Company Quick10K Filing
Quick10K
Longbau Group
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
8-K 2018-12-21 Amend Bylaw, Shareholder Vote, Exhibits
DS Drive Shack 359
LNDC Landec 292
EARN Ellington Residential Mortgage REIT 143
NTWN Newtown Lane Marketing 0
KCAP Kcap Financial 0
ENLK Enlink Midstream Partners 0
WEYL Weyland Tech 0
BBLS Petrolia Energy 0
COIL Citadel Exploration 0
PSN Parsons 0
LNGB 2019-03-31
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Organization and Operations
Note 2 - Summary of Significant Accounting Policies
Note 3 - Going Concern Considerations
Note 4 - Trust Investments
Note 5 - Related Party Transactions
Note 6 - Commitments and Contingencies
Note 7 - Segment Reporting
Note 8 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Item 4. Internal Controls Over Financial Reporting.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 tv521544_ex31-1.htm
EX-31.2 tv521544_ex31-2.htm
EX-32.1 tv521544_ex32-1.htm
EX-32.2 tv521544_ex32-2.htm

Longbau Group Earnings 2019-03-31

LNGB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv521544_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ______ to __________

 

COMMISSION FILE NUMBER: 333-194583

 

KAOPU GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware 46-5011565
(State or other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)  

 

No.100-11, Sec. 1, Zhongqing Rd.,

North Dist., Taichung City 404,

Taiwan (R.O.C.)

(Address of principal executive offices)

 

+852 58059452

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large Accelerated Filer     ¨ Non-Accelerated Filer     x
Accelerated Filer     ¨ Smaller Reporting Company    x
  Emerging Growth Company    x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No  x

 

As of March 15, 2019, there are a total of 30,500,000 shares of common stock issued and outstanding.

 

Securities registered pursuant to Section 12(b) of the Act:

  

Title of each class Trading symbol(s) Name of each exchange on which registered
     

  

 

 

 

 

 

TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION 4
 
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 4
   
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 8
   
ITEM 4. CONTROLS AND PROCEDURES 9
   
PART II. OTHER INFORMATION 10
   
ITEM 1. LEGAL PROCEEDINGS 10
   
ITEM 1A. RISK FACTORS 10
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 10
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
   
ITEM 4. MINE SAFETY DISCLOSURES 10
   
ITEM 5. OTHER INFORMATION 10
   
ITEM 6. EXHIBITS 10
   
  SIGNATURES 11

 

2

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described under Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

 

Forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.

 

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

OTHER PERTINENT INFORMATION

 

References in this report to “we,” “us,” “our” and the “Company” and words of like import refer to Longbau Group, Inc. and its subsidiaries.

 

Our business is conducted in Hong Kong using the Hong Kong Dollar (HKD), the currency of Hong Kong, in Taiwan using NT$, the currency of Taiwan, and our financial statements are presented in United States dollars (“USD” or “$”).   In this report, we refer to assets, obligations, commitments and liabilities in our financial statements in USD.   These dollar references are based on the exchange rate of NT$ to USD, determined as of a specific date.   Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of USD which may result in an increase or decrease in the amount of our obligations (expressed in USD) and the value of our assets, including accounts receivable (expressed in USD).

 

3

 

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Contents Page
   
Consolidated Balance Sheets (Unaudited) F – 1
   
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) F – 2
   
Consolidated Statements of Stockholder’s Deficit (Unaudited) F – 3
   
Consolidated Statements of Cash Flows (Unaudited) F – 4
   
Notes to the Consolidated Financial Statements (Unaudited) F – 5

 

4

 

 

Kaopu Group, Inc.

Consolidated Statements of Cash Flows

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

   March 31, 2019   December 31, 2018 
ASSETS          
Current assets:          
Cash and cash equivalents  $341,386   $508,988 
Accounts receivable, net of allowance for doubtful accounts   177,479    939,736 
Income tax receivable   -    2,507 
Inventory   363,817    368,334 
Prepaid expenses and other current assets   26,917    68,521 
Total current assets   909,599    1,888,086 
           
Property and equipment, net of accumulated depreciation   80,393    90,758 
Deposit on purchase of land   2,030,992    2,049,797 
Trust investments, restricted   6,575,460    6,556,072 
Deferred commission cost   921,595    942,138 
Deferred tax assets - noncurrent   175,785    177,413 
Other assets   92,158    93,871 
           
Total assets  $10,785,982   $11,798,135 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Accounts payable and accrued expenses  $727,210   $1,578,865 
Accounts payable and accrued expenses - related parties   285,741    266,495 
Income tax payable   39,732    67,695 
Deferred revenues - current   96,876    97,773 
Other payable - land purchase   845,640    853,470 
Other payable - related party   54,953    10,663 
Other payables   35,154    50,099 
Total current liabilities   2,085,306    2,925,060 
Deferred preneed contract revenues   8,304,471    8,385,402 
Total liabilities   10,389,777    11,310,462 
           
