NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016
1.
Description of Business and Organization
Organization
– Kiwa Bio-Tech Products Group Corporation (“the Company”) is the result of a share exchange transaction
accomplished on March 12, 2004 between the shareholders of Kiwa Bio-Tech Products Group Ltd. (“Kiwa BVI”), a company
originally organized under the laws of the British Virgin Islands on June 5, 2002 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. The share exchange
resulted in a change of control of Tintic, with former Kiwa BVI stockholders owning approximately 89% of Tintic on a fully diluted
basis and Kiwa BVI surviving as a wholly-owned subsidiary of Tintic. Subsequent to the share exchange transaction, Tintic changed
its name to Kiwa Bio-Tech Products Group Corporation. On July 21, 2004, the Company completed its reincorporation in the State
of Delaware. On March 8, 2017, we completed our reincorporation in the State of Nevada.
The
Company operates through a series of subsidiaries in the Peoples Republic of China as detailed in the following Organizational
Chart. The Company had previously operated its business through its subsidiaries Kiwa Bio-Tech Products (Shandong) Co., Ltd. (“Kiwa
Shandong”) and Tianjin Kiwa Feed Co., Ltd. (“Kiwa Tianjin
”).
Kiwa Tianjin has been dissolved since July, 11, 2012. On February 11, 2017, the Company entered an Equity Transfer Agreement with
Dian Shi Cheng Jing (Beijing) Technology Co. (“Transferee”) to transfer all of shareholders’ right, title and
interest in Kiwa Shandong to the Transferee for USD $1.00. Currently, the completion of transfer is under the government processing.
Business
– The Company’s business plan is to develop and market innovative, manufacture, distribute cost-effective and
environmentally safe bio-technological products for agriculture markets primarily in China. The Company has acquired technologies
to produce and market bio-fertilizer.
2.
Summary of Significant Accounting Policies
Principle
of Consolidation
- These consolidated financial statements include the financial statements of the Company and its wholly-owned
subsidiaries, Kiwa BVI, Hong Kong Baina Group Holding Company, Kiwa Baiao Bio-Tech (Beijing) Co., Ltd, Kiwa Bio-Tech Products
(Shandong) Co., Ltd. (“Kiwa Shandong”). All significant inter-company balances or transactions are eliminated on consolidation.
Reverse
Split
- On January 14, 2016, the Company filed a Certificate of Amendment of its Certificate of Incorporation with the State
of Delaware with reference to a 1-for-200 reverse stock split with respect to its Common Stock with effective date of January
28, 2016. In connection with the reverse split, the Company’s authorized capital was amended to be 120,000,000 shares, comprising
100,000,000 shares of Common Stock par value $0.001 and 20,000,000 shares of Preferred Stock par value $0.001. All relevant information
relating to numbers of shares, options and per share information have been retrospectively adjusted to reflect the reverse stock
split for all periods presented.
Use
of Estimates
- The preparation of financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the
date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Significant accounting estimates include the valuation of securities issued,
deferred tax assets and related valuation allowance.
Certain
of our estimates, including evaluating the collectability of accounts receivable and the fair market value of long-lived assets,
could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible
that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates.
We re-evaluate all of our accounting estimates annually based on these conditions and record adjustments when necessary.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents. At times,
such investments may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limit.
Accounts
Receivables -
Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on
a combination of current sales, historical charge offs and specific accounts identified as high risk. Uncollectible accounts receivable
are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted.
Such allowances, if any, would be recorded in the period the impairment is identified.
Allowance
for doubtful accounts
The
Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate
is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will change. There was no allowance for doubtful
accounts at December 31, 2016 and December 31, 2015.
Inventories
-
Inventories are stated at the lower of cost, determined on the weighted average method, and net realizable value. Work in
progress and finished goods are composed of direct material, direct labor and a portion of manufacturing overhead. Net realizable
value is the estimated selling price in the ordinary course of business, less estimated costs to complete and dispose.
Property,
plant and equipment
- Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment
losses, if any. Gains or losses on disposals are reflected as gain or loss in the year of disposal. The cost of improvements that
extend the life of property, plant and equipment are capitalized. These capitalized costs may include structural improvements,
equipment and fixtures. All ordinary repair and maintenance costs are expensed as incurred. Depreciation for financial reporting
purposes is provided using the straight-line method over the estimated useful lives of the assets as follows:
|
|
Useful
Life
|
|
|
(In
years)
|
Buildings
|
|
30
- 35
|
Machinery
and equipment
|
|
5
- 10
|
Automobiles
|
|
8
|
Office
equipment
|
|
2
- 5
|
Computer
software
|
|
3
|
Impairment
of Long-Lived Assets -
The Company’s long-lived assets consist of property, equipment and intangible assets. The Company
evaluates its investment in long-lived assets, including property and equipment, for recoverability whenever events or changes
in circumstances indicate the net carrying amount may not be recoverable. Judgments regarding potential impairment are based on
legal factors, market conditions and operational performance indicators, among others. In assessing the impairment of property
and equipment, the Company makes assumptions regarding the estimated future cash flows and other factors to determine the fair
value of the respective assets.
