10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:

September 30, 2011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

KINGOLD JEWELRY, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-15819	13-3883101
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation)	File Number)	Identification No.)

15 Huangpu Science and Technology Park

Jiang’an District

Wuhan, Hubei Province, PRC 430023

(Address of Principal Executive Office) (Zip Code)

(011) 86 27 65694977

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ  Yes ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

¨  Yes þ  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer., or a smaller reporting company.

Large accelerated filer  ¨	Accelerated filer  þ
Non-accelerated filer  ¨	Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨  Yes   þ  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 8, 2011, there were 50,198,816 shares of common stock outstanding, par value $0.001.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

		Page Number
PART I. FINANCIAL INFORMATION		4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and December 31, 2010 (Unaudited)	4
	Condensed Consolidated Statements of Income for the Three and nine months Ended September 30, 2011 and September 30, 2010 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months Ended September 30, 2011 and September 30, 2010 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements – September 30, 2011 (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION		24
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	(Removed and Reserved)	24
Item 5.	Other Information	24
Item 6.	Exhibits	24
Signatures		26

2

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements in this report that are not historical facts or information are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “forecast,” “plan,” “believe,” “may,” “expect,” “anticipate,” “intend,” “planned,” “potential,” “can,” “expectation” and similar expressions, or the negative of those expressions, may identify forward-looking statements. Such forward-looking statements are based on management’s reasonable current assumptions and expectations. Such forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, levels of activity, performance or achievement to be materially different from any future results expressed or implied by such forward-looking statements, and there can be no assurance that actual results will not differ materially from management’s expectations. Such factors include, among others, the following:

· changes in the market price of gold;

· our ability to implement the key initiatives of, and realize the gross and operating margins and projected benefits (in the amounts and time schedules we expect) from, our business strategy;

· non-performance of suppliers on their sale commitments and customers on their purchase commitments;

· non-performance of third-party service providers;

· adverse conditions in the industries in which our customers operate, including a general economic downturn, a recession globally, or sudden disruption in business conditions, and our ability to withstand an economic downturn, recession, cost inflation, competitive or other market pressures, or conditions;

· the effect of political, economic, legal, tax and regulatory risks imposed on us, including foreign exchange or other restrictions, adoption, interpretation and enforcement of foreign laws including any changes thereto, as well as reviews and investigations by government regulators that have occurred or may occur from time to time, including, for example, local regulatory scrutiny in China;

· our ability to manage growth;

· our ability to successfully identify new business opportunities and identify and analyze acquisition candidates, secure financing on favorable terms and negotiate and consummate acquisitions as well as to successfully integrate or manage any acquired business;

· our ability to integrate acquired businesses;

· the effect of economic factors, including inflation and fluctuations in interest rates and currency exchange rates, foreign exchange restrictions and the potential effect of such factors on our business, results of operations and financial condition;

· our ability to retain and attract senior management and other key employees;

· any internal investigations and compliance reviews of Foreign Corrupt Practices Act and related U.S. and foreign law matters in China and additional countries, as well as any disruption or adverse consequences resulting from such investigations, reviews, related actions or litigation;

· changes in PRC or U.S. tax laws;

· increased levels of competition, and competitive uncertainties in our markets, including competition from companies in the gold jewelry industry in the PRC, some of which are larger than we are and have greater resources;

· the impact of the seasonal nature of our business, adverse effect of rising energy, commodity and raw material prices, changes in market trends, purchasing habits of our consumers and changes in consumer preferences;

· our ability to protect our intellectual property rights;

· the risk of an adverse outcome in any material pending and future litigations;

· our access to cash and financing and ability to secure financing at attractive rates;

· the success of our research and development activities;

· our ability to comply with environmental laws and regulations; and

· other risks, including those described in the “Risk Factors” discussion of this periodic report and in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission.

We undertake no obligation to update any such forward looking statement, except as required by law.

3

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

KINGOLD JEWELRY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)

	September 30,		December 31,
	2011		2010
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,234,596	$	9,151,536
Accounts receivable		183,971		1,165,760
Inventories		103,944,981		55,426,830
Other current assets and prepaid expenses		21,373		72,215
Deferred offering costs		-		666,364
Value added tax recoverable		5,528,161		3,853,647
Total Current Assets		112,913,082		70,336,352
PROPERTY AND EQUIPMENT, NET		12,871,691		13,332,416
OTHER ASSETS
Other assets		151,215		146,222
Intangible assets, net		512,149		503,824
Total other assets		663,364		650,046
TOTAL ASSETS	$	126,448,137	$	84,318,814
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short term loans	$	-	$	6,058,486
Related party Loan		410,508		-
Other payables and accrued expenses		990,281		1,715,431
Income tax payable		3,328,474		2,185,112
Other taxes payable		63,759		545,222
Total Current Liabilities		4,793,022		10,504,251
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of September 30, 2011 and December 31, 2010		-		-
Common stock $0.001 par value, 100,000,000 shares authorized, 50,098,816 and 42,531,994 shares issued and outstanding as of September 30, 2011 and December 31, 2010		50,099		42,532
Additional paid-in capital		52,345,820		31,901,832
Retained earnings
Unappropriated		56,655,477		33,744,244
Appropriated		1,071,974		967,543
Accumulated other comprehensive income		8,693,843		5,409,876
Total Stockholders' Equity		118,817,213		72,066,027
Noncontrolling interest		2,837,902		1,748,536
Total Equity		121,655,115		73,814,563
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	126,448,137	$	84,318,814

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

KINGOLD JEWELRY INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(IN US DOLLARS)

(UNAUDITED)

	For the three months ended September 30,						For the nine months ended September 30,
	2011			2010			2011			2010
NET SALES	$	210,710,516		$	169,706,497		$	620,533,358		$	338,062,808
COST OF SALES
Cost of sales		(196,453,806	)		(160,792,165	)		(584,246,090	)		(315,574,745	)
Depreciation		(265,488	)		(277,204	)		(872,125	)		(832,288	)
Total cost of sales		(196,719,294	)		(161,069,369	)		(585,118,215	)		(316,407,033	)
GROSS PROFIT		13,991,222			8,637,128			35,415,143			21,655,775
OPERATING EXPENSES
Selling, general and administrative expenses		789,820			1,007,909			2,550,526			2,133,475
Stock compensation expenses		62,500			670,440			257,500			670,440
Depreciation		66,214			30,665			98,325			86,942
Amortization		3,000			2,792			8,781			8,330
Total Operating Expenses		921,533			1,711,806			2,915,133			2,899,187
INCOME FROM OPERATIONS		13,069,689			6,925,322			32,500,010			18,756,588
OTHER INCOME (EXPENSES)
Other income		227			14,882			18,234			18,934
Interest income		5,758			926			5,758			3,232
Interest expense		-			(135,638	)		(120,811	)		(405,174	)
Other expenses					(1,469	)		-			(1,469	)
Total Other Expenses, net		5,985			(121,299	)		(96,818	)		(384,477	)
INCOME FROM OPERATIONS BEFORE TAXES		13,075,674			6,804,023			32,403,192			18,372,111
PROVISION FOR INCOME TAXES		(3,353,879	)		(1,979,290	)		(8,347,773	)		(4,925,385	)
NET INCOME	$	9,721,795		$	4,824,733		$	24,055,419		$	13,446,726
OTHER COMPREHENSIVE INCOME
Foreign currency translation gains		1,288,912			895,092			3,333,579			1,348,266
COMPREHENSIVE INCOME		11,010,707			5,719,825			27,388,998			14,794,992
Less: Comprehensive income attribute to the noncontrolling interest		(411,292	)		(266,989	)		(1,089,366	)		(645,228	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	10,599,415		$	5,452,836		$	26,299,632		$	14,149,764
Earnings per share
Basic	$	0.19		$	0.11		$	0.47		$	0.31
Diluted	$	0.18		$	0.10		$	0.46		$	0.29
Weighted average number of shares
Basic		49,998,706			41,861,457			49,391,647			41,798,205
Diluted		50,744,359			44,248,740			50,480,880			44,185,488

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)

	For the nine months ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	24,055,419		$	13,446,726
Adjusted to reconcile net income to cash provided by (used in) operating activities:
Depreciation		970,450			919,230
Amortization of intangible assets		8,781			8,330
Share based compensation		257,500			670,440
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable		1,010,099			158,509
Inventories		(46,100,293	)		(17,902,549	)
Other current assets and prepaid expenses		51,215			(348,268	)
Value added tax recoverable		(1,525,536	)		1,603,596
Increase (decrease) in:
Other payables and accrued expenses		(740,083	)		997,823
Income tax payable		1,056,705			678,071
Other taxes payable		(494,451	)		(193,280	)
Net cash provided by (used in) operating activities		(21,450,194	)		38,627
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(64,723	)		(24,862	)
Net cash (used in) investing activities		(64,723	)		(24,862	)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash		-			1,469,160
Deferred offering costs		666,364			(125,994	)
Proceeds from bank loans		-			5,876,639
Repayments of bank loans		(6,194,845	)		(5,876,639	)
Proceeds from related party loan		2,574,082			-
Repayments of related party loan		(2,168,196	)		-
Net proceeds from stock issuance in public offering		20,144,255			-
Net proceeds from exercise of warrants		49,800			-
Net cash provided by financing activities		15,071,460			1,343,166
EFFECT OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS		526,517			162,992
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(5,916,940	)		1,519,924
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		9,151,536			7,964,120
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	3,234,596		$	9,484,044
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense	$	121,933		$	357,198
Cash paid for income tax	$	7,291,068		$	4,267,965
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for consulting service	$	-		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated Financial Statements

6

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the interim period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis, and the financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the financial statements of Kingold Jewelry, Inc., our wholly owned subsidiaries, Dragon Lead Group Limited (“Dragon Lead”) and Wuhan Vogue-Show Jewelry Co., Inc. (“Wuhan Vogue-Show”), as well as Wuhan Kingold Jewelry Co., Inc. (“Wuhan Kingold”), our 95.83% contractually controlled affiliate. The non-controlling interests represent the minority stockholders' 4.17% proportionate share of the results of Wuhan Kingold. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with US 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 condensed 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 and the valuation of accounts receivable and inventories. Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of cost or market value, cost being calculated on the weighted average basis. The cost of inventories comprises all costs of purchases, costs of fixed and variable production overheads and other costs incurred in bringing the inventories to their present location and condition. We provide inventory allowances based on excess and obsolete inventories determined principally by customer demand. We did not record a provision for obsolete inventories as of either September 30, 2011 or December 31, 2010.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals 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

Fair value of financial instruments

We adopted the provisions of 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:

7

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

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 then 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, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. We are of the opinion that we are not exposed to significant interest or credit risks arising from these financial instruments.

