KAOPU GROUP INC - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2017

OR

For the transition period from ______ to __________

COMMISSION FILE NUMBER: 333-194583

LONGBAU GROUP, INC.

(Exact name of registrant as specified in its charter)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨

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

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 May 22, 2017, there are a total of 30,500,000 shares of common stock issued and outstanding.

TABLE OF CONTENTS

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).

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Longbau Group, Inc.

Consolidated Balance Sheets

(Unaudited)

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

Longbau Group, Inc.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

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

Longbau Group, Inc.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

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

Longbau Group, Inc.

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2017 and 2016

(Unaudited)

Note 1 - Organization and Basis of Presentation

Organization and Line of Business

Longbau Group, Inc. (the “Company”) was incorporated in the State of Delaware on December 23, 2013. The Company owns 100% of Longbau Group Limited, which was incorporated in Hong Kong on February 14, 2014. The Company is focusing its business on consultancy for deferred preneed funeral and cemetery receipts held in trust, preneed cemetery and funeral activities, burial vaults, cemetery property, and cemetery property revenue.

In September 2014, the Company established Longbau Management Consulting LLC in Taiwan (“Longbau Taiwan”) to provide end-of-life consulting services and sell end-of-life products in Taiwan. Longbau Taiwan is 100% owned by Longbau Group Limited. In 2015, the Company started to sell supplies for funerals and plans to provide additional funeral services for the Taiwanese market.

On December 29, 2016, the Company entered into a share exchange agreement with the shareholders of Long Bao Life Technology Co., Ltd (“Long Bao Life”), and Tsai Ko, the Company’s CEO. Pursuant to the agreement, the Company issued 250,000 shares of its common stock to the shareholders of Long Bao Life in exchange for 100% of Long Bao Life's issued and outstanding ownership interests. Upon completion of the foregoing transaction, Long Bao Life became a wholly-owned subsidiary of the Company. 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 customers 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 Long Bao Life as a distributor. Long Bao Life also sells its preneed contracts and other products through agents where it pays a fixed amount of commission.

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

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.

Tsai Ko, the Company’s Chief Executive Officer, Director and a majority shareholder of the Company, was (i) the Chief Executive Officer of Long Bao Life and owner of 12% of Long Bao Life’s ownership interests; and (ii) owner of 25% of Ho-Cheng Insurance’s ownership interests.

Yueh-Kuei Ko, the Company’s Chief Financial Officer, Director, and owner of 5% of the Company’s outstanding common stock was (i) a Long Bao Life Director and 18% owner of Long Bao Life’s ownership’s interests and (ii) the Chief Executive Officer of Ho-Cheng Insurance and a 25% owner of Ho-Cheng Insurance’s ownership interests.

Tsai Ko, Yueh-Kuei Ko and relatives of each collectively owned a majority interest in both Long Bao Life and Ho-Cheng Insurance.

Interim financial statements

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.

Going concern

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a negative working capital at March 31, 2017 and had net cash outflow for operating activities for the three months ended March 31, 2017. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company's management plans to borrow additional funds from related parties as needed. However, there is no obligation by these related parties to provide such funding. The Company's ability to continue as a going concern is dependent on these additional cash financings, and, ultimately, upon achieving profitable operations.

These financial statements reflect all adjustment, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2016 and notes thereto included in the Company’s annual report on Form 10-K. The Company follows the same accounting policies in the preparation of interim report. Results of operations for the interim period are not indicative of annual results.

Basis of Presentation

The accompanying consolidated financial statements were prepared in conformity with U.S. GAAP. The Company’s functional currency is the Taiwanese Dollar (“Taiwan $” or “NT$”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”). The Company, Long Bao Life and Ho-Cheng were entities under common control and had been since the earliest period presented in these consolidated financial statements; therefore, the accompanying consolidated financial statements have been presented as if the acquisitions of Long Bao Life and Ho-Cheng Insurance had occurred at the beginning of the period for which these consolidated financial statements are presented (January 1, 2016). The 2016 financial statements have been retroactively adjusted to include the financial position, results of operations and cash flows of Long Bao Life and Ho-Cheng Insurance.

Foreign Currency Translation

The accounts of the Company are maintained in the Taiwan $. The accounts of the Company are translated into USD with the Taiwan $ as the functional currency. All assets and liabilities are translated at the exchange rate on the balance sheet date, stockholders’ equity is translated at 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 income (loss). The following table details the exchange rates used for the respective periods:

Note 2 – Summary of Significant Accounting Policies

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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Longbau Group Limited, Longbau Taiwan, Long Bao Life and Ho-Cheng Insurance. All significant intercompany transactions and balances were eliminated in consolidation.

