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EXCEL - IDEA: XBRL DOCUMENT - KIWA BIO-TECH PRODUCTS GROUP CORPFinancial_Report.xls
EX-32.2 - EXHIBIT 32.2 - KIWA BIO-TECH PRODUCTS GROUP CORPv360051_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - KIWA BIO-TECH PRODUCTS GROUP CORPv360051_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - KIWA BIO-TECH PRODUCTS GROUP CORPv360051_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - KIWA BIO-TECH PRODUCTS GROUP CORPv360051_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2013

 

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

 

For the Transition Period from ______ to ______

 

Commission File Number: 000-33167

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   77-0632186
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
310 N. Indian Hill Blvd., #702Claremont, California   91711
(Address of principal executive offices)   (Zip Code)

(626) 715-5855

(Registrant’s telephone number, including area code)

 

 

415 West Foothill Blvd, Suite 206

Claremont, California91711-2766

 
  (Former address)  

 

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. Yes þ 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

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

 

Class   Outstanding at November 14, 2013
Common Stock, $0.001 par value per share   400,000,000 shares
 
 
 

 

Table of contents

 

PART I. FINANCIAL INFORMATION 3
     
ITEM 1. FINANCIAL STATEMENTS 3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 4. CONTROLS AND PROCEDURES 17
     
PART II. OTHER INFORMATION 19
     
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 1A. RISK FACTORS 19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. MINE SAFETY DISCLOSURES 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS 20
     
SIGNATURES 21

 

2
 

 

PART I.FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION
CONSOLIDATED BALANCE SHEETS

 

 

   September 30, 2013   December 31, 2012 
ASSETS  (Unaudited)     
Current assets        
    Cash and cash equivalents  $4,625   $4,493 
    Deposits and other receivables   11,833    21,588 
Total current assets   16,458    26,081 
Property, plant and equipment - net   12,927    15,965 
Total assets  $29,385   $42,046 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities          
    Accounts payable  $318,188   $312,580 
    Advances from customers   14,624    14,366 
    Construction costs payable   290,078    284,952 
    Due to related parties - trade   825,163    690,198 
    Due to related parties - non-trade   4,045,261    3,803,034 
    Convertible notes payable   150,250    1,631,088 
    Salary payable   1,286,818    1,127,070 
    Taxes payable   362,725    309,145 
    Penalty payable   250,297    2,240,852 
    Interest payable   110,006    1,009,563 
    Other payable   559,371    579,601 
Total current liabilities   8,212,781    12,002,449 
           
    Unsecured loans payable   1,879,085    1,845,878 
Total liabilities   10,091,866    13,848,327 
           
Stockholders’ deficiency          
    Common stock - $0.001 par value
        Authorized 400,000,000 shares. Issued and
        outstanding 400,000,000 at September 30, 2013 and
        December 31, 2012, respectively
   400,000    400,000 
    Preferred stock - $0.001 par value
        Authorized 20,000,000 shares, none issued
   -    - 
    Additional paid-in capital   8,093,337    8,093,337 
    Accumulated deficit   (17,829,281)   (21,704,464)
    Accumulated other comprehensive deficiency   (726,537)   (595,154)
Total stockholders’ deficiency   (10,062,481)   (13,806,281)
Total liabilities and stockholders' deficiency  $29,385   $42,046 

 

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

  

3
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(Unaudited)

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2013   2012   2013   2012 
Revenue  $-   $-   $-   $- 
                     
Operating expenses                    
    General and administrative   268,931    261,961    775,703    752,063 
    Research and development   40,907    39,765    121,702    119,019 
Total operating expenses   309,838    301,726    897,405    871,082 
Operating loss   (309,838)   (301,726)   (897,405)   (871,082)
                     
Interest expense   (57,656)   (63,602)   (181,292)   (189,926)
Gain on disposition of subsidiary   -    113,018    -    113,018 
Income from restructure of convertible notes   4,953,880    -    4,953,880    - 
Net income/(loss) before income tax   4,586,386    (252,310)   3,875,183    (947,990)
Income tax   -    -    -    - 
Net income/(loss)   4,586,386    (252,310)   3,875,183    (947,990)
                     
Other comprehensive loss                    
    Translation adjustment   (21,459)   (72,857)   (131,383)   (56,403)
Total comprehensive income/(loss)  $4,564,927   $(325,167)  $3,743,800   $(1,004,393)
                     
Net income/(loss) per common share - basic and diluted  $0.01   $0.00   $0.01   $0.00 
Weighted average number of common shares outstanding-basic and diluted   400,000,000    400,000,000    400,000,000    400,000,000 

 

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

 

 

4
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   Nine Months Ended September 30, 
   2013   2012 
Cash flows from operating activities:        
Net income/(loss)  $3,875,183   $(947,990)
Adjustments to reconcile net loss to net cash used in
  operating activities:
          
    Depreciation and amortization   3,325    3,735 
    Provision for penalty payable   479,807    449,497 
    Gain on disposal of subsidiary   -    (113,018)
    Interest payable on convertible notes   178,125    183,665 
    Gain on restructure of convertible notes   (4,953,880)   - 
    Changes in operating assets and liabilities:          
        Deposit and other receivables   10,143    (192)
        Salary payable   152,353    145,825 
        Taxes payable   48,018    46,759 
        Due to related parties-trade   122,548    87,513 
        Other payable   (22,263)   (73,218)
Net cash used in operating activities   (106,641)   (217,424)
           
Cash flows from financing activities:          
    Proceeds from related parties, net of payments to related parties   183,938    203,611 
    Cash paid for reconstructure of convertible notes   (75,000)   - 
Net cash provided by financing activities   108,938    203,611 
Effect of exchange rate change   (2,165)   11,144 
           
Cash and cash equivalents:          
   Net increase (decrease)   132    (2,669)
   Balance at beginning of period   4,493    16,307 
Balance at end of period  $4,625   $13,638 
           
Supplemental Disclosures of Cash flow Information:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 

 

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

 

5
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

  

1.Description of Business and Organization

 

References herein to “Kiwa” or the “Company” refer to Kiwa Bio-Tech Products Group Corporation and its wholly-owned subsidiaries unless the context specifically states or implies otherwise.

