There are no pending legal proceedings which we or our properties are subject to.

Risk Factors 

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

 

(1) Risks Related to Our Business

 

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

We have only been operating our current bio-fertilizer business since June 2002 and bio-enhanced feed business since July 2006, providing a limited period for investors to evaluate our business model. Because of this limited operating history and the uncertain nature of the rapidly changing markets that we serve, we believe any prediction of future results of operations is difficult. From the inception of our current business in ag-biotechnology on June 5, 2002 to December 31, 2007, we have accumulated losses of $11,074,522. We also plan to introduce new innovative, cost-effective bio-tech products in the livestock industry such as veterinary drugs. Since we have never entered into these fields before, and our products have not been tested by the market, we cannot guarantee that the predicted market performance of our new products will materialize.

 

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

We expect to continue to have operating losses for the foreseeable future as we are still in the process of exploring market, further research and product tests. As of December 31, 2007, we had incurred an accumulated deficit of $11 million and current liabilities were over $2.8 million, reflecting a current ratio 0.52 and a quick ratio 0.23, respectively. We will require additional capital to implement our business plan and continue operating. To the extent that we are unable to successfully raise the capital necessary to fund our future cash requirements on a timely basis and under acceptable terms and conditions, we will not have sufficient cash resources to maintain operating, and may have to curtail or cease operations and consider a formal or informal restructuring or reorganization.

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

 

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

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

During fiscal 2007, three customers accounted for 78.0% of our net sales in bio-fertilizer product line. The customer concentration in this production line has been increasing. During fiscal 2007, three customers accounted for 22.4% of our net sales in bio-enhanced feed product line. The loss of any of our significant customers would result in a material reduction in our sales and results of operations.

We are still in the initial stage of market development and need more time to construct a robust customer base. There can be no assurances that we will be able to retain these customers. Our inability to generate new customers and retain old customers could negatively impact our business and our ability to continue as a going concern.

Our business is subject to seasonal fluctuations.

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

 

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

 

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

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

 

· the timing and size of orders from major customers;

· budgeting and purchasing cycles of customers;

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

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

· fluctuations in general economic conditions;

· the status of operating cash flow; and

· natural disasters and contagious animal diseases.

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

From January 1, 2007 to December 31, 2007, the market close price for our common stock as quoted on the OTC Bulletin Board has ranged from a low of $0.06 to a high of $0.26 per share. High volatility in the market price of our common stock may result in lower prices for our common stock, making it more difficult for us to obtain equity financing on terms and conditions which are favorable to us, if at all. We expect to continue to incur losses in the future as we develop and market our initial products. As a result, we will be dependent on additional debt or equity financing to fund our operations. If such financing is not available on terms which are acceptable to us, we may have to delay development of new products and/or reduce sales and marketing efforts for our existing products. Such actions may have an adverse effect on our results of operations. In addition, uncertainties with respect to our ability to raise additional capital would make operational planning more difficult for management. 

 

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

We acquired a patent in April 2004 from CAU, entitled “Highly Effective Composite Bacteria for Enhancing Yield and the Related Methodology for Manufacturing,” issued by the China Intellectual Property Bureau. On May 8, 2006, we entered into a technology transfer agreement with JKB with respect to the technology transfer and related technical service for the AF-01 anti-viral aerosol, which will become fully effective when we have finished paying the first installment of consideration according to the payment schedule in the contract. So far we have not yet fully paid the first installment. If our rights under this patent and technology transfer agreement are challenged or if we default on our obligations under applicable Chinese regulatory requirements, our right to use these forms of intellectual property could be revoked and we would no longer be permitted to use them in our research, development, manufacturing and sales activities. Such a revocation or default could have an adverse impact on the growth of our business by reducing the introduction of new products, and consequently, sales.

 

Our success depends in part on our successful development and sale of products currently in the research and development stage.

Some of our product candidates are still in the research and development stage. The successful development of new products is uncertain and subject to a number of significant risks. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons, including but not limited to, the cost and time of development. Potential products may be found to be ineffective or cause harmful side effects, fail to receive necessary regulatory approvals, be difficult to manufacture on a large scale or be uneconomical or fail to win market acceptance. For example, before marketing of the planned veterinary drug based on AF-01 technology, there are several tests, trial, evaluation, government approval and other procedures that are required. Our failure to successfully develop and sell new products may delay or eliminate future acquisition plans and would most likely slow our development. Our plans to introduce additional proprietary products may not be realized as expected, if at all.

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As above mentioned, the China bio-fertilizer market is still in a very early stage and is very fragmented with many potential customers, but with no single producer or small group of producers dominating the market. To some extent, however, we also face competition from large chemical fertilizer manufacturers in China. These chemical fertilizer manufacturers have provided chemical fertilizers to farmers in China for over twenty years and customers are more accustomed to using their established products as compared with new products. The livestock feed industry is fully developed in China. We are new entrants to the livestock feed industry, and our production capacity is small relative to that of the whole industry.

We plan to develop a commercialized product using AF-01 anti-viral aerosol technology. We are now in the process of applying for prerequisite statutory licenses. There can be no assurance that we can acquire such prerequisite approvals and licenses, or how much time it will take.

There can be no assurance that any of our intended products will be successfully developed or that we will achieve significant revenues from such products even if they are successfully developed. Our success is dependent upon our ability to develop and market our products on a timely basis. There can be no assurance that we will be successful in developing or marketing such products or taking advantage of the perceived demand for such products. In addition, there can be no assurance that products or technologies developed by others will not render our products or technologies non-competitive or obsolete.

Failure to adequately expand to address expanding market opportunities could have a material adverse effect on our business and results of operations.

We anticipate that a significant expansion of operations will be required to address potential market opportunities. There can be no assurances that we will expand our operations in a timely or sufficiently large manner to capitalize on these market opportunities. The anticipated substantial growth is expected to place a significant strain on our managerial, operational and financial resources and systems. While management believes it must implement, improve and effectively use our operational, management, research and development, marketing, financial and employee training systems to manage anticipated substantial growth, there can be no assurances that these practices will be successful.

The products we hope to develop based on AF-01 technology will depend on an exclusive supply relationship for raw materials.

 

Pursuant to our Technology Transfer Agreement with JKB, they will have the exclusive right to supply us the raw material medicine for AF-01 anti-viral aerosol. Although the exclusive supply relationship may help to prevent new entrants from producing similar products, our ability to produce our products in a timely manner will depend on JKB fulfilling its supply obligation for the raw material. If we desired to produce raw material medicine by ourselves, we would have to acquire additional technology and negotiate with JKB and IMB. There can be no assurance that we can acquire the required technology with an acceptable price. Consequently without JKB’s cooperation and performance of its obligations, we may not be able to execute our business plan on this project, even if we successfully acquire all prerequisite certificates for producing and marketing this veterinary drug product.

 

Our success depends in part upon our ability to retain and recruit key personnel.

Our success is highly dependent upon the continued services of our executive officers, key product development personnel and key scientific personnel. Given the intense competition for qualified management and product development personnel in our industry, the loss of the services of any key management or product development personnel may significantly and detrimentally affect our business and prospects. We maintain employment agreements with all members of management or key personnel. Pursuant to our joint agreement with CAU, it must make available at least six R&D staff to join the Kiwa-CAU R&D Center, at least three of whom must have professor or doctorate degrees, and at least two who must have master degrees. There can be no assurance that we will be able to retain these personnel, and it may be time-consuming and costly to recruit qualified replacement personnel.

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We currently do not have sufficient revenues to support our business activities, expect operating losses continue, and will require additional financing which we may not be able to secure.

