|
|
|
$
|
32,627,710
|
|
|
$
|
6,338,725
|
|
The components of deferred tax assets
and deferred tax liability as of December 31, 2017, 2016 and 2015 consist of the following:
|
|
As of December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest
|
|
$
|
1,824,171
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Inventory Valuation
|
|
|
4,545,708
|
|
|
|
-
|
|
|
|
-
|
|
Accrued expenses
|
|
|
330,663
|
|
|
|
-
|
|
|
|
-
|
|
Deferred financing costs on loans
|
|
|
741,008
|
|
|
|
-
|
|
|
|
-
|
|
Other temporary difference
|
|
|
56,062
|
|
|
|
721,570
|
|
|
|
-
|
|
Net operating losses from parent company
|
|
|
6,151,702
|
|
|
|
5,698,869
|
|
|
|
5,335,180
|
|
Valuation allowance
|
|
|
(6,151,702
|
)
|
|
|
(5,698,869
|
)
|
|
|
(5,335,180
|
)
|
|
|
$
|
7,497,612
|
|
|
$
|
721,570
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs on the
loans
|
|
|
-
|
|
|
|
(1,971,192
|
)
|
|
|
-
|
|
Deferred tax liability from capitalized
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,774,993
|
)
|
Unrealized gain due to change
in fair value of investments in gold
|
|
|
(819,937
|
)
|
|
|
-
|
|
|
|
-
|
|
Deferred tax assets (liability)
- Net
|
|
$
|
6,677,675
|
|
|
$
|
(1,249,622
|
)
|
|
$
|
(1,774,993
|
)
|
The following table reconciles the U.S. statutory rates to
the Company’s effective rate for the years ended December 31, 2017, 2016 and 2015:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
US statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Foreign income and loss not recognized in U.S.A.
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
China income tax
|
|
|
25
|
%
|
|
|
25
|
%
|
|
|
25
|
%
|
Miscellanies and non-deductible expense
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
(2.3
|
)%
|
Effective tax rate
|
|
|
26
|
%
|
|
|
26
|
%
|
|
|
22.7
|
%
|
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - EARNINGS PER SHARE
For the year ended December 31, 2017,
the effect of potential shares of common stock was dilutive since the exercise prices for the warrant and options were lower than
the average market price for the year ended December 31, 2017. As a result, total of 421,548 unexercised warrants and options
are dilutive, and were included in the computation of diluted EPS.
For the year ended December 31, 2016,
the effect of potential shares of common stock was dilutive since the exercise prices for the warrant and options were lower than
the average market price for the year ended December 31, 2016. As a result, total of 345,642 unexercised warrants and options
are dilutive, and were included in the computation of diluted EPS.
For the year ended December 31, 2015,
basic average shares outstanding and diluted average shares outstanding were the same because the effect of potential shares of
common stock was anti-dilutive since the exercise prices for the warrant and options were greater than the average market price
for the year ended December 31, 2015. As a result, warrants to purchase 294,000 shares of common stock at weighted average exercise
price of $3.61 per shares and options to purchase 3,220,000 shares of common stock at weighted average exercise price of $1.90
per share were not included in the computation of diluted EPS.
