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EX-32.2 - KIWA BIO-TECH PRODUCTS GROUP CORPex32-2.htm
EX-32.1 - KIWA BIO-TECH PRODUCTS GROUP CORPex32-1.htm
EX-31.2 - KIWA BIO-TECH PRODUCTS GROUP CORPex31-2.htm
EX-31.1 - KIWA BIO-TECH PRODUCTS GROUP CORPex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended June 30, 2016

 

[  ] 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., #702
Claremont, California
  91711
(Address of principal executive offices)   (Zip Code)

 

(626) 715-5855

(Registrant’s telephone number, including area code)

 

     
  (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 [X] 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 [X] 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 [X]

 

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

 

There were 5,421,226 shares of the issuer’s common stock outstanding as of August 10, 2016.

 

 

 

 
 

 

Table of contents

 

PART I. FINANCIAL INFORMATION  
   
Item 1. Financial Statements 3
   
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14
   
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
   
Item 4. Controls and Procedures 18
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 19
   
ITEM 1A. RISK FACTORS 19
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
   
Item 3. Defaults Upon Senior Securities 20
   
Item 4. Mine safety disclosures 20
   
Item 5. Other Information 20
   
Item 6. Exhibits 20
   
SIGNATURES 21

 

2
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   June 30, 2016   December 31, 2015 
         
ASSETS          
Current assets          
Cash and cash equivalents  $12,367   $721 
Accounts receivable   55,240    - 
Deposits and other receivables   1,203,564    47,453 
Total current assets   1,271,171    48,174 
Property, plant and equipment - net   77,192    2,807 
Goodwill   34,112    - 
Total assets  $1,382,475   $50,981 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY          
Current liabilities          
Accounts payable  $342,336   $300,247 
Advances from customers   13,470    13,800 
Construction costs payable   267,187    273,722 
Due to related parties - trade   1,267,611    1,143,978 
Due to related parties - non-trade   96,710    3,166,198 
Convertible notes payable   150,250    150,250 
Notes payable   360,000    360,000 
Salary payable   1,697,206    1,632,881 
Taxes payable   496,279    478,209 
Penalty payable   442,860    404,752 
Interest payable   986,300    930,062 
Other payable   982,710    524,205 
Total current liabilities   7,102,919    9,378,304 
           
Unsecured loans payable   1,730,799    1,773,131 
Total long-term liabilities   1,730,799    1,773,131 
Total liabilities   8,833,718    11,151,435 
           
Stockholders’ deficiency          
Common stock - $0.001 par value. Authorized 100,000,000 shares. Issued and outstanding 5,361,226 and 2,000,000 shares at June 30, 2016 and December 31, 2015, respectively.   5,361    2,000 
Preferred stock - $0.001 par value. Authorized 20,000,000 shares. Issued outstanding 500,000 shares at June 30, 2016 and December 31, 2015, respectively   500    500 
Additional paid-in capital   12,804,476    9,490,837 
Accumulated deficit   (20,086,706)   (20,324,812)
Accumulated other comprehensive loss   (174,874)   (268,979)
Total stockholders’ deficiency   (7,451,243)   (11,100,454)
Total liabilities and stockholders’ deficiency  $1,382,475   $50,981 

 

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 June 30,   Six Months Ended June 30, 
   2016   2015   2016   2015 
Revenue  $443,085   $-   $710,095   $- 
                     
Operating expenses                    
General and administrative   138,786    68,571    225,669    147,542 
Research and development - related party   74,776    40,940    151,769    81,627 
Total operating expenses   213,562    109,511    377,438    229,169 
Operating income (loss)   229,522    (109,511)   332,657    (229,169)
                     
Other expense                    
Penalty expense   19,223    17,866    38,108    35,397 
Interest expense   28,325    28,169    56,443    56,260 
Total other expense   47,547    46,035    94,551    91,657 
Net income (loss) before income tax   181,975    (155,546)   238,105    (320,826)
Income tax   -    -    -    - 
Net income (loss)   181,975    (155,546)   238,105    (320,826)
                     
Other comprehensive income (loss)                    
Foreign currency translation adjustment   129,199    (15,524)   94,105    (48,906)
Total comprehensive income (loss)  $311,174   $(171,070)  $332,210   $(369,732)
                     
Net income(loss) per common share - basic  $0.07   $(0.08)  $0.06   $(0.16)
Net income(loss) per common share - diluted  $0.05   $(0.08)  $0.04   $(0.16)
Weighted average number of common shares outstanding - basic*   2,617,584    2,000,000    3,766,705    2,000,000 
Weighted average number of common shares outstanding - diluted*   3,550,696    2,000,000    5,623,035    2,000,000 

 

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

 

* Share amounts have been adjusted to reflect a one for 200 reverse split which become effective in January 2016.