We require substantial working capital to fund our business. In the short term, we still need to continue building out our bio-fertilizer manufacturing facility, adjust our product formula to improve product stability and optimize our product offerings, expand our sales and marketing efforts in China, expand our distribution base in China, maintain operation of Kiwa-CAU R&D Center, introduce new veterinary drug products and acquire a small or medium sized biotechnology company or a factory with GMP qualification for this new product. In the long term, we plan to become a commercialization platform for world-class biotechnological research and development results for applications in agriculture, natural resources conservation and environment protection, launch our products in the Southeast Asia, United States and other markets, continue our introduction of new products, create formal strategic alliances with selected United States companies to co-develop and/or co-market products in the United States and China, and form an international biotechnology research center in China for the research and development of agricultural, environmental and medical applications.

Although our sales revenues in both bio-fertilizer and bio-enhanced feed product lines have increased significantly in 2007, we are continuing to experience losses. We currently do not have sufficient revenues to support our business activities and we expect operating losses to continue. We will require additional capital to fund our operations and finance our research and development activities. Funding, whether from a public or private offering of debt or equity, a bank loan or a collaborative agreement, may not be available when needed or on favorable terms. Further, any significant equity or debt financing will require us to give priority to holders of the 6% secured convertible notes (“6% Notes”) under the terms of a securities purchase agreement dated June 29, 2006, which may raise the difficulty level of completing a financing. (For more details regarding the 6% Notes see Note 14 to consolidated financial statements under Item 7 of Part II.) If we are unable to obtain necessary financing in the amounts and on terms deemed acceptable, we will have to limit, delay, scale back or eliminate our research and development activities or future operations. Any of the foregoing may adversely affect our business and cause us to discontinue as a going concern.

The risks associated with raising capital through collaborations and licensing agreements could adversely affect our business.

We will be required to raise additional capital to fund our operations and finance our research and development activities through collaborative and/or licensing agreements. Under these agreements, we may be subject to various restrictive covenants which could significantly limit our operating and financial flexibility and may limit our ability to respond to changes in our business or competitive environment. If we are unable to obtain necessary financing in the amounts and on terms deemed acceptable, we may have to limit, delay, scale back or eliminate our research and development activities or future operations. Any of the foregoing may adversely affect our business.

 

Restrictions on currency exchange may limit our ability to effectively receive and use our revenue.

Since most of our future revenues may be in the form of China Renminbi, any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund our business activities outside China or to make dividend or other payments in U.S. Dollars. Although the Chinese government introduced regulations since 1996 to allow greater convertibility of Renminbi, for current account transactions significant restrictions still remain, including primarily the restriction that foreign invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of Renminbi, especially with respect to foreign exchange transactions.

We may also be subject to foreign exchange risk and foreign ownership restrictions. The Chinese government is loosening its control on foreign exchange transactions, and has steadily appreciated Renminbi relative to the U.S. dollar since July 2005. However, there can be no assurance that this policy will continue. More liberal foreign exchange policies will reduce our foreign exchange risk by increasing the liquidity of revenues generated in Renminbi. Fluctuations in the exchange rate of Renminbi against the U.S. Dollar could adversely affect our results of operations by affecting our reported earnings for any given period. In addition, foreign ownership restrictions could also impact our ability to expand our business through investment and acquisition opportunities. If we are unable to pursue such strategic opportunities due to foreign ownership regulations, the growth of our business could be limited.

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Changes in China’s political, social, economic or legal systems could materially harm our business.

All of our manufacturing and production as well as the majority of our sales occur in China. Consequently, an investment in our common stock may be adversely affected by the political, social and economic environment in China. Under its current leadership, China has been pursuing economic reform policies, including the encouragement of private economic activities and greater economic decentralization. There can be no assurance, however, that the Chinese government will continue to pursue such policies, that such policies will be successful if pursued, or that such policies will not be significantly altered from time to time.

Our business and prospects are dependent upon agreements and regulatory approval with various entities controlled by Chinese governmental instrumentalities. Historically, our operations in China have received relatively favorable treatment from these instrumentalities as a result of the Chinese government’s policies of encouraging economic development and innovation, especially in underdeveloped regions. However, our operations and prospects would be materially and adversely affected by a change in China’s economic policies, which could make it more difficult for us to obtain necessary approvals from governmental authorities and to obtain economic incentives from governmental authorities. In addition, if the Chinese government elects not to honor certain contracts as a result of political change, it might be difficult to enforce these contracts against such governmental entities in China. In addition, the legal system of China relating to foreign investments is both new and continually evolving, and currently there can be no certainty as to the application of its laws and regulations in particular instances.

For example, in June 2002, we entered into an agreement with Zoucheng Municipal Government granting us the use of at least 15.7 acres in Shandong Province, China at no cost for 10 years to construct a manufacturing facility. Pursuant to relevant China laws and regulations, we had paid tenure tax on quarterly basis at the rate of approximately $1,660 per acre. However, from January 1, 2007, China central government adopted a series of policies to strengthen land management, including doubled tenure tax to $3,320 per acre. In February 2008, the Ministry of Land and Resources of China issued “Controlling Indexes of Construction Land Use for Industrial Projects”, which requires the building coverage should not be less than 30%. Up to now, the current situation in Kiwa Shandong does not meet this requirement. As a company operating ag-biotech business, the building coverage may differ from that of typical manufacturers in other industries. However, there can be no assurance that it will not result in more costs to the Company or other uncertainties.

A slow-down in the Chinese economy may adversely effect our growth and profitability.

The growth of the Chinese economy has been uneven across geographic regions and economic sectors. There can be no assurance that growth of the Chinese economy will be steady or that any recessionary conditions will not have a negative effect on our business. Several years ago, the Chinese economy experienced deflation, which may reoccur in the foreseeable future. During 2007, there is an increasing trend of inflation in China. The performance of the Chinese economy overall affects our profitability as expenditures for agricultural technological products may decrease due to slowing of demand.

 

Any recurrence of SARS, avian influenza or another widespread public health problem, could adversely affect our business and results of operations.

A renewed outbreak of SARS, Avian influenza, highly pathogenic blue-ear disease or another widespread public health problem in China, where most of our revenue is derived, could have a negative effect on our operations. Our operations may be impacted by a number of health-related factors, including the following: (1) quarantines or closures of some of our offices and factories which would severely disrupt our operations, (2) the sickness or death of our key officers and employees, (3) a general slowdown in the Chinese economy, especially rapid decrease of stockbreeding

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our business and results of operations.

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Our ability to generate revenues could suffer if the Chinese ag-biotechnology market does not develop as anticipated.

The agriculture-biotechnology market in China, the primary market in which we do business, is in the early stages of development. While we believe the market opportunity looks promising, we expect that the market will take several years to develop. While it is difficult to project exactly how long it will take to develop the ag-biotechnology industry in China, we anticipate that it will take at least ten years to reach a level of development that is similar to the current state of the industry in the United States. Successful development of the ag-biotechnology market in China depends on the following: (1) continuation of governmental and consumer trends favoring the use of products and technologies designed to create sustainable agriculture; (2) educating the Chinese agricultural community and consumers about the uses of ag-biotechnology products; and (3) certain institutional developments such as governmental agricultural subsidies designed to promote the use of environmentally friendly ag-biotechnological products.

There are no assurances that these trends will continue, governmental subsidies will be offered, or that the Chinese agricultural community and consumers will be successfully educated about the uses of ag-biotechnology products. The conduct of business in the ag-biotechnology market involves high risks. There can be no assurances that the ag-biotechnology market in China will develop sufficiently to facilitate our profitable operation. While we believe that we will benefit from our first-mover advantage in a growing market, existing competitors and new entrants in the ag-biotechnology market are expected to create fierce competition in the future as the market evolves. Competitors and new entrants may introduce new products into the market that may detrimentally affect sales of our existing products, and consequently our revenues. We intend to fund operations through sales, debt and equity financings until such time as the ag-biotechnology market in China is sufficiently developed to support our profitable operation.

 

The admission of the People’s Republic of China into the World Trade Organization could lead to increased foreign competition for us.

