SUBJECT TO COMPLETION, DATED JUNE 29, 2007

 

PROSPECTUS

 

27,685,365 Shares

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

 

Common Stock

 

This prospectus relates to the offer and sale of up to 27,685,365 shares of our common stock from time to time by certain of our stockholders, or persons who may become our stockholders, upon the conversion of certain notes issued by us or exercise of certain warrants issued by us. We refer to these persons throughout this prospectus as the “selling stockholders.”

 

The selling stockholders may sell all or any portion of their shares of common stock in one or more transactions on the over the counter stock market or in private, negotiated transactions. Each selling stockholder will determine the prices at which he/she sells his/her shares. Although we will incur expenses in connection with the registration of the shares of common stock offered under this prospectus, we will not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “KWBT.OB.” On June 25, 2007, the closing bid quotation of our common stock was $0.12.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

The shares of common stock offered under this prospectus involve a high degree of risk. See “Risk Factors” beginning at page 4.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is _______, 2007

i

---

TABLE OF CONTENTS

 

PART I

PROSPECTUS SUMMARY			1
RISK FACTORS			4
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS			17
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS			18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATION			20
BUSINESS			30
PROPERTY			42
MANAGEMENT			43
EXECUTIVE COMPENSATION			45
TRANSACTIONS WITH MANAGEMENT AND OTHERS			48
DESCRIPTION OF SECURITIES			49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			51
SHARES ELIGIBLE FOR FUTURE SALE			52
SELLING STOCKHOLDERS			53
PLAN OF DISTRIBUTION			58
LEGAL MATTERS			60
EXPERTS			60
CHANGES IN ACCOUNTANTS			60
WHERE YOU CAN FIND MORE INFORMATION			61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

 

We have not authorized any person to give you any supplemental information or to make any representations for us. You should not rely upon any information about our company that is not contained in this prospectus. Information contained in this prospectus may become stale. You should not assume that the information contained in this prospectus or any prospectus supplement is accurate as of any date other than their respective dates, regardless of the time of delivery of this prospectus or of any sale of the shares. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

The selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted.

 

Unless otherwise specified or the context otherwise requires, references in this prospectus to “Kiwa,” the “Company,” “we,” “us,” and “our” refer to Kiwa Bio-Tech Products Group Corporation, a Delaware corporation, and its consolidated subsidiaries.

ii

---

 

 

The Offering

 

This offering relates to the sale of up to 27,685,365 shares of our common stock from time to time by certain of our stockholders, or persons who may become our stockholders upon the conversion of our convertible notes or exercise of our warrants. We refer to these persons throughout this prospectus as the “selling stockholders.” Approximately 18,310,912 of the offered shares relate to shares of common stock issuable upon conversion of our 6% Convertible Secured Notes (the “6% Notes”) issued pursuant to a Securities Purchase Agreement dated as of June 29, 2006. The terms of the 6% Notes, as well as the terms of other convertible notes and warrants held by selling stockholders, are described in this prospectus under the heading “Selling Stockholders” beginning on page 55.

 

The selling stockholders may sell all or any portion of their shares of common stock in one or more transactions on the over the counter stock market or in private, negotiated transactions. The selling stockholders will determine when they will sell their shares, and in all cases will sell their shares at the current market price or at negotiated prices at the time of the sale. Although we will incur expenses in connection with the registration of the shares of common stock offered under this prospectus, we will not receive any proceeds from the sale of the shares of common stock by the selling stockholders.

 

Overview of Financial Condition

 

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 December 31, 2006, we had an accumulated deficit of $7,766,654, due in part to net losses of $2,284,099 and $1,327,759 during the fiscal years ended December 31, 2006 and 2005, respectively. At December 31, 2006, our current assets exceeded current liabilities by $474,837, reflecting a current ratio of 1.26:1, compared to net working capital negative $1,006,983, reflecting a current ratio 0.55:1 as of December 31, 2005. During the three months ended March 31, 2007, we incurred a net loss of $639,259. At March 31, 2007 our current liabilities exceeded our current assets by $11,214, and we had an accumulated stockholders’ deficit of $409,464.

 

We are continuing to develop our manufacturing facility and have not generated significant revenues from our operations. Until sufficient cash flow is generated from operations, we will have to utilize our capital resources or external sources of funding to satisfy our working capital needs. Our revenues from operations were disappointingly low during 2005 and 2006 due to the temporary closing of our manufacturing facility for the planned upgrade to produce bacillus fertilizer and the failure of an anticipated financing in the second half of 2005 to fund the upgrade. These factors create substantial doubt about our ability to continue as a going concern.

 

The Company’s registered independent public accounting firm, in their report on the consolidated financial statements as of and for the year ended December 31, 2006 and 2005 (the “2006/2005 Financial Statements”) contained in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006, have included an explanatory paragraph in their opinion indicating that there is substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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. 

 

2

---

 

Summary Consolidated Financial Data

 

The following tables summarize historical consolidated financial data regarding our business and should be read together with “Management’s Discussion and Analysis or Plan of Operation” beginning on page 20 of this prospectus and our financial statements and related notes included elsewhere in this prospectus. The information below is only a summary and does not provide all of the information contained in our financial statements and related notes.

 

Consolidated Statement of Operations Data:

 

		Three Months Ended March 31,						Years Ended December 31,
		2007			2006			2006			2005
Net sales		$	1,384,093		$	11,023		$	3,306,715		$	631,794
Cost of sales			1,245,770			7,410			2,711,419			232,692
Gross profit			138,323			3,613			595,296			399,102
Operating expenses:
Consulting and professional fees			189,461			44,400			852,107			614,532
Officers’ compensation			65,042			5,967			176,528			38,727
General and administrative			179,024			68,934			605,071			509,674
Selling expenses			143,625			3,288			521,608			72,021
Research and development			49,304			7,901			119,719			11,264
Depreciation and amortization			31,273			33,162			172,011			106,283
Allowance and provision			266			-			220,148			82,942
Total costs and expenses			657,995			163,652			2,667,192			1,435,443
Operating loss			(519,672	)		(160,039	)		(2,071,896	)		(1,036,341	)
Interest expense, net			(125,758	)		(24,404	)		(231,559	)		(293,834	)
Other income			-			-			-			2,416
Minority interest in a subsidiary’s loss			6,171			-			19,356			-
Net loss		$	(639,259	)	$	(184,443	)	$	(2,284,099	)	$	(1,327,759	)
Other comprehensive income (loss):
Translation adjustment			(123,794	)		6,641			(95,776	)		22,358
Comprehensive loss		$	(763,054	)	$	(177,802	)	$	(2,379,875	)		(1,305,401	)
Net loss per common share
-basic and diluted		$	(0.011	)	$	(0.003	)	$	(0.036	)	$	(0.026	)
Weighted average number of common shares
-basic and diluted			71,794,704			59,235,930			63,646,482			50,957,995

 

Consolidated Balance Sheet Data:

		As of March 31			As of December 31,
		2007			2006			2005
Cash and cash equivalents		$	773,657		$	498,103		$	14,576
Working Capital			(11,214	)		474,837			(1,006,983	)
Total assets			4,288,016			4,518,185			3,121,688
Total liabilities			4,599,307			4,321,654			3,686,681
Minority interest in a subsidiary			98,173			103,362			-
Total stockholders' equity (deficiency)			(409,464	)		93,169			(564,993	)

3

---

 

An investment in our securities involves substantial risks. Prospective purchasers should consider the following risk factors in connection with other information contained in this prospectus before making a decision to purchase the securities offered. Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.

 

We operate in a market environment that is difficult to predict and that involves significant risks and uncertainties, many of which will be beyond our control. The following risk factors and other information included in this prospectus should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

 

Risks Related to Our Business

 

Investors may not be able to adequately evaluate our business due to our short operating history, lack of significant revenue and limited product offerings.

 

We have only been operating our current bio-fertilizer business since June 2002, and bio-enhanced feed business since July 2006, providing a limited period for investors to evaluate our business model. Because of this limited operating history and the uncertain nature of the rapidly changing markets that we serve, we believe any prediction of future results of operations is difficult. We have generated insignificant revenue, have not been profitable, and incurred a severe decrease of sales in the second half of 2005 and 2006 due to the temporary closure of our manufacturing facility to conduct a planned upgrade, coupled with the failure of an anticipated financing to fund the upgrade. From the inception of our current business in ag-biotechnology on June 5, 2002 to December 31, 2006, we had accumulated losses of $7,766,654. We also plan to introduce new innovative, cost-effective bio-tech products in the livestock industry such as veterinary drugs. Since we have never entered into these fields before, and our products have not been tested by the market, we cannot guarantee that the predicted market performance of our new products will materialize.

 

We have not yet generated any profits and if we do not become profitable or obtain additional funding to implement our business plan our ability to continue as a going concern is in doubt.

 

We expect to continue to have operating losses for the foreseeable future as we are still in the process of exploring market, further research and product tests. We will require additional capital to implement our business plan and continue operating. 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 or cease operations and consider a formal or informal restructuring or reorganization.

 

Our prospects must be evaluated in light of risks, uncertainties, expenses and difficulties frequently encountered by companies in an early growth stage. For example, in the second half of 2005, we temporarily suspended the planned manufacturing facility upgrade for bacillus fertilizer due to failure to close an anticipated financing in the fourth quarter of 2005. We were not able to restart the upgrade until November 2006 when we completed another fundraising. Our ability to execute our business plan is subject to these types of funding risks and there can be no assurance that we can achieve necessary financing to fund our business plan in the future.

 

 

4

---

 

We depend on a few customers for a significant portion of our revenue and are still in the initial stage of market development.

 

We do not have long-term contracts with any of our customers. Generally we sign an annual distribution agreement with each customer and purchases in most cases occur on an order-by-order basis. Relationships exist as long as there is a perceived benefit to both parties. A decision by a major customer, whether motivated by competitive considerations, financial difficulties, and economic conditions or otherwise, to decrease its purchases from us or to change its manner of doing business with us, could adversely affect our business and financial condition.

 

Two bio-fertilizer customers together accounted for approximately 96.6% of our net sales of bio-fertilizer for the fiscal year ended December 31, 2005. Due to the close of our manufacturing facility during the second half of 2005 and low-volume production in 2006, we lost these two customers in 2006. Consequently total revenue in 2006 declined to $46,926. The loss of any of our significant customers would result in a material reduction in our sales and results of operations.

 

The extent of concentration of our customers has been decreasing. In 2006 we developed 61 bio-enhanced feed customers in 2006, of which no individual customer accounted for more than 10% of net sales, and 53 bio-fertilizer customers, of which three customers accounted for 28.5%, 15.9% and 7.2% of net sales respectively. However we are still in the initial stage of market development and need more time to construct a steady customer base. There can be no assurances that we will be able to develop new customers, or retain our current ones. Our inability to generate new customers would negatively impact our business and our ability to continue as a going concern.

 

Our business is subject to seasonal fluctuations.

 

Our operating results have been and are expected to continue to be subject to seasonal trends. This trend is dependent on numerous factors, including the markets in which we operate, growing seasons, climate, economic conditions and numerous other factors beyond our control.

 

As for bio-fertilizer products, we generally expect the second and third quarters will be stronger than the first and fourth quarters, primarily because the second and third quarters correspond with the growing seasons in our primary markets in China. It is during those growing seasons when application of our products by our customers would be most beneficial and we therefore expect greater demand for our products during those periods. There can be no assurance that these operating patterns will occur.

 

Our operating results may fluctuate significantly, which may result in volatility or have an adverse effect on the market price of our common stock.