 

4
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended June 30 
   2016   2015 
Cash flows from operating activities:          
Net income (loss)  $238,105   $(320,826)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization   3,073    2,212 
Provision for penalty payable   38,108    35,397 
Accrued interest on convertible notes   56,443    56,176 
Changes in operating assets and liabilities:          
Accounts receivable   (54,940)   - 
Deposit and other receivables   (1,210,111)   - 
Salary payable   78,080    80,766 
Taxes payable   29,982    31,985 
Due to related parties - trade   153,033    81,627 
Accounts payable   49,999    - 
Other payable   469,297    (22,383)
Net cash used in operating activities   (148,931)   (55,046)
           
Cash flows from investing activities:          
Purchase of property, plant and equipment   (78,775)   - 
Net cash used by investing activities   (78,775)   - 
           
Cash flows from financing activities:          
Proceeds from related parties, net of payments to related parties   40,500    52,929 
Proceeds from sale of common stock   176,000    - 
Net cash provided by financing activities   216,500    52,929 
Effect of exchange rate change   22,852    10 
           
Cash and cash equivalents:          
Net increase (decrease)   11,646    (2,107)
Balance at beginning of period   721    2,963 
Balance at end of period  $12,367   $856 
           
Non-cash financing activities:          
Issuance of 3,141,000 shares of common stock shares for  repayment of related party loans  $3,141,000   $- 
           
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 CONSOLIDATED 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 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.

 

Acquisition of Caber Holdings Ltd - On November 30, 2015, we entered into an acquisition agreement (the “Agreement”) with the shareholders of Caber Holdings LTD, whose Chinese name is Hong Kong Baina Group Co., Ltd, located in Hong Kong (“Baina Hong Kong”), and Oriental Baina Co. Ltd. (hereinafter referred to as “Baina Beijing”), Baina Hong Kong’s wholly-owned subsidiary in Beijing, China. Kiwa will rename Baina Beijing to Kiwa Baiao Co. Ltd. Kiwa Baiao Co. Ltd will replace Kiwa’s current subsidiary in China - Kiwa Bio-Tech (Shandong) Co., Ltd (“Kiwa Shandong”) - to operate Kiwa’s bio-fertilizer market expansion and become Kiwa’s platform for future acquisitions of new agricultural-related projects in China. In accordance with the terms of the Agreement, Kiwa agreed to pay US$30,000 to the Baina Hong Kong Shareholders for the acquisition of 100% of the equity of Baina Hong Kong. The acquisition was completed on January 7, 2016. Both Baina Hong Kong and Baina Beijing had no activities before the acquisition date and had no assets and liabilities. The total payment of approximately $34,000 was recorded as goodwill.

 

2. 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 June 30, 2016, the Company had cash of $12,367. The Company had working capital deficit of $5,831,748 and an accumulated deficit of $ 20,086,706 as of June 30, 2016. This trend is expected to continue. These factors, among others, 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.

 

During 2016, the Company plans to (1) raise finance from related-parties, local banks, other financial institutions and other stock market to meet cash demand of daily demand; and (2) raise capital to resume operations. However, there can be no assurance that we will be successful in obtaining this financing (3) The Company’s business plan is to develop, manufacture, distribute and market innovative, cost-effective and environmentally safe biotechnological products for agriculture markets located primarily in China. The Company has acquired technologies to produce and market bio-fertilizer.

 

3. 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, 2015, 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, 2015.

 

6
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Reverse Split - On January 14, 2016, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the State of Delaware with reference to a 1-for-200 reverse stock split with respect to its Common Stock with effective date of January 28, 2016. In connection with the reverse split, the Company’s authorized capital stock was amended to be 120,000,000 shares, comprising 100,000,000 shares of Common Stock par value $0.001 and 20,000,000 shares of Preferred Stock par value $0.001. All relevant information relating to numbers of shares, options and per share information have been retrospectively adjusted to reflect the reverse stock split for all periods presented.