The following table presents a reconciliation
of basic and diluted net income per share:
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net income attributable to common stockholders
|
|
$
|
26,192,652
|
|
|
$
|
92,909,812
|
|
|
$
|
21,562,07
|
|
Weighted average number of common shares outstanding - Basic Effect of dilutive securities
|
|
|
66,050,498
|
|
|
|
66,472,046
|
|
|
|
65,963,502
|
|
Unexercised warrants and options
|
|
|
421,548
|
|
|
|
345,642
|
|
|
|
-
|
|
Weighted average number of common shares outstanding – diluted
|
|
|
66,472,046
|
|
|
|
66,337,129
|
|
|
|
65,963,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - Basic
|
|
$
|
0.40
|
|
|
$
|
1.41
|
|
|
$
|
0.33
|
|
Earnings per share – Diluted
|
|
$
|
0.39
|
|
|
$
|
1.40
|
|
|
$
|
0.33
|
|
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - OPTIONS
The Company recorded $33,014, $44,572
and $530,542 stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017, the Company had
3,191,875 outstanding vested stock options with a weighted average remaining term over 3.73 years and 28,125 unvested stock options
with a weighted average remaining term over 7 years. Unamortized stock-based compensation expense was $25,032, $58,039 and $$102,611
as of December 31, 2017, 2016 and 2015, respectively. The following table summarized the Company’s stock option activity:
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Remaining Life
in Years
|
|
Outstanding, December 31, 2015
|
|
|
3,220,000
|
|
|
$
|
1.90
|
|
|
|
5.76
|
|
Exercisable, December 31, 2015
|
|
|
3,009,375
|
|
|
$
|
1.95
|
|
|
|
5.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2016
|
|
|
3,220,000
|
|
|
$
|
1.90
|
|
|
|
4.76
|
|
Exercisable, December 31, 2016
|
|
|
3,152,500
|
|
|
$
|
1.92
|
|
|
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
3,220,000
|
|
|
$
|
1.90
|
|
|
|
3.76
|
|
Exercisable, December 31, 2017
|
|
|
3,191,875
|
|
|
$
|
1.91
|
|
|
|
3.73
|
|
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - WARRANTS
Following is a summary of the status of warrant activities
as of December 31, 2017, 2016 and 2015:
|
|
Number of
|
|
|
Weighted Average
|
|
|
Weighted average
|
|
|
|
warrants
|
|
|
Exercise Price
|
|
|
Remaining Life in Years
|
|
Outstanding, December 31, 2015
|
|
|
294,000
|
|
|
$
|
3.61
|
|
|
|
0.04
|
|
Granted
|
|
|
300,000
|
|
|
|
1.35
|
|
|
|
0.52
|
|
Forfeited
|
|
|
(294,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(55,365
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2016
|
|
|
244,635
|
|
|
$
|
1.38
|
|
|
|
0.52
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(94,635
|
)
|
|
|
-
|
|
|
|
-
|
|
Outstanding, December 31, 2017
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
On August 12, 2015, the Company signed
a consulting agreement to engage Bespoke Independent Partners (“BIP”), a wholly owned subsidiary of FPIA Partners
LLC to operate as a strategic advisor to Kingold in matters relating to investor relations, capital markets and shareholder value
creation strategy. As the part of the agreement with BIP, an aggregate of 900,000 shares of warrants with exercise price ranging
from $1.20 to $1.80 will be directly issued at no cost to BIP if certain stock performance targets are met within a three-year
period. As of December 31, 2017, no warrants were issued to BIP because the performance target has not been met.
On March 29, 2016, pursuant to the consulting
agreement, the Company’s obligation to issue BIP warrants to purchase 150,000 shares of the Company’s common stock
for $1.20 per share (the “First Tranche Warrants”) was triggered as a result of certain milestone accomplishments.
The warrants were exercised on June 28, 2017, and the Company is in the process of issuing the shares. Accordingly, the Company
recorded $64,204 consulting expense and included in the general administrative expense. The fair value of the warrants was calculated
using the Black-Scholes options pricing model using the following assumptions: volatility of 81%, risk free interest rate of 0.84%,
and expected term of 1.25 years. The fair value of the warrants was $64,204.
On April 18, 2016, pursuant to the consulting
agreement, the Company’s obligation to issue BIP warrants to purchase 150,000 shares of the Company’s common stock
for $1.50 per share (the “Second Tranche Warrants”) was triggered as a result of certain milestone accomplishments.
The warrants were scheduled to expire on July 17, 2017. Accordingly, the Company recorded $65,091 consulting expense and included
in the general administrative expense. The fair value of the warrants was calculated using the Black-Scholes options pricing model
using the following assumptions: volatility of 79.7%, risk free interest rate of 0.63%, and expected term of 1.25 years. The fair
value of the warrants was $65,091.
On May 10, 2016, the Company terminated
the consulting agreement. On June 27, 2016, the Company and BIP signed a settlement agreement (the “Settlement Agreement”).