Revenue recognition

Net sales are primarily composed of sales of products to wholesale and retail customers, as well as fees generated from Customized Production. In Customized Production, a customer supplies us with the raw materials and we create products per the their instructions, whereas in Branded Production we purchase gold directly once a customer has placed an order. We recognize revenues under the FASB Codification Topic 605 ("ASC Topic 605"). Pursuant to this guidance, revenue is recognized when all of the following have occurred: (i) there is persuasive evidence of an arrangement with a customer, (ii) the contracted for services have been performed, (iii) the fees to be paid under the agreement are either fixed or determinable and (iv) our collection of such fees is reasonably assured. These criteria, as related to our revenues, are considered to have been met as follows:

Sales of products

We recognize revenue on sales of 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

We also provide Customized Production services to our customers based on fixed-price contracts. We recognize services-based revenue from such contracts when: (i) the contracted for services have been performed, (ii) the customer has approved the completion of the services, (iii) an invoice has been issued and (iv) collectability is deemed probable. The revenues from Customized Production services made up approximately 1.98% of the total revenue recognized during the nine months ended September 30, 2011, compared to approximately 3.98% for the nine months ended September 30, 2010. 

Income taxes

We account for income taxes under the FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the condensed 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period included the enactment date.

On January 1, 2007, we adopted the provisions of ASC 740-10-25, "Accounting for Uncertainty in Income Taxes." ASC 740-10-25 prescribes a more-likely-than-not threshold for condensed 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, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The adoption of ASC 740-10-25 has not resulted in any material impact on our financial position or results.

We record interest and penalties as a general and administrative expense. The statute of limitations for our U.S. federal income tax returns and certain state income tax returns remain open for tax years 2007 and after. As of September 30, 2011, the tax year ended December 31, 2005 through December 31, 2010 for our PRC subsidiaries remain open for statutory examination by the PRC tax authorities.

8

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Foreign currency translation

We, as well as our wholly owned subsidiary, Dragon Lead, maintain accounting records in the United States Dollars (“US$”), whereas Wuhan Vogue-Show and Wuhan Kingold maintain their accounting records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Our principal country of operations is the PRC. The financial position and results of our 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. Due to the fact that 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 China’s political and economic conditions. Any significant revaluation of RMB may materially affect our financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in creating the condensed consolidated financial statements in this report:

	September 30,	December 31,
	2011	2010
Balance sheet items, except for share capital, additional paid in capital and retained earnings, as of year end	$1=RMB 6.3842	$1=RMB 6.60231
Amounts included in the statements of operations and cash flows for the year	$1=RMB 6.4570	$1=RMB 6.76816

NOTE 3 — INVENTORIES, NET

Inventories as of September 30, 2011 and December 31, 2010 consisted of the following:

	As of
	September 30,		December 31,
	2011		2010
Raw materials	$	14,333,748	$	16,480,224
Work-in-progress		48,916,553		25,095,026
Finished goods		40,694,680		13,851,580
Less: provision for obsolescence		-		-
Total inventory	$	103,944,981	$	55,426,830

For the nine months ended September 30, 2011 and 2010, no provision for obsolete inventories was recorded by us.

9

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 — PROPERTY AND EQUIPMENT, NET

The following is a summary of property and equipment as of September 30, 2011 and December 31, 2010:

	As of
	September 30,			December 31,
	2011			2010
Buildings	$	1,930,130		$	1,866,391
Plant and machinery		18,584,454			17,948,927
Motor vehicles		77,003			39,927
Office and electric equipment		572,478			546,614
Subtotal		21,164,065			20,401,859
Less: accumulated depreciation		(8,292,374	)		(7,069,443	)
Property and equipment, net	$	12,871,691		$	13,332,416

Depreciation expense for the nine months ended September 30, 2011 and 2010 were $970,450 and $919,230, respectively. Depreciation expense for the three months ended September 30, 2011 and 2010 were $331,701 and $307,869, respectively

NOTE 5 — INCOME TAXES

We are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

We were incorporated in the United States and have incurred net operating loss for income tax purpose for 2011 and 2010. Kingold had loss carry forwards of approximately $3,274,975 for U.S. income tax purposes available for offset against future taxable U.S. income, expiring in 2031. Management believes that the realization of the benefits from these losses appears uncertain due to our limited operating history income and continuing losses. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. This deferred tax asset valuation allowance as of September 30, 2011 was $1,113,491. This net change in the valuation allowance was an increase of $337,936.

Dragon Lead was incorporated in the BVI, and under the current laws of the BVI, income earned is not subject to income tax.

Wuhan Vougue-Show and Wuhan Kingold were 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 income tax rate was 25% for the three and nine months ended September 30, 2011 and 2010.

We do not have any deferred tax assets or liabilities from our foreign operations.

10

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 — INCOME TAXES – (continued)

Significant components of the income tax provision were as follows for the three and nine months ended September 30, 2011 and 2010.

	For the three months ended September 30,				For the nine months ended September 30,
	2011		2010		2011		2010
Current tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		3,353,879		1,979,290		8,347,773		4,925,385
		3,353,879		1,979,290		8,347,773		4,925,385
Deferred tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		-		-		-		-
		-		-		-		-
Income tax provision	$	3,353,879	$	1,979,290	$	8,347,773	$	4,925,385

Income from continuing operations before income taxes were allocated between the United States and foreign components for the three and nine months ended September 30, 2011 and 2010:

	For the three months ended September 30,						For the nine months ended September 30,
	2011			2010			2011			2010
United States	$	(343,600	)	$	(890,455	)	$	(993,931	)	$	(881,131	)
Foreign		13,419,274			7,694,478			33,397,123			19,253,242
		13,075,674			6,804,023			32,403,192			18,372,111

ASC 740-10 clarifies the accounting and reporting of income taxes recognized in the financial statements and provides how tax benefits may be recognized. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized in subsequent periods. On January 1, 2007, we adopted the provisions of this topic. As of September 30, 2011 and December 31, 2010, we had no unrecognized tax benefits.

We recognize interest and penalties accrued related to unrecognized tax benefits and penalties, if any, as income tax expense. We file income tax returns with the U.S. Federal Government, as well as the State of Delaware, and we file returns in the foreign jurisdictions of the BVI and the PRC. With few exceptions, we were subject to U.S. federal and state income tax examinations by tax authorities for years on or after 2008.

Our foreign subsidiaries also file income tax returns with both the National Tax Bureau (with our branches in Wuhan) and the Local Tax Bureaus (Wuhan Municipal Tax Bureau). We are subject to income tax examinations by these foreign tax authorities. We have passed all tax examinations by both National and Local tax authorities since our inception in 2002.

11

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 — INCOME TAXES – (continued)

The following table reconciles the U.S. statutory rates to our effective rate for the three months ended September 30, 2011 and 2010:

	For the nine months ended
	September 30,
	2011			2010
US Statutory rate		34	%		34	%
Foreign income not recognized in USA		(34	)%		(34	)%
China income tax		25	%		25	%
Non-dedcutible expenses		1	%		2	%
Effective tax rate		26	%		27	%

NOTE 6 — EARNINGS PER SHARE

As of September 30, 2011, we had warrants outstanding for the acquisition of 2,689,761 shares of our common stock. Of such warrants, 125,000 warrants were issued in 2008, with an exercise price of $1.196, and 2,376,601 warrants were issued in 2009, with an exercise price of $0.996. In January 2011, we issued 150,000 warrants with an exercise price of $3.25, and 144,000 warrants with an exercise price of $3.99. As of September 30, 2011, the warrants issued in 2008 and 2009 were considered dilutive and were included in the weighted average shares-diluted calculation using the treasury stock method. The warrants issued in 2011 were anti-dilutive because the exercise prices were higher than average market price. They are not included in weighted average shares calculation. The following table presents a reconciliation of basic and diluted net income per share:

	For the three months Ended				For the nine months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net income attributable to Common stockholders	$	9,315,211	$	4,577,132	$	23,015,664	$	12,830,042
Weighted average number of common shares outstanding - Basic		49,998,706		41,861,457		49,391,647		41,798,205
Effect of dilutive securities:
Unexercised warrants		745,653		2,387,283		1,089,233		2,387,283
Weighted average number of common shares outstanding - Diluted		50,744,359		44,248,740		50,480,880		44,185,488
Earnings per share-Basic	$	0.19	$	0.11	$	0.47	$	0.31
Earnings per share-Diluted	$	0.18	$	0.10	$	0.46	$	0.29

 NOTE 7 — STOCKHOLDERS’ EQUITY

In January 2011, we raised a total of $22,968,000 by issuing 7,200,000 shares of our common stock through a public offering at $3.19 per share. After deducting underwriting discounts, commissions and offering expenses of $2,823,745, we received net proceeds of $20,144,255.

From January through March 2011, we issued 71,672 shares as a result of warrants that had been exercised (See Note 8 - Warrants).

12

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 — STOCKHOLDERS’ EQUITY – (continued)

In April 2011, we issued 100,000 shares to Baytree Capital Associates, LLC (“Baytree”) for its consulting services (See Note 10- Related party transactions).

In August 2011, we issued 195,150 shares as a result of warrant exercises (See Note 8 - Warrants).

As of September 30, 2011, we had 50,098,816 shares of common stock issued and outstanding and warrants outstanding to purchase up to 2,745,400 shares of our common stock.

On March 24, 2011, our Board of Directors voted to adopt the 2011 Stock Incentive Plan, or the Plan, subject to shareholder approval at our 2011 annual shareholders’ meeting. The Plan and the conditional option grants previously approved by our Compensation Committee were ratified by our shareholders at our 2011 annual meeting on October 31, 2011.

The Plan permits the granting of stock options (including incentive stock options as well as nonstatutory stock options), stock appreciation rights, restricted and unrestricted stock awards, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.  Under the terms of the Plan, upon shareholder approval, up to 5,000,000 shares of our common stock may be granted.  Certain stock option grants have been conditionally made subject to shareholder approval of the Plan.

NOTE 8 — WARRANTS

On January 10, 2011, 50,000 warrants (2009 warrants) were exercised at an exercise price of $0.996 and 50,000 shares were issued. As a result, $49,800 was received as the payment of the exercise price on the 50,000 warrants.