Commitment and contingencies          
           
Stockholders' Equity:          
Common stock, $0.0001 par value, 1,000,000,000 shares     authorized; 30,500,000 shares issued and outstanding   305    305 
Additional paid-in capital   1,326,107    1,326,107 
Legal capital reserve   97,608    97,608 
Accumulated deficit   (1,025,898)   (943,235)
Accumulated other comprehensive loss   (1,917)   6,888 
Total stockholders' equity   396,205    487,673 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $10,785,982   $11,798,135 

 

The accompanying notes are an integral part of these interim unaudited consolidated financial statements.

 

F – 1

 

 

Kaopu Group, Inc.

Consolidated Statements of Operations and Comprehensive Loss

For the three months ended of March 31, 2019 and 2019

(Unaudited)

 

   2019   2018 
         
Revenues  $1,031,142   $1,296,850 
           
Operating expenses:          
Cost of revenues   821,385    883,536 
General and administrative   329,132    366,402 
Depreciation and amortization   9,863    22,736 
Total operating expense   1,160,380    1,272,674 
           
(Loss) income from operations   (129,238)   24,176 
           
Other income (expense):          
Realized and unrealized investment income (losses), net   42,400    (67,405)
Other income   4,176    40,328 
Total other income (expense)   46,575    (27,077)
           
Loss before provision for income taxes   (82,663)   (2,901)
Income tax expense   -    8,188 
           
Net loss  $(82,663)  $(11,089)
           
Other comprehensive income (loss):          
Foreign currency translation income (loss)   (7,019)   127,472 
Total other comprehensive income (loss)   (7,019)   127,472 
           
Comprehensive (loss) income  $(89,682)  $116,383 
           
Net loss per common share:          
Basic and diluted  $(0.00)  $(0.00)
           
Weighted average number of common shares outstanding:          
Basic and diluted   30,500,000    30,500,000 

 

The accompanying notes are an integral part of these interim unaudited consolidated financial statements.

 

F – 2

 

 

Kaopu Group, Inc.

Consolidated Statements of Changes in Stockholders’ Deficit

For the three months ended of March 31, 2019

(Unaudited)

 

           Additional           Other   Total 
   Common Stock   Paid- in   Legal   Accumulated   Comprehensive   Stockholders' 
   Shares   Amount   Capital   Reserve   Deficit   Income (Loss)   Equity 
                             
Balance, December 31, 2018   30,500,000   $305   $1,326,107   $97,608   $(943,235)  $6,888   $487,673 
                                    
Foreign currency translation loss                            (8,805)   (8,805)
Net loss                       (82,663)        (82,663)
                                    
Balance, March 31, 2019   30,500,000   $305   $1,326,107   $97,608   $(1,025,898)  $(1,917)  $396,205 

 

The accompanying notes are an integral part of these interim unaudited consolidated financial statements.

 

F – 3

 

 

Kaopu Group, Inc.

Consolidated Statements of Cash Flows

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(82,663)  $(11,089)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   9,863    22,736 
Investment (income) loss   (42,400)   67,405 
Deferred income tax   1,628    (17,102)
Changes in operating assets and liabilities:          
Accounts receivable   762,257    604,456 
Income tax   (25,456)   (19,260)
Inventory   4,517    (40,156)
Prepaid expenses, other current assets and other assets   43,316    (30,399)
Trust investments, restricted   23,012    (761,836)
Deferred commission cost   20,544    (70,654)
Other assets        1,758 
Accounts payable and accrued expenses   (866,600)   (874,946)
Accounts payable and accrued expenses - related parties   19,246    38,154 
Deferred revenues   (897)   10,328 
Other payable   -    231,330 
Deferred preneed contract revenues   (80,931)   822,911 
Net cash used in operating activities   (214,564)   (26,364)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property and equipment   -    (240,875)
Net cash used in investing activities   -    (240,875)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Advances from related parties   44,290    - 
Proceeds from cash contributions   -    - 
Payment on liability for land purchase   (7,830)   - 
Dividends   -    - 
Net cash provided by financing activities   36,460    - 
Effect of exchange rate changes on cash and cash equivalents   10,502    137,754 
           
Net change in cash and cash equivalents   (167,602)   (129,485)
Cash and cash equivalents, beginning of year   508,988    564,561 
Cash and cash equivalents, end of year  $341,386   $435,076 
           
Cash paid for:          
Interest  $-   $- 
Income tax  $-   $- 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F – 4

 

 

Note 1 – Organization and Operations

 

Longbau Group, Inc. was incorporated in the State of Delaware on December 23, 2013. On December 21, 2018, Longbau Group, Inc. amended its Certificate of Incorporation to change the name to Kaopu Group, Inc. (the Company).

