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 January 31, 2016

 

OR

 

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________to _________

 

Commission file number: 000-55423

 

GRAND PERFECTA, INC.
(Exact name of Registrant as Specified in its Charter)

 

Nevada 46-1779352
(State or Other Jurisdiction of Incorporation or Organization)  (I.R.S. Employer Identification Number)

 

21st Floor, South Tower, New Pier Takeshiba
1-16-1, Kaigan, Minato-ku, Tokyo, Japan
(Address of Principal Executive Offices including Zip Code)

 

+81-3-3436-4577
(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 registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.
YES    o       NO    x

 

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 or 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    ¨ Accelerated filer    ¨ Non-accelerated filer    ¨
(Do not check if a smaller reporting company)
Smaller reporting company    x

 

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 16, 2016, 30,100,000 shares of the issuer's common stock, par value of $0.001 per share, were outstanding.

 

 

 
 

 

GRAND PERFECTA, INC.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION 3
   
ITEM 1 - FINANCIAL STATEMENTS 3
   
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
   
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 21
   
ITEM 4 - CONTROLS AND PROCEDURES 21
   
PART II - OTHER INFORMATION 23
   
ITEM 5 – OTHER INFORMATION 23
   
ITEM 6 – EXHIBITS 23
   
SIGNATURES 24

 

  

 

 

 2 
 

 

PART I — FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

Consolidated Balance Sheets at January 31, 2016 (Unaudited) and July 31, 2015

 

Consolidated Statements of Operations (Unaudited) — Three and Six Months Ended January 31, 2016 and 2015

 

Consolidated Statements of Comprehensive Income (Unaudited) — Three and Six Months Ended January 31, 2016 and 2015

 

Consolidated Statements of Cash Flows (Unaudited) — Six Months Ended January 31, 2016 and 2015

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

 

 

 3 
 

 

GRAND PERFECTA, INC.

 

CONSOLIDATED BALANCE SHEETS

 

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
Assets          
           
Current assets          
Cash  $57,057   $75,778 
Accounts receivable, net   1,361,211    612,553 
Due from related parties       487,852 
Current portion of notes receivable   1,665,102    1,537,869 
Deferred tax assets, current portion   310,506    303,024 
Prepaid expenses and other current assets   458,157    360,825 
Total current assets   3,852,033    3,377,901 
           
Property and equipment, net   309,664    273,263 
           
Other assets          
Long-term notes receivables, net of current portion   553,467    547,372 
Long-term portion due from related parties, net of current portion       1,471,932 
Deferred tax assets, long-term portion   227,915    222,423 
Goodwill   6,408,764    6,257,112 
Other intangible assets, net   140,660     
Other assets   595,116    552,402 
Total other assets   7,925,922    9,051,241 
Total assets  $12,087,619   $12,702,405 
           
Liabilities and Stockholders' Equity          
           
Current liabilities          
Accounts payable and accrued expenses  $2,393,882   $1,402,227 
Deferred revenues   1,170,415    1,245,945 
Current portion of notes payable   3,304,582    3,489,541 
Notes payable to related parties   1,081,747    993,918 
Convertible note payable   1,660,000    1,620,000 
Taxes payable   122,258    612,102 
Total current liabilities   9,732,884    9,363,733 
Long-term portion of notes payable, net of current portion   1,784,500    1,174,500 
Total liabilities   11,517,384    10,538,233 
           
Commitments and contingencies          
           
Stockholders' equity          
Preferred stock, $0.001 par value, 100,000,000 shares authorized, 100,000 shares issued and outstanding as of January 31, 2016 (unaudited) and July 31, 2015   100    100 
Common stock, $0.001 par value, 500,000,000 shares authorized, 29,100,000 and 30,500,000 shares issued and outstanding as of January 31, 2016 (unaudited) and July 31, 2015, respectively   29,100    30,500 
Additional paid-in capital   3,926,434    4,121,034 
Common stock issuable   120,000     
Accumulated other comprehensive income   508,505    439,265 
Accumulated deficit   (4,238,078)   (2,645,873)
Total GPI stockholders' equity   346,061    1,945,026 
Noncontrolling interest   224,174    219,146 
Total stockholders' equity   570,235    2,164,172 
Total liabilities and stockholders' equity  $12,087,619   $12,702,405 

 

See accompanying notes to consolidated financial statements

 

 

 4 
 

 

GRAND PERFECTA, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   For the Three Months Ended   For the Six Months Ended 
   January 31,   January 31,   January 31,   January 31, 
   2016   2015   2016   2015 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Net sales  $3,671,863   $4,908,922   $7,248,175   $9,512,086 
Total revenues   3,671,863    4,908,922    7,248,175    9,512,086 
                     
Operating expenses:                    
Cost of sales   1,280,896    1,197,191    2,371,682    2,463,120 
Depreciation and amortization expense   18,695    27,064    38,565    56,645 
Advertising   45,512    152,706    98,145    453,844 
Rent expense   212,706    199,521    422,813    416,658 
Salaries and wages   1,238,098    1,373,603    2,484,031    2,760,283 
Other general and administrative expenses   1,117,763    985,895    2,121,513    1,995,278 
Total operating expenses   3,913,670    3,935,980    7,536,749    8,145,828 
                     