On January 21, 2011, 12,728 warrants (2009 warrants) were exercised at an exercise price of $0.996, and 8,280 shares were issued. Pursuant to the cashless exercise provision, an additional 4,448 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 12,728 warrants.

On March 9, 2011, 20,510 warrants (2009 warrants) were exercised at an exercise price of $0.996 and 13,392 shares were issued. Pursuant to the cashless exercise provision, an additional 7,118 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 20,510 warrants.

On August 15, 2011, 337,350 warrants (2009 warrants) were exercised at exercise price $0.996 and 171,831 shares were issued. Pursuant to the cashless exercise provision, an additional 165,519 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 337,350 warrants.

On August 25, 2011, 50,201 Warrants (2009 warrants) were exercised at exercise price of $0.996 and 195,150 shares were issued. Pursuant to the cashless exercise provision, an additional 7,118 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 50,201 warrants.

In connection with our January 2011 public offering, we issued 150,000 warrants with an exercise price of $3.25 to Wallington Investment Holdings Ltd. on January 13, 2011. All of these warrants are exercisable for five years from the issuance date. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility of 206%, risk free interest rate of 1.93%, and expected term of 5 years. The fair value of the warrants was $473,205, and such amount is classified in the equity section as an offset to additional paid-in capital.

In connection with the public offering, we signed a stock purchase option agreement with Rodman & Renshaw, LLC (“Rodman”), as representative of certain individuals designated by Rodman in connection with the underwriting agreement on January 13, 2011. In the aggregate, Rodman and its designees have the right to purchase up to 144,000 shares at an exercise price of $3.99 per share. The options expire on January 13, 2016. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility of 206%, risk free interest rate of 1.54% and expected term of 4 years. The fair value of the warrants was $411,643, and such amount is classified in the equity section as an offset to additional paid-in capital.

Following is a summary of the status of warrants activities as of September 30, 2011:

13

KINGOLD JEWELRY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Warrants  Outstanding		Weighted Average  Exercise Price		Average Remaining  Life in Years
Outstanding, January 1, 2011		2,584,839	$	1.01		3.95
Granted		294,000	$	3.61		4.38
Forfeited		-		-		-
Exercised		470,789		-		-
Outstanding, September 30, 2011		2,408,050		1.33		3.28

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Escrowed share arrangement

In accordance with the Securities Purchase Agreement entered into on December 29, 2009 in connection with the private placement, a majority stockholder of Dragon Lead, entered into a make good escrow agreement with the other investors, pursuant to which the majority stockholder agreed to place a total of 1,895,609 of its beneficially owned shares of common stock in escrow in order to secure our obligations under the Securities Purchase Agreement to achieve certain after-PRC-tax net income targets for fiscal years 2009, 2010 and 2011 ("Make Good Escrow Shares"). Those targets are RMB65 million, RMB100 million and RMB150 million in after-PRC-tax net income for the fiscal years ended December 31, 2009, 2010 and 2011, respectively. In the event that we are not able to achieve the net income targets, we are obligated to transfer 1,895,609 shares of common stock to the private placement investors on a pro-rata basis. Of the 33,104,234 shares of common stock issued in the share exchange, 1,895,609 shares have been deposited by the majority stockholder of Dragon Lead into escrow to secure these obligations.

As the performance threshold was met for fiscal years 2010 and 2009, the 631,869 escrowed shares were returned for 2009, and the second 631,870 escrowed shares were returned for 2010. The remaining shares 631,870 will be released upon the conclusion of fiscal year 2011 if the performance thresholds for fiscal year 2011 are met.

NOTE 10 – SHORT TERM LOANS

As of September 30, 2011, we had the following short term loans outstanding:

	As of
	September 30,		December 31,
	2011		2010
Loan payable to Pufa bank, Jiangan branch	$	-	$	6,058,486
Total short term loans	$	-	$	6,058,486

On May 17, 2011, our outstanding loans from Pudong Development Bank became due, and were paid off in full. The one year loan had an interest rate of 5.5755%, and was guaranteed with our buildings, plants and machinery.

Our interest expense for the three months ended September 30, 2011 and 2010 was $120,811 and $405,174, respectively.

Our interest expense for the nine months ended September 30, 2011 and 2010 was $119,308 and $232,910, respectively. Fees paid to a third party guarantor for those periods were $0 and $135,638, respectively.

14

NOTE 11 - RELATED PARTY TRANSACTIONS

In April 2010, we signed a one and half year service contract with Baytree, which is controlled by one of our shareholders. According to the service contract, we are to issue 100,000 shares every six months after services are performed within the term of the agreement. In total, 300,000 shares will be issued. On December 14, 2010 and April 8, 2011, the first and second 100,000 shares were issued, respectively. The fair value of this common stock compensation is based on the closing stock price on the date at which the Baytree’s performance is complete. For the nine months ended September 30, 2011, $257,500 of stock compensation expense was recognized based on our stock price on March 31, 2011, June 30, 2011 and September 30, 2011.

As of May 17, 2011, our outstanding loans from Pudong Development Bank became due, and were paid off in full. Upon payment, in order to assist with our short term working capital needs, we received a short term loan from Wuhan Cancer Management Co., Ltd., or Wuhan Cancer Management, a newly formed consulting entity aimed at developing hospitals throughout Wuhan. Our Chairman and Chief Executive Officer, Zhihong Jia, is the majority investor in Wuhan Cancer Management. The loan contained a payment on demand provision, and carried zero interest.

In the third quarter, we obtained a short-term loan with no interest from Wuhan Cancer Management Co., Ltd.  As of September 30, 2011, the balance due to Wuhan Cancer Management Co., Ltd was $410,508 and is due on demand.

NOTE 12- CONCENTRATIONS AND RISKS

We maintain certain bank accounts in the PRC and BVI which are not protected by FDIC insurance or other insurance.  The cash balance held in the PRC bank accounts was $1,673,257 and $9,107,491 as of September 30, 2011 and December 31, 2010, respectively. The cash balance held in the BVI bank accounts was $48,296 and $37,057 as of September 30, 2011 and December 31, 2010, respectively.   As of September 30, 2011 and December 31, 2010, the Company held $132,985 and $6,989 of cash balances within the United States of which none was in excess of FDIC insurance limits.

During the nine months ended September 30, 2011 and 2010, almost 100% of the Company's assets were located in the PRC and 100% of the Company's revenues were derived from companies located in the PRC.

Our principal raw material used during the year is gold which accounted for 100% and 97.79% of the Company's total purchases for the nine months ended September 30, 2011 and 2010, respectively. The Company purchased gold directly and solely from The Shanghai Gold Exchange ("SGE"), the largest gold trading platform in the PRC. 

NOTE 13- NONCONTROLLING INTEREST

Non-controlling interest represents the minority stockholders’ 4.17% proportionate share of the results of Wuhan Kingold.  A reconciliation of non-controlling interest as of September 30, 2011 and December 31, 2010 are as follows:

	As of
	September 30, 2011		December 31, 2010
Beginning Balance	$	1,748,536	$	820,254
Proportionate share of Net Income		1,039,754		877,067
Foreign currency translation gain		49,612		51,215
Ending Balance	$	2,837,902	$	1,748,536

The balance of 4.17% of the equity interest in Wuhan Kingold was held by Beijing Shouchuang Investment Co. Ltd, a PRC State Owned Enterprise, until August 2011 when it sold through public auction its 4.17% interest in Wuhan Kingold.  Mr. Yang Wen was the ultimate purchaser of the 4.17% equity interest in Wuhan Kingold.  Such transaction had no impact on the financial statements set forth in this Report.  Subsequently, on or about October 20, 2011, Mr. Yang Wen became party to the following VIE agreements between Wuhan Kingold and Wuhan Vogue-Show: Shareholders’ Voting Proxy Agreement, Purchase Option Agreement, and Pledge of Equity Agreement; and Wuhan Kingold and Wuhan Vogue-Show also entered into the Supplemental Agreement to Exclusive Management Consulting and Technical Support Agreement.  Following execution of these VIE agreements, Vogue-Show has entered into a series of agreements with Wuhan Kingold and shareholders holding 100% of the outstanding equity of Wuhan Kingold under which Wuhan Kingold has agreed to pay 100% of its after-tax profits to Vogue-Show and shareholders owning 100% of Wuhan Kingold’s shares have pledged their equity interest and delegated their voting power in Wuhan Kingold to Vogue-Show.  Kingold has agreed it will fairly remunerate Mr. Yang Wen for voluntarily entering into the VIE agreements. The Company cannot at this time predict the amount or type of remuneration to be paid to Mr. Yang Wen. Such remuneration could consist of an issuance of Kingold common stock during the fourth quarter of 2011 or the first quarter of 2012. Kingold will engage a third-party valuation firm to provide professional services and advice in this regard.

15

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes included in this Report.  This discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those anticipated in those forward-looking statements as a result of certain factors, including, but not limited to, those contained in the discussion on forward-looking statements that follows this section. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Our Business

We are engaged in the production and sale of 24 karat gold jewelry and ornaments in the PRC under the Kingold brand through a variable interest entity relationship with Wuhan Kingold Jewelry Company Limited, a PRC corporation. All of our sales are made within the central part of the PRC including Hubei, Hunan, Henan, Jiangxi, Anhui and Sichuan provinces.

We have sold our products directly to distributors, retailers and other wholesalers, who then sell our products to consumers through retail counters located in both department stores and other traditional stand-alone jewelry stores. We sell our products to our customers at a price that reflects the market price of the base material (24K gold), plus a mark-up reflecting our design and processing fees. Typically this mark-up ranges from 4-6% of the price of the base material.

We aim to become an increasingly more significant participant in the PRC's gold jewelry design and manufacturing sector.  In addition to expanding our design and manufacturing capabilities, our goal is to provide a large variety of gold products in unique styles and superior quality under our nationwide well-known brand, Kingold.

We have been a member of the Shanghai Gold Exchange since 2003. Although the Chinese government eliminated the absolute restriction on trading gold in general, the right to purchase gold directly from the Shanghai Gold Exchange is limited.  The Shanghai Gold Exchange implements a membership system and only members can buy gold through its trading system.  There were only 163 members of the Shanghai Gold Exchange throughout China in 2010. Non-members who want to purchase gold must deal with members at a higher purchase price compared to that for members.

