DESCRIPTION OF BUSINESS
We are a development stage company that develops, manufactures,
distributes and markets innovative, cost-effective and environmentally safe
bio-technological products for agriculture, natural resources and environmental
conservation. Our products are designed to enhance the quality of human life by
increasing the
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value, quality and productivity of crops and decreasing the negative
environmental impact of chemicals and other wastes.
We were originally incorporated in the State of Utah on June 14, 1933,
under the name Tintic Gold Mining Company to perform mining operations in Utah.
On March 12, 2004, pursuant to an Agreement and Plan of Merger dated as of March
11, 2004, by and among Tintic Gold Mining Company, TTGM Acquisition Corporation,
a Utah corporation and wholly-owned subsidiary of Tintic Gold Mining Company,
and Kiwa Bio-Tech Products Group Ltd., a British Virgin Islands international
business company, TTGM Acquisition Corporation merged with and into Kiwa
Bio-Tech Products Group Ltd. Each share of Kiwa Bio-Tech Products Group Ltd.
common stock was converted into 1.5445839 shares of Tintic Gold Mining Company
Common Stock, with Kiwa Bio-Tech Products Group Ltd. surviving as Tintic Gold
Mining Company's wholly-owned subsidiary. The merger resulted in a change of
control of Tintic Gold Mining Company, with former Kiwa Bio-Tech Products Group
Ltd. stockholders owning approximately 89% of Tintic Gold Mining Company on a
fully diluted basis. Subsequent to the merger, Tintic Gold Mining Company
changed its name to Kiwa Bio-Tech Products Group Corporation. On July 22, 2004,
we completed our reincorporation in the State of Delaware.
In 2002, Kiwa Bio-Tech Products Group Ltd. chartered Kiwa Bio-Tech
Products (Shandong) Co. Ltd., a wholly-owned subsidiary organized under the laws
of China, as its offshore manufacturing base to capitalize on low cost, high
quality manufacturing advantages available in China. In October 2003, Kiwa
Bio-Tech Products Group Ltd. completed Phase I construction of its
state-of-the-art manufacturing facility. In November 2003, Kiwa Bio-Tech
Products Group Ltd. began shipping its first commercial product, a
bio-fertilizer, to the agricultural market in China. We are currently working on
existing product improvement and new product development while we continue our
three-phase facility build-up.
BUSINESS AND OPERATIONS
Our goal is to build a platform to commercialize bio-technological
research and development results for applications in agriculture and
environmental protection. In this respect, we are working on developing
cooperative research relationships with several universities in China and the
U.S. We are also acquiring technologies to reduce research and development costs
and shorten commercialization cycles. We have filed patent applications in China
for technologies related to applications of photosynthesis bacteria, biologic
catalyst, and synergetic enzyme, and are preparing to file patent applications
in the U.S. These technologies have applications in the agricultural, natural
resources and environmental conservation and drug manufacturing sectors. We also
plan to acquire similar technologies both in China and the U.S.
Our first commercial product, based on the photosynthesis bacteria
technology, is a bio-fertilizer called Photosynthesis Biological Catalyst. Field
tests conducted by Chinese government and research institutions over the past
three years have confirmed that this product stimulates plant growth and
increases crop yields, including vegetables, fruits and other economic plants,
by 10% to 25%. We plan to market another three to four products in the
agriculture market in the next six to twelve months. These products are humus
related products that can help increase soil fertility and play a vital role in
plant nutrition. In addition, we plan to market a water-cleansing product based
on the photosynthesis bacteria technology in the natural resources conservation
market. We have other products in development, which include a plant regulator,
an animal feed additive and an air-cleansing additive. We plan to actively
pursue strategic alliances with bio-technology companies in the U.S. to maximize
use of our strong marketing network in China's vast agricultural market.