 

Business operations include sales of life, property and casualty insurance products underwritten by insurance companies as well as insurance brokerage services and consulting for other providers of deferred preneed funeral and cemetery services, preneed cemetery and funeral activities, sales of burial vaults, urns and other funeral related and consumer products and cemetery property.

 

Operating subsidiaries include Long Bao Life Technology Co., Ltd. (Long Bao Life) and Ho-Cheng Insurance Brokers Co., Ltd. (Ho-Cheng Insurance).

 

Long Bao Life provides “pre-need” and “at need” funeral services and sells funeral related products, such as urns, in Taiwan. A pre-need death care contract enables a customer to make his/her own funeral arrangements in advance and prepay for the funeral, which reduces the burden of the family at the time of bereavement as well as avoids the influence of rising costs. In addition, the Company provides consulting services to customers prior to the purchase.

 

Ho-Cheng Insurance, an insurance intermediary company, focuses on sales of life, property and casualty insurance products underwritten by insurance companies as well as insurance brokerage services. Ho-Cheng Insurance has been cooperating with many insurance companies operating in Taiwan to distribute a wide variety of insurance products to customers.

 

Note 2 – Summary of Significant Accounting Policies

 

Interim financial statements

 

The accompanying Consolidated Balance Sheet as of December 31, 2018, which was derived from audited financial statements, and the unaudited interim financial statements included herein, presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosure are adequate to make the information presented not misleading. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K, and it is suggested that these consolidated financial statements be read in conjunction therewith.

 

Basis of Presentation

 

The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s functional currency is the Taiwanese Dollar (“Taiwanese $” or “NT$”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances were eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to allowance for sales return and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

F – 5

 

  

Reclassification

 

To conform to the current-year presentation, certain amounts have been reclassified in the presentation of the prior-year financial statements. These reclassifications had no impact on the previously reported Consolidated Balance Sheet, Consolidated Statement of Operations or Consolidated Statement of Cash Flows.

 

Foreign Currency Translation

 

The accounts of the Company are maintained in the Taiwanese $. The accounts of the Company are translated into US $ with the Taiwanese $ as the functional currency. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity transactions are translated at the historical rates, and statement of operations items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statement of operations and comprehensive gain (loss).

 

The following table details the exchange rates used for the respective periods:

 

   March 31, 2019   March 31, 2018   December 31, 2018 
             
Period End: Taiwanese NTD to US $   0.0324    0.0340    0.0327 
Average for the period: Taiwanese NTD to US $   0.0325    0.0320      

 

Cash and Cash Equivalents

 

For the purpose of the statement of cash flows, cash equivalents include time deposits, certificate of deposits, and all highly liquid debt instruments with original maturities of three months or less.

 

Accounts Receivable

 

Accounts receivable are recorded, net of allowance for doubtful accounts and sales returns. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentration, customer credit worthiness, current economic trends and changes in customer payment patterns to determine if the allowance for doubtful accounts is adequate. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Delinquent account balances are written-off after management has determined that the likelihood of collection is not probable and known bad debts are written off against the allowance for doubtful accounts when identified.

 

The Company provides merchandise return policy where customers who return the merchandises or cancel the contracts can receive full refund or partial refund of the amount paid within 180 days from date of purchase and contracts. Allowance for sales return is established based on management’s estimates of expected returns and historical experiences. As of March 31, 2019 and December 31, 2018, there were no allowance for uncollectible accounts receivable.

 

Inventory

 

Inventory consists of funeral related products such as burial urns and other consumer products and is valued at the lower of cost as determined on a first-in first-out basis or net realizable value. Burial urns are processed for the Company by third party contractors to add paint and other decorative finishes. Unprocessed urns are carried as raw materials, processed urns are carried as finished goods. The cost of processing is added to the carrying value of finished goods. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to the net realizable value if required.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable, accrued expenses, accounts payable and accrued expenses – related parties, the carrying amounts approximate their fair values due to their short maturities.

 

F – 6

 

 

ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

·Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

·Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

·Level 3 inputs to the valuation methodology use one or more unobservable inputs which are significant to the FV measurement.

 

Trust Investments

 

Pursuant to Taiwanese law, 75% of the proceeds from preneed sales of merchandise and services are put into trust until such time that the Company meets the requirements for releasing trust amount, which is generally when the service and merchandise are delivered, when the preneed contract is canceled and when the balance of the trust fund exceeds 75% of the proceeds from sales of preneed contracts. The legal beneficiary of the trust is the Company and the trust is managed by the Company. The investments of such trust funds are classified as trading securities and are reported at fair market value; therefore, the unrealized gains and losses are included in

 

the statement of operations. Targets that the trust fund can invest in are regulated by the authorities. On an annual basis, the Company is obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including all investment income.

 

Property and Equipment, net

 

Property and equipment are originally recorded at cost and stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are expensed as incurred; additions, renewals and improvements are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

 

Description   Years
     
Office equipment   3 - 5 years
Lease improvements   3 - 5 years

 

Patent

 

The Company capitalizes the acquisition cost of its patent and amortizes the capitalized patent costs over 14 years.

 

Long-Lived Assets

 

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced to recognize the cost of disposal. Based on its review, the Company believes that as of March 31, 2019 and December 31, 2018, there was no significant impairment of its long-lived assets.

 

Deferred Commission Costs

 

The Company defers certain direct costs related to the acquisition of new preneed contracts. Such costs are expensed as the revenues are recognized. As of March 31, 2019 and December 31, 2018, the Company had $921,595 and $942,138 of deferred commission costs, respectively.

 

F – 7

 

 

Deferred Preneed Contract Revenues and Deferred Revenues

 

The Company sells preneed contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. As these contracts are entered into prior to the delivery of the related merchandise and services, the amount collected in advance is recorded in deferred preneed contract revenues. If a preneed contract is terminated upon a customer’s request, a refund equal to total amount collected by the Company minus 20% of the contract price will be made when the termination is not made within 14 days from the contract initiation date. Full refund will be made when the termination is made within 14 days. We do not record accounts receivable in accordance with the contractual payment date given the nature of our merchandise and services, the nature of our contracts with customers, and the timing of the delivery of our services.

 

The Company also offers its merchandise and provides funeral hosting services on a stand-alone at need basis. The amount collected from customer before the merchandises and services are delivered is recorded in deferred revenues on the balance sheet.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no uncertain tax positions as of March 31, 2019 and December 31, 2018.

 

Revenue Recognition

 

Long Bao Life sells its merchandise and services on both a preneed and at need basis.

 

Revenue is recognized when control of the performance obligation is transferred to the customer. Our performance obligations include funeral and cemetery merchandise and services. Control transfers when merchandise is delivered, or services are performed.

 

We sell price-guaranteed preneed contracts through various programs providing for future merchandise and services at prices prevailing when the agreements are signed. Revenue associated with sales of preneed contracts is deferred until merchandise is delivered or the services are performed, generally at the time of need. In situations in which we have no further obligation or involvement related to the merchandise, we recognize revenue and record the cost of sales upon the earlier of vendor storage of these items or delivery in the cemetery. There is no general right of return for delivered items.

 

The total consideration received for contracts with customers is allocated to each performance obligation based on relative selling price. Relative selling prices are determined by either the amount we sell the performance obligation for on a stand-alone basis or our best estimate of the amount we would sell it for based on an adjusted market assessment approach that is consistent with our historical pricing practices.

 

Payment on at need contracts is generally due at the time the merchandise is delivered or the services are performed. For preneed contracts, payment generally occurs prior to our fulfillment of the performance obligations. Pursuant to the Taiwanese law, all or a portion of the proceeds from merchandise or services sold on a preneed basis may be required to be deposited into trust funds. When we receive payments from the customer, we deposit the amount required by law into the merchandise and service trusts and reclassify the corresponding amount from Deferred revenue, net into Deferred receipts held in trust. Amounts are withdrawn from the merchandise and service trusts when we fulfill the performance obligations. We defer investment earnings related to these merchandise and service trusts until the associated merchandise is delivered or services are performed. In addition, we are entitled to retain a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in revenue.

 

Costs related to delivery or performance of merchandise and services are charged to expense when merchandise is delivered, or services are performed. Incremental direct selling costs are deferred and recognized when the associated performance obligation is fulfilled based on specific identification in the fulfillment of a contract. All other selling costs are expensed as incurred.

 

F – 8

 

 

Ho-Cheng Insurance’s revenue is from insurance agency and brokerage services. The Company sells insurance products to customers and obtains commissions from the respective insurance carriers according to the terms of each insurance company service agreement.

 

The Company recognizes revenue when the following have occurred: persuasive evidence of an agreement between the insurance company and insured exists, services were provided, the fee for such services is fixed or determinable and collectability of the fee is reasonably assured. Insurance agency services are considered complete, and revenue is recognized, when an insurance policy becomes effective. The Company recognizes revenue from insurance carriers on a gross basis. The commission paid by the Company to its agents are recorded as cost of revenues.

 

Basic and Diluted Earnings Per Share

 

Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive securities are converted. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were no potentially dilutive securities outstanding during the periods presented.

 

Foreign Currency Transactions and Comprehensive Income

 

US GAAP generally requires recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. The functional currency of the Company is the Taiwanese $. Accumulated translation income (loss) of $(1,917) and $6,888 at March31, 2019 and December 31, 2018, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the consolidated balance sheets.