 

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.

 

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 June 30, 2016       As of December 31, 2015  
Balance sheet items, except for equity accounts     US$1 = RMB 6.6443       US$1 = RMB 6.4857  

 

      Six months ended June 30,  
      2016       2015  
Items in the statements of income and cash flows     US$1 = RMB 6.5345       US$1 = RMB 6.1254  

 

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 six months ended June 30, 2016.

 

Revenue Recognition - The Company recognizes revenue in accordance with FASB ASC Topic 605, “Revenue Recognition.”. Revenue represents fees per licensing agreement. The Company entered into an agreement with a company, Kangtan Gerui (Beijing) Bio-Tech Co., Ltd. (“Gerui”), to allow Gerui sell products with the Company’s trademark. Gerui will pay 10% of total sales amount to the Company as license fee. The Company recognized license fees when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured by Gerui. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.

 

Accounts Receivables - Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified.

 

7
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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.

 

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 June 30, 2016 and December 31, 2015.

 

4. Deposits and other receivables

 

Deposit and other receivables consist of following:

 

   As of 
   June 30, 2016   December 31, 2015 
Advance to customer – Gerui  $1,152,863   $- 
Deposits for acquisition   -    33,921 
Advance to employees   13,957    13,532 
Rent and utility deposits   35,383    - 
Others   1,361    - 
   $1,203,564   $47,453 

 

8
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

5. Related Party Transactions and Balances

 

Amounts due to related parties consisted of the following:

 

Item   Nature     Notes     June 30, 2016     December 31, 2015  
Mr. Wei Li (“Mr. Li”)     Non-trade       (1)     $ -      $ 2,879,307  
Kangtai Xinnong Agriculture Tech (Beijing) Co., Ltd. (“Kangtai”)     Non-trade       (2)       -       (12,173 )
Ms. Yvonne Wang (“Ms. Wang”)     Non-trade       (3)       96,710       299,064  
Subtotal                     96,710       3,166,198  
Kiwa-CAU R&D Center     Trade       (4)       1,173,933       1,125,553  
CAAS IARRP and IAED Institutes     Trade       (5)       93,678       18,425  
Subtotal                     1,267,611       1,143,978  
Total                   $ 1,364,321     $ 4,310,176  

 

(1) Mr. Li

 

Mr. Li was the Chairman of the Board until November 20, 2015 and was the Chief Executive Officer of the Company until July 1, 2015.

 

Advances and Loans

 

As of December 31, 2015, the remaining balance due Mr. Li was $2,879,307. During the six months ended June 30, 2016, Mr. Li received 2,900,000 shares of common stock in lieu of the cancellation and repayment of an aggregate of $2,879,307 and salary payable.

 

Guarantees for the Company

 

Mr. Li has pledged without any compensation from the Company, all of his common stock of the Company as collateral security for the Company’s obligations under the 6% Notes. (See Note 7 below).

 

(2) Kangtai

 

Kangtai, formerly named Kangtai International Logistics (Beijing) Co., Ltd., Kangtai Xinnong Agriculture Tech (Beijing) Co., Ltd., is a private company, 28% owned by Mr. Li. Mr. Li is the Chairman of Kangtai.

 

On December 31, 2015, the amount due from Kangtai was $12,173. The balance due from Kangtai on June 30, 2016 was nil.

 

(3) Ms. Wang

 

Ms. Wang is the Secretary of the Company until November 20, 2015. Effective as of November 20, 2015, the Company appointed Ms. Wang as the Chairman of the Board. Effective as of December 15, 2015, the Company appointed Ms. Wang as the Company’s Chief Operating Officer.

 

On December 31, 2015, the amount due to Ms. Wang was $299,064. On March 24, 2016, the Company issued 240,000 shares of common stock to Ms. Wang to pay off the loan balance of $240,000. During the six months ended June 30, 2016, Ms. Wang paid various expenses on behalf of the Company. As of June 30, 2016, the amount due to Ms. Wang was $96,710.

 

9
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(4) Kiwa-CAU R&D Center

 

Pursuant to the agreement with China Agricultural University (“CAU”), the Company agree to invest RMB 1 million (approximately $160,000) 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, 2015, the amount due to Kiwa-CAU R&D Center was $1,125,553. As of June 30, 2016, the outstanding balance due to Kiwa-CAU R&D Center was $1,173,933.