 

Business –The Company’s business plan is to develop, manufacture, distribute and market innovative, cost-effective and environmentally safe bio-technological products for agriculture markets located primarily in China. The Company has acquired technologies to produce and market bio-fertilizer.

 

Going Concern - The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not purport to represent the realizable or settlement values.

 

As of September 30, 2013, the Company had cash of $4,625. The Company had an accumulated deficit of $17,829,281. This trend is expected to continue. These factors create substantial doubt about the Company’s ability to continue as a going concern.

 

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

2.Summaries of Significant Accounting Policies

 

Principle of consolidation - These consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant inter-company balances or transactions are eliminated on consolidation.

 

Basis of preparation - These interim consolidated financial statements are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year or any other periods. The (a) consolidated balance sheet as of December 31, 2012, which was derived from audited financial statements, and (b) the unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Use of Estimates - The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates include the bad debt provision, impairment of inventory and long-lived assets, depreciation and amortization, valuation allowance of deferred tax assets and fair value of warrants and options.

 

Foreign Currency Translation - The Company uses United States dollars (“US Dollar” or “US$” or “$”) for financial reporting purposes. However, the Company maintains the books and records in its functional currency, Chinese Renminbi (“RMB”), being the primary currency of the economic environment in which its operations are conducted. In general, the Company translates its assets and liabilities into U.S. dollars using the applicable exchange rates prevailing at the balance sheet date, and the statement of income is translated at average exchange rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation of the Company’s financial statements are recorded as accumulated other comprehensive income.

6
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

The exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the condensed consolidated financial statements were as follows:

 

  As of September 30, 2013   As of December 31, 2012
Balance sheet items, except for equity accounts US$1=RMB6.1200   US$1=RMB6.2301
   
  Three months ended September 30,
  2013   2012
Items in the statements of income and cash flows US$1=RMB6.1253   US$1=RMB6.3516

 

Research and development costs - Research and development costs are charged to expense as incurred.

 

Impairment of Long-Lived Assets - We periodically evaluate our investment in long-lived assets, including property and equipment, for recoverability whenever events or changes in circumstances indicate the net carrying amount may not be recoverable. Our judgments regarding potential impairment are based on legal factors, market conditions and operational performance indicators, among others. In assessing the impairment of property and equipment, we make assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets. Based on our analysis, no further impairment on long-lived assets was charged during the nine months ended September 30, 2013.

 

Income Taxes - The Company accounts for income taxes under the provisions of FASB ASC Topic 740, “Income Tax,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company establishes a valuation when it is more likely than not that the assets will not be recovered.

 

Net Income/(Loss) Per Common Share - Basic income/(loss) per common share is calculated by dividing net income/(loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share includes the effect of dilutive securities (stock options, warrants, convertible debt, stock subscription and other stock commitments issuable). These potentially dilutive securities were not included in the calculation of loss per share for the periods presented because the Company incurred a loss during such periods and thus the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share is the same for all periods presented. As of September 30, 2013, potentially dilutive securities aggregated 365,046,106 shares of common stock.

 

Fair value measurements - ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The carrying values of cash and cash equivalents, trade receivables and payables, and short-term debts approximate their fair values due to their short maturities.

 

There were no assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2013 and December 31, 2012.

 

7
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

3.Related Party Transactions

 

Amounts due to related parties consisted of the following as of September 30, 2013 and December 31, 2012:

 

Item   Nature   Notes     September 30, 2013     December 31, 2012  
                       
Mr. Wei Li ("Mr. Li")   Non-trade   (1)     $ 3,504,503     $ 3,412,284  
Kangtai International Logistics (Beijing) Co., Ltd. ("Kangtai")   Non-trade   (2)       (13,742 )     (13,250 )
Ms. Yvonne Wang ("Ms. Wang")   Non-trade   (3)       554,500       404,000  
Subtotal                 4,045,261       3,803,034  
                             
Kiwa-CAU R&D Center   Trade   (4)       825,163       690,198  
Subtotal                 825,163       690,198  
Total               $ 4,870,424     $ 4,493,232  

 

(1) Mr. Li

 

Mr. Li is the Chairman of the Board and the Chief Executive Officer of the Company.

 

Advances and Loans

 

As of December 31, 2012, the remaining balance due Mr. Li was $3,412,284. During the nine months ended September 30, 2013, Mr. Li paid various expenses on behalf of the Company. As of September 30, 2013, the balance due Mr. Li was $3,504,503. Mr. Li has agreed that the Company may repay the balance when its cash flow circumstance allows. The advances as loans are non-interest bearing and due on demand.

 

(2) Kangtai

 

Kangtai, formerly named China Star Investment Management Co., Ltd., Kangtai International Logistics (Beijing) Co., Ltd., is a private company, 28% owned by Mr. Li. Mr. Li is the Chairman of Kangtai.

