Annual Report (10-k)

Date : 04/12/2019 @ 10:28PM
Source : Edgar (US Regulatory)
Stock : Kiwa Bio Tech Products Group Corporation (QB) (KWBT)
Quote : 0.01365  0.00105 (8.33%) @ 7:46PM

Annual Report (10-k)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended December 31, 2018

 

OR

 

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

 

For the Transition Period from ______ to ______

 

Commission File Number: 000-33167

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada   77-0632186

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3200 Guasti Road, Suite #100,

Ontario, California

  91761
(Address of principal executive offices)   (Zip Code)

 

(909) 456-8828

(Registrant’s telephone number, including area code)

 

3200 Guasti Road, Suite #100

Ontario, CA 91761

 

(Former address)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [  ] Smaller reporting company [X]
   
(Do not check if a smaller reporting company) Emerging growth company [  ]

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $7,382,012 (assuming $1.14 per share)

 

As of April 12, 2019, the Company had 18,858,719 shares of common stock, $0.001 par value, issued and outstanding.

 

 

 

 
     

 

TABLE OF CONTENTS

 

  Page
Part I  
ITEM 1. Business 3
ITEM 1 A. Risk Factors 8
ITEM 1B. Unresolved Staff Comments 9
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Mine Safety Disclosures 9
Part II  
ITEM 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities 9
ITEM 6. Selected Financial Data 10
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk 23
ITEM 8. Financial Statements and Supplementary Data 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23
ITEM 9A. Controls and Procedures 24
ITEM 9B. Other Information 25
Part III 25
ITEM 10. Directors, Executive Officers and Corporate Governance 25
ITEM 11. Executive Compensation 27
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 29
ITEM 13. Certain Relationships and Related Transactions, and Director Independence 29
ITEM 14. Principal Accountant Fees and Services 30
Part IV 30
ITEM 15. Exhibits and Financial Statement Schedules 30
Signatures 31
Index to Consolidated Financial Statements 32

 

2
     

 

Part I

 

Special Note Regarding Forward-Looking Statements

 

On one or more occasions, we may make forward-looking statements in this Annual Report on Form 10-K regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings.

 

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual and periodic reports filed with the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

 

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

 

ITEM 1. Business

 

The Company

 

1. Organizational History

 

The Company took its present corporate form in March 2004 when shareholders of Kiwa Bio-Tech Products Group Ltd. (“Kiwa BVI”), a company originally organized under the laws of the British Virgin Islands on June 5, 2002 and Tintic Gold Mining Company (“Tintic”), a corporation originally incorporated in the state of Utah on June 14, 1933 to perform mining operations in Utah, entered into a share exchange transaction. The share exchange transaction left the shareholders of Kiwa BVI owning a majority of Tintic and Kiwa BVI a wholly-owned subsidiary of Tintic. For accounting purposes this transaction was treated as an acquisition of Tintic by Kiwa BVI in the form of a reverse triangular merger and a recapitalization of Kiwa BVI and its wholly owned subsidiary, Kiwa Bio-Tech Products (Shandong) Co., Ltd. (“Kiwa Shandong”). On July 21, 2004, we completed our reincorporation in the State of Delaware. On March 8, 2017, we completed our reincorporation in the State of Nevada.

 

The Company currently mainly operates its business through Kiwa Baiao Bio-Tech (Beijing) Co., Ltd. (“Kiwa Beijing”), which was incorporated in China in January 2016, Kiwa Bio-Tech Products (Shenzhen) Co., Ltd. (“Kiwa Shenzhen”), which was incorporated in China in November 2016, Kiwa Bio-Tech Products (Hebei) Co., Ltd. (“Kiwa Hebei”), which was incorporated in China in December 2016, Kiwa Bio-Tech Products (Shenzhen) Co., Ltd. Xian Branch Company, (“Kiwa Xian”), which was incorporated in China in December 2017, Kiwa Bio-Tech (Yangling) Co., Ltd. (“Kiwa Yangling”), which incorporated in March 2018, and The Institute of Kiwa-Yangling Ecological Agriculture and Environment Research Co., Ltd. (“Kiwa Institute”), which incorporated in March 2018. In July 2017, the Company established Kiwa Bio-Tech Asia Holding (Shenzhen) Ltd. (“Kiwa Asia”) to be the direct holding company of Kiwa Beijing, Kiwa Shenzhen, Kiwa Xian, Kiwa Institue and Kiwa Hebei.

 

The Company’s Research and Development department has been conducting application experiments in Hainan and Hunan Provinces since August 2015, in accordance with the market requirements. The experiment data indicates that the Company’s fertilizer products have fulfilled the requirements of reduction of content of heavy metals in soil and improved crop yield. On December 17, 2015, we awarded Kangtan Gerui (Beijing) Bio-Tech Co., Ltd. (“Gerui”), a related party of the Company who was founded in Beijing in April 2015 and has fertilizer sales permit in China, the right to sell and distribute the Company’s fertilizer products in 3 major agricultural regions of China— Hainan Province, Hunan Province and Xinjiang Autonomous Region for a period of three years commencing December 17, 2015. In September 2016, Kiwa Beijing obtained a fertilizer sales permit from the Chinese government and began to sale the products directly to customers in those 3 major agricultural regions.

 

3
     

 

On October 12, 2018, the Company got the approval from the Administrative Committee of Yangling Agricultural High-tech Industry Demonstration Zone to obtain land to construct a new manufacturing facility to help meet the growing demand in China for bio-fertilizers. Yangling Free Trade Zone has agreed to offer the Company approximately US$432,975 (RMB 3,000,000) in incentives and provide tax preferences for the first three years of production. The manufacturing facility will specialize in developing and producing Kiwa Bio-Tech’s core microbes, the fundamental components for making high-quality bio-fertilizers. The total facility construction area is approximately 8.77 acres, and will include fermentation and production terminals, agricultural produce sorting facilities and storage, a research and development institute and corresponding ancillary facilities. The construction of the manufacturing facility is expected to be completed in 2020 and have a production capacity of 60,000 tons of Kiwa Bio-Tech’s core microbes. The annual production value is expected to be over US$65 million (approximately 462 million RMB).

 

The company plans to restructure its operations in China to relocate its activities previously located in Shenzhen and Beijing to Yangling and focus its research and development, and strains fermentation activities in the Yangling Free Trade Zone. The Company will streamline its corporate structure in China to conduct its business through its wholly-owned subsidiary, Kiwa Yangling, and will divest its interest in Kiwa Asia and all of its subsidiaries except for Kiwa Hebei and the Kiwa-Yangling Institute. Kiwa Hebei and Kiwa Institute will become subsidiaries of Kiwa Yangling. The Company expects to complete this restructuring and divestiture in early 2019, and plans to build four fertilizer production bases in China’s major agricultural regions in the next five years.

 

 

2. Overview of Business

 

We develop, manufacture, distribute and market innovative, cost-effective and environmentally safe bio-technological products for agriculture. 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.

 

4
     

 

Our Products

 

We have developed three bio-fertilizer products with bacillus species (“bacillus spp”) and/or photosynthetic bacteria as core ingredients. For the year ended December 31, 2018, we are currently generating revenues from our four bio-fertilizer products: 1) Biological Organic Fertilizer; 2) Compound Microbial Fertilizer; 3) Bio-Water Soluble Fertilizer; 4) Microbial Inoculum Fertilizer.

 

Some of our products contain ingredients of both photosynthesis and bacillus bacteria. Bacillus spp is a species of bacteria that interacts with plants and promotes biological processes. It is highly effective for promoting plant growth, enhancing yield, improving quality and elevating resistances. Photosynthetic bacteria are a group of green and purple bacteria. Bacterial photosynthesis differs from green plant photosynthesis in that bacterial photosynthesis occurs in an anaerobic environment and does not produce oxygen. Photosynthetic bacteria can enhance the photosynthetic capacity of green plants by increasing the utilization of sunlight, which helps keep the photosynthetic process at a vigorous level, enhances the capacity of plants to transform inorganic materials to organic products, and boosts overall plant health and productivity.

 

Biological Fertilizer provide beneficial living microorganisms and micronutrition to soil and improve plants absorptivity of main growth ingredients. Proper use could prevent soil-borne, crops disease, improve soil fertility, alleviate agricultural pollution and degrade heavy metal in farmland soil.

 

Compound Microbial Fertilizer is adding appropriate amount of nitrogen, phosphorus, potassium and other nutrients into Biological Organic Fertilizer. Through the action of organic matter and beneficial microorganisms, the utilization rate of nitrogen, phosphorus, potassium can be significantly improved.

 

The Bio-Water Soluble Fertilizer is mainly another form of the biological fertilizer that we firstly introduced in the first quarter of 2018. It is in the form of powder which has high water solubility, and it is convenient for the farmers to use during the drop irrigation.

 

Microbial Inoculum Fertilizer is an environment-friendly biological soil conditioner that made of compound high-silicon, calcium, and mineral raw materials, on the basis of dissolving-phosphorus, dissolving-potassium, and disease-resistant microbial agents. It is rich in highly active microorganisms, which can improve the micro-ecological environment in the soil, transform and reduce heavy metal toxicity, release the plant growth stimulants, promote crop growth, and enhance the stress resistance.

 

Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer generally contain more microorganism and have a higher effectiveness on the productivity of crops and increasing the value and quality of the crops harvested than Biological Organic Fertilizer. As a result, our Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer generally have a higher average selling price as compared to Biological Organic Fertilizer.

 

Intellectual Property

 

Our bacillus bacteria based fertilizers are protected by patents. In 2004, we acquired patent no. ZL 93101635.5 entitled “Highly Effective Composite Bacteria for Enhancing Yield and the Related Methodology for Manufacturing” from China Agricultural University (“CAU”) for the aggregate purchase of $480,411, consisting of $60,411 in cash and 5,000 shares of our common stock, valued at $84.00 per share (aggregate value of $420,000). Our photosynthetic bacteria based fertilizers are also protected by trade secret laws.

