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
      1934For
      the quarterly period ended:March
      31, 2010o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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.
      Employerof
      Incorporation)
            
            File
      Number)
            
            Identification
      No.)





40
Wall Street


58th
Floor


New York, NY
10170


(Address
of Principal Executive Office) (Zip Code)




(212)
509-1700


(Registrant’s
telephone number, including area code)





ACTIVEWORLDS
CORP.


(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 theSecurities
      Exchange Act of 1934 during the preceding 12 months (or for such shorter
      period that the registrant wasrequired
      to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.þ Yeso
      NoIndicate
      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
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            þ  Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Act).o Yes
      þ NoIndicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date. As
      of May 10, 2010 there were 83,532,777 shares of common stock outstanding,
      par value $0.001.APPLICABLE
      ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCYPROCEEDINGS
      DURING THE PRECEDING FIVE YEARS:Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Section 12, 13 or 15(d) of the Securities Exchange
      Act of 1934 subsequent to the distribution of securities under a plan
      confirmed by a court. o Yes
      oNo





KINGOLD
JEWELRY, INC.


(FORMERLY
ACTTIVEWORLDS CORP.)


(UNAUDITED)


TABLE
OF CONTENTS





Page NumberPART
      I. Financial StatementsItem
      1.
            Condensed
      Consolidated Financial Information (Unaudited)
            
            1Condensed
      Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and December
      31, 2009
            
            1Condensed
      Consolidated Statements of Income for the Three Months Ended March 31,
      2010 and March 31, 2009 (Unaudited)
            
            2Condensed
      Consolidated Statements of Cash Flows for the Three Months Ended March 31,
      2010 and March 31, 2009 (Unaudited)
            
            3Notes
      to Condensed Consolidated Financial Statements – March 31, 2010
      (Unaudited)
            
            4Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            18Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            22Item
      4T.
            Controls
      and Procedures
            
            22PART
      II. Other Information
            
            23Item
      1.
            Legal
      Proceedings
            
            23Item
      1A.
            Risk
      Factors
            
            23Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            23Item
      3.
            Defaults
      Upon Senior Securities
            
            23Item
      4.
            Removed
      and Reserved
            
            23Item
      5.
            Other
      Information
            
            23Item
      6.
            Exhibits
            
            23Signatures
            
            
            24


i





PART
I – FINANCIAL INFORMATION





ITEM
1.FINANCIAL
STATEMENTS.
 KINGOLD
JEWELRY INC. (FORMERLY
ACTIVEWORLDS CORP.) CONDENSED
CONSOLIDATED BALANCE SHEETS
 (IN
US DOLLARS)


March
      31,
            
            
            December
      31,2010
            
            
            2009(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            15,324,203
            
            
            $
            7,964,120Restricted
      cash
            
            
            1,465,013
            
            
            
            1,462,587Accounts
      receivable
            
            
            235,858
            
            
            
            485,399Inventories
            
            
            30,278,018
            
            
            
            31,756,009Other
      current assets and prepaid expenses
            
            
            71,382
            
            
            
            101,189Value
      added tax recoverable
            
            
            4,484,551
            
            
            
            5,792,014Total
      Current Assets
            
            
            51,859,025
            
            
            
            47,561,318PROPERTY
      AND EQUIPMENT, NET
            
            
            13,856,046
            
            
            
            14,126,950OTHER
      ASSETSOther
      assets
            
            
            141,433
            
            
            
            141,198Intangible
      assets, net
            
            
            495,628
            
            
            
            497,572Total
      other assets
            
            
            637,061
            
            
            
            638,770TOTAL
      ASSETS
            
            $
            66,352,132
            
            
            $
            62,327,038LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIESShort
      term loans
            
            $
            8,790,075
            
            
            $
            8,775,522Other
      payables and accrued expenses
            
            
            364,304
            
            
            
            368,196Income
      tax payable
            
            
            1,356,224
            
            
            
            1,347,295Other
      taxes payable
            
            
            19,554
            
            
            
            192,415Total
      Current Liabilities
            
            
            10,530,157
            
            
            
            10,683,428STOCKHOLDERS'
      EQUITYPreferred
      stock, $0.001 par value, 500,000 sharesauthorized,
      none issued or outstandingas
      of March 31, 2010 and December 31, 2009
            
            
            -
            
            
            
            -Common
      stock $0.001 par value, 100,000,000 sharesauthorized,
      83,532,777 shares issued and outstandingas
      of March 31, 2010 and December 31, 2009
            
            
            83,532
            
            
            
            83,532Additional
      paid-in capital
            
            
            31,035,352
            
            
            
            31,035,352Retained
      earningsUnappropriated
            
            
            19,601,187
            
            
            
            15,669,257Appropriated
            
            
            895,873
            
            
            
            878,911Accumulated
      other comprehensive income
            
            
            3,214,226
            
            
            
            3,156,305Total
      Stockholders' Equity
            
            
            54,830,170
            
            
            
            50,823,356Noncontrolling
      interest
            
            
            991,805
            
            
            
            820,254Total
      Equity
            
            
            55,821,975
            
            
            
            51,643,610TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            66,352,132
            
            
            $
            62,327,038




The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements


1





KINGOLD
JEWELRY INC.


(FORMERLY
ACTIVEWORLDS CORP.)