Fair
value of warrants and options -
The Company adopted ASC Topic 815, “Accounting for Derivative Instruments and Hedging
Activities” to recognize warrants relating to loans and warrants issued to consultants as compensation as derivative instruments
in our consolidated financial statements. The Company also adopted ASC Topic 718, “Share Based Payment” to recognize
options granted to employees as derivative instruments in our consolidated financial statements. The Company calculates the fair
value of the warrants and options using the Black-Scholes Model.
Revenue
Recognition
– The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable
and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has
been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability
is reasonably assured.
The
Company derives its revenues from sales contracts with its customer with revenues being generated upon delivery of products. Persuasive
evidence of an arrangement is demonstrated via invoice; and the sales price to the customer is fixed upon acceptance of the purchase
order and there is no separate sales rebate, discount, or volume incentive.
Shipping
and Handling Costs -
Substantially all costs of shipping and handling of products to customers are included in selling. Shipping
and handling costs for the years ended December 31, 2016 and 2015 were $480,892 and $ nil, respectively.
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.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements
and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions
for any of the reporting periods presented.
Foreign
Currency Translation and Other Comprehensive Income
- The Company uses United States dollars (“US Dollar” or “US$”
or “$”) for financial reporting purposes. However, the Company maintains the books and records in its functional currency,
Chinese Renminbi (“RMB”), being the primary currency of the economic environment in which its operations are conducted.
In general, the Company translates its assets and liabilities into U.S. dollars using the applicable exchange rates prevailing
at the balance sheet date, and the statement of comprehensive loss and the statement of cash flow are translated at average exchange
rates during the reporting period. Equity accounts are translated at historical rates. Adjustments resulting from the translation
of the Company’s financial statements are recorded as accumulated other comprehensive income.
Other
comprehensive income for the years ended December 31, 2016 and 2015 represented foreign currency translation adjustments and were
included in the consolidated statements of comprehensive loss.
The
exchange rates used to translate amounts in RMB into U.S. Dollars for the purposes of preparing the consolidated financial statements
were as follows:
|
|
As
of December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance
sheet items, except for equity accounts
|
|
|
6.94
|
|
|
|
6.4857
|
|
|
|
Years
ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Items
in the statements of comprehensive loss
|
|
|
6.62
|
|
|
|
6.2281
|
|
Advertising
Costs
- The Company charges all advertising costs to expense as incurred. The total amounts of advertising costs charged to
selling, general and administrative expense were $nil for the years ended December 31, 2016 and 2015, respectively.
Research
and Development Costs
- Research and development costs are charged to expense as incurred. During the years ended December
31, 2016 and 2015, research and development costs were $224,433 and $178,988, respectively.
Net
Loss Per Common Share
- Basic loss per common share is calculated by dividing net loss attributable to Kiwa stockholders by
the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share includes dilutive
effect of dilutive securities (stock options, warrants, convertible debt, stock subscription and other stock commitments issuable).
These potentially dilutive securities were not included in the calculation of loss per share for the periods presented because
the Company incurred a loss during such periods and thus the effect would have been anti-dilutive. Accordingly, basic and diluted
loss per common share is the same for all periods presented. As of December 31, 2016 and 2015, potentially dilutive securities
aggregated 8,872,655 (632,204 post-reverse split shares) and 126,440,833 (632,204 post-reverse split shares) shares of common
stock, respectively.
Fair
Value of Financial Instruments
The
Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial
instruments and paragraph 820- 10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to
measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value with
U.S. GAAP, and expands disclosures about fair value measurements.
To
increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes
a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:
|
●
|
Level
1: quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
|
|
●
|
Level
2: pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly
observable as of the reporting date.
|
|
|
|
|
●
|
Level
3: Pricing inputs that are generally observable inputs and not corroborated by market data.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within
more than one level described above, the categorization is based on the lowest level input that is significant to the fair value
measurement of the instrument.
The
carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalent, prepaid expenses, accounts
payable and accrued expenses, approximate their fair value because of the short maturity of those instruments.
Transactions
involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of
competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply
that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions
unless such representations can be substantiated.
It
is not however practical to determine the fair value of advances from stockholders, if any, due to their related party nature.
Related
Parties
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions. Pursuant to Section 850-10-20 the related parties include: a) affiliates of the Company; b) entities
for which investments in their equity securities would be required, absent the election of the fair value option under the Fair
Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c)
trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of
management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal
if one party controls or can significantly influence the management or operating policies of the other to an extent that one of
the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly
influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting
parties and can significantly Influence the other to an extent that one or more of the transacting parties might be prevented
from fully pursuing its own separate interests.
The
consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements,
expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated
in the preparation of consolidated financial statements is not required in those statements. The disclosures shall include: a.
the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or
nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed
necessary to an understanding of the effects of the transactions on the consolidated financial statements; c. the dollar amounts
of transactions for each of the periods for which income statements are presented and the effects of any change in the method
of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date
of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments
and Contingencies
The
Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain
conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company
but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings
that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived
merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the
assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but
cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable
and material, would be disclosed.