Domestic competition in the compound fertilizer industry is largely fragmented and foreign competition is minimal. However, as a result of The People’s Republic of China becoming a member of the World Trade Organization (“WTO”), import restrictions on agricultural products are expected to be reduced. With the lowering of import restrictions and the WTO’s requirement for a reduction of import tariffs as condition of membership, such reduced import restrictions and tariffs for us may result in an increase of foreign products and could in turn lead to increased competition in the domestic agricultural market.

We may not be able to adequately protect our intellectual property rights, and may be exposed to infringement claims from third parties.

Our success will depend in part on our ability to obtain patent protection for our technology, to preserve our trade secrets and to operate without infringing on the proprietary rights of third parties. We have several trademarks registered in China, which will be protected by the trademark laws in China for ten years and are renewable at the expiration of the initial ten-year term. In addition, we acquired a China patent in 2004 from CAU entitled “Highly Effective Composite Bacteria for Enhancing Yield and the Related Methodology for Manufacturing,” issued by the China Intellectual Property Bureau, which has a remaining term of five years, and entered into a Technology Transfer Agreement with JKB on the technology transfer and related technical service for the AF-01 technology.

We may also file patents with the PRC Intellectual Property Bureau and/or the U.S. Patent and Trademark Office as we deem appropriate, or buy other patents such as above said anti-viral aerosol technologies. There can be no assurance that the patents applied for will be reviewed in a timely manner, that any additional patents will be issued or that any patents issued will afford meaningful protection against competitors with similar technology or that any patents issued will not be challenged by third parties. There also can be no assurance that others will not independently develop similar technologies, duplicate our technologies or design around our technologies whether or not patented. There also can be no assurance that we will have sufficient resources to maintain a patent infringement lawsuit should anyone be found or believed to be infringing our patents. There also can be no assurance that the technology ultimately used by us will be covered in any additional patent applications that we may file. We do not believe that our technology infringes on the patent rights of third parties. However, there can be no assurance that certain aspects of our technology will not be challenged by the holders of other patents or that we will not be required to license or otherwise acquire from third parties the right to use additional technology. The failure to overcome such challenges or obtain such licenses or rights on acceptable terms could have a material adverse affect on our results of operations and financial condition.

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The processes and know-how of importance to our technology are dependent upon the skills, knowledge and experience of our technical personnel, consultants and advisors and such skills, knowledge and experience are not patentable. To help protect our rights, we require employees, significant consultants and advisors with access to proprietary information to enter into confidentiality and proprietary rights agreements. There can be no assurance, however, that these agreements will provide adequate protection for our trade secrets, know-how or proprietary information in the event of any unauthorized use or disclosure. There can be no assurance that we will be able to obtain a license for any technology that we may require to conduct our business or that, if obtainable, such technology can be licensed at a reasonable cost. The cost of obtaining and enforcing patent protection and of protecting proprietary technology may involve a substantial commitment of our resources. Any such commitment may divert resources from other areas of our operations. We may be required to license or sublicense certain technology or patents in order to commence operations. There can be no assurance that we will be able to obtain any necessary licenses or to do so on satisfactory terms. In addition, we could incur substantial costs in defending ourselves against suits brought by other parties for infringement of intellectual property rights and there are no assurances that we will have the resources to do so.

We may become involved in intellectual property litigation, the defense of which could adversely impact our business operations.

Currently we have one patent in China (Patent Number ZL93 101635.5 and International patent classification Number A01N 63/00), which covers six different species of bacillus which have been tested as bio-fertilizers to enhance yield and plant health as well as the production methods of the six species. The patent will expire on February 19, 2013. Pursuant to our Technology Transfer Agreement with JKB, we will acquire the AF-01 anti-viral aerosol technology when we have fully paid the first installment of the purchase price and other conditions to the contract have been fulfilled, such as issuance by the PRC Ministry of Agriculture of a new medicine certificate in respect of the technology.

While we have not received any allegations, complaints or threats of litigation relating to any intellectual property rights, we may, from time to time, become involved in litigation regarding patent and other intellectual property rights. From time to time, we may receive notices from third parties of potential infringement and claims of potential infringement. Defending these claims could be costly and time consuming and would divert the attention of management and key personnel from other business issues. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement also might require us to enter into costly royalty or license agreements. However, we may be unable to obtain royalty or license agreements on terms acceptable to us, or at all. In addition, third parties may attempt to appropriate the confidential information and proprietary technologies and processes used in our business, which we may be unable to prevent and which would harm the businesses and our prospects.

 

We face technical risks associated with commercializing our technology which could have a material adverse impact on our business results and operations.

A key to our future success is the ability to produce our planed animal flu disinfector, livestock feed and bacillus series of products at lower costs than our competitors. Although we are currently utilizing our proprietary technology to produce such products at lower costs, our method for producing such products on a commercial basis has only recently begun. Further, although results from recent independent tests and our early production results have been encouraging, the ability of our technology to commercially produce such products at consistent levels is still being evaluated. There can be no assurance that we will continue to be able to produce such products at lower costs than our competitors, nor that our technology will be able to commercially produce such products at consistent levels.

 

We have limited business insurance coverage.

We do not have any business liability insurance coverage for our operations. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

(2) Risk Related to Our Common Stock

 

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If an active trading market for our securities does not remain in existence, the market price of our securities may decline and stockholders’ liquidity may be reduced.

Our common stock is quoted on the OTC Bulletin Board; however, trading volume is very limited. We cannot guarantee that trading volumes to sustain a regular trading market will ever develop. The OTC Bulletin Board is an inter-dealer, over-the-counter market that provides significantly less liquidity than the NASD’s automated quotation system. Market prices for our common stock will be influenced by a number of factors, including but not limited to: (1) the issuance of new equity securities; (2) changes in interest rates; (3) competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; (4) variations in quarterly operating results; (5) change in financial estimates by securities analysts; (6) the depth and liquidity of the market for our common stock; (7) investor perceptions of our company and the ag-biotechnology industry generally; and (8) general economic and other conditions.

The designation of our common stock as “penny stock” could impact the trading market for our common stock due to broker-dealer requirements imposed by the designation of our common stock as “penny stock”.

Our common stock is a “penny stock” as defined in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as amended, as it meets the following definitions: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange, or even if so, has a price less than $5.00 per share; and (iii) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

 

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the Securities and Exchange Commission require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.

Potential investors in our common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

Provisions in our charter and the corporate law of our state of incorporation could deter or prevent an acquisition or change of control.

Provisions of our certificate of incorporation may deter or prevent a change in control of management. Specifically, our certificate of incorporation allows our Board of Directors to issue 20,000,000 shares of preferred stock, in one or more series and with such rights and preferences including voting rights, without further stockholder approval. In the event that the Board of Directors designates additional series of preferred stock with rights and preferences, including super-majority voting rights, and issues such preferred stock, the preferred stock could make our acquisition by means of a tender offer, a proxy contest or otherwise, more difficult, and could also make the removal of incumbent officers and directors more difficult. As a result, these provisions may have an anti-takeover effect. The preferred stock authorized in our certificate of incorporation may inhibit changes of control.

 

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In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law. That section provides, with some exceptions, that a Delaware corporation may not engage in any of a broad range of business combinations with a person or affiliate, or associate of the person, who is an “interested stockholder” for a period of three years from the date that the person became an interested stockholder unless: (i) the transaction resulting in a person becoming an interested stockholder, or the business combination, is approved by the Board of Directors of the corporation before the person becomes an interested stockholder; (ii) the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder, excluding shares owned by persons who are both officers and directors of the corporation, and shares held by some employee stock ownership plans; or (iii) on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation’s Board of Directors and by the holders of at least 66 2/3% of the corporation’s outstanding voting stock at an annual or special meeting, excluding shares owned by the interested stockholder. An “interested stockholder” is defined as any person that is (a) the owner of 15% or more of the outstanding voting stock of the corporation or (b) an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether the person is an interested stockholder.