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME


(IN
US DOLLARS)


(UNAUDITED)





For
      the three months ended March 31,2010
            
            
            2009NET
      SALES
            
            $
            60,512,328
            
            
            
            38,060,670COST
      OF SALESCost
      of sales
            
            
            (54,214,110
            )
            
            
            (34,661,813
            )Depreciation
            
            
            (278,815
            )
            
            
            (278,269
            )Total
      cost of sales
            
            
            (54,492,925
            )
            
            
            (34,940,082
            )GROSS
      PROFIT
            
            
            6,019,403
            
            
            
            3,120,588OPERATING
      EXPENSESSelling,
      general and administrative expenses
            
            
            383,001
            
            
            
            395,067Depreciation
            
            
            26,664
            
            
            
            29,701Amortization
            
            
            2,768
            
            
            
            2,765Total
      Operating Expenses
            
            
            412,433
            
            
            
            427,533INCOME
      FROM OPERATIONS
            
            
            5,606,970
            
            
            
            2,693,055OTHER
      INCOME (EXPENSES)Other
      income
            
            
            1,758
            
            
            
            -Interest
      income
            
            
            1,181
            
            
            
            297Interest
      expenses
            
            
            (134,968
            )
            
            
            (264,257
            )Total
      Other Expenses, net
            
            
            (132,029
            )
            
            
            (263,960
            )INCOME
      FROM OPERATIONS BEFORE TAXES
            
            
            5,474,941
            
            
            
            2,429,096PROVISION
      FOR INCOME TAXES
            
            
            (1,355,899
            )
            
            
            (607,965
            )NET
      INCOME
            
            
            4,119,042
            
            
            
            1,821,131Less:
      net income attribute to the noncontrolling interest
            
            
            (170,150
            )
            
            
            (75,342
            )NET
      INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS
            
            
            3,948,892
            
            
            
            1,745,789OTHER
      COMPREHENSIVE INCOMETotal
      foreign currency translation gains
            
            
            59,322
            
            
            
            18,883Less:
      foreign currency translation gainsattributable
      to noncontrolling interest
            
            
            (1,401
            )
            
            
            (284
            )Foreign
      currency translation gainsattributable
      to common stockholders
            
            
            57,921
            
            
            
            18,599COMPREHENSIVE
      INCOME
            
            $
            4,006,813
            
            
            
            1,764,388Earnings
      per shareBasic
            
            $
            0.05
            
            
            $
            0.03Diluted
            
            $
            0.05
            
            
            $
            0.03Weighted
      average number of sharesBasic
            
            
            83,532,777
            
            
            
            62,208,446Diluted
            
            
            86,543,364
            
            
            
            62,208,446




The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements


2


KINGOLD
JEWELRY INC.


(FORMERLY
ACTIVEWORLDS CORP.)


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(IN
US DOLLARS)


(UNAUDITED)





For
      the three months ended March 31,2010
            
            
            2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            4,119,042
            
            
            $
            1,821,131Adjusted
      to reconcile net income to cash provided byoperating
      activities:Depreciation
      and amortization
            
            
            308,247
            
            
            
            310,735Changes
      in operating assets and liabilities(Increase)
      decrease in:Accounts
      receivable
            
            
            250,286
            
            
            
            2,745,044Inventories
            
            
            1,530,288
            
            
            
            3,153,754Other
      current assets and prepaid expenses
            
            
            30,409
            
            
            
            143,962Value
      added tax recoverable
            
            
            1,316,753
            
            
            
            (13,482
            )Increase
      (decrease) in:Other
      payables and accrued expenses
            
            
            (4,327
            )
            
            
            (189,951
            )Income
      tax payable
            
            
            6,693
            
            
            
            (880,855
            )Other
      taxes payable
            
            
            (173,139
            )
            
            
            (163,773
            )Value
      added tax payable
            
            
            -
            
            
            
            (911,763
            )Net
      cash provided by operating activities
            
            
            7,384,252
            
            
            
            6,014,801CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
            
            
            (11,217
            )
            
            
            (7,177
            )Net
      cash used in investing activities
            
            
            (11,217
            )
            
            
            (7,177
            )EFFECT
      OF EXCHANGE RATES ON CASH & CASH EQUIVALENTS
            
            
            (12,952
            )
            
            
            161,018NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            7,360,083
            
            
            
            6,168,642CASH
      & CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            7,964,120
            
            
            
            281,994CASH
      & CASH EQUIVALENTS, END OF PERIOD
            
            $
            15,324,203
            
            
            $
            6,450,636SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid for interest expense
            
            $
            116,660
            
            
            $
            206,101Cash
      paid for income tax
            
            $
            1,349,206
            
            
            $
            1,347,474




The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements
  3


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE 1- BASIS OF
PRESENTAION





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by U.S. 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 period ended March 31, 2010 and 2009 are not necessarily indicative of the
results that may be expected for the full year. 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 the
Company’s 2009 Form 10-K.





NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles
of Consolidation





The
accompanying condensed consolidated financial statements include the financial
statements of Kingold Jewelry Inc. ("Kingold"), its wholly owned subsidiaries,
Dragon Lead Group Limited ("Dragon Lead") and Wuhan Vogue-Show Jewerly Co.,
Limited ("Wuhan Vogue-show") and Wuhan Kingold Jewelry Co., Limited ("Wuhan
Kingold"), its 95.83% contractually controlled affiliate. The noncontrolling
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 financial statements in conformity with generally accepted
accounting principles 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 financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


4


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)




NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Cash
and Cash Equivalents





Cash and
cash equivalents include cash on hand and demand deposits with a bank with an
original maturity of less than three months.