 

The patent acquired from CAU covers six different species of bacillus which have been tested as bio-fertilizers to enhance yield and plant health. The production methods of the six species are also patented. The patent has expired on February 19, 2013.There are no limitations under this agreement on our exclusive use of the patent. Pursuant to our agreement with CAU, the University agreed to provide research and technology support services at no additional cost to us in the event we decide to use the patent to produce commercial products. These research and technology support services include: (1) furnishing faculty or graduate-level researchers to help bacteria culturing, sampling, testing, trial production and production formula adjustment; (2) providing production technology and procedures to turn the products into powder form while keeping live required bacteria in the products; (3) establishing quality standards and quality control systems; (4) providing testing and research support for us to obtain necessary sale permits from the Chinese government; and (5) cooperation in developing derivative products.

 

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On January 5, 2011, the State Intellectual Property Office of the PRC (“Intellectual Property Office”) granted Kiwa two Certificates of Patent of Invention for (1) “A cucumber dedicated composite anti-continuous cropping effect probiotics and their specific strains with related application” with patent number of “ZL 2008 1 0144492.6”; and (2) “Cotton dedicated composite anti-continuous cropping effect probiotics and their special strains with related application” with patent number of “ZL 2008 1 0144491.1” These two patents have been developed by Kiwa-CAU R&D Center. These two patents will expire on August 5, 2028. These two patents can be used to develop specific environment-friendly bio-fertilizer.

 

We have obtained three fertilizer registration certificates from the Chinese government - two covering our bacillus bacteria fertilizer and one covering our photosynthetic bacteria fertilizer. The five registration certificates are: (1) Biological Organic Fertilizer Registration Certificate issued by the PRC Ministry of Agriculture; (2) Compound Microbial Fertilizer Registration Certificate issued by the PRC Ministry of Agriculture; (3) Compound Microbial Water Soluble Fertilizer Registration Certificate issued by the PRC Ministry of Agriculture. Protected by these three fertilizer registration certificates and five trademarks under the names of “KANGTAN” (Chinese translation name for Kiwa), “ZHIGUANGYOU,” “PUGUANGFU,” “JINWA” and “KANGGUAN,” we have developed three series of bio-fertilizer products with bacillus spp and/or photosynthetic bacteria as core ingredients. Valid period of fertilizer registration certificates is five years and may be extended for another five years upon application from the owner of fertilizer registration certificates. The Company has determined to re-apply the Fertilizer Registration Certificate issued by the PRC Ministry of Agriculture.

 

Our Customers

 

For the year ended December 31, 2018, four customers accounted for 43%, 23%, 19%, 14% of the Company’s sales.

 

1. Yangling Shaotao Agricultural Service Co., Ltd. (43% of sales)

2. Deluke Agriculture Bio-Tech (Shenzhen) Ltd. (23% of sales)

3. Mingke Biotechnology Development (Shenzhen) Co., Ltd. (19% of sales)

4. Qingdao Lanhai Hanrui Biotechnology Co., Ltd. (14% of sales)

 

Should we lose any of these large scale customers in the future and are unable to obtain additional customers, our revenues and operation results might be adversely affected.

 

Our Suppliers

 

For the year ended December 31, 2018, three suppliers accounted for 42%, 40%, 10% of the Company’s total purchases, respectively.

 

1. Sankang Life Agricultural Technology (Shenzhen) Co., Ltd. (42% of purchase)

2. Shandong Ronghua Biological Technology Co., Ltd. (40% of purchase)

3. Weifang Deluke Fertilizer Co., Ltd. (10% of purchase)

 

6
     

 

Our Competition

 

We compete primarily on the basis of quality, technological innovation and price. Some of our competitors have achieved greater market penetration but with less sophisticated technological innovation than our products as they were in the transition period from being the chemical bio-fertilizer producers to the organically bio-fertilizer producers. We believe that we have a better competitive advantage over them as we are the pioneer within our markets. Some of our competitors competed within our markets have lesser financial and other resources than us as they have established their companies a few years behind us. If we are unable to compete successfully in our markets, our relative market share and profits could be reduced.

 

Our main competitors include China Green Agriculture, Inc., Genliduo Biotechnology Ltd., Shenzhen Baitan Ecotypic Engineering Co. Ltd., Hunan Taigu Biotechnology Co. Ltd. and Shanxi A.K. Quantum Agricultural Technology Corporation.

 

Research and Development

 

In July 2006, we established a new research center with China Agricultural University (“CAU”) which is known as Kiwa-CAU Bio-Tech Research & Development Center (the “Kiwa-CAU R&D Center”). Pursuant to an agreement between CAU and Kiwa Shandong dated November 14, 2006, Kiwa agreed to contribute RMB 1 million (approximately $160,000) each year to fund research at Kiwa-CAU R&D Center. The term of this agreement was ten years starting from July 1, 2006. Prof. Qi Wang, who became one of our directors in July 2007, has acted as the Director of Kiwa-CAU R&D Center since July 2006. Under the above agreement, the Kiwa-CAU R&D Center is responsible for fulfilling the overall research-and-development functions of Kiwa Shandong, including: (1) development of new technologies and new products (which will be shared by Kiwa and CAU); (2) subsequent perfection of existing product-related technologies; and (3) training quality-control personnel and technicians and technical support for marketing activities.

 

During fiscal 2014, Kiwa-CAU R&D Center had successfully isolated several strains of endophytic bacillus from plants. A number of strains had been observed to have the capability of boosting crop yield and dispelling chemical pesticide residual from soil. These strains could be used for developing not only new biological preparation but also environmental protection preparation. The Company terminated its cooperation with CAU when the agreement expired on July 1, 2016. All the liabilities owed to Kiwa-CAU R&D Center were assumed by the Transferee of Kiwa Shandong when the Company disposed Kiwa Shandong on Feb 11, 2017.

 

On November 5, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”). Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $160,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institute. The term of the Agreement is for three years beginning November 20, 2015. However, the Company is only liable for the annual funds to be provided to the extent of the contract obligations performed by CAAS IARRP and IAED, and the agreement is terminable before the three years’ commitment date based on negotiations of both parties. Prof. Yong Chang Wu, the authorized representative of IARRP, CAAS, is also one of the Company’s directors effective since November 20, 2015 until March 13, 2017.

 

In March 2018, Kiwa Bio-Tech has established a Research Institute of Ecological Agriculture and Environmental Research. Based on cooperation with various Universities including the China Agriculture University, Northwest University, Northwest A&F University, Harbin Institute of Technology and Tsinghua University, we believe that it can secure a leading position in the KETS technology in the next thirty years. In comparison to our existing technology, Ecology Technological Sustainability (“KETS”) technology is comprised of microorganisms with a larger scale of micro-flora. The micro-flora could significantly increase the beneficial microorganism in the soil that enhances the yield of the plant crops and prevents soil ecological problems. The newly upgraded technology will be applied to the main crop planting areas and presently-polluted arable areas for soil restoration.

 

7
     

 

Other

 

On February 27, 2017, the Company signed a strategic cooperation agreement with the Beijing Zhongpin Agricultural Science and Technology Development Center (“Zhongpin Center”). Zhongpin Center is the Chinese Agricultural Science and Technology Innovation and Development Committee’s executive implementation agency (referred to as the Agricultural Science and Technology Commission). The Agricultural Science and Technology Commission is set up by the Chinese Central Government for the construction of the National Ecological Security Agriculture Industrial Chain standardization system. This includes the establishment of National Ecology Safe Agricultural Industrial Parks to build China’s Ecological Security and Agricultural Industrial in an orderly business environment, including completion of the National Soil Remediation Program and governance of the various government functions of the institutions. Through the guidance and support by the Zhongpin Center, Kiwa will participate and be involved in China’s National Soil Remediation Program and construction of the National Ecological Security Agriculture Industrial Chain Standardization System’s operation and process.

 

On April 2, 2018, the company had terminated its cooperation agreement with ETS Biological Science and Technology Development Co., Ltd. (“ETS”) and, in its place, has developed “Ecology Technological Sustainability” (“KETS”) as its core technology to upgrade its microbial fertilizer products. In February 2017, the Company had signed a strategic cooperation agreement with ETS and planned to build new product categories based on the cooperative research results. Following the research, the two parties did not reach a further agreement and determined to terminate the partnership. As a result, the Company switched its focus to the KETS technology to fulfill its needs in connection with fertilizer production. As a part of this process, Kiwa Bio-Tech has established a Research Institute of Ecological Agriculture and Environmental Research. Based on cooperation with various Universities including the China Agriculture University, Northwest University, Northwest A&F University, Harbin Institute of Technology and Tsinghua University, the Company believes that it can secure a leading position in the KETS technology in the next thirty years. In comparison to the Company’s existing technology, KETS technology is comprised of microorganisms with a larger scale of micro-flora. The micro-flora could significantly increase the beneficial bacteria in the soil that enhances the yield of the plant crops and prevents soil ecological problems. The newly upgraded technology will be applied to the main crop planting areas and presently-polluted arable areas for soil restoration.

 

Employees

 

As of December 31, 2018, we employed 63 full-time employees. The following table sets forth the number of our full-time employees by function as of December 31, 2018.

 

Employees and their Functions

 

Management & Administrative Staff     19       30 %
Sales     11       18 %
Technical & Engineering Staff     33       52 %
Total     63       100.00 %

 

As required by applicable PRC law, we have entered into employment contracts with all our officers, managers and employees. We believe that we maintain a satisfactory working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff.

 

In addition, we are required by PRC law to cover employees in China with various types of social insurance and believe that we are in material compliance with the relevant laws.

 

Insurance

 

We believe our insurance coverage is customary and standard for companies of comparable size in comparable industries in China.

 

ITEM 1 A. Risk Factors

 

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

 

8
     

 

ITEM 1B. Unresolved Staff Comments

 

None.

 

ITEM 2. Properties

 

During the year ended December 31, 2018, the company leased six offices with total useable space of 685 square meters.