 

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

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

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

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

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

Entering into equity or debt financings could result in dilution to existing stockholders.

We will be required to raise additional capital to fund our operations and finance our research and development activities through a public or private offering of debt or equity securities. Any equity financing could result in dilution to the existing stockholders as a direct result of our issuance of additional shares of our capital stock. Debt financings will result in interest expense and likely subject us to negative covenants that would limit our operational flexibility, and if convertible into equity, could also dilute then-existing stockholders.

For example, we issued $2,450,000 of convertible notes (6% Notes) in 2006, of which $370,338 have been converted into 4,744,813 shares and the balance of $2,058,625 may be converted into an estimated 28,600,000 shares of our common stock based on the average price of three lowest prices within 20 trading days before December 31, 2007. We also have outstanding 6% Note Warrants to purchase 12,250,000 shares of common stock. The conversion ratio of the 6% Notes is based on the market price of our stock at any given point in time. Consequently, the number of shares of common stock issuable upon conversion of the outstanding 6% Notes and certain of our other outstanding convertible notes will increase if the market price of our stock declines. Such debt financings may cause immediate and substantial dilution to our existing stockholders.

 

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In the event that our stock price declines, the shares of common stock allocated for conversion of the 6% Notes may not be adequate and we may be required to amend our certificate of incorporation to increase our authorized shares of common stock. If so, we may incur substantial costs in connection therewith.

 

Pursuant to the securities purchase agreement in connection with the 6% Notes, we must reserve for purposes of issuance a number of shares of common stock that is no less than 110% of the number of shares of common stock issuable upon full conversion of the 6% Notes based on the average conversion price of the 6% Notes and full exercise of the 6% Note Warrants based on the average exercise price of the 6% Note Warrants. Based on our current market price and the potential decrease in our market price as a result of the issuance of shares upon conversion of the 6% Notes, we have made a good faith estimate as to the amount of shares of common stock that we are required to allocate for conversion of the 6% Notes. Accordingly, we have allocated an aggregate of 18,310,912 shares of common stock to cover the conversion of the 6% Notes.(among which a total number of 6,610,963 shares have been used for conversion as of March 18, 2007) In the event that our stock price decreases, the shares of common stock we have allocated for conversion of the 6% Notes may not be adequate. Where the authorized shares of common stock are insufficient, if we fail to obtain shareholder approval to increase authorized shares within 60 days, we are obligated to pay the 6% Notes holders liquidated damages of 2% of the outstanding amount of the 6% Notes per month plus accrued and unpaid interest on the 6% Notes, prorated for partial months, in cash or in shares of common stock at our option. The number of authorized shares of the Company was amended from 100,000,000 to 200,000,000 at the Annual Stockholders’ Meeting of 2006.

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

Sales of our common stock in the public market could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. As of December 31, 2007, we had 81,519,676 shares of common stock outstanding, most of which we estimate have been held more than two years and are freely tradable under Rule 144. In the Form SB-2 declared effective on October 30, 2006, we registered up to 27,685,365 shares of common stock for resale, which may be sold without restriction under securities laws. In November of 2007, the SEC adopted significant amendments to Rule 144, pursuant to which holding period of non-affiliates before resale of restricted shares of a reporting company has been shortened to six months. The sale of these shares may adversely affect the market price of our common stock.

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

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

 

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ITEM 2 PROPERTY

In June 2002, we entered into an agreement with Zoucheng Municipal Government granting us the 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, we have the option to pay a fee of approximately RMB 480,000 ($65,712) per acre for the land use right at the expiration of the 10-year period. We may not transfer or pledge the temporary land use right. In the same agreement, we have 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, 2007, we had invested approximately $1.79 million in plant and equipment for the project. Management believes that neither the company nor management will be liable for compensation or penalty if the investment commitment is not fulfilled. In October 2003, we completed the first construction phase and began production in the facility. During September 2007, we finished the first stage of an upgrade to our Kiwa Shandong facility. The end-product production capacity of the facility is now approimmatly 5,000 tons per year and is expected to be 48,000 tons per year after subsequent upgrades.

With the formation of Kiwa Tianjin in July 2006, Challenge Feed, the minority shareholder, invested machinery and equipment used in one of its two bio-enhanced feed production lines at an agreed value of $120,000. The Company has also entered into a lease agreement with Challenge Feed to lease another concentrated feed product line for three years. (For more details, see Note 19 to consolidated financial statements under Item 7 in Part II.) Under the lease agreement, we also lease Challenge Feeds’s other facilities for three years commencing on August 1, 2006: (1) an office building with floor area of approximately 800 square meters; (2) storehouses with floor area approximately 2,500 square meters; and (3) two workshops with floor area of approximately 1,200 square meters. The total monthly rental is RMB 50,000 ($6,845). From January 1 to December 31, 2007 we have paid $68,450 as rent expenses.

We lease our principal executive offices located at 415 West Foothill Blvd, Suite 206, Claremont, California 91711-2766. The lease has a term of three years with monthly rent $1,000 and expires in March 2008. We currently expect that we will renew this lease prior to its expiration.

The Company leased an office in Beijing under an operating lease since May 2005 with an aggregate monthly lease payment of approximately RMB 40,767 (US$5,581) and the lease was terminated with the consent of both the lessor and the Company on July 14, 2007. The Company has leased a new office in Beijing from July 15, 2007. The operating lease agreement will expire at January 14, 2009. The monthly rental payment for the new office is RMB 82,322 ($11,270).

 

ITEM 3 LEGAL PROCEEDINGS

The Company is not currently involved in any material pending legal proceedings.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

At our annual meeting held on July 18, 2007, five nominees for director has been elected by the required vote of our shareholders. The annual meeting also ratified the appointment of Mao & Company, CPAs Inc. as the Company’s independent auditor for fiscal 2007.

 

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PART ΙΙ

ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 

Market Information

The Company’s common stock has been quoted on the OTC Bulletin Board of the NASD under the symbol “KWBT.OB” since March 30, 2004, and was quoted under the symbol “TTGM.OB” prior to the merger in March 2004. The merger transaction is described in “Business-The Company” under Item 1. During 2007, the market price for our common stock has ranged from $0.06 to $0.26.

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

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

Fiscal Year 2007		High			Low
First Quarter		$	0.26		$	0.17
Second Quarter		$	0.21		$	0.085
Third Quarter		$	0.095		$	0.06
Fourth Quarter		$	0.19		$	0.083

Fiscal Year 2008		High			Low
January 1, 2008 through March 24, 2008		$	0.21		$	0.11

Shareholders

As of March 24, 2008, there were approximately 433 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.

Recent Sales of Unregistered Securities

We have previously reported in our filings with the SEC information about unregistered sales of our securities made during the period covered by this report pursuant to applicable exemptions from the registration requirements of the Securities Act of 1933, as amended.

Equity Compensation Plan Information

The information required by Item 5 regarding securities authorized for issuance under equity compensation plans is included in Item 11 of this report.

 

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ITEM 6

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007 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-KSB for the fiscal year ended December 31, 2007 involve known and unknown risks, uncertainties and other factors (described in “Business-Risk Factors” under Item 1) 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 the shareholders of Tintic Gold Mining Company, a Utah public corporation (“Tintic”), entered into a share exchange transaction with the shareholders of Kiwa BVI, a privately-held British Virgin Islands corporation that left the shareholders of Kiwa BVI owning a majority of Tintic and Kiwa BVI a wholly-owned subsidiary of Tintic, See “Business - The Company” under Item 1. For accounting purposes this transaction was treated as an acquisition of Tintic Gold Mining Company by Kiwa BVI in the form of a reverse triangular merger and a recapitalization of Kiwa BVI and its wholly owned subsidiary, Kiwa Shandong. On July 21, 2004, we completed our reincorporation in the State of Delaware.