Loss
contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would
be disclosed. Management does not believe, based upon information available at this time that these matters will have a material
adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance
that such matters will not materially and adversely
Stock
Based Compensation
The
Company accounts for employee and non-employee stock awards under ASC 718, whereby equity instruments issued to employees for
services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on
the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.
No
stock based compensation was issued or outstanding as of December 31, 2016 and 2015.
Income
Tax Provision
Income
taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in
recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred
income taxes primarily relate to the difference between the tax basis of assets and liabilities and their financial reporting
amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years
in which deferred tax assets or liabilities are expected to be settled or realized. There were no material deferred tax assets
or liabilities as of December 31, 2016 and December 31, 2015.
As
of December 31, 2016, and 2015, the Company did not identify any material uncertain tax positions. As of December 31, 2016, the
Company’s returns are subject to examination by federal and state taxing authorities, generally for three years and four
years, respectively, after they are filed.
Net
Income (Loss) Per Common Share
Net
income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic
net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding
during the period.
Diluted
net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common
stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur
from common shares issuable through contingent shares issuance arrangement, stock options or warrants.
There
were no potentially dilutive debt or equity instruments issued and outstanding at any time during the twelve-month periods ended
December 31, 2016 and 2015.
Cash
Flows Reporting
The
Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash
receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions
of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25
of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile
it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and
payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income
that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency
cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held
in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents
and separately provides information about investing and financing activities not resulting in cash receipts or payments in the
period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU
2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when
they are widely distributed to users, such as through filing them on EDGAR.
Recent
accounting pronouncements
In
November 2015, FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” ASU 2015-17 requires that
deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is
effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those
fiscal years. The Company does not expect these changes to have a material impact on the Company’s consolidated financial
statements.
In
January 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 requires equity
investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment
of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; Eliminates
the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires
an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value
in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial
liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial
statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to
available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for financial
statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company
does not expect these changes to have a material impact on the Company’s consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09—Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The amendments in this guidance are relating to employee share-based compensation. Under the new guidance,
we are required to recognize the tax effects of stock compensation as income tax expense or benefit in the income statement and
treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur. Excess tax
benefits are required to be classified as operating activities, and shares we withhold on behalf of employees for tax purposes
are required to be classified as financing activities. We may make an accounting policy election to continue to estimate the number
of awards that are expected to vest or account for forfeitures when they occur. The threshold to qualify for equity classification
permits withholding up to the maximum statutory tax rates. This guidance is required to be adopted in the first quarter of 2017.
We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15—Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments (a consensus of the Emerging Issues Task Force). The amendments in this guidance on eight specific cash flow issues
with regard to how cash receipts and cash payments are presented and classified in the statement of cash flows in order to clarify
existing guidance and reduce diversity in practice. The guidance is required to be adopted in the first quarter of 2018 on a retrospective
basis, unless it is impracticable to apply, in which case it should be applied prospectively as of the earliest date practicable.
Early adoption is permitted. We are currently evaluating the impact this guidance will have on our consolidated statement of cash
flows.
In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
The amendments in this guidance are clarifying the definition of a business to assist entities when determining whether an integrated
set of assets and activities meets the definition of a business. The update provides that when substantially all the fair value
of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not
a business. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those
fiscal years. The adoption of this new guidance is not expected to have a material impact on our consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-04—Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment. The amendments in this guidance to eliminate the requirement to calculate the implied fair value of goodwill to measure
goodwill impairment charge (Step 2). As a result, an impairment charge will equal the amount by which a reporting unit’s
carrying amount exceeds its fair value, not to exceed the amount of goodwill allocated to the reporting unit. An entity still
has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is
necessary. The amendment should be applied on a prospective basis. The guidance is effective for goodwill impairment tests in
fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed after January
1, 2017. The impact of this guidance for the Company will depend on the outcomes of future goodwill impairment tests.
There
were other updates recently issued. The Company does not believe that other than disclosed above, the recently issued, but not
yet adopted, accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.
Goodwill
and Other Intangibles
In
accordance with Accounting Standards Update (ASU) No. 2014-02, management evaluates goodwill on an annual basis in the fourth
quarter of more frequently if management believes indicators of impairment exist. Such indicators could, but are not limited to
(1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action
or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a two-step quantitative
goodwill impairment test. The first step of the impairment test involves comparing the fair value of the applicable reporting
unit with its carrying value. The Company estimates the fair value of its reporting units using a combination of the income, or
discounted cash flows, approach and the market approach, with utilizes comparable companies’ data. If the carrying amount
of a reporting unit exceeds the reporting unit’s fair value, management performs the second step of the goodwill impairment
test. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit’s
goodwill with the carrying value of that goodwill. The amount, by which the carrying value of the goodwill exceeds its implied
fair value, if any, is recognized as an impairment loss. The Company’s evaluation of goodwill completed during the year
resulted in no impairment losses.
3.
Going Concern
The
consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal course of business.
As
of December 31, 2016, the Company’s current liabilities substantially exceeded its current assets by $5,729,622, had an
accumulated deficit of $19,489,400, and stockholders’ deficiency of $5,601,213. These circumstances, among others, raise
substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The financial statements also do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.