 

ITEM 3. Legal Proceedings

 

None.

 

ITEM 4. Mine Safety Disclosures

 

Not applicable.

 

Part II

 

ITEM 5. Market for Registrants’ Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities

 

Market Information

 

The Company’s common stock has been quoted under the symbol “KWBT” since March 30, 2004. Our shares are currently traded on the OTCQB.

 

The following table sets forth the high and low bid quotations per share of our common stock as reported on the OTCQB 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. All prices are adjusted to reflect the Company’s one for 200 reverse split which went effective January 28, 2016.

 

Fiscal Year 2018   High     Low  
First Quarter   $ 1.77     $ 1.70  
Second Quarter   $ 1.23     $ 1.17  
Third Quarter   $ 1.02     $ 0.97  
Fourth Quarter   $ 0.58     $ 0.54  

 

Fiscal Year 2017   High     Low  
First Quarter   $ 1.49     $ 1.44  
Second Quarter   $ 2.61     $ 2.48  
Third Quarter   $ 2.52     $ 2.31  
Fourth Quarter   $ 1.92     $ 1.83  

 

Holders

 

As of December 31, 2018, there were approximately 500 shareholders of record of our common shares.

 

Dividend Policy

 

We have not paid any dividends on our common shares since our inception and do not anticipate that dividends will be paid at any time in the immediate future.

 

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Equity Compensation Plan Information

 

The information required by Item 5 regarding securities authorized for issuance under equity compensation plans is included in Item 12 of this report.

 

Recent Sales of Unregistered Securities

 

The following is a list of shares of Company Common Stock issued for cash, the conversion of convertible debentures or as stock compensation to consultants during the period from January 1, 2018 through April 12, 2019, which were not registered under the Securities Act:

 

Stock Purchase for cash 1,345,200 shares
   
Consultant Fees 157,918 shares
   
Conversion of Convertible Note 126,045 shares
   
Salary Compensation 30,632 shares
   
Debt Settlement 695,959 shares
   
Total 3,655,754 shares

 

There were no other sales of unregistered securities not already reported on the Company’s quarterly filings on Form 10-Q or on a Current Report on Form 8-K.

 

ITEM 6. Selected Financial Data

 

Not required.

 

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Annual Report on Form 10-K for the fiscal year ended December 31, 2018 contains “forward-looking” statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended, including statements that include the words “believes,” “expects,” “anticipates,” or similar expressions. These forward-looking statements include, among others, statements concerning our expectations regarding our working capital requirements, financing requirements, business, growth prospects, competition and results of operations, and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The forward-looking statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2018 involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements contained herein.

 

Overview

 

The Company took its present corporate form in March 2004 when shareholders of Kiwa Bio-Tech Products Group Ltd. (“Kiwa BVI”), a company originally organized under the laws of the British Virgin Islands on June 5, 2002 and Tintic Gold Mining Company (“Tintic”), a corporation originally incorporated in the state of Utah on June 14, 1933 to perform mining operations in Utah, entered into a share exchange transaction. The share exchange transaction left the shareholders of Kiwa BVI owning a majority of Tintic and Kiwa BVI a wholly-owned subsidiary of Tintic. For accounting purposes this transaction was treated as an acquisition of Tintic by Kiwa BVI in the form of a reverse triangular merger and a recapitalization of Kiwa BVI and its wholly owned subsidiary, Kiwa Bio-Tech Products (Shandong) Co., Ltd. (“Kiwa Shandong”). On July 21, 2004, we completed our reincorporation in the State of Delaware. On March 8, 2017, we completed our reincorporation in the State of Nevada.

 

10
     

 

The Company develops, manufactures, distributes and markets innovative, cost-effective and environmentally safe bio-technological products for agricultural use. 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.

 

The Company currently mainly operates its business through Kiwa Baiao Bio-Tech (Beijing) Co., Ltd. (“Kiwa Beijing”), which was incorporated in China in January 2016, Kiwa Bio-Tech Products (Shenzhen) Co., Ltd. (“Kiwa Shenzhen”), which was incorporated in China in November 2016, Kiwa Bio-Tech Products (Hebei) Co., Ltd. (“Kiwa Hebei”), which was incorporated in China in December 2016, Kiwa Bio-Tech Products (Shenzhen) Co., Ltd. Xian Branch Company, (“Kiwa Xian”), which was incorporated in China in December 2017, Kiwa Bio-Tech (Yangling) Co., Ltd. (“Kiwa Yangling”), which incorporated in March 2018, and The Institute of Kiwa-Yangling Ecological Agriculture and Environment Research Co., Ltd. (“Kiwa Institute”), which incorporated in March 2018. In July 2017, the Company established Kiwa Bio-Tech Asia Holding (Shenzhen) Ltd. (“Kiwa Asia”) to be the direct holding company of Kiwa Beijing, Kiwa Shenzhen, Kiwa Xian, Kiwa Institue and Kiwa Hebei.

 

Principal Factors Affecting Our Financial Performance

 

We believe that the following factors could affect our financial performance:

 

  Change in the Chinese Government Policy on agricultural industry . The Chinese Government is continuously to promote green environment and implement quality standards and environmentally sensitive policies in the Agricultural industry. Below is a list of government policies issued by the Chinese Government to promote green environment and these policies are either directly or indirectly to encourage the end users of the bio-fertilizer to use more organic related products. Unfavorable changes to these policies could affect demand of our products that we produce and could materially and adversely affect the results of operations. Although we have generally benefited from these policies by using our bio-fertilizer to enhances the capacity of plants to transform inorganic materials to organic products, to boost overall plant health and productivity and not to deteriorate landfall soil.

 

  In April 2008, the Ministry of Finance of PRC issued Circular No. 2008-56 to tax-exempt value-added taxes on all organically fertilizer related products effectively from June 1, 2008.
     
  In January 2016, the PRC State Council official website issued statements to fasten the agricultural modernization process.
     
  In June 2016, the PRC State Council issued Circular No. 2016-31 to prevent further deterioration of landfall soil action plan.
     
  In February 2017, the PRC State Council official website issued statements to promote agricultural structural reform on accelerating the cultivation in the agricultural development.
     
  In February 2017, the Ministry of Agriculture of PRC issued Circular No. 2017-02 to carry out replacement of chemical bio-fertilizers by organically bio-fertilizers action plan on vegetables, fruits and teas planting.
     
  In April 2017, the Ministry of Agriculture of PRC issued Circular No. 2017-06 to implementing five major action plans on agriculture green development with an action plan for replacing chemical bio-fertilizers with organically bio-fertilizers on vegetables, fruits and teas planting under action plan No. 2-2.
     
  In April 2018, at the second meeting of the 13 th National People’s Congress meeting, the Minister of the Agriculture and Rural Affairs has pronoun that the Chinese government will continue to promote green environment, to ensure food safety and food qualify for the people in the PRC, and to provide more education and training cause to the farmer in the Agriculture industry. Follow up with the second meeting, in July 2018, the Chinese government is in the process of setting up some government grants to these companies or individuals, including but not limited, organic fertilizer production companies, organic fertilizer raw materials (livestock and poultry excrement) storage and transportation companies, users of organic fertilizer, and users of organic fertilizer production machinery.

 

11
     

 

  Innovation Efforts. We strive to produce the most technically and scientifically advanced products for our customers and maintained close relationships with institutes in the PRC.

 

 

In March 2018, Kiwa Bio-Tech has established a Research Institute of Ecological Agriculture and Environmental Research. Based on cooperation with various Universities including the China Agriculture University, Northwest University, Northwest A&F University, Harbin Institute of Technology and Tsinghua University, we believe that it can secure a leading position in the KETS technology in the next thirty years. In comparison to our existing technology, Ecology Technological Sustainability (“KETS”) technology is comprised of microorganisms with a larger scale of micro-flora. The micro-flora could significantly increase the beneficial microorganism in the soil that enhances the yield of the plant crops and prevents soil ecological problems. The newly upgraded technology will be applied to the main crop planting areas and presently-polluted arable areas for soil restoration.

 

On October 12, 2018, Kiwa Bio-Tech got the approval from the Administrative Committee of Yangling Agricultural High-tech Industry Demonstration Zone to obtain land use rights to construct a new manufacturing facility to help meet the growing demand in China for bio-fertilizers. Yangling Free Trade Zone has agreed to offer Kiwa Bio-Tech approximately US$432,975 (3,000,000 RMB) in incentives and provide tax preferences for the first three years of production.

 

The manufacturing facility will specialize in developing and producing Kiwa Bio-Tech’s core microbes, the fundamental components for making high-quality bio-fertilizers. The total facility construction area is approximately 8.77 acres, and will include fermentation and production terminals, agricultural produce sorting facilities and storage, a research and development institute and corresponding ancillary facilities. The construction of the manufacturing facility is expected to be completed in 2020 and have a production capacity of 60,000 tons of Kiwa Bio-Tech’s core microbes. The annual production value is expected to be over US$65 million (approximately RMB 462 million).

 

  Experienced Management. Management’s technical knowledge and business relationships give us the ability to secure more sales orders with our customers. If there were to be any significant turnover in our senior management, it could deplete the institutional knowledge held by our existing senior management team.
     
  Large Scale Customer Relationship. We have contracts with major customers that are distributors of our products. Our sales efforts focus on these distributors which place large recurring orders. For the year ended December 31, 2018, four customers accounted for 43%, 23%, 19%, 14% of the Company’s total sales. Should we lose any large-scale customer in the future and are unable to obtain additional customers, our revenues will suffer.

 

12
     

 

  Competition. Our competition includes a number of publicly traded companies in the PRC and privately-held PRC-based companies that produce and sell products similar to ours. We compete primarily on the basis of quality, technological innovation and price. Some of our competitors have achieved greater market penetration but with less sophisticated technological innovation than our products as there were in the transition period from being the chemical bio-fertilizer producers to the organically bio-fertilizer producers. We believe that we have a better competitive advantage over them as we are the pioneer within our markets. Some of our competitors competed within our markets have lesser financial and other resources than us as they have established their companies a few years behind us. If we are unable to compete successfully in our markets, our relative market share and profits could be reduced.