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

We generated approximately $9.13 million and $2.51 million in revenue from continuing operations in fiscal years 2007 and 2006, respectively, reflecting an increase of 263.8%. The marked increase is mainly due to the notable expansion in our principal operations, including our bio-fertilizer business and bio-enhanced feed business; (1) During fiscal 2007, revenue generated from our bio-fertilizer business increased from approximately $47,000 to $241,000, representing a 414.3% increase; (2) net sales contributed by the bio-enhanced feed business increased 261.3%, from $2.46 million in 2006 to $8.89 million in 2007. (The $2.46 million in revenue generated from bio-enhanced livestock feed business in 2006 were contributed by our majority-owned subsidiary, Kiwa Tianjin, in five months since its inception in August 2006.) In the meantime, we have terminated urea entrepot trade business in 2007, which generated nil revenue in 2007, while $800,000 in 2006. We incurred a net loss of $3.31 million (including non-cash expenses of approximately $1.4 million) and $2.28 million for fiscal years 2007 and 2006, respectively.

Due to our limited revenues from sales and continuous losses, we have relied on the proceeds from the sale of our equity securities and loans from both unrelated and related parties to provide the resources necessary to fund the development of our business plan and operations. During fiscal 2007, we entered into a couple of advance agreements with related parties. Our financing activities generated $308,591 net cash inflow in total during the twelve months ended December 31, 2007. These funds are insufficient to execute our business plan as currently contemplated, which may result in the risks described in “Business-Risk Factors” under Item 1.

Going Concern

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

As of December 31, 2007, we had an accumulated deficit of $11,074,522, of which $3,307,868 (including non-cash expenses $1,408,239) and $2,284,099 (including non-cash expenses $759,681) was occurred during the fiscal years ended December 31, 2007 and 2006, respectively. Though revenues from our principal operations increased significantly in 2007 as compared with 2006, total revenue remains relatively low. We have also terminated our urea entrepot trade business in 2007, which had contributed $800,000 revenue in 2006. Our bio-fertilizer business still incurred losses and our bio-enhanced feed business showed low profit margin. We currently do not have sufficient revenues to support our business activities and we expect operating losses to continue.

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In the short term, we still need to continue upgrading or expanding our bio-fertilizer and bio-enhanced feed manufacturing facility, expand our sales and marketing forces in China, expand our distribution channels in China, maintain operation of Kiwa-CAU R&D Center, introduce new veterinary drug products and acquire a small or medium sized bio-technology company or a factory with GMP qualification for this new product. In the long term, we plan to become a commercialization platform for world-class biotechnological research and development results for applications in agriculture, natural resources conservation and environmental protection, launch our products in the Southeast Asia, United States and other regional markets, continue our introduction of new products, create formal strategic alliances with selected United States companies to co-develop and/or co-market products in the United States and China, and form an international biotechnology research center in China for the research and development of agricultural, environmental and medical applications.

As mentioned in “Business-Risk Factors” under Item I, we will require additional capital to fund our operations. Funding, whether from a public or private offering of debt or equity, a bank loan or a collaborative agreement, may not be available when needed or on favorable terms. Further, any significant equity or debt financing will require us to give priority to holders of the 6% secured convertible notes under the terms of a securities purchase agreement dated June 29, 2006, which may raise the difficulty of completing a financing. See Note 14 to Consolidated Financial Statements under Item 7 of Part II. If we are unable to obtain necessary financing in the amounts and on terms deemed acceptable, we will have to limit, delay, scale back or eliminate our research and development activities or future operations, and may have to curtail operations and consider a formal or informal restructuring or reorganization. Any of the foregoing may adversely affect our business and prevent us from continuing as a going concern.

As of December 31, 2007, our current liabilities were $2,854,458, which exceeded current assets by $1,366,926, representing a current ratio of 0.52 and a quick ratio 0.23; although our current assets exceeded our current liabilities by $474,837 at December 31, 2006, denoting a current ratio of 1.26. The turning down of short-term liquidity is mainly due to (1) losses from continued operations, increased 14.7% from $2,522,146 in 2006 to $2,893,359 in 2007; (2) a net loss of $414,509 recognized from discontinued urea entrepot trade; and (3) net cash inflow from financing activities decrease to $308,591 in 2007 as compared to $2,665,333 in 2006. If we can achieve the necessary financing to increase our working capital, we believe the Company will be well-positioned to further increase sales of our products and to generate more revenues in 2008. There can be no assurances that we will be successful in obtaining this financing.

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

 

Trends and Uncertainties in Regulation and Government Policy in China

Agricultural Policy Changes in China

Economic growth in China has averaged 9.5% over the past two decades and seems likely to continue at that pace for some time. Per China Statistics Bureau, gross domestic product in 2006 increased 10.7% compared to 2005. However China now faces an imbalance between urban and rural environments as well as the manufacturing and agricultural industries. Since 2004, the Chinese central government has consecutively announced a so-called No. 1 Document each year concerning the countryside. The latest No.1 document unveiled on January 30, 2008 contains wider-range of policies promoting sustainable development of agriculture, for example, promoting income level of billions of farmers, strengthening supervision of farm inputs and actively developing green-food and organic food. The agricultural tax was abolished effective January 1, 2006. The abolition of the agricultural tax should increase incomes of farmers and ease their financial burdens. Other programs and regulations have been adopted that are favorable to agriculture including: (1) Decision of the State Council on Implementing the Interim Regulation on Promoting the Adjustment of Industrial Structure promulgated by the State Council on December 7, 2005, (2) Guiding Catalogue for the Adjustment of Industrial Structure issued by the State Council, the National Development and Reform Commission on December 7, 2005, and (3) Outline of National Medium and Long-Term Plans for Science & Technology Development (2006-2020) (promulgated by the State Council on February 9, 2006 adopted policies favorable to agriculture). In July 2007, the State Council of the PRC promulgated “Special Rules of the State Council on Strengthening the Supervision and Management of the Safety of Food and Other Products” setting forth legal requirements, administrative regulations and national compulsory standards for producers when using agricultural input. Producers and dealers of export products must guarantee compliance with the importing country’s relevant legal requirements or contractual standards; anyone company not complying may be penalized. We should benefit from these favorable policies as farmers will retain more of their income and will most likely spend some of that income on our products, resulting in greater sales. In addition, we anticipate receiving additional governmental support in marketing our products to farmers due to additional procedural changes included with the new policy.

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General Fiscal and Monetary Policy Changes in China

The volatility in the inflation rate in China in the past decade, especially the serious inflation trend since the second half of 2007 suggests that China’s domestic monetary policy has not always been successful in maintaining low and stable inflation. In recent years, China has been adopting restricted or prudent fiscal and monetary policies to fight potential inflation. However, the agricultural area has been one of a few industries which will continue to enjoy expansionary policy. We have previously benefited from these policies, as evidenced by our receipt of non-interest bearing loans of over $1.5 million from the Chinese government so far and value-added tax exemption for our bio-enhanced feed products. As the government further increases investment in the agricultural area, we believe that similar loans or other favorable financing programs will be made available to us in the future, which we anticipate will assist us with managing liquidity and capital resources during our growth period. However, if these financing programs are not made available in the future, we may have to borrow on terms which are less favorable to us, or we may not be able to borrow additional funds at all on terms which are acceptable.

Foreign Investment Policy Change

On March 16, 2007, China's parliament, the National People's Congress, adopted the Enterprise Income Tax Law, which has taken effective on January 1, 2008. The new income tax law sets unified income tax rate for domestic and foreign companies at 25 percent and abolishes the favorable policy for foreign invested enterprises. After this law takes effect, newly established foreign invested enterprises will not, in general, enjoy favorable tax treatment as in effect under previous tax laws. However, a 15 percent corporate income tax rate for qualified high and new technology enterprises survives and will not be geographically restricted to high and new tech areas recognized by the central government. Foreign invested enterprises that used benefit from other favorable tax treatment will continue to enjoy favorable tax treatment, although the conditions under which the benefit is available are narrowed. For example, according to the enterprise income tax law previously in effect, our PRC subsidiaries, Kiwa Shandong and Kiwa Tianjin were exempt from corporate income taxes for their first two profitable years and were entitled to a 50% tax reduction for the succeeding three years. However after the new income tax law took effect, fiscal year 2008 is regarded as the first profitable year even if Kiwa Shandong or Kiwa Tianjin will not be profitable; thereby narrowing the time period when the favorable tax treatment may be available to us. Although less favorable than before the adoption of the Enterprise Income Tax Law, we believe the beneficial tax status we enjoy will make an investment in our Company relatively more attractive to both foreign and domestic investors in China, which could improve our liquidity or provide additional capital resources. However, the PRC is undergoing a significant transition period in the development of its tax policy for private industry and it is possible that the tax laws could be modified in the future such that we would be ineligible for these benefits. In such case our tax liability will increase and our liquidity will decrease.

Foreign Exchange Policy Changes

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

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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 = RMB8.28 to approximately US$1.00 = RMB8.11. So far the trend of such appreciation continues; the exchange rate of U.S. Dollar against RMB on December 31, 2007 was US$1.00 = RMB7.3046.

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 audited balance sheets as of December 31, 2007 and 2006, and the audited statements of operations, equity movement and cash flows for the fiscal years ended December 31, 2007 and 2006, and the related notes thereto, for further discussion of our accounting policies.

Accounts Receivables

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

As of December 31, 2007, there was $277,140 in accounts receivable over 365 days old, therefore we provided $277,140 in bad debt provision based on total accounts receivable over one year.

Terms of our sales vary from cash on delivery to a credit term up to three to twelve months. Ordinarily, we require our customers to pay between 20% and 60% of the purchase price of an order placed, depending on the results of our credit investigations, prior to shipment. The remaining balance is due within twelve months, unless other terms are approved by management. As stated in the “Business - Risk Factors” under Item 1, the agriculture-biotechnology market in China is in the early stages of development and we are still in the process of exploring the new market. We may also distribute our bio-products to special wholesalers with favorable payment terms with a focus on the future. We maintain a policy that all sales are final and we do not allow returns. However, in the event of defective products, we may allow customers to exchange the defective products for new products within the quality guarantee period. In the event of any exchange, the customers pay all transportation expenses.

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.

Impairment of Long-Lived Assets

Our long-lived assets consist of property, equipment and intangible assets. As of December 31, 2007, the net value of property and equipment and intangible assets was $1,567,905 and $296,245, respectively, which represented approximately 42.7% and 8.1% of our total assets, respectively.

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We periodically evaluate our investment in long-lived assets, including property and equipment, for recoverability whenever events or changes in circumstances indicate the net carrying amount may not be recoverable. Our judgments regarding potential impairment are based on legal factors, market conditions and operational performance indicators, among others. In assessing the impairment of property and equipment, we make assumptions regarding the estimated future cash flows and other factors to determine the fair value of the respective assets. If these estimates or the related assumptions change in the future, we may be required to record impairment charges for these assets. The actual production capacity of Kiwa Shandong in fiscal 2006 and 2007 was significantly lower than its normal capacity because the upgrade in our fermentation facility has not yet fully completed. Our production capacity is increasing gradually and steadily. It is expected that the second stage upgrade will be completed in the first half of 2008 and Kiwa Shandong’s production capacity will continue to increase in 2008.

Based on our analysis, we have determined that there was no impairment to our current production facilities and intangible assets as of December 31, 2007 and 2006.

Fair value of warrants and options

We have adopted SFAS No. 133, “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.

We also adopt SFAS No. 123(R) “Share Based Payment” to recognize options granted to employees as derivative instruments in our consolidated financial statements.

We calculate fair value of the warrants and options with Black-Schole Model.

Revenue Recognition

We recognize revenue for our products in accordance with Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as amended by SAB No. 104, “Revenue Recognition”. Sales represent the invoiced value of goods, net of value added tax, supplied to customers, and are recognized upon delivery of goods and passage of title.

Pursuant to EITF 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent”, if the company carry out a transaction which has the following indicators: (1) the supplier (not the company) is the primary obligor in the arrangement; (2) the amount the company earns is fixed; (3) the supplier (and not the company) has credit risk, then the company shall recognize revenue based on the net amount retained (that is, the amount billed to the customer less the amount paid to a supplier). We evaluate the relevant facts and circumstances of our urea entrepot trade, and recognize revenue in accordance with this principle. During fiscal year ended December 31, 2006, we recognized $800,000 revenue from the trade and nil was recognized during fiscal year ended December 31, 2007. We classified urea entrepot trade as discontinued operations in 2007.

Income Taxes

The Company accounts for income taxes under the provisions of SFAS No. 109, “Accounting for Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequence attributable to the difference between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are measured using the enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company establishes a valuation when it is more likely than not that the assets will not be recovered.

Major Customers and Suppliers

Bio-fertilizer products

We had a total of 58 customers as of December 31, 2007, of which three customers accounted for 36.1%, 24.7% and 17.1% of our net sales for the fiscal year ended December 31, 2007, respectively. No other single customer accounted for more than 5% of our revenues. For the fiscal year ended December 31, 2006, we had two significant customers accounting for 28.5% and 15.9% of our net sales, respectively, and no other single customer accounted for more than 10% of our revenues.

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Three suppliers accounted for 17.9%, 17.6% and 13.3% of net purchases for fiscal 2007. Comparably, four suppliers accounted for 18.0%, 15.1%, 11.3% and 10% of our net purchases for the fiscal year ended December 31, 2006, respectively. Historically our existing suppliers have met our needs. In addition, the raw materials used in our bio-fertilizer products are widely available from a variety of alternative sources.

Bio-enhanced feed

Our bio-enhanced feed business began in August 2006. So far, we have also developed a total of 101 customers, of which two significant customers account for 12.2% and 5.5% of our net sales for the fiscal 2007. No other individual customers accounted for more than 5% of net sales during the period. We had 61 customers in total for 2006, of which no individual customer accounted for more than 8% of our net sales for fiscal year ended December 31, 2006.

The three largest suppliers accounted for 11.3%, 9.5% and 7.9% of our net purchases for fiscal 2007, no other individual supplier account for more than 7.5% of our net purchases. Three suppliers accounted for 25.4%, 18.0%, and 12.5% of our net purchases for the fiscal year ended December 31, 2006, respectively.

Results of Operations

Net Sales

Net sales from continuing operations were $9,129,779 and $2,506,715 for the twelve months ended December 31, 2007 and 2006, respectively, representing an increase of $6,623,064 or 264.2%. The marked increase is mainly due to the notable expansion in our principal operations, including our bio-fertilizer business and bio-enhanced feed business; (1) During the fiscal year ended December 31, 2007, revenue generated from our bio-fertilizer business increased from 46,926 to $241,357, representing a 414.3% increase; (2) net sales contributed by our bio-enhanced feed business increased 261.3%, from $2,459,789 in 2006 to $8,888,422 in 2007. (The $2,459,789 revenues generated from our bio-enhanced livestock feed business in 2006 were contributed by Kiwa Tianjin during the five months from its inception in August 2006 to the end of 2006.)

		Twelve months ended December 31,
		2007			2006			Increase			%
Bio-fertilizer:
Net sales		$	241,357			46,926			194,431			414.3	%
Quantity (Tons)			247			109			138			126.6	%
Average price		$	977			431
Bio-enhanced feed:
Net sales		$	8,888,422			2,459,789			6,428,633			261.3	%
Quantity (Tons)			28,235			9,244			18,991			205.4	%
Average price		$	315			266
Total net sales		$	9,129,779			2,506,715			6,623,064			264.2	%

Cost of Sales

Cost of sales was $8,603,795 and $2,326,419 for the twelve months ended December 31, 2007 and 2006, respectively. The increase of $6,277,376 or 269.8% in cost of sales was primarily due to the rapid increase of sales.