 

We have experienced, and expect to continue to experience, substantial variation in our net sales and operating results from quarter to quarter. Our business is subject to seasonal fluctuations due to growing seasons in different markets. We believe the factors that influence this variability of quarterly results include:

 

·

the timing and size of orders from major customers;

 

·

budgeting and purchasing cycles of customers;

 

·

the timing of enhancements to products or new products introduced by us or our competitors;

 

·

changes in pricing policies made by us, our competitors or suppliers, including possible decreases in average selling prices of products in response to competitive pressures;

 

·

fluctuations in general economic conditions;

 

·

the status of operating cash; and

 

·

natural disasters and contagious animal diseases.

 

5

---

 

We may also choose to reduce prices or to increase spending in response to competition or to pursue new market opportunities. Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance. It is possible that in some future quarter or quarters our operating results will be below the expectations of securities analysts or investors. In that case, our stock price could fluctuate significantly or decline.

 

From January 1, 2006 to June 25, 2007, the closing price for our common stock as quoted on the OTC Bulletin Board has ranged from a low of $0.0062 to a high of $0.32 per share. High volatility in the market price of our common stock may result in lower prices for our common stock, making it more difficult for us to obtain equity financing on terms and conditions which are favorable to us, if at all. We expect to continue to incur losses in the future as we develop and market our initial products. As a result, we will be dependent on additional debt or equity financing to fund our operations. If such financing is not available on terms which are acceptable to us, we may have to delay development of new products and/or reduce sales and marketing efforts for our existing products. Such actions may have an adverse effect on our results of operations. In addition, uncertainties with respect to our ability to raise additional capital would make operational planning more difficult for management.

 

Revocation of our right to use patents or other intellectual property rights could adversely impact the growth of our business.

 

We acquired a patent in April 2004 from China Agricultural University (“CAU”), entitled “Highly Effective Composite Bacteria for Enhancing Yield and the Related Methodology for Manufacturing,” issued by the China Intellectual Property Bureau. On May 8, 2006, we entered into a technology transfer agreement with Jinan Kelongboao Bio-Tech Co., Ltd. (“JKB”) with respect to the technology transfer and related technical service for the AF-01 Anti-viral Aerosol. If our rights under this patent and technology transfer agreement are challenged or if we default on our obligations under applicable Chinese regulatory requirements, our right to use these forms of intellectual property could be revoked and we would no longer be permitted to use them in our research, development and sales activities. Such a revocation or default could have an adverse impact on the growth of our business by reducing the introduction of new products, and consequently, sales.

 

 

These provisions could also limit the price that future investors might be willing to pay in the future for our common stock. This could have the effect of delaying, deferring or preventing a change in control of our Company and/or a change in the members our Board of Directors. The issuance of preferred stock could also effectively limit or dilute the voting power of our stockholders. Accordingly, such provisions of our certificate of incorporation, as amended, may discourage or prevent an acquisition or disposition of our business that could otherwise be in the best interest of our stockholders.

 

Investors should not rely on an investment in our common stock for dividend income as we do not intend to pay dividends in the foreseeable future.

 

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain any earnings to finance the growth of our business. We cannot assure you that we will ever pay cash dividends. Therefore, investors should not rely on an investment in our common stock if they require dividend income. The only income in the foreseeable future such investors will receive from an investment in our common stock will come from increases in the market price of our common stock. There can be no assurances that the market price of our common stock will increase or continue to increase, and such increases will most likely be uncertain and unpredictable. Whether we pay any cash dividends in the future will depend on the financial condition, results of operations and other factors that the Board of Directors will consider.

 

13

---

 

It may be difficult for investors to enforce a service of process or enforce liabilities against us.

 

We are incorporated in the State of Delaware, and our principal executive offices are located in the State of California. However, substantially all our fixed assets and operations are located in the PRC. In addition, some of our directors and officers are Chinese citizens and residents. As a result, it may be more difficult for investors or other third parties to attach our assets in enforcement of a judgment against us or to enforce liabilities and obligations against us in certain circumstances. It may also be difficult to enforce service of process against directors and officers in China.

 

Risk Relating to 6% Notes Financing Arrangement

 

Future sales by our stockholders may negatively affect our stock price and our ability to raise funds in new stock offerings.

 

Sales of our common stock in the public market during and following this offering could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. As of June 25, 2007, we had 75,120,710 shares of common stock outstanding, of which 4,446,646 are being registered for resale hereunder and of which approximately 45,230,000 of which we estimate have been held more than two years and are freely tradable under rule 144. We are currently registering up to 27,685,365 shares of common stock for resale by the selling stockholders.

 

There are a large number of shares underlying our convertible notes and warrants which may be available for future sale and the sale of these shares may depress the market price of our common stock.

 

We issued $2,450,000 of convertible notes (6% Notes) in 2006. As of June 25, 2007, the holders of the 6% Notes had converted into 3,256,475 shares (includes shares converted for interest) and the balance may be converted into an estimated 44,800,000 shares of our common stock based on the average price of three lowest prices within 20 trading days before June 25, 2007 and we had outstanding 6% Note Warrants to purchase 12,250,000 shares of common stock. Of particular risk is the fact that the number of shares of common stock issuable upon conversion of the outstanding 6% Notes and certain of our other outstanding convertible notes will increase if the market price of our stock declines. All of the shares issuable upon conversion of convertible notes or exercise of our warrants held by the selling stockholders may be sold without restriction under securities laws. The sale of these shares may adversely affect the market price of our common stock.

 

The continuously adjustable conversion price feature of our 6% notes could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders.

 

Our obligation to issue shares upon conversion of our 6% Notes is essentially limitless. The following is an example of the amount of shares of our common stock that are issuable, upon conversion of the principal balance of our 6% Notes, based on market prices 25%, 50% and 75% below the market price as of June 25, 2007 of $0.12.

% Below Market		Price Per Share		Discount of 40%		Number of Shares
25%		0.09		0.054		40,211,116
50%		0.06		0.036		60,316,674
75%		0.03		0.018		120,633,349

 

As illustrated, the number of shares of common stock issuable upon conversion of our 6% Notes will increase if the market price of our stock declines, which will cause dilution to our existing stockholders.

 

The continuously adjustable conversion price feature of our 6% notes may have a depressive effect on the price of our common stock.

 

14

---

 

 

The issuance of shares upon conversion of the 6% notes and exercise of outstanding 6% note warrants may cause immediate and substantial dilution to our existing stockholders.

 

The issuance of shares upon conversion of the 6% Notes and exercise of the 6% Note Warrants will result in substantial dilution to the interests of other stockholders since the selling stockholders may sell the full amount issuable on conversion. Although the 6% Note holders may not convert their 6% Notes and/or exercise their 6% Note Warrants if such conversion or exercise would cause them to own more than 4.99% of our outstanding common stock, this restriction does not prevent them from converting and/or exercising some of their holdings, selling the underlying shares and then converting the rest of their holdings. In this way, 6% Notes holders could sell more than this limit while never holding more than this limit. There is no upper limit on the number of shares that may be issued which will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock, including investors in this offering.

 

In the event that our stock price declines, the shares of common stock allocated for conversion of the 6% notes and registered pursuant to this prospectus may not be adequate and we may be required to file a subsequent registration statement covering additional shares and further amend our certificate of incorporation to increase our authorized shares of common stock. If the shares we have allocated and are registering herewith are not adequate and we are required to file an additional registration statement, we may incur substantial costs in connection therewith.

 

Based on our current market price and the potential decrease in our market price as a result of the issuance of shares upon conversion of the 6% Notes, we have made a good faith estimate as to the amount of shares of common stock that we are required to register and allocate for conversion of the 6% Notes. Accordingly, we have allocated an aggregate of 18,310,912 shares to cover the conversion of the 6% Notes. In the event that our stock price decreases, the shares of common stock we have allocated for conversion of the 6% Notes and are registering hereunder may not be adequate. If the shares we intend to allocate to the registration statement are not adequate and we are required to file an additional registration statement and further amend our Certificate of Incorporation to increase our authorized shares of common stock, we may incur substantial costs in connection with the preparation and filing of such registration statement. Specifically, pursuant to the registration rights agreement relating to the 6% Notes, if the registered shares of common stock are insufficient to cover all of the 6% Notes upon conversion, we must file a registration statement within 15 days and cause it to go effective in 120 days thereafter. If we fail to do that we are obligated to pay the 6% Notes holders liquidated damages of 2% of the outstanding principal amount of the 6% Notes per month, prorated for partial months. Registration penalties are limited to 10% of the principal amount of the Notes.

 

Pursuant to the securities purchase agreement relating to the sale of the 6% Notes, we must reserve for purposes of issuance a number of shares of common stock that is not less than 110% of the number of shares of common stock issuable upon full conversion of the 6% Notes based on the average conversion price of the 6% Notes and full exercise of the 6% Note Warrants based on the average exercise price of the 6% Note Warrants. Where the authorized shares of common stock are insufficient, if we fail to obtain shareholder approval to increase authorized shares within 60 days, we are obligated to pay the 6% Notes holders liquidated damages of 2% of the outstanding amount of the 6% Notes per month plus accrued and unpaid interest on the 6% Notes, prorated for partial months, in cash or in shares of common stock at our option. At our annual meeting 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.

 

If we are required for any reason to repay our outstanding 6% notes, we would be required to deplete our working capital, if available, or raise additional funds. Our failure to repay the 6% notes, if required, could result in legal action against us, which could require the sale of substantial assets.

 

15

---

 

The 6% Notes were sold pursuant to a Securities Purchase Agreement we entered into in June 2006. The 6% Notes are due and payable, with 6% interest, three years from the date of issuance, unless sooner converted into shares of our common stock. Any event of default such as our failure to repay the principal or interest when due, our failure to issue shares of common stock upon conversion by the holder, our failure to timely file a registration statement or have such registration statement declared effective, breach of any covenant, representation or warranty in the Securities Purchase Agreement or related convertible note, the assignment or appointment of a receiver to control a substantial part of our property or business, the filing of a money judgment, writ or similar process against our company in excess of $100,000, the commencement of a bankruptcy, insolvency, reorganization or liquidation proceeding against our company and the delisting of our common stock could require the early repayment of the 6% Notes, including a default interest rate of 15% on the outstanding principal balance of the notes if the default is not cured with the specified grace period. We anticipate that the full amount of the 6% Notes will be converted into shares of our common stock, in accordance with the terms of the 6% Notes. If we were required to repay the 6% Notes, we would be required to use our limited working capital and raise additional funds. If we were unable to repay the notes when required, the 6% Note holders could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.

 

If an event of default occurs under the securities purchase agreement, 6% notes, 6% note warrants, security agreement or intellectual property security agreement, the investors could foreclose on our assets.

 

In connection with the Securities Purchase Agreement we entered into in June 2006, we executed a Security Agreement and an Intellectual Property Security Agreement in favor of the investors granting them a first priority security interest in all of our goods, inventory, contractual rights and general intangibles, receivables, documents, instruments, chattel paper, and intellectual property. The Security Agreement and Intellectual Property Security Agreement state that if an event of default occurs under the Securities Purchase Agreement, the 6% Notes, the 6% Note Warrants, the Security Agreement or the Intellectual Property Security Agreement, the investors have the right to take possession of the collateral, to operate our business using the collateral, and have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the collateral, at public or private sale or otherwise to satisfy our obligations under these agreements. If the investors were to foreclose on our assets, investors may lose all or substantially all of their investment.

 

The sale of our stock under the Securities Purchase Agreement could encourage short sales by third parties, which could contribute to the future decline of our stock price.