In connection with the Settlement Agreement, the Company and BIP agreed that (1) the First Tranche Warrants and the Second Tranche
Warrants would remain vested and outstanding, (2) the third, fourth and fifth tranches of success fee warrants would be cancelled;
and (3) crediting of $66,439 in outstanding but unpaid fees against the exercise price of the First Tranche Warrants would be
the only payment made or required under the Service Agreement. As a result, BIP received (a) 55,365 shares, (b) warrants to purchase
94,635 shares for $1.2 per share, which expired June 28, 2017, and (c) warrants to purchase 150,000 shares for $1.50 per share,
which may be exercised until July 17, 2017. As a result of the Settlement Agreement, the Company does not have any liability for
future warrants issuance to BIP. During the six months ended June 30, 2017, 94,635 warrants were exercised and these
shares were issued in August 2017. On July 17, 2017, the Company received notice from BIP not to exercise the remaining 150,000
warrants. As of December 31, 2017, there were no warrants outstanding.
For the years ended December 31, 2017,
2016 and 2015, the Company included $Nil, $129,295 and $Nil warrants cost in the general administrative expenses, respectively.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 16 - NONCONTROLLING INTEREST
For the year ended December 31, 2015,
Non-controlling interest represents the minority stockholders’ 45% proportionate share of the results of the newly established
subsidiary Kingold Internet and Yuhuang.
On December 14, 2016, Wuhan Kingold transferred
its 55% ownership interest in Kingold Internet to Wuhan Kingold Industrial Group Co., Ltd., a related party, for a consideration
of $79,196 (RMB 550,000). After the transfer, Kingold Internet and Yuhuang were no longer the subsidiaries of Wuhan Kingold. There
was no non-controlling interest as of December 31, 2017 and 2016.
A reconciliation of non-controlling interest
as of December 31, 2016 as follows:
|
|
As of December 31,
|
|
|
2016
|
|
Beginning Balance
|
|
$
|
73,274
|
|
Capital Contribution
|
|
|
-
|
|
Proportionate shares of Net loss
|
|
|
(6,214
|
)
|
Foreign currency translation gain (loss)
|
|
|
(4,222
|
)
|
Deconsolidation of subsidiaries
|
|
|
(62,557
|
)
|
Ending Balance
|
|
$
|
-
|
|
NOTE 17 - CONCENTRATIONS AND RISKS
The Company maintains certain bank accounts
in the PRC and BVI, which are not insured by Federal Deposit Insurance Corporation (“FDIC”) insurance or other insurance.
The cash and restricted cash balance held in the PRC bank accounts was $17,632,270 and $81,354,642 as of December 31, 2017 and
2016, respectively. The cash balance held in the BVI bank accounts was $Nil and $7,083 as of December 31, 2017 and 2016, respectively.
As of December 31, 2017, the Company held $266,012 of cash balances within the United States, which was $16,012 in excess of FDIC
insurance limits of $250,000. As of December 31, 2016, the Company held $281,018 of cash balances within the United States, which
was $31,018 in excess of FDIC insurance limits of $250,000.
For the years ended December 31, 2017
and 2016, almost 100% of the Company's assets were located in the PRC and 100% of the Company's revenues were derived from its
subsidiaries located in the PRC.
The Company’s principal raw material
used during the years was gold, which accounted for almost 100% of its total purchases for the years ended December 31, 2017,
2016 and 2015. The gold purchased by the Company was solely from the Shanghai Gold Exchange, the largest gold trading platform
in the PRC.
During the years ended December 31, 2017,
2016 and 2015, approximately 23.3%, 21.5% and 18.8% of the Company’s net sales were generated from the Company’s five
largest customers, respectively. No customer accounted for more than 10% of annual sales for the years ended December 31, 2017,
2016 and 2015.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - GOLD LEASE TRANSACTIONS
The Company leased gold as a way to finance
its growth and will return the same amount of gold to China Construction Bank (“CCB”), Shanghai Pudong Development
Bank (“SPD Bank”) and CITIC Bank at the end of the respective lease agreements. Under these gold lease arrangements,
each of CCB, SPD Bank and CITIC Bank retains beneficial ownership of the gold leased to the Company and treats it as if the gold
is placed on consignment to the Company. All three banks have their own representatives on the Company’s premises to monitor
on a daily basis the use and security of the gold leased to the Company. Accordingly, the Company records these gold lease transactions
as operating leases because the Company does not have ownership nor has it assumed the risk of loss for the leased gold.
|
a)
|
Gold
lease transactions with CCB
|
During the year ended December 31, 2016,
the Company entered into gold lease agreements with CCB and leased an aggregate of 975 kilograms of gold, which amounted to approximately
$33.8 million (RMB 235 million). The leases have initial terms of one year and provide an interest rate of 5.7% per annum.
During the year ended December 31, 2016,
the Company returned 2,490 kilograms of gold, which amounted to approximately $86.4 million (RMB 600 million) back to CCB upon
lease maturity.
As of December 31, 2016, the Company pledged
restricted cash of approximately $14.4 million (RMB 100 million) as collateral to safeguard the gold lease from CCB, which was
returned to the Company in early 2017 as the leased gold was returned at the end of December 2016.
During the year ended December 31, 2017,
no gold lease transactions were made and no leased gold was outstanding from CCB as of December 31, 2017.
|
b)
|
Gold
lease transactions with SPD Bank
|
During the year ended December 31, 2016,
the Company entered into gold lease agreements with Shanghai Pudong Development Bank and leased an aggregate of 345 kilograms
of gold, which amounted to approximately $13.4 million (RMB 93.3 million). The leases had initial terms of six months to one year
and provided an interest rate from 3.0% to 3.3% per annum. During the year ended December 31, 2016, the Company returned 1,077
kilograms of gold, which amounted to approximately $37.2 million (RMB 258.6 million) back to SPD Bank upon lease maturity. The
remaining leased gold of 185 kilograms of leased gold which amounted to approximately $7.2 million (RMB 49.8 million) was returned
to the SPD Bank upon lease maturity in September 2017.
The remaining leased gold of 185
kilograms which amounted to approximately $7.2 million (RMB 49.8 million) was returned to the SPD Bank upon lease maturity in
September 2017. The pledged restricted cash of approximately $8.1 million (RMB 55.6 million) as collateral to safeguard the
gold lease from SPD Bank was also fully refunded to the Company upon lease maturity.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - GOLD LEASE TRANSACTIONS (continued)
|
c)
|
Gold
lease transaction with CITIC Bank
|
During 2015, Wuhan Kingold entered into
a gold lease agreement with CITIC Bank to lease an additional 850 kilograms of gold (valued at approximately $31 million or RMB
201 million). The lease had an initial term of one to six months and provided an interest rate of 6% per annum. The Company was
required to deposit cash into an account at CITIC Bank equal to approximately $1.2 million (RMB 8.0 million). During 2015, the
Company returned 1,150 kilograms of leased gold upon maturity, which amounted to approximately $44.3 million (RMB 287.4 million).
The remaining amount was returned to the Bank upon lease maturity in 2016.
As of December 31, 2017 and 2016, no leased
gold was outstanding and no restricted cash was pledged as collateral to safeguard the gold lease from CITIC.
|
d)
|
Gold
lease transaction with Industrial and Commercial Bank of China (“ICBC’)
|
During the year ended December 31, 2016,
the Company entered into additional gold lease agreements with ICBC and leased an aggregate amount of 527 kilograms of gold, which
amounted to approximately $20.1 million (RMB 139.7 million). The leases had initial terms of half year and provide an interest
rate of 2.75% per annum. As of December 31, 2016, 527 kilograms of leased gold were all returned to ICBC.
As of December 31, 2017 and 2016, no leased
gold was outstanding and no restricted cash was pledged as collateral to safeguard the gold lease from ICBC.
|
e)
|
Gold
lease transactions with related party
|
During the year ended December 31, 2016,
the Company entered into multiple gold lease agreements with Wuhan Shuntianyi Investment Management Ltd. (“Shuntianyi”),
a related party which is controlled by the CEO and the Chairman of the Company, to lease a total of 16,000,000 grams of Au9999
gold in aggregate with carrying value of approximately $538.6 million. The leased gold was fully returned by the Company to Shuntianyi
as of December 31, 2016.