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 a merchandise return policy where customers who return the merchandises or cancel the contracts can receive a full refund or partial refund of the amount paid within 180 days from date of purchase and contracts. Allowances for sales return are established based on management’s estimates of expected returns and historical experiences. As of March 31, 2017 and December 31, 2016, there was no allowance for uncollectible accounts receivable. As of March 31, 2017 and December 31, 2016, allowances for sales return were $0 and $15,871, respectively.

Inventory

Inventory is valued at the lower of the inventory’s cost or the current market price of the inventory using weighted average cost method. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. As of March 31, 2017 and December 31, 2016, there was no allowance for slow moving or obsolete inventory.

Property and Equipment, net

Property and equipment are stated at cost. 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:

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, 2017 and December 31, 2016, respectively, there was no significant impairment of its long-lived assets.

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 the 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. Investments 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.

Fair Value of Financial Instruments

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

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:

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, 2017 and December 31, 2016, the Company had $1,076,308 and $1,036,206 of deferred commission costs, respectively.

Deferred Preneed Contract Revenues and Deferred Revenues – Current

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 – current on the balance sheet.

Revenue Recognition

The Company recognizes revenue when the price is fixed or determinable, persuasive evidence of an arrangement exists, the services have been provided, and collectability is assured.

Long Bao Life sells its merchandise and services on both a preneed and at-need basis. At need sales are recognized as revenue when the service is performed or merchandise is delivered. Pre-need funeral services and funeral merchandise are under contracts that provide for delivery of the services and merchandise at the time of need. Revenue associated with sales of preneed funeral contracts is deferred until funeral merchandise is delivered or the funeral services are performed, generally at the time of need. Pursuant to Taiwanese law, 75% of the proceeds from funeral merchandise or services sold on a preneed basis is required to be paid into trust funds.

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.

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, 2017 and December 31, 2016.

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

U.S. 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 Taiwan $. Translation gain (loss) of $66,764 and ($21) at March 31, 2017 and December 31, 2016, respectively, are classified as an item of other comprehensive income in the stockholders’ equity section of the balance sheet.

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.

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.

Subsequent Events

The Company has evaluated all transactions through the financial statement issuance date for subsequent event disclosure consideration.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers.  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.  ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.  The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.   Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.  Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.  The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

Note 3 – Inventory

Inventory consisted of the following at March 31, 2017 and December 31, 2016:

Raw materials included unprocessed urns. The Company engages third parties to process urns when there is a need.

Note 4 – Property and Equipment, net

Property and equipment consisted of the following at March 31, 2017 and December 31, 2016:

On December 30, 2014, the Company entered into a land purchase agreement with a third-party individual. Pursuant to the agreement, the Company agreed to purchase 1,296 square feet of land in Tauyuan, Taiwan for $1,972,063 (Taiwan $62,600,000). The title of the land has been transferred to the Company with the ownership certificate held in escrow until the total purchase price is paid. Pursuant to the agreement, as amended, payment of $756,450 (Taiwan $24,000,000) was made prior to July 7, 2015. The remaining $1,274,605 (Taiwan $38,600,000) payable shall be made when the Company has secured financing. The Company is currently seeking a loan from a commercial bank. The land is currently collateral to a bank for the seller’s outstanding borrowing.

Depreciation expense for the three months ended March 31, 2017 and 2016 was $21,444 and $18,718, respectively.

Note 5 – Trust Investments, Restricted

The Company’s trust is a variable interest entity. The Company has determined that it is the primary beneficiary of the trust, as the Company absorbs all of the losses and returns associated with the trust.

The cost and market values associated with preneed contract trust investments at March 31, 2017 are detailed below:

The cost and market values associated with preneed contract trust investments at December 31, 2016 are detailed below:

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our 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, 2017 and December 31, 2016.

Note 6 – Other Assets

As of March 31, 2017 and December 31, 2016, other assets consisted principally of a deposit of approximately $61,000 made in accordance with Taiwan Insurance Act for Ho-Cheng Insurance's operations.

Note 7 – Related Party Transactions

Advances

In January 2016, the Company advanced its Chief Executive Officer $60,491 (NT$2,000,000) as earnest money to continue negotiations of the Company’s planned acquisition of Long Bao Life and Ho-Cheng. Because the parties could not reach an agreement on the merger terms, the deposit was returned to the Company in April 2016. On December 29, 2016, the Company issued 500,000 common shares to acquire these two companies.

Purchases

During the three months ended March 31, 2017 and 2016, the Company purchased inventories of $0 and $45,132, respectively, from a company controlled by a family member of the Company’s Chief Executive Officer. As of March 31, 2017 and December 31, 2016, amounts payable to the affiliated company for inventory purchases was $0.