 

(5) CAAS IARRP and IAED Institutes

 

On November 5, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”). Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $160,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of the Agreement is for three years beginning November 20, 2015. Prof. Yong Chang Wu, the authorized representative of IARRP, CAAS, is also one of the Company’s directors effective since November 20, 2015.

 

On December 31, 2015, the amount due to Kiwa- CAAS IARRP and IAED Institutes R&D Center was $18,425. As of June 30, 2016, the outstanding balance due to Kiwa-CAAS IARRP and IAED Institutes R&D center was $93,678.

 

6. Other Payable

 

Other payable includes the payables to two potential investors and other liabilities. As of June 30, 2016, two potential investors made the first payments of $481,614 to the Company and the investment agreements haven’t been reached yet. Those two potential investors are non-related parties.

 

7. Convertible Notes Payable

 

Convertible notes payable consists of 6% secured convertible notes issued to FirsTrust Group Inc. on June 29, 2006. The notes beard interest at 6% and were due on June 29, 2009. Once the note is pass due, the interest rate increased to 15% per annum. The Company accrued $11,451 and $11,176 interest expense on convertible notes for the six months ended June 30, 2016 and 2015, respectively.

 

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, the 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.

 

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. Pursuant to the relevant provisions for liquidated damages in the Purchase Agreement, the Company has accrued the penalty of $38,108 and $35,397 for the six months ended June 30, 2016 and 2015, 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.

 

10
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The Company’s obligations under the 6% Notes 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, Mr. Li, the Company’s Chief Executive Officer until July 1, 2015, has pledged all of his common stock of the Company as collateral for the Company’s obligations under the 6% Notes. 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.

 

8. Note payable

 

On May 29, 2007, the Company issued a $360,000 promissory note to an unrelated individual. This note bears interest at 18% per annum and due on July 27, 2007. This note is currently in default and bears interest of 25% per annum (the “Default rate”) until paid in full. This note is secured by a pledge of 6,178,336 (post-reverse split 30,892) shares of the Company’s common stock owned by Investlink (China) Limited, a British Virgin Island corporation. The Company accrued $45,000 and $45,000 interest expense on note payable for the six months ended June 30, 2016 and 2015, respectively.

 

9. Stockholders’ Equity

 

During the six month ended June 30, 2016, the Company issued 3,140,000 shares of common stock to Mr. Li and Ms. Wang for debt repayment and salary payment for an aggregate amount of $3,141,000. (See Note 5)

 

Meanwhile, the Company issued 220,000 shares of common stock to three individual shareholders in the second quarter of 2016 for an aggregate amount of $176,000.

 

10. 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 June 30, 2016 and the movements during the six 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, 2015     6,163     $ 35     $ -       1  
Exercised     -       -                  
Expired     -       -       -          
Forfeited     -       -       -          
Outstanding at June 30, 2016     6,163     $ 35     $ -       0.5  
                                 
Exercisable at June 30, 2016     6,163     $ 35     $ -       0.5  

 

(1) The market value of the Company’s common stock at June 30, 2016 was $1.65 per share. The outstanding options had no intrinsic value at June 30, 2016.

 

11
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

11. Commitments and Contingencies

 

The Company has the following material contractual obligations:

 

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 $160,000) 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.

 

CAAS IARRP and IAED Institutes

 

On November 5, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”). Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 Million (approximately $160,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of the Agreement is for three years beginning November 20, 2015. Prof Yong Chang Wu, the authorized representative of IARRP, CAAS, is also one of the Company’s directors effective since November 20, 2015.

 

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. The Company had invested approximately $2 million for the project during the period from 2004 to 2010 and no additional investments were made since then.

 

12. Income Tax

 

In accordance with the current tax laws in China, the company’s subsidiaries in china are subject to a corporate income tax rate of 25% on its taxable income. However, no income tax provision has been provided since the Chinese subsidiaries had no taxable income for the six months ended June 30, 2016 and 2015.

 

No provision for U.S. income taxes is made as the Company has no taxable income in the U.S. In accordance with the relevant tax laws in the British Virgin Islands, Kiwa BVI, as an International Business Company, is exempt from income taxes.