On January 3, 2017, Wuhan Kingold entered
into a gold lease agreement with Shuntianyi to lease a total of 4,000 kilograms of Au9999 gold in aggregate with carrying value
of approximately $131.1 million for a period from January 3, 2017 to February 28, 2017. The leased gold was fully returned by
the Company to Shuntianyi on February 28, 2017.
As of December 31, 2017, the Company had
no leased gold outstanding. As of December 31, 2016, 185 kilograms of leased gold was outstanding, at the approximated amounts
of $7.2 million.
Interest expense for all gold lease arrangements
for the years ended December 31, 2017, 2016 and 2015 was approximately $0.1 million, $3.9 million and $7.0 million, respectively,
which was included in the cost of sales.
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Guarantee for Third Party
On April 12, 2016, Wuhan Kingold signed
the collateral agreements with Evergrowing Bank - Yantai Huangshan Road Branch to pledge restricted deposits of totaling $30.7
million (RMB 200 million). The pledged deposits is to guarantee a bank acceptance note agreement signed between Yantai Runtie
Trade Ltd. and Evergrowing Bank - Yantai Huangshan Road Branch, which allows Yantai Runtie Trade Ltd. to access a loan of approximately
$30.1 million (RMB 200 million) with a term of one year from April 12, 2016 to April 12, 2017, and bearing a fixed annual interest
rate of 2.01%.
On April 12, 2017, Wuhan Kingold repaid
the loan of approximately $30.7 million (RMB 200 million) to Yantai Runtie Trade Ltd. upon maturity. The restricted deposit of
totaling $30.7 million (RMB 200 million) in connection with this loan was also released to the Company upon the repayment.
Guarantee for Related Party
On January 13, 2017, Wuhan Kingold entered
into a loan agreement with Wuhan Kangbo Biotech Limited (“Kangbo”), a related party which is controlled by the CEO
and Chairman of the Company, for a loan of approximately $153.7 million (RMB 1,000 million). The loan has a one-year term from
January 12, 2017 to January 12, 2018, and is interest free. In order for Kangbo to obtain the loan from the bank, Wuhan Kingold
signed the guarantee agreement with Evergrowing Bank - Yantai Huangshan Road Branch on January 11, 2017. As a guarantor of the
bank loan, Wuhan Kingold pledged 5,470 kilograms of gold in aggregate with carrying value of approximately $193.2 million (RMB
1.3 billion) as collateral. The Company subsequently repaid Kangbo and the pledged gold to Evergrowing Bank – Yantai Huanshan
Road Branch was returned to the Company accordingly.
On February 20, 2017, Wuhan Kingold entered
into a second loan agreement with Kangbo for a loan of approximately $153.7 million (RMB 1,000 million). The loan has one-year
term from February 20, 2017 to February 20, 2018, and is interest free. In order for Kangbo to obtain the loan from the bank,
Wuhan Kingold signed the guarantee agreement with Evergrowing Bank - Yantai Huangshan Road Branch on February 16, 2017. As a guarantor
of the bank loan, Wuhan Kingold pledged 4,755 kilograms of gold in aggregate with carrying value of approximately $173 million
(RMB 1.1 billion) as collateral. The Company subsequently repaid $230.5 million (RMB 1,500 million) loans to Kangbo upon maturity in January 2018 and February
2018, respectively. 7,870 kilograms of pledged gold in Evergrowing Bank - Yantai Huanshan Road Branch were released to the
Company accordingly. For the remaining $76.8 million (RMB 500 million) loan matured on March 2, 2018, the Company entered
into a loan extension agreement with Kangbo to extend the loan borrowing period for additional seven months until October
2, 2018 with additional 300 kilograms of gold pledged.
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 19 - COMMITMENTS AND CONTINGENCIES
(continued)
Operating Leases
On June 27, 2016, Wuhan Kingold signed
certain 5 years lease agreements with Wuhan Huayuan, a related party which is controlled by the CEO and Chairman of the Company,
to rent office and store space at the Jewelry Park, commencing in July 2016 and October 2016, with aggregate annual rent of approximately
$0.3 million (RMB 2.3 million). On July 1, 2017, Wuhan Kingold signed another 5 years lease agreement with Wuhan Huayuan to rent
additional office space at the Jewelry Park commencing in July 2017 with aggregate annual rent of approximately $85,245 (RMB 576,000).