Results of Operations

The following table sets forth information from our statements of income (unaudited) for the three and nine months ended September 30, 2011 and 2010 in U.S. dollars:

16

KINGOLD JEWELRY INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(IN US DOLLARS)

(UNAUDITED)

	For the three months ended September 30,						For the nine months ended September 30,
	2011			2010			2011			2010
NET SALES	$	210,710,516		$	169,706,497		$	620,533,358		$	338,062,808
COST OF SALES
Cost of sales		(196,453,806	)		(160,792,165	)		(584,246,090	)		(315,574,745	)
Depreciation		(265,488	)		(277,204	)		(872,125	)		(832,288	)
Total cost of sales		(196,719,294	)		(161,069,369	)		(585,118,215	)		(316,407,033	)
GROSS PROFIT		13,991,222			8,637,128			35,415,143			21,655,775
OPERATING EXPENSES
Selling, general and administrative expenses		789,820			1,007,909			2,550,526			2,133,475
Stock compensation expenses		62,500			670,440			257,500			670,440
Depreciation		66,214			30,665			98,325			86,942
Amortization		3,000			2,792			8,781			8,330
Total Operating Expenses		921,533			1,711,806			2,915,133			2,899,187
INCOME FROM OPERATIONS		13,069,689			6,925,322			32,500,010			18,756,588
OTHER INCOME (EXPENSES)
Other income		227			14,882			18,234			18,934
Interest income		5,758			926			5,758			3,232
Interest expense		-			(135,638	)		(120,811	)		(405,174	)
Other expenses					(1,469	)		-			(1,469	)
Total Other Expenses, net		5,985			(121,299	)		(96,818	)		(384,477	)
INCOME FROM OPERATIONS BEFORE TAXES		13,075,674			6,804,023			32,403,192			18,372,111
PROVISION FOR INCOME TAXES		(3,353,879	)		(1,979,290	)		(8,347,773	)		(4,925,385	)
NET INCOME	$	9,721,795		$	4,824,733		$	24,055,419		$	13,446,726
OTHER COMPREHENSIVE INCOME
Foreign currency translation gains		1,288,912			895,092			3,333,579			1,348,266
COMPREHENSIVE INCOME		11,010,707			5,719,825			27,388,998			14,794,991
Less: Comprehensive income attribute to the noncontrolling interest		(411,292	)		(266,989	)		(1,089,366	)		(645,227	)
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS		10,599,415			5,452,836			26,299,632			14,149,764

Three and Nine Month Period Ended September 30, 2011 Compared to the Three and Nine Month Period Ended September 30, 2010

Net Sales 

Net sales for the three months ended September 30, 2011 increased to $210.7 million, an increase of $41 million, or 24.2%, from net sales of $169.7 million for the three months ended September 30, 2010. The increase in net sales was primarily driven by the increase in the price of gold.  In Branded Production, we purchase gold directly only once a customer has placed an order, and thus we include the cost of gold in our cost of goods sold. In Customized Production, where customers supply us with the raw materials, the cost of gold is not included in the cost of goods sold.

Net sales for the nine months ended September 30, 2011 increased to $620.5 million, an increase of $282.5 million, or 83.6%, from net sales of $338.1 million for the nine months ended September 30, 2010. The increase in net sales was primarily driven by increased Branded Production as well as by the increase in the price of gold. Of the $282.5 million increase in net sales, approximately $138.2 million was attributable to increased Branded Production and approximately $144.4 million to the increase in the price of gold.

More specifically, the increase in net sales in the nine months ended September 30, 2011 was mainly attributable to the fact that we raised approximately $20 million in net proceeds from the public offering that closed in mid-January and used the full amount to purchase gold used to increase Branded Production. The gold purchased with these funds was put into production at the end of January and was in full production as of the end of the second quarter. As a result, Branded Production increased substantially from 9.47 metric tons for the nine months ended September 30, 2010 to 13.72 metric tons for the nine months ended September 30, 2011. In Branded Production, the cost of gold is passed through to our clients and recorded as a part of sales.

In the second quarter of 2011, we opened two new showrooms / distribution centers, one in Shenzhen and another in Beijing, that service wholesale distributors and retailers (not end consumers). Sales for the distribution center in Shenzhen has reached $34.4 million while sales for the distribution center in Beijing has reached $14.5 for the three months ended September 30, 2011.

We signed agreements with two major Chinese national banks, the Bank of Communications and China Merchant Bank, to enter the investment gold business, which primarily include gold coins, bars and certain gold gift products. This new business is still in the experimental stage and has not yet had a major impact on our revenue. Sales for the banking business have totaled $29 million for the nine months ending September 30, 2011. We are expecting that sales for banking business will accelerate once the national rolling out is in full speed.

17

Cost of Sales  

Cost of sales for the three months ended September 30, 2011 increased to $196.5 million, an increase of $35.7 million, or 22.2%, from $160.8 million for the same period in 2010. The increase was primarily due to the increased price of gold.

Cost of sales for the nine months ended September 30, 2011 increased to $584.2  million, an increase of $268.7 million, or 85.1%, from $315.6 million for the same period in 2010. The increase was primarily due to the increased price of gold and the concurrent increase in the amount of gold purchased for Branded Production to meet the higher sales volumes in the category. Of the $268.7 million increase, approximately $176.1 million was attributable to the increase in Branded Production, and approximately $92.5 million was due to the increased price of gold.

Gross Profit and Gross Margin

Gross profit for the three months ended September 30, 2011 increased to $14 million, an increase of $5.35 million, or 62%, from $8.6 million for the same period in 2010. Accordingly, gross margin for the three months ended September 30, 2011 was 6.6%, compared to 5.1% for the same period in 2010.

Gross profit for the nine months ended September 30, 2011 increased to $35.4 million, an increase of $13.76 million, or 63.54%, from $21.6 million for the same period in 2010. Accordingly, gross margin for the nine months ended September 30, 2011 was 5.7%, compared to 6.4% for the same period in 2010.

The product mix for the three months ended September 30, 2011 and September 30, 2010 is as follows:

		Metric Tons		% of Total			Rev ($) Million		% of Total Rev			Rev($) / Gram
Q3-2011	Total		6.61		100.0	%		210.7		100.0	%		31.9
	Branded		4.33		65.5	%		208.3		98.9	%		48.1
	Customized		2.28		34.5	%		2.4		1.1	%		1.1
Q3-2010	Total		7.54		100.0	%		169.7		100.0	%		22.5
	Branded		4.78		63.4	%		167.0		98.4	%		34.9
	Customized		2.76		36.6	%		2.7		1.6	%		1.0

		Metric Tons		% of Total			Rev ($) Million		% of Total Rev			Rev($) / Gram
January-September, 2011	Total		24.27		100.0	%		620.5		100.0	%		25.6
	Branded		13.87		57.2	%		602.3		97.1	%		43.4
	Customized		10.39		42.8	%		18.3		2.9	%		1.8
January-September, 2010	Total		19.26		100.0	%		338.0		100.0	%		17.5
	Branded		9.48		49.2	%		322.2		95.3	%		34.0
	Customized		9.78		50.8	%		15.8		4.7	%		1.6

Expenses

Total operating expenses for the three months ended September 30, 2011 were $0.92 million, a decrease of $0.8 million, or 46.2%, from $1.71 million for the same period in 2010. The decrease was primarily due to one-time expenses incurred in the third quarter of 2010 related to the public listing.

Total operating expenses for the nine months ended September 30, 2011 were $2 .915 million, an increase of $0.015 million, or 0.55%, from $2.9 million for the same period in 2010.  In the nine months ending September 30, 2011, we incurred numerous one time expenses related to our public offering of 7.2 million shares, such as listing fees, advisory fees and related insurance costs.

Interest expense was zero for the three months ended September 30, 2011, a decrease of $0.136 million from $0.136 million for same period in 2010. As of May 17, 2011, our short term loans from Pudong Development Bank became due and were paid off in their entirety.

18

Interest expenses were $0.121 million for the nine months ended September 30, 2011, a decrease of $0.284 million or 70.18%, from $0.405 million for same period in 2010. The decrease in interest expense was primarily a result of a decrease in the average loan balance outstanding during the nine months ended September 30, 2011 as we paid off loans from Pudong Development Bank during the period.

Provision for income tax expense was approximately $3.35 million for the three months ended September 30, 2011, an increase of $1.37 million, or 69.45%, from approximately $1.98 million for the same period in 2010. The increase was primarily due to our increase in gross profit. 

Provision for income tax expense was approximately $8.35 million for the nine months ended September 30, 2011, an increase of $3.42 million, or 69.48%, from approximately $4.93 million for the same period in 2010. The increase was primarily due to our increase in gross profit. 

Net Income 

Net income attributable to common stockholders increased to $9.3 million for the three months ended September 30, 2011 from $4.6 million for the same period in 2010, an increase of $4.7 million, or 103.5% as result of the matters described above.

Net income attributable to common stockholders increased to $23 million for the nine months ended September 30, 2011 from $12.8 million for the same period in 2010, an increase of $10.2 million, or 79.4% as result of the matters described above.

Cash Flows

Net cash provided by (used in) operating activities. 

Net cash used in operating activities was $21.45 million for the nine months ended September 30, 2011, compared to net cash provided by operating activities of $0.038 million for the same period in 2010. This decrease was primarily because we purchased a significant amount of gold during the nine month period ended September 30, 2011 with the capital that we raised in the January offering in order to meet an increase in demand for our products. 

Analysis and Expectations.  Our net cash from operating activities can fluctuate significantly due to changes in our inventories. Other factors that may vary significantly include our accounts payable and accrued expenses, purchases of gold and income taxes. Going forward, we expect the net cash that we generate from operating activities to continue to fluctuate as our inventories, receivables, accounts payables and the other factors described above change with increased production and the purchase of larger quantities of raw materials. These fluctuations could cause net cash from operating activities to fall, even if, as we expect, our net income grows as we expand. Although we expect net cash from operating activities will rise over the long term, we cannot predict how these fluctuations will affect our cash flow in any particular quarter.

Net cash provided by (used in) investing activities.

Net cash used in investing activities amounted to $64,723 for the nine months ended September 30, 2011, compared to net cash used in investing activities of $24,862 for the nine months ended September 30, 2010. The slight increase in net cash used in investing activities was as a result of a small increase in the purchase of property and equipment.

Analysis and Expectations.  Our net cash used in investing activities did not fluctuate significantly in the comparable periods due to the small increase in the amount of equipment that we purchased. We do not expect that cash used in investing activities will increase significantly in the near future.

Net cash provided by (used in) financing activities.