 

On December 31, 2012, the amount due from Kangtai was $13,250. The balance due from Kangtai on September 30, 2013 was $13,742. The advances as loans are non-interest bearing and due on demand.

 

(3) Ms. Wang

 

Ms. Wang is the Secretary of the Company.

 

On December 31, 2012, the amount due Ms. Wang was $404,000. During the nine months ended September 30, 2013, Ms. Wang paid various expenses on behalf of the Company. As of September 30, 2013, the amount due Ms. Wang was $554,500. Ms. Wang has agreed that the Company may repay the balance when its cash flow circumstance allows.

 

(4) Kiwa-CAU R&D Center

 

Pursuant to the agreement with China Agricultural University (“CAU”), the Company agree to invest RMB 1 million (approximately $163,399) each year to fund research at Kiwa-CAU R&D Center. Prof. Qi Wang, one of the Company’s directors, is also the director of Kiwa-CAU R&D Center.

 

On December 31, 2012, the amount due to Kiwa-CAU R&D Center was $690,198. As of September 30, 2013, the outstanding balance due Kiwa-CAU R&D Center was $825,163.

 

4.Convertible Notes Payable

 

On June 29, 2006, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with six institutional investors (collectively, the “Purchasers”) for the issuance and sale of (1) 6% secured convertible notes, due three years from the date of issuance, in the aggregate principal amount of $2,450,000 (the “6% Notes”), convertible into shares of the Company’s common stock, and (2) warrants (the “Warrants”) to purchase 12,250,000 shares of the Company’s common stock.

 

In conjunction with the sale and issuance of the 6% Notes, the Company entered into a Registration Rights Agreement, amended in October 2006, the requirements of which the Company met by filing its registration statement on Form SB-2 on August 11, 2006 and subsequently amended on October 20, 2006 and June 29, 2007.

 

8
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

  

Closings for the sale of the 6% Notes occurred on June 29, August 15 and October 31, 2006 for $857,500, $735,000 and $857,500 principal amount, respectively. The Company received $2,450,000 in aggregate from the three sales of the 6% Notes.

 

The conversion price of the 6% Notes is based on a 40% discount to the average of the trading price of the Company’s common stock on the OTC Bulletin Board over a 20-day trading period. The conversion price is also adjusted for certain subsequent issuances of equity securities of the Company at prices below the conversion price then in effect. The 6% Notes contain a volume limitation that prohibits the holder from further converting the 6% Notes if doing so would cause the holder and its affiliates to hold more than 4.99% of the Company’s outstanding common stock. In addition, each holder of the 6% Notes agrees that they may not convert more than their pro-rata share (based on original principal amount) of the greater of $120,000 principal amount of the 6% Notes per calendar month or the average daily dollar volume calculated during the 10 business days prior to a conversion, per conversion. This conversion limit has since been eliminated pursuant to an agreement by the Company and the Purchasers (see discussion below).

 

The exercise price of the Warrants is $0.45 per share, subject to anti-dilution adjustments pursuant to a broad-based weighted average formula for subsequent issues of equity securities by the Company below the trading price of the shares. The Purchase Agreement requires the Company to maintain a reserve of authorized common stock equal to 110% of the number of shares issuable upon full conversion of the 6% Notes and exercise of the Warrants. The Purchase Agreement imposes financial penalties in cash (equal to 2% of the number of shares that the Purchaser is entitled to multiplied by the market price for each day) if the authorized number of shares of common stock is insufficient to satisfy the reserve requirements. The 6% Notes and the Warrants also impose financial penalties on the Company if it fails to timely deliver common stock upon conversion of the 6% Notes and exercise of the Warrants, respectively.

 

To enable reservation of a sufficient amount of authorized shares that may be issued pursuant to conversion of the 6% Notes and exercise of the Warrants, the Purchase Agreement required the Company to amend its Certificate of Incorporation to increase the number of authorized shares of common stock. At the annual meeting for 2006, which was held on September 12, 2006, a proposal to amend our Certificate of Incorporation to increase the number of authorized shares of common stock, from 100,000,000 shares to 200,000,000 shares was approved by the required vote of our stockholders. At the annual meeting held for 2008 on December 30, 2008 we further amended our Certificate of Incorporation by increasing the number of authorized shares of common stock from 200,000,000 to 400,000,000. At our annual meeting for 2009, which was held on December 28, 2009, the proposal of further amend the Certificate of Incorporation to increase the number of authorized shares from 400,000,000 to 800,000,000 was not approved by stockholders.At our annual meeting for 2010, which was held on December 15, 2010, the proposal of further amend the Certificate of Incorporation to increase the number of authorized shares from 400,000,000 to 800,000,000 was not approved by stockholders.

 

The Company incurs a financial penalty in cash or shares at the option of the Company (equal to 2% of the outstanding amount of the Notes per month plus accrued and unpaid interest on the Notes, prorated for partial months) if it breaches this or other affirmative covenants in the Purchase Agreement, including a covenant to maintain a sufficient number of authorized shares under its Certificate of Incorporation to cover at least 110% of the stock issuable upon full conversion of the Notes and the Warrants. Pursuant to the relevant provisions for liquidated damages in the Purchase Agreement, as of September 30, 2013 and December 31, 2012, the Company has accrued a penalty of $2,566,203 and $2,240,852 respectively, of which $325,351 and $295,978 was included in general and administrative expenses for the six months ended September 30, 2013 and 2012, respectively.