 

In many circumstances the provision of financing based on the distribution of equity/convertible notes for companies that are quoted on the OTC Bulletin Board has the potential to cause a significant downward pressure on the price of common stock. Since the registration statement for this offering is effective, the number of freely tradable shares will significantly increase, thus there is a possibility that the balance of sell side pressure would overwhelmingly exceed that of the buying side. As a consequence, the price of shares will drop considerably. This is especially the case if the shares being placed into the market exceed the market’s ability to take up the increased stock or if we have not performed in such a manner to show that the equity funds raised will be used to grow our business. Such an event could place further downward pressure on the price of our common stock. If there are significant short sales of stock, the price decline that would result from this activity will cause the share price to decline more so which in turn may cause long holders of the stock to sell their shares thereby contributing to sales of stock in the market. If there is an imbalance on the sell side of the market for the stock, the price will decline significantly and quickly. It is not possible to predict if the circumstances exist under which short sales could materialize or to what level our stock price could decline. In some companies that have been subjected to short sales the stock price has dropped to near zero.

 

We may not be able to access sufficient funds when needed.

 

16

---

 

17

---

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

The Company’s common stock has been quoted on the OTC Bulletin Board of the NASD under the symbol “KWBT.OB” since March 30, 2004, and was quoted under the symbol “TTGM.OB” prior to the merger in March 2004. The merger transaction is described in the section subtitled “Our Company” under the heading, “BUSINESS”. From January 1, 2006 to June 25, 2007, the market price for our common stock has ranged from $0.32 to $0.0062.

 

The following table sets forth the high and low bid quotations per share of our common stock as reported on the OTC Bulletin Board for the periods indicated. The high and low bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

 

Fiscal Year 2005		High			Low
First Quarter		$	0.059		$	0.0122
Second Quarter		$	0.023		$	0.007
Third Quarter		$	0.0155		$	0.0102
Fourth Quarter		$	0.014		$	0.0091

 

Fiscal Year 2006		High			Low
First Quarter		$	0.085		$	0.0062
Second Quarter		$	0.30		$	0.11
Third Quarter		$	0.32		$	0.171
Fourth Quarter		$	0.26		$	0.13

 

Fiscal Year 2007		High			Low
January 1, 2007 through June 25 , 2007		$	0.26		$	0.085

 

Holders

 

As of June 25, 2007, there were approximately 431 holders of record of our common stock.

 

Dividends

 

We have not paid any dividends on our common shares since the reverse merger and do not anticipate that dividends will be paid at any time in the immediate future. We intend to retain any earnings to finance the growth of the business. Whether we pay any cash dividends in the future will depend on the financial conditions, results of operations and other factors that our board of directors will consider.

 

Authorized and Unissued Stock

 

 

18

---

2004 Stock Incentive Plan

 

At the annual meeting of the stockholders held on September 12, 2006, our shareholders approved an amendment to our 2004 Stock Incentive Plan to increase the number of shares reserved for options and other stock awards under it to 3,047,907 shares, and to increase the limit on the number of shares that may be granted to any participant in a fiscal year to 500,000. The Plan is a key aspect of our compensation program, designed to attract, retain, and motivate the highly qualified individuals required for our long-term success.

 

As of June 25, 2007, 1,637,900 options are issued and outstanding under 2004 Stock Incentive Plan, and 1,410,007 options remain available under the Plan for future grant. No stock options had been exercised by any officers or directors as of June 25, 2007. We have not adjusted or amended the exercise price of any stock options previously awarded to any named executive officers as of June 25, 2007. As of June 25, 2007, the closing price of our common stock as reported on the OTC Bulletin Board was $0.12, which was lower than the exercise price of an of our outstanding stock options. The weighted average exercise price of all of our outstanding stock options is $0.175. For more detail regarding stock option grants, see the section subtitled “Equity Compensation Information” under the heading “EXECUTIVE COMPENSATION”.

 

19

---

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATION

 

The following discussion and analysis of financial condition and results of operations relates to management’s review of the factors that affected our financial condition and operating performance for the years ended December 31, 2006 and 2005 and for the quarterly period ended March 31, 2007. The following discussion and analysis should be read in conjunction with the 2006/2005 Financial Statements and related notes thereto and consolidated financial statements as of and for the three month ended March 2007 (the “2007 Q1 Financial Statements”) and related notes thereto.

 

In addition to the historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

 

Our consolidated financial statements including the notes thereto, together with the reports thereon of Mao & Company CPAs, Inc.(“Mao & Co”) are presented beginning on page F-1.

 

Overview

 

The Company took its present corporate form in March 2004 when the shareholders of Tintic, a Utah public corporation, entered into a share exchange transaction with the shareholders of Kiwa BVI, a privately-held British Virgin Islands corporation that left the shareholders of Kiwa BVI owning a majority of Tintic and Kiwa BVI a wholly-owned subsidiary of Tintic, See the section subtitled “Our Company” under the heading “BUSINESS”. 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 Shandong. On July 21, 2004, we completed our reincorporation in the State of Delaware.

 

We have two operating subsidiaries in China: (1) Kiwa Shandong in 2002, a wholly-owned subsidiary, and (2) Kiwa Tianjin in July 2006, of which we hold 80% equity. Our company chart is presented and our businesses, including bio-fertilizer, bio-enhanced feed and AF-01 anti-viral aerosol, are described in detail in the section subtitled “Our Company” under the heading “BUSINESS”. 

 

Results of Operations and Financial Resource 

 

Since inception of our bio-ag business, we have generated approximately $6.66 million of revenue in total. The following table sets forth the total amount of revenue we have generated in each fiscal year. 

Fiscal Year		Revenue (Million $)
2003			0.04
2004			1.3
2005			0.63
2006			3.31
First quarter of 2007			1.38
Total			6.66

 

We have been unprofitable since inception of our bio-ag business. As of March 31, 2007, our accumulated deficit was $8,405,914, due in part to net losses of $639.259, $2,284,099 and $1,327,759 for the first quarter of 2007 and for the fiscal years ending December 31, 2006 and 2005, respectively.

 

Due to our limited revenues from sales, 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 fiscal 2006, we raised $685,906 in debt financing from two related parties, $754,416 from issuance of common stock under a stock purchase agreement dated as of March 10, 2006 and $2,204,000 (net of financing costs of $246,000) from issuance of the 6% Notes (see further discussion of 6% Notes transaction below and at Note 15 to the 2006/2005 Financial Statements).

 

20

---

 

Our initial plan was to apply the net proceeds of $2,204,000 from the sale of the 6% Notes as follows: approximately $550,000 of the offering was to be used to satisfy fees and expenses of the offering, and to satisfy accounts payable to service providers, approximately $400,000 was to be applied to our bio-fertilizer project (research, development and sale of bio-fertilizers), $480,000 is committed to our Kiwa Tianjin livestock feed joint venture, and approximately $774,000 was to be applied to our AF-01 anti-viral aerosol agent project (research, development and sale of anti-viral aerosol agents). Due to delay in acquiring a veterinary factory with GMP qualification and obtaining prerequisite test or trial reports, we have thus far used approximately $200,000 of the $774,000 allocated to the AF-01 anti-viral aerosol agent project. In the second half of 2006, we applied$400,000 of the amount allocated to our urea entrepot trade.

 

These funds are insufficient to execute our business plan as currently contemplated, and we will need to seek other sources of funding to sustain our operations. If we can achieve the necessary financing, our plan is to continue develop our manufacturing facility. As of March 31, 2007, we have invested approximately $2.4 million in our bio-fertilizer project, of which $1.06 million has been used in buildings and $560,000 in equipment. We estimate that the total investment for the completion of the construction and acquisition of our manufacturing facility for bacillus fertilizer, livestock feed and anti-viral aerosol agent products and the respective marketing and distribution costs will be approximately $5 million over an estimated two-year period.

 

We do not anticipate generating sufficient positive internal operating cash flow to fund our planned operations for several years. In the next year, we intend to raise additional capital through the issuance of debt or equity securities to fund the development of our planned business operations, although there can be no assurances that we will be successful in obtaining this financing. 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.

 

Major Customers and Suppliers

 

See the sections subtitled “Raw Materials and Suppliers” and “Customers” in the item “BUSINESS”.

 

Going Concern

 

See the sections subtitled “Going Concern” in Note 1 to the 2007 Q1 Financial Statements, and also Note 1 to the 2006/2005 Financial Statements.

 

Results of Operations

 

Comparison of Three Months Ended March 31, 2007 and 2006

 

Net Sales

 

Net sales were $1,384,093 and $11,023 for the three months ended March 31, 2007 and 2006 respectively, representing a 124.6-fold increase. The significant increase in sales is due to the expansion of our business into a new segment, bio-enhanced feed, which generated significant revenue amounting to $1,372,117 in the first quarter of 2007. The revenues generated from our bio-fertilizer business for the three months ended March 31, 2007 were $11,976.

 

Cost of Sales

 

Costs of sales were $1,245,770 and $7,410 for the three months ended March 31, 2007 and 2006, respectively. The increase of $1,238,360 (167.1 fold) in cost of sales was primarily due to the rapid increase of sales.

 

21

---

 

Gross Profit

 

Gross profit was $138,323 for the three months ended March 31, 2007, representing an average profit margin of 10.0%. The profit margin for bio-fertilizer and bio-enhanced feed was 23.9% and 9.9%, respectively. Gross profit was $3,613 for the three months ended March 31, 2006, a profit margin of 32.8%.

 

Consulting and Professional Fees

 

Consulting and professional fees were $189,461 and $44,400 for the three months ended March 31, 2007 and 2006 respectively, representing an increase of $145,061 or 326.7%. The increase was primarily attributable to investor relation fees both in cash and of amortization of the fair value of 1.8 million shares of common stock issued in October 2006, and amortized financing commission relating to the 6% Notes.

 

Officers’ Compensation

 

Officers’ compensation increased by $59,075, or 9.9 fold, to $65,042 for the three months ended March 31, 2007, as compared to $5,967 for the three months ended March 31, 2006. The increase was mainly due to the recruitment of new senior management staff and amortization of fair value of options granted to directors and officers. 

 

General and Administrative

 

General and administrative expense was $179,024 for the three months ended March 31, 2007, as compared to $68,934 for the same period of 2006. The increase of $110,090 (159.7%) was primarily due to operating costs of our new bio-enhanced feed segment and the increase in the number of employees.

 

Selling expenses

 

During the three months ended March 31, 2007, selling expenses were $143,625, a $140,337 or 42.7-fold increase compared to $3,288, the amount of selling expenses for the three months ended March 31, 2006. The increase is due primarily to the fact that we incurred selling expenses of $127,840 in our new bio-enhanced feed segments since August 2006, and selling expenses in the bio-fertilizer business increased by $15,785 for the three months ended March 31, 2007, as compared to $3,288 for the same period of 2006.

 

Research and Development

 

Research and development expenses increased $41,403, or 5.2 fold, to $49,304 for the three months ended March 31, 2007, as compared to $7,901 for the three months ended March 31, 2006. The increase is mainly due to fixed operation fees of Kiwa-CAU Bio-Tech Research & Development Center beginning in July 2006, which amounted to RMB 250,000 (approximately $32,300) per quarter.

 

Depreciation and Amortization

 

Depreciation and amortization, excluding depreciation included in cost of production and deprecation of research equipment, decreased $1,889, or 5.7%, to $31,273 for the three months ended March 31, 2007, as compared to $33,162 for the three months ended March 31, 2006. The abnormally high depreciation and amortization for the three months ended March 31, 2006 was due to partial depreciation of our facilities recognized as current-period charges because of abnormally lower production over that period.

 

Interest Expense

 

Interest expense increased $101,354, or 4.15 fold, to $125,758 for the three months ended March 31, 2007, as compared to interest expense of $24,404 for the three months ended March 31, 2006. This increase is due to the interest of the 6% Notes and amortization of discount related to allocation of fair value of warrants issued to purchasers of the 6% Notes.