STRATEGIES
With the world's largest population to feed, China's demand for
agricultural products is immense. Problems with pollution and soil contamination
have increased pressure on the Chinese government to conserve land and enhance
environmental protection. China thus faces an urgent need to improve unit land
yield and reduce pollution. We plan to address this need through the development
of our ag-biotechnology products which increase agricultural productivity in
environmentally friendly ways. To capture this opportunity, our core strategies
are as follows:
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o Build a commercialization platform for world-class biotechnological
research and development results for applications in agriculture,
natural resources conservation and environmental protection;
o Establish strategic alliances for research and development, sales and
distribution and customer acquisition with complimentary entities in
the biological-agriculture and natural resources conservation industry;
o Complete our manufacturing facility in Shandong Province, one of the
largest agricultural provinces in China;
o Offer flexible investment structure that does not take high risks in
the research and development process, thus being able to manage
commercialization risks and capture value; and
o Enhance overall management systems, operational structure and corporate
governance.
Our sales strategy involves utilizing both a direct sales force and
distribution networks. Our distribution efforts are expected to include the
following:
o Leveraging government support and existing rural area distribution
networks to more effectively reach end-users;
o Cooperating with special fertilizer distributors who also help farmers
resell their products;
o Focusing on large-to-medium size wholesalers of farm fertilizers at
provincial and municipal levels;
o Establishing a three-level distribution network consisting of a company
centralized sales office, provincial and city/county level agents; and
o Leveraging existing sales channel network of affiliates' products to
save costs of building the network from scratch.
We plan to target major agricultural companies and growers as customers
that can realize significant financial benefits from using our products
including:
o High value crop (such as fruits and vegetables) growers in China that
supply to major cities;
o Agricultural producers in China who export to Japanese, Korean and
other regional markets; and
o "Green" or organic growers of produce throughout the world.
Our sales efforts in the year 2004 are focused on the following
geographic markets in China:
o Shandong Province - where our manufacturing facility is based and its
products are tested. This province is a significant agricultural market
and close to the Japanese and Korean markets;
o Jiangsu and Zhejiang Provinces - two large provinces that are close to
Shanghai. Currently, we have entered into an exclusive distribution
arrangement with one of the largest fertilizer and related product
distributors in Jiangsu Province which is distributing our series of
products to the local farmers;
o Hebei Province - a vegetable supplier base for the neighboring capital
city of Beijing. We are partnering with government affiliated entities
in Hebei Province to facilitate faster market penetration; and
o Xinjiang Autonomous Region - which is one of the largest agricultural
provinces in China and the largest base for growing cotton and tomatoes
in China.
Given the global trend of customers favoring environmentally safe
organically grown food and growers' need for higher crop yields and better
quality, we also foresee strong market needs in the U.S. and other international
markets including East and Southeast Asia. We are currently targeting the
California and Florida markets in the
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U.S., where farmers grow more "green" or organic high value crops such as fruits
and vegetables. We are also in discussions with fertilizer manufacturers and
distributors in Taiwan to distribute our products in the Taiwanese market and
other Southeast Asian markets.
MARKET OVERVIEW
Modern agricultural practices largely rely on heavy use of chemical
fertilizers and pesticides which cause tremendous harm to the environment and
soils. Such practices have been under increasing scrutiny across the world,
leading to consumer demand for agricultural practices that are more
environmentally friendly. China has only 7% of the world's agricultural land but
needs to feed over 1.3 billion people, or approximately 20% of the world's
population. To increase the overall crop yield, farmers in China use vast
amounts of chemical fertilizers. According to the China Statistics Bureau and
the Food & Agriculture Organization of the United Nations, the use of chemical
fertilizers in China increased 90.7% in the past decade and is now 1.6 times the
world average. Long-term excessive use of chemical fertilizers in China has led
to severe soil contamination and pollution. If the situation continues
unchanged, the largest population in the world could potentially face severe
food and water shortages and an increasingly polluted living environment.
One solution to the environmental problem is bio-fertilizer, an
environmental friendly fertilizer. China's current consumption of bio-fertilizer
consists of only 3% of the total fertilizer consumption which is significantly
lower than the consumption rate in the U.S. of 18%. The Chinese agricultural
industry has started to recognize the importance of bio-fertilizers to
sustainable long-term agriculture in China. Our first commercialized product,
Photosynthesis Biological Catalyst, capitalizes on this market trend and we hope
to become one of the leaders in developing green technologies for productive,
more sustainable agriculture in China.