Net cash provided by financing activities was $15.07 million for the nine months ended September 30, 2011, compared to net cash provided by financing activities of $1.34 million for the nine months ended September 30, 2010. The change was the result of the proceeds raised in our public offering of 7.2 million shares of common stock and the repayment of our loan from Pudong Development Bank.

Off-Balance Sheet Arrangements

We have no material off-balance sheet transactions.

Liquidity and Capital Resources

As of September 30, 2011, we had $3.2 million in cash and cash equivalents. We have financed our operations with cash flow generated from operations, through borrowing of short-term bank loans, generally with a term of one year as well as through a public offering.

As of September 30, 2011, we paid off a short-term loan with a principal amount of $6.1 million from Pudong Development Bank.

19

Our business is dependent upon consumer demand for gold products which may be affected by economic changes in China. In response to the recent global economic downturn, the Chinese government has taken preemptive actions to stimulate the PRC economy, implementing a series of policies aimed at boosting domestic consumer spending. Management believes that these government policies have increased the demand for 24K gold products. Accordingly, since the end of 2007, we have shifted our production from other jewelry manufacturing to focus exclusively on 24K gold jewelry design and manufacturing to meet this demand. We expect this increased demand to continue over the next 12 months, and our long term strategy is now focused on the design, production and sales of 24K gold jewelry and gold investment products for major banks in China.

We believe that our current cash and cash flow from operations will be sufficient to meet our anticipated cash needs, including working capital, for the next 12 months. We may, however, require additional cash due to changing business conditions or other developments, including any investments or acquisitions we may decide to pursue. Our ability to maintain sufficient liquidity depends partially on our ability to achieve anticipated levels of revenue, while continuing to control costs. If we do not have sufficient available cash, we would have to seek additional debt or equity financing through other external sources, which may not be available on acceptable terms, or at all. Failure to maintain financing arrangements on acceptable terms would have a material adverse effect on our business, results of operations and financial condition.

We are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance funds, including pension insurance, medical insurance, unemployment insurance, job injuries insurance, and maternity insurance, in accordance with relevant regulations. We expect that the amount of our contribution to the government’s social insurance funds will increase in the future as we expand our workforce and operations and commence contributions to an employee housing fund.

The ability of Vogue-Show to pay dividends may be restricted due to the PRC’s foreign exchange control policies and our availability of cash. A majority of our revenue being earned and currency received is denominated in RMB. We may be unable to distribute any dividends outside of China due to PRC exchange control regulations. Accordingly, Vogue-Show’s funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. See Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect our most critical accounting policies that currently affect our financial condition and results of operations.

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of Kingold, our wholly owned subsidiaries, Dragon Lead and Wuhan Vogue-Show and Wuhan Kingold, our 95.83% contractually controlled affiliate. The non-controlling interests represent the minority stockholders’ 4.17% proportionate share of the results of Wuhan Kingold. All significant inter-company balances and transactions have been eliminated in consolidation.

Inventories

Inventories consisting of finished goods, materials on hand, packaging materials and raw materials are stated at the lower of cost or market value. The value of finished goods is comprised of direct materials, direct labor and an appropriate proportion of overhead. We continually evaluate the composition of our inventories assessing the turnover of our products. To minimize the adverse effect of fluctuating gold prices, we lock in the price that we pay for gold only when customer places an order. Accordingly, we do not make any reserve for inventory obsolescence.

Land Use Rights

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 lives typically range from 30 to 40 years, and are determined in the connection with the term of the land use right.

Property, Plant and Equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the assets’ estimated useful lives using the straight-line method while taking into account the assets’ estimated residual value. The estimated useful lives and residual values are as follows:

20

	Estimated Useful Life
Buildings	30 years
Plant and machinery	15 years
Motor vehicles	10 years
Office furniture and electronic equipment	5-10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the account and any gain or loss is included in the statement of income for that period. The cost of maintenance and repairs is charged to income as incurred, whereas material renewals and betterments are capitalized.

Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technology or other industry changes. The recoverability value of an asset to be held and used is determined by comparing the carrying amount of such asset against the future net undiscounted cash flows to be generated by the asset. Our principal long-lived assets are our property, plant and equipment assets.

If the value of such an asset is determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less disposition costs.

We did not recognize any impairment loss in 2009, 2010 or the six-month period ended September 30, 2011. Competitive pricing pressure and changes in interest rates, could materially and adversely affect our estimates of future net cash flows to be generated by our long-lived assets, and this could result in future impairment losses.

Revenue Recognition

Our revenue is derived from the sales price of goods sold and fees for services provided. We recognize revenue for goods sold when they are delivered to the customer. We recognize revenue for services provided when the services have been performed, the customers have approved the completion of services, invoices have been issued and collectability is deemed probable. Management has not made an allowance for estimated sales returns because they are considered immaterial when viewed in light of our overall revenue and historical experience. In recognizing revenue, we assume that the currency we receive from customers is valid legal tender in the PRC, our electronic record-keeping system has not been tampered with nor malfunctioned, and that we have not inadvertently sold significant amounts of defective goods. If any of these assumptions were proven to be incorrect, we could have to restate our revenue. Historically, as of the date of this Report, none of these assumptions have proven to be incorrect.

21

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Foreign Currency Exchange Rate Risk

Given that substantially all of our revenues are generated in Chinese RMB, yet our results are reported in U.S. dollars, devaluation of the RMB could negatively impact our results of operations. The value of RMB is subject to changes in China’s governmental policies and to international economic and political developments. In January 1994, the PRC government implemented a unitary managed floating rate system. Under this system, the People’s Bank of China, or PBOC, began publishing a daily base exchange rate with reference primarily to the supply and demand of RMB against the U.S. dollar and other foreign currencies in the market during the previous day. Authorized banks and financial institutions are allowed to quote buy and sell rates for RMB within a specified band around the central bank’s daily exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by which the exchange rates are determined. Over the past three years, RMB has appreciated 9.5% against the USD (from 1 USD = 7.2946 RMB on January 1st, 2008 to 1 USD = 6.3842 RMB on September 30, 2011). While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in further fluctuations of the exchange rate of RMB against the U.S. dollar, including possible devaluations. As all of our net revenues are recorded in RMB, any future devaluation of RMB against the U.S. dollar could negatively impact our results of operations.

Along these lines, the income statements of our operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited and we may not be able to successfully hedge our exchange rate risks.

Interest Rate Risk

As of September 30, 2011, following the repayment of our loan from Pudong Development Banks, we did not have any short term borrowings.

We currently have no interest rate hedge positions in place to reduce our exposure to interest rates.

Commodity Price Risk

Most of our sales are of products that include gold, precious metals and other commodities, and fluctuations in the availability and pricing of commodities would adversely impact our ability to obtain and make products at favorable prices. 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. In the past, we have not hedged our requirement for gold or other raw materials through the use of options, forward contracts or outright commodity purchasing, although we may do so in the future. A significant increase in the price of gold could increase our production costs beyond the amount that we are able to pass on to our customers, which would adversely affect our sales and profitability. A significant disruption in our supply of gold, or other commodities could decrease our production and shipping levels, materially increase our operating costs and materially and adversely affect our 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 we purchase our raw materials, may adversely affect our ability to maintain production of our products and sustain profitability. Although we generally attempt to pass increased commodity prices to our customers, there may be circumstances in which we are not able to do so. In addition, if we were to experience a significant or prolonged shortage of gold, we would be unable to meet our production schedules and to ship products to our customers in a timely manner, which would adversely affect our sales, margins and customer relations. Furthermore, the value of our inventory may be affected by commodity prices. We record the value of our inventory using 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 our inventory, which may require us to take a charge for the decrease in the value of our inventory.

22

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

As disclosed in Item 9A of our Annual Report on Form 10-K for the period ended December 31, 2010, during our review of our financial statements and results for the 2010 fiscal year, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, identified an internal control matter that rose to the level of a material weakness. Consequently, our Chief Executive Officer and Chief Financial Officer concluded at such time that our disclosure controls and procedures were not effective at December 31, 2010.  As a result of that assessment, we identified the following internal control over financial reporting matter that rose to the level of a material weakness:

§ We did not maintain effective controls over the identification, recording, independent review and oversight of non routine transactions and accounting estimates, and the evaluation of the application of generally accepted accounting principles relating to complex accounting matters.

Despite having taken numerous steps aimed at remediation of this material weakness during the first nine months of 2011, as more thoroughly described below in the section titled “Remediation Plan,” based on the evaluation of our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we believe that the material weakness in our internal control over financial reporting  has not yet been fully remedied.  Accordingly, we have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were not effective as of September 30, 2011.

Remediation Plan

In an effort to remediate the material weakness described above, and to enhance our internal control over financial reporting, during the first two quarters of 2011, we continued to implement the remediation initiatives outlined in the section titled “Remediation Plan” in Item 9A of our Annual Report on Form 10-K for the period ended December 31, 2010.  More specifically, we hired an external consultant to provide, on a regular basis, independent review and oversight of non routine transactions and accounting estimates, and the evaluation of the application of generally accepted accounting principles relating to complex accounting matters on a regular basis.  Going forward, we plan to continue to devote significant resources to remediating and improving our internal controls, including hiring additional accounting and internal control consultants, internal audit and finance staff, upgrading our systems, and implementing more rigorous financial and management controls related to financial reporting, journal entry approval, supporting documentation and account reconciliation. 

Management believes that the measures that we implemented during the nine months ended September 30, 2011 to remediate the material weakness in our internal control over financial reporting, have had a positive effect on our internal control over financial reporting.  Furthermore, management anticipates that these measures and other ongoing enhancements will continue to have a positive impact on our internal control over financial reporting in future periods.  Notwithstanding such efforts, the material weakness described above will not be fully remediated until the new controls operate for a sufficient period of time.  Management believes that once fully implemented, these new control processes and procedures will remediate the material weakness in our internal control over financial reporting.

Changes in Internal Control

Other than the changes that were implemented during the nine months ended September 30, 2011, discussed above in the section titled “Remediation Plan,” there were no changes to our internal control over financial reporting in the period ended September 30, 2011 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting. The discussion above under the section titled “Remediation Plan” includes descriptions of the material planned changes to our internal control over financial reporting that are reasonably likely to materially affect our company’s internal control over financial reporting.

23

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any litigation the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

There have been no material changes from risk factors as previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved)

Item 5. Other Information.

None.