 

22

---

 

Net Loss

 

Net loss increased $454,816 or 246.6% to $639,259 (including non-cash expenses of $251,890) for the three months ended March 31, 2007, as compared to $184,443 for the three months ended March 31, 2006. This increase resulted from the following primary factors: (1) increase in gross profit of $134,710; (2) increase in operating expenses of $359,633; (3) increase in interest expenses of $101,354; and (4) there was $6,171 of net loss born by a minority shareholder in subsidiary in 2007 and nil in 2006.

 

Comprehensive Loss

 

Comprehensive loss increased by $585,202, or 329.2%, to $763,054 for the three months ended March 31, 2007, as compared to $177,802 for the comparable period in 2006. The reasons for the increase in comprehensive loss in the current period as compared to the comparable period in 2006 primarily include: (1) gross profit increased by $134,710; (2) all expenses (which includes operation expenses and interest) increased by $460,987; and (3) there was a currency translation adjustment increase of $130,435 for the current period.

 

Comparison of fiscal years Ended December 31, 2006 and 2005

 

Net Sales

 

Net sales were $3,306,715 and $631,794 for the twelve months ended December 31, 2006 and 2005, respectively, representing an increase of 423.4%. The significant increase in sales is due to the expansion of our business into a variety of new segments, of which bio-enhanced feed business and entrepot trade business generated significant revenue amounting to $2,459,789 and $800,000 in 2006, respectively. The revenues generated from our bio-fertilizer business for the twelve months ended December 31, 2006 were $46,926. The significant drop in bio-fertilizer is due to temporarily closing of our manufacturing facility for the planned upgrade to manufacture bacillus fertilizer in the fourth quarter of 2005 as a result of incompletion of an anticipated fundraising. We resumed production in 2006, but the production volume has remained low.

 

Cost of Sales

 

Cost of sales was $2,711,419 and $232,692 for the twelve months ended December 31, 2006 and 2005, respectively. The increase of $2,478,727 (10.6 fold) in cost of sales was primarily due to the rapid increase of sales.

 

Gross Profit

 

Gross profit was $595,296 and $399,102, representing a profit margin of 18.0% and 63.2% for the twelve months ended December 31, 2006 and 2005, respectively. This increase of $196,194 (49.2%) resulted from generation of significant revenues from commencement of our new business segments in 2006 of bio-enhanced feed and urea entrepot trade. We produced only bio-fertilizer in 2005. In fiscal 2006, gross profits from urea entrepot trade, bio-enhanced feed and bio-fertilizer were $ 415,000, $170,510 and $9,786, respectively.

 

Consulting and Professional Fees

 

Consulting and professional fees were $852,107 and $614,532 for the twelve months ended December 31, 2006 and 2005, respectively, representing an increase of $237,575 or 38.7%. Most of these fees are related to fundraising, investor relations, public company operations and marketing. The increase in consulting and professional fees in 2006 is primarily attributable to consulting and professional fees relating to investor relation service, financing commissions and legal fees in connection with the financing of 6% Notes.

 

Officers’ Compensation

 

Officers’ compensation was $176,528 and $38,727, respectively, for the twelve months ended December 31, 2006 and 2005. The $137,801 or 355.8% increase is mainly due to the recruitment of new senior management staff and amortization of fair value of stocks issued and option granted to directors and officers.

 

23

---

 

General and Administrative

 

General and administrative expenses were $605,071 and $509,674 for the twelve months ended December 31, 2006 and 2005, an increase of $95,397 or 18.7%. The increase is largely attributable to the expansion of our business into bio-enhanced feed industry. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs.

 

Selling expenses

 

During the fiscal year ended December 31, 2006, selling expenses were $521,608, a $449,587 or 6.2-fold increase compared to $72,021 for fiscal year 2005. The reasons for this increase included: (1) we incurred $208,284 in selling expenses in our new bio-enhanced feed segment; (2) we incurred selling expenses of $313, 324 in our bio-fertilizer business in 2006, an increase of $241,303 as compared to the same period of last year, most of which incurred in the fourth quarter of 2006 in connection with our new marketing initiative in Shandong Province and Xinjiang Region. Management believes that such expenses will benefit the Company in 2007.

 

Research and Development

 

Research and development expenses increased by $108,455 or 9.6 fold to $119,719, for the twelve months ended December 31, 2006, as compared to $11,264 for the twelve months ended December 31, 2005. This increase is attributable to operating expenses of Kiwa-CAU R&D Center, depreciation of experimental equipment, field test fees paid to Soil and Fertilizer Stations and fertilizer license fees paid to relating approval authorities in 2006. For information about the Kiwa-CAU R&D Center, see “Intellectual Property and Product Lines- Kiwa-CAU R&D Center” under the heading “BUSINESS”.

 

Depreciation and Amortization

 

Depreciation and amortization, excluding depreciation included in cost of production and deprecation of research equipment, increased $65,728 to $172,011, or 61.8%, for the twelve months ended December 31, 2006, as compared to $106,283 for the same period of 2005. The increase is mainly due to very low-volume production of Kiwa Shandong and, as a result, part of the depreciation of its manufacturing facility was recorded as operating expenses.

 

Allowance and Provision

 

During the fiscal year ended December 31, 2006, we accrued allowance and provision of $220,148 in total, among which bad debt provision was $172,109 and inventory impairment allowance was $48,039 (see “Critical Accounting Policies and Estimates” below in this section). Comparing to fiscal year 2005, there was an increase of 165.4%, which is due to both the increase of accounts receivable over one year and finished goods exceeding their quality guarantee period. 

 

Net Interest Expenses

 

Net interest expenses were respectively $231,559 and $293,834 for the fiscal year ended December 31, 2006 and 2005, representing a $62,275 or 21.2% decrease. The factors associated with this decrease mainly include the following: (1) amortization of beneficial conversion feature of convertible loan charged as interest expenses was nil in 2006 and $106,666 in 2005; (2) amortization of fair value of warrants in 2006 was $102,488, representing an increase of $24,042, compared to $78,446 in 2005; and (3) financing cost relating to financing advisor of 6% Notes was $16,385 in 2006, and no expense of the same kind was incurred in 2005.

 

Net Loss

 

Our net loss for the fiscal year of 2006 was $2,284,099 (including non-cash expenses $759,681), an increase of $956,340 or 72.0% compared to $1,327,759 for the fiscal year of 2005. This increase resulted from the following factors: (1) increase in gross profit of $196,194; (2) increase in operating expenses of $1,231,749; (3) decrease in interest expenses of $62,275; (4) there was $2,416 in other income in 2005 and no such income in 2006; and (5) there was negative $19,356 in minority interest in subsidiary in 2006 and nil in 2005.

 

24

---

 

Comprehensive Loss

 

Comprehensive loss increased by $1,074,474 to $2,379,875 for the twelve months ended December 31, 2006, as compared to $1,305,401 for the comparable period of 2005. The increase in comprehensive loss in the current year as compared to the fiscal year of 2005 is due to an increase of $956,340 in net loss and an increase of $118,134 in other comprehensive loss due to currency translation adjustment.

 

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. This trend is expected to continue.

 

As of March 31, 2007, our current liabilities exceeded current assets by $11,214, reflecting a current ratio of 0.99:1, compared to net working capital $474,837, reflecting a current ratio of 1.26:1 as of December 31, 2006.

 

As of March 31, 2007 and December 31, 2006, we had cash of $773,657 and $498,103, respectively. The change is outlined as follows.

 

During the three months ended March 31, 2007, our operations provided cash of $335,773 as compared to $91,546 used in operations for the three months ended March 31, 2006. The improvement of operating cash flow is mainly attributable to the collection of accounts receivable relating to the urea entrepot trade closed in 2006.

 

During the three months ended March 31, 2007, we utilized $89,493 for the purchase of property and equipment and repayment of construction costs payable, as compared to $3,625 during the three months ended March 31, 2006.

 

During the three months ended March 31, 2007, net cash inflow from financing activities was $7,369, including advances of $55,818 from related parties, the repayment $47,085 to related parties and also repayment of $1,364 of long-term borrowings. During the three months ended March 31, 2006, we generated $81,413 from financing activities, consisting of the proceeds from the issuance of common stock of $126,284 and several advances from related parties of $44,268, offset by the repayments of the Cornell Note of $87,135 and long-term borrowings of $2,004.

 

As of December 31, 2006 and 2005, we had cash of $498,103 and $14,576, respectively. The change is outlined as follows.

 

During the fiscal year ended December 31, 2006, our operations utilized cash of $2,066,248 as compared with $419,827 used by operations for the fiscal year ended December 31, 2005. Such cash was mainly used in working capital of bio-enhanced feed business, cost of urea entrepot trade, market development fee for bio-fertilizer, and repayment of accounts payable to venders and service providers.

 

During the fiscal year ended December 31, 2006, we utilized $126,443 to acquire AF-01 anti-viral aerosol technology and $36,600 for the purchase of property and equipment and repayment of construction costs payable, as compared to $229,989 utilized for the purchase of equipment for the fiscal year ended December 31, 2005.

 

During the fiscal year ended December 31, 2006, we generated $2,655,333 from financing activities, consisting of the proceeds of $754,416 from issuance of common stock, issuance of the 6% Notes in the amount of $2,204,000 (net of financing costs of $246,000) and several advances or loans from related parties in the total amount of $685,906, offset by the repayments of amounts of $651,069 due to related parties, convertible notes of $307,135 and long-term borrowings of $20,785. During the fiscal year ended December 31, 2005, we generated $632,570 from financing activities, consisting of the proceeds from convertible notes payable of $720,000 and loans from related parties of $488,501, offset in part by the repayment of a short-term loan of $50,000, to related parties of $163,741, convertible notes payable of $350,000 and long-term borrowings of $12,190.

 

25

---

 

As of March 31, 2007, we had an accumulated deficit of $8,405,914, of which $7,766,655 incurred from inception to December 31, 2006 and $639,259 (including non-cash expenses of $251,890) for the three months ended March 31, 2007, respectively. We do not anticipate generating sufficient positive operating cash inflow to fund our planned operations.

 

If we can achieve the necessary financing, our plan is to continue to develop our manufacturing facility. As of March 31, 2007, we have invested approximately $1.62 million in the first phase of our manufacturing facility, including $1.06 million in buildings and $560,000 in equipment. We estimate that the total investment for the completion of the construction and acquisition of our manufacturing facility for bacillus fertilizer, livestock feed and anti-viral aerosol agent products and the respective marketing and distribution costs will be approximately $5 million over an estimated two-year period.

 

We do not anticipate generating sufficient positive internal operating cash flow to fund our planned operations for several years. In the next year, we intend to raise additional capital through the issuance of debt or equity securities to fund the development of our planned business operations, although there can be no assurances that we will be successful in obtaining this financing. 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.

 

Critical Accounting Policies and Estimates

 

We prepared our 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 the 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 audited 2006/2005 Financial Statements and unaudited 2007Q1 Financial Statements, and the related notes thereto, for further discussion of our accounting policies.

 

Account Receivables

 

The Company performs ongoing credit evaluations of its customers and intends to establish an allowance for doubtful accounts when amounts are not considered fully collectable. According to the Company’s credit policy, the Company generally provides 100% bad debt provision for the amounts outstanding over 365 days after the deduction of the amount subsequently settled after the balance sheet date, which management believes is consistent with industry practice in the China region.