Restricted
cash





The
Company's financing facilities require a minimum cash deposit as security in the
amount of $ 1,465,013 and $1,462,587 as of March 31, 2010 and December 31, 2009
for borrowings outstanding under its demand financing facilities. The restricted
cash amount is classified as a current asset in the balance sheets since the
borrowings it secures are classified as current liabilities.





Accounts
Receivable





The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on managements' assessment of the credit history
with the customers and current relationships with them. As of March 31, 2010 and
December 31, 2009, there was no allowance recorded as the Company considers all
the accounts receivable fully collectible.





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.
The Company provides inventory allowances based on excess and obsolete
inventories determined principally by customer demand. No allowance for
inventories is considered necessary for the three months ended March 31, 2010
and 2009.





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.


5


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)




NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Depreciation
is provided on a straight-line basis, less estimated residual value over the
assets' estimated useful lives. The estimated useful lives are as
follows:





Estimated
      Useful Life
            
            Estimate
      ResidualValueBuildings
            30
      years
            
            5%Plant
      and machinery
            15
      years
            
            5%Motor
      vehicles
            10
      years
            
            5%Office
      furniture and electronics
            5-
      10 years
            
            5%





Long-lived
assets





The
Company accounts for long-lived assets under the FASB Codification Topic 360
(ASC Topic 360) "Accounting for Goodwill and Other Intangible Assets" and
"Accounting for Impairment or Disposal of Long-Lived Assets". In accordance with
ASC Topic 360, indefinite -lived intangible assets held and used by the Company
are reviewed for impairment annually in the fourth quarter or more frequently if
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Finite-lived assets and intangibles are also reviewed
for impairment test when circumstance requires it. For purposes of evaluating
the recoverability of long-lived assets, when undiscounted future cash flows
will not be sufficient to recover an asset's carrying amount, the asset is
written down to its fair value. The long-lived assets of the Company, which are
subject to evaluation, consist primarily of property, plant and equipment and
land use rights. No impairment loss is recorded for the three months ended March
31, 2010 and 2009.





Fair
value of financial instruments





FASB
Codification Topic 825(ASC Topic 825), "Disclosure about Fair Value of Financial
Instruments," requires certain disclosures regarding the fair value of financial
instruments. Fair value of financial instruments is made at a specific point in
time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
values.





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. The management of the
Company is of the opinion that the Company is not exposed to significant
interest or credit risks arising from these financial
instruments.


6


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)




NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Revenue
recognition





Net sales
are primarily composed of sales of products to wholesale and retail customers
and subcontracting fees. The Company recognizes revenues under the FASB
Codification Topic 605 ("ASC Topic 605"), Revenue is recognized when all of the
following have occurred: persuasive evidence of arrangement with the customer,
services has been performed, fees are fixed or determinable and collectability
of the fees is reasonably assured. These criteria as related to the Company's
revenues are considered to have been met as follows:





Sales of
products





The
Company recognizes revenue on sales of products when the goods are delivered and
title to the goods passes to the customers 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.





Sub-contracting
fees





The
Company also provides sub-contracting services to its customers based on a
fixed-price contract. The Company recognizes services-based revenue from all its
contracts when the services have been performed, the customers have approved the
completion of services, invoices have been issued and collectability is deemed
probable. The revenues from sub-contracting services only consist of
approximately 6.78% of the total revenue recognized.





Income
taxes





The
Company accounts 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 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.


7


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)




NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





On
January 1, 2007, the Company 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 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 the Company's financial position or results.





Foreign
currency translation





Kingold
and Dragon Lead maintain their 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.





For
financial reporting purposes, RMB have been translated into United States
dollars ("US$") as the reporting currency. Assets and liabilities are translated
at the exchange rate in effect at the balance sheet date. Revenues and expenses
are translated at the average rate of exchange prevailing during the reporting
period. Translation adjustments arising from the use of different exchange rates
from period to period are included as a component of stockholders' equity as
"Accumulated other comprehensive income". Gains and losses resulting from
foreign currency translations are included in accumulated other comprehensive
income.  There is no significant fluctuation in exchange rate for the
conversion of RMB to US$ after the balance sheet date.





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 the Company's financial
condition in terms of US$ reporting.





8


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Other
comprehensive income





The
foreign currency translation gain or loss resulting from translation of the
financial statements expressed in RMB to US$ is reported as other comprehensive
income in the statements of operations and stockholders' equity.





Other
comprehensive income for the three months ended March 31, 2010 and 2009 was
$59,322 and $18,883 respectively.





Earnings
per share





The
Company computes earnings per share (“EPS’) in accordance with ASC 260 “Earnings
per Share” (“ASC 260”).  ASC 260 requires companies with complex capital
structures to present basic and diluted EPS.  Basic EPS is measured as net
income divided by the weighted average common shares outstanding for the
period.  Diluted EPS is similar to basic EPS but presents the dilutive
effect on a per share basis of potential common shares (e.g., convertible
securities, options and warrants) as if they had been converted at the beginning
of the periods presented, or issuance date, if later.  Potential common
shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted
EPS.





Statement
of Cash Flows





In
accordance with ASC 230, “Statement of Cash Flows,” cash flows from the
Company's operations is calculated based upon the local
currencies.  As a result, amounts related to assets and liabilities
reported on the statement of cash flows may not necessarily agree with changes
in the corresponding balances on the balance sheet.