Item 6. Exhibits

Exhibit No.	Description
3.1	Certificate of Incorporation of Registrant (Incorporated by reference to Exhibit 3.1 to our Registration Statement filed on Form SB-2 with the Commission on August 13, 1999)
3.2	Amendment to Certificate of Incorporation of Registrant dated September 29, 1995 (Incorporated by reference to Exhibit 3.2 to our Registration Statement filed on Form SB-2 with the Commission on August 13, 1999)
3.3	Amendment to Certificate of Incorporation of Registrant dated October 12, 1995 (Incorporated by reference to Exhibit 3.3 to our Registration Statement filed on Form SB-2 with the Commission on August 13, 1999)
3.4	Amendment to Certificate of Incorporation of Registrant dated January 21, 1999 (Incorporated by reference to Exhibit 3.4 to our Registration Statement filed on Form SB-2 with the Commission on August 13, 1999)
3.5	Amendment to Certificate of Incorporation of Registrant dated April 7, 2000 (Incorporated by reference to Exhibit 3.5 to our Registration Statement filed on Form SB-2/A with the Commission on April 12, 2000)
3.6	Amendment to Certificate of Incorporation of Registrant dated December 18, 2010 (Incorporated by reference to Exhibit 3.6 to our Registration Statement filed on Form S-1 with the Commission on October 1, 2010)
3.7	Amendment to Certificate of Incorporation of Registrant dated June 8, 2010 (Incorporated by reference to Exhibit 3.7 to our Registration Statement filed on Form S-1 with the Commission on October 1, 2010)
3.8	Amended and Restated Bylaws of Registrant (Incorporated by reference to Exhibit 3.1 to our Current Report filed on Form 8-K with the Commission on September 30, 2010)
10.1	Supplemental Agreement to Exclusive Management Consulting and Technical Support Agreement dated October 20, 2011 by and between Vogue-Show and Wuhan Kingold
10.2	Shareholders’ Voting Proxy Agreement dated October 20, 2011 by and between Vogue-Show, Wuhan Kingold and shareholders of Wuhan Kingold
10.3	Purchase Option Agreement dated October 20, 2011 by and between Vogue-Show, Wuhan Kingold and shareholders of Wuhan Kingold
10.4	Pledge of Equity Agreement dated October 20, 2011 by and between Vogue-Show and shareholders of Wuhan Kingold
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*

24

32.1	Certification of Principal Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 * Filed Herein

 Kingold’s Periodic Report on Form 10-Q for the period ended September 30, 2011, at the time of filing with the Securities and Exchange Commission, shall modify and supersede all prior documents filed pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 for purposes of any offers or sales of any securities after the date of such filing pursuant to any Registration Statement or Prospectus filed pursuant to the Securities Act of 1933, which incorporates by reference such Periodic Report on Form 10-Q.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 9, 2011

KINGOLD JEWELRY, INC.
By:	/s/ Zhihong Jia
	Zhihong Jia
	Chairman, Chief Executive Officer and
	Principal Executive Officer
By:	/s/ Bin Liu
	Bin Liu
	Chief Financial Officer and Principal
	Accounting Officer

26

EX-10.1

EX-10.2

EX-10.3

EX-10.4

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Zhihong Jia, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Kingold Jewelry, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Zhihong Jia

Zhihong Jia

Date: November 9, 2011

Chairman, Chief Executive Officer and

 Principal Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

UNDER

SECTION 302 OF THE SARBANES-OXLEY ACT

I, Bin Liu, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of Kingold Jewelry, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Bin Liu

Bin Liu

Date: November 9, 2011

Chief Financial Officer and

Principal Accounting Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

OF

CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of Kingold Jewelry, Inc. (the “Registrant”) on Form 10-Q for the quarter ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer of the Registrant, certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report, to which this certification is attached as Exhibit 32.1, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant

Date: November 9, 2011	/s/ Zhihong Jia
	Zhihong Jia
	Chairman, Chief Executive Officer and
	Principal Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

OF

CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of Kingold Jewelry, Inc. (the “Registrant”) on Form 10-Q for the quarter ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Financial Officer of the Registrant, certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report, to which this certification is attached as Exhibit 32.2, fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant

Date: November 9, 2011	/s/ Bin Liu
	Bin Liu
	Chief Financial Officer and
	Principal Accounting Officer

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2011	Dec. 31, 2010
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	500,000	500,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	50,098,816	42,531,994
Common stock, shares outstanding	50,098,816	42,531,994

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
NET SALES	$ 210,710,516	$ 169,706,497	$ 620,533,358	$ 338,062,808
COST OF SALES
Cost of sales	(196,453,806)	(160,792,165)	(584,246,090)	(315,574,745)
Depreciation	(265,488)	(277,204)	(872,125)	(832,288)
Total cost of sales	(196,719,294)	(161,069,369)	(585,118,215)	(316,407,033)
GROSS PROFIT	13,991,222	8,637,128	35,415,143	21,655,775
OPERATING EXPENSES
Selling, general and administrative expenses	789,820	1,007,909	2,550,526	2,133,475
Stock compensation expenses	62,500	670,440	257,500	670,440
Depreciation	66,214	30,665	98,325	86,942
Amortization	3,000	2,792	8,781	8,330
Total Operating Expenses	921,533	1,711,806	2,915,133	2,899,187
INCOME FROM OPERATIONS	13,069,689	6,925,322	32,500,010	18,756,588
OTHER INCOME (EXPENSES)
Other income	227	14,882	18,234	18,934
Interest income	5,758	926	5,758	3,232
Interest expense		(135,638)	(120,811)	(405,174)
Other expenses		(1,469)		(1,469)
Total Other Expenses, net	5,985	(121,299)	(96,818)	(384,477)
INCOME FROM OPERATIONS BEFORE TAXES	13,075,674	6,804,023	32,403,192	18,372,111
PROVISION FOR INCOME TAXES	(3,353,879)	(1,979,290)	(8,347,773)	(4,925,385)
NET INCOME	9,721,795	4,824,733	24,055,419	13,446,726
OTHER COMPREHENSIVE INCOME
Foreign currency translation gains	1,288,912	895,092	3,333,579	1,348,266
COMPREHENSIVE INCOME	11,010,707	5,719,825	27,388,998	14,794,992
Less: Comprehensive income attribute to the noncontrolling interest	(411,292)	(266,989)	(1,089,366)	(645,228)
COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS	$ 10,599,415	$ 5,452,836	$ 26,299,632	$ 14,149,764
Earnings per share
Basic	$ 0.19	$ 0.11	$ 0.47	$ 0.31
Diluted	$ 0.18	$ 0.10	$ 0.46	$ 0.29
Weighted average number of shares
Basic	49,998,706	41,861,457	49,391,647	41,798,205
Diluted	50,744,359	44,248,740	50,480,880	44,185,488

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Nov. 08, 2011
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Trading Symbol	KGJI
Entity Registrant Name	KINGOLD JEWELRY, INC.
Entity Central Index Key	0001089531
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		50,198,816

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2011

STOCKHOLDERS' EQUITY

NOTE 7 — STOCKHOLDERS’ EQUITY

In January 2011, we raised a total of $22,968,000 by issuing 7,200,000 shares of our common stock through a public offering at $3.19 per share. After deducting underwriting discounts, commissions and offering expenses of $2,823,745, we received net proceeds of $20,144,255.

From January through March 2011, we issued 71,672 shares as a result of warrants that had been exercised (See Note 8 - Warrants).

In April 2011, we issued 100,000 shares to Baytree Capital Associates, LLC (“Baytree”) for its consulting services (See Note 10- Related party transactions).

In August 2011, we issued 195,150 shares as a result of warrant exercises (See Note 8 - Warrants).

As of September 30, 2011, we had 50,098,816 shares of common stock issued and outstanding and warrants outstanding to purchase up to 2,745,400 shares of our common stock.

On March 24, 2011, our Board of Directors voted to adopt the 2011 Stock Incentive Plan, or the Plan, subject to shareholder approval at our 2011 annual shareholders’ meeting. The Plan and the conditional option grants previously approved by our Compensation Committee were ratified by our shareholders at our 2011 annual meeting on October 31, 2011.

The Plan permits the granting of stock options (including incentive stock options as well as nonstatutory stock options), stock appreciation rights, restricted and unrestricted stock awards, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.  Under the terms of the Plan, upon shareholder approval, up to 5,000,000 shares of our common stock may be granted.  Certain stock option grants have been conditionally made subject to shareholder approval of the Plan.

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CONCENTRATIONS AND RISKS

9 Months Ended

Sep. 30, 2011

CONCENTRATIONS AND RISKS

NOTE 12- CONCENTRATIONS AND RISKS

We maintain certain bank accounts in the PRC and BVI which are not protected by FDIC insurance or other insurance.  The cash balance held in the PRC bank accounts was $1,673,257 and $9,107,491 as of September 30, 2011 and December 31, 2010, respectively. The cash balance held in the BVI bank accounts was $48,296 and $37,057 as of September 30, 2011 and December 31, 2010, respectively.   As of September 30, 2011 and December 31, 2010, the Company held $132,985 and $6,989 of cash balances within the United States of which none was in excess of FDIC insurance limits.

During the nine months ended September 30, 2011 and 2010, almost 100% of the Company's assets were located in the PRC and 100% of the Company's revenues were derived from companies located in the PRC.

Our principal raw material used during the year is gold which accounted for 100% and 97.79% of the Company's total purchases for the nine months ended September 30, 2011 and 2010, respectively. The Company purchased gold directly and solely from The Shanghai Gold Exchange ("SGE"), the largest gold trading platform in the PRC.

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INVENTORIES, NET

9 Months Ended

Sep. 30, 2011

INVENTORIES, NET

NOTE 3 — INVENTORIES, NET

Inventories as of September 30, 2011 and December 31, 2010 consisted of the following:

	As of
	September 30,		December 31,
	2011		2010
Raw materials	$	14,333,748	$	16,480,224
Work-in-progress		48,916,553		25,095,026
Finished goods		40,694,680		13,851,580
Less: provision for obsolescence		-		-
Total inventory	$	103,944,981	$	55,426,830

For the nine months ended September 30, 2011 and 2010, no provision for obsolete inventories was recorded by us.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2011

COMMITMENTS AND CONTINGENCIES

NOTE 9 — COMMITMENTS AND CONTINGENCIES

Escrowed share arrangement

In accordance with the Securities Purchase Agreement entered into on December 29, 2009 in connection with the private placement, a majority stockholder of Dragon Lead, entered into a make good escrow agreement with the other investors, pursuant to which the majority stockholder agreed to place a total of 1,895,609 of its beneficially owned shares of common stock in escrow in order to secure our obligations under the Securities Purchase Agreement to achieve certain after-PRC-tax net income targets for fiscal years 2009, 2010 and 2011 ("Make Good Escrow Shares"). Those targets are RMB65 million, RMB100 million and RMB150 million in after-PRC-tax net income for the fiscal years ended December 31, 2009, 2010 and 2011, respectively. In the event that we are not able to achieve the net income targets, we are obligated to transfer 1,895,609 shares of common stock to the private placement investors on a pro-rata basis. Of the 33,104,234 shares of common stock issued in the share exchange, 1,895,609 shares have been deposited by the majority stockholder of Dragon Lead into escrow to secure these obligations.