 

Terms of our sales vary from cash on delivery to a credit term up to three to twelve months. Ordinarily, we require our customers to pay between 20% and 60% of the purchase price of an order placed, depending on the results of our credit investigations, prior to shipment. The remaining balance is due within twelve months, unless other terms are approved by management. As stated in “RISK FACTORS”, the agriculture-biotechnology market in China is in the early stages of development and we are still in the process of exploring the new market. We may also distribute our bio-products to special wholesalers with favorable payment terms with a focus on the future. We maintain a policy that all sales are final and we do not allow returns. However, in the event of defective products, we may allow customers to exchange the defective products for new products within the quality guarantee period. In the event of any exchange, the customers pay all transportation expenses.

 

As of March 31, 2007, there was $261,425 in accounts receivable over 365 days old, of which $251,630 is attributable to two fertilizer customers. We had established repayment schedules with these two customers in April 2006 to extend credit periods of their accounts receivable over one year at that time to October 2006. Before September 30, 2006, these two customers made repayments of RMB 4,291,900 (approximately $542,680) on schedule. However the installment committed in the fourth quarter of 2006 was not paid on schedule. In addition, these two customers did not carry out any transaction with us in 2006, we established a bad debt reserve of $261,425 based on accounts receivable older than one year.

 

26

---

 

Inventories

 

Inventories are stated at the lower of cost, determined on the weighted average method or net realizable value. Work in progress and finished goods are composed of direct material, direct labor and a portion of manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs to complete and dispose.

 

As of December 31, 2006, there were $48,039 in finished goods exceeding their quality guarantee period, and we accrued impairment allowance for these inventories.

 

Impairment of Long-Lived Assets

 

Our long-lived assets consist of property and equipment and intangible assets. As of March 31, 2007, the net value of property and equipment and intangible assets was $1,469,104 and $325,152, respectively, which represented approximately 34.3% and 7.6% of our total assets, respectively.

 

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.

 

The production volume of Kiwa Shandong has been increasing gradually this year and we expect to complete its facility upgrade in the near future. Kiwa Tianjin has been in normal operations since its inception. In addition, we are now in the process of applying for statutory licenses for the AF-01 technology and acquisition of GMP qualified veterinary factory. Based on our analysis, we have determined that there was no impairment to our current production facilities and intangible assets as of March 31, 2007. 

 

Revenue Recognition

 

We recognize revenue for our products in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as amended by SAB No. 104, “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.

 

Pursuant to EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent”, if the company carry out a transaction which has the following indicators: (1) The supplier (not the company) is the primary obligor in the arrangement; (2) The amount the company earns is fixed; (3) The supplier (and not the company) has credit risk, the company shall recognize revenue based on the net amount retained (that is, the amount billed to the customer less the amount paid to a supplier). We evaluate the relevant facts and circumstances of our urea entrepot trade, and recognize revenue in accordance with this principle.

 

Income Taxes

 

The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”, 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.

 

27

---

 

Trends and Uncertainties in Regulation and Government Policy in China

 

Agricultural Policy Changes in China

 

Economic growth in China has averaged 9.5% over the past two decades and seems likely to continue at that pace for some time. Per China Statistics Bureau, gross domestic product in 2006 increased 10.7% compared to 2005. However China now faces an imbalance between urban and rural environments as well as the manufacturing and agricultural industries. Since 2004, the Chinese central government has consecutively announced a so-called No. 1 Document each year concerning the countryside. The latest No.1 document unveiled on January 29, 2007 contains wide-ranging polices to improve sustainable agriculture and raise the incomes of hundreds of millions of farmers, such as to encourage farmers to use more environmentally-friendly fertilizers and pesticides to reduce pollution of the soil, rivers and lakes. On December 29, 2005, the Standing Committee of the National People’s Congress decided to abolish the agricultural tax starting January 1, 2006. The abolition of the agricultural tax would increase incomes of farmers and ease their financial burdens. Other current programs and regulations favorable to agriculture include: (1) Decision of the State Council on Implementing the Interim Regulation on Promoting the Adjustment of Industrial Structure promulgated by the State Council on December 7, 2005, (2) Guiding Catalogue for the Adjustment of Industrial Structure issued by the State Council, the National Development and Reform Commission on December 7, 2005, and (3) Outline of National Medium and Long-Term Plans for Science & Technology Development (2006-2020) promulgated by the State Council on February 9, 2006. We should benefit from these favorable policies as farmers will retain more of their income and will most likely spend some of that income on our products, resulting in greater sales. In addition, we anticipate receiving additional governmental support in marketing our products to farmers due to additional procedural changes included with the new policy.

 

General Fiscal and Monetary Policy Changes in China

 

The volatility in the inflation rate in China in the past decade (almost eight times that in the United States and four times that in Western Europe) suggests that China’s domestic monetary policy has not always been successful in maintaining low and stable inflation. In recent years, China has been adopting restricted or prudent fiscal and monetary policies to fight potential inflation. However, the agricultural area has been one of a few industries which will continue to enjoy expansionary policy. We have previously benefited from these policies, as evidenced by our receipt of non-interest bearing loans of over $1.5 million from the Chinese government so far and value-added tax exemption for our bio-enhanced feed products. As the government further increases investment in the agricultural area, we believe that similar loans or other favorable financing programs will be made available to us in the future, which we anticipate will assist us with managing liquidity and capital resources during our growth period. However, if these financing programs are not made available in the future, we may have to borrow on terms which are less favorable to us, or we may not be able to borrow additional funds at all on terms which are acceptable.

 

Foreign Investment Policy Change

 

On March 16, 2007, China’s parliament, the National People’s Congress, adopted the Enterprise Income Tax Law, which will take 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. After this law takes effect, newly established foreign invested enterprises will not, in general, enjoy favorable tax treatment as in effect under current tax laws. However, a 15%corporate income tax rate for qualified high and new technology enterprises survives and will not be geographically restricted to high and new tech areas recognized by the central government. Foreign invested enterprises that currently benefit from other favorable tax treatment will continue to enjoy favorable tax treatment, although the conditions under which the benefit is available are narrowed. For example, according to the enterprise income tax law currently in effect, our PRC subsidiaries, Kiwa Shandong and Kiwa Tianjin are exempt from corporate income taxes for their first two profitable years and are entitled to a 50% tax reduction for the succeeding three years. However after the new income tax law takes effect, fiscal year 2008 shall be regarded as the first profitable year even if Kiwa Shandong or Kiwa Tianjin have not been profitable, thereby narrowing the time period when the favorable tax treatment may be available to us. Although less favorable than before the adoption of the Enterprise Income Tax Law, we believe the beneficial tax status we enjoy will make an investment in our Company relatively more attractive to both foreign and domestic investors in China, which could improve our liquidity or provide additional capital resources. However, the PRC is undergoing a significant transition period in the development of its tax policy for private industry and it is possible that the tax laws could be modified in the future such that we would be ineligible for these benefits. In such case our tax liability will increase and our liquidity will decrease.

 

Foreign Exchange Policy Changes

 

China is considering allowing its currency to be freely exchangeable for other major currencies. This change will result in greater liquidity for revenues generated in Renminbi (“RMB”). We would benefit by having easier access to and greater flexibility with capital generated in and held in the form of RMB. The majority of our assets are located in China and most of our earnings are currently generated in China, and are therefore denominated in RMB. Changes in the RMB-U.S. Dollar exchange rate will impact our reported results of operations and financial condition. In the event that RMB appreciates over the next year as compared to the U.S. Dollar, our earnings will benefit from the appreciation of the RMB. However, if we have to use U.S. Dollars to invest in our Chinese operations, we will suffer from the depreciation of U.S. Dollars against the RMB. On the other hand, if the value of the RMB were to depreciate compared to the U.S. Dollar, then our reported earnings and financial condition would be adversely affected when converted to U.S. Dollars.

 

28

---

 

On July 21, 2005, the People’s Bank of China announced it would appreciate the RMB, increasing the RMB-U.S. Dollar exchange rate from approximately US$ 1.00 = RMB 8.28 to approximately US$ 1.00 = RMB 8.11. So far the trend of appreciation continues; the exchange rate of U.S. Dollar against RMB on June 25, 2007 was US$ 1.00 = RMB 7.6192.

 

Commitments and Contingencies

 

See Note 18 to the 2007 Q1 Financial Statements.

 

Off-Balance Sheet Arrangements

 

At March 31, 2007 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, which would have been 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.

 

Recent Accounting Pronouncements

 

See Note 2 to the 2007 Q1 Financial Statements and Note 2 to the 2006/2005 Financial Statements.

29

---

 

BUSINESS

 

Our Company

 

We are the result of a share exchange transaction completed in March 2004 between the shareholders of Tintic Gold Mining Company (“Tintic”), a corporation originally incorporated in the state of Utah on June 14, 1933 to perform mining operations in Utah, and the 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. The share exchange resulted in a change of control of Tintic, with former Kiwa BVI stockholders owning approximately 89% of Tintic on a fully diluted basis and Kiwa BVI surviving as a wholly-owned subsidiary of Tintic. Subsequent to the share exchange transaction, Tintic changed its name to Kiwa Bio-Tech Products Group Corporation. On July 21, 2004, we completed our reincorporation in the State of Delaware.

 

We have two operating subsidiaries in China: (1) Kiwa Bio-Tech Products (Shandong) Co., Ltd. (“Kiwa Shandong”) in 2002 and (2) Tianjin Kiwa Feed Co., Ltd. (“Kiwa Tianjin”) in July 2006. The following chart summarizes our organizational and ownership structure.

 

 

We develop, manufacture, distribute and market innovative, cost-effective and environmentally safe bio-technological products for agriculture. Our main product groups are bio-fertilizer, biologically enhanced livestock feed, and animal drugs and disinfectants. Our products are designed to enhance the quality of human life by increasing the value, quality and productivity of crops and decreasing the negative environmental impact of chemicals and other wastes.

 

Bio-fertilizer 

 

We have developed a number of bio-fertilizer and other products for plants and are developing more. In 2002, Kiwa BVI chartered Kiwa Shandong, a wholly-owned subsidiary organized under the laws of China, as its offshore fertilizer manufacturing base to capitalize on low cost, high quality manufacturing advantages available in China. In October 2003, Kiwa Shandong completed the first phase of construction of its manufacturing facility in Shandong Province, China. In November 2003, Kiwa Shandong began shipping its first bio-fertilizer product to the agricultural market in China.

 

 

Livestock Disinfectant and Drug Market

 

Our planned anti-viral aerosol agent product is intended to prevent and cure various virus infections in fowl and livestock. We plan to implement the AF-01 anti-viral aerosol agent technology and to develop a commercialized product in the form of aerosol spray for applying in poultry houses and other animal holding facilities to prevent the spread of various virus infections in fowl and livestock. Our product is aimed at inhibiting avian influenza in its first stage.

 

Beginning in December 2003, outbreaks of avian influenza (H5N1) in poultry populations occurred in seven countries in the East Asia and Pacific region (Cambodia, China, Indonesia, South Korea, Lao PDR, Thailand and Vietnam). Urgent policy measurements and swift government actions were taken after the outbreak of avian flu. After subsiding in March 2004, a new wave of avian flu resurfaced in July 2005, with an outbreak in Malaysia and increased outbreaks in Indonesia, Thailand, Vietnam and China.  Despite aggressive control measures involving the culling of more than 140 million birds since September 2005, outbreaks have continued. According to the World Bank, the H5N1 of Highly Pathogenic Avian Influenza (HPAI) is now considered to be endemic in many parts of East Asia, with Cambodia, Indonesia, Laos PDR, and Thailand as most severely affected.  According to the World Health Organization, the cumulative number of confirmed human cases of avian influenza A/(H5N1) is 272, with 166 deaths from 2003 to February 2007, of which there were 116 confirmed human cases with 80 deaths in 2006. The situation is also severe in China. H5N1 of Highly Pathogenic Avian Influenza (HPAI) was first identified in China in 2005, with 22 reported cases and 14 deaths. There is no sign that the situation will improve in China. In 2006 alone, 13 cases have been reported and 8 of them have been fatal.