Subsequent
Events





The
Company has evaluated subsequent events that have occurred through the date the
consolidated financial statements were available to be issued and has determined
there were no material events since the balance sheet date of this
report.




Segments





The
Company operates in only one segment; As a result segment disclosure is not
presented.


9


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Recent
Accounting Pronouncements





In
February 2010, FASB issued new standards in ASC 855, Subsequent Event. This
amendment removes the requirement for an SEC filer to disclose a date through
which subsequent events have been evaluated in both issued and revised financial
statements. Revised financial statements include financial statements revised as
a result of either correction of an error or retrospective application of GAAP.
All of the amendments are effective upon issuance of the final update, except
for the use of the issued date for conduit debt obligors. That amendment is
effective for interim or annual periods ending after June 15, 2010. The Company
does not expect the adoption of this amendment to have a material impact on its
consolidated financial statements.





In
January 2010, FASB amended ASC 820 Disclosures about Fair Value Measurements.
This update provides amendments to Subtopic 820-10 that requires new disclosure
as follows: 1) Transfers in and out of Levels 1 and 2.  A
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers.  2)  Activity in Level 3 fair value
measurements.  In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should present
separately information about purchases, sales, issuances, and settlements (that
is, on a gross basis rather than as one net number). The new disclosures and
clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The Company has determined the adoption of this rule does
not have a material impact on its financial statements.





In
January 2010, FASB amended Accounting for Distributions to Shareholders with
Components of Stock and Cash. The amendments in this Update clarify that the
stock portion of a distribution to shareholders that allows them to elect to
receive cash or stock with a potential limitation on the total amount of cash
that all shareholders can elect to receive in the aggregate is considered a
share issuance that is reflected in EPS prospectively and is not a stock
dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per
Share). The amendments in this update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The Company does not expect the adoption of this rule to
have a material impact on its financial statements.


10





KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
3- INVENTORIES, NET





Inventories
are consisted of the following:


As
      ofMarch
      31,
                2010
              
              
              December31,
                2009Raw
      materials
              
              $
              13,160,076
              
              
              $
              9,645,402Work-in-progress
              
              
              11,628,435
              
              
              
              17,894,676Finished
      goods
              
              
              5,489,507
              
              
              
              4,215,931Less:
      provision for obsolescence
              
              
              -Total inventory
              
              $
              30,278,018
              
              
              $
              31,756,009





For the
three months ended March 31, 2010 and 2009, no provision for obsolete
inventories was recorded by the Company.





NOTE
4- PROPERTY AND EQUIPMENT, NET





The
following is a summary of property and equipment as of March 31, 2010 and
December 31, 2009:





As
      ofMarch
      31,
                2010
              
              
              December
      31,
                2009Buildings
              
              $
              1,884,459
              
              
              $
              1,881,339Plant
      and machinery
              
              
              17,362,490
              
              
              
              17,325,868Motor
      vehicles
              
              
              38,619
              
              
              
              38,555Office
      and electric equipment
              
              
              427,691
              
              
              
              423,658Subtotal
              
              
              19,713,259
              
              
              
              19,669,420Less:
      accumulated depreciation
              
              
              (5,857,213
              )
              
              
              (5,542,470
              )Property
      and equipment, net
              
              $
              13,856,046
              
              
              $
              14,126,950


Depreciation
expense for the three months ended March 31, 2010 and 2009 were $305,479 and
$307,970, respectively.




NOTE
5-OTHER ASSETS





Other
assets as of March 31, 2010 and December 31, 2009 consist of the Company’s
investment in the membership certificates at Shanghai Diamond Exchange and
Shanghai Gold Exchange, those certificates are transferable at the market. There
is no impairment loss of these assets as of March 31, 2010 and December 31,
2009.




11




KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
6 –INTANGIBLE ASSETS, NET





Intangible
assets as of March 31, 2010 and December 31, 2009 consist of land use rights and
computer software program acquired. The Company has the right to use the land
for fifty years and the right to use the software for five years and the Company
amortizes the assets on a straight line basis over its terms from the
acquisition date. Amortization expense was $2,768 and $2,765 for the three
months ended March 31, 2010 and 2009, respectively.





NOTE
7 –SHORT TERM LOANS





The Short
term loans include the following:




As
      ofMarch
      31,
              2009
            
            
            December
      31,
              2009a)Loan
      payable to Pufa bank, Jiangan branch
            
            
            2,197,519
            
            
            
            2,193,881b)Loan
      payable to Pufa bank, Jiangan branch
            
            
            3,662,531
            
            
            
            3,656,467c)Loan
      payable to Xinye Bank, Hanzhengjie branch
            
            
            2,930,025
            
            
            
            2,925,174Total
      short term loans
            
            $
            8,790,075
            
            
            $
            8,775,522




a) Loan
payable to Pufa bank, Jiangan branch was one year term from April 2009 to April,
2010 at the interest rate of 5.31% per year. This loan has been guaranteed by
buildings and plant and machinery of the Company. The loan has been paid off by
the due date.





b) Loan
payable to Pufa bank, Jiangan branch was one year term from May 2009 to May,
2010 at the interest rate of 5.31% per year. This loan has been guaranteed by
buildings and plant and machinery of the Company. This loan has been paid off by
the due date.





c) Loan
payable to Xinye bank, Hanzhengjie branch was one year term from December 2009
to December, 2010 at the interest rate of 4.425% per year. This loan has been
guaranteed by a third party.