 

The 6% Notes require the Company to procure the Purchaser’s consent prior to taking certain actions including the payment of dividends, repurchasing stock, incurring debt, guaranteeing obligations, merging or restructuring the Company, or selling significant assets.

 

The Company’s obligations under the 6% Notes and the Warrants are secured by a first priority security interest in the Company’s intellectual property pursuant to an Intellectual Property Security Agreement with the Purchasers, and by a first priority security interest in all of the Company’s other assets pursuant to a Security Agreement with the Purchasers. In addition, the Company’s Chief Executive Officer has pledged all of his common stock of the Company as collateral for the Company’s obligations under the 6% Notes and the Warrants. The Purchasers are accredited investors as defined under the Securities Act and the 6% Notes and the Warrants and the underlying common stock upon conversion and exercise will be issued without registration under the Securities Act in reliance on the exemption provided by Rule 506 under Regulation D under the Securities Act. The intellectual property pledged had a cost of $592,901 which carrying value of $179,897 was fully impaired during the year ended December 31, 2009.

 

9
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

As of September 30, 2013, warrants to purchase 12,250,000 shares of the Company’s common stock have expired.

 

On January 31, 2008, the Company entered into three Callable Secured Convertible Notes Agreements (“2% Notes”) with four of the Company’s 6% Notes purchasers converting their unpaid interest of $112,917 in total, into principal with an interest rate of 2% per annum, which fell due on January 31, 2011. Other terms of the 2% Notes are similar to the 6% Notes.

 

On August 12, 2013, the Company entered into a Settlement Agreement and Release (the “Release”) with four of the Purchasers of the Company’s 6% Notes and 2% Notes. Pursuant to the terms of the Release, the Company paid four of the Purchasers $75,000 for a full release, including the forgiveness of past defaults of unpaid principal amounts, interest and penalties. As of September 30, 2013, principal amount of 6% Notes outstanding was $150,250; interest amount outstanding was $110,006; amount of standard liquidation damages was $250,297.

 

As of September 30, 2013, 2% Notes have been fully settled.

 

During three months ended September 30, 2013, the Company recorded gain from restructure of convertible notes of $4,953,880.

 

5.Stock-based Compensation

 

On December 12, 2006, the Company granted options for 2,000,000 shares of its common stock under its 2004 Stock Incentive Plan. Summary of options issued and outstanding at September 30, 2013 and the movements during the nine months then ended are as follows:

 

   Number of
underlying
shares
   Weighted-
Average
Exercise Price
Per Share
  

Aggregate

Intrinsic

Value (1)

   Weighted- Average
Contractual Life
Remaining in Years
 
                 
Outstanding at December 31, 2012   1,232,600   $0.175   $-    5 
Exercised   -    -           
Expired   -    -         - 
Forfeited   -    -         - 
Outstanding at September 30, 2013   1,232,600   $0.175   $-    4.50 
Exercisable at September 30, 2013   1,232,600   $0.175   $-    4.50 

 

(1) The market value of the Company’s common stock at September 30, 2012 was $0.0018 per share. The outstanding options had no intrinsic value at September 30, 2013.  

 

6.Commitments and Contingencies

 

The Company has the following material contractual obligations:

 

Operating lease commitments

 

On September 30, 2011, the Company entered into an agreement with Kangtai pursuant to which Kangtai will sublease a portion of its offices to the Company for a monthly rental of $1,000. The sublease expired on September 30, 2013. Both parties decided to extend this contract for one year.

 

The Company’s commitments for minimum lease payments under the operating lease for the next five years and thereafter as of September 30, 2013 are as follows:

 

Fiscal Year  Amount 
2013  $3,000 
2014   9,000 
Total  $12,000 

 

10
 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Operation of Kiwa-CAU R&D Center

 

Pursuant to the agreement on joint incorporation of the research and development center between CAU and Kiwa Shandong dated November 14, 2006, Kiwa Shandong agrees to invest RMB1 million (approximately $163,399) each year to fund research at the R&D Center. The term of this Agreement is ten years starting from July 1, 2006. Qi Wang, one of our directors commencing in July 2007 has acted as Director of Kiwa-CAU R&D Center since July 2006.

 

Investment in manufacturing and research facilities in Zoucheng, Shandong Province in China

 

According to the Project Agreement with Zoucheng Municipal Government in 2002, the Company has committed to investing approximately $18 million to $24 million for developing the manufacturing and research facilities in Zoucheng, Shandong Province. As of September 30, 2013, the Company had invested approximately $2 million for the project.

 

7.Income Tax

 

No provision for taxes is made as the Company and its subsidiaries do not have any taxable income in the U.S., the British Virgin Islands or the PRC.

The Company had deferred tax assets as follows:

 

   September 30,   December 31 
   2013   2012 
           
Net operating losses carried forward  $3,411,536   $5,459,835 
Less: Valuation allowance   (3,411,536)   (5,459,835)
           
Net deferred tax assets  $-   $- 

 

The net operating losses carried forward were approximately $18 million at September 30, 2013, which will expire between 2013 and 2022. Full valuation allowance has been made because it is considered more likely than not that the deferred tax assets will not be realized through sufficient future earnings of the entity to which the operating losses relate.

 

8.Subsequent event

 

The Company has evaluated subsequent events through the date that these financial statements were issued and determined that there were no subsequent events to disclose in these financial statements.