 

---

5	Calculated based on data published in the “China Statistical Yearbook” published by National Bureau of Statistics of China (September 2002), page 389.

6	Calculated based on data published in “Current Agriculture Situation and Chemical Fertilizer Demand in China,” by Gao Xiangzhao, Ma Shangbao and Du Sen, published by Science Publication House (July 2004), page 73.

36

---

 

Because of potential serious risks to human health and safety, scientists are now studying the possibility of bird-to-human transmission crossing over due to genetic changes to sustained human-to-human transmission in all affected countries.

 

According to one estimate given in an official report by the World Bank on January 13, 2006, the total fund required for a global fight against bird flu is estimated to range between $1.2 to $1.4 billion. Most of such funding will likely to be put into use in the densely-populated East Asia and the Pacific regions; the remainder will likely be channeled to regions in Europe, Central Asia and Africa. After its consultation with the World Health Organization and the UN Food and Agricultural Organization, the Word Bank estimated that a global bird flu pandemic lasting more than one year could cost the global economy as much as $800 billion. (Source: http://english.people.com.cn).

 

The use of appropriate antiseptics is an effective prevention method against avian influenza. As indicated by our Technical Appraisal Report (No. GuoWeiKeChengJianZi (2004) A0101) certified by the Ministry of Health of China, our planned product with bio-active glycopeptides produced by actinomycetes as the functioning element has been demonstrated to be an effective antiseptic to prevent the spread of H5N1. Furthermore, we believe this product has competitive differentia compared with other existing chemical disinfectors. We also believe that if we are able to complete approval procedures to develop our intended anti-viral aerosol agent product, we expect that it will obtain a significant share of the Chinese market upon launching and benefit from large government orders.

 

38

---

 

Company Name		Current Status
New Hope Group Co., Ltd.		Yearly feed production capacity exceeds 3,500,000 metric tons More than 200 sales points in rural areas of China
Liu He Group Co., Ltd.		Sold 3,400,000 metric tons of feed in 2005
Tong Wei Group Co., Ltd.		Yearly feed production capacity exceeds 4,000,000 metric tons
Guang Dong Heng Xing Group, Co., Ltd.		Annual feed production capacity exceeds 1,000,000 metric tons
Zheng Hong Technologies Group Co., Ltd.		Annual feed production capacity exceeds 2,000,000 metric tons
Xin Jiang Tian Kang Feed Bio-Tech Co., Ltd.		Annual feed production capacity exceeds 240,000 metric tons
Xing Da Group Co., Ltd.		Annual feed production capacity exceeds 660,000 metric tons
Guang Dong Hai Da Group Co., Ltd.		Sold approximately 800,000 metric tons of feed in the year 2005
Mu He Industry Co., Ltd.		Annual feed production capacity approximately 1,000,000 metric tons
Yue Yang Yue Tai Group Co., Ltd.		Annual feed production capacity exceeds 1,200,000 metric tons

 

AF-01 Anti-viral Aerosol

 

In the veterinary drugs product line, there are several Chinese veterinary drug manufactures that are developing anti-avian flu vaccine which can be regarded as substitutes of our product. According to the China Agriculture Department, there are nine Chinese companies that are working on the development and marketing of anti-avian flu vaccine.

 

Other potential competitors of our veterinary drugs product line also include some veterinary disinfector manufacturers.

 

Raw Materials and Suppliers

 

The key raw materials used in production of our products are widely available from a wide variety of supply sources. Historically, we have not experienced any difficulties in procuring adequate quantities of raw materials for use in our bio-fertilizer and biologically enhanced livestock feed production. We do not have long-term agreements with our suppliers due to the availability of other numerous suppliers that have the ability to supply our required raw materials to us on fairly short notice. We typically place purchase orders when we need raw material supplies.

 

Bio-fertilizer

 

The major raw materials for our bio-fertilizer products can be divided into two categories: (1) growth media such as sodium acetate, glucose and turf for culturing bacillus spp. and (2) bacillus and photosynthetic bacteria, which are the core ingredients for our finished products. Some other main ingredients include urea, aminophenol, humus, diammonium phosphate, and dipotassium hydrogen phosphate. Prior to the completion of our bacillus manufacturing facility upgrade in Shandong, we had purchased semi-manufactured bacillus goods.

 

Three suppliers accounted for 23.8%, 16.9% and 16.3% of our net purchases for the three months ended March 31, 2007, respectively. Three suppliers accounted for 45.2%, 20.2%, and 10% of our purchases of raw materials for the three months ended March 31, 2006.

 

Four suppliers accounted for 18.0%, 15.1%, 11.3% and 10% of our net purchases for the fiscal year ended December 31, 2006, respectively. No other single supplier accounted for more than 10%. Three suppliers accounted for 64.0%, 17.2% and 12.5% of our net purchases for the fiscal year ended December 31, 2005, respectively

 

Bio-enhanced feed

 

The major raw materials for bio-feed products are microbes, animal blood as enhanced ingredients, corn, grains, bean cake, cotton draff, greenstuff draff, and trace elements.

 

39

---

 

Four suppliers accounted for 21.5%, 15.3%, 10.9% and 10.4% of our net purchases for the three months ended March 31, 2007, respectively. No other single supplier accounted for more than 10%.

 

Three suppliers accounted for 25.4%, 18.0%, and 12.5% of our net purchases for the fiscal year ended December 31, 2006, respectively. No other single supplier accounted for more than 10%. The first largest supplier is Challenge Feed, our joint venture partner in Kiwa Tianjin. See Note 12 to the 2005/2006 Financial Statements.

 

Urea entrepot trade

 

Because of the unique nature of our urea entrepot trade, the supplier has been pre-arranged. We purchase urea from Shengkui Technologies, Inc. pursuant to certain purchase agreement we had entered into with Shengkui Technologies, Inc. In 2006, we purchased $50,000 metric tons of urea.

 

Customers

 

Bio-fertilizer

 

Three customers accounted for 26.7%, 24.1% and 23.3% of our net sales for the three months ended March 31, 2007, respectively. No other single customer accounted for more than 10% of our revenues. Three customers accounted for 24%, 19.8% and 10.0% of our net sales for the three months ended March 31, 2006.

 

We have a total of 53 customers as of December 31, 2006, of which two customers accounted for 28.5% and 15.9% of our net sales for the fiscal year ended December 31, 2006, respectively. No other single customer accounted for more than 10% of our revenues. Two customers accounted for 51.3% and 45.3% of our net sales for the fiscal year ended December 31, 2005, respectively. No other single customer accounted for more than 3% of our revenues.

 

Bio-enhanced feed

 

Our bio-enhanced feed business began in August 2006. One customer accounted for 18.8% of our net sales for the three months ended March 31, 2007. No other single customer accounted for more than 8% of our net sales.

 

We had a total of 61 customers, of which no individual customer accounted for more than 8% of our net sales for the fiscal year ended December 31, 2006.

 

Urea entrepot trade

 

In 2006, we sold 50,000 metric tons of urea to China Hua Yang Roneo Corporation pursuant to entrepot trade arrangement. There was no new urea trade in the first quarter of 2007.

 

Seasonality

 

Bio-fertilizer

 

Our operating results have been and are expected to continue to be subject to seasonal trends. This trend is dependent on numerous factors, including the markets in which we are operating in, growing seasons, climate, economic conditions and numerous other factors beyond our control. Generally, we expect the second and third quarters will be stronger than the first and fourth quarters, primarily because the second and third quarters correspond with the growing seasons in our primary markets in China. It is during those growing seasons when application of our products by our customers would be most beneficial and we therefore expect greater demand for our products during those periods. There can be no assurance that these operating patterns will occur. But we will seek to develop markets outside China such as in Southeast Asia to reduce the impact of seasonality.

 

40

---

 

Bio-enhanced feed

 

Our operating results for livestock feed products are also expected to and continue to be subject to seasonal factors. The main seasonal factors that would influence our livestock feed product operating results include farming seasons, climate, traditional holidays, as well as other factors that management cannot control. Generally speaking, our operating results in this product line in the second and third quarter is expected be better than those from the first and fourth quarter since fishponds in the first and fourth quarters are frozen and pisciculturists suspend aquaculture during those periods. Consequently they do not purchase our fish feed products. Our livestock feed factory generally does not produce fish feed during most of the first and fourth quarters. There is no guarantee that these operating cycles would will continue, and management would adjust our plan in accordance with changes occurred.

 

AF-01 Anti-viral aerosol

 

We are still in the development stage with respect to our AF-01 anti-viral aerosol product business, have not produced any revenues, and thus have not experienced any seasonal patterns in that business segment. At such time as we have developed successfully a product to market, we expect that our revenues will tend to follow the seasonal fluctuations of the livestock markets that we hope to serve with this product.

 

Employees

 

We currently employ 80 full-time employees in China and one in the United States. We also have 15 seasonal employees in China.

 

Regulatory Concerns

 

Our production needs to comply with bio-fertilizer and livestock feed standard production and testing procedures issued by the PRC Ministry of Agriculture or local administrative authorities. We have complied with the applicable PRC government standard production and testing procedures. As for AF-01 anti-viral aerosol, we are now in the process of applying for statutory licenses for the AF-01 technology in accordance with applicable regulations (See discussion above in this section under the heading “Our Company”).

 

Environmental Matters

 

Our two manufacturing facilities, Kiwa Shandong and Kiwa Tianjin, have passed environment evaluation by local PRC environment authorities. Photosynthesis bacteria, bacillus ssp, and actinomycetes are environmentally friendly and are not known to cause any environmental problems.

 

 

 

41

---

 

The following table provides information about our executive officers and directors and their respective age and position as of June 25, 2007. The directors listed below will serve until the Company’s next annual meeting of the stockholders:

 

Name		Age		Position
Wei Li		45		Chief Executive Officer and Chairman of the Board of Directors
Lianjun Luo		37		Chief Financial Officer and Director
Dachang Ju		67		Director
Yunlong Zhang		43		Director
QiWang		40		Vice President - Technical
Xiaonan Wu		41		Vice President
Wenbin Li		43		Vice President-Marketing
Yvonne Wang		28		Secretary

Wei Li became our Chief Executive Officer and Chairman of the Board of Directors on March 12, 2004. From January 1, 2004 to the time of the Tintic/Kiwa merger, Mr. Li was the acting Chief Executive Officer of Kiwa Bio-Tech Products Group Ltd. Mr. Li founded Kiwa Bio-Tech Products Group Ltd. to capitalize on the growth of the ag-biotechnology industry in China. Prior to founding Kiwa Bio-Tech Products Group Ltd., Mr. Li founded China Star, an entity which provides integrated financing services and/or venture investments to growth businesses in China. Mr. Li served as President of China Star from June 1993 to January 2004. In 1989, Mr. Li founded Xinhua International Market Development Ltd., a company which engaged in investing in China’s high tech, pharmaceutical, medical device, media, entertainment and real estate industries. Mr. Li holds a B.S. in finance from Hunan Finance and Economics University.

 

Lianjun Luo became our Chief Financial Officer on March 12, 2004, and one of our directors on March 27, 2004. Mr. Luo served as the Chief Executive Officer of Kiwa Bio-Tech Products Group Ltd. from October 2002 to December 2003. From January 2002 to October 2002, Mr. Luo served as the Chief Financial Officer of China Star. From August 2000 to December 2001, Mr. Luo served as manager of Security Department and Assistant to President at Jilin Hengfa Group Ltd., a Chinese drug manufacturing company, responsible for the company’s preparation for an aborted IPO and for merger and acquisition activities. From May 1998 to July 2000, Mr. Luo worked as manager of Investment Department and Associate General Manager for Hongli Enterprise Ltd, a Chinese investment company on merger and acquisition transactions. Mr. Luo obtained his law degree from China University of Political Science and Law in 1993. Mr. Luo is a certified public accountant and lawyer in China.