As the performance threshold was met for fiscal years 2010 and 2009, the 631,869 escrowed shares were returned for 2009, and the second 631,870 escrowed shares were returned for 2010. The remaining shares 631,870 will be released upon the conclusion of fiscal year 2011 if the performance thresholds for fiscal year 2011 are met.

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SHORT TERM LOANS

9 Months Ended

Sep. 30, 2011

SHORT TERM LOANS

NOTE 10 – SHORT TERM LOANS

As of September 30, 2011, we had the following short term loans outstanding:

	As of
	September 30,		December 31,
	2011		2010
Loan payable to Pufa bank, Jiangan branch	$	-	$	6,058,486
Total short term loans	$	-	$	6,058,486

On May 17, 2011, our outstanding loans from Pudong Development Bank became due, and were paid off in full. The one year loan had an interest rate of 5.5755%, and was guaranteed with our buildings, plants and machinery.

Our interest expense for the three months ended September 30, 2011 and 2010 was $120,811 and $405,174, respectively.

Our interest expense for the nine months ended September 30, 2011 and 2010 was $119,308 and $232,910, respectively. Fees paid to a third party guarantor for those periods were $0 and $135,638, respectively.

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WARRANTS

9 Months Ended

Sep. 30, 2011

WARRANTS

NOTE 8 — WARRANTS

On January 10, 2011, 50,000 warrants (2009 warrants) were exercised at an exercise price of $0.996 and 50,000 shares were issued. As a result, $49,800 was received as the payment of the exercise price on the 50,000 warrants.

On January 21, 2011, 12,728 warrants (2009 warrants) were exercised at an exercise price of $0.996, and 8,280 shares were issued. Pursuant to the cashless exercise provision, an additional 4,448 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 12,728 warrants.

On March 9, 2011, 20,510 warrants (2009 warrants) were exercised at an exercise price of $0.996 and 13,392 shares were issued. Pursuant to the cashless exercise provision, an additional 7,118 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 20,510 warrants.

On August 15, 2011, 337,350 warrants (2009 warrants) were exercised at exercise price $0.996 and 171,831 shares were issued. Pursuant to the cashless exercise provision, an additional 165,519 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 337,350 warrants.

On August 25, 2011, 50,201 Warrants (2009 warrants) were exercised at exercise price of $0.996 and 195,150 shares were issued. Pursuant to the cashless exercise provision, an additional 7,118 shares were issued, surrendered and canceled to reflect the payment of the exercise price on the 50,201 warrants.

In connection with our January 2011 public offering, we issued 150,000 warrants with an exercise price of $3.25 to Wallington Investment Holdings Ltd. on January 13, 2011. All of these warrants are exercisable for five years from the issuance date. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility of 206%, risk free interest rate of 1.93%, and expected term of 5 years. The fair value of the warrants was $473,205, and such amount is classified in the equity section as an offset to additional paid-in capital.

In connection with the public offering, we signed a stock purchase option agreement with Rodman & Renshaw, LLC (“Rodman”), as representative of certain individuals designated by Rodman in connection with the underwriting agreement on January 13, 2011. In the aggregate, Rodman and its designees have the right to purchase up to 144,000 shares at an exercise price of $3.99 per share. The options expire on January 13, 2016. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility of 206%, risk free interest rate of 1.54% and expected term of 4 years. The fair value of the warrants was $411,643, and such amount is classified in the equity section as an offset to additional paid-in capital.

Following is a summary of the status of warrants activities as of September 30, 2011:

	Warrants  Outstanding		Weighted Average  Exercise Price		Average Remaining  Life in Years
Outstanding, January 1, 2011		2,584,839	$	1.01		3.95
Granted		294,000	$	3.61		4.38
Forfeited		-		-		-
Exercised		470,789		-		-
Outstanding, September 30, 2011		2,408,050		1.33		3.28

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2011

BASIS OF PRESENTATION

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading have been included. Operating results for the interim period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis, and the financial statements and notes thereto included in our Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission on March 31, 2011.

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PROPERTY AND EQUIPMENT, NET

9 Months Ended

Sep. 30, 2011

PROPERTY AND EQUIPMENT, NET

NOTE 4 — PROPERTY AND EQUIPMENT, NET

The following is a summary of property and equipment as of September 30, 2011 and December 31, 2010:

	As of
	September 30,			December 31,
	2011			2010
Buildings	$	1,930,130		$	1,866,391
Plant and machinery		18,584,454			17,948,927
Motor vehicles		77,003			39,927
Office and electric equipment		572,478			546,614
Subtotal		21,164,065			20,401,859
Less: accumulated depreciation		(8,292,374	)		(7,069,443	)
Property and equipment, net	$	12,871,691		$	13,332,416

Depreciation expense for the nine months ended September 30, 2011 and 2010 were $970,450 and $919,230, respectively. Depreciation expense for the three months ended September 30, 2011 and 2010 were $331,701 and $307,869, respectively

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INCOME TAXES

9 Months Ended

Sep. 30, 2011

INCOME TAXES

NOTE 5 — INCOME TAXES

We are subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

We were incorporated in the United States and have incurred net operating loss for income tax purpose for 2011 and 2010. Kingold had loss carry forwards of approximately $3,274,975 for U.S. income tax purposes available for offset against future taxable U.S. income, expiring in 2031. Management believes that the realization of the benefits from these losses appears uncertain due to our limited operating history income and continuing losses. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded. This deferred tax asset valuation allowance as of September 30, 2011 was $1,113,491. This net change in the valuation allowance was an increase of $337,936.

Dragon Lead was incorporated in the BVI, and under the current laws of the BVI, income earned is not subject to income tax.

Wuhan Vougue-Show and Wuhan Kingold were 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 income tax rate was 25% for the three and nine months ended September 30, 2011 and 2010.

We do not have any deferred tax assets or liabilities from our foreign operations.

Significant components of the income tax provision were as follows for the three and nine months ended September 30, 2011 and 2010.

	For the three months ended September 30,				For the nine months ended September 30,
	2011		2010		2011		2010
Current tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		3,353,879		1,979,290		8,347,773		4,925,385
		3,353,879		1,979,290		8,347,773		4,925,385
Deferred tax provision
Federal	$	-	$	-	$	-	$	-
State		-		-		-		-
Foreign		-		-		-		-
		-		-		-		-
Income tax provision	$	3,353,879	$	1,979,290	$	8,347,773	$	4,925,385

Income from continuing operations before income taxes were allocated between the United States and foreign components for the three and nine months ended September 30, 2011 and 2010:

	For the three months ended September 30,						For the nine months ended September 30,
	2011			2010			2011			2010
United States	$	(343,600	)	$	(890,455	)	$	(993,931	)	$	(881,131	)
Foreign		13,419,274			7,694,478			33,397,123			19,253,242
		13,075,674			6,804,023			32,403,192			18,372,111

ASC 740-10 clarifies the accounting and reporting of income taxes recognized in the financial statements and provides how tax benefits may be recognized. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized in subsequent periods. On January 1, 2007, we adopted the provisions of this topic. As of September 30, 2011 and December 31, 2010, we had no unrecognized tax benefits.

We recognize interest and penalties accrued related to unrecognized tax benefits and penalties, if any, as income tax expense. We file income tax returns with the U.S. Federal Government, as well as the State of Delaware, and we file returns in the foreign jurisdictions of the BVI and the PRC. With few exceptions, we were subject to U.S. federal and state income tax examinations by tax authorities for years on or after 2008.

Our foreign subsidiaries also file income tax returns with both the National Tax Bureau (with our branches in Wuhan) and the Local Tax Bureaus (Wuhan Municipal Tax Bureau). We are subject to income tax examinations by these foreign tax authorities. We have passed all tax examinations by both National and Local tax authorities since our inception in 2002.

The following table reconciles the U.S. statutory rates to our effective rate for the three months ended September 30, 2011 and 2010:

	For the nine months ended
	September 30,
	2011			2010
US Statutory rate		34	%		34	%
Foreign income not recognized in USA		(34	)%		(34	)%
China income tax		25	%		25	%
Non-dedcutible expenses		1	%		2	%
Effective tax rate		26	%		27	%

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NONCONTROLLING INTEREST

9 Months Ended

Sep. 30, 2011

NONCONTROLLING INTEREST

NOTE 13- NONCONTROLLING INTEREST

Non-controlling interest represents the minority stockholders’ 4.17% proportionate share of the results of Wuhan Kingold.  A reconciliation of non-controlling interest as of September 30, 2011 and December 31, 2010 are as follows:

	As of
	September 30, 2011		December 31, 2010
Beginning Balance	$	1,748,536	$	820,254
Proportionate share of Net Income		1,039,754		877,067
Foreign currency translation gain		49,612		51,215
Ending Balance	$	2,837,902	$	1,748,536

The balance of 4.17% of the equity interest in Wuhan Kingold was held by Beijing Shouchuang Investment Co. Ltd, a PRC State Owned Enterprise, until August 2011 when it sold through public auction its 4.17% interest in Wuhan Kingold.  Mr. Yang Wen was the ultimate purchaser of the 4.17% equity interest in Wuhan Kingold.  Such transaction had no impact on the financial statements set forth in this Report.  Subsequently, on or about October 20, 2011, Mr. Yang Wen became party to the following VIE agreements between Wuhan Kingold and Wuhan Vogue-Show: Shareholders’ Voting Proxy Agreement, Purchase Option Agreement, and Pledge of Equity Agreement; and Wuhan Kingold and Wuhan Vogue-Show also entered into the Supplemental Agreement to Exclusive Management Consulting and Technical Support Agreement.  Following execution of these VIE agreements, Vogue-Show has entered into a series of agreements with Wuhan Kingold and shareholders holding 100% of the outstanding equity of Wuhan Kingold under which Wuhan Kingold has agreed to pay 100% of its after-tax profits to Vogue-Show and shareholders owning 100% of Wuhan Kingold’s shares have pledged their equity interest and delegated their voting power in Wuhan Kingold to Vogue-Show.  Kingold has agreed it will fairly remunerate Mr. Yang Wen for voluntarily entering into the VIE agreements. The Company cannot at this time predict the amount or type of remuneration to be paid to Mr. Yang Wen. Such remuneration could consist of an issuance of Kingold common stock during the fourth quarter of 2011 or the first quarter of 2012. Kingold will engage a third-party valuation firm to provide professional services and advice in this regard.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2011