Sales

During the three months ended March 31, 2017 and 2016, the Company’s Chief Executive Officer, a company owned by his family member, and his family members purchased certain products from the Company for $2,922 and $17,747, respectively. During the three months ended March 31, 2017, the Company also recorded $6,441 for consulting revenues for services provided to a company owned by the Chief Executive Officer’s family member.

During the three months ended March 31, 2017, the Company recorded $32,207 for consulting revenues from a company controlled by the Company’s director.

Other payable

As of March 31, 2017 and December 31, 2016, the Company had a payable of $107,629 and $12,378, respectively, to its Chief Executive Officer for short-term borrowings. The payables accrued no interest and are payable on demand.

Lease

During the three months ended March 31, 2017 and 2016, the Company leased offices from the Company’s Chief Executive Officer and his wife, who is also a director of the Company, and a director. Total lease expense to the related parties for the three months ended March 31, 2017 and 2016 was $27,030 and $25,383, respectively. As of March 31, 2017 and December 31, 2016, the Company had a lease deposit of approximately $6,500 held by the related parties.

Commission cost

During the three months ended March 31, 2017 and 2016, the Company incurred $5,882 and $4,675 of commission costs to a company controlled by a family member of the Company’s Chief Executive Officer. As of March 31, 2017 and December 31, 2016, amounts payable to the affiliated company for commissions were $1,562 and $12,190, respectively.

Note 8 – 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 $21,015 and $21,529 for the three months ended March 31, 2017 and 2016, respectively.

The Company leases several offices and vehicles from third parties. For the three months ended March 31, 2017 and 2016, the Company recorded rent expenses of $86,020 and $97,662, respectively. Future minimum lease payments for non-cancellable operating leases are as follows:

Note 9 – Equity

Long Bao Life and Ho-Cheng Insurance’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year, the Company shall first offset its losses in previous years and then set aside a legal capital reserve at 10% of the statutory profits until the accumulated legal reserve equals the Company’s paid-in capital. Legal capital reserve may be used to offset a deficit, or be distributed as dividends in cash or stocks for the portion in excess of 25% of the paid-in capital if the Company incurs no loss.

Note 10 – Concentrations

The Company maintains substantially all its cash with banks in Taiwan. Should any bank holding cash become insolvent, the Company would lose the cash with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In Taiwan, a depositor has up to approximately $93,000 (Taiwan $3,000,000) insured in a bank. As of March 31, 2017, the Company had $147,100 of cash and cash equivalents uninsured.

The Company purchased 100% of materials from one vendor for the three months ended March 31, 2017 and 93% of materials from four vendors for the three months ended March 31, 2016. As of March 31, 2017 and December 31, 2016, the amounts due to these vendors included were $10,372 and $33,265, respectively. The Company believes there are numerous other suppliers that could be substituted should the supplier become unavailable or non-competitive.

The Company received commissions from four major insurance carriers for the three months ended March 31, 2017 and 2016 for the insurance segment. Each of the insurance carriers made up over 10% of the Company’s total revenue during three months ended March 31, 2017 and 2016. For the three months ended March 31, 2017 and 2016, aggregated sales to these carriers were $897,957 and $746,905, respectively.

Note 11 – 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:

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.

Tsai Ko, our Chief Executive Officer, Director and owner of 30% of our outstanding common stock was (i) the Chief Executive Officer of Long Bao Life and owner of 12% of Long Bao Life’s ownership interests; and (ii) owner of 25% of Ho-Cheng Insurance’s ownership interests.

Yueh-Kuei Ko, our Chief Financial Officer, Director, and owner of 5% of our outstanding common stock was (i) a Long Bao Life Director and 18% owner of Long Bao Life’s ownership’s interests and (ii) the Chief Executive Officer of Ho-Cheng Insurance and a 25% owner of Ho-Cheng Insurance’s ownership interests.

Tsai Ko, Yueh-Kuei Ko and relatives of each collectively owned a majority interest in both Long Bao Life and Ho-Cheng Insurance.

Long Bao Life, Ho-Cheng and us were entities under common control and had been since the earliest period presented in these consolidated financial statements included elsewhere in this Form 10-Q; therefore, the consolidated financial statements have been presented as if the acquisitions of Long Bao Life and Ho-Cheng Insurance had occurred at the beginning of the period for which consolidated financial statements are presented.

Results of Operations

For the three months ended March 31, 2017 and 2016

Revenues.  For the three months ended March 31, 2017, we generated revenues of $2,235,353 as compared to $1,780,746 for three months ended March 31, 2016, an increase of $454,607 or 25.5%. Revenue from our funeral services segment increased by $12,560 or 3.0% from $424,406 in 2016 to $436,966 in 2017. The increase is principally due to the net increase of revenue from preneed contract termination and funeral hosting fees, which is offset by the decrease of sales of urns. Additionally, the Company had $38,648 consulting revenues for services provided to companies controlled by related parties during the three months ended March 31, 2017. Revenue from our insurance segment increased by $442,047 or 32.6% from $1,356,340 in 2016 to $1,798,387 in 2017. The increase is principally due to more sales of insurance products. We had no revenue from our consulting services segment during the three months ended March 31, 2017 and 2016.