 

Results of Operations for the Year ended December 31, 2018 and December 31, 2017

 

The following table summarizes the results of our operations for the years ended December 31, 2018 and December 31, 2017, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

    Year Ended
December 31,
    Amount
Increase
    Percentage
Increase
 
Statement of Operations Data:   2018     2017     (Decrease)     (Decrease)  
                         
Revenues   $ 30,650,402     $ 17,270,069     $ 13,380,333       77 %
Cost of goods sold     (22,391,952 )     (11,845,874 )     (10,546,078 )     89 %
Gross profit     8,258,450       5,424,195       2,834,255       52 %
Operating expenses                                
Research and development expense     122,774       147,992       (25,218 )     (17 )%
Selling expenses     617,387       483,045       134,342       28 %
General and administrative expenses     4,928,943       2,997,027       1,931,916       64 %
Total operating expenses     5,669,104       3,628,064       2,041,040       56 %
Operating Income     2,589,346       1,796,131       793,215       44 %
Other income/(expense), net                                
Change in fair value of derivative liabilities     241,312       321,851       (80,539 )     (25 )%
Interest expense     (634,874 )     (524,333 )     (110,541 )     21 %
Other income/(expense)     (1,185 )     382,126       (383,311 )     (100 )%
Exchange loss     55,444       (58,757 )     114,201       (194 )%
Total other income/(expense), net     (339,303 )     120,887       (460,190 )     (381 )%
Income from continuing operations before income taxes     2,250,043       1,917,018       333,025       17 %
Income taxes     (1,906,222 )     (1,103,315 )     (802,907 )     73 %
Income from continuing operations   $ 343,821     $ 813,703     $ (469,882 )     (58 )%
Income (loss) from discontinued operations, net of taxes     -       4,495,333       (4,495,333 )     (100 )%
Net Income   $ 343,821     $ 5,309,036     $ (4,965,215 )     (94 )%

 

Revenue

 

Revenue increased by approximately $13.4 million or 77%, to approximately $30.7 million in the year ended December 31, 2018 from approximately $17.3 million in the year ended December 31, 2017. The increase is mainly due to: 1) a $11.6 million increase in revenues due to more sales are achieved due to the good quality of our products and more reputation gained in different regions of the PRC, such as Hainan Province, Guangdong Province and Shanxi Province upon establishment of our sales office in different regions, and 2) a $1.8 million increase in revenues of introduction of our new product, Bio-water soluble fertilizer and Microbial Agent, during the year ended December 31, 2018. In addition, there are approximately $7.0 million being deferred for the year ended December 31, 2018, as compared to $27,568 of our revenues being deferred for the year ended December 31, 2017, as discussed in the non-GAAP analysis section below.

 

13
     

 

We currently realized revenue in four major product categories of Biological Organic Fertilizer, Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer. Our revenues from our major product category are summarized as follows:

 

    For the year ended
December 31, 2018
    For the year ended
December 31, 2017
    Change     Change (%)  
                         
Biological Organic Fertilizer                                
Sold and shipped in USD   $ 15,311,862     $ 9,219,453     $ 6,092,409       66 %
Quantity sold in tons     84,139       51,877       32,262       62 %
Average selling price   $ 181.98     $ 177.72     $ 4.26       2 %
                                 
Compound Microbial Fertilizer                                
Sold and shipped in USD   $ 13,499,578     $ 8,050,616     $ 5,448,962       68 %
Quantity sold in tons     40,585       24,781       15,804       64 %
Average selling price   $ 332.62     $ 324.87     $ 7.75       2 %
                                 
Bio-Water Soluble Fertilizer                                
Sold and shipped in USD   $ 1,825,752     $ -     $ 1,825,752       100 %
Quantity sold in tons     2,733       -       2,733       100 %
Average selling price   $ 668.04     $ -     $ 667.98       100 %
                                 
Microbial Inoculum Fertilizer                                
Sold and shipped in USD   $ 13,210     $ -     $ 13,210       100 %
Quantity sold in tons     18       -       18       100 %
Average selling price   $ 733.89     $ -     $ 733.88       100 %
                                 
Total                                
Sold and shipped in USD   $ 30,650,402     $ 17,270,069     $ 13,380,333       77 %
Quantity sold in tons     127,475       76,658       50,817       66 %
Average selling price   $ 240.44     $ 225.29     $ 15.16       7 %

 

Average selling prices of Biological Organic Fertilizers and Compound Microbial Fertilizer increased by $4.26 or 2% and $7.75 or 2%, respectively in the year ended December 31, 2018 as compared with the same period of 2017. The increase in average selling price is due to the fluctuation of exchange rate.

 

Because the Chinese Government is continuously to promote green environment and implement quality standards and environmentally sensitive policies in the Agricultural industry, we expect our revenues from our innovated and highly effective products, Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer will continue to grow in a higher rate than that from Biological Organic Fertilizer. Our Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer generally have a higher effectiveness on the productivity of crops that are suitable for promoting green environment. In addition, our marketing team is expanding to the Western areas of China and Hainan province and we expect our revenues will continue to grow in 2019. Meanwhile, we expect to continue to gain more market shares in our existing sales channel bases in the Northern and the Southern areas of China due to the good quality of the products and better reputation in the industry.

 

Non-GAAP analysis

 

Our strategy on the expansion of our business was to gain market shares in the bio-fertilizer market, thereby, we have extended credit to our customers. Our current payment terms on these customers are ranging from 60 days to 9 months after receipts of the goods depending on the creditworthiness of these customers. These customers are mainly agricultural cooperative company and distributors who then resell our products to individual farmers. Because the crop growing cycle usually takes approximately 3 to 9 months in the agricultural industry, it will take approximately similar time frame of 3 to 9 months for farmers to harvest crops and to realize profits to repay our distributors. As a result, for the sales contracts with these customers, the collectability of payment is highly dependent on the successful harvest of corps and the customers’ ability to collect money from farmers. The Company deemed the collectability of payment may not be reasonably assured until after the Company get paid. Starting in March 2018, the Company began to use a supply chain financing model, which the Company’s customers engage with third party financing companies to advance the Company’s accounts receivable on its behalf without recourse to the Company. This model has a one-year trial period. The Company’s customers are required to purchase an insurance product to cover the risk of bad weather or any other reason which they are not able to harvest crops and to realize profits of repaying the third-party financing companies. This model allows the Company to collect its accounts receivables sooner than the 3 to 9 months crop growing period. The Company deemed the collectability of payment may not be reasonably assured until after the Company get paid from these financing companies. For those sales contracts that the Company has shipped its products but the payment is contingent on collections of payments from the downstream customers or is contingent on the approval of the financing companies to advance payment on behalf of the Company’s customers, the Company considers the revenue recognition criteria using the five-step model under the new guidance are not met and therefore defers the revenue and cost of goods sold until payments are collected.

 

14
     

 

We have sold and shipped approximately $37.7 million of our products during the year ended December 31, 2018, among which $7.0 million of the shipment did not meet the the collectability criteria of revenue recognition and were deferred to be recognized in the future periods when our collectability of payments will be assured, as compared to $27,568 were deferred for the year ended December 31, 2017.

 

Our sales and shipment from our four products categories are summarized as follows including revenue recognized and deferred under U.S. GAAP:

 

    For the year ended
December 31, 2018
    For the year ended
December 31, 2017
    Change     Change (%)  
                         
Biological Organic Fertilizer                                
Revenue in USD   $ 18,669,770     $ 9,247,713     $ 9,422,057       102 %
Quantity sold in tons     102,580       52,036       50,544       97 %
Average selling price   $ 182.00     $ 177.72     $ 4.28       2 %
                                 
Compound Microbial Fertilizer                                
Sold and shipped in USD   $ 17,158,885     $ 8,050,616     $ 9,108,269       113 %
Quantity sold in tons     51,587       24,781       26,806       108 %
Average selling price   $ 332.62     $ 324.87     $ 7.75       2 %
                                 
Bio-Water Soluble Fertilizer                                
Sold and shipped in USD   $ 1,826,514     $ -     $ 1,826,514       100 %
Quantity sold in tons     2,734       -       2,734       100 %
Average selling price   $ 668.07     $ -     $ 668.07       100 %
                                 
Microbial Inoculum Fertilizer                                
Sold and shipped in USD   $ 13,210     $ -     $ 13,210       100 %
Quantity sold in tons     18       -       18       100 %
Average selling price   $ 733.89     $ -     $ 733.89       100 %
                                 
Total                                
Sold and shipped in USD   $ 37,668,379     $ 17,298,329     $ 20,370,050       118 %
Quantity sold in tons     156,919       76,817       80,103       104 %
Average selling price   $ 240.05     $ 225.19     $ 14.86       7 %

 

The sales and shipment of all our products increased by $20.4 million in the year ended December 31, 2018 as compared to the year ended December 31, 2017. The increase is due to: 1) a $18.6 million increase in revenues due to more sales are achieved due to the good quality of our products and more reputation gained in different regions of the PRC, such as Hainan Province, Guangdong Province and Shanxi Province upon establishment of our sales office in different regions, and 2) a $1.8 million increase in revenues of introduction of our new product, Bio-water soluble fertilizer and Microbial Agent, during the year ended December 31, 2018.

 

15
     

 

Average selling prices of Biological Organic Fertilizers and Compound Microbial Fertilizer increased by $4.28 or 2% and $7.75 or 2%, respectively, in the year ended December 31, 2018 as compared with the same period of 2017. The increase in average selling price is due to the fluctuation of exchange rate.

