Forward Looking Statements

The following discussion should be read in conjunction with our consolidated audited financial statements and related notes for our fiscal year ended December 31, 2018 found in our Annual Report on Form 10-K and in conjunction with the consolidated unaudited financial statements and related notes found in this report. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward-looking statements by using words such as "anticipate," "believe," "intends," or similar expressions. Our actual results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including, but not limited to, those set forth in our Annual Report on Form 10-K.

We cannot assure you that the forward-looking statements in this report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements.





Corporate History

Kaopu Group, Inc. was incorporated on December 23, 2013 under the laws of the state of Delaware and under the name Longbau Group, Inc.

Our wholly owned subsidiary, Longbau Group Limited ("Longbau Hong Kong") was founded on February 14, 2014 in Hong Kong, of China. In September 2014, we established another subsidiary in Taiwan, Longbau Taiwan, to provide death care consulting services and sell death care products across Taiwan. Longbau Taiwan is 100% owned by Longbau Hong Kong.

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."

The Company is authorized to issue 100,0000,000 shares of common stock, with par value of $0.00001 per share. On February 24, 2014, the Company issued 30,000,000 shares of its common stock to several non-U.S. investors in consideration for their cash investment of $150,000 in the Company. The issuance was made pursuant to an exemption from registration contained in Regulation S under the Securities Act of 1933, as amended.

On December 29, 2016, the Company issued 500,000 shares of its common stock to several non-U.S. investors in consideration for the 100% of the ownership of Long Bau Life and Ho-Cheng Insurance. The issuance was made pursuant to an exemption from registration contained in Regulation S under the Securities Act of 1933, as amended.





Current Business

We provide consulting services related to pre-need death care through consultancy contracts with small death care service providers in Taiwan. Also, the Company actively sells pre-need death care contracts and insurance products through its own sales force in Taiwan. 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.

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 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.

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.



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Results of Operations

For the three months ended September 30, 2019 and 2018

Revenues. For the three months ended September 30, 2019, we generated revenues of $1,990,226 as compared to $1,945,781 for three months ended September 30, 2018, an increase of $44,445, or 2%. The increase is principally due us generating more revenues from our insurance business.

Cost of revenues. For the three months ended September 30, 2019, our cost of revenues was $1,579,773 as compared to $1,317,927 for the three months ended September 30, 2018, an increase of $261,846, or 20%. The increase is principally due to more commissions paid as a result of more revenues from our insurance business. As a percentage of revenues, our cost of revenue for the three months ended September 30, 2019 and 2018 were 79% and 68%, respectively.

General and administrative expenses. For the three months ended September 30, 2019, we had general and administrative expenses of $321,851 as compared to $337,617 for the three months ended September 30, 2018, a increase of $36,190, or 13%. As a percentage of revenues, our general and administrative expenses for the three months ended September 30, 2019 and 2018 were 16% and 15%, respectively.

Other income (expense). For the three months ended September 30, 2019, we had net other expense of $15,348 as compared to net other expense of $89,218 for the three months ended September 30, 2018, a decrease of expense by $73,870, or 83%.

Net income. For the three months ended September 30, 2019, we had net income of $53,971 as compared to a net income of $200,495 for the three months ended September 30, 2018, a decrease in net income of $146,524, or 73%. The decrease is principally due to higher commission costs in our insurance business.

For the nine months ended September 30, 2019 and 2018

Revenues. For the nine months ended September 30, 2019, we generated revenues of $4,882,008 as compared to $5,663,288 for nine months ended September 30, 2018, a decrease of $781,280, or 14%. The decrease is principally due us generating less revenues from our funeral business.

Cost of revenues. For the nine months ended September 30, 2019, our cost of revenues was $3,637,978 as compared to $3,932,666 for the nine months ended September 30, 2018, a decrease of $294,688, or 7%. The decrease is principally due to less costs incurred from our funeral business. As a percentage of revenues, our cost of revenue for the nine months ended September 30, 2019 and 2018 were 75% and 69%, respectively.

General and administrative expenses. For the nine months ended September 30, 2019, we had general and administrative expenses of $1,105,654 as compared to $1,112,549 for the nine months ended September 30, 2018, a decrease of $6,895, or 1%. As a percentage of revenues, our general and administrative expenses for the nine months ended September 30, 2019 and 2018 were 23% and 20%, respectively.

Other income (expense). For the nine months ended September 30, 2019, we had net other income of $83,537 as compared to net other income of $13,527 for the nine months ended September 30, 2018, an increase of $70,010, or 518%.

Net income. For the nine months ended September 30, 2019, we had net income of $164,602 as compared to a net income of $519,394 for the nine months ended September 30, 2018, a decrease in net income of $354,792, or 68%. The decrease is principally due us generating less revenues from our insurance business.

Liquidity and Capital Resources Operations

As of September 30, 2019, we had cash on hand of $232,742.

Operating activities. For the nine months ended September 30, 2019, we used $170,604 in our operating activities as compared to cash provided by operating activities of $137,464 for the nine months ended September 30, 2018. The decrease is principally due to changes in deferred preneed contract revenues.

Investing activities. For the nine months ended September 30, 2019, we used $18,025 in investing activities to purchase more property and equipment.as compared to cash used in investing activities of $171,604 for the nine months ended September 30, 2018 to purchase more property and equipment.

Financing activities. For the nine months ended September 30, 2018, we did not have any cash inflow or outflow from the financing activities. For the nine months ended September 30, 2019, we received advances form related parties in the amount of $11,260 and we paid $18,270 for the land purchase liability. We also paid $119,138 cash dividends during the nine months ended September 30, 2019.





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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.





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.





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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.

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.





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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.

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