 

Segment Reporting

 

The Company uses the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.

 

Statement of Cash Flows

 

Cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

 

Accounting Standards Recently Adopted

 

In February 2016, FASB issued ASU No. 2016-02 Leases (Topic 842), which created new accounting and reporting guidelines for leasing arrangements. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize on its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. In July 2018, FASB issued ASU No. 2018-11, Leases (Topic 842) -Targeted Improvements, providing an optional transition method that allows entities to initially apply the new leases standard at the adoption date. The Company adopted this Standard effective January 1, 2019; there was no material impact on its financial statements..

 

In June 2018, FASB issued ASU 2018-07 to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this Standard effective January 1, 2019; there was no material impact on its financial statements.

 

Recent Accounting Standards

 

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date. The Company is in the process of evaluating the provisions of the ASU but does not expect it to have a material effect on its consolidated financial statements.

 

F – 9

 

 

In November 2018, FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact the standard will have on its financial statements.

 

Subsequent Events

 

The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

 

Note 3 – Going Concern Considerations

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations, has a substantial working capital deficiency and substantial accumulated deficits and comprehensive loss that raise substantial doubt about its ability to continue as a going concern. Management's plans to address these issues are to achieve and maintain profitability which depends on the growth of our market share, the acceptance of our services by our customers, the competitiveness of our death care management consultant services, and our ability to control our costs and expenses. Additionally, our controlling shareholders will continue to contribute capital if required as they did in 2018 and 2017. Our plans also include raising substantial capital from share purchase agreement from outside entities.

 

Note 4 – Trust Investments

 

The cost and market values associated with preneed contract trust investments at March 31, 2019 are detailed below:

 

   Fair Value          Fair Market 
   Hierarchy  Cost at   Unrealized   Value at 
   Level  March 31, 2019   Gain   March 31. 2019 
                
Cash and money market account  Level 1  $2,039,351   $-   $2,039,351 
Mutual funds:                  
Debt securities  Level 1   4,536,000    109    4,536,109 
                   
Total     $6,575,351   $109   $6,575,460 

 

Where quoted prices are available in an active market, investments held by the trust are classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Company’s Level 1 investments include cash and money market accounts and mutual funds. There are no Level 2 and Level 3 investments in the Company’s trust portfolio as of March 31, 2019 and December 31, 2018.

 

Note 5 – Related Party Transactions

 

Sales

 

During the three months ended March 31, 2019 and 2018, the Company’s Chief Executive Officer, affiliated and family members purchased certain products from the Company for $3,349 and $2,602, respectively.

 

Other payable

 

As of March 31, 2019 and December 31, 2018, the Company had a liability of $54,953 and $10,663, respectively, to its Chief Executive Officer for short-term borrowings. The liability is non-interest bearing and are payable on demand.

 

F – 10

 

 

Lease

 

During the three months ended March 31, 2019 and 2018, the Company leased offices from the Company’s Chief Executive Officer. Total lease expense to the related parties during the three months ended March 31, 2019 and 2018 were $16,135 and $15,936, respectively.

 

Commission cost

 

During the three months ended March 31, 2019 and 2018, the Company incurred $833 and $140 of commission costs to a company controlled by a family member of the Company’s Chief Executive Officer. As of March 31, 2019 and December 31, 2018, amount payable to the affiliated company for commissions were $0 and $0, respectively.

 

Note 6 – Commitments and Contingencies

 

Pursuant to the preneed contracts with the customers, the Company agreed to pay interest starting from the date that the full contract price is collected by the Company. The interest is calculated based on 80% of the contract price at a rate of 5% per annum for contracts entered in or prior to February 2009 and based on 100% of the contract price at a rate of 2.37% per annum for contracts entered after February 2009 but before February 2011. Starting from March 2011, interest is calculated based on 100% of the contract price at the one-year certified deposit rate of postal service announced by the Chunghwa Post Co., Ltd. in Taiwan (Currently 1.04% per annum). The interest is paid annually and included in cost of revenues in the statement of operations. Interest expense related to the preneed contracts were $22,057 and $20,057 for the three months ended March 31, 2019 and 2018, respectively.