The lease agreement with Wuhan Huayuan has been amended on November 16, 2017, pursuant to which two office spaces and a dormitory
were no longer leased. For the years ended December 31, 2017, 2016 and 2015, the Company recorded $211,692, $132,600 and Nil rent
expenses, respectively. As of December 31, 2017, the Company had lease payable to Wuhan Huayuan of $263,740, which included in
other payables and accrued expenses.
As of December 31, 2017, the Company was
obligated under non-cancellable operating leases for minimum rentals as follows:
For the Twelve Months Ending December 31,
|
|
|
|
|
2018
|
|
$
|
254,314
|
|
2019
|
|
|
254,314
|
|
2020
|
|
|
254,314
|
|
2021
|
|
|
212,047
|
|
2022
|
|
|
42,623
|
|
|
|
$
|
1,017,612
|
|
KINGOLD JEWELRY,
INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 20 – SUMMARIZED QUARTERLY
DATA (UNAUDITED)
Our following table summarizes the quarterly
results of operations for the years ended December 31, 2017 and 2016:
|
|
Fiscal Quarterly
|
|
|
|
Quarter 1
|
|
|
Quarter 2
|
|
|
Quarter 3
|
|
|
Quarter 4
|
|
|
|
(in millions, expect per share data)
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
292.3
|
|
|
$
|
475.9
|
|
|
$
|
584.5
|
|
|
$
|
675.0
|
|
Income from operations
|
|
|
13.2
|
|
|
|
44.6
|
|
|
|
74.7
|
|
|
|
53.5
|
|
Net income (loss) attributable to Kingold Jewelry,
Inc.
|
|
|
(21.3
|
)
|
|
|
8.0
|
|
|
|
29.0
|
|
|
|
10.5
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
(0.32
|
)
|
|
$
|
0.12
|
|
|
$
|
0.44
|
|
|
$
|
0.16
|
|
Earnings per share – dilute
|
|
$
|
(0.32
|
)
|
|
$
|
0.12
|
|
|
$
|
0.44
|
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
282.2
|
|
|
$
|
390.3
|
|
|
$
|
390.5
|
|
|
$
|
357.6
|
|
Income from operations
|
|
|
25.6
|
|
|
|
42.9
|
|
|
|
48.3
|
|
|
|
17.1
|
|
Net income attributable to Kingold Jewelry, Inc.
|
|
|
15.2
|
|
|
|
19.9
|
|
|
|
15.9
|
|
|
|
41.9
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.64
|
|
Earnings per share – dilute
|
|
$
|
0.23
|
|
|
$
|
0.30
|
|
|
$
|
0.24
|
|
|
$
|
0.63
|
|
KINGOLD JEWELRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 – SUBSEQUENT EVENTS
On December 26, 2017, Wuhan Kingold Jewelry
Company Limited, entered into a Trust Loan Contract in the amount of no more than RMB 1,500 million (equivalent to approximately
US$ 230 million) with China Minsheng Trust Co., Ltd. The stated purpose of the trust loan is supplementary liquidity needs. The
Trust Loan will be issued in installments. Each installment of the Trust Loan has a 24-month term, and the period from issuance
date of the first installment to the expiration date of the last installment shall not exceed 30 months. The Trust Loan bears
interest at a fixed annual rate of 9.2%. The Trust Loan is secured by 7,887 kilograms of Au9999 gold, pledged by Wuhan Kingold.
The required minimum pledge rate is 70%. The Company’s CEO Mr. Zhihong Jia also agreed to guarantee the Trust Loan. The
repayment of the Trust Loan may be accelerated under certain conditions, including upon a default of principal or interest payment
when due, breach of representations or warranties, certain cross-defaults, upon the occurrence of certain material events affecting
the financial viability of Wuhan Kingold, and other customary conditions. The loan was subsequently released and proceeds received
on January 3, 2018 in the amount of RMB 1.4 billion (approximately $215.1 million).