 

11
 
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

This Quarterly Report on Form 10-Q for the nine months ended September 30, 2013 contains “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements that include the words “believes,” “expects,” “anticipates,” or similar expressions. These forward-looking statements include, among others, statements concerning our expectations regarding our working capital requirements, financing requirements, business, growth prospects, competition and results of operations, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q for the three months ended September 30, 2013 involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements contained herein.

 

Overview

 

The Company took its present corporate form in March 2004 when shareholders of Kiwa Bio-Tech Products Group Ltd. (“Kiwa BVI”), a company originally organized under the laws of the British Virgin Islands on June 5, 2002 and Tintic Gold Mining Company (“Tintic”), a corporation originally incorporated in the state of Utah on June 14, 1933 to perform mining operations in Utah, entered into a share exchange transaction. The share exchange transaction left the shareholders of Kiwa BVI owning a majority of Tintic and Kiwa BVI a wholly-owned subsidiary of Tintic. For accounting purposes this transaction was treated as an acquisition of Tintic by Kiwa BVI in the form of a reverse triangular merger and a recapitalization of Kiwa BVI and its wholly owned subsidiary, Kiwa Bio-Tech Products (Shandong) Co., Ltd. (“Kiwa Shandong”). On July 21, 2004, we completed our reincorporation in the State of Delaware.

 

We have established a subsidiary in China, Kiwa Shandong in 2002, a wholly-owned subsidiary, engaging in the bio-fertilizer business. Formerly, our subsidiary Tianjin Kiwa Feed Co., Ltd. (“Kiwa Tianjin”), was engaged in the bio-enhanced feed business. At the end of 2009, Kiwa Tianjin could no longer use its assets including machinery and inventory in the normal course of operations. The Company has classified the bio-enhanced feed business as discontinued operations. Effective on July 11, 2012, the Company formally dissolved Kiwa Tianjin.

 

We generated no revenues in the nine months ended September 30, 2013 and 2012. We incurred a net income of $4,586,386 and net loss of $252,310 for the three months ended September 30, 2013 and 2012, respectively.

 

As of September 30, 2013, the Company had cash of $4,625. Due to our limited revenues from sales and continuing losses, we have relied on the proceeds from the sale of our equity securities and loans from both unrelated and related parties to provide the resources necessary to fund the development of our business plan and operations. During the nine months ended September 30, 2013, net amount advanced by related parties, net of repayment to related parties was $183,938 in total. These funds are insufficient to execute our business plan as currently contemplated. Management is currently looking for alternative sources of capital to fund our operations.

 

Going Concern

 

Our consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not purport to represent the realizable or settlement values.

 

12
 

 

As of September 30, 2013, we had an accumulated deficit of $17,829,281. We currently do not have sufficient revenues to support our business activities and we expect operating losses to continue. We will require additional capital to fund our operations.

 

As of September 30, 2013, our current liabilities were $8,212,781, which exceeded current assets by $8,196,323, representing a current ratio of 0.002; comparably, as of December 31, 2012, we had total current assets of $26,081; at the same time, we had current liabilities of $12,002,449, denoting a current ratio of 0.002. If we can achieve the necessary financing to increase our working capital, we believe the Company will be well-positioned to generate sales of our products and to generate more revenues in the future. There can be no assurances that we will be successful in obtaining this financing or in increasing our sales revenue if we do obtain the financing.

 

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our financial statements for the latest eight years, which states that the financial statements raise substantial doubt as to our ability to continue as a going concern. Our ability to make operations profitable or obtain additional funding will determine our ability to continue as a going concern.

 

Trends and Uncertainties in Regulation and Government Policy in China

 

Foreign Investment Policy Change in China

 

On March 16, 2007, China’s parliament, the National People’s Congress, adopted the Enterprise Income Tax Law, which took effective on January 1, 2008. The new income tax law sets a unified income tax rate for domestic and foreign companies at 25% and abolishes the favorable policy for foreign invested enterprises. As a result subsidiaries established in China in the future will not enjoy the original favorable policy unless they are certified as qualified high and new technology enterprises.

 

According to the enterprise income tax law previously in effect, our PRC subsidiaries, Kiwa Shandong, were exempt from corporate income taxes for their first two profitable years and were entitled to a 50% tax reduction for the succeeding three years. Now that the new income tax law is in effect, fiscal year 2008 is regarded as the first profitable year even if Kiwa Shandong are not profitable that year; thereby narrowing the time period when the favorable tax treatment may be available to us.

 

Critical Accounting Policies and Estimates

 

We prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under current circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

 

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition, you should refer to our accompanying financial statements and the related notes thereto, for further discussion of our accounting policies.

 

Impairment of Long-Lived Assets

 

Our long-lived assets consist of property, equipment and intangible assets. As of September 30, 2013, the net value of property and equipment was $12,927, which represented approximately 44% of our total assets.

 

We periodically evaluate our investment in long-lived assets, including property and equipment, for recoverability whenever events or changes in circumstances indicate the net carrying amount may not be recoverable. Our judgments regarding potential impairment are based on legal factors, market conditions and operational performance indicators, among others. In assessing the impairment of property and equipment, we make assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change in the future, we may be required to record impairment charges for these assets.

 

Based on our analysis, no further impairment on long-lived assets was charged during the nine months ended September 30, 2013.

 

Revenue Recognition

 

We recognize revenue for our products in accordance with FASB ASC Topic 605, “Revenue Recognition.” Sales represent the invoiced value of goods, net of value added tax, supplied to customers, and are recognized upon delivery of goods and passage of title.