Income (loss) from operations   (241,807)   972,942    (288,574)   1,366,258 
                     
Other income (expense):                    
Loss on settlement of note receivable   (1,312,276)       (1,312,276)    
Other income   10,664    21,846    13,131    40,080 
Gain on exchange   5,992    10,513    7,078    24,590 
Interest income   4,456    3,292    7,248    7,022 
Interest expense   (150,669)   (206,782)   (298,771)   (456,387)
Total other income (expense)   (1,441,833)   (171,131)   (1,583,590)   (384,695)
                     
Net income (loss) before provision for income taxes   (1,683,640)   801,811    (1,872,164)   981,563 
Provision for (benefit from) income taxes   (185,682)   400,906    (279,944)   490,782 
Net income (loss)   (1,497,958)   400,905    (1,592,220)   490,781 
Less: net loss attributable to noncontrolling interest   (15)       (15)    
Net income (loss) attributable to GPI  $(1,497,943)  $400,905   $(1,592,205)  $490,781 
                     
                     
Net income (loss) per share, basic and diluted  $(0.05)  $0.01   $(0.05)  $0.02 
                    
Weighted average number of common shares outstanding, basic and diluted   29,130,435    30,500,000    29,815,217    30,500,000 

 

See accompanying notes to consolidated financial statements

 

 5 
 

 

GRAND PERFECTA, INC.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

 

   For the Three Months Ended   For the Six Months Ended 
   January 31,   January 31,   January 31,   January 31, 
   2016   2015   2016   2015 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Net income (loss)  $(1,497,958)  $400,905   $(1,592,220)  $490,781 
Other comprehensive income (loss), net of tax:                    
Foreign currency translation adjustments   16,418    (21,463)   69,240    (158,682)
Total other comprehensive income (loss), net of tax   16,418    (21,463)   69,240    (158,682)
Comprehensive income (loss)   (1,481,540)   379,442    (1,522,980)   332,099 
Comprehensive income (loss) attributable to noncontrolling interest   (31)   (18,974)   5,013    (35,237)
Comprehensive income (loss) attributable to GPI stockholders  $(1,481,571)  $360,468   $(1,517,967)  $296,862 

 

See accompanying notes to consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 6 
 

 

GRAND PERFECTA, INC.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

   For the Six Months Ended 
   January 31,   January 31, 
   2016   2015 
   (Unaudited)   (Unaudited) 
Cash flows from operating activities          
Net income (loss)  $(1,592,220)  $490,781 
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   38,565    56,645 
Loss on settlement of note receivable   1,312,276     
Gain on bargain purchase of subsidiary   (10,830)    
Share-based compensation   3,956     
           
Changes in operating assets and liabilities:          
Accounts receivable   (711,335)   (533,577)
Prepaid expenses and other current assets   34,781    (15,995)
Other assets   (29,104)   (5,002)
Accounts payable and accrued expenses   902,591    (830,696)
Deferred revenue   (106,294)   55,282 
Taxes payable   (504,958)   336,949 
           
Net cash used in operating activities   (662,572)   (445,613)
           
Cash flows from investing activities          
Purchase of property and equipment   (65,971)   (10,800)
Proceeds from related party loans, net   563,185    380,903 
Proceeds from collection of notes receivables   178,288    111,800 
Acquisition of subsidiaries, net of cash acquired   (96,983)    
Payments for notes receivable lending   (260,129)   (188,836)
Net cash provided by investing activities   318,390    293,067 
           
Cash flows from financing activities          
Proceeds from notes payable   830,436     
Payments on note payable   (507,761)   (1,473,232)
           
Net cash provided by (used in) financing activities   322,675    (1,473,232)
           
Effect of exchange rate fluctuations on cash   2,786    (155,255)
           
Net change in cash   (18,721)   (1,781,033)
Cash, beginning of the period   75,778    1,882,272 
Cash, end of the period  $57,057   $101,239 
           
Supplemental disclosure of cash flow information:          
Interest paid  $290,263   $456,387 
Income taxes paid  $225,014   $153,833 
           
Supplemental disclosure of non-cash investing and financing information:          
Settlement of related party note receivable through exchange of stock  $(1,508,276)  $ 
Decrease in common stock, par value, from settlement of related party note receivable  $(1,400)  $ 
Decrease in additional paid-in capital from settlement of related party note receivable  $(194,600)  $ 

 

See accompanying notes to consolidated financial statements

 

 7 
 

 

GRAND PERFECTA, INC.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.  DESCRIPTION OF BUSINESS

 

Organization

 

Grand Perfecta, Inc. (“Grand Perfecta”) was incorporated in the State of Nevada on March 25, 2002, as STI Holdings, Inc. (“STI”). On May 12, 2012, the Company completed an Agreement and Plan of Reorganization whereby it acquired 100% of the issued and outstanding shares of Link Bit Consulting Co, Ltd. (“LinkBit” or the “Company”), a Japanese corporation, for 25,000,000 common shares in a transaction accounted for as a recapitalization of LinkBit. Effective March 29, 2013, STI amended its Articles of Incorporation to change its name to Grand Perfecta, Inc. On May 27, 2013, the Company issued 272,668 shares in exchange for 100% of the issued and outstanding shares of Umajin Hong Kong Ltd. (“Umajin HK”), a Hong Kong corporation that maintains an office in Hong Kong. In August 2015, Grand Perfecta formed Sports Perfecta, Inc. (“Sports Perfecta”), as a California subsidiary to pursue development of a fantasy sports offering to horse racing fans. The operations of Grand Perfecta, LinkBit, Umajin HK, and Sports Perfecta are collectively referred to as the “Company.”