 

Cost of Revenue

 

Our cost of revenues from our major product categories are summarized as follows:

 

    For the year ended
December 31, 2018
    For the year ended
December 31, 2017
    Change     Change (%)  
                         
Biological Organic Fertilizer                                
                                 
Cost of sold and shipped in USD   $ 10,470,687     $ 6,196,511     $ 4,274,176       69 %
Quantity sold and shipped in tons     84,139       51,877       32,262       62 %
Average unit cost   $ 124.45     $ 119.45     $ 5.00       4 %
                                 
Compound Microbial Fertilizer                                
Cost of sold and shipped in USD   $ 10,644,951     $ 5,649,363     $ 4,995,588       88 %
Quantity sold and shipped in tons     40,585       24,781       15,804       64 %
Average unit cost   $ 262.29     $ 227.97     $ 34.32       15 %
                                 
Bio-Water Soluble Fertilizer                                
Cost of sold and shipped in USD   $ 1,264,068     $ -     $ 1,264,068       100 %
Quantity sold and shipped in tons     2,733       -       2,733       100 %
Average unit cost   $ 462.52     $ -     $ 462.52       100 %
                                 
Microbial Inoculum Fertilizer                                
Cost of sold and shipped in USD   $ 12,246     $   -     $ 12,246       100 %
Quantity sold and shipped in tons     18         -       18       100 %
Average unit cost   $ 680.33     $   -     $ 680.33       100 %
                                 
Total                                
Cost of sold and shipped in USD     22,391,952       11,845,874       10,546,078       89 %
Quantity sold and shipped in tons     127,475       76,658       50,817       66 %
Average unit cost     175.66       154.53       21.13       14 %

 

Cost of revenue from Biological Organic Fertilizer, Compound Microbial Fertilizer, Bio-Water Soluble Fertilizer, and Microbial Inoculum Fertilizer increased by approximately $4.3 million, $5.0 million, $1.3 million, and $12,246 or 69%, 88%, 100% and 100% to approximately $10.5 million, $10.6 million, $1.3 million, and $12,246 in the year ended December 31, 2018 from $6.2 million, $5.6 million, $0, and $0 in the year ended December 31, 2017. The increase is in line with the revenue increase.

 

Average unit cost of Biological Organic Fertilizers and Compound Microbial Fertilizer increased by $5.00 or 4% and $34.32 or 15%, respectively, in the year ended December 31, 2018 as compared with the same period of 2017. The increase is mainly due to the RMB appreciation against USD of approximately 2% along with the ingredient mix of raw material price increase. The Chinese government has implemented strict environmental protection policies, resulting in a variety of raw material prices increased, therefore, the average unit cost goes higher.

 

16
     

 

Non-GAAP analysis

 

Our cost of goods sold for our four products categories are summarized as follows including cost of goods sold recognized and deferred under U.S. GAAP:

 

    For the year ended
December 31, 2018
    For the year ended
December 31, 2017
    Change     Change (%)  
                         
Biological Organic Fertilizer                                
Cost of sold and shipped in USD   $ 12,733,657     $ 6,213,237     $ 6,520,420       105 %
Quantity sold and shipped in tons     102,580       52,017       50,563       97 %
Average unit cost   $ 124.13     $ 119.45     $ 4.68       4 %
                                 
Compound Microbial Fertilizer                                
Cost of sold and shipped in USD   $ 13,512,022     $ 5,649,363     $ 7,862,659       139 %
Quantity sold and shipped in tons     51,587       24,781       26,806       108 %
Average unit cost   $ 261.93     $ 227.97     $ 33.96       15 %
                                 
Bio-Water Soluble Fertilizer                                
Sold and shipped in USD   $ 1,264,592     $ -     $ 1,264,592       100 %
Quantity sold in tons     2,734       -       2,734       100 %
Average unit cost   $ 462.54     $ -     $ 462.54       100 %
                                 
Microbial Inoculum Fertilizer                                
Sold and shipped in USD   $ 12,246     $ -     $ 12,246       100 %
Quantity sold in tons     18       -       18       100 %
Average unit cost   $ 680.33     $ -     $ 680.33       100 %
Total                                
Sold and shipped in USD     27,522,517       11,862,600       15,659,917       132 %
Quantity sold in tons     156,919       76,798       80,121       104 %
Average unit cost     175.39       154.46       20.93       14 %

 

The costs of goods sold of all of our products increased in the year ended December 31, 2018 as compared to the year ended December 31, 2017, which is in line with the revenue increase.

 

Average unit cost of Biological Organic Fertilizers and Compound Microbial Fertilizer increased by $4.68 or 4%, or $33.96 or 15%, respectively, in the year ended December 31, 2018 as compared with the same period of 2017 mainly due to the RMB appreciation against USD of approximately 2% along with the ingredient mix of raw material price increase. The Chinese government has implemented strict environmental protection policies, resulting in a variety of raw material prices increased, therefore, the average unit cost goes higher.

 

Gross Profit

 

Our gross profit from our major product categories are summarized as follows:

 

    For the year ended
December 31, 2018
    For the year ended
December 31, 2017
    Change     Change (%)  
                         
Biological Organic Fertilizer                                
Gross Profit   $ 4,841,175     $ 3,022,942     $ 1,818,233       60 %
Gross Profit Percentage     32 %     33 %     (1) %     (3 )%
                                 
Compound Microbial Fertilizer                                
Gross Profit   $ 2,854,627     $ 2,401,253     $ 453,374       19 %
Gross Profit Percentage     21 %     30 %     (9) %     (30) %
                                 
Bio-Water Soluble Fertilizer                                
Gross Profit   $ 561,684     $ -     $ 561,684       100 %
Gross Profit Percentage     31 %     -       31 %     100 %
                                 
Microbial Inoculum Fertilizer                                
Gross Profit   $ 964     $ -     $ 964       100 %
Gross Profit Percentage     7 %     -       7 %     100 %
                                 
Total                                
Gross Profit     8,258,450       5,424,195       2,834,255       52 %
Gross Profit Percentage     27 %       31 %       (4) %     (13) %

 

Gross profit percentage for Biological Organic Fertilizer decreased from 33% for the year ended December 31, 2017 to 32% for the year ended December 31, 2018 mainly due to the increase in average unit cost is slightly higher than increase in selling price as discussed above.

 

17
     

 

Gross profit percentage for Compound Microbial decreased from 30% for the year ended December 31, 2017 to 21% for the year ended December 31, 2018 mainly due to the increase in selling price of our products is lower than the increase in unit cost as discussed above.

 

Research and Development Expenses

 

Research and development expenses was approximately $123,000 (RMB 801,630) for the year ended December 31, 2018, decreased by approximately $25,000 or 17% from approximately $148,000 (RMB 1,000,000) for the year ended December 31, 2017. On November 20, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute of Agricultural Economy & Development (“IAED”). Pursuant to the Agreement, the Company will form a strategic partnership with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”. To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $148,000) per year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of the Agreement is for three years beginning November 20, 2015 and has expired on November 19, 2018. The Company contributed approximately $122,774 (RMB 801,630) for the year ended December 31, 2018 and approximately $148,000 (RMB 1,000,000) for the year ended December 31, 2017.

 

Selling Expenses

 

Selling expenses for the years ended December 31, 2018 and 2017 were approximately $617,000 and $483,000, respectively. Selling expenses include salaries of sales personnel, sales commission, travel and entertainment as well as freight out expenses. The increase in selling expenses is mainly due to an increase of approximately $67,000 salary expenses as we have hired more sales managers for marketing of our products, and an increase of approximately $67,000 freight out expense, and travel and entertainment expense because of the expansion of our business in 2018.

 

General and Administrative Expenses

 

General and administrative (“G&A”) expenses increased by approximately $1.9 million or 64% from approximately $3.0 million in the year ended December 31, 2017 to approximately $4.9 million in the same period in 2018. General and administrative expenses include professional fees, officers’ compensation, depreciation and amortization, insurance, salaries, employee benefits, travel, auto expense, meal and entertainment, rent, office expense and telephone expense and other miscellaneous G&A expenses. The increase in G&A expenses is mainly due to the increase of professional fees, such as attorneys, auditors, financial consultants, IT consultants, and business strategic and development consultants, for approximately $1.7 million as we need more professional to assist and support us for our business expansion and the increase in salary expense for approximately $0.6 million, which offset by the decrease of auto expense for approximately $0.1 million, the decrease of employee benefits expenses for approximately $0.1 million, and the decrease of travel expense for approximately $0.1 million.

 

Interest Expense

 

Net interest expense was $634,874 and $524,333 for the years ended December 31, 2018 and 2017, respectively, representing an increase of $110,541 or 21%. Interest expense included accrued interest on convertible note and other note payable, and the amortization of the convertible note discount for the year ended December 31, 2018 and 2017. The increase in interest expenses is mainly attributed to newly issuance a 15% convertible note issued in the middle of May 2017 where we incurred only seven-and-a-half-month interest expense during the year ended December 31, 2017 on the notes.

 

Income (Loss) from discontinued operations, net of taxes

 

Gain from discontinued operations, net of taxes was $0 and $4,495,333 for the year ended December 31, 2018 and 2017, which results an decrease of $4,495,333 gain from discontinued operations, net of taxes for the years ended December 31, 2018 and 2017. On February 11, 2017, the Company executed an Equity Transfer Agreement with Dian Shi Cheng Jing (Beijing) Technology Co. (“Transferee”) whereby the Company transferred all of its right, title and interest in Kiwa Shandong to the Transferee for RMB 1.00. The government processing of the transaction was completed on April 12, 2017. The Company recorded a net gain of $4,495,333 during the year ended December 31, 2017 based on the discharge of the excess liabilities over the assets of the Kiwa Shandong.

 

18
     

 

Net Income

 

During the fiscal year 2018, net income was $343,821, compared with $ $5,309,036 for the same period of 2017, representing a decrease of $4,965,215 or 94%. Such change was the result of the combination of the changes as discussed above.

 

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 current circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

 

The following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. In addition, you should refer to our accompanying consolidated balance sheets as of December 31, 2018, and the consolidated statements of operations and comprehensive income, and cash flows for the year ended December 31, 2018, and the related notes thereto, for further discussion of our accounting policies.

