This Quarterly Report on Form 10-Q for the three months ended June 30, 2009 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 Quarterly Report on Form 10-Q for the three months ended June 30, 2009 involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to differ materially from those expressed in or implied by the forward-looking statements contained herein.

Overview

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

We have established two subsidiaries in China: (1) Kiwa Shandong in 2002, a wholly-owned subsidiary, engaging in bio-fertilizer business, and (2) Tianjin Kiwa Feed Co., Ltd. ("Kiwa Tianjin") in July 2006, engaging in bio-enhanced feed business, of which we hold 80% equity.

In June 2008, Kiwa Shandong received approval documents from the Ministry of Commerce of the PRC, authorizing Kiwa Shandong to wholesale fertilizer products of other manufacturers, including chemical fertilizers, complex fertilizers and compound fertilizers. Based on applicable tax laws in China, Kiwa Shandong's new business items will be exempt from value-added tax. Kiwa Shandong is expected to engage in the new business activities after obtaining further approvals from other relevant authorities. Management believes such operations will also enlarge the sales volume of our bio-fertilizer products.

We generated approximately $0.83 million and $3.0 million in revenue in the three months ended June 30, 2009 and 2008, respectively, reflecting a decrease of approximately $2.2 million or 72.5%. We incurred a net loss attributable to Kiwa shareholders of $623,584 (including non-cash expenses of $352,658) and $631,021 (including non-cash expenses of approximately $273,104) for the three months ended June 30, 2009 and 2008, respectively.

As of June 30, 2009, the Company had cash of $25,047. Due to our limited revenues from sales and continuing 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 the three months ended June 30, 2009, related parties advanced $397,252 in total to the Company, which was partly offset by repayment to related party of $87,404. These funds are insufficient to execute our business plan as currently contemplated. Management is currently looking for alternative sources of capital to fund our operations.

Going Concern

Our condensed 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 June 30, 2009, we had an accumulated deficit of $14,125,810, of which $623,589 (including non-cash expenses of $352,658) was incurred during the three months ended June 30, 2009. Revenue from both bio-fertilizer and bio-enhanced feed business was lower during the second quarter of 2009 as compared with the same period of 2008. At the same time, gross profit margin of bio-fertilizer business and bio-enhanced feed business both remain in low level. 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.

As of June 30, 2009, our current liabilities were $8,816,322, which exceeded current assets by $5,094,834, representing a current ratio of 0.42 and a quick ratio 0.012; comparably, on December 31, 2008, our current liabilities exceeded current assets by $4,000,056, resulting in a current ratio of 0.49 and a quick ratio of 0.064. The first tranche of 6% Notes were due on June 29 and the second and third tranche will become due on August 15, 2009 and October 31, 2009, respectively. 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 the future. There can be no assurances that we will be successful in obtaining this financing or in increasing our sales revenue if we do obtain the financing.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our financial statements for the latest six 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 the China Statistics Bureau, gross domestic product in 2007 increased 11.4% over levels in 2006. 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 a wide range of policies aimed at promoting sustainable development of agriculture, for example, by promoting the income level of eight-hundred million Chinese farmers, strengthening supervision of farm inputs and actively developing green-food and organic food. In October 2008, the Communist Party of China Central Committee approved the Decision on Major Issues Concerning the Advancement of Rural Reform and Development, which promises to strengthen the position of agriculture and double farmers' income in 12 years. 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.

Foreign Investment Policy Change in China

On March 16, 2007, China's parliament, the National People's Congress, adopted the Enterprise Income Tax Law, which took effective on January 1, 2008. The new income tax law sets unified income tax rate for domestic and foreign companies at 25% and abolishes the favorable policy for foreign invested enterprises. As a result subsidiaries established in China in the future will not enjoy the original favorable policy unless they are certified as qualified high and new technology enterprises.

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. Now that the new income tax law is in effect, fiscal year 2008 is regarded as the first profitable year even if Kiwa Shandong or Kiwa Tianjin are not profitable that year; thereby narrowing the time period when the favorable tax treatment may be available to us.

Critical Accounting Policies and Estimates

We prepared our condensed 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 financial statements 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. Generally speaking, the Company's credit policy is to provide 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. We also provide 100% bad debt provision to those accounts receivable being outstanding for less than 365 days but specifically identified as uncollectable.

As of June 30, 2009, there was $68,856 in accounts receivable over 365 days old. We established a doubtful accounts reserve for the full amount based on our policy of recording a provision for 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. Depending on the results of our credit investigations, we require our customers to pay between 20% and 60% of the purchase price of an order placed prior to shipment, 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. 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 June 30, the net value of property and equipment and of intangible assets was $947,706 and $118,824, respectively, which represented approximately 19.0% and 2.4% of our total assets, respectively.

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.

Based on our analysis, we charged $639,492 as loss from impairment of long-lived assets in fiscal 2008. No such costs were charged during six months ended June 30, 2009.

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.