The
management of the Company already raised additional equity during the first quarter of 2017 for approximately $1,000,000. (Please
refer to Note 14 for additional information) The Company is generating additional revenue while seeking additional equity financing.
Management is very optimistic about the Company’s continue profitability for the coming years.
4.
Property, Plant and Equipment
Property,
plant and equipment, net consisted of the following:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
-
|
|
|
$
|
1,308,785
|
|
Machinery
and equipment
|
|
|
-
|
|
|
|
595,623
|
|
Automobiles
|
|
|
-
|
|
|
|
85,769
|
|
Office
equipment
|
|
|
942
|
|
|
|
104,843
|
|
Furniture
|
|
|
8,276
|
|
|
|
-
|
|
Leasehold
improvement
|
|
|
70,871
|
|
|
|
-
|
|
Computer
software
|
|
|
-
|
|
|
|
22,304
|
|
Property,
plant and equipment - total
|
|
$
|
80,089
|
|
|
$
|
2,117,324
|
|
Less:
accumulated depreciation
|
|
|
(20,311
|
)
|
|
|
(762,791
|
)
|
Less:
impairment on long-lived assets
|
|
|
-
|
|
|
|
(1,351,726
|
)
|
Property,
plant and equipment - net
|
|
$
|
59,778
|
|
|
$
|
2,807
|
|
The
building is on a piece of land the use right of which was granted to Kiwa Bio-Tech Products (Shandong) Co., Ltd. by local government
free for 10 years and then for another 20 years on a fee calculated according to Kiwa Shandong’s net profit. Since Kiwa
Shandong did not generate any net profit, no fee is payable.
Depreciation
expense was $22,340 and $4,352 for the years ended December 31, 2016 and 2015, respectively.
Impairment
on long-lived assets was $nil for the years ended December 31, 2016 and 2015, respectively.
All
of our property, plant and equipment have been held as collateral to secure the 6% Notes (see Note 8).
5.
Goodwill
On
November 30, 2015, Kiwa Bio-tech Products Group Ltd in BVI ("Kiwa BVI") entered an acquisition agreement with shareholders
of Caber Holdings Ltd. (“Acquiree”) in Hong Kong to acquire 100 percent entity interest of the acquiree, including
a wholly owned subsidiary, Oriental Baina Co., Ltd. in Beijing for US$30,000. The acquisition was completed in January, 2016.
On the acquisition date, there was no any asset or liability acquired, and thus no fair value was allocated to asset and liability.
Including legal fee and government fees, the total payment of approximately $34,112 ($30,000 plus legal fee and government fees
totaled $4,112) was recorded as goodwill. The fair value of the goodwill is tested prior to the year-end 2016, and management
determined there is no impairment to the goodwill as of December 31, 2016.
6.
Construction Costs Payable
Construction
costs payable represents remaining amounts to be paid for the first phase of construction of bio-fertilizer facility in Shandong.
The balance of construction costs payable as of December 31, 2016 and 2015 was $255,539 and $273,722, respectively.
7.
Related Party Transactions
Amounts
due to related parties consisted of the following as of December 31, 2016 and 2015:
Item
|
|
Nature
|
|
|
Notes
|
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr.
Wei Li (“Mr. Li”)
|
|
|
Non-trade
|
|
|
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
2,879,307
|
|
Kangtai
Xinnong Agriculture Tech (Beijing) Co., Ltd. (“Kangtai”)
|
|
|
Non-trade
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
(12,173
|
)
|
Ms.
Yvonne Wang (“Ms. Wang”)
|
|
|
Non-trade
|
|
|
|
(3
|
)
|
|
|
100,798
|
|
|
|
299,064
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
100,798
|
|
|
|
3,166,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kiwa-CAU
R&D Center
|
|
|
Trade
|
|
|
|
(4
|
)
|
|
|
1,122,754
|
|
|
|
1,125,553
|
|
CAAS
IARRP and IAED Institutes
|
|
|
Trade
|
|
|
|
(5
|
)
|
|
|
160,461
|
|
|
|
18,425
|
|
Subtotal
|
|
|
|
|
|
|
|
|
|
|
1,283,215
|
|
|
|
1,143,978
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
1,384,013
|
|
|
$
|
4,310,176
|
|
(1)
Mr. Li
Mr.
Li was the Chairman of the Board until November 20, 2015 and was the Chief Executive Officer of the Company until July 1, 2015.
Advances
and Loans
On
December 14, 2015, Mr. Li assigned $500,000 of obligation owed by the Company to his daughter, Feng Li. On the same day, Feng
Li subscribed for the purchase of 250,000 shares of preferred stock for the aggregate amount of $500,000, and agreed to the concurrent
cancellation of debt owed by the Company.
On
March 24, 2016, the Company issued 2,900,000 shares of common stock to Mr. Li to settle down entire outstanding balance of $2,879,307.
Subsequently in June 2016, Mr. Li transferred 1,000,000 shares to Troniya Industria Incubator Co., Ltd as a personal collateral
for RMB 3.2 million received in Kiwa Baiao Bio-Tech (Beijing) Co., Ltd.’s account.
Guarantees
for the Company
Mr.
Li has pledged without any compensation from the Company all of his common stock of the Company as collateral for the Company’s
obligations under the 6% Notes (see Note 9).