 

12
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

A reconciliation of the provision for income taxes determined at the local income tax rate to the Company’s effective income tax rate is as follows:

 

   Six months ended June 30, 
   2016   2015 
Pre-tax income (loss)  $238,105   $(320,826)
           
U.S. federal corporate income tax rate   34%   34%
Income tax computed at U.S. federal corporate income tax rate   80,956    (109,081)
Reconciling items:          
Rate differential for PRC earnings   13,668    12,386 
Change of valuation allowance   146,608    76,295 
Non-deductible expenses (Non-taxable income)   (241,232)   20,400 
Effective tax expense  $-   $- 

 

The Company had deferred tax assets as follows:

 

    June 30, 2016     December 31, 2015  
Net operating losses carried forward   $ 3,473,331     $ 3,398,402  
Less: Valuation allowance     (3,473,331 )     (3,398,402 )
Net deferred tax assets   $ -     $ -  

 

The net operating losses carried forward were approximately $8.6 million at June 30, 2016, which will expire between 2016 and 2026. 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.

 

13. Subsequent events

 

On July 20, 2016, the Company entered into Common Stock Purchase Agreement with three unrelated individuals. Pursuant to the Agreement, the Company will issue total 60,000 shares of restricted common stock at $0.80 per share for an aggregate amount of $48,000.

 

13
 

 

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

 

This Quarterly Report on Form 10-Q for the three months ended June 30, 2016 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 June 30, 2016 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 and Kiwa Shandong is inactive as of June 30, 2016.

 

On November 30, 2015, we entered into an acquisition agreement (the “Agreement”) with the shareholders of Caber Holdings LTD, whose Chinese name is Hong Kong Baina Group Co., Ltd, located in Hong Kong (“Baina Hong Kong”), and Oriental Baina Co. Ltd. (hereinafter referred to as “Baina Beijing”), Baina Hong Kong’s wholly-owned subsidiary in Beijing, China. Kiwa will rename Baina Beijing to Kiwa Baiao Co. Ltd. Kiwa Baiao Co. Ltd will replace Kiwa’s current subsidiary in China - Kiwa Bio-Tech (Shandong) Co., Ltd (“Kiwa Shandong”) - to operate Kiwa’s bio-fertilizer market expansion and become Kiwa’s platform for future acquisitions of new agricultural-related projects in China. In accordance with the terms of the Agreement, Kiwa agreed to pay US$30,000 to the Baina Hong Kong Shareholders for the acquisition of 100% of the equity of Baina Hong Kong. The acquisition was completed on January 7, 2016. Both Baina Hong Kong and Baina Beijing had no activities before the acquisition date and had no assets and liabilities. The total payment of approximately $34,000 was recorded as goodwill.

 

We started to generate some revenues in the six months ended June 30, 2016 compare with no revenues in the six months ended June 30, 2015. We incurred a net income of $238,105 and a net loss $320,826 for the six months ended June 30, 2016 and 2015, respectively.

 

The Company entered into an agreement with a company, Kangtan Gerui (Beijing) Bio-Tech Co., Ltd. (“Gerui”), to allow Gerui sell products with the Company’s trademark. Gerui will pay 10% of total sales amount to the Company as license fee. The Company recognized license fees when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, and no other significant obligations of the Company exist and collectability is reasonably assured.

 

As of June 30, 2016, the Company had cash of $12,367. Due to our limited revenues from license agreement, we have relied on the proceeds from advances from related parties to provide the resources necessary to fund the development of our business plan and operations. During the six months ended June 30, 2016, net amount advanced by related parties was $40,500. 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.

 

As of June 30, 2016 we had an accumulated deficit of $20,086,706. We currently have limited revenues to support our business activities. We will require additional capital to fund our operations.

 

As of June 30, 2016, our current liabilities were $7,102,919, which exceeded current assets by $5,831,748, representing a current ratio of 0.179; comparably, as of December 31, 2015, we had total current assets of $48,174 and current liabilities of $9,378,304, denoting a current ratio of 0.0051. 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 enough financing.

 

14
 

 

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 effect 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 and Kiwa Tianjin, 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 or Kiwa Tianjin were not profitable that year; thereby narrowing the time period when the favorable tax treatment may be available to us.

 

Results of Operations

 

Results of Operations for Three Months Ended June 30, 2016 and 2015

 

Revenue

 

Revenue was $443,085 and nil for the three months ended June 30, 2016 and 2015, respectively. Revenue was generated from licensing our trademark to Gerui. We signed the license agreement with Gerui to allow Gerui sale fertilizer using our trademark in December 2015.