COMPETITION
Due to the unique products that we offer, there is little direct
competition in the Chinese marketplace. With respect to existing products that
are similar to Photosynthesis Biological Catalyst and their manufacturers,
management believes that we have product differentiation and cost advantages
(cost to customer) which will enable us to outperform our competitors, in terms
of profitability, for the following reasons, among others:
o High effectiveness in increasing crop yield and quality while being
environmentally friendly;
o Lower price point and higher return on investment to end users;
o Powder-based form making transportation and storage easier; and
o Complimentary to existing use of chemical fertilizer which will help to
minimize switching costs for end users.
We have conducted detailed research and analysis of the competitive
landscape in the marketplace. From a broader view, there are about 10 companies,
in different stages and of varied sizes of operations, which have or are
producing similar photosynthesis related, microbial bio-fertilizer products in
China, according to the categorization records from the Agriculture Fertilizer
License Authority in China. The products of these companies are all in liquid
form. Below is a summary of these 10 companies:
COMPANY NAME CURRENT STATUS
Shanxi Kelin Environment Protection The products are still in the experimental
Center, Shanxi Province stage.
Xinjin Microbial Products Factory Only sells in part of Sichuan Province
of Sichuan Agriculture University, with a relatively low sales volume.
Sichuan Province
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Shenyang Fengyuan Bio-tech Products A wholly-owned Japanese company.
Co., Ltd., Liaoning Province
3 years in production of photosynthesis-
based fertilizer product.
Annual production of 2,000 tons (liquid).
Shanghai Pudong Yiyijou Bio- In business since 1999.
engineering Co., Ltd., Shanghai
Covers more than 10 provincial markets.
Chongyi Bio-technology Development A county-level plant.
Center, She County, Hebei Province
Small production scale.
Products are sold in Linxi County in
Shandong Province nearby.
Bierfu Bio-engineering Co., Ltd., Products mostly sold in Jinan and
Weihai, Shandong Province Shouguang areas in Shandong Province.
Sales branches in Hebei, Nanjing & Fujian.
Annual sales of 100 tons.
North Design Institute, Protection Has no commercial production.
Sub-Institute
Owns the related intellectual property
rights.
Wuhan Shiruifu Bio-Technology Co., Its target market is in Hubei Province.
Ltd., Wuhan, Hubei Province
Annual production of 3,000 tons (liquid).
Harbin Tianye Bio-Technology Co., For details, refer to the following
Ltd., Harbin, Heilongjiang Province section.
Beijing Feishite Bio-engineering Expected to establish two photosynthesis
Co., Ltd., Beijing bacteria fertilizer production bases in
Beijing with annual production of 5,000
tons (liquid).
FACILITIES AND EQUIPMENT
We are in the process of constructing a manufacturing facility on 15.7
acres of land in Shandong Province, China. The right of land use has been
approved by the local government for up to 10 years without land use costs. In
the event our Chinese subsidiary becomes profitable, it will have the option to
acquire the land use rights for a period of up to 50 years. Phase I of a
three-phase construction plan has been completed. We expect the facility to be
fully operational in 2005.
Our principal executive offices are located at 17700 Castleton Street,
Suite 589, City of Industry, California 91748.
SOURCES OF RAW MATERIALS
The major raw materials for photosynthetic bacteria production are
photosynthetic bacteria, sodium acetate, glucose, diammonium phosphate, and
dipotassium hydrogen phosphate. Other chemicals are also used in the growth
media. These materials are either cultured by our technicians or purchased from
local markets.
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DEPENDENCE ON CUSTOMERS
We currently have 17 customers. One customer accounted for 100% of our
net sales for the first quarter of fiscal year 2004 and for approximately 62% of
our estimated sales for the second quarter of fiscal year 2004. We hope to
expand our customer base to reduce our reliance on any single customer.
REGULATORY
Our production needs to follow bio-fertilizer and photosynthetic
bacteria standard production and testing procedures issued by the Chinese
Ministry of Agriculture. We comply with the applicable standard production and
testing procedures.
ENVIRONMENTAL MATTERS
The bacteria used in our products are naturally occurring in many water
bodies and have been extensively tested for environmental safety. They have been
recognized as group beneficiary bacteria that can digest small inorganic and
organic molecules for water cleaning and other water treatment purpose. They are
environmental friendly and are not known to cause any environmental problems.