 

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Income Taxes

 

The Company accounts for income taxes under the provisions of FASB ASC Topic 740, “Income Tax,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company establishes a valuation when it is more likely than not that the assets will not be recovered.

 

Major Customers and Suppliers

 

Bio-fertilizer Products

 

As of September 30, 2013 and 2012, we had no customers. During nine months ended September 30, of 2013 and 2012, we had no suppliers.

 

Results of Operations

 

Results of Operations for Three Months Ended September 30, 2013 and 2012

 

Net Sales

 

Net sales were $nil for the three months ended September 30, 2013 and 2012, respectively. The Company did not generate any sales revenue during the third quarter of 2013 and 2012 mainly due to severe market conditions.

 

Cost of Sales

 

Cost of sales were nil during third quarter of 2013 and 2012. This was mainly due to no net sales.

 

Gross Profit

 

Gross profit for the three months ended September 30, 2013 and 2012 were nil, since there were no net sales during both periods.

 

General and Administration

 

General and administration expenses for three months ended September 30, 2013 and 2012 were $268,931 and $261,961, respectively, representing a $6,970 or 3% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs. We also charged liquidated damages in connection with the 6% Notes and 2% Notes to general and administrative expenses. During the three months ended September 30, 2013 and 2012, the Company accrued $15,503 and $153,519 as penalty in connection with 6% Notes and 2% Notes. The decrease in general and administrative expenses was mainly due to decreased amount of penalty charge of the outstanding convertible notes and unpaid interest on the notes.

 

Selling Expenses

 

The Company incurred no selling expenses during the third quarter of 2013 and 2012, respectively.

 

Research and Development

 

Research and development expense for the three months ended September 30, 2013 reflected a slight increase of $1,142 or 3% from $39,765 in the three months ended September 30, 2012 to $40,907 for the same period of 2013.

 

Interest Expenses

 

Net interest expense was $57,656 in the three months ended September 30, 2012 and $63,602 in the same period of 2013, representing a $5,946 or 9% decrease. The decrease in interest expenses was due to decreased amount of interest accrued from 6% Notes and 2% Notes.

 

14
 

 

Gain on disposition of subsidiary

 

Effective on July 11, 2012, the Company dissolved Kiwa Tianjin. The Company recorded a gain of $113,018 during the quarter ended September 30, 2012 based on the discharge of the excess liabilities over the assets of Kiwa Tianjin.

 

Income from Restructure of Convertible Notes

 

On August 12, 2013, the Company entered into a Settlement Agreement and Release (the “Release”) with four of the Purchasers of the Company’s 6% Notes and 2% Notes, the 6% Notes and 2% Notes. Pursuant to the terms of the Release, the Company paid the four of the Purchasers $75,000 for a full release, including the forgiveness of past defaults of unpaid principal amounts, interests and penalties. During the three months ended September 30, 2013, the Company recorded other income from restructure of convertible notes of $4,953,880 from restructure of 6% Notes and 2% Notes.

 

Net Income/(Loss)

 

During the three months ended September 30, 2013, net income was $4,586,386, comparing with net loss of $252,310 for the same period of 2012. The reason for the increase in net income is largely due to income recognized as a result of the Release of 6% Notes and 2% Notes described elsewhere in this report.

 

Comprehensive Income/(Loss)

 

Comprehensive income for the three months ended September 30, 2013 was $4,564,927 as compared to comprehensive loss of $325,167 for the comparable period of 2012. This increase in comprehensive income is largely due to income recognized as a result of the Release of 6% Notes and 2% Notes as well as a decrease in translation adjustments of $51,398.

 

Results of Operations for Nine Months Ended September 30, 2013 and 2012

 

Net Sales

 

Net sales were $nil for the nine months ended September 30, 2013 and 2012, respectively. The Company did not generate any sales revenue during the nine months ended September 30, 2013 and 2012 mainly due to severe market conditions.

 

Cost of Sales

 

Cost of sales were $nil during nine months ended September 30, 2013 and 2012. This was mainly due to no net sales.

 

Gross Profit

 

Gross profit for the nine months ended September 30, 2013 and 2012 were nil, since there were no net sales during both periods.

 

General and Administration

 

General and administration expenses for nine months ended September 30, 2013 and 2012 were $775,703 and $752,063, respectively, representing a $23,640 or 3% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs. We also charged liquidated damages in connection with the 6% Notes and 2% Notes to general and administrative expenses. During nine months ended September 30, 2013 and 2012, the Company charged $340,854 and $449,496, respectively. The decrease in general and administrative expenses was mainly due to decreased amount of penalty charge of the outstanding convertible notes and unpaid interest on the notes.

 

Selling Expenses

 

The Company incurred no selling expenses during the nine months ended September 30, 2013 and 2012, respectively.

 

15
 

 

Research and Development

 

Research and development expense for the nine months ended September 30, 2013 reflected a slight increase of $2,683 or 2% from $119,019 in the nine months ended September 30, 2012 to $121,702 for the same period of 2013.

 

Interest Expenses

 

Net interest expense was $181,292 in the nine months ended September 30, 2013 and $189,926 in the same period of 2012, representing an $8,634 or 5% decrease. The decrease in interest expenses was due to decreased amount of interest accrued from 6% Notes and 2% Notes.

 

Gain on disposition of subsidiary

 

Effective on July 11, 2012, the Company dissolved Kiwa Tianjin. The Company recorded a gain of $113,018 during the quarter ended September 30, 2012 based on the discharge of the excess liabilities over the assets of Kiwa Tianjin.