 

Note 7 – Segment Reporting

 

The Company uses the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company has three reportable segments: Long Bao Life that mainly sells funeral services products; Ho-Cheng Insurance that is an insurance broker; and Longbau Taiwan and Long Group, Inc. that provides consulting services. The following tables summarize the Company’s segment information for the three months ended March 31, 2019 and 2018 and as of March 31, 2019 and December 31, 2018:

 

   For the three months ended March 31, 
   2019   2018 
Revenues          
Funeral services  $138,880   $328,806 
Insurance   892,262    968,044 
Consulting   -    - 
           
Total revenues  $1,031,142   $1,296,850 
           
Income (loss) from operations          
Funeral services  $(65,758)  $2,200 
Insurance   (63,480)   45,297 
Consulting   -    (23,322)
           
Total (loss) income from operations  $(129,238)  $24,175 
           
Net income (loss)          
Funeral services  $(19,183)  $(29,941)
Insurance   (63,480)   37,173 
Consulting   -    (18,321)
           
Total net loss  $(82,663)  $(11,089)

 

F – 11

 

 

   As of   As of 
   March 31, 2019   December 31, 2018 
Total assets          
Funeral services  $10,127,700   $10,215,481 
Insurance   558,210    1,482,862 
Consulting   110,072    99,792 
           
Total assets  $10,785,982   $11,798,135 

 

Note 8 – Subsequent Events

 

The Company has evaluated transactions and events form the balance sheet date through the date these financial statements are available for release and has determined there are no events and or transactions require disclosure as subsequent events.

 

F – 12

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read this Management’s Discussion and Analysis in conjunction with the Consolidated Financial Statements and Related Notes. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

 

Overview

 

We sell death care management consultant services through Longbau Hong Kong, our operating company in Hong Kong, to public consumers across Taiwan. In September 2014, we established another subsidiary in Taiwan, Longbau Taiwan, to provide death care consulting service and sell death care products across Taiwan. Longbau Taiwan is 100% owned by Longbau Hong Kong.

 

We will be providing a variety of death care management consultancy services. We consult on the purchase of cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. In addition, the Company specializes in the consultancy for deferred preneed funeral and cemetery receipts held in trust, preneed cemetery activities, preneed funeral activities, preneed funeral and cemetery, burial vaults, cemetery property, and cemetery property revenue.

 

On December 29, 2016, we, Long Bao Life Technology Co., Ltd (“Long Bao Life”), the shareholders of Long Bao Life, and Tsai Ko, our CEO, entered into a share exchange agreement whereby we issued 250,000 shares of our common stock to Long Bao Life shareholders in exchange for 100% of Long Bao Life's issued and outstanding ownership interests. Upon completion of the foregoing transaction, Long Bao Life became our wholly-owned subsidiary. Long Bao Life was a private company incorporated in Taiwan in 2007.

 

Long Bao Life provides pre-need and at need funeral services and sells funeral related products, such as urns, in Taiwan. A pre-need death care contract enables a customer to make his/her own funeral arrangements in advance and prepay for the funeral, which reduces the burden of the family at the time of bereavement as well as avoids the influence of rising costs. In addition, the company provides consulting services to customer prior to the purchase. Long Bao Life utilizes various systems, including multi-level marketing ("MLM") system, to sell the preneed contracts and other products. Under the MLM system, the salespeople are compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit. This recruited sales force is referred to as the participant's "downline", and can provide multiple levels of compensation. MLM is one type of direct selling. The salespeople are expected to sell products directly to consumers by means of relationship referrals and word of mouth marketing. MLM salespeople not only sell the Long Bao Life products but also encourage others to join the Long Bao Life as a distributor. Long Bao Life also sales its preneed contracts and other products through agents where it pays a fixed amount of commission.

 

On December 29, 2016, we, Ho-Cheng Insurance Brokers Co., Ltd. (“Ho-Cheng Insurance”), the shareholders of Ho-Cheng Insurance and Tsai Ko entered into a share exchange agreement whereby we issued 250,000 shares of our common stock to Ho-Cheng Insurance shareholders in exchange for 100% of Ho-Cheng Insurance’s issued and outstanding ownership interests. Upon completion of the foregoing transaction, Ho-Cheng Insurance became our wholly-owned subsidiary. Ho-Cheng Insurance was a private company incorporated in Taiwan in 2001.

 

Ho-Cheng Insurance, a Taiwan based insurance intermediary company focuses on sales of life, property and casualty insurance products underwritten by insurance companies as well as insurance brokerage services. The company has been cooperating with many insurance companies operating in Taiwan to distribute a wide variety of insurance products to customers.

 

On December 21, 2018 the Company amended its Certificate of Incorporation to change the Company’s name from “Longbau Group, Inc.” to “Kaopu Group, Inc.”

  

Results of Operations

 

For the three months ended March 31, 2019 and 2018

 

Revenues.  For the three months ended March 31, 2019, we generated revenues of $1,031,142 as compared to $1,296,850 for three months ended March 31, 2018, a decrease of $265,708 or 20%. The decrease is principally due us generating less revenues from our insurance business.

 

5

 

 

Cost of revenues. For the three months ended March 31, 2019, our cost of revenues was $821,385 as compared to $883,536 for the three months ended March 31, 2018, a decrease of $612,151 or 7%. The decrease is principally due to less commissions paid because of less revenues from our insurance business. As a percentage of revenues, our cost of revenue for the three months ended March 31, 2019 and 2018 were 80% and 68%, respectively.