 

General and Administration

 

General and administration expenses for the three months ended June 30, 2016 and 2015 were $138,786 and $68,571, respectively, representing a $70,215 or 102.4% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs etc.

 

Research and Development

 

Research and development expense for the three months ended June 30, 2016 reflected an increase of $33,836 or 82.65% from $40,940 in the three months ended June 30, 2015 to $74,776 for the same period of 2016. In July 2006, the Company opened a new research center with CAU through our subsidiary, Kiwa Shandong, which goes under the name, KiwaCAU BioTech Research & Development Center. Pursuant to an agreement reached between CAU and Kiwa Shandong on November 14, 2006, Kiwa Shandong agreed to contribute RMB 1 million (approximately $160,000) each year to fund research at the R&D Center. The term of the agreement is ten years.

 

15
 

 

The Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”) on November 5, 2015. Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $160,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of the Agreement is for three years beginning November 20, 2015. Prof. Yong Chang Wu, the authorized representative of IARRP, CAAS, is also one of the Company’s directors effective since November 20, 2015.

 

Penalty Expense

 

The Company incurred liquidated damages resulting from the default of 6% Notes. The penalty charge, which is calculated monthly at 2% of the outstanding amounts of convertible notes and unpaid interest on the notes, was $19,223 and $17,866 for three months ended June 30, 2016 and 2015, respectively. The increase of penalty expense was mainly due to accrued and unpaid interest on the notes.

 

Interest Expenses

 

Net interest expense was $28,325 for the three months ended June 30, 2016 and $28,169 for the same period of 2015. Interest expense included accrued interest on convertible note and other note payable for the three months ended June 30, 2016 and 2015.

 

Net Income / Loss

 

During the three months ended June 30, 2016, net income was $181,975, and for the same period of 2015 net loss was $155,546, representing a change of $337,521 or 217%. The change was due to the reasons discussed above.

 

Comprehensive Income/Loss

 

Comprehensive income for the three months ended June 30, 2016 was $311,174. Comparably, during the same period of 2015, comprehensive loss was $171,070. The change was due to the reasons discussed above.

 

Results of Operations for Six Months Ended June 30, 2016 and 2015

 

Revenue

 

Revenue was $710,095 and nil for the six months ended June 30, 2016 and 2015, respectively. Revenue was generated from licensing our trademark to Gerui. We signed the license agreement with Gerui to allow Gerui sale fertilizer using our trademark in December 2015.

 

General and Administration

 

General and administration expenses for six months ended June 30, 2016 and 2015 were $225,669 and $147,542, respectively, representing a $78,127 or 53% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs etc.

 

Research and Development

 

Research and development expense for the six months ended June 30, 2016 reflected an increase of $70,142 or 85.93% from $81,627 in the six months ended June 30, 2015 to $151,769 for the same period of 2016. In July 2006, the Company opened a new research center with CAU through our subsidiary, Kiwa Shandong, which goes under the name, Kiwa-CAU Bio-Tech Research & Development Center. Pursuant to an agreement reached between CAU and Kiwa Shandong on November 14, 2006, Kiwa Shandong agreed to contribute RMB 1 million (approximately $160,000) each year to fund research at the R&D Center. The term of the agreement is ten years.

 

16
 

 

The Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”) on November 5, 2015. Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $160,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of the Agreement is for three years beginning November 20, 2015. Prof. Yong Chang Wu, the authorized representative of IARRP, CAAS, is also one of the Company’s directors effective since November 20, 2015.

 

Penalty Expense

 

The Company incurred liquidated damages resulting from the default of 6% Notes. The penalty charge, which is calculated monthly at 2% of the outstanding amounts of convertible notes and unpaid interest on the notes, was $38,108 and $35,397 for the six months ended June 30, 2016 and 2015, respectively. The increase of penalty expense was mainly due to accrued and unpaid interest on the notes.

 

Interest Expenses

 

Net interest expense was $56,443 for the six months ended June 30, 2016 and $56,260 for the same period of 2015. Interest expense included accrued interest on convertible note and other note payable for the six months ended June 30, 2016 and 2015.

 

Net Income / Loss

 

During the six months ended June 30, 2016, net income was $238,105, and for the same period of 2015 net loss was $320,826, representing a change of $558,931 or 174.22%. The change was due to the reasons discussed above.