(2)
Kangtai
Kangtai
is a private company and is 64% owned by Mr. Li. Mr. Li is the Chairman of Kangtai.
(3)
Ms. Wang
Ms.
Wang is the Secretary of the Company until November 20, 2015. Effective as of November 20, 2015, the Company appointed Ms. Wang
as the Chairman of the Board. Effective August 11, 2016, the Company’s Board of Directors has assigned Ms. Wang the additional
titles of Acting President, Acting Chief Executive Officer and Acting Chief Financial Officer.
On
December 14, 2015, Ms. Wang subscribed for the purchase of 250,000 shares of preferred stock for the aggregate amount of $500,000,
and agrees to the concurrent cancellation of debt owed by the Company.
On
March 24, 2016, the Company issued 240,000 shares of common stock to Ms. Wang to pay off the loan balance of $240,000.
During
the year ended December 31, 2016, Ms. Wang paid various expenses on behalf of the Company. As of December 31, 2016, the amount
due to Ms. Wang was $100,798.
(4)
Kiwa-CAU R&D Center
In
November 2006, Kiwa and China Agricultural University (the “CAU”) agreed to jointly establish a new research and development
center, named Kiwa-CAU R&D Center. The term of the agreement was ten years commencing July 1, 2006.
|
●
|
Pursuant
to the agreement, Kiwa agree to invest RMB 1 million (approximately $160,000) each year to fund research at Kiwa-CAU R&D
Center. Prof. Qi Wang, a director of the Company, is also the director of Kiwa-CAU R&D Center. The Company recorded $75,528
and $160,563 research and development expenses related to this R&D Center for the years ended December 31, 2016 and 2015,
respectively.
|
(5)
CAAS IARRP and IAED Institutes
On
November 5, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural
Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute
of Agricultural Economy & Development (“IAED”). The term of the Agreement was three years commencing November
20, 2015.
|
●
|
Pursuant
to the agreement, Kiwa agree to invest RMB 1 million (approximately $160,000) each year to the Spatial Agriculture Planning
Method & Applications Innovation Team that belongs to the Institutes. 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. The Company
recorded $149,176 and $18,425 research and development expenses related to the institutes, for the years ended December 31,
2016 and 2015, respectively,
|
Research
and Development expenses for the years ended December 31, 2016 and 2015, totaled $224,704 and $178,988, respectively.
8.
Unsecured Loans Payable
Unsecured
loans payable consisted of the following:
Item
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Unsecured
loan payable to Zoucheng Municipal Government, non-interest bearing, becoming due within three years from Kiwa Shandong’s
first profitable year on a formula basis, interest has not been imputed due to the undeterminable repayment date
|
|
$
|
1,269,880
|
|
|
$
|
1,387,668
|
|
Unsecured
loan payable to Zoucheng Science & Technology Bureau, non-interest bearing, it is due in Kiwa Shandong’s first profitable
year, interest has not been imputed due to the undeterminable repayment date
|
|
|
385,463
|
|
|
|
385,463
|
|
Total
|
|
$
|
1,655,343
|
|
|
$
|
1,773,131
|
|
The
Company qualifies for non-interest bearing loans under a Chinese government sponsored program to encourage economic development
in certain industries and locations in China. To qualify for the favorable loan terms, a company must meet the following criteria:
(1) be a technology company with innovative technology or product (as determined by the Science Bureau of the central Chinese
government); (2) operate in specific industries that the Chinese government has determined are important to encourage development,
such as agriculture, environmental, education, and others; and (3) be located in an undeveloped area such as Zoucheng, Shandong
Province, where the manufacturing facility of the Company is located.
According
to the Company’s project agreement, Zoucheng Municipal Government granted the Company use of at least 15.7 acres in Shandong
Province, China at no cost for 10 years to construct a manufacturing facility. Under the agreement, the Company has the option
to pay a fee of RMB 480,000 ($77,100) per acre for the land use right after the 10-year period until May 2012. The Company may
not transfer or pledge the temporary land use right. The Company also committed to invest approximately $18 million to $24 million
for developing the manufacturing and research facilities in Zoucheng, Shandong Province. As of December 31, 2016, the Company
invested approximately $2 million for the property, plant and equipment of the project and these assets were impaired as of December
31, 2016.
9.
Convertible Notes Payable
Convertible
notes payable consists of 6% secured convertible notes issued to FirsTrust Group Inc. on June 29, 2006. The notes beard interest
at 6% and were due on June 29, 2009. Once the note is pass due, the interest rate increased to 15% per annum. The Company accrued
$22,977 and $22,538 interest expense on convertible notes for the years ended December 31, 2016 and 2015, respectively. Interest
payable to FirstTrust Group Inc. totaled $183,361 and $160,762 at December 31, 2016 and 2015, respectively.
The
conversion price of the 6% Notes is based on a 40% discount to the average of the trading price of the Company’s common
stock on the OTC Bulletin Board over a 20-day trading period. The conversion price is also adjusted for certain subsequent issuances
of equity securities of the Company at prices below the conversion price then in effect. The 6% Notes contain a volume limitation
that prohibits the holder from further converting the 6% Notes if doing so would cause the holder and its affiliates to hold more
than 4.99% of the Company’s outstanding common stock. In addition, the holder of the 6% Notes agrees that they may not convert
more than their pro-rata share (based on original principal amount) of the greater of $120,000 principal amount of the 6% Notes
per calendar month or the average daily dollar volume calculated during the 10 business days prior to a conversion, per conversion.