On December 28, 2017, Wuhan Kingold Jewelry
Company Limited passed a resolution to increase the line of credit limit with Wuhan Kingold Industrial Group from originally maximum
$769.2 million (RMB 5 billion) to $923 million (RMB 6 billion). Pursuant to this resolution, on January 2, 2018, Wuhan Kingold
Jewelry signed an agreement and borrowed additional RMB 2.1 billion non-interest bearing loan from Wuhan Kingold Industrial Group
as working capital to be used in gold inventory purchase. The loan period is from January 2, 2018 to January 2, 2023 for five
years. The loan will be repaid upon maturity.
From January
2018
and early March 2018, the Company repaid an aggregate of $230.5 million (RMB 1.5 billion) loans to related party Kangbo upon maturity
(see Note 10) and also repaid aggregate of $233.8 million (RMB 1.521 billion) loans to various financial institutions (see Note
5).
KINGOLD JEWELRY,
INC.
SCHEDULE 1 - PARENT
COMPANY BALANCE SHEETS (IN U.S. DOLLARS)
(Unaudited)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
266,011
|
|
|
$
|
281,017
|
|
Other current assets and prepaid expenses
|
|
|
500
|
|
|
|
500
|
|
Total current assets
|
|
|
266,511
|
|
|
|
28,517
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
390,065,876
|
|
|
|
282,425,857
|
|
Total other assets
|
|
|
390,065,876
|
|
|
|
282,425,857
|
|
TOTAL ASSETS
|
|
$
|
390,332,387
|
|
|
$
|
282,707,374
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables and accrued expenses
|
|
$
|
100,000
|
|
|
$
|
217,087
|
|
Total current liabilities
|
|
|
100,000
|
|
|
|
217,087
|
|
TOTAL LIABILITIES
|
|
|
100,000
|
|
|
|
217,087
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
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|
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|
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|
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EQUITY
|
|
|
|
|
|
|
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|
Preferred
stock, $0.001 par value, 500,000 shares authorized, none issued or
outstanding as of December 31, 2017 and 2016
|
|
|
-
|
|
|
|
-
|
|
Common stock $0.001 par value, 100,000,000 shares authorized,
66,113,502 and 66,018,867 shares issued and outstanding as of December 31, 2017 and December 31, 2016
|
|
|
66,113
|
|
|
|
66,018
|
|
Additional paid-in capital
|
|
|
80,377,449
|
|
|
|
80,230,968
|
|
Retained earnings
|
|
|
|
|
|
|
|
|
Unappropriated
|
|
|
303,666,611
|
|
|
|
277,473,959
|
|
Appropriated
|
|
|
967,543
|
|
|
|
967,543
|
|
Accumulated other comprehensive income (deficit)
|
|
|
5,154,671
|
|
|
|
(76,248,201
|
)
|
Total Equity
|
|
|
390,232,387
|
|
|
|
282,490,287
|
|
TOTAL LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
390,332,387
|
|
|
|
282,707,374
|
|
The accompanying notes are an integral
part of Schedule 1.
KINGOLD JEWELRY,
INC.
SCHEDULE 1 - PARENT
COMPANY STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(IN U.S. DOLLARS)
(Unaudited)
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
$
|
(1,297,888
|
)
|
|
$
|
(966,276
|
)
|
|
$
|
(1,302,521
|
)
|
Stock compensation expenses
|
|
|
(33,014
|
)
|
|
|
(240,306
|
)
|
|
|
(530,542
|
)
|
Total operating expenses
|
|
|
(1,330,902
|
)
|
|
|
(1,206,582
|
)
|
|
|
(1,833,063
|
)
|
EQUITY INCOME OF SUBSIDIARIES
|
|
|
27,523,554
|
|
|
|
94,109,899
|
|
|
|
23,394,839
|
|
NET INCOME
|
|
|
26,192,652
|
|
|
|
92,903,317
|
|
|
|
21,561,776
|
|
Add: net loss attribute to the non-controlling interest
|
|
|
-
|
|
|
|
6,495
|
|
|
|
296
|
|
NET INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
|
$
|
26,192,652
|
|
|
$
|
92,909,812
|
|
|
$
|
21,562,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) related to investments in gold
|
|
$
|
58,650,446
|
|
|
$
|
(54,789,485
|
)
|
|
$
|
-
|
|
Total foreign currency translation gain (loss)
|
|
|
22,752,426
|
|
|
|
(21,461,689
|
)
|
|
|
(14,740,716
|
)
|
Less: foreign currency translation loss attributable
to non-controlling interest
|
|
|
-
|
|
|
|
(4,222
|
)
|
|
|
4,251
|
|
Total Other comprehensive gain ( loss) attributable
to KINGOLD JEWELRY, INC.