 

General and administrative expenses. For the three months ended March 31, 2019, we had general and administrative expenses of $329,132 as compared to $366,402 for the three months ended March 31, 2018, a decrease of $37,270, or 10%. As a percentage of revenues, our general and administrative expenses for the three months ended March 31, 2019 and 2018 were 32% and 28%, respectively.

 

Other income (expense).  For the three months ended March 31, 2019, we had net other income of $46,575 as compared to net other loss of $27,077 for the three months ended March 31, 2018, an increase of $73,652. The difference is principally due the investment income of $42,400 recognized in 2019 versus in 2018 there was an investment loss of $67,405 realized.

 

Net loss.  For the three months ended March 31, 2019, we had net loss of $82,663 as compared to a net loss of $11,089 for the three months ended March 31, 2018, an increase in net loss of $71,574. The decrease is principally due us generating less revenues from our insurance business.

 

Liquidity and Capital Resources Operations

 

As of March 31, 2019, we had cash on hand of $341,386.

 

Operating activities. For the three months ended March 31, 2019, we used $214,564 in our operating activities as compared to cash used in operating activities of $26,364 for the three months ended March 31, 2018. The decrease is principally due to decreases in deferred preneed contract revenues.

 

Investing activities. For the three months ended March 31, 2019, we did not have any investing activities as compared to cash used in investing activities of $240,875 for the three months ended March 31, 2018 to purchase more property and equipment.

 

Financing activities. For the three months ended March 31, 2018, we did not have any cash inflow or outflow from the financing activities. For the three months ended March 31, 2019, we received advances form related parties in the amount of $44,290 and we paid $7,830 for the land purchase liability.

 

We plan to fund our operations from loans from our major shareholders and we may raise equity capital by offering shares of our common stock to investors as well as from our operations.

 

Although the Company believes its revenues from operations will eliminate the need to raise additional funding to expand its business operations over the next 12 months, there is no guarantee additional funding will not be required. If financing is needed and we are not able to raise the capital necessary to fund our business expansion objectives, we may have to delay the implementation of our business plan.

 

We do not currently have any arrangements for financing. Obtaining additional funding will be subject to a number of factors, including general market conditions, investor acceptance of our business plan and initial results from our business operations. These factors may impact the timing, amount, terms or conditions of additional financing available to us. The most likely source of future funds available to us is through the sale of additional shares of common stock or advances from our major shareholders or directors and, if we are able to obtain equity financing, it will likely result in significant additional dilution to the interests of our current stockholders and may include liquidation or other preferences that adversely affect your right as a stockholder. The Company may obtain financing by issuing debt which may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that we will be able to obtain such additional financing is needed and if we cannot receive such financing we may be forced to suspend or cease operations.

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

6

 

 

We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Trust Investments

 

Pursuant to Taiwanese law, 75% of the proceeds from preneed sales of merchandise and services are put into trust until such time that the Company meets the requirements for releasing trust amount, which is generally when the service and merchandise are delivered, when the preneed contract is canceled and when the balance of the trust fund exceeds 75% of the proceeds from sales of preneed contracts. The legal beneficiary of the trust is the Company and the trust is managed by the Company. The investments of such trust funds are classified as trading securities and are reported at fair market value; therefore, the unrealized gains and losses are included in the statement of operations. Targets that the trust fund can invest in are regulated by the authorities. On an annual basis, the Company is obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including all investment income.

 

Deferred Commission Costs

 

The Company defers certain direct costs related to the acquisition of new preneed contracts. Such costs are expensed as the revenues are recognized.

 

Deferred Preneed Contract Revenues and Deferred Revenues

 

The Company sells preneed contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. As these contracts are entered into prior to the delivery of the related merchandise and services, the amount collected in advance is recorded in deferred preneed contract revenues. If a preneed contract is terminated upon a customer’s request, a refund equal to total amount collected by the Company minus 20% of the contract price will be made when the termination is not made within 14 days from the contract initiation date. Full refund will be made when the termination is made within 14 days. We do not record accounts receivable in accordance with the contractual payment date given the nature of our merchandise and services, the nature of our contracts with customers, and the timing of the delivery of our services.

 

The Company also offers its merchandise and provides funeral hosting services on a stand-alone at need basis. The amount collected from customer before the merchandises and services are delivered is recorded in deferred revenues on the balance sheet.

 

Revenue Recognition

 

Long Bao Life sells its merchandise and services on both a preneed and at need basis.

 

Revenue is recognized when control of the performance obligation is transferred to the customer. Our performance obligations include funeral and cemetery merchandise and services. Control transfers when merchandise is delivered, or services are performed.