This conversion limit has since been eliminated pursuant to an agreement by the Company and the Purchasers.
The
Company incurs a financial penalty in cash or shares at the option of the Company (equal to 2% of the outstanding amount of the
Notes per month plus accrued and unpaid interest on the Notes, prorated for partial months) if it breaches this or other affirmative
covenants in the Purchase Agreement, including a covenant to maintain a sufficient number of authorized shares under its Certificate
of Incorporation to cover at least 110% of the stock issuable upon full conversion of the Notes. Pursuant to the relevant provisions
for liquidated damages in the Purchase Agreement, the Company has accrued the penalty of $77,575 and $72,152 for the years ended
December 31, 2016 and 2015, respectively.
The
6% Notes require the Company to procure the Purchaser’s consent prior to taking certain actions including the payment of
dividends, repurchasing stock, incurring debt, guaranteeing obligations, merging or restructuring the Company, or selling significant
assets.
The
Company’s obligations under the 6% Notes are secured by a first priority security interest in the Company’s intellectual
property pursuant to an Intellectual Property Security Agreement with the Purchasers, and by a first priority security interest
in all of the Company’s other assets pursuant to a Security Agreement with the Purchasers. In addition, Mr. Li, the Company’s
former Chief Executive Officer until July 1, 2015, has pledged all of his common stock of the Company as collateral for the Company’s
obligations under the 6% Notes. The intellectual property pledged had a cost of $592,901 which carrying value of $179,897 was
fully impaired during the year ended December 31, 2009.
10.
Note payable
On
May 29, 2007, the Company issued a $360,000 promissory note to an unrelated individual. This note bears interest at 18% per annum
and due on July 27, 2007. This note is currently in default and bears interest of 25% per annum (the “Default rate”)
until paid in full. This note is secured by a pledge of 6,178,336 (post-reverse split 30,892) shares of the Company’s common
stock owned by Investlink (China) Limited, a British Virgin Island corporation. The Company accrued $90,000 and $90,000 interest
expense on note payable for the years ended December 31, 2016 and 2015, respectively.
11.
Stockholders’ Deficiency
On
December 14, 2015, the Company issued 500,000 shares of preferred stock for the aggregate amount of $1,000,000 as debt cancellation
owed to two related party individuals (see Note 7).
In
March, 2016, the Company issued 3,140,000 shares of common stock to Mr. Li and Ms. Wang for debt and salary payable settlement
for an aggregate amount of $3,141,000 (See Note 7). In addition, the Company issued 101,947 common shares to Jimmy Zhou, former
CEO in August 2016, to settle payable to him for $50,974. All of issuances of common shares for settlement of debts were based
the stock price on the transaction dates.
During
the year, the Company issued 1,650,000 common shares for cash at $0.8 per share for an aggregate subscribe price equivalent to
$1,320,000, of which $759,659 has received while approximately $560,341 remaining subscribe receivable at December 31, 2016.
On
November 15, 2016, the Company completed another private offering of common stock to an accredited investor for 125,000 shares
of its common stock and warrants to purchase 300,000 shares of Company common stock at an exercise price of $3.00 per share prior
to November 15, 2021. The Company may adjust the exercise price for some or all of the warrants under certain terms and conditions.
We have determined the issued warrants do not meet the definition of a derivative security, and thus allocated the net proceeds
of the sale of the common stock to the par value of the common stock, with the remainder to additional paid in capital.
During
the year ended December 31, 2016, the Company issued 1,711,808 common shares to four consulting companies as compensation for
their consulting service received, totaled $254,250 approximately for the year ended December 31, 2016.
12.
Stock-based Compensation
On
December 12, 2006, the Company granted options for 2,000,000 shares (10,000 post-reverse split shares) of its common stock under
its 2004 Stock Incentive Plan. Summary of options issued and outstanding at December 31, 2016 and 2015 and the movements during
the years then ended are as follows:
|
|
Number
of
underlying
shares
|
|
|
Weighted-
Average
Exercise Price
Per
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted-
Average
Contractual Life
Remaining in Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2014
|
|
|
6,163
|
|
|
$
|
35
|
|
|
$
|
-
|
|
|
|
2
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Outstanding
at December 31, 2015
|
|
|
6,163
|
|
|
$
|
35
|
|
|
$
|
-
|
|
|
|
1
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Expired
|
|
|
6,163
|
|
|
$
|
35
|
|
|
|
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Outstanding
at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercisable
at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
As
of December 31, 2016, no stock options or other stock-based compensation was outstanding and all prior grants of stock options
had expired as of that date.
13.
Income Tax
In
accordance with the current tax laws in China, Kiwa Shandong is subject to a corporate income tax rate of 25% on its taxable income.
However, Kiwa Shandong has not provided for any corporate income taxes since it had no taxable income for the years ended December
31, 2016 and 2015.