 

Comprehensive Income/Loss

 

Comprehensive income for the six months ended June 30, 2016 was $332,210. Comparably, during the same period of 2015, comprehensive loss was $369,732. The change was due to the reasons discussed 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 six months ended June 30, 2016, the advances from related parties, net of repayment by the Company to related parties, was $40,500. As of June 30, 2016, our current liabilities exceeded current assets by $5,831,748, representing a current ratio of 0.179. Comparably, as of December 31, 2015, our current liabilities exceeded current assets by $9,330,130, denoting a current ratio of 0.005.

 

As of June 30, 2016 and December 31, 2015, we had cash of $12,367 and $721, respectively. Changes in cash balances are outlined as follows:

 

During the six months ended June 30, 2016, our operations used cash of $148,931 as compared with $55,046 used in the same period of 2015. Cash was mainly used for working capital for public company operation.

 

During the six months ended June 30, 2016 and 2015, we used $78,775 and nil cash for investing activities.

 

17
 

 

During the first two quarters of 2016, our financing activities incurred net cash inflow of $216,500, $40,500 of which are generated from advances from related parties, net of repayment to related parties and $176,000 of which are generated from sales of common stock to stockholders. During the six months ended June 30, 2015, we generated $52,929 from financing activities due to proceeds received from related party loans.

 

Given the facts that:

 

Outstanding note payable of $360,000 as of June 30, 2016. This note has been in default since July 2007.

 

To the extent that we are unable to successfully raise 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.

 

Commitments and Contingencies

 

See Note 11 to the Consolidated Financial Statements under Item 1 in Part I.

 

Off-Balance Sheet Arrangements

 

At June 30, 2016, 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

 

Not applicable.

 

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 Chief Executive and Interim Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on his evaluation, our Chief Executive and Interim Chief Financial Officer concluded that, as of June 30, 2016, our disclosure controls and procedures were ineffective.

 

Our management has conducted, with the participation of our Chief Executive and Interim Chief Financial Officer, an assessment, including testing of the effectiveness, of our disclosure controls and procedures as of June 30, 2016. 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 June 30, 2016.

 

18
 

 

The specific material weakness identified by the Company’s management as of June 30, 2016 are described as follows:

 

The 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.
   
We currently do not have an audit committee.

 

Remediation Initiative

 

We 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 June 30, 2016. 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.
   
We 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.

 

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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

ITEM 1A. RISK FACTORS

 

Smaller reporting companies are not required to provide the information required by this item.

 

19
 

 

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

 

On March 24, 2016, (i) the Company issued 2,900,000 shares of common stock to Mr. Wei Li in exchange for the cancellation of approximately $2,900,000 of debt: (ii) the Company issued 240,000 shares of common stock to Yvonne Wang in exchange for the cancellation of $240,000 of debt; (iii) on March 24, 2016, the Company issued 1,000 shares of common stock to Mark E. Crone in payment of amounts due to Mr. Crone for legal services. On April 17, 2016, the Company issued 125,000 shares of common stock to Minqing Zeng in lieu of an investment of $100,000 ($0.80 per share). (iv) On May 9, 2016, the Company issued 50,000 shares of common stock to Tzu-Yun Cheng in lieu of an investment of $40,000 ($0.80 per share). (v) On May 9, 2016, the Company issued 45,000 shares of common stock to Zhiming Zhu in lieu of an investment of $36,000 ($0.80 per share). (vi) On July 20, 2016, the Company issued 20,000 shares of common stock to Hang Zhao in lieu of an investment of $16,000 ($0.80 per share). (vii) On July 20, 2016, the Company issued 10,000 shares of common stock to Shiwei Xie in lieu of an investment of $8,000 ($0.80 per share). (viii) On July 20, 2016, the Company issued 30,000 shares of common stock to Xiaoqiang Yu in lieu of an investment of $24,000 ($0.80 per share).

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine safety disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit No.   Description
     
31.1/31.2   Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) and Rule15d-14(a) of the Securities Exchange Act of 1934, as amended
     
32.1/32.2   Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

 

20
 

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  KIWA BIO-TECH PRODUCTS GROUP CORPORATION
     
August 15, 2016 By:  /s/ Yvonne Wang
    Yvonne Wang, Interim Chief Executive Officer and Interim Chief Financial Officer

 

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