 

Revenue Recognition

 

On January 1, 2018 we adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (FASB ASC Topic 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. We did not result in an adjustment to the retained earnings upon adoption of this new guidance as the Company’s revenue was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations.

 

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time.

 

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

 

The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contract and invoice; and the sales price to the customer is fixed upon acceptance of the sales contract and there is no separate sales rebate, discount, or volume incentive. The Company recognizes revenue when title and ownership of the goods are transferred upon shipment to the customer by the Company to consider control of goods are transferred to its customer and collectability of payment is reasonably assured. The Company’s revenues are recognized at a point in time after all performance obligations are satisfied.

 

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The Company’s customers are mainly agricultural cooperative company and distributors who then resell the Company’s products to individual farmers. Because the crop growing cycle usually takes approximately 3 to 9 months in the agricultural industry for some of these Co-ops and distributors, will take approximately similar time frame of 3 to 9 months for farmers to harvest crops and to realize profits to repay the resellers. As a result, for the sales contracts with these customers, the collectability of payment is highly dependent on the successful harvest of corps and the customers’ ability to collect money from farmers. The Company deemed the collectability of payment may not be reasonably assured until after the Company get paid. Collectability is a necessary condition for the contract to be accounted for to meet the criteria of the first step “identifying the contract with the customer” under the new revenue guidance in ASC 606. As a result, the sales contracts with these customers are not considered a contract under ASC 606, thus the shipments under these contracts are not recognized as revenue until all criteria for “identifying the contract with the customer” and revenue recognition are met using the five-step model.

 

Deferred Revenue and Deferred Cost of Goods Sold

 

Deferred revenue and deferred cost of goods sold result from transactions where the Company has shipped product for which all revenue recognition criteria under the five-step model have not yet been met. Though these contracts are not considered a contract under ASC 606, they are legally enforceable, and the Company has an unconditional and immediate right to payment after the Company has shipped products, therefore, the Company recognizes a receivable and a corresponding deferred revenue upon shipment. Deferred cost of goods sold related to deferred product revenues includes direct inventory costs. Once all revenue recognition criteria under the five-step model have been met, the deferred revenues and associated cost of goods sold are recognized.

 

Accounts receivable and allowance for doubtful accounts

 

Accounts receivable represent customer accounts receivables. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience, the economic environment trends in the microbial fertilizer industry, and a review of the current status of trade accounts receivable. Management reviews its accounts receivable each reporting period to determine if the allowance for doubtful accounts is adequate. Such allowances, if any, would be recorded in the period the impairment is identified. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Uncollectible accounts receivables are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted.

 

Impairment of Long-Lived Assets

 

The Company’s long-lived assets consist of property and equipment. The Company evaluates its investment in long-lived assets for recoverability whenever events or changes in circumstances indicate the net carrying amount may not be recoverable. It is possible that these assets could become impaired as a result of legal factors, market conditions, operational performance indicators, technological or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

 

Income Taxes

 

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

 

20
     

 

ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.

 

Liquidity and Capital Resources

 

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs is to meet our working capital requirements, operating expenses and capital expenditure obligations. As of December 31, 2018, Kiwa Hebei is committed to pay a RMB10,000,000 based on the payment milestone in the equity purchase agreement.

 

Our business is capital intensive as we need to make advance payment to our suppliers to secure timely delivery and current market price of raw materials. Debt financing in the form of notes payable and loans from related parties have been utilized to finance our working capital requirements. As of December 31, 2018, our working capital was approximately $11.9 million and we had only cash of approximately $8,000, with remaining current assets mainly composed of advance to suppliers, accounts receivables, prepaid expenses and deferred cost of goods sold. In addition, we sold Convertible Promissory Notes (“Notes”) in the aggregate principal amount of $1,665,000.00 in February and March 2019.

 

We may have to consider supplementing our available sources of funds for operations through the following sources:

 

  We will continuously seek additional equity financing to support our working capital;
  other available sources of financing from PRC banks and other financial institutions; and
  financial support and credit guarantee commitments from our major shareholder.

 

Based on the above considerations, our management is of the opinion that it does not have sufficient funds to meet our working capital requirements and debt obligations as they become due one year from the date of this report. Therefore, 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. If the Company can’t raise enough funds, it might be unable to fund our future cash requirement on a timely basis and under acceptable terms and conditions and may not have sufficient liquidity to maintain operations and repay our liabilities for the next twelve months. As a result, we may be unable to implement our current plans for expansion, repay our debt obligations or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition and results of operations.

 

The following table set forth summary of our cash flows for the periods indicated:

 

    Years Ended December 31,  
    2018     2017  
Net cash used in operating activities   $ (1,648,963 )   $ (5,649,150 )
Net cash used in investing activities     (52,992 )     (815,126 )
Net cash provided by financing activities     510,707       7,534,356  
Effect of exchange rate changes on cash     115,568       (10 )
Net increase (decrease) in cash     (1,075,680 )     1,070,070  
Cash, beginning of year     1,083,539       13,469  
Cash, end of year   $ 7,859     $ 1,083,539  

 

Operating Activities

 

Net cash used in operating activities was approximately $1.6 million for the year ended December 31, 2018, compared to cash used in operating activities of approximately $5.6 million for the same period in 2017. Net cash used in operating activities for the year ended December 31, 2018 was primarily attributable to 1) increased of approximately of $3.9 million advance to suppliers as we previously secure current market price of raw materials purchases which we were anticipating the raw materials price is on the rise in the near future; 2) increase of approximately $0.2 million of rent deposit and other receivables; 3) increase of approximately $5.1 million of deferred cost of goods sold as we deferred our revenues and cost of goods sold due to our evaluation of the collectability with our customers until all revenue recognition criteria under the five-step model have been met; 4) increase of approximately $0.2 million of gain on derivative liabilities; offset by 5) net income of approximately $0.3 million; and 6) approximately $2.2 million of non-cash stock compensation issued for consulting fees and officer salaries; 7) increase of approximately $1.9 million of taxes payable as we incurred more taxes payables from our operations; 8) decrease of approximately $1.0 million of inventory as we have shipped out more products on our inventory that we previously stocked up for productions during the period; 9) increase of approximately $0.9 million of other payables and accruals as we incurred more payables from our operations and 10) increase of approximately $0.8 million of salary payables as we incurred more payables to employees and 11) increase of approximately $0.6 million of accrued interest and penalties.

 

21
     

 

Investing Activities

 

Net cash used in investing activities was approximately $53,000 in the year ended December 31, 2018, which was mainly attributable to purchase of property, plant and equipment. Net cash used in investing activities was $0.8 million for the year ended December 31, 2017.

 

Financing Activities

 

Net cash provided by financing activities was approximately $0.5 million for the year ended December 31, 2018 and net cash provided by financing activities was approximately $7.5 million for the year ended December 31, 2017. The cash inflow for the year ended December 31, 2018 was mainly resulted from sale of common stocks of approximately $0.3 million, and approximately $0.3 million which we borrowed from our related parties for working capital purpose.

 

Trends and Uncertainties in Regulation and Government Policy in China

 

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.

 

From the end of 2017 through the end of 2018, the value of the RMB depreciated by approximately 5.4% against the U.S. Dollar. With the development of the foreign exchange market and progress towards interest rate liberalization and RMB internationalization, the PRC government may in the future announce further changes to the exchange rate system and there is no guarantee that the RMB will not appreciate or depreciate significantly in value against the U.S. Dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. Dollar in the future.

 

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 such appreciation continues. The exchange rate of U.S. Dollar against RMB on December 31, 2018 was US$1.00 = RMB 6.5098.

 

Risk

 

Credit Risk

 

Credit risk is one of the most significant risks for our business.

 

Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and accounts receivable. Cash held at major financial institutions located in the PRC are not insured by the government. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

 

Accounts receivable are typically unsecured and derived from revenue (or deferred revenue) earned from customers, thereby exposed to credit risk. Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. We manage credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, we normally require certain prepayment from the customers prior to begin production or delivery products. We identify credit risk collectively based on industry, geography and customer type. This information is monitored regularly by management.

 

22
     

 

In measuring the credit risk of our sales to our customers, we mainly reflect the “probability of default” by the customer on its contractual obligations and considers the current financial position of the customer and the exposures to the customer and its likely future development.

 

Liquidity Risk

 

We are also exposed to liquidity risk which is risk that it is unable to provide sufficient capital resources and liquidity to meet its commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions or related parties to obtain short-term funding to meet the liquidity shortage.

 

Inflation Risk

 

We are also exposed to inflation risk Inflationary factors, such as increases in raw material and overhead costs, could impair our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and operating expenses as a percentage of sales revenue if the selling prices of our products do not increase with such increased costs.

 

Commitments and Contingencies

 

See Note 17 to the Consolidated Financial Statements under Item 8 in Part II.

 

Off-Balance Sheet Arrangements

 

At December 31, 2018, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

Recent Accounting Pronouncements

 

See Note 2 to the Consolidated Financial Statements under Item 8, Part II.

 

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

ITEM 8. Financial Statements and Supplementary Data

 

The full text of our audited consolidated financial statements as of December 31, 2018 and 2017 begins on page F-1 of this annual report.

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

23
     

 

ITEM 9A. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

We are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer (also our principal executive officer) and our chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s Chief Executive Officer (“CEO”) (the Company’s principal executive officer) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The principal basis for this conclusion is the lack of segregation of duties within our financial function and the lack of an operating Audit Committee.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
   
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
   
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

The management has evaluated the effectiveness of the design and operation of our internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of December 31, 2018. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework (2013) . Based on our evaluation and on those criteria, our CEO and CFO concluded that our internal control over financial reporting was not effective as of December 31, 2018. The principal basis for this conclusion is (i) failure to engage sufficient resources in regards to our accounting and reporting obligations and (ii) failure to fully document our internal control policies and procedures.