Interest
expense paid ended March 31, 2010 and 2009 was $116,660 and $206,101,
respectively. Fees paid to the third party guarantors for the three months
ended March 31, 2010 and 2009 were $ 18,308 and $ 58,156,
respectively.




12




KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
8 –INCOME TAX





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





Kingold
was incorporated in the United States and has incurred net operating losses for
income tax purpose for the three months ended March 31, 2010 and for the years
ended 2009. Kingold had loss carry forwards of approximately $475,941 for U.S.
income tax purposes available for offset against future taxable U.S. income.
These carry forwards will expire, if not utilized, beginning in 2029 through
2030. Management believes that the realization of the benefits from these losses
appears uncertain due to the Company's limited operating history income and
continuing losses. Accordingly, the Company has provided a 100% valuation
allowance at March 31, 2010 and December 31, 2009 for the loss carry-forwards.
The valuation allowance as of March 31, 2010 and December 31, 2009 was $ 161,820
and $111,375, respectively. The net change in the valuation allowance was an
increase of $50,445.





Dragon
Lead was incorporated in the BVI and under 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 tax rate is 25% for the three months ended March 31,
2010 and 2009.





The
following table reconciles the U.S. statutory rates to the Company’s effective
rate for the three months ended March 31, 2010 and 2009:




For
      the three months ended March 31,2010
              
              
              2009US
      Statutory rate
              
              
              34
              %
              
              
              34
              %Foreign
      income not recognized in USA
              
              
              (34
              %)
              
              
              (34
              %)China
      income tax
              
              
              25
              %
              
              
              25
              %Non-dedcutible
      expenses
              
              
              -
              
              
              
              -Effective
      tax rate
              
              
              25
              %
              
              
              25
              %


13





KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





NOTE
9 –EARNINGS PER SHARE





In
December 23, 2009, the Company entered into a reverse merger transaction with
Hongkong Dragon Lead. The Company computes the weighted-average number of common
shares outstanding in accordance with ASC 805. ASC 805 states that in
calculating the weighted average shares when a reverse merger took place in the
middle of the year, the number of common shares outstanding from the beginning
of that period to the acquisition date shall be computed on the basis of the
weighted-average number of common shares of the legal acquiree (the accounting
acquirer) outstanding during the period multiplied by the exchange ratio
established in the merger agreement. The number of common shares outstanding
from the acquisition date to the end of that period will be the actual number of
common shares of the legal acquirer (the accounting acquiree) outstanding during
that period.





As of
March 31, 2010, the Company had outstanding warrants to acquire 6,670,482 shares
of common stock. The 5,120,482 warrants’ excise price is $0.498, while the
1,550,000 warrants’ exercise price is $0.598. As of March 31, 2010, all the
outstanding warrants were considered dilutive and were included in the weighted
average shares-diluted calculation using the treasury stock method.





The
following table presents a reconciliation of basic and diluted net income per
share:




For
      the three months ended
                March
      31,2010
              
              
              2009Net
      income attributable to Common stockholders
              
              $
              3,948,892
              
              
              $
              1,745,789Weighted
      average number of common shares outstanding - Basic
              
              
              83,532,777
              
              
              
              66,208,466Effect
      of dilutive securities:Unexercised
      warrants
              
              
              3,010,587
              
              
              
              -Weighted
      average number of common shares outstanding -
    Diluted
              
              
              86,543,364
              
              
              
              66,208,466Earnings
      per share-Basic
              
              $
              0.05
              
              
              $
              0.03Earnings
      per share-Diluted
              
              $
              0.05
              
              
              $
              0.03
  14
  KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





Note
10 - STOCKHOLDERS’ EQUITY





(1)
Issuance of Common Stock for recapitalization





Before
the reverser merger, the company has 6,250,010 shares of common stock issued and
outstanding. In addition, the Company has outstanding warrant issued to officers
to purchase 1,550,000 shares of common stock before reverse merge, the exercise
price changed to $0.598 per share with other terms keep the same.





On
December 23, 2009, the Company issued 66,208,466 shares of common stock in
reverse merger for the recapitalization of Dragon Lead and re-organization of
Kingold.





On
December 23, 2009, 833,335 shares of common stock were issued to a consultant
for advisory services related to reverse merger. This expense is recorded at
fair value of $0.498 per share at the grant date for a total of
$415,001.





(2)
Issuance of Common Stock in Private Placement





In
accordance with the Securities Purchase Agreement ("Securities Purchase
agreement") entered into between the Company and a group of accredited investors
("investors") on December 23, 2009, the Company received $5,100,000 (or
$4,472,482 net proceeds after deducting the offering expenses and reverse merger
service expense) from the investors (as defined under Rule 501 (a) of Regulation
D promulgated under the Securities Act) for an issuance of 10,240,966 shares of
restricted common stock at $0.498 by a private placement and warrants to
purchase 2,048,193 shares of Common stock at an exercise price of $0.498 per
share, exercisable within 5 years of the date of issue. The Company relied on an
exemption from registration pursuant to Section 4(2) under the Securities Act of
1933 in connection with the issuance of these shares.





In
connection with the private placement and pursuant to the Securities Purchase
Agreement, the placement agent and advisors received the following compensation:
(i) $368,518 cash as an engagement and documentation fee; (ii) $200,000 as a
placement commission; (iii) $59,000 cash as reverse merger service fee, and (iv)
warrants to purchase 3,072,289 shares of Common Stock with the same term of the
warrants issued to investors.