 

Dachang Ju became one of our directors on March 12, 2004. From 1987 to 1999 when he retired, Mr. Ju worked as General Manager of XinShen Company, an investment firm in China. He was responsible for the company’s daily operations and investment decision making. He served as a board member of Kiwa Bio-Tech Products Group Ltd. since 2003 and a board member of China Star from 1999 to 2000. Mr. Ju holds a B.S. in mathematics from Capital Normal University in Beijing, China.

 

Yunlong Zhang became one of our directors on March 27, 2004. From May 2000 to present, Mr. Zhang has been the General Manager of China Star, responsible for the group’s daily operations. From 1994 to 2000, Mr. Zhang served as the head of the Investment Department at China National Economic and Systems Reform Research and Services Center, an economic reform think tank for the central government. Mr. Zhang holds a degree in statistics.

 

Qi Wang became our Vice President - Technical on July 19, 2005. Mr. Wang served as a Professor and Advisor for Ph.D students in Department of Plant Pathology, China Agricultural University (“CAU”) since January 2005. Prior to that, he served as an assistant professor and lecturer of CAU since June 1997. He obtained his master degree and Ph.D in agricultural science from CAU in July 1994 and July 1997, respectively. Mr. Wang received his bachelor’s degree of science from Inner Mongolia Agricultural University in July 1989. He is a committee member of various scientific institutes in China, including the National Research and Application Center for Increasing-Yield Bacteria, Chinese Society of Plant Pathology, Chinese Association of Animal Science and Veterinary Medicine.

 

43

---

 

Xiaonan Wu became our Vice President on September 18, 2006. Mr. Wu has 17 years of experience in medical product distribution and market operations. He has substantial experience and resources in market development including work arising from his employment with Beijing Medicine Economical Technology Management Company as the General Manager Assistant and Assistant Manager in charge of drugs, and later as its Deputy General Manager.   Mr. Wu has also served as the Deputy General Manager of Beijing Medicine Limited Liability Company. At the same time he was the General Manager of its subordinate Medicine Guarantee Brand - New Pharmacy Chain Company as well as the General Manager of its subordinate joint-venture pharmaceutical company, Beijing Unit Medicine Company. Mr. Wu graduated from the College of Pharmacy, Beijing Medical University with a Bachelor of Science degree.

 

Wenbin Li became our Vice President-Marketing on January 21, 2007. Mr. Li also acts as General Manager of Kiwa Tianjin from July 2006. Mr Li took the position of General Manager of Challenge Feed from 1999 until July 2006. Prior to that, from 1996 to 1999, Mr. Li acted as Manager of Business Operation Department, General Manager of Shenyang Challenge Feed Co., Ltd. From 1989 to 1996, he worked for the Luzhou City feed administrative authority. Mr. Li holds a master degree from Henan Agricultural University specialising in animal nutrition.

 

Yvonne Wang became our Secretary in September 2005. Prior to that, she served as Assistant to the Executive and manager of the Company’s U.S. office since April 2003. She obtained her bachelor of science degree in Business Administration in July 2001 from the University of Phoenix. She is also a licensed realtor and a certified notary public in California.

 

Juhua Wang resigned as Chief Operation Officer on May 18, 2007.

 

Family Relationships

 

There are no family relationships among our directors or executive officers.

 

Section 16(a) Beneficial Ownership Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors and certain persons holding more than 10% of a registered class of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock. Officers, directors and certain other shareholders are required by the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) forms they file.

 

During the fiscal year ended December 31, 2006, our executive officers, directors or beneficial owners of more than 10% of our capital shares were required to file reports on Form 3 or Form 4. During 2006, the following directors and executive officers failed to timely report option grants on Form 3 or Form 4: Wei Li, Lianjun Luo, Yunlong Zhang, Ju hua Wang, Qi Wang, Xiaonan Wu, Yvonne Wang. These late filings all were with respect to the options granted on December 13, 2006 as specified above. The reporting persons subsequently reported these option grants on Form 3 or Form 4.

 

The Company is putting in place an enhanced compliance program to assist officers and directors with these filings.

 

Code of Ethics

 

We have adopted a Code of Business Conduct and Ethics (the “Code”) that is applicable to all employees, consultants and members of the Board of Directors, including the Chief Executive Officer, Chief Financial Officer and Secretary. This Code embodies our commitment to conduct business in accordance with the highest ethical standards and applicable laws, rules and regulations. We will provide any stockholder a copy of the Code, without charge, upon written request to the Company’s Secretary.

44

---

 

Board Composition and Audit Committee

 

The board of directors is currently composed of four members, including WeiLi, Lianjun Luo, Dachang Ju and Yunlong Zhang. All board actions require the approval of a majority of the directors in attendance at a meeting at which a quorum is present.

 

We currently do not have an audit committee. We intend, however, 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.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

 

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

 

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

 

Registration Fee - Securities and Exchange Commission		$	1,217
Accounting Fees and Expenses			12,600
Legal Fees and Expenses			30,000
Miscellaneous			2,000
TOTAL		$	45,817

 

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

 

Set forth below is information regarding the issuance and sales of our securities without registration for the past three years from the date of this registration statement. With respect to the sale of unregistered securities referenced below, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act, and Regulation D promulgated under the Securities Act. In each instance, the purchaser had access to sufficient information regarding our company so as to make an informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an “accredited investor” as defined in Regulation D of the Securities Act and otherwise had the requisite sophistication to make an investment in our securities.

 

On April 18, 2007 we issued 700,000 shares of common stock and warrants exercisable for an aggregate of 250,000 shares of our common stock to an investment consultant pursuant to a consulting agreement between us and the consultant dated April 7, 2007.

 

On December 13, 2006, we granted 2,000,000 options under our 2004 Stock Incentive Plan to named employees, among which 362,100 options are returned to the available option pull under the Plan thereafter.

 

On October 10, 2006, we issued 1.8 million shares of our common stock to the consultant as partial compensation pursuant to an investor relations and international sales and distribution agreement with an investor relation consultant dated August 7, 2006.

 

On June 29, 2006, we 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 issue, in the aggregate principal amount of U.S. $2,450,000, convertible into shares of the Company’s common stock and (2) warrants to purchase 12,250,000 shares of the Company’s common stock. The issuance of detachable warrants to the Purchasers to purchase the aggregate of 12,250,000 shares of common stock of the Company, in connection with the securities purchase agreement dated June 29, 2006 and the issuance of detachable warrants to the investment bank procured with the securities purchase agreement were an unregistered sale of equity securities under the Securities Act.

 

II-1

---

 

On May 8, 2006, we entered into a Technology Transfer Agreement with Jinan Kelongboao Bio-Tech Co., Ltd. (“JKB”) on the technology transfer and relating technical service for the AF-01 Anti-viral Aerosol. The aggregate purchase consideration under the agreement is $749,157 (RMB 6 million) in cash and common stocks valued at $499,438 (RMB 4 million).

 

On March 10, 2006, we entered into a Stock Purchase Agreement with two Chinese investors to issue 5,000,000 shares of our common stock in a private placement for Renminbi 6,000,0000 (approximately $750,000). As of April 13, 2006, we had received approximately $350,000 of the amount committed to under the purchase agreement, which represents 47% of the total commitment. We have agreed with the investors to defer funding of the remaining commitment to April 30, 2006. In May 2006, we received the proceeds in full and issued 5,000,000 shares of common stock pursuant to the Stock Purchase Agreement dated March 10, 2006. The purchaser was granted “piggy-back” registration rights in the event that the Company undertakes to register any of its shares after16 months from the date of the Stock Purchase Agreement. The registration rights expire four years from the effective date of the Stock Purchase Agreement.

 

The issuance of detachable warrants to China Star to purchase the aggregate of 1,190,847 shares of our common stock, in connection with the advance agreements with China Star dated June 29, 2005, September 30, 2006, December 31, 2005 and March 31, 2006 was unregistered sales of equity securities under the Securities Act. In issuing the warrants, we relied on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act for its exemption from the registration requirements of the Securities Act. China Star exercised 1,139,195 shares on a cashless basis in December 2006, for which we issued 1,000,000 shares to a beneficiary of China Star at its designation on January 5, 2007.

 

The issuance of detachable warrants to Wei Li to purchase the aggregate of 783,423 of our warrant stock, in connection with Advance Agreement for borrowed money dated May 23, 2005 was an unregistered sale of equity securities under the Securities Act. In issuing the warrants, we relied on Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act for its exemption from the registration requirements of the Securities Act. In April 2007, Mr. Li exercised all of the warrants on a cashless basis. We issued a net of 708,122 shares to Mr. Li in April 2007 for the exercise.

 

We entered into three convertible secured promissory note agreements, for the aggregate note amount of $320,000, with Donald Worthly, Gertrude Yip, and Hiro and Elaine Sugimura on May 30, 2005, June 1, 2005 and June 17, 2005, respectively. The lenders were also granted detachable warrants to purchase an aggregate of 1,600,000 shares of Common Stock in the form warrants pursuant to purchase agreements entered into contemporaneously by the parties. The exercise prices of the warrants are $0.023, 0.022 and $0.018 respectively. In addition, the lenders were granted unlimited piggyback rights. All such warrants were exercised in the second half of 2006.

 

On October 1, 2004, the Company entered into a Consulting Agreement with Amy L. Yi to provide investor relations services. The engagement was for a period of six months and provided for the issuance of 200,000 shares of common stock.

 

On October 1, 2004, the Company entered into a Consulting Agreement with Robert Sullivan to provide investor relations services. The engagement was for a period of three months and provided for the issuance of 165,000 shares of common stock.

 

On October 1, 2004, the Company entered into a Consulting Agreement with Barry R. Clark to provide investor relations services. The engagement was actually executed for one month of service and the Company issued to Barry R. Clark 30,000 shares of restricted stock.

 

On September 23, 2004, we entered into two convertible note agreements, for the aggregate principal amount of $350,000, with Yong Sam Kim and Song N. Bang. The principal and interest have been settled in cash. In connection with the convertible note agreements, Messrs. Kim and Bang were issued warrants to purchase 900,000 and 150,000 shares of common stock, respectively. Each warrant entitled the holders to subscribe for one share of common stock at an exercise price of $0.20 per share through September 23, 2007. Pursuant to the convertible note agreements, Messrs. Kim and Bang were granted piggy-back registration rights exercisable during the three-year period from the effective date of the agreements. In July 2006, Bang exercised his warrants by cashless exercise for 50,000 shares of our common stock.

 

II-2

---

 

On September 14, 2004, the Company issued 892,857 shares of common stock to Stubbs Alderton and Markiles, LLP, with an aggregate value of $125,000, as payment for legal fees incurred during 2004.

 

On April 12, 2004, we entered into an agreement with China Agricultural University to acquire patent no. ZL 93101635.5 entitled “Highly Effective Composite Bacteria for Enhancing Yield and the Related Methodology for Manufacturing”, which was originally granted by the PRC Patent Bureau on July 12, 1996. The purchase consideration was $480,411, all of which has been paid In addition, as part of the purchase price, we issued 1,000,000 shares of common stock in September 2004, valued at $0.42 per share based on its fair market value on July 20, 2004 (aggregate value $420,000) which is the date when the application for the patent right holder alternation registration was approved.