 

Income from Restructure of Convertible Notes

 

On August 12, 2013, the Company entered into a Settlement Agreement and Release (the “Release”) with four of the Purchasers of the Company’s 6% Notes and 2% Notes, the 6% Notes and 2% Notes. Pursuant to the terms of the Release, the Company paid the four of the Purchasers $75,000 for a full release, including the forgiveness of past defaults of unpaid principal amounts, interests and penalties. During the three months ended September 30, 2013, the Company recorded income of $4,953,880 from restructure of 6% Notes and 2% Notes.

 

Net Income/(Loss)

 

During the nine months ended September 30, 2012, net loss was $947,990, comparing with net income of $3,875,183 for the same period of 2013. The reason for the increase in net income is largely due to income recognized as a result of the Release of 6% Notes and 2% Notes described elsewhere in this report.

 

Comprehensive Income/(Loss)

 

Comprehensive income was $3,743,800 for the nine months ended September 30, 2013, as compared to comprehensive loss of $1,004,393 for the comparable period of 2012. This increase in comprehensive income is largely due to income recognized as a result of the Release of 6% Notes and 2% Notes as well as a decrease in translation adjustments of $74,980 in addition to reasons stated above.

 

Liquidity and Capital Resources

 

Since inception of our ag-biotech business in 2002, we have relied on the proceeds from the sale of our equity securities and loans from both unrelated and related parties to provide the resources necessary to fund our operations and the execution of our business plan. During the nine months ended September 30, 2013, amount related parties advanced to the Company, net of repayment by the Company to related parties was $183,938. As of September 30, 2013, our current liabilities exceeded current assets by $8,196,323, reflecting a current ratio of 0.002:1. Comparably, as of December 31, 2012, our current liabilities exceeded current assets by $11,976,368, denoting a current ratio of 0.002:1.

 

As of September 30, 2013 and December 31, 2012, we had cash of $4,625 and $4,493, respectively. Changes in cash balances are outlined as follows:

 

During the nine months ended September 30, 2013, our operations utilized cash of $106,641 as compared with $217,424 in the same period of 2012. Cash was mainly used for working capital for public company operation.

 

During the nine months ended September 30, 2013 and 2012, we invested $nil for investing activities.

 

During the nine months ended September 30, 2013, our financing activities incurred net cash inflow of $108,938, all of them are generated from advances or loans from related parties, net of repayment to related parties. We also paid $75,000 in cash as consideration to restructure 6% and 2% notes and related liabilities. During the nine months ended September 30, 2012, we generated $203,611 from financing activities.

 

Currently, we have insufficient cash resources to accomplish our objectives and also do not anticipate generating sufficient positive operating cash inflow in the rest of 2013 to fund our planned operations. We are actively looking for new sources of capital. To the extent that we are unable to successfully raise the capital necessary to fund our future cash requirements on a timely basis and under acceptable terms and conditions, we will not have sufficient cash resources to maintain operations, and may have to curtail operations and consider a formal or informal restructuring or reorganization.

16
 

 

Commitments and Contingencies

 

See Note 6 to the Consolidated Financial Statements under Item 1 in Part I.

 

Off-Balance Sheet Arrangements

 

At September 30, 2013, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Foreign Currency Exchange Rate Risk

 

All of our revenues and the majority of our expenses and liabilities incurred are in RMB. Thus, our revenues and operating results may be impacted by exchange rate fluctuations of RMB. Up to now, we have not reduced our exposure to exchange rate fluctuations by using hedging transactions or any other measures to avoid our exchange rate risks. Accordingly, we may experience economic losses and negative impacts on earnings and equity as a result of foreign exchange rate fluctuations.

 

Item 4.Controls and Procedures

 

Evaluation of Disclosure Controls.

 

Our management, under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), has evaluated the effectiveness of our disclosure controls and procedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management including our CEO and CFO, to allow timely decisions regarding required disclosures. Based on their evaluation, our CEO and CFO have concluded that, as of September 30, 2013, our disclosure controls and procedures were ineffective.

 

Our management has conducted, with the participation of our CEO and CFO, an assessment, including testing of the effectiveness, of our disclosure controls and procedures as of September 30, 2013. Based on such evaluation, management identified deficiencies that were determined to be a material weakness.

 

A material weakness is a deficiency, or a combination of deficiencies, in disclosure controls and procedures, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Because of the material weaknesses described below, management concluded that our disclosure controls and procedures were ineffective as of September 30, 2013.

 

The specific material weakness identified by the Company’s management as of September 30, 2013 are described as follows:

 

lThe Company is lacking qualified resources to perform the internal audit functions properly. In addition, the scope and effectiveness of the Company’s internal audit function are yet to be developed.
lWe currently do not have an audit committee.

 

Remediation Initiative

 

lWe are committed to establishing the disclosure controls and procedures but due to limited qualified resources in the region, we were not able to hire sufficient internal audit resources by September 30, 2013. However, internally we established a central management center to recruit more senior qualified people in order to improve our internal control procedures. Externally, we are looking forward to engaging an accounting firm to assist the Company in improving the Company’s internal control system based on the COSO Framework. We also will increase our efforts to hire the qualified resources.
lWe intend to establish an audit committee of the board of directors as soon as practicable. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors, evaluating our accounting policies and our system of internal controls.

