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

Through a variable interest entity relationship with Wuhan Kingold Jewelry Company Limited, a PRC corporation, we believe that we are one of the leading professional designers and manufacturers of high quality 24 Karat gold jewelry and Chinese ornaments developing, promoting, and selling a broad range of products to the rapidly expanding jewelry market across the Peoples Republic of China, or PRC. We offer a wide range of in-house designed products including but not limited to gold necklaces, rings, earrings, bracelets, and pendants.

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, plus a mark-up reflecting our design fees and processing fees. Typically this mark-up ranges from 3% - 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 brand, Kingold.

In view of the fast growth in investment gold business sector, we have signed agreements with three leading banks in China to sell gold bars and coins and other products through bank branches. We tested this business model in 2011 and sales of investment gold has increased to approximately $26 million in the first half of 2012. We anticipate the investment gold business will become an increasingly important part of our future business.

We are located in Wuhan, which is one of the largest cities in China. We produced approximately 30 metric tons of 24 Karat gold products in 2011 and 20.6 metric tons of 24 Karat gold products in the first half of 2012.

Results of Operations

The following table sets forth information from our statements of operations (unaudited) for the three and six months ended June 30, 2012 and 2011 in U.S. dollars: