UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1 to
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 2004
KIWA BIO-TECH PRODUCTS GROUP CORPORATION
(Exact Name of Registrant as Specified in Charter)
UTAH 000-33167 84-0448400
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification No.)
17700 CASTLETON STREET, SUITE 589
CITY OF INDUSTRY, CALIFORNIA 91748
(Address of Principal Executive Offices) (Zip Code)
(626) 964-3232
(Registrant's Telephone Number, Including Area Code)
1
This Current Report on Form 8-K/A amends Item 7 of the Current Report
on Form 8-K filed with the Securities and Exchange Commission on March 29, 2004,
regarding the merger by and among Kiwa Bio-Tech Products Group Corporation, a
Utah corporation formerly known as Tintic Gold Mining Company (the
"Registrant"), TTGM Acquisition Corporation, a Utah corporation and wholly-owned
subsidiary of the Registrant ("Merger Sub"), and Kiwa Bio-Tech Products Group
Ltd., a privately-held British Virgin Islands corporation. The sole purpose of
this amendment is to provide the financial statements as required by Item 7 of
Form 8-K.
ITEM 7. - FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
FINANCIAL STATEMENTS OF KIWA BIO-TECH PRODUCTS GROUP, LTD.
Report of Grobstein, Horwath & Company LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2003 and 2002
Consolidated Statements of Operations and Deficit Accumulated during
the Development Stage for the Year Ended December 31, 2003, period
ended December 31, 2002, and from June 5 (inception) through
December 31, 2003
Consolidated Statements of Stockholders' Equity (Deficit) for the Year
Ended December 31 and period ended December 31, 2002
Consolidated Statements of Cash Flows for the Year Ended December 31,
2003, period ended December 31, 2002, and from June 5 (inception)
through December 31, 2003 and 2002
Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION.
In March 2004, the Registrant (formerly Tintic Gold Mining Company)
issued 7,722,919 shares of common stock to the shareholders of Kiwa Bio-Tech
Products Group Ltd., a privately-held British Virgin Islands corporation
("KIWA") in exchange for all the outstanding shares of KIWA. The transaction was
structured as a "reverse triangular" merger whereby KIWA was merged with and
into a newly-formed, wholly-owned subsidiary of the Registrant, with KIWA
surviving as a wholly-owned subsidiary of the Registrant. In connection with the
transaction, the Registrant changed its name to Kiwa Bio-Tech Products Group
Corporation. For accounting purposes this transaction was treated as an
acquisition of the Registrant and a recapitalization of KIWA and its wholly
owned subsidiary, KIWA Bio-Tech Products (Shandong) Co., Ltd. For accounting
purposes, KIWA is considered the acquirer in this transaction. Prior the
transaction, the Registrant did not conduct any significant business operations
or activities. The Registrant had no revenues and only nominal assets during the
two fiscal years ended December 31, 2003. As a result, pro forma financial
information reflecting the merger transaction would not include any material
adjustments to the financial statements of KIWA included in this report.
2
(c) Exhibits.
EXHIBIT NO. DESCRIPTION
23.1 Consent of Grobstein, Horwath & Company LLP
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Kiwa Bio-Tech Products Group Corporation
Registrant
Date: May 17, 2004 By: /S/ WEI LI
---------------------------------------
Wei Li, Chief Executive Officer
4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kiwa Bio-Tech Products Group Ltd.
We have audited the accompanying consolidated balance sheets of Kiwa Bio-Tech
Products Group Ltd. and subsidiary, a development stage company, as of December
31, 2003 and 2002, and the related consolidated statements of operations and
deficit accumulated during the development stage, stockholders' equity
(deficit), and cash flows for the year ended December 31, 2003, period ended
December 31, 2002, and from June 5, 2002 (inception) through December 31, 2003.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kiwa Bio-Tech
Products Group Ltd. and subsidiary as of December 31, 2003 and 2002 and the
consolidated results of their operations and their cash flows for the year ended
December 31, 2003, period ended December 31, 2002 and from June 5, 2002
(inception) through December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has been in the development stage
since its inception, has suffered recurring losses from operations, has a
working capital deficit and a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Grobstein, Horwath & Company, LLP
Sherman Oaks, California March 19, 2004, except for Notes 13 and 16 which are as
of April 30, 2004
5
KIWA BIO-TECH PRODUCTS GROUP LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND DECEMBER 31, 2002
2003 2002
----------- -----------
Assets
Current Assets
Cash and cash equivalents ................... $ 48,730 $ 522,057
Restricted cash ............................. 300,000 --
Accounts receivable ......................... 45,235 --
Inventories ................................. 135,201 6,295
Due from related party ...................... 30,574 --
Other current assets ........................ 109,811 6,433
----------- -----------
Total Current Assets ............................. 669,551 534,785
----------- -----------
Property, Plant and Equipment - net .............. 1,477,148 63,643
Deposits ......................................... -- 25,794
----------- -----------
Total Assets ..................................... $ 2,146,699 $ 624,222
=========== ===========
Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Short-term loans ............................ $ 283,930 $ --
Due to related party ........................ -- 26,902
Convertible note payable to related party ... 100,000 --
Accounts payable and accrued liabilities .... 737,636 44,862
Current portion of long-term liabilities .... 133,298 6,996
----------- -----------
Total Current Liabilities ........................ 1,254,864 78,760
----------- -----------
Long-Term Liabilities, less current portion ...... 1,102,958 151,346
Stockholders' (Deficit) Equity
Common stock - par value $0.01 per share,
5,000,000 shares authorized, 5,000,000
shares and 2,000,000 shares issued and
outstanding at December 31, 2003 and 2002,
respectively .............................. 50,000 20,000
Additional paid-in capital .................. 1,165,000 445,000
Deficit accumulated during the development
stage ..................................... (1,426,123) (70,884)
----------- -----------
Total Stockholders' (Deficit) Equity ............. (211,123) 394,116
----------- -----------
Total Liabilities and Stockholders' (Deficit)
Equity ......................................... $ 2,146,699 $ 624,222
=========== ===========
See accompanying independent auditors' report and notes to consolidated
financial statements.
6
KIWA BIO-TECH PRODUCTS GROUP LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE
CUMULATIVE
RESULTS OF
OPERATIONS
FROM JUNE 5,
2002
(INCEPTION)
YEAR ENDED PERIOD ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
----------- ----------- -----------
Net Sales ......................... $ 40,031 $ -- $ 40,031
Cost of Sales ..................... 30,294 -- 30,294
----------- ----------- -----------
Gross Profit ...................... 9,737 -- 9,737
----------- ----------- -----------
Operating Expenses:
Consulting and professional fees 545,787 21,816 567,603
Directors' compensation ........ 347,110 906 348,016
Salaries ....................... 97,534 12,393 109,927
Other .......................... 87,733 3,537 91,270
Travel and entertainment ....... 68,182 11,540 79,722
Research and development ....... 63,434 6,165 69,599
Reverse merger costs ........... 50,336 -- 50,336
Rent ........................... 27,570 1,800 29,370
Office and telephone expense ... 27,477 9,227 36,704
Insurance ...................... 19,005 2,938 21,943
Depreciation ................... 18,585 305 18,890
----------- ----------- -----------
1,352,753 70,627 1,423,380
----------- ----------- -----------
Loss Before Interest Expense and
Provision for Income Taxes ..... (1,343,016) (70,627) (1,413,643)
Interest Expense .................. 12,223 257 12,480
----------- ----------- -----------
Loss Before Provision for Income
Taxes .......................... (1,355,239) (70,884) (1,426,123)
Provision for Income Taxes ........ -- -- --
----------- ----------- -----------
Net Loss .......................... (1,355,239) (70,884) (1,426,123)
Beginning Deficit Accumulated
During the Development Stage ... (70,884) -- --
----------- ----------- -----------
Ending Deficit Accumulated During
the Development Stage .......... $(1,426,123) $ (70,884) $(1,426,123)
=========== =========== ===========
See accompanying independent auditors' report and notes to consolidated
financial statements.
7
KIWA BIO-TECH PRODUCTS GROUP LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FROM JUNE 5, 2002 (INCEPTION) TO DECEMBER 31, 2003
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DURING THE STOCKHOLDERS'
------------------------- PAID-IN DEVELOPMENT EQUITY
SHARES AMOUNT CAPITAL STAGE (DEFICIT)
----------- ----------- ----------- ----------- -----------
Balance at inception (June 5, 2002) -- $ -- $ -- $ -- $ --
Issuance of common stock .......... 2,000,000 20,000 445,000 -- 465,000
Net loss for the period from
June 5, 2002 (Inception) to
December 31, 2002 ............... -- -- -- (70,884) (70,884)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 ........ 2,000,000 20,000 445,000 (70,884) 394,116
Shares issued to consultants for
services ........................ 1,700,000 17,000 408,000 -- 425,000
Shares issued to directors as
directors' compensation ......... 1,300,000 13,000 312,000 -- 325,000
Net loss for the year ended
December 31, 2003 ............... -- -- -- (1,355,239) (1,355,239)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 ........ 5,000,000 $ 50,000 $ 1,165,000 $(1,426,123) $ (211,123)
=========== =========== =========== =========== ===========
See accompanying independent auditors' report and notes to consolidated
financial statements.
8
KIWA BIO-TECH PRODUCTS GROUP LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
CUMULATIVE
RESULTS OF
OPERATIONS
FROM
JUNE 5, 2002
(INCEPTION)
YEAR ENDED PERIOD ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2003
----------- ----------- -----------
OPERATING ACTIVITIES
Net loss .................................. $(1,355,239) $ (70,884) $(1,426,123)
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of common stock for services ..... 425,000 -- 425,000
Issuance of common stock for directors'
compensation .......................... 325,000 -- 325,000
Depreciation and amortization ............. 35,163 305 35,468
Sources and (uses) of cash from changes
in operating assets and liabilities:
Accounts receivable ....................... (45,235) -- (45,235)
Inventories ............................... (128,906) (6,295) (135,201)
Other current assets ...................... (103,378) (6,433) (109,811)
Deposits .................................. 25,794 (25,794) --
Accounts payable and accrued liabilities .. 692,774 44,862 737,636
Due (from) to related party ............... (57,476) 26,902 (30,574)
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ..... (186,503) (37,337) (223,840)
----------- ----------- -----------
INVESTING ACTIVITIES
Expenditures for property and equipment (1,448,668) (63,948) (1,512,616)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ..... (1,448,668) (63,948) (1,512,616)
----------- ----------- -----------
FINANCING ACTIVITIES
Increase in restricted cash ............ (300,000) -- (300,000)
Proceeds from sale of common stock ..... -- 465,000 465,000
Proceeds from short-term loans ......... 283,930 -- 283,930
Proceeds from convertible note due to
a related party ..................... 100,000 -- 100,000
Proceeds from long-term borrowings ..... 1,077,914 158,342 1,236,256
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES . 1,161,844 623,342 1,785,186
----------- ----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS ............................ (473,327) 522,057 48,730
BEGINNING CASH AND CASH EQUIVALENTS ....... 522,057 -- --
----------- ----------- -----------
ENDING CASH AND CASH EQUIVALENTS .......... $ 48,730 $ 522,057 $ 48,730
=========== =========== ===========
See accompanying independent auditors' report and notes to consolidated
financial statements.
9
--------------------------------------------------------------------------------
KIWA BIO-TECH PRODUCTS GROUP LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 AND DECEMBER 31, 2002
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
KIWA Bio-Tech Products Group Ltd. ("KIWA") was incorporated on June 5, 2002 in
the British Virgin Islands ("BVI"). KIWA has been a development stage enterprise
since its inception as defined under Statement of Financial Accounting Standards
No. 7, "Accounting and Reporting by Development Stage Enterprises". KIWA has
established a wholly owned subsidiary, KIWA Bio-Tech Products (Shandong) Co.,
Ltd. ("KIWA-SD" or the "Subsidiary") in Zoucheng City, Shandong Province,
People's Republic of China ("PRC") on October 11, 2002.
Through its Subsidiary, KIWA intends to develop, manufacture, distribute and
market innovative, cost-effective, and environmentally safe bio-technological
products for the agriculture, natural resources and environmental protection
markets, primarily in the PRC. Activities to date have included conducting
research and development, acquiring and developing intellectual property,
raising capital, and identifying strategic acquisitions.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of KIWA
and its wholly owned subsidiary (collectively "the Company"). All significant
inter-company balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements." Sales represent the
invoiced value of goods, net of value added tax ("VAT"), supplied to customers,
and are recognized upon delivery of goods and passage of title.
All of the Company's sales made in the PRC are subject to the Mainland Chinese
value-added tax at rates ranging from 13% to 17% ("output VAT"). Such output VAT
is payable after offsetting VAT paid by the Company on purchases ("input VAT").
USE OF ESTIMATES
The preparation of the consolidated financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions relating to the reporting of assets
and liabilities, the disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COUNTRY RISK
As the Company's principal operations are conducted in the PRC, the Company is
subject to special considerations and significant risks not typically associated
with companies in North America and Western Europe. These risks include, among
others, risks associated with the political, economic and legal environments and
foreign currency exchange limitations encountered in the PRC. The Company's
results of operations may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, among other things.
In addition, all of the Company's transactions undertaken in the PRC are
denominated in Renminbi ("RMB") which must be converted into other currencies
before remittance out of the PRC may be considered. Both the conversion of RMB
into foreign currencies and the remittance of foreign currencies abroad require
the approval of the PRC government.
CASH AND CASH EQUIVALENTS
Highly liquid investments with maturity of three months or less at the time of
acquisition are considered to be cash equivalents.
CREDIT RISK
The Company performs ongoing credit evaluations of its customers and intends to
establish an allowance for doubtful accounts when amounts are not considered
fully collectable. Management of the Company believes the accounts receivable
balance as of December 31, 2003 will be fully collected.
INVENTORIES
Inventories, which include raw materials, work-in-progress, finished goods and
low-value consumables, are stated at the lower of cost, determined on the
weighted average method, or net realizable value. Net realizable value is the
estimated selling price in the ordinary course of business, less estimated costs
to complete and dispose.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation.
Major renewals and improvements are capitalized while minor replacements,
maintenance and repairs are charged to expense as incurred. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets after taking into account the estimated residual value. The estimated
useful lives are as follows:
Buildings 30-35 years
Machinery and equipment 3-10 years
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company tests its investment in long-lived assets, including property and
equipment, for recoverability whenever events or changes in circumstances
indicate the net carrying amount may not be recoverable.
CONSTRUCTION IN PROGRESS
Construction in progress ("CIP") includes all costs incurred during the
preparation period before commencement of construction and until the asset is
ready for its intended use. CIP is transferred to fixed assets when the asset is
substantially ready for its intended use. The imputation of interest or
capitalization of interest during the construction period is not considered
applicable to the Company because the Company obtained construction financing on
an interest free basis from the local PRC government. In addition, repayment of
a substantial portion of the loans are to be determined based on achieving
specified levels of future profitability. Therefore, the loans do not have a
determinable repayment date.
ADVERTISING
The Company charges all advertising costs to expense as incurred. Advertising
expense for the year ended December 31, 2003 was $4,788. The Company did not
incur any advertising expense for the period from June 5, 2002 (Inception) to
December 31, 2002.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
OPERATING LEASES
Operating leases represent those leases under which substantially all the risks
and rewards of ownership of the leased assets remain with the lessors. Rental
payments under operating leases are charged to expense on the straight-line
basis over the period of the relevant leases.
INCOME TAXES
Income taxes are computed using the asset and liability method. Deferred income
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements' carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in the years in
which these temporary differences are expected to reverse. Valuation allowances
are provided against deferred tax assets that are not expected to be realized.
There were no material deferred tax assets or liabilities as of December 31,
2003 and 2002.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company is the Renminbi ("RMB"). Transactions
denominated in foreign currencies are translated into RMB at the unified
exchange rates quoted by the People's Bank of China, prevailing at the
transaction dates. Monetary assets and liabilities denominated in foreign
currencies are translated into RMB using the applicable unified exchange rates
prevailing at the balance sheet date.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION (CONTINUED)
Translations of amounts from RMB into United States ("US$") were at US $1.00 =
RMB 8.3 for the year ended December 31, 2003 and for the period from June 5,
2002 (Inception) to December 31, 2002. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at that rate or at any
other rate. Due to the stability of the RMB during the periods covered by the
consolidated financial statements, no material exchange differences exist.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN45").
FIN45 elaborates on the existing disclosure for most guarantees, including loan
guarantees such as standby letters of credit. It also clarifies that at the time
a company issues a guarantee, the company must recognize an initial liability
for the fair market value of obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
The initial recognition and measurement provisions of FIN 45 apply on a
prospective basis to guarantees issued or modified after December 31, 2002. The
Company has implemented the disclosure provisions of FIN45 in its December 31,
2002 and December 31, 2003 financial statements, without significant impact.
In January 2003, (as revised in December 2003) The FASB issued Interpretation
No. 46, "Consolidation of Variable Interest Entities", an interpretation of
Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial
Statements". Interpretation No. 46, as revised, addresses consolidation by
business enterprises of variable interest entities, which have one or both or
the following characteristics: (i) the equity investment at risk is not
sufficient to permit the entity to finance its activities without additional
subordinated support from other parties, which is provided through other
financial interests that will absorb some or all of the expected losses of the
entity; (ii) the equity investors lack one or more of the following essential
characteristics of a controlling financial interest: the direct or indirect
ability to make decisions about the entities activities through voting rights or
similar rights; or the obligation to absorb the expected losses of the entity if
they occur, which makes it possible for the entity to finance its activities;
the right to receive the expected residual returns of the entity if they occur,
which is the compensation for the risk of absorbing the expected losses.
Interpretation No. 46, as revised, also requires expanded disclosures by the
primary beneficiary (as defined) of a variable interest entity and by an
enterprise that holds a significant variable interest in a variable interest
entity but is not the primary beneficiary.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
The consolidation requirements of FIN 46 are required to be implemented for any
variable interest entity created on or after January 31, 2003. In addition, FIN
46 requires disclosure of information regarding guarantees or exposures to loss
relating to any variable interest entity existing prior to January 31, 2003 in
financial statements issued after January 31, 2003. The implementation of the
provisions of Interpretation No. 46, as revised, is not expected to have a
significant effect on the Company's consolidated financial statement
presentation or disclosure.
In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, could be
accounted for as equity. SFAS No. 150 requires that those instruments be
classified as liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of freestanding
financial instruments. One type is mandatorily redeemable shares, which the
issuing company is obligated to buy back in exchange for cash or other assets. A
second type includes put options and forward purchase contracts, which involve
instruments that do or may require the issuer to buy back some of its shares in
exchange for cash or other assets. The third type of instruments that are
liabilities under SFAS No. 150 are obligations that can be settled with shares,
the monetary value of which is fixed, tied solely or predominantly to a variable
such as a market index, or which vary inversely with the value of the issuers'
shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.
Most of the provisions of SFAS No. 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The remaining provisions of this Statement are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments of a non-public entity, as to which the
effective date is for fiscal periods beginning after December 15, 2003.
The adoption of SFAS No. 150 is not expected to have a material impact on the
Company's consolidated financial statements.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DEVELOPMENT ACTIVITIES
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplates continuation of the Company as a going concern.
However, the Company incurred a net loss of $1,355,239 during the year ended
December 31, 2003, the Company's current liabilities exceeded its current assets
by $585,313 at December 31, 2003, and it had a stockholders' deficit of
$211,123. In addition, the Company continues to develop its manufacturing
facility, and has not generated significant revenues from its planned principal
operations. Those factors create an uncertainty about the Company's ability to
continue as a going concern.
As of December 31, 2003, the Company has obtained non-interest bearing loans
from the local PRC government of approximately $1,183,000 on favorable repayment
terms. In March 2004, the Company initiated a reverse merger transaction with a
publicly held shell company in the United States. During the next 12 months, if
the Company cannot generate sufficient working capital from product sales to
operate its business, the Company will sell debt or equity securities (See Note
16). As the Company is still in the development stage, there are no assurances
that the Company will obtain funds sufficient to continue its operations during
the next 12 months.
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31:
2003 2002
-------- --------
Raw materials .................. $ 23,497 $ 2,295
Work in progress ............... 111,390 4,000
Finished goods ................. 314 --
-------- --------
$135,201 $ 6,295
======== ========
NOTE 4 - OTHER CURRENT ASSETS
Other current assets consisted of the following at December 31:
2003 2002
-------- --------
Advances ....................... $ 66,002 $ --
Deposits ....................... 31,644 6,433
VAT receivable ................. 7,127 --
Prepaid expenses ............... 5,038 --
-------- --------
$109,811 $ 6,433
======== ========
Advances consisted of petty cash and travel advances to employees of the Company
for business purposes, and the prepayment for expenses associated with the
reverse merger transaction in the United States (See Note 16).
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deposits consisted of various deposits for raw materials, utilities,
telecommunications and insurance.
NOTE 4 - OTHER CURRENT ASSETS (CONTINUED)
VAT receivable consisted of the balance of input VAT that is greater than output
VAT as of December 31, 2003
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
2003 2002
----------- -----------
Buildings ........................ $ 1,045,599 $ --
Machinery and equipment .......... 312,784 3,850
Autos ............................ 97,485 56,247
Construction in progress ......... 45,108 2,500
Office equipment ................. 11,640 1,351
----------- -----------
1,512,616 63,948
Less: accumulated depreciation ... (35,468) (305)
----------- -----------
$ 1,477,148 $ 63,643
=========== ===========
Depreciation expense for the year ended December 31, 2003 and for the period
from June 5, 2002 (Inception) to December 31, 2002 was $35,163 and $305,
respectively.
NOTE 6 - LAND USE RIGHTS
Private ownership of land is not allowed in the PRC. Rather, entities acquire
the right to use the land for a designated term. In accordance with an agreement
signed by the local government in Zoucheng City, Shandong Province, PRC, and
KIWA-SD, the land underlying the Company's manufacturing facility was assigned
to KIWA-SD for up to a 10-year period free of land use costs. In the event
KIWA-SD becomes profitable, it will have the option to acquire the land use
rights for a period up to 50 years. In accordance with the agreement, the
consideration to acquire the land use rights will not exceed RMB 8.0 million
(approximately $966,569 at the exchange rate of RMB 8.3 = $1.00). Such land use
rights cannot be mortgaged or resold without full payment of the above
consideration. As of December 31, 2003, KIWA-SD has not exercised its option to
acquire any land use rights.
NOTE 7 - SHORT-TERM LOANS
As of December 31, 2003, the short-term loans consisted of RMB bank loans
secured by a US Dollar deposit of $300,000, maturing on various dates through
June 2004, with interest rates ranging from 5.04% to 6.9%, per annum.
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CONVERTIBLE NOTE PAYABLE TO RELATED PARTY
The Company obtained an unsecured loan of $100,000 from China Star Investment
Group ("China Star"), a company which is 10% owned by a major stockholder of
the Company. China Star has the right to convert the note into shares of the
Company's common stock based on an agreed-upon conversion price of $0.25 per
share at any time after the Company completes the reverse merger transaction in
the United States (See Note 16) and prior to the repayment date. The note
matures on October 20, 2004 and bears interest at 12% per annum, payable on the
maturity date of the note or the date China Star exercises its conversion
right. In March 2004, China Star waived its rights to convert the loan into
shares of the Company's common stock.
NOTE 9 - ADVANCES TO AND FROM RELATED PARTY
The Company has participated in additional transactions with China Star. The
balance due from China Star at December 31, 2003 of $30,574 results from
unsecured, non-interest bearing cash advances which are due on demand. The
balance due to China Star at December 31, 2002 of $26,902 was mainly related to
pre-operating expenses that China Star paid on behalf of the Company before it
was incorporated in the PRC.
NOTE 10 - LONG-TERM LIABILITIES
Long-term liabilities consisted of the following at December 31:
2003 2002
---------- ----------
Unsecured note payable to the local PRC
government, non-interest bearing,
becoming due within three years from
KIWA-SD's first profitable year on a
formula basis, interest has not been
imputed due to the undeterminable
repayment date ..................................... $1,063,226 $ 120,814
Unsecured note payable to the local PRC
government, non-interest bearing, 50%
of the loan balance becomes due in
October 2004. Thereafter, the remaining
balance is due on demand, interest has
not been imputed due to the undeterminable
repayment date ..................................... 120,821 --
Note payable to a bank, payable in monthly
installments of $735 secured by an
automobile, bearing an interest rate
of 5.32% per annum, and maturing in
October 2007 ....................................... 30,536 37,528
Note payable to a bank, payable in monthly
installments of $425, secured by an automobile,
bearing an interest rate of 5.02% per annum,
and maturing in March 2008 ........................ 21,673 --
---------- ----------
$1,236,256 $ 158,342
========== ==========
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - LONG-TERM LIABILITIES (CONTINUED)
Maturities of notes payable as of December 31, 2003, are as follows:
Years Ending December 31,
2004................................................. $ 133,298
2005................................................. 12,879
2006................................................. 13,303
2007................................................. 12,276
2008................................................. 1,274
Thereafter........................................... 1,063,226
-----------
$1,236,256
NOTE 11 - LEASE COMMITMENTS
The Company leases an office facility under an operating lease expiring in May
2004 with an aggregate monthly lease payment of approximately $2,880. Rent
expense under the operating lease for the year ended December 31, 2003 was
$27,570. At December 31, 2003, the Company's future minimum lease payments
required under the operating lease is $12,551 for the year ending December 31,
2004.
NOTE 12 - TAXATION
In accordance with the relevant tax laws in the PRC, KIWA-SD would normally be
subject to a corporate income tax rate of 30% on its taxable income. However, in
accordance with the relevant tax laws in the PRC, KIWA-SD is exempt from
corporate income taxes for its first two profit making years and is entitled to
a 50% tax reduction for the succeeding three years. KIWA-SD has not provided for
any corporate income taxes since it has no taxable income for the year ended
2003 and the period from June 5, 2002 (inception) to December 31, 2002.
In accordance with the relevant tax laws in the BVI, KIWA, as an International
Business Company, is exempt from income taxes.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - COMMON STOCK ISSUED FOR SERVICES
On December 31, 2003, the Company issued the following common stock in exchange
for consulting services provided by various consultants and directors of the
Company as follows:
AMOUNTS
NUMBER OF --------------------------
SHARES ISSUED TO SHARES CONSULTANTS DIRECTORS
---------------- ---------- ---------- ----------
InvestLink (China) Limited (formerly
known as Peace Land Venture Ltd.)
for services in corporate and product
development ............................ 1,000,000 $ 250,000 $ --
Guisheng Chen, Director, for services
in controlling product formulas and
guiding technology development ......... 750,000 -- 187,500
Dejun Zou, Director, for services
in fundraising with the PRC
government agents ...................... 500,000 -- 125,000
Times Crossword Investment Ltd., for
services in fundraising ................ 500,000 125,000 --
Lianjun Luo, Director, for services in
accounting and finance management ...... 50,000 -- 12,500
Bin Qu, for services in research and
development ............................ 50,000 12,500 --
Nian James Zhan, for services in strategic
business development ................... 50,000 12,500 --
Yunlong Zhang, for services in marketing
and distribution channel development ... 50,000 12,500 --
Yuhong Pang, for services in product
and technology development ............. 50,000 12,500 --
---------- ---------- ----------
3,000,000 $ 425,000 $ 325,000
========== ========== ==========
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - COMMON STOCK ISSUED FOR SERVICES (CONTINUED)
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") and the Emerging Issues
task Force Consensus Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18"), the Company has accounted for the
consulting services performed based on the fair market value of the Company's
common stock at the date of their issuance. Management has estimated the fair
market value of the Company's common stock as of December 31, 2003 to be $0.25
per share. Management's estimate is based upon the conversion price option of
the convertible loan agreement entered into in January 2004 with a non-US
investor (See Note 16). For the year ended December 31, 2003, the Company
charged to expense a total of $425,000 associated with these consulting
agreements.
On December 31, 2003, the Company's Board of Directors approved a director's
compensation arrangement for certain directors who performed services on behalf
of the Company during 2003. The Company issued 1,300,000 shares of common stock
to the directors for such services. The value of such services has been
determined as set forth in the preceding paragraph. Directors' compensation
expense for the year ended December 31, 2003 was to $325,000.
NOTE 14 - MAJOR CUSTOMERS AND SUPPLIERS
Two customers accounted for 66% and 34% of the Company's net sales for the year
ended December 31, 2003.
Four suppliers accounted for 23%, 16%, 15% and 13%, respectively, of the
Company's net purchases for the year ended December 31, 2003.
NOTE 15 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year ended December 31, 2003 and the period from June 5,
2002 (inception) to December 31, 2002 was as follows:
2003 2002
----------- -----------
Interest............................ $ 8,181 $ 340
Income taxes........................ -- --
The Company issued common stock for consulting services and directors'
compensation of $425,000 and $325,000, respectively, during the year ended
December 31, 2003.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16 - SUBSEQUENT EVENTS
CONVERTIBLE LOAN AGREEMENTS
In January and March 2004, KIWA entered into two convertible loan agreements
with two individual non-US investors in the amount of US $500,000 and $200,000,
respectively, each loan bearing an interest rate of 12% per annum. The principal
and interest payments on the January 2004 loan are due in September 2004, and
the principal and interest payments due on the March 2004 loan are due in June
2004. Prior to the respective maturity dates, both lenders were offered an
option to convert the loan amounts into common stock at a conversion price of US
$0.25 per share.
REVERSE MERGER TRANSACTION
In March 2004, Kiwa Bio-Tech Products Group Corporation ("KBPGC") (formerly
Tintic Gold Mining Company ("TTGM")) issued 7,722,919 shares of common stock to
the shareholders of KIWA in exchange for all the outstanding shares of KIWA. In
connection with the transaction, TTGM changed its name to Kiwa Bio-Tech Products
Group Corporation. For accounting purposes this transaction was treated as an
acquisition of KBPGC and a recapitalization of KIWA and its wholly owned
subsidiary, KIWA-SD. KIWA is considered the accounting acquirer, and KBPGC the
legal acquirer.
SUBSCRIPTION AGREEMENT
On April 6, 2004, KBPGC signed a subscription agreement with a non-US investor
to issue 6,000,000 shares of the Company's restricted common stock, at price per
share of $0.40, for gross proceeds of $2,400,000. The transaction was expected
to close on April 30, 2004. On April 28, 2004, the investor requested an
extension of time of 30 to 60 days to close the transaction. The Company is
considering the request and may grant an extension as the investor requested.
21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
23.1 Consent of Grobstein, Horwath & Company LLP
22