|
|
$
|
81,402,872
|
|
|
$
|
(76,246,952
|
)
|
|
$
|
(14,744,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stockholders
|
|
$
|
107,595,524
|
|
|
$
|
16,662,860
|
|
|
$
|
6,817,105
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
(10,717
|
)
|
|
|
3,955
|
|
|
|
$
|
107,595,524
|
|
|
$
|
16,652,143
|
|
|
$
|
6,821,060
|
|
The accompanying notes are an integral
part of Schedule 1.
KINGOLD JEWELRY, INC.
SCHEDULE 1 - PARENT COMPANY STATEMENTS
OF CASH FLOWS (IN U.S. DOLLARS)
(Unaudited)
|
|
For the years ended December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,192,652
|
|
|
$
|
92,903,317
|
|
|
$
|
21,561,776
|
|
Adjusted to reconcile net income to cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from subsidiaries
|
|
|
(26,123,585
|
)
|
|
|
(92,394,901
|
)
|
|
|
1,388,389
|
|
Share based compensation for services
|
|
|
33,014
|
|
|
|
44,572
|
|
|
|
530,542
|
|
Warrants and shares issued for consulting services
|
|
|
-
|
|
|
|
195,734
|
|
|
|
-
|
|
Changes in operating assets and liabilities (increase) decrease in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables and accrued expenses
|
|
|
(117,087
|
)
|
|
|
(612,170
|
)
|
|
|
140,000
|
|
Net cash provided by (used in) operating activities
|
|
|
(15,006
|
)
|
|
|
136,552
|
|
|
|
82,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH
|
|
|
(15,006
|
)
|
|
|
136,552
|
|
|
|
82,479
|
|
CASH, BEGINNING OF YEAR
|
|
|
281,017
|
|
|
|
144,465
|
|
|
|
61,986
|
|
CASH, END OF YEAR
|
|
$
|
266,011
|
|
|
$
|
281,017
|
|
|
$
|
144,465
|
|
The accompanying
notes are an integral part of Schedule 1.
KINGOLD JEWELRY, INC.
NOTES TO SCHEDULE 1
Certain information and footnote disclosures
normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed
or omitted. The Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.
Schedule I of Article 5-04 of Regulation
S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above
test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share
of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year
may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent
of a third party (i.e., lender, regulatory agency, foreign government, etc.).
The parent company financial statements
have been prepared in accordance with Rule 12-04, Schedule I of Regulation S- X as the restricted net assets of the subsidiaries
of Kingold Jewelry, Inc. exceed 25% of the consolidated net assets of Kingold Jewelry, Inc. The ability of our Chinese operating
affiliates to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of
the Chinese operating subsidiaries. Because a significant portion of our operations and revenues are conducted and generated in
China, a significant portion of our revenues being earned and currency received are denominated in Renminbi (RMB). RMB is subject
to the exchange control regulation in China, and, as a result, we may be unable to distribute any dividends outside of China due
to PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.
The Company did not have any significant
commitments or long-term obligations as at December 31, 2017 and 2016.
The Company recorded $33,014, $44,572
and $530,542 stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015, respectively.
As of December 31, 2017, the Company had
3,191,875 outstanding vested stock options with a weighted average remaining term over 3.73 years and 28,125 unvested stock options
with a weighted average remaining term over 7 years. Unamortized stock-based compensation expense was $25,032, $58,039 and $$102,611
as of December 31, 2017, 2016 and 2015, respectively.
For the years ended December 31, 2017,
2016 and 2015, the Company included $Nil, $129,295 and $Nil warrants cost in the general administrative expenses, respectively.