 

17
 

 

Conclusion

 

The Company did not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of generally accepted accounting principles accepted in the United States of America commensurate with the Company’s disclosure controls and procedures requirements, which resulted in a number of deficiencies in disclosure controls and procedures that were identified as being significant. The Company’s management believes that the number and nature of these significant deficiencies, when aggregated, was determined to be a material weakness.

 

Despite of the material weaknesses and deficiencies reported above, the Company’s management believes that its condensed consolidated financial statements included in this report fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented and that 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.

 

Changes in internal control over financial reporting.

 

There were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

18
 

 

PART II.OTHER INFORMATION

 

Item 1.Legal Proceedings

 

None.

 

ITEM 1A. RISK FACTORS

 

Note: in addition to the other information set forth in this report, you should carefully consider the factors discussed in “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which could materially affect our business, financial condition, or future results. During the nine months ended September 30, 2013, there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

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

 

None.

 

Item 3.Defaults Upon Senior Securities

 

On June 29, 2006, the Company entered into a securities purchase agreement with six institutional investors for the issuance and sale of (1) 6% secured convertible notes, due three years from the date of issuance, in the aggregate principal amount of $2,450,000, convertible into shares of the Company’s common stock (the “6% Notes”), and (2) warrants to purchase 12,250,000 shares of the Company’s common stock. The maturity date for 6% Notes was June 29, 2009.

 

On June 29, 2009, the 6% Notes were due. The Company has informed the Purchasers of its inability to repay the outstanding balance on the due date.

 

On August 12, 2013, the Company entered into a Settlement Agreement and Release (the “Release”) with four of the Purchasers of the Company’s 6% Notes and 2% Notes. Pursuant to the terms of the Release, the Company paid four of the Purchasers $75,000 for a full release, including the forgiveness of past defaults of unpaid principal amounts, interests and penalties. As of September 30, 2013, amount of 6% Notes outstanding was $150,250. Therefore, the 6% Notes are in default.

 

Item 4.Mine safety disclosures

 

Not applicable.

 

Item 5.Other Information

 

None.

19
 

 

 

Item 6.Exhibits

 

Exhibit No. Description Incorporated by Reference in Document Exhibit No. in Incorporated Document
       
3.1 Certificate of Incorporation, effective as of July 21, 2004. Form 8-K filed on July 23, 2004 3.1
3.2 Bylaws, effective as of July 22, 2004. Form 8-K Filed on July 23, 2004 3.2
3.3 Certificate of Amendment to Certificate of Incorporation, effective as of September 27, 2006. Form 10-QSB filed on November 15, 2006 3.3
10.1 Advance Agreement by and between Wei Li and the Company dated January 10, 2008 Form 8-K filed on January 11, 2008 10.01
10.2 Stock Purchase Agreement between Kiwa Bio-Tech Products Group Corporation and Yuxin Zhou dated February 19, 2008 Form 8-K filed on February 22, 2008 10.01
10.3 Consulting Agreement between the Company and Robert Schechter dated January 10, 2008 Form 10-Q filed on August 11, 2008 10.1
10.4 Contract for Joint Venture between the Company and Hebei Huaxing Pharmaceuticals Co., Ltd. dated May 22, 2008 Form 8-K filed on May 27, 2008 10.1
10.5 Term Sheet for Redemption Convertible Notes dated September 25, 2008 between the Company and AJW Offshore Ltd., AJW Qualified Partners LLC, AJW Partners LLC, and New Millennium Capital Partners II LLC Form 10-Q filed on November 12, 2008 10.3
10.6 Term Sheet for Redemption Convertible Notes dated September 25, 2008 between the Company and FirsTrust Group, Inc. dated October 7, 2008 Form 10-Q filed on November 12, 2008 10.4
10.7 2004 Stock Incentive Plan, amended in 2006 Form Pre 14A filed on July 28, 2006 Appendix A
10.8 Employment Agreement dated July 31, 2006, between the Company and Lianjun Luo Form 8-K filed on August 7, 2006 10.02
10.9 Employment Agreement dated February 2, 2009 by and between the Company and Wei Li. Form 8-K filed on February 2, 2009 10.1
10.10 Employment Agreement dated February 18, 2009 by and between the Company and Steven Ning Ma. Form 8-K filed on February 19, 2009 10.1
10.11 Letter from Mao & Company, CPAs, Inc. dated June 7, 2009 to the Securities and Exchange Commission Form 8-K filed on June 8, 2009 16.1
10.12 Settlement Agreement and Release, dated August 12, 2013 and took effective on September 23, 2013, among Kiwa Bio-Tech Products Group Corporation, a Delaware corporation (the “Company”), and the holders of the Company’s (i) Callable Secured Convertible Notes, dated as of June 29, 2006, August 15, 2006 and October 31, 2006 and (ii) Callable Secured Convertible Notes, dated January 31, 2008. Form 8-K filed on October 1, 2013 10.1
14 Code of Ethics Form 10-K filed on May 18, 2009 14.1
21 List of Subsidiaries Form 10-K filed on March 29, 2010 21
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule15d-14(a) of the Securities Exchange Act of 1934, as amended

Filed herewith.

 

 
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

Filed herewith.

 

 
32.1 Certificationof Principal Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith.

 

 
32.2 Certificationof Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith.

 

 

 

20
 

 

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.

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

(Registrant)

 

/s/ Wei Li November 14, 2013 Chief Executive Officer and Chairman of the Board of Directors
Wei Li (Principal Executive Officer)
   
   
/s/ Steven Ning Ma November 14, 2013 Chief Financial Officer
Steven Ning Ma (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

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