 

On May 24, 2004, in connection with our engagement of Cinapsys, Inc. for investor relations services, we issued a one-time stock payment of 75,000 shares of our common stock at an agreed upon value of $0.45 per share, the closing price on May 24, 2004, for an aggregate value of $33,750.

 

On March 30, 2004, the Company granted a non-statutory stock option to a consultant to purchase 300,000 shares of common stock exercisable at $0.20 per share for ten years in consideration of services rendered. Upon exercise of the option, the Company would receive gross proceeds of $60,000.

 

 

ITEM 27. EXHIBITS

 

Exhibit No.		Description OF Exhibits		Incorporated by Reference in Document		Exhibit No. in Incorporated Document
2.1		Agreement and Plan of Merger, dated March 11, 2004, by and among Tintic Gold Mining Company, TTGM Acquisition Corporation, and Kiwa Bio-Tech Products Group Ltd.		Form 8-K filed on March 29, 2004		2.1
2.2		Agreement and Plan of Merger, dated July 22, 2004, between Kiwa Bio-Tech Products Group Corporation, a Utah corporation, and Kiwa Bio-Tech Products Group Corporation .		Form 8-K filed on July 23 , 2004		2.1
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
5.1		Opinion of Kirkpatrick & Lockhart Preston Gates Ellis LLP.		Form SB-2/A filed on October 20, 2006		5.1
10.20		Amendment, dated April 7, 2005, to Convertible Note Agreement dated September 23, 2004 among Kiwa Bio-Tech Products Group Corporation and Young San Kim and Song N. Bang		Form 10-KSB filed April 13, 2005		10.20
10.21		Common Stock Warrant dated September 23, 2004, issued by Kiwa Bio-Tech Products Group Corporation to Young San Kim		Form 10-QSB filed November 15, 2004		10.5

 

II-3

---

 

10.22		Common Stock Warrant dated September 23, 2004, issued by Kiwa Bio-Tech Products Group Corporation to Song N. Bang		Form 10-QSB filed November 15, 2004		10.6
10.23		Promissory Note of Kiwa Bio-Tech Products Group Corporation, principal amount $400,000, issued to Cornell Capital Partners, LP on January 4, 2005, as amended by letter agreements dated March 21, 2005 and April 5, 2005.		Form 10-KSB filed April 13, 2005		10.23
10.24		Payment Acknowledgment and Release, dated June 8, 2005, among Kiwa Bio-Tech Products Group Corporation and Young San Kim and Song N. Bang		Form 10-QSB filed May 20, 2005		10.1
10.25		Advance Agreement, dated May 23, 2005, between Kiwa Bio-Tech Products Group Corporation and Mr. Wei Li.		Form 10-QSB filed August 15, 2005		10.2
10.26		Promissory Note of Kiwa Bio-Tech Products Group Corporation, principal amount $150,000, issued to Donald Worthly dated May 30, 2005, as amended June 1, 2005.		Form 8-K filed on August 12, 2005		10.1
10.27		Promissory Note of Kiwa Bio-Tech Products Group Corporation, principal amount $70,000, issued to Gertrude Yip dated May 30, 2005, as amended.		Form 8-K filed on August 12, 2005		10.2
10.28		Promissory Note of Kiwa Bio-Tech Products Group Corporation, principal amount $100,000, issued to Hiro Sugimura and Elaine Sugimura dated June 16, 2005.		Form 8-K filed on August 12, 2005		10.3
10.29		Advance Agreement, dated June 29, 2005, between Kiwa Bio-Tech Products (Shandong) Co. Ltd. and China Star Investment Management Co. Ltd.		Form 10-QSB filed August 15, 2005		10.7
10.30		Advance Agreement, dated September 30, 2005, between Kiwa Bio-Tech Products (Shandong) Co. Ltd. and China Star Investment Management Co. Ltd.		Form 10-QSB filed November 21, 2005		10.1
10.31		Advance Agreement, dated December 31, 2005, between Kiwa Bio-Tech Products (Shandong) Co. Ltd. and China Star Investment Management Co. Ltd.		Form 10-KSB filed April 17, 2006		10.31
10.32		Stock Purchase Agreement dated March 10, 2006 between Kiwa Bio-Tech Products Group Corporation and Guilian Li Ziyang Zong		Form 8-K filed on March 15, 2006		10.1
10.33		Termination Agreement between Kiwa Bio-Tech Products Group Corporation and Cornell Capital dated on March 31, 2006		Form 8-K filed on April 4, 2006		10.1
10.34		Amendment, dated April 13, 2006 to Stock Purchase Agreement dated March 10, 2006		Form 10-KSB filed April 17, 2006		10.34
10.35		Technology Transfer Agreement between the Company and Jinan Kelongboao Bio-Tech Co. Ltd., dated May 8, 2006		Form 8-K filed on May 8, 2006		10.1
10.36		Acquisition Framework Agreement between the Company and Beijing Huasheng Medicine Co., dated May 10, 2006		Form 8-K filed on May 8, 2006		10.2
10.37		Supplementary Agreement for Stock Purchase Agreement dated May 12, 2006		Form 10-QSB filed May 16, 2006		10.35
10.38		Advance Agreement, dated March 31, 2006, between Kiwa Bio-Tech Products (Shandong) Co. Ltd. and China Star Investment Management Co. Ltd.		Form 10-QSB filed  May 16, 2006		10.36
10.39		Securities Purchase Agreement, dated as of June 29, 2006 between Kiwa Bio-Tech Products Group Corporation and AJW Partners, LLC, AJW Offshore, Ltd., AJW Qualified Partners, LLC, New Millennium Capital Partners II, LLC, Double U Master Fund LP, and Nite Capital LP (collectively, the “Purchasers”)		Form 8-K filed on June 29, 2006		10.1
10.40		Registration Rights Agreement, dated as of June 29, 2006 between Kiwa Bio-Tech Products Group Corporation and the Purchasers		Form 8-K filed on June 29, 2006		10.2
10.41		Security Agreement, dated as of June 29, 2006, between Kiwa Bio-Tech Products Group Corporation and the Purchasers		Form 8-K filed on June 29, 2006		10.3
10.42		Intellectual Property Security Agreement, dated as of June 29, 2006, between Kiwa Bio-Tech Products Group Corporation and the Purchasers		Form 8-K filed on June 29, 2006		10.4

 

II-4

---

 

10.43		Pledge Agreement, dated as of June 29, 2006, among Kiwa Bio-Tech Products Group Corporation, Wei Li, and the Purchasers		Form 8-K filed on June 29, 2006		10.5
10.44		Form of Callable Secured Convertible Note, dated as of June 29, 2006, issued by Kiwa Bio-Tech Products Group Corporation to the Purchasers		Form 8-K filed on June 29, 2006		10.6
10.45		Form of Stock Purchase Warrant, dated as of June 29, 2006, issued by Kiwa Bio-Tech Products Group Corporation to the Purchasers		Form 8-K filed on June 29, 2006		10.7
10.46		Contract for Joint Venture, dated July 11, 2006 between Kiwa Bio-Tech Products Group Corporation and Tianjin Challenge Feed Co., Ltd.		Form 8-K filed on July 11, 2006		10.1
10.47		Contract for urea dated July 28, 2006 between Kiwa Bio-Tech Products Group Ltd. and China Hua Yang Roneo Corporation.		Form 8-K filed on August 2, 2006		10.1
10.48		Contract for urea dated July 31, 2006 between Kiwa Bio-Tech Products Group Ltd. and Shengkui Technologies, Inc.		Form 8-K filed on August 2, 2006		10.2
10.49		Employment Agreement dated July 31, 2006 between Kiwa Bio-Tech Products Group Ltd. and Wei Li		Form 8-K filed on August 7, 2006		10.1
10.50		Employment Agreement dated July 31, 2006 between Kiwa Bio-Tech Products Group Ltd. and Lianjun Luo		Form 8-K filed on August 7, 2006		10.2
10.51		Employment Agreement dated September 25, 2006 between Kiwa Bio-Tech Products Group Ltd. and Juhua Wang		Form 8-K/A filed on September 25, 2006		10.1
10.52		Amendment to Registration Right Agreement dated as of October 31, 2006, by and among Kiwa Bio-Tech Products Group Corporation and the Purchasers		Form 10-QSB filed on November 15, 2006		10.52
10.53		Contract dated August 8, 2006, by and among Kiwa Bio-Tech Products Group Ltd. and UPB International Sourcing Limited		Form 10-QSB filed on November 15, 2006		10.53
10.54		Supplementary Agreement, dated August 20, 2006, by and between Kiwa Bio-Tech Products Group Ltd. and UPB International Sourcing Limited		Form 10-QSB filed on November 15, 2006		10.54
10.55		Short Term Loan Agreement, dated as of October 23, 2006, by and among Kiwa Bio-Tech Products (Shandong) Co., Ltd and China Star Investment Management Co., Ltd.		Form 10-QSB filed on November 15, 2006		10.55
10.56		Agreement on Joint Incorporation of Kiwa-CAU Bio-Tech Research & Development Center, dated November 14, 2006, between China Agricultural University and Kiwa Bio-Tech Products (Shandong) Limited		Form 10-KSB filed on April 2, 2007		10.56
10.57		Annual Distribution Contract, dated December 26, 2006, by and among Kiwa Bio-Tech Products (Shandong) Co., Ltd and Xinjiang Rundi Bio-Tech Co., Ltd.		Form 8-K filed on December 27, 2006		10.01
10.58		Consulting Agreement dated April 9, 2007, between Kiwa Bio-Tech Products Group Corporation and First Trust Group, Inc.		Form 10-QSB on May 14, 2007		10.58
21		List of Subsidiaries		Form 10-KSB filed on April 2, 2007
23.1		Consent of Kirkpatrick & Lockhart Preston Gates Ellis LLP		Form SB-2/A filed on October 20, 2006		5.1
23.2		Consent of Mao & Company, CPAs, Inc.		Filed herewith.

 

ITEM 28. UNDERTAKINGS

 

A.

The undersigned Registrant hereby undertakes:

 

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 

(i)

Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

 

II-5

---

 

(ii)

Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and notwithstanding the forgoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospects filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii)

Include any additional or changed material information on the plan of distribution.

 

(2)

For determining liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

 

(3)

To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

 

(4)

For determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)

Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 ;

 

(ii)

Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

(iii)

The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv)

Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

B.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

C.

That, for the purpose of determining liability under the Securities Act to any purchaser:

 

(1)

If the registrant is relying on Rule 430B:

 

(i)

Each prospectus filed by the undersigned registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

 

II-6

---

 

(ii)

Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

 

(2)

If the registrant is subject to Rule 430C, include the following:

 

Each prospectus filed pursuant to Rue 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

II-7

---

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement on Form SB-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in Beijing, China on June 29, 2007.

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

/s/ Wei Li

Wei Li

Chief Executive Officer

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

/s/ Lianjun Luo

Lianjun Luo

Chief Financial Officer and Chief Accounting Officer

 

Each person whose signature appears below constitutes and appoints Wei Li and Lian-jun Luo, and each of them, as his true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and his name, place and stead, in any and all capacities, to sign any or all amendments (including post effective amendments) to this Registration Statement and a new Registration Statement filed pursuant to Rule 462(b) of the Securities Act of 1933 and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

 

In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities on June 29, 2007:

 

/s/ Wei Li

Wei Li

Chief Executive Officer and Chairman of the Board

 

/s/ Lianjun Luo

Lianjun Luo

Chief Financial Officer and Chief Accounting Officer

 

/s/ Dachang Ju

Dachang Ju

Director

 

/s/ Yunlong Zhang

Yunlong Zhang

Director

II-8

---