EARNINGS PER SHARE

NOTE 6 — EARNINGS PER SHARE

As of September 30, 2011, we had warrants outstanding for the acquisition of 2,689,761 shares of our common stock. Of such warrants, 125,000 warrants were issued in 2008, with an exercise price of $1.196, and 2,376,601 warrants were issued in 2009, with an exercise price of $0.996. In January 2011, we issued 150,000 warrants with an exercise price of $3.25, and 144,000 warrants with an exercise price of $3.99. As of September 30, 2011, the warrants issued in 2008 and 2009 were considered dilutive and were included in the weighted average shares-diluted calculation using the treasury stock method. The warrants issued in 2011 were anti-dilutive because the exercise prices were higher than average market price. They are not included in weighted average shares calculation. The following table presents a reconciliation of basic and diluted net income per share:

	For the three months Ended				For the nine months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Net income attributable to Common stockholders	$	9,315,211	$	4,577,132	$	23,015,664	$	12,830,042
Weighted average number of common shares outstanding - Basic		49,998,706		41,861,457		49,391,647		41,798,205
Effect of dilutive securities:
Unexercised warrants		745,653		2,387,283		1,089,233		2,387,283
Weighted average number of common shares outstanding - Diluted		50,744,359		44,248,740		50,480,880		44,185,488
Earnings per share-Basic	$	0.19	$	0.11	$	0.47	$	0.31
Earnings per share-Diluted	$	0.18	$	0.10	$	0.46	$	0.29

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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 24,055,419	$ 13,446,726
Adjusted to reconcile net income to cash provided by (used in) operating activities:
Depreciation	970,450	919,230
Amortization of intangible assets	8,781	8,330
Share based compensation	257,500	670,440
(Increase) decrease in:
Accounts receivable	1,010,099	158,509
Inventories	(46,100,293)	(17,902,549)
Other current assets and prepaid expenses	51,215	(348,268)
Value added tax recoverable	(1,525,536)	1,603,596
Increase (decrease) in:
Other payables and accrued expenses	(740,083)	997,823
Income tax payable	1,056,705	678,071
Other taxes payable	(494,451)	(193,280)
Net cash provided by (used in) operating activities	(21,450,194)	38,627
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(64,723)	(24,862)
Net cash (used in) investing activities	(64,723)	(24,862)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash		1,469,160
Deferred offering costs	666,364	(125,994)
Proceeds from bank loans		5,876,639
Repayments of bank loans	(6,194,845)	(5,876,639)
Proceeds from related party loan	2,574,082
Repayments of related party loan	(2,168,196)
Net proceeds from stock issuance in public offering	20,144,255
Net proceeds from exercise of warrants	49,800
Net cash provided by financing activities	15,071,460	1,343,166
EFFECT OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS	526,517	162,992
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(5,916,940)	1,519,924
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	9,151,536	7,964,120
CASH AND CASH EQUIVALENTS, END OF PERIOD	3,234,596	9,484,044
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest expense	121,933	357,198
Cash paid for income tax	7,291,068	4,267,965
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for consulting service

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the financial statements of Kingold Jewelry, Inc., our wholly owned subsidiaries, Dragon Lead Group Limited (“Dragon Lead”) and Wuhan Vogue-Show Jewelry Co., Inc. (“Wuhan Vogue-Show”), as well as Wuhan Kingold Jewelry Co., Inc. (“Wuhan Kingold”), our 95.83% contractually controlled affiliate. The non-controlling interests represent the minority stockholders' 4.17% proportionate share of the results of Wuhan Kingold. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with US 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 condensed 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 and the valuation of accounts receivable and inventories. Actual results could differ from those estimates.

Inventories

Inventories are stated at the lower of cost or market value, cost being calculated on the weighted average basis. The cost of inventories comprises all costs of purchases, costs of fixed and variable production overheads and other costs incurred in bringing the inventories to their present location and condition. We provide inventory allowances based on excess and obsolete inventories determined principally by customer demand. We did not record a provision for obsolete inventories as of either September 30, 2011 or December 31, 2010.

Property and equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, major renewals 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

Fair value of financial instruments

We adopted the provisions of 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 then 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, other payables and accrued expenses approximate their fair values because of the short-term nature of these instruments. We are of the opinion that we are not exposed to significant interest or credit risks arising from these financial instruments.

Revenue recognition

Net sales are primarily composed of sales of products to wholesale and retail customers, as well as fees generated from Customized Production. In Customized Production, a customer supplies us with the raw materials and we create products per the their instructions, whereas in Branded Production we purchase gold directly once a customer has placed an order. We recognize revenues under the FASB Codification Topic 605 ("ASC Topic 605"). Pursuant to this guidance, revenue is recognized when all of the following have occurred: (i) there is persuasive evidence of an arrangement with a customer, (ii) the contracted for services have been performed, (iii) the fees to be paid under the agreement are either fixed or determinable and (iv) our collection of such fees is reasonably assured. These criteria, as related to our revenues, are considered to have been met as follows:

Sales of products

We recognize revenue on sales of 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

We also provide Customized Production services to our customers based on fixed-price contracts. We recognize services-based revenue from such contracts when: (i) the contracted for services have been performed, (ii) the customer has approved the completion of the services, (iii) an invoice has been issued and (iv) collectability is deemed probable. The revenues from Customized Production services made up approximately 1.98% of the total revenue recognized during the nine months ended September 30, 2011, compared to approximately 3.98% for the nine months ended September 30, 2010. 

Income taxes

We account for income taxes under the FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the condensed 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period included the enactment date.

On January 1, 2007, we adopted the provisions of ASC 740-10-25, "Accounting for Uncertainty in Income Taxes." ASC 740-10-25 prescribes a more-likely-than-not threshold for condensed 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, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The adoption of ASC 740-10-25 has not resulted in any material impact on our financial position or results.

We record interest and penalties as a general and administrative expense. The statute of limitations for our U.S. federal income tax returns and certain state income tax returns remain open for tax years 2007 and after. As of September 30, 2011, the tax year ended December 31, 2005 through December 31, 2010 for our PRC subsidiaries remain open for statutory examination by the PRC tax authorities.

Foreign currency translation

We, as well as our wholly owned subsidiary, Dragon Lead, maintain accounting records in the United States Dollars (“US$”), whereas Wuhan Vogue-Show and Wuhan Kingold maintain their accounting records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

Our principal country of operations is the PRC. The financial position and results of our 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. Due to the fact that 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 China’s political and economic conditions. Any significant revaluation of RMB may materially affect our financial condition in terms of US$ reporting. The following table outlines the currency exchange rates that were used in creating the condensed consolidated financial statements in this report:

	September 30,	December 31,
	2011	2010
Balance sheet items, except for share capital, additional paid in capital and retained earnings, as of year end	$1=RMB 6.3842	$1=RMB 6.60231
Amounts included in the statements of operations and cash flows for the year	$1=RMB 6.4570	$1=RMB 6.76816

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2011

RELATED PARTY TRANSACTIONS

NOTE 11 - RELATED PARTY TRANSACTIONS

In April 2010, we signed a one and half year service contract with Baytree, which is controlled by one of our shareholders. According to the service contract, we are to issue 100,000 shares every six months after services are performed within the term of the agreement. In total, 300,000 shares will be issued. On December 14, 2010 and April 8, 2011, the first and second 100,000 shares were issued, respectively. The fair value of this common stock compensation is based on the closing stock price on the date at which the Baytree’s performance is complete. For the nine months ended September 30, 2011, $257,500 of stock compensation expense was recognized based on our stock price on March 31, 2011, June 30, 2011 and September 30, 2011.

As of May 17, 2011, our outstanding loans from Pudong Development Bank became due, and were paid off in full. Upon payment, in order to assist with our short term working capital needs, we received a short term loan from Wuhan Cancer Management Co., Ltd., or Wuhan Cancer Management, a newly formed consulting entity aimed at developing hospitals throughout Wuhan. Our Chairman and Chief Executive Officer, Zhihong Jia, is the majority investor in Wuhan Cancer Management. The loan contained a payment on demand provision, and carried zero interest.

In the third quarter, we obtained a short-term loan with no interest from Wuhan Cancer Management Co., Ltd.  As of September 30, 2011, the balance due to Wuhan Cancer Management Co., Ltd was $410,508 and is due on demand.

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash and cash equivalents	$ 3,234,596	$ 9,151,536
Accounts receivable	183,971	1,165,760
Inventories	103,944,981	55,426,830
Other current assets and prepaid expenses	21,373	72,215
Deferred offering costs		666,364
Value added tax recoverable	5,528,161	3,853,647
Total Current Assets	112,913,082	70,336,352
PROPERTY AND EQUIPMENT, NET	12,871,691	13,332,416
OTHER ASSETS
Other assets	151,215	146,222
Intangible assets, net	512,149	503,824
Total other assets	663,364	650,046
TOTAL ASSETS	126,448,137	84,318,814
CURRENT LIABILITIES
Short term loans		6,058,486
Related party Loan	410,508
Other payables and accrued expenses	990,281	1,715,431
Income tax payable	3,328,474	2,185,112
Other taxes payable	63,759	545,222
Total Current Liabilities	4,793,022	10,504,251
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 500,000 shares authorized, none issued or outstanding as of September 30, 2011 and December 31, 2010
Common stock $0.001 par value, 100,000,000 shares authorized, 50,098,816 and 42,531,994 shares issued and outstanding as of September 30, 2011 and December 31, 2010	50,099	42,532
Additional paid-in capital	52,345,820	31,901,832
Retained earnings
Unappropriated	56,655,477	33,744,244
Appropriated	1,071,974	967,543
Accumulated other comprehensive income	8,693,843	5,409,876
Total Stockholders' Equity	118,817,213	72,066,027
Noncontrolling interest	2,837,902	1,748,536
Total Equity	121,655,115	73,814,563
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 126,448,137	$ 84,318,814