 

24
     

 

Remediation

 

Our management has dedicated resources to correcting the control deficiencies and to ensuring that we take proper steps to improve our internal control over financial reporting in the area of financial statement preparation and disclosure.

 

We have taken a number of remediation actions that we believe will improve the effectiveness of our internal control over financial reporting, including the following:

 

  Hired a consulting firm with expertise in U.S. GAAP financial reporting and accounting.
     
  Implemented an internal review process over financial reporting to continue to improve our ongoing review and supervision of our internal control over financial reporting;

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only the management’s report in this annual report.

 

(c) Changes in Internal Control over Financial Reporting

 

Except as disclosed in the aforementioned remediation plans, there have not been any other changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the year ended December 31, 2018, to have materially affected the Company’s internal control over financial reporting.

 

ITEM 9B. Other Information

 

None.

 

Part III

 

ITEM 10. Directors, Executive Officers and Corporate Governance

 

Directors and Executive Officers

 

Set forth below are the names of our directors and executive officers, their ages, their offices with us, if any, their principal occupations or employment for the past five years. The directors listed below will serve until the Company’s next annual meeting of the shareholders:

 

Name   Age   Position   Director Since
             
Yvonne Wang   40   Acting President, CEO and Director   2015
Hon Man Yun   49   CFO   2018
Feng Li   29   Secretary and Director   2015
Qi Wang   50   Vice President of Technology, Director   2007

Yong Lin Song

Xiao Qiang Yu

 

51

40

 

CTO, Director of Technology and Director

COO

 

2017

2016

 

Yvonne Wang Ms. Wang became our Chairman in November 2015. She served as corporate Secretary from 2005 to 2015. Prior to 2005, she served as an executive assistant and a manager of the Company’s U.S. office between April 2003 and September 2005. She obtained her B.S. degree of Business Administration from University of Phoenix.

 

25
     

 

On August 11, 2016, she became Company’s acting president, CEO and CFO. On April 15, 2018, the Company’s Board of Directors appointed Hon Man Yun as Chief Financial Officer of the Company. The position had been formerly held by Yvonne Wang, who also serves as Chief Executive Officer of the Company.

 

Hon Man Yun Mr. Yun became our CFO in April 2018. Mr. Yun is a Chartered Accountant having fellowship with the Institute of Chartered Accountants in England and Wales. He is also a Fellow Member of the Chartered Association of Certified Accountants and a member of the Hong Kong Institute of Certified Public Accountants. He was a member of Association of International Accountants, the Society of Registered Financial Planners, the Institute of Financial Accountants and the Institute of Crisis and Risk Management. Mr. Yun received his MBA at the University of Western Sydney in 2007.

 

Feng Li became our Secretary and a Director in 2015. From 2011- 2012, Ms. Li has served as an assistant project manager for SCHSAsia, a boutique business consulting firm specializing in events and project management for overseas company wishing to expand into the Asia Pacific arena. From 2012 until 2014, Ms. Li served as a campaigner for WildAid China Office, a non-profit organization with focus on raising public awareness on wildlife and climate change related issues.

 

Qi Wang became our Vice President - Technical on July 19, 2005 and was elected as one of our directors of the Company on July 18, 2007. Prof. Wang has also acted as Director of Kiwa-CAU R&D Center since July 2006. Prof. Wang served as a Professor and Advisor for Ph.D. students in the 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. Prof. 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. Prof. Wang’s unique expertise in the field of agriculture offers significant knowledge and experience to the Board of Directors when making critical operational decisions. 

 

Yong Lin Song became our CTO and Director of Technology responsible for the Company’s R&D operations on March 2016 and as one of our directors of the Company on March 2017. Mr. Song is a senior agronomist at the Institute of Agricultural Resources and Regional Planning, Chinese Academy of Agricultural Sciences. He has 29 years of experience in microbial R&D and technology promotion and has led many national agricultural projects. In 2001, he was responsible for technological achievement transformation and technology promotion of Agricultural Resources and Regional Planning, Chinese Academy of Agricultural Sciences. In 2009, he served as deputy secretary general of the Chinese Society of Plant Nutrition and Fertilizer Science.

 

Xiao Qiang Yu became our COO on June 2016 and is responsible for managing the overall marketing strategy of Kiwa, which includes brand expansion, sale targets, strategic planning and corporate communications. Mr. Yu participated in Chinese fertilizer market since 1999. Mr. Yu has over 15 years of marketing, management and strategy experience from two major fertilizer companies in China.

 

Family Relationships

 

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

 

Involvement in Certain Legal Proceedings

 

None of our directors or executive officers has, during the past ten years:

 

(a) Had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
(b) Been convicted in a criminal proceeding or subject to a pending criminal proceeding;

 

26
     

 

(c) Been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; and
   
(d) Been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

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 percent of a registered class of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. Officers, directors and certain other shareholders are required by the SEC to furnish the Company with copies of all Section 16(a) forms they file. To the best of the Company’s knowledge, based solely upon a review of the copies of such reports, the Company believes that all Section 16(a) filing requirements applicable to its officers, directors and certain other shareholders were complied with during the fiscal year ended December 31, 2018.

 

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 person a copy of the Code, without charge, upon written request to the Company’s Secretary. Requests should be addressed in writing to Ms. Yvonne Wang; 3200 Guasti Road, Ste. 100, California 91761. 

 

Board Composition; Audit Committee and Financial Expert

 

Our Board of Directors is currently composed of four members: Yvonne Wang, Feng Li, Qi Wang and Yong Lin Song. 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. Currently such functions are performed by our Board of Directors.

 

The Board does not have a “financial expert” as defined by SEC rules implementing Section 407 of the Sarbanes-Oxley Act.

 

Board meetings and committees; annual meeting attendance.

 

The Board of Directors either met or took action by unanimous consent ten (10) times during fiscal year 2018. No Committee Meetings were held during fiscal year 2018. The Company did not have an Annual Meeting of Shareholders in 2018.

 

ITEM 11. Executive Compensation

 

We currently have no Compensation Committee. The Board of Directors is currently performing the duties and responsibilities of Compensation Committee. In addition, we have no formal compensation policy. We decide on our executives’ compensation based on average compensation levels of similar companies in the U.S. or China, depending on consideration of many factors such as where the executive works. Our Chief Executive Officer’s compensation is approved by the Board of Directors. Other named executive officers’ compensation are proposed by our Chief Executive Officer and approved by the Board of Directors.

 

27
     

 

Our Stock Incentive Plan is administered by the Board of Directors. Any amendment to our Stock Incentive Plan requires majority approval of the shareholders of the Company.

 

Currently, the main forms of compensation provided to each of our executive officers are: (1) annual salary; (2) non-equity Incentive Plan; and (3) the granting of incentive stock options subject to approval by our Board of Directors.

 

Summary Compensation Table

 

Summary Compensation Table

 

Name and
principal position
  Year   Salary
($)
  Bonus
($)
  Stock
Awards
($)
  Option Awards ($)   Non-Equity
Incentive Plan
Compensation
($)
  Nonqualified
Deferred
Compensation
Earnings ($)
  All Other
Compensation
($)
  Total
($)
(a)   (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j)
                                     
Yvonne Wang,     2018       84,000       -0-       -0-       -0-       -0-       -0-       -0-       84,000  
Acting President, CEO     2017       84,000       -0-       -0-       -0-       -0-       -0-       -0-       84,000  
                                                                         
Hon Man Yun     2018       77,102       -0-       -0-       -0-       25,299       -0-       -0-       102,401  
CFO     2017       -0-       -0-       -0-       -0-       -0-       -0-       -0-       -0-  
                                                                         
Yong Lin Song,     2018       36,271       -0-       -0-       -0-       -0-       -0-       -0-       62,295  
CTO, Director of Technology     2017       62,295       -0-       -0-       -0-       -0-       -0-       -0-       29,828  
                                                                         
Xiao Qiang Yu,     2018       31,003       -0-       -0-       -0-       -0-       -0-       -0-       59,927  
COO     2017       59,927       -0-       -0-       -0-       -0-       -0-       -0-       30,259  

 

Employment Contracts and Termination of Employment and Change of Control Arrangements

 

There are no compensatory plans or arrangements with respect to a named executive officer that would result in payments or installments in excess of $100,000 upon the resignation, retirement or other termination of such executive officer’s employment with us or from a change-in-control.

 

Stock Incentive Plan and Option Grants

 

2018 Stock-based Compensation

 

During 2018, the Company registered 1,663,702 shares of common stock, par value $0.001 allocated to its 2016 Employee, Director and Consultant Stock Plan. No options were granted under the Plan.

 

Option Exercises and Stock Vested

 

No stock options were exercised by any officers or directors during 2018 and 2017. We did not adjust or amend the exercise price of any stock options previously awarded to any named executive officers during 2018 and 2017.

 

Director Compensation for 2018

 

We currently have no policy in effect for providing compensation to our directors for their services on our Board of Directors, and did not compensate our directors in 2018 for services performed as directors.

 

28
     

 

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth as of April 12, 2019 certain information with respect to the beneficial ownership of our common stock by (i) each of our executive officers, (ii) each person who is known by us to beneficially own more than 5% of our outstanding common stock, and (iii) all of our directors and executive officers as a group. Percentage ownership is calculated based on 16,120,465 shares of our common stock 500,000 shares of our Series A Preferred Stock, and 811,148 shares of our Series B Preferred Stock outstanding as of April 12, 2019. None of the shares listed below are issuable pursuant to stock options or warrants of the Company.