No
provision for taxes is made for U.S. income tax as the Company has no taxable income in the U.S. In accordance with the relevant
tax laws in the British Virgin Islands, Kiwa BVI, as an International Business Company, is exempt from income taxes.
A
reconciliation of the provision for income taxes determined at the local income tax rate to the Company’s effective income
tax rate is as follows:
|
|
Years
ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Pre-tax
income (loss)
|
|
$
|
1,389,576
|
|
|
$
|
(677,358
|
)
|
|
|
|
|
|
|
|
|
|
U.S.
federal corporate income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income
tax computed at U.S. federal corporate income tax rate
|
|
|
472,456
|
|
|
|
(230,302
|
)
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
Rate
differential for PRC earnings
|
|
|
(139,923
|
)
|
|
|
22,439
|
|
Change
of valuation allowance
|
|
|
301,813
|
|
|
|
171,993
|
|
Non-deductible
expenses
|
|
|
(208,066
|
)
|
|
|
35,870
|
|
Effective
tax expense
|
|
$
|
426,280
|
|
|
$
|
-
|
|
The
Company had deferred tax assets as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
Net
operating losses carried forward
|
|
$
|
3,475,563
|
|
|
$
|
3,398,402
|
|
Less:
Valuation allowance
|
|
|
(3,475,563
|
)
|
|
|
(3,398,402
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of December 31, 2016 and 2015, the Company had approximately $3.5 million and $8 million net operating loss carryforwards available
to reduce future taxable income. Net operating loss of the Company could be carried forward and taken against any taxable income
for a period of not more than twenty years from the year of the initial loss pursuant to Section 172 of the Internal Revenue Code
of 1986, as amended. The net operating loss of Kiwa Shandong could be carried forward for a period of not more than five years
from the year of the initial loss pursuant to relevant PRC tax laws and regulations. It is more likely than not that the deferred
tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated
the net operating loss. Therefore, the Company recorded a full valuation allowance on its deferred tax assets.
As
of December 31, 2016 and 2015, the Company has no material unrecognized tax benefits which would favorably affect the effective
income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized
tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company
during the two years ended December 31, 2016 and 2015, and no provision for interest and penalties is deemed necessary as of December
31, 2016 and 2015.
According
to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due
to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under
special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is
ten years. There is no statute of limitation in the case of tax evasion.
14.
Commitments and Contingencies
The
Company has the following material contractual obligations:
(1)
Investment in manufacturing and research facilities in Zoucheng, Shandong Province in China
According
to the Project Agreement with Zoucheng Municipal Government in 2002, we have committed to investing approximately $18 million
to $24 million for developing the manufacturing and research facilities in Zoucheng, Shandong Province. As of December 31, 2016,
we had invested approximately $1.91 million for the project. On February 11, 2017, the Company entered an Equity Transfer Agreement
with Dian Shi Cheng Jing (Beijing) Technology Co. (“Transferee”) to transfer all of shareholders’ right, title
and interest in Kiwa Shandong to the Transferee for USD $1.00. Currently, the completion of transfer is under the government processing.
(2)
Strategic cooperation with two institutes in China
On
November 5, 2015, the Company signed a strategic cooperation agreement (the “Agreement”) with China Academy of Agricultural
Science (“CAAS”)’s Institute of Agricultural Resources & Regional Planning (“IARRP”) and Institute
of Agricultural Economy & Development (“IAED”). Pursuant to the Agreement, the Company will form a strategic partnership
with the two institutes and establish an “International Cooperation Platform for Internet and Safe Agricultural Products”.
To fund the cooperation platform’s R&D activities, the Company will provide RMB 1 million (approximately $160,000) per
year to the Spatial Agriculture Planning Method & Applications Innovation Team that belongs to the Institutes. The term of
the Agreement is for three years beginning November 20, 2015. Prof. Yong Chang Wu, the authorized representative of IARRP, CAAS,
is also one of the Company’s directors effective since November 20, 2015 until March 13, 2017.
(3)
Distribution agreement with Kangtan Gerui Bio-Tech in China
On
December 17, 2015, Kiwa Bio-Tech Products Group Corporation (the “Company”) entered into a distribution agreement
(the “Agreement”) with Kangtan Gerui (Beijing) Bio-Tech Co., Ltd. (“Gerui”) and formally awarded Gerui
a 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. 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 fulfill the requirements of reduction of content of heavy metals
in soil and improve crop yield. Gerui was founded in Beijing in April 2015 and relies on the sales network of China’s Supply
and Marketing Cooperatives system. Currently, the Company and Gerui do not hold any interest in each other; however, a collaboration
and integration may take place in the future. The term of the Agreement is for a period of three years commencing December 17,
2015. In September 2016, Kiwa Baiao Bio-Tech (Beijing) Co., Ltd obtained a fertilizer sales permit from the Chinese government
and began to sale the products directly to customers in those 3 major agricultural regions.
(4)
Lease payments
(1)
On April 29, 2016, Kiwa Baiao Bio-Tech (Beijing) Co., Ltd. entered an office lease agreement with two-year team. Monthly lease
payment and building management fee totaled RMB 77,867 or approximately USD $11,622.