 

We sell price-guaranteed preneed contracts through various programs providing for future merchandise and services at prices prevailing when the agreements are signed. Revenue associated with sales of preneed contracts is deferred until merchandise is delivered or the services are performed, generally at the time of need. In situations in which we have no further obligation or involvement related to the merchandise, we recognize revenue and record the cost of sales upon the earlier of vendor storage of these items or delivery in the cemetery. There is no general right of return for delivered items.

 

The total consideration received for contracts with customers is allocated to each performance obligation based on relative selling price. Relative selling prices are determined by either the amount we sell the performance obligation for on a stand-alone basis or our best estimate of the amount we would sell it for based on an adjusted market assessment approach that is consistent with our historical pricing practices.

 

Payment on at need contracts is generally due at the time the merchandise is delivered or the services are performed. For preneed contracts, payment generally occurs prior to our fulfillment of the performance obligations. Pursuant to the Taiwanese law, all or a portion of the proceeds from merchandise or services sold on a preneed basis may be required to be deposited into trust funds. When we receive payments from the customer, we deposit the amount required by law into the merchandise and service trusts and reclassify the corresponding amount from Deferred revenue, net into Deferred receipts held in trust. Amounts are withdrawn from the merchandise and service trusts when we fulfill the performance obligations. We defer investment earnings related to these merchandise and service trusts until the associated merchandise is delivered or services are performed. In addition, we are entitled to retain a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in revenue.

 

7

 

 

Costs related to delivery or performance of merchandise and services are charged to expense when merchandise is delivered, or services are performed. Incremental direct selling costs are deferred and recognized when the associated performance obligation is fulfilled based on specific identification in the fulfillment of a contract. All other selling costs are expensed as incurred.

 

Ho-Cheng Insurance’s revenue is from insurance agency and brokerage services. The Company sells insurance products to customers and obtains commissions from the respective insurance carriers according to the terms of each insurance company service agreement.

 

The Company recognizes revenue when the following have occurred: persuasive evidence of an agreement between the insurance company and insured exists, services were provided, the fee for such services is fixed or determinable and collectability of the fee is reasonably assured. Insurance agency services are considered complete, and revenue is recognized, when an insurance policy becomes effective. The Company recognizes revenue from insurance carriers on a gross basis. The commission paid by the Company to its agents are recorded as cost of revenues.

 

Accounting Standards Recently Adopted

 

In February 2016, FASB issued ASU No. 2016-02 Leases (Topic 842), which created new accounting and reporting guidelines for leasing arrangements. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize on its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018. In July 2018, FASB issued ASU No. 2018-11, Leases (Topic 842) -Targeted Improvements, providing an optional transition method that allows entities to initially apply the new leases standard at the adoption date. The Company adopted this Standard effective January 1, 2019.

 

In June 2018, FASB issued ASU 2018-07 to expand the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The standard is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company adopted this Standard effective January 1, 2019; there was no material impact on its financial statements.

 

Recent Accounting Standards

 

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the standard for disclosures modified or removed with a delay of adoption of the additional disclosures until their effective date. The Company is in the process of evaluating the provisions of the ASU but does not expect it to have a material effect on its consolidated financial statements.

 

In November 2018, FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is in the process of evaluating the impact the standard will have on its financial statements.

 

Off-Balance Sheet Arrangements

 

None. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

Not Applicable.

 

8

 

 

ITEM 4. INTERNAL CONTROLS OVER FINANCIAL REPORTING.

 

Evaluation of Disclosure Controls and Procedures.

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits 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 a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Tsai Ko, our Chief Executive Officer and Yueh-Kuei Ko, the Company’s Chief Financial Officer, concluded that as of March 31, 2019, our disclosure controls and procedures were not effective due to the following material weaknesses in our control environment and financial reporting process consisting of the following as of March 31, 2019:

 

1.lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal control and procedures;

2.inadequate segregation of duties consistent with control objectives;

3.ineffective controls over period end financial disclosure and reporting processes; and

4.lack of accounting personnel with adequate experience and training.

 

Changes in Internal Control over Financial Reporting.

 

During the three months ended March 31, 2019, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

9

 

 

PART II.  OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS

 

(a)           Exhibits:

 

Exhibit    
Number   Description of Exhibit
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1*   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document.
     
101.SCH   XBRL Taxonomy Extension Schema Document.
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.

 

*The certification attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: May 20, 2019 By: /s/ Tsai Ko  
  Name:   Tsai Ko
  Its:     Chief Executive Officer
    (Principal Executive Officer) 
     
Date: May 20, 2019 By: /s/ Yueh-Kuei Ko  
  Name:   Yueh-Kuei Ko
  Its:     Chief Financial Officer
    (Principal Financial Officer)

 

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