 

Title of class   Name and Address of
Beneficial Ownership(1)
  Amount and Nature of
Beneficial Owner (2)
    Percentage of class  
                 
Common Stock   Yvonne Wang     240,000       1.28 %
Common Stock   Feng Li (3)     1,965,326       10.52 %
Common Stock   Qi Wang     -       -  
Common Stock   Yong Lin Song     -       -  
Common Stock   All officers and directors as a group     2,205,326       11.81 %
                     
Ser. A Pref. Stock   Yvonne Wang     250,000       50.00 %
Ser. A Pref. Stock   Feng Li     250,000       50.00 %
                     
Ser. A Pref. Stock   All officers and directors as a group     500,000       100.00 %
Ser. B Preferred   Wei Li     811,148       100.00 %
                     
5% Holders:                    
                     
Common Stock   Wei Li (3)     2,734,690       13.56 %
Common Stock   Tianao Zhang     1,540,000       7.64 %
Common Stock   Zheng JunWei     1,165,000       5.78 %

 

  (1) The address for all holders is 3200 Guasti Road, Ste. 100, California 91761.
     
  (2) In determining beneficial ownership of our Common Stock and Series A Preferred Stock, the number of shares shown includes shares which the beneficial owner may acquire upon exercise of debentures, warrants and options which may be acquired within 60 days. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.
     
  (3) Includes 61,784 shares of common stock held by All Star Technology, Inc., a British Virgin Islands international business company. Feng Li’s father, Wei Li, exercises voting and investment control over the shares held by All Star Technology, Inc. Wei Li is a principal shareholder of All Star Technology, Inc. and may be deemed to beneficially own such shares, but disclaims beneficial ownership in such shares held by All Star Technology, Inc. except to the extent of his pecuniary interest therein. Mr. Li has pledged all of his common stock of the Company as collateral security for the Company’s obligations under certain 6% Convertible Notes owed by the Company.

 

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

 

For description of transactions with related parties, see Note 7 to Consolidated Financial Statements under Item 8 in Part II.

 

29
     

 

Under the independence standard set forth in Rule 4200(a) (15) of the Market Place Rules of the Nasdaq Stock Market, which is the independence standard that we have chosen to report under.

 

ITEM 14. Principal Accountant Fees and Services

 

Fees Paid to Independent Public Accountants for 2018 and 2017. 

 

Audit Fees

 

All of the services described below were approved by our board of directors prior to performance of such services. The board of directors has determined that the payments made to its independent accountants for these services are compatible with maintaining such auditor’s independence.

 

The aggregate audit fees for 2018 paid and payable to Friedman LLP were approximately $205,000. The aggregate audit fees for 2017 paid and payable to Friedman LLP and DYH & Company were approximately $144,000, of which, $135,000 paid and payable to Friedman, LLP and $9,000 paid to DYH & Company.

 

The amounts include: (1) fees for professional services rendered by Friedman LLP and DYH & Company in connection with the audit of our consolidated financial statements; (2) reviews of our quarterly reports on the Form 10-Q.

 

Audit-Related Fees

 

Audit-related fees for 2018 and 2017 were $0.

 

Tax Fees

 

Tax fees for 2018 and 2017 were $0 .

 

All Other Fees

 

None.

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

 

Since we did not have a formal audit committee, our board of directors served as our audit committee. We have not adopted pre-approval policies and procedures with respect to our accountants in 2018 and 2017. All of the services provided and fees charged by our independent registered accounting firms in 2018 and 2017 were approved by the board of directors. There is no non-audit services provided by our independent auditors during the year of 2018 and 2017.

 

Part IV

 

ITEM 15. Exhibits and Financial Statement Schedules

 

Exhibit No.

  Description
     
23.1   CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934
     
32.1   Certification of Chief Executive Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of Chief Financial Officer, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

30
     

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: April 12, 2019

 

  KIWA BIO-TECH PRODUCTS GROUP CORPORATION.
     
  By:   /s/ Yvonne Wang
   

Yvonne Wang

Chief Executive Officer

(Principal Executive Officer)

     
  By: /s/ Hon Man Yun  
   

Hon Man Yun

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the registrant and in the capacities and on the dates indicated.

 

/s/ Yvonne Wang   Chief Executive Officer and Director   April 12, 2019
Yvonne Wang   (Principal Executive Officer)    
         
/s/ Hon Man Yun   Chief Financial Officer   April 12, 2019
Hon Man Yun   (Principal Financial and Accounting Officer)    

 

31
     

 

Kiwa Bio-Tech Products Group Corporation

 

Index to Consolidated Financial Statements

 

    Page
Report of Independent Registered Public Accounting Firm   F-1
     
Consolidated Balance Sheets   F-2
     
Consolidated Statements of Income and Comprehensive Income (Loss)   F-3
     
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)   F-4
     
Consolidated Statements of Cash Flows   F-5
     
Notes to Consolidated Financial Statements   F-6

 

32
     

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Kiwa Bio-Tech Products Group Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Kiwa Bio-Tech Products Group Corporation and its subsidiaries (collectively, the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company had an accumulated deficit of $14,803,530 and $14,583,080 as at December 31, 2018 and 2017, respectively, and negative operating cash flow of $1 ,648,963 and $5,649,151 for the year ended December 31, 2018 and 2017, respectively. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding this matter are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Friedman LLP

 

We have served as the Company’s auditor since 2017.

 

New York, New York

April 12, 2019

 

  F- 1  
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2018     December 31, 2017  
             
ASSETS                
Current assets                
Cash and cash equivalents   $ 7,859     $ 1,083,539  
Accounts receivable     6,751,113       28,620  
Prepaid expenses     2,259,565       2,474,272  
Rent deposits and other receivables     323,362       44,423  
Advance to suppliers     15,763,198       12,660,793  
Due from related parties - non-trade     12,108       19,017  
Inventories     1,643,033       2,745,991  
Deferred cost of goods sold     4,929,855       16,726  
                 
Total current assets     31,690,093       19,073,381  
                 
Property, plant and equipment - net     93,181       90,500  
Rent deposits-non current     613       72,631  
Deposit for long-term investment     727,155       768,074  
                 
Total non-current assets     820,949       931,205  
Total assets   $ 32,511,042     $ 20,004,586  
                 
LIABILITIES AND stockholders’ EQUITY                
Current liabilities                
Accounts payable   $ 1,611,273     $ 1,800,614  
Advances from customers     580,720       543,581  
Due to related parties     570,921       320,199  
Convertible notes payable, net of discount of $99,908 and $1,977 at December 31, 2018 and 2017, respectively     971,086       273,200  
Derivative liabilities     6,621       247,933  
Notes payable     360,000       360,000  
Salary payable     1,024,959       291,401  
Income taxes payable     2,946,926       1,142,973  
Interest payable     2,020,821       1,756,275  
Other payables and accruals     2,940,088       2,108,873  
Deferred revenue     6,751,113       28,620  
Total current liabilities     19,784,528       8,873,669  
                 
Convertible notes payable-non-current, net of discount of $0 and $384,799 at December 31, 2018 and 2017, respectively     -       460,082  
Total liabilities     19,784,528       9,333,751  
                 
STOCKHOLDERS’ EQUITY                
Preferred stock - $0.001 par value, Authorized 20,000,000 shares. Series A - Issued and outstanding 500,000 and 500,000 shares (liquidation preference in $1,000,000) at December 31, 2018 and December 31, 2017, respectively;
Series B - Issued and outstanding 811,148 and 811,148 shares (liquidation preference in $1,054,492) at December 31, 2018 and December 31, 2017, respectively.
    1,311       1,311  
Common stock - $0.001 per value. Authorized 100,000,000 shares. Issued and outstanding 16,885,260 and 15,202,965 shares at December 31, 2018 and 2017, respectively.     16,886       15,203  
Additional paid-in capital     27,047,457       24,455,291  
Statutory Reserve     1,022,605       458,334  
Accumulated deficit     (14,803,530 )     (14,583,080 )
Accumulated other comprehensive gain (loss)     (558,215 )     323,776  
Total stockholders’ equity     12,726,514       10,670,835  
Total liabilities and stockholder’s equity   $ 32,511,042     $ 20,004,586  

 

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

 

  F- 2  
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME/(LOSS)

 

    Years Ended December 31,  
    2018     2017  
             
Revenue   $ 30,650,402     $ 17,270,069  
                 
Cost of goods sold     (22,391,952 )     (11,845,874 )
                 
Gross profit     8,258,450       5,424,195  
                 
Operating expenses                
Research and development expenses     122,774       147,992  
Selling expenses     617,387       483,045  
General and administrative expenses     4,928,943       2,997,027  
Total operating expenses     5,669,104       3,628,064  
Operating Income     2,589,346       1,796,131  
                 
Other income/(expense), net                
Change in fair value of derivative liabilities     241,312       321,851  
Interest expense     (634,874 )     (524,333 )
Other income/(expense)     (1,185 )     382,126  
Exchange gain/(loss)     55,444       (58,757 )
Total other income/(expense), net     (339,303 )     120,887  
Income from continuing operations before income taxes     2,250,043       1,917,018  
Income taxes     (1,906,222 )     (1,103,315 )
Income from continuing operations     343,821       813,703  
                 
Discontinued operations:                
Loss from discontinued operations, net of taxes     -       (16,849 )
Gain on disposal of discontinued operations, net of taxes     -       4,512,182  
Income from discontinued operations, net of taxes     -       4,495,333  
                 
Net income     343,821       5,309,036  
                 
Other comprehensive income                
Foreign currency translation adjustment     (881,991 )     378,153  
Total comprehensive income/(loss)   $ (538,170 )   $ 5,687,189  
                 
Earnings per share - Basic:                
Income from continuing operations     0.02       0.08  
Income from discontinued operations     -       0.43  
Net income     0.02       0.51  
                 
Earnings per share - Diluted:                
Income from continuing operations     0.02       0.07  
Income from discontinued operations     -       0.36  
Net income     0.02       0.43  
                 
Weighted average number of common shares outstanding - basic     16,522,099       10,471,725  
Weighted average number of common shares outstanding - diluted     16,522,099       12,541,946  

 

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

 

  F- 3  
 

 

KIWA BIO-TECH PRODUCTS GROUP CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHODERS’ EQUITY

 

                                  Accumulated     Total  
                Additional                 Other     Stockholders’  
    Preferred Stock     Common Stock     Paid-in     Statutory