(2)
On November 11, 2017, Kiwa Baiao Bio-Tech (Beijing) Co., Ltd. entered an apartment lease agreement for its employees. The lease
term is one year with monthly lease payment of RMB 6,000 or approximately USD $896.
(3)
In March 1, 2017, Kiwa Bio-Tech (Shenzhen) Co., Ltd, a newly established subsidiary entered an office lease agreement with one-year
term. Monthly lease payment is RMB 29,000 or approximately of USD $4,320.
The
future lease payments at December 31, 2016 are summarized below.
|
|
Beijing
Office
|
|
|
Beijing
Apartment
|
|
|
Shenzhen
Office
|
|
|
Total
|
|
2017
|
|
$
|
139,462
|
|
|
$
|
3,632
|
|
|
$
|
4,328
|
|
|
$
|
147,422
|
|
2018
|
|
$
|
44,555
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
44,555
|
|
Thereafter
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
15.
Subsequent Events
The
Company has evaluated the existence of significant events subsequent to the balance sheet date through the date these financial
statements were issued and has determined that there were no subsequent events or transactions which would require recognition
or disclosure in the financial statements, other than noted herein.
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 Bio-Tech Products (Shandong) Co., Ltd. (“Shandong”)
to the Transferee for the RMB equivalent of US$1.00. In connection with the transaction, the Transferee received all assets of
Shandong which are estimated to be approximately RMB 14,057,713 at the effective date and assumed all liabilities of Shandong
which are estimated to be approximately RMB 59,446,513 at the effective date. In connection with this transaction, Transferee
agreed to indemnify the Company for any liability or claims of any third party(ies) against Shandong or the Company for five (5)
years. The transaction is subject to obtaining Chinese government approval for the transaction, which the parties agrees to use
their best efforts to obtain prior to December 31, 2017. The completion of transfer is under government processing.
On
February 15, 2017, the Company completed the sale of 1,000,000 shares of Kiwa Common Stock (each a “Share”) at a price
of $1.00 per share (total sale proceeds were $1,000,000) to Junwei Zheng in a private transaction which was exempt from registration
under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”) and Regulation S promulgated under the
Act since, among other things, the transaction did not involve a public offering and the securities were acquired for investment
purposes only and not with a view to or for sale in connection with any distribution thereof and were purchased by an investor
who is not a resident of the United States. The net proceeds will be used for the further development of Kiwa products and distribution,
as well as for general working capital.
On
February 23, 2017, the Company has agreed to a strategic relationship with ETS (Tianjin) Biological Science and Technology Development
Co., Ltd. (“ETS”). The partnership will include the deployment and strategic use of ETS biotechnology to produce of
bio-fertilizers for use in both China and internationally. Kiwa and ETS, together with the certain Chinese government departments,
will work together to enhance China’s microbial fertilizer industry standards and China’s food safety industry chain
standards. The parties will work together on the development of microbial technology and products in agriculture, environmental
protection, soil management and other fields. Relying on the Chinese Academy of Sciences, ETS Environmental and Agricultural Microbial
Technology Research Center and biotechnology project research results, Kiwa has introduced the ETS core technology to complete
bio-fertilizer upgrading, transformation and to develop new product lines. In order to meet the growing global consumer demand
to increase food supply and develop sustainable farming we are applying sustainable use of biotechnology and the use of biotechnology
products to replace chemical products, which will strengthen environmental protection and promote international cooperation. As
a result of strict management of many agricultural chemicals, such chemicals will continue to be abandoned, resulting is a growing
demand for bio-fertilizers. It has been widely accepted that the application of ETS biotechnology facilitates agricultural sustainability
and helps to protect the soil and improve grain output. The technology focuses on keeping soil healthy by restoring healthy microbes
that are naturally present in healthy soils. As the technology gains worldwide recognition, it is imperative to popularize bio-fertilizer
in developing countries to fulfill the needs of growing populations and promote environmentally friendly agriculture. Through
the cooperation of Kiwa and ETS, the parties aim to enhance the usage of the bio-fertilizers in China. The cooperation will bring
technological transformation and support for Kiwa to improve its existing manufacturing techniques. Kiwa and ETS will also collaborate
to establish a comprehensive platform for producing, supplying, and marketing in China. Ultimately, Kiwa would look to introduce
these products to the international market, including the United States.
On
February 27, 2017, the Company has 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
March 8, 2017, pursuant to the consent of the holders of a majority of the votes entitled to be cast on the matter and the approval
of the majority of the directors of the Company, the Company was converted from a Delaware corporation to a Nevada corporation
by filing of Articles of Conversion and Articles of Incorporation in the State of Nevada and filing a Certificate of Dissolution
in the State of Delaware.
On
March 8, 2017, pursuant to the consent of the holders of a majority of the votes entitled to be cast on the matter and the approval
of the Kiwa Bio-Tech Products Group Corporation 2016 Employee, Director and Consultant Stock Plan.
On
March 13, 2017, Yong Change Wu was removed as a director of the Company by the consent of the holders of a majority of the votes
entitled to be cast on the matter and the approval of the majority of the directors of the Company. Immediately thereafter, the
Board appointed Yong Lin Song as a director of the Company to be effective immediately.