After the
reverse merger, the company has 83,532,777 shares of common stock issued and
outstanding and warrant to purchase of 6,670,482 shares of common
stock.





(3)
Appropriated retained earnings





The
Company is required to make appropriations to the statutory surplus reserve
based on the after-tax net income determined in accordance with the laws and
regulations of the PRC. Prior to January 1, 2006 the appropriation to the
statutory surplus reserve should be at least 10% of the after tax net income
determined in accordance with the laws and regulations of the PRC until the
reserve is equal to  50% of the entities' registered capital.
Appropriations to the statutory public welfare fund are at 5% to 10% of the
after tax net income determined by the Board of Directors. Effective January 1,
2006, the Company is only required to contribute to one statutory reserve fund
at 10 percent of net income after tax per annum, such contributions not to
exceed 50 percent of the respective company's registered capital.




15





KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





Note
10 - STOCKHOLDERS’ EQUITY (Continued)





The
statutory reserve funds cannot be used to set off against prior period losses,
expansion of production and operation or for the increase in the registered
capital of the Company. These reserves are not transferable to the Company in
the form of cash dividends, loans or advances. These reserves are therefore not
available for distribution except in liquidation.





For the
three months ended March 31, 2010 and 2009, the Company appropriated $16,962 and
$10,072, respectively to the reserves funds based on its net income in
accordance with the laws and regulations of the PRC.





Note
11 – WARRANTS





In
October, 2008, prior to the Merger, the Company issued warrants to the officer
to purchase 1,550,000 shares of common stocks, the original exercise price was
$0.16 per share,  exercisable within 5 years of the date of issue ,
during the reverse merger, the exercise price changed to $0.598 per share with
all other terms the same.





The
Company has determined that the warrants meet the conditions for equity
classification pursuant to ASC 815, “Derivatives and Hedging”.Therefore, these
warrants were classified as equity and included in Additional Paid-in Capital.
The fair value of the warrants was calculated using the Black-Scholes options
pricing model using the following assumptions: volatility 100%, risk free
interest rate 1.51% (no dividend yield) and expected term of four years. The
fair value of those warrants was recalculated at the reverse merge date at
$1,119,172.





In
conjunction with the private placement, the warrants issued to investor and
placement agent to purchase total 5,120,482 shares of Common stock at an
exercise price of $0.498 per share, exercisable within five years of the date of
issue. No separate consideration was paid for such warrants. The exercise price
of the warrant is subject to adjustments under certain circumstances and the
warrants permit cashless exercise by the holders. This expense directly related
to private placement is recorded as additional paid-in capital in the
accompanying financial statements. The Company relied on the exemption from
registration provided by Section 4(2) of the Securities Act for the issuance of
common stock and warrants to the placement agent.  The warrants issued
to the placement agent, qualify as permanent equity, the value of which warrants
has created offsetting debit and credit entries to additional paid-in
capital.





The
Company has determined that the warrants meet the conditions for equity
classification pursuant to ASC 815, “Derivatives and Hedging” . Therefore, these
warrants were classified as equity and included in Additional Paid-in Capital.
The fair value of the warrants was calculated using the Black-Scholes options
pricing model using the following assumptions: volatility 100%, risk free
interest rate 2.51% (no dividend yield) and expected term of five years. The
fair value of those warrants at the grant date was calculated at
$4,020,876.


16


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)





Note
11 – WARRANTS (Continued)





Following
is a summary of the status of warrants activities as of March 31,
2010:


Warrants
              
              
              Weighted
      Average
              
              
              Average
      Remaining
              
              
              Aggregateoutstanding
              
              
              Exercise
      Price
              
              
              Life
      in Years
              
              
              Intrinsic
      ValueOutstanding,
      January 1, 2010
              
              6,670,482
              
              
              
              0.52
              
              
              
              4.77
              
              
              
              471,084GrantedForfeitedExercisedOutstanding,
      March
      31, 2010
              
              6,670,482
              
              
              
              0.52
              
              
              
              4.52
              
              
              
              2,860,058





Note
12 – COMMITMENTS AND CONTINGENCIES





Escrowed
share arrangement





In
accordance with the Securities Purchase Agreement, a majority stockholder of
Dragon Lead, immediately following the closing of the  reverse
acquisition, entered into a make good escrow agreement with the investors,
pursuant to which a total of 3,791,218 of their beneficially owned shares of
common stock were delivered to an escrow agent in order  to secure the
Company's obligations under the Securities Purchase Agreement to deliver
additional common  stock to the private placement investors in the
event the Company fails to achieve certain after-PRC--tax net  income
of Wuhan Kingold targets for fiscal years 2009, 2010 and 2011 ("Make Good Escrow
Shares"). Those targets are RMB65 million, RMB100 million and RMB150 million in
after-tax net income for the fiscal years ended December 31, 2009 and ending
December 31, 2010 and 2011, respectively. In the event the Company is not able
to achieve the net income target, the Company is obligated to transfer 3,791,218
shares of common stock to the private placement investors on a pro-rata basis.
Of the 66,208,466 shares of common stock issued in the Share Exchange, 3,791,218
have been deposited by the majority stockholder of Dragon Lead into escrow to
secure these obligations.