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 14 customers as of June 30, 2009, of which our top two customers accounted for 40.4% and 18.7% of our net sales for the six months ended June 30, 2009, respectively. We had a total of 18 customers as of June 30, 2008, of which three customers accounted for 52.2%, 25.3% and 14.1% of our net sales for the six months ended June 30, 2008, respectively. No other single customer accounted for more than 9.0% of our revenues.

Our top two suppliers accounted for 29.8% and 18.0% of our net purchases during the six months ended June 30, 2009. Three suppliers accounted for 34.4%, 26.0% and 18.4% of our net purchases during the comparable period of 2008. 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

As of June 30, 2009, we had 58 customers in total. During the six months ended June 30, 2009, our three largest customers accounted for 5.8%, 5.8% and 4.8% of our net sales, respectively. During the comparable period of 2008, we had 75 customers in total. Our three largest customers accounted for 12.6%, 9.3% and 8.9% of our net sales, respectively.

Top two of supplier accounted for 58.0% and 18.0% of net purchase during the six months ended June 30, 2009. Our three largest suppliers accounted for 14.8%, 13.8% and 11.2% of our net purchases for the comparable period of 2008. No other individual supplier account for more than 10.0% of our net purchases. Raw materials used in our production of bio-enhanced feed products are available from a wide variety of alternative sources.

Results of Operations

Results of Operations for Three Months Ended June 30, 2009

Net Sales

Net sales were $831,142 and $3,027,497 for the three months ended June 30, 2009 and 2008, respectively, representing a decrease of $2,196,355 or 72.5%. The decrease is mainly due to quick reduction in net sales of our principal operations, including our bio-fertilizer business and bio-enhanced feed business in the second quarter of 2009. We are actively adjusting product mix of bio-fertilizer products to lower down the amount of production of low-end products.

Net sales from bio-fertilizer decreased $14,282 or 40.3% from $35,416 in second quarter of 2008 to $21,134 in the same period of 2009. During three months ended June 30, 2009, limited capital resources has lowered Kiwa Shandong's capability of purchasing raw materials. Meanwhile, our efforts in boosting sales revenue were partially offset by request to customers of cash payment at the time of purchasing.

Revenue generated from our bio-enhanced feed business reduced $2,182,073 or 72.9% from $2,992,081 for the three months ended June 30, 2008 to $810,008 for the same period in 2009. The significant decrease of sales revenue was mainly due to adjustment to product mix by reducing the amount of production and sales of low-profit-margin fowl feed.

Cost of Sales

During the three months ended June 30, 2009, cost of sales was $814,039, representing a decrease of $2,146,257 or 72.5%, compared with $2,960,296 for the same period of 2008. The sharp decrease of cost of sales was mainly attributable to reduction of revenue.

Gross Profit

Gross profit for the three months ended June 30, 2009 was $17,103. In
comparison, gross profit for the same period in 2008 was $67,201, representing a
decrease of $50,097 or 74.5%.

                          Bio-fertilizer          Changes 09 - 08             Bio-enhanced feed               Changes 09 - 08
                        2009 Q2    2008 Q2     Amount      Percentage       2009 Q2      2008 Q2          Amount         Percentage
Net Sales               $ 21,134   $ 35,416   $ (14,282 )        -40.3 %   $ 810,008   $ 2,992,081     $ (2,182,073 )          -72.9 %
Cost of Sales             17,242     27,057      (9,815 )        -36.3 %     796,797     2,933,239       (2,136,442 )          -72.8 %
Gross Profit            $  3,892   $  8,359   $  (4,467 )        -53.4 %   $  13,211   $    58,842     $    (45,631 )          -77.5 %
Gross Profit Margin         18.4 %     23.6 %                                    1.6 %         2.0 %

The gross profit margin for our bio-enhanced feed business decreased from 2.0% to 1.6%.

The gross profit margin of our bio-fertilizer business decreased from 23.6% to 18.4%, which is mainly related to both the difference mix of products sold and rise of raw material price during the respective quarters.

Consulting and Professional Fees

Consulting and professional fees was $95,598 for the three months ended June 30, 2009. During the comparable period of 2008, consulting and professional fees was $70,310.

Officers' Compensation

Officers' compensation for the three months ended June 30, 2009 and 2008 was $52,606 and $59,431, respectively, representing a $6,825 or 11.5% decrease.

General and Administration

General and administration expenses for three months ended June 30, 2009 and 2008 were $292,430 and $229,147, respectively, representing $63,283 or 27.6% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs. During three months ended June 30, 2009, the Company charged $108,934 into general and administrative expenses for penalty of 6% and 2% Notes since the number of authorized shares did not meet relevant requirements. See Note 14 of Notes to Financial Statements.

Selling Expenses

Selling expenses for the three months ended June 30, 2009 decreased $60,222 or 91.1% from $66,127 in 2008 to $5,905 in 2009. The decrease in selling expenses was mainly due to the decrease in sales. Selling expenses include salary and travel expenses of salesmen, delivery expenses and advertising, etc.

Research and Development

Research and development expense for the three months ended June 30, 2009 remained stable with a slight decrease $6,289 or 11.3% to $49,126 from $55,415 in the same period of 2008.

