KINGOLD JEWELRY, INC.

The Company’s short-term investments consist of wealth management financial products issued by financial institutions, which are redeemable at any time. The financial institutions invest the funds in certain financial instruments, including money market funds, private fund, bonds or mutual funds, mostly with a floating rate of return on these investments. The carrying values of the Company’s short-term investments approximate fair value because of their short-term nature. The interest earned is recognized in the consolidated statements of income and comprehensive income (loss) over the contractual term of these investments. The Company had short-term investments of $195,062,420 and $nil as of September 30, 2019 and December 31, 2018, respectively. For the three and nine months ended September 30, 2019, $72,862 and nil of investment income has been reported on the Company’s short-term investments.

 In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 was subsequently amended by Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, and Accounting Standards Update 2019-05, Targeted Transition Relief. For public entities, ASU 2016-13 and its amendments is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. For all other entities, this guidance and its amendments will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact of our pending adoption of ASU 2016-13 on our unaudited condensed consolidated financial statements.

In order to enable the Company to meet the NASDAQ continued listing standards relating to the minimum bid price and to reduce the risk of the Company being automatically delisted from the NASDAQ Capital Market due to the closing bid price of its common stock falling below $1.00 per share for 30 consecutive business days, on September 26, 2019 and October 7, 2019, respectively, the Company’s Board of Directors and a majority of the shareholders approved a 1-for-6 reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”), which became effective on October 21, 2019 (the “Effective Date”). Immediately prior to the Effective Date, there were 66,113,502 shares of common stock outstanding. As a result of the Reverse Stock Split, there are 11,018,955 shares of common stock outstanding. The Reverse Stock Split will not have any effect on the stated par value of the common stock. All options, warrants and convertible securities of the Company outstanding immediately prior to the Reverse Stock Split will be appropriately adjusted by dividing the number of shares of common stock into which the options, warrants and convertible securities are exercisable or convertible by 6 and multiplying the exercise or conversion price thereof by 6, as a result of the Reverse Stock Split. As a result of this Reverse Stock Split, the Company’s shares and per share data as reflected in the stockholder’s equity section has been retroactively restated as if the transaction occurred at the beginning of the periods presented.

The Company’s short-term investments consist of wealth management financial products issued by financial institutions, which are redeemable at any time. The financial institutions invest the funds in certain financial instruments, including money market funds, private fund, bonds or mutual funds, mostly with a floating rate of return on these investments. The carrying values of the Company’s short-term investments approximate fair value because of their short-term nature. The interest earned is recognized in the consolidated statements of income and comprehensive income (loss) over the contractual term of these investments. The Company had short-term investments of $195,062,420 and $nil as of September 30, 2019 and December 31, 2018, respectively.

On August 26, 2019, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with two private investors (the “Investors”) pursuant to which the Company agreed to sell to the Investors, and the Investors agreed to purchase from the Company, in an unregistered private transaction, convertible promissory notes (the “Notes”) with an aggregate principal amount of $1,030,000. The Notes feature an initial issuance discount of 3%, bear interest at 5% annual rate and mature in one year. The conversion price for the Notes is initially set at $3.00 per share for the first 180 days following issuance. Thereafter, the Notes may be converted by the Investors for a price equal to 70% of the lowest closing price of the Company’s common stock, $0.001 par value per share (the “Common Stock”) during the ten trading days immediately prior to the delivery of an exercise notice.

The Company also agreed to sell to the Investors warrants to purchase up to an aggregate of 400,000 shares of Common Stock at an exercise price of $0.75 per share (the “Warrants”). The Warrants are exercisable from issuance and expire two years from the date of issuance. The exercise price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment in the event of stock splits or dividends, or other similar transactions, but not as a result of future securities offerings at lower prices.