As the
performance threshold was met for fiscal year 2009, 1,263,739 escrowed shares
will be returned to stockholders in 2009, the remaining 2,527,479 shares will be
released in fiscal years 2010 and 2011 if the performance thresholds for fiscal
years 2010 and 2011 are also met.





The Company has evaluated these
agreements under ASC 815 including ASU 2010-5 and concluded they do not meet the
definition of compensation. Instead, these shares are used as inducements for
the investors to complete the transactions. In the event that escrow shares are
transferred to the investors, the Company will record the value of the shares as
additional financing costs.





17


KINGOLD
JEWELRY, INC.


(FORMERLY
ACTIVEWORLDS CORP.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (UNAUDITED)








Liquidated
damages





Pursuant
to the Securities Purchase Agreement entered into between the Company and a
group of accredited investors on December 23, 2009, the Company was obligated to
make efforts to file a registration statement with the SEC for the registration
of 10,240,966 shares of common stock offered by selling stockholders to be
declared effective by the SEC on or before June 23, 2010. After June 23, 2010
and for each monthly anniversary date thereafter in which the registration
statement fails to be declared effective, the Company shall pay liquidated
damages to investors equal to 1% of the funds raised, subject to a cap of 6% of
total funds raised. Majority of the group of accredited investors have waived
their registration rights and the Company will not pay for the penalty as the
result. The Company has not accrued for these liquidated damages.





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.




Overview





We are engaged in the production and
sales 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 historically 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 fees and processing
fees. Typically this mark-up ranges from 4-6% of the price of the base
material.




We aim to become an increasingly
important 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 162 members of the
Shanghai Gold Exchange throughout China in 2008.  Non-members who want
to purchase gold must deal with members at a higher purchase price compared to
that for members.




18





Results
of Operations





The
following table sets forth information from our statements of operations
(unaudited) for the three months ended March 31, 2010 and 2009 in U.S.
dollars:





For
      the quarter ended
              March
      31,
              (unaudited)2010
            
            
            2009NET
      SALES
            
            $
            60,512,328
            
            
            $
            38,060,670COST
      OF SALESCost
      of sales
            
            
            (54,214,110
            )
            
            
            (34,661,813
            )Depreciation
            
            
            (278,815
            )
            
            
            (278,269
            )Total
      cost of sales
            
            
            (54,492,925
            )
            
            
            (34,940,082
            )GROSS
      PROFIT
            
            
            6,019,403
            
            
            
            3,120,588OPERATING
      EXPENSESSelling,
      general and administrative expenses
            
            
            383,001
            
            
            
            395,067Depreciation
            
            
            26,664
            
            
            
            29,701Amortization
            
            
            2,768
            
            
            
            2,765Total
      Operating Expenses
            
            
            412,433
            
            
            
            427,533INCOME
      FROM OPERATIONS
            
            
            5,606,970
            
            
            
            2,693,055OTHER
      INCOME (EXPENSES)Other
      income
            
            
            1,758
            
            
            
            -Interest
      income
            
            
            1,181
            
            
            
            297Interest
      expenses
            
            
            (134,968
            )
            
            
            (264,257
            )Total
      Other Expenses, net
            
            
            (132,029
            )
            
            
            (263,960
            )INCOME
      FROM OPERATIONS BEFORE TAXES
            
            
            5,474,941
            
            
            
            2,429,096PROVISION
      FOR INCOME TAX
            
            
            (1,355,899
            )
            
            
            (607,965
            )NET
      INCOME
            
            
            4,119,042
            
            
            
            1,821,131Less:
      net income attribute to the noncontrolling interest
            
            
            (170,150
            )
            
            
            (75,342
            )NET
      INCOME ATTRIBUTE TO COMMON STOCKHOLDERS
            
            
            3,948,892
            
            
            
            1,745,789


19





Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009





Net
Sales





Net sales
for the three months ended March 31, 2010 increased to $60.5 million, an
increase of $22.0 million, or 59%, from net sales of $38.0 million for the three
months ended March 31, 2009. The increase in net sales was primarily the result
of an increase in our production, continued success in marketing of our products
and the increase in the cost of raw materials.





Cost of sales





Cost of
sales for the year ended three months ended March 31, 2010 increased to $54.5
million, an increase of $19.6 million, or 56% from $34.9 million for the same
period in 2009. The increase was primarily due to the increase in the cost of
raw materials caused by higher sales volume for the three months ended March 31,
2010.





Gross profit





Gross
profit for the three months ended March 31, 2010 increased to $6.0 million, an
increase of $2.9 million, or 93%, from $3.1 million for the same period in 2009.
Accordingly, gross margin for the three months ended March 31, 2010 was 9.9%,
compared to 8.2% for the same period in 2009. The increase in our gross profit
and the increase in our gross margin were primarily due to the increase in
production and sales volume of gold, and processing fees. In addition, in 2009,
we shifted our focus to the production of gold jewelry other than other jewelry
production and the increased gross margin reflects this shift in
focus.





Total
operating expenses for the three months ended March 31, 2010 were $412,433 , a
decrease of $15,099 or 4%, from $427,533 for the same period in 2009. The
decrease in operating expenses was primarily due to less depreciation expense
and stronger control of other administration expenses.





Interest
expenses were $116,660 for three months ended March 31, 2010, an decrease of
$89,440 or 43%, from $206,101 for same period in 2009. Fees paid to the third
party guarantors for the three months ended March 31, 2010 and 2009 were $18,308
and $58,156, respectively. The decrease in interest expense and guarant fees
were primarily a result of a decrease of average loan balance for the three
months ended March 31, 2010.