Gross Profit

Gross profit from our continuing operations was $525,984 and $180,296, representing a profit margin of 5.8% and 7.2% for the twelve months ended December 31, 2007 and 2006, respectively.

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This increase of $345,688 in gross profit is mainly due to quick expansion in sales revenues of both bio-fertilizer and bio-enhanced feed business. The decrease in gross profit margin was mainly caused by the following factors: (1) During 2007, 97.4% of our net sales were from our bio-enhanced feed sector; comparably, 98.1% of sales revenues of continuing operations were from that sector during 2006. (2) Gross profit margin of our bio-enhanced feed business was 4.8% for 2007, while it was 6.9% during 2006. (3) Although the gross profit margin of bio-fertilizer business increased 21.3% from 20.9% in 2006 to 42.2% in 2007, it does not make material impact on the overall gross profit margin of the Company’s continued operations.

		Continued Operations
		Bio-fertilizer												Bio-enhanced feed
								Changes												Changes
		2007			2006			$			%			2007			2006			$			%
Net Sales			241,357			46,926			194,431			414.3	%		8,888,422			2,459,789			6,428,633			261.3	%
Cost of Sales			139,573			37,140			102,433			275.8	%		8,464,222			2,289,279			6,174,943			269.7	%
Gross Profit			101,784			9,786			91,998			940.1	%		424,200			170,510			253,690			148.8	%
Gross Profit Margin			42.2	%		20.9	%					21.3	%		4.8	%		6.9	%					(2.2	)%

The gross margin of both bio-fertilizer and bio-enhanced feed fluctuated from quarter to quarter in 2007. For example, the gross margin of bio-enhanced feed decreased sharply during the fourth quarter of 2007. This was due to the fact that (1) in general, fish feed generally has a high profit margin as compared with fowl feed and pig feed, due to seasonal factors, and consistent with that pattern, sales of fish feed decreased significantly in winter; and (2) the purchasing price of raw materials increased gradually from the second half of 2007, but it is difficult to similarly adjust selling prices continuously among large number of price-sensitive customers.

Consulting and Professional Fees

Consulting and professional fees occurred in principal operations were $794,324 (including $475,764 non-cash expenses incurred from amortization of fair value of stocks and warrants) and $822,529 for the twelve months ended December 31, 2007 and 2006, respectively, representing a decrease of $28,205 or 3.4%. Most of these fees are related to fundraising, investor relations, public company operations, etc. The decrease in consulting and professional fees is primarily attributable to high consulting and professional fees relating to investor relation service, financing commissions and legal fees in connection with the financing of 6% Notes in 2006.

Officers’ Compensation

Officers’ compensation was $285,941 and $89,528 for the twelve months ended December 31, 2007 and 2006. The $196,413 or 219.4% increase is mainly due to amortization of fair value of stock options granted on December 12, 2006 to officers under our 2004 Stock Incentive Plan (See Item 10 in Part III for details). The amount of amortization during fiscal 2007 was $139,233; comparably the amount was $50,437 during twelve months ended December 31, 2006.

General and Administrative

General and administrative expenses were $901,545 and $544,696 for the twelve months ended December 31, 2007 and 2006, an increase of $356,849 or 65.5%. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs. The increase is mainly resulted from the expansion of our operating activities, which led to the increased amount of rental, salaries, travel expenses and office expenses. Kiwa Tianjin has been operating for only 17 months (five months during 2006 and twelve months in 2007), which also contributed to increased general and administrative expenses.

Selling expenses

During 2007, selling expenses were $363,131, a $158,477 or 30.4% decrease from $521,608, our selling expenses in 2006. This decrease is mainly attributable to our adjustment of marketing and sales policies in our bio-enhanced feed business. Meanwhile, we invested approximately $280,000 to launch a marketing campaign in Shandong and Xinjiang in 2006.

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Research and Development

Research and development expenses increased by $58,054 or 48.5% to $177,773, for the twelve months ended December 31, 2007, as compared to $119,719 for the twelve months ended December 31, 2006. The increased research and development expense is mainly attributable to the expenses of maintaining Kiwa-CAU R&D Centre, which began operation in July 2006. (See “Business-Intellectual Property and Product Lines- Kiwa-CAU R&D Center” under Item 1 in Part I).

Depreciation and Amortization

Depreciation and amortization, excluding depreciation included in cost of production and deprecation of research equipment, decreased $42,713 or 24.8% to $129,298, for the twelve months ended December 31, 2007, as compared to $172,011 for the same period of 2006. The decrease in depreciation and amortization is mainly due to the abnormally low production volume in Kiwa Shandong in both 2006 and 2007. During 2006, more of the depreciation of manufacturing facilities was booked as operating expense, which would normally be booked as production costs when production capacity reaches an adequate level.

Allowance and Provision

During 2007 we accrued allowance and provision of $588 in total as compared to $220,148 to 2006. The decreased amount of allowance and provision is mainly due to a bad debt provision of $172,109 and an inventory impairment allowance of $48,039 in 2006.

Net Interest Expenses

Net interest expense was $766,411(including non-cash expenses of $568,274) in 2007 and $231,559 in 2006, representing a $534,852 or 231.0% increase. The increase is mainly attributable to (1) the increased amount of amortization of fair value of warrants in connection with 6% Notes, which increased $465,786 (non-cash expense) (see Note 14 of Notes to Consolidated Financial Statements), and (2) interest charges on our loans increased $44,521.

Net Loss

Our net loss from continuing operations for 2007 was $2,893,359 (including non-cash expenses 1,408,239), an increase of $371,213 or 14.7% compared to net loss in 2006, which was $2,522,146 (including non-cash expenses $759,681) for 2006. This increase resulted from the following factors: (1) increase in gross profit of $345,688 or 191.7%; (2) increase in operating expenses of $162,361 or 6.5%; (3) increase in interest expenses of $534,852 or 231.0%; and (4) negative $332 and positive $19,356 in minority interest in subsidiary in 2007 and 2006 respectively.

Discontinued Operations-Urea Entrepot Trade

In July 2007, the Company entered three termination agreements with each party of the urea entrepot trade for the termination of contracts between Kiwa BVI and Shengkui Technologies (“Shengkui”), Hua Yang Roneo Corporation (“Hua Yang”) and UPB International Sourcing Limited (“UPB”). Pursuant to these termination agreements, the Company will have neither rights nor obligations under previous contracts in connection with the urea entrepot trade except for a commission due to UPB. Based on these facts, we recognized relevant expenses in the second quarter of 2007. Net loss of discontinued operation, the urea entrepot trade was $414,509 for the fiscal year ended December 31, 2007. Comparably, during the twelve months ended December 31, 2006, urea entrepot trade has contributed sales revenues of $800,000 and cost of sales was $385,000, after deducting operating costs $176,953, the net profit of urea enterport trade was $238,047.

Comprehensive Loss

Comprehensive loss increased by $1,012,766 to $3,368,979 for the twelve months ended December 31, 2007, as compared to $2,379,875 for the comparable period of 2006. The increase in comprehensive loss in the current year as compared to fiscal 2006 is due to an increase of $1,023,769 in net loss and a decrease of $34,665 in other comprehensive loss.

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Liquidity and Capital Resources

Since inception of our ag-biotech business in 2002, we have relied on the proceeds from the sale of our equity securities and loans from both unrelated and related parties to provide the resources necessary to fund our operations and the execution of our business plan. During fiscal 2007, we raised $720,172 in total from our related parties through several advance and repaid $388,196 to related parties. To some extent, these fundraisings improved our short-term liquidity, however as of December 31, 2007, our current liabilities exceeded current assets by $1,366,926, reflecting a current ratio of 0.52:1, compared to net working capital of $474,837, reflecting a current ratio 1.26:1, as of December 31, 2006.