Depreciation and Amortization

Depreciation and amortization, excluding depreciation charged to cost of production and deprecation of research equipment, increased $5,633 or 21.1% to $32,272 for the three months ended June 30, 2009, as compared to $26,641 for the same period of 2008.

Interest Expenses

Net interest expense was $205,176 in the three months ended June 30, 2009 and $203,313 in the same period of 2008, representing a $1,863 or 0.9% increase.

Net Loss Attributable to Kiwa Shareholders

During the three months ended June 30, 2009, net loss attributable to Kiwa shareholders was $623,584, representing a decrease of $7,437 or 1.2%, comparing with $631,021 for the same period of 2008. This decrease resulted from the following factors: (1) decrease in gross profit of $50,098 or 74.5%; (2) decrease in operating expenses of $85,629 or 17.0%; (3) increase in interest expenses of $1,863 or 0.9%; (4) net loss attributable to non-controlling interest in the three months ended June 30, 2009 was negative $22,365 and $9,723 for the same period of 2008.

Comprehensive Loss

Comprehensive loss decreased by $25,356 or 3.9% to $625,936 for the three months ended June 30, 2009, as compared to $651,292 for the comparable period of 2008 for reasons stated above.

Results of Operations for Six Months Ended June 30, 2009

Net Sales

Net sales were $1,489,751 and $5,211,768 for the six months ended June 30, 2009 and 2008, respectively, representing a decrease of $3,722,017 or 71.4%. The decrease is mainly due to quick reduction in net sales of our principal operations, including our bio-fertilizer business and bio-enhanced feed business in the first and second quarter of 2009.

Cost of Sales

During the six months ended June 30, 2009, cost of sales was $1,462,974, representing a decrease of $3,618,888 or 71.2%, compared with $5,081,862 for the same period of 2008. The sharp decrease of cost of sales was mainly attributable to reduction of revenue.

Gross Profit

Gross profit for the six months ended June 30, 2009 was $26,777. In comparison, gross profit for the same period in 2008 was $129,906, representing a decrease of $103,129 or 79.4%.

Consulting and Professional Fees

Consulting and professional fees was $148,364 for the six months ended June 30, 2009. During the comparable period of 2008, consulting and professional fees was $188,777.

Officers' Compensation

Officers' compensation for the six months ended June 30, 2009 and 2008 was $124,998 and $118,463, respectively, representing a $6,535 or 5.5% increase.

General and Administration

General and administration expenses for six months ended June 30, 2009 and 2008 were $595,382 and $474,517, respectively, representing $120,865 or 25.5% increase. General and administrative expenses include salaries, travel and entertainment, rent, office expense, telephone expense and insurance costs. During six months ended June 30, 2009, the Company charged $217,710 into general and administrative expenses for penalty of 6% and 2% Notes since the number of authorized shares did not meet relevant requirements. See Note 14 of Notes to Financial Statements.

Selling Expenses

Selling expenses for the six months ended June 30, 2009 decreased $91,226 or 79.6% from $114,581 in 2008 to $23,355 in 2009. The decrease in selling expenses was mainly due to the decrease in sales. Selling expenses include salary and travel expenses of salesmen, delivery expenses and advertising, etc.

Research and Development

Research and development expense for the six months ended June 30, 2009 remained stable with a slight decrease $3,880 or 3.8% to $97,252 from $101,132 in the same period of 2008.

Depreciation and Amortization

Depreciation and amortization, excluding depreciation charged to cost of production and deprecation of research equipment, increased $15,895 or 30.1% to $68,713 for the six months ended June 30, 2009, as compared to $52,818 for the same period of 2008.

Interest Expenses

Net interest expense was $410,790 in the six months ended June 30, 2009 and $422,860 in the same period of 2008, representing a $12,070 or 2.9% decrease.

Net Loss Attributable to Kiwa Shareholders

During the six months ended June 30, 2009, net loss attributable to Kiwa shareholders was $1,445,409, representing an increase of $128,193 or 9.7%, comparing with $1,317,216 for the same period of 2008. This increase resulted from the following factors: (1) decrease in gross profit of $103,129 or 79.4%;
(2) increase in operating expenses of $19,968 or 1.9%; (3) decrease in interest expenses of $12,070 or 2.9%; (4) net loss attributable to non-controlling interest in the six months ended June 30, 2009 was $2,948 and $25,968 for the same period of 2008.

Comprehensive Loss

Comprehensive loss increased by $94,008 or 6.9% to $1,447,465 for the six months ended June 30, 2009, as compared to $1,353,457 for the comparable period of 2008 for reasons stated above.

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 the six months ended June 30, 2009, related parties advanced $397,252 in total to the Company. As of June 30, 2009, our current liabilities exceeded current assets by $5,094,834, reflecting a current ratio of 0.42:1 and a quick ratio of 0.012:1. Comparably, as of December 31, 2008, our current liabilities exceeded current assets by $4,000,056, denoting current ratio of 0.49:1 and quick ratio of 0.064:1.

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