Provision
for income tax expense was approximately $1.4 million for three months ended
March 31, 2010, an increase of $0.74 million, or 123%, from approximately $0.61
million for the same period in 2009. The increase was primarily due to our
increase in gross profit during the first three months of 2010.





Net
income attributable to common stockholders increased to $3.9 million for the
three months ended March 31, 2010 from $1.7 million for the same period in 2009,
an increase of $2.2 million, or 126%.





Net cash provided
by operating activities.Net cash provided by operating
activities was $7.4 million for the three months ended March 31, 2010, compared
to net cash used in operations of $6.0 million for the same period in 2009. Net
cash used in operating activities increased by $1.4 million and was primarily a
result of increase in net income and an increase in value added tax
recoverable.





Net cash used in
investing activities.Net cash used in investing activities
amounted to $11,217 for the three months ended March 31, 2010, compared to net
cash used in investing activities of $7,177 for the three months ended
March 31, 2009.  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.




20





Off-Balance
Sheet Arrangements





We have
no material off-balance sheet transactions.





At March
31, 2010, we had outstanding bank loans in the amount of $8.8 million. Our loans
are secured by real property and/or guaranteed by a third party guarantor who
charges us a commission.





Liquidity
and Capital Resources





At March
31, 2010, we had $15.3 million in cash and cash equivalents. We have
historically financed our operations with cash flows generated from operations,
as well as through the borrowing of short-term bank loans and contribution from
stockholders and investment from investors.





We
believe that our current cash and cash flow from operations will be sufficient
to meet our anticipated cash needs, including our cash needs for working
capital, for the next 12 months. We may, however, require additional cash
resources due to changing business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. We intend to
open new retail locations by leasing unoccupied space, acquiring existing leases
from third parties and/or acquiring the existing jewelry operations of third
parties that occupy retail space. While we are still in the process of
determining all the steps necessary to implement our retail expansion, it will
largely depend on our ability to find sites for, open and operate new retail
locations successfully, which depends on, among other things, our ability to:
(i) identify suitable counter and store locations; (ii) purchase and negotiate
acceptable lease terms; (iii) prepare counters and stores for opening within
budget; (iv) source sufficient levels of inventory at acceptable costs to meet
the needs of new counters and stores; (v) hire, train and retain personnel, and
(vi) secure required governmental permits and approvals.





On
December 23, 2009, we received gross proceeds of approximately $5.1 million in a
private placement transaction. Pursuant to subscription agreements entered into
with the investors, we sold an aggregate of 10,240,966 shares of common stock at
a price of $0.498 per share.





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 that restrict our ability to convert RMB into U.S. Dollars.
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.





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.




21




ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Not
required for Smaller Reporting Companies
 
 ITEM
4T. CONTROLS
AND PROCEDURES
  Evaluation
of Effectiveness of Disclosure Controls and Procedures
 
 We
carried out an evaluation required by Rule 13a-15(b) of the Securities Exchange
Act of 1934 under the supervision and with the participation of our chief
executive officer and chief financial officer of the effectiveness of the design
and operation of our “disclosure controls and procedures” as of the end of the
period covered by this Report.
 
 Disclosure
controls and procedures are designed with the objective of ensuring that
(i) information required to be disclosed in an issuer’s reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms and
(ii) information is accumulated and communicated to management, including
our Principal Executive Officer and Principal Financial Officer, as appropriate
to allow timely decisions regarding required disclosures.
 
 The
evaluation of our disclosure controls and procedures included a review of our
objectives and processes and effect on the information generated for use in this
Report. This type of evaluation will be done quarterly so that the conclusions
concerning the effectiveness of these controls can be reported in our periodic
reports filed with the SEC. We intend to maintain these controls as processes
that may be appropriately modified as circumstances warrant.
 
 Based on
their evaluation, our chief executive officer and chief financial officer has
concluded that our disclosure controls and procedures are effective in timely
alerting him to material information relating to Kingold Jewelry, Inc. required
to be included in our periodic reports filed with the SEC as of the end of the
period covered by this Report. There were no changes in our internal control
over financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. However, a control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Management necessarily
applied its judgment in assessing the benefits of controls relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. Because of the inherent limitations in a control
system, misstatements due to error or fraud may occur and
 may not
be detected.


Changes in Internal Control over
Financial Reporting





There
have been no changes in our internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f)) during the three months ended March 31,
2010, that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.


22




PART
II – OTHER INFORMATION
  ITEM
1. LEGAL
PROCEEDINGS.
  None
  ITEM
1A. RISK
FACTORS.
  Not
Applicable.
  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.
  Not
Applicable.
  ITEM
6. EXHIBITS.


Exhibit


Number     Description




31.1          PEO
certification required under Section 302 of the Sarbanes-Oxley Act of
2002




31.2           PFO
certification required under Section 302 of the Sarbanes-Oxley Act of
2002




32.1           PEO
certification required under Section 906 of the Sarbanes-Oxley Act of
2002




32.2           PFO
certification required under Section 906 of the Sarbanes-Oxley Act of
2002




23





SIGNATURE





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: May
12, 2010





KINGOLD
      JEWELRY, INC.By:
            /s/
      Jia Zhi HongJia
      Zhi HongChairman
      and Chief Executive OfficerBy:
            /s/
      Bin LiuBin
      LiuChief
      Financial Officer


24