As of December 31, 2007 and 2006, we had cash of $61,073 and $498,103, respectively. The change is outlined as follows.

During 2007, our operations utilized cash of $523,649, as compared with $2,066,248 used by operations in 2006. Such cash was mainly used for working capital for our bio-fertilizer and bio-enhanced feed businesses, purchase of inventory, a market development fee for bio-fertilizer, and repayment of accounts payable to venders and service providers.

During 2007, we utilized $206,446 in acquiring property and equipment to finish the first stage to upgrade our facility in Kiwa Shandong. Comparatively, in 2006 we spent $36,600 for the purchase of equipment and $126,443 to pay part of the first payment to acquire the AF-01 anti-viral aerosol technology.

During the fiscal year ended December 31, 2007, we generated $308,591 from financing activities, consisting of proceeds from related parties of $720,172, which was offset in part by repayment of $388,196 to related parties and long-term borrowings of $23,385. During the twelve months ended December 31, 2006, we generated 2,665,333 from financing activities, consisting of the proceeds of $754,416 from issuance of common stock, issuance of the 6% Notes in the amount of $2,204,000 (net of financing costs of $246,000) and several advances or loans from related parties in the total amount of $685,906, offset by the repayments of amounts of $651,069 due to related parties, convertible notes of $307,135 and long-term borrowings of $20,785.

As of December 31, 2007, we had an accumulated deficit of $11,074,522, which was made up in part of a net loss of $3,307,868 (including non-cash expenses of $1,408,239) and $2,284,099 during 2007 and 2006, respectively. Although our bio-fertilizer business has achieved a 414.3% increase in revenue, we still incurred a net loss of $305,939 in 2007. Revenue in our bio-enhanced feed business increased 261.3% in 2007 over 2006 revenue; however, the sector has not yet reached break-even with net loss of $18,876. Although we expect our operating cash flow to improve in 2008, we do not anticipate generating sufficient positive operating cash inflow to fund our planned operations.

In 2008,we plan to finish the upgrade of Kiwa Shandong’s fermentation facilities, which will allow us to fully utilize the patent we acquired from CAU and further reduce production costs. In the meantime, we will focus on expanding our bio-fertilizer sales. We hope that key accounts in several significant regional markets will generate revenue for the Company after years of field tests. To achieve profitability in our bio-enhanced feed business, we will concentrate on (1) adjusting our product mix to increase the proportion of high-margin products, (2) improving our current equipment, and (3) setting up new production lines. With respect to the AV-01 technology, our hope is to (1) close the acquisition of a GMP-qualified veterinary factory, (2) close a first round of investment, and (3) procure approval of a number of veterinary drug products for the AF-01 technology.

Currently we have insufficient cash resources to accomplish our objectives. In the next year we estimate that we will need at least $4 million in total broken down as follows: (1) $0.5 million to service debt obligations and satisfy accounts payable to venders and service providers, (2) $0.6 million to continue the upgrade of our bio-fertilizer facility and bio-enhanced feed facility, (3) $1.25 million for our AF-01 anti-viral aerosol agent project for research and development, for acquiring a Good Manufacturing Practice (GMP) factory and to market anti-viral aerosol agents, (4) $1.7 million as working capital, including marketing fees, R&D expenses and operating cost as a public company.

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We will need to seek additional sources of funding to sustain our operations. In the next year, we intend to raise additional capital through the issuance of debt or equity securities to fund the development of our planned business operations, although there can be no assurance that we will be successful in obtaining this financing. On February 19, 2008, the Company successfully closed an equity financing with an individual investor and raised $650,000 cash.

To the extent that we are unable to successfully raise the capital necessary to fund our future cash requirements on a timely basis and under acceptable terms and conditions, we will not have sufficient cash resources to maintain operations, and may have to curtail operations and consider a formal or informal restructuring or reorganization.

Commitments and Contingencies

See Note19 to the Consolidated Financial Statements under Item 7 in Part II.

Off-Balance Sheet Arrangements

At December 31, 2007, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, 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.

Related Party Transactions

See Note 12 to the Consolidated Financial Statements under Item 7 in Part II.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements under Item 7 in Part II.

ITEM 7 FINANCIAL STATEMENTS

The Consolidated Financial Statements of Kiwa Bio-Tech Products Group Corporation and its subsidiaries including the notes thereto, together with the reports thereon of Mao & Company, CPAs, Inc. are presented beginning on page F-1.

ITEM 8

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

At the annual meeting of shareholders on July 18, 2007, the proposal of the appointment of Mao & Company, CPAs, Inc. as the Company’s independent auditors for the fiscal year ended December 31, 2007 was approved by the required votes of our shareholders. Mao & Company had also audited our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006.

Through March 18, 2007, there was not any disagreement with our current certifying accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedures.

ITEM 8A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of our 2007 fiscal year. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure.

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Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities and Exchange Act of 1934 as of the end of the period covered by this Annual Report on Form 10-KSB. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

 Changes in internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting during the fiscal year ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in 2008 as we implement our Sarbanes Oxley testing methodologies.

ITEM 8B OTHER INFORMATION

Not applicable.

 

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PART III

 

ITEM 9

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CORPORATE GOVERNANCE, CONTROL PERSONS AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 

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. None of our directors or executive officers holds directorships in other public companies as of March 24, 2008. The directors listed below will serve until the Company’s next annual meeting of the stockholders:

Name		Age		Position
Wei Li		46		Chief Executive Officer and Chairman of the Board of Directors
Lianjun Luo		38		Chief Financial Officer and Director
Dachang Ju		67		Director
Yunlong Zhang		44		Director and General Manager of Kiwa Shandong
Qi Wang		41		Director and Vice President - Technical
Yvonne Wang		29		Corporate Secretary
Dianyuan Song		48		Vice President-Marketing
Xin Ma		31		Associate Chief Financial Officer
Jun Guo		40		CEO Assistant

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

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

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

Yunlong Zhang became one of our directors on March 27, 2004. From May 2000 to 2007, Mr. Zhang had been the General Manager of China Star, responsible for the group’s daily operations. From 1994 to 2000, Mr. Zhang served as the head of the Investment Department at China National Economic and Systems Reform Research and Services Center, an economic reform think tank for the central government. Mr. Zhang holds a degree in statistics.

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Qi Wang became our Vice President - Technical on July 19, 2005 and was elected one of our directors of the Company on July 18, 2007. Prof. Wang also acts as Director of Kiwa-CAU R&D Center since July 2006. Prof. Wang served as a Professor and Advisor for Ph.D. students in Department of Plant Pathology, China Agricultural University 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.

Yvonne Wang became our Secretary in September 2005. Prior to that, she served as assistant of Executive and manager of the Company’s US office since April 2003. She obtained her B.S. degree of Business Administration in July 2001, from University of Phoenix. She is also a Realtor and committees in California, and a certified Notary Public from California’s Secretary of State.

Dianyuan Song became our Vice President-Marketing in February 2008, prior to that Mr. Song served as Marketing and Sales Director of Kiwa since he joined Kiwa in October 2007. Mr. Song served as a member of senior management of HuaKen Group of China, which is a large enterprise group specializing in marketing and distributing of fertilizer in China. Mr. Song holds a Bachelor’s degree from Agriculture University of Shenyang.

Xin Ma became our Associate Chief Financial Officer in January 2006. Prior to that Mr. Ma served as financial controller of LangChao Group. He obtained his MSc. Degrees of Management and of Finance in 2005 and 2006 respectively from the University of Leicester.

Jun Guo became our CEO Assistant in June 2007. Prior to that Mr. Guo served as General Manager of Shijiazhuang Yongfeng Feed Co., Ltd. and Shenyang Yiming Feed Co, Ltd. for two years respectively. Mr. Guo holds a Bachelor’s degree from Sichuan Institute of Animal Husbandry and Veterinary Medicine.

Family Relationships

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

Section 16(a) Beneficial Ownership Compliance