Cost of revenues. For the three months ended March 31, 2017, our cost of revenues was $1,599,017 as compared to $1,282,101 for the three months ended March 31, 2016, an increase of $316,916 or 24.7%. The increase is principally due to the increase in revenue. As a percentage of revenues, our cost of revenue for three months ended March 31, 2017 and 2016 were 71.5% and 72.0%, respectively.

General and administrative expenses.  For the three months ended March 31, 2017, we had general and administrative expenses of $408,431 as compared to $392,052 for the three months ended March 31, 2016, an increase of $16,379 or 4.2%. As a percentage of revenues, our general and administrative expenses for three months ended March 31, 2017 and 2016 were 18.3% and 22.0%, respectively. The increase in dollars is principally due to an increase in professional fees.

Other income (expense).  For the three months ended March 31, 2017, we had other expenses, net of $68,572 as compared to $72,749 for the three months ended March 31, 2016, a decrease of $4,177 or 5.7%. The decrease is principally due to an increase in investment losses. Additionally, the Company recorded penalty of $22,545 for early termination of an office lease.

Net loss.  For the three months ended March 31, 2017, we had net income of $81,391 as compared to a net loss of $16,534 for the three months ended March 31, 2016, an increase in net income of $97,925 or 592.3%. The increase in net income is mainly due to the increase in revenue.

Liquidity and Capital Resources Operations

As of March 31, 2017, we had cash on hand of $304,202.

Operating activities. For the three months ended March 31, 2017, we used cash in operating activities of $301,591 as compared to $636,229 for the three months ended March 31, 2016. The decrease is principally due to changes in operating assets and liabilities.

Investing activities. For the three months ended March 31, 2017, we generated cash from investing activities of $32 as compared to cash used in investing activities of $81,964 for the three months ended March 31, 2016. The decrease is principally due to a decrease in cash advance for planned acquisitions and purchase of property and equipment.

Financing activities. For the three months ended March 31, 2017, we generated cash from financing activities of $92,111 as compared to $305,323 for the three months ended March 31, 2016.

We had a negative working capital at March 31, 2017 and had net cash outflow for operating activities for the three months ended March 31, 2017. These factors raise substantial doubt regarding our ability to continue as a going concern. Without realization of additional capital, it would be unlikely for us to continue as a going concern.

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. There is no obligation by the shareholders to provide such funding.

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.

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.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to 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.

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.

Inventory

Inventory is valued at the lower of the inventory’s cost or the current market price of the inventory using weighted average cost method. Management compares the cost of inventory using weighted average cost method with its market value and an allowance is made to write down inventory to market value, if lower.

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. 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 preneed contracts direct obtaining costs related to the acquisition of new preneed contracts. Such costs are expenses as the revenues are recognized.

Deferred Preneed Contract Revenues and Deferred Revenues – Current

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, 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. Amount collected from customer before the merchandises and services are delivered is recorded in deferred revenues – current on the balance sheet.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable.

At need sales are recognized as revenue when the service is performed or merchandise is delivered. Pre-need funeral services and funeral merchandise under contracts that provide for delivery of the services and merchandise at the time of need. Revenue associated with sales of preneed funeral contracts is deferred until funeral merchandise is delivered or the funeral services are performed, generally at the time of need. Pursuant to Taiwanese law, 75% of the proceeds from funeral merchandise or services sold on a preneed basis is required to be paid into trust funds.

We sell insurance products to customers, and obtains commissions from the respective insurance carriers according to the terms of each insurance company service agreement. We recognize 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.

Income Taxes

We use 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.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company is in the process of evaluating the impact of this accounting standard update.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet. ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this accounting standard update on its financial statements.

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers.  ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition.  ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.  The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017.   Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein.  Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.  The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

The Company does not believe that any other recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

Off-Balance Sheet Arrangements

None.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Not Applicable.

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, 2017, 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, 2017:

Changes in Internal Control over Financial Reporting.

During the three months ended March 31, 2017, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the first quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

The Company’s headquarters are located in Taichung, Taiwan. As of March 31, 2017, the Company leased 47,109 square feet of building space, all in Taiwan. Additionally, the Company owned a total of 13,951 square feet of land in Taiwan.

ITEM 6. EXHIBITS

(a)           Exhibits:

*The certification attached as Exhibits 32.1 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.

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.