 

On December 16, 2015, LinkBit acquired 100% of the outstanding shares of Basougu Shokuninkai Co., Ltd. (“Basougu”), a Japanese corporation (See Note 7). On January 7, 2016, Sports Perfecta acquired 100% of the outstanding stock of Just Mobile Sdn. Bhd. (“Just Mobile”), a Malaysian company (see Note 7). On January 20, 2016, Just Mobile changed its name to Sports Perfecta Technologies Sbn Bhd (“SPT”). The operations of Just Mobile are referred to as SPT after the acquisition date of January 7, 2016.

 

Nature of Business

 

The Company is engaged in the business of transmitting and providing horse racing information via various types of media, including multiple websites owned and operated by the wholly owned subsidiaries of LinkBit, Umajin HK and Sports Perfecta.

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

  

The accompanying unaudited consolidated financial statements of the Company as of January 31, 2016, and for the three and six months ended January 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. In the opinion of management, such financial information includes all adjustments considered necessary for a fair presentation of the Company's financial position at such date and the operating results and cash flows for such periods. Operating results for the interim period ended January 31, 2016 are not necessarily indicative of the results that may be expected for the entire year.

 

Certain information and footnote disclosure normally included in financial statements in accordance with GAAP have been omitted pursuant to the rules of the United States Securities and Exchange Commission ("SEC"). These unaudited financial statements should be read in conjunction with our audited financial statements and accompanying notes for the years ended July 31, 2015 and 2014 included in the Company's Form 10-K filed on November 13, 2015.

 

Principals of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Grand Perfecta and its wholly-owned subsidiaries LinkBit, Umajin HK, and Sports Perfecta. All intercompany balances and transactions have been eliminated in consolidation. The Company has determined that two affiliated entities, Space Cultivation Mobile and Japan Horse Circle, which LinkBit conducts business with are variable interest entities and that the Company is the primary beneficiary of each entity. As a result, the Company has consolidated the accounts of these variable interest entities into the accompanying consolidated financial statements. As the Company does not have any ownership interest in these variable interest entities, the Company has allocated the contributed capital in these variable interest entities as a component of noncontrolling interest. All intercompany balances and transactions have been eliminated in consolidation.

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

 

 

 

 8 
 

Liquidity and Capital Resources

 

As of January 31, 2016, we had cash of $57,057 and a working capital deficit of $5,880,851 as compared to cash of $75,778 and a working capital deficit of $5,985,832 as at July 31, 2015. The decrease in cash as of January 31, 2016 was primarily the result of cash used in operations and to pay down outstanding notes payable during the period, offset by an increase in cash due to collection of notes receivable and amounts due from related parties, as well as additional note payable borrowing.

 

We continue to have a significant working capital deficit that adversely affects our business by limiting the resources we have available to pursue the promotion of our information services and develop new service opportunities for potential customers. Historically we have relied on extensions of note payment due dates and new debt financing to repay note obligations as they came due in order to continue operations. Going forward we will continue to use extensions and new debt financing to address note obligations that come due, endeavor to gradually reduce obligations with cash flow provided by operations, and pursue over the next 12 months equity financing that we can apply to debt reduction and business development. Nevertheless, the shortage of working capital adversely affects our ability to develop, sponsor, or participate in activities that promote our information services to prospective customers and to develop new content, because a substantial portion of cash flow goes to reduce debt rather than to advance operating activities. There is no assurance that our plans for addressing our working capital shortages will be successful, and our failure to be reasonably successful should be expected to result in a significant contraction of our operations and potentially a failure of the business.

 

Use of Estimates

 

The preparation of financial statements in conformity with 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 financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future.

 

Foreign Exchange

 

The Company’s primary operations are conducted in Japan and performed by its wholly owned subsidiaries LinkBit and Umajin HK. The Company also conducts operations through Sports Perfecta, and its Malaysian subsidiary SPT. LinkBit’s functional currency is the Japanese Yen and Umajin HK’s functional currency is the Hong Kong Dollar. SPT’s functional currency is the Malaysian Ringgit.

 

The financial statements of each entity are prepared using the applicable functional currencies, and have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable exchange rates at period-end. Stockholders’ equity is translated using historical exchange rates. Revenue and expenses are translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation adjustments in accumulated other comprehensive income in the Company’s stockholders’ equity.

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD at the following balance sheet dates.

 

   Balance Sheet Dates 
   January 31,   July 31, 
   2016   2015 
         
           
Japanese Yen to USD   0.0083    0.0081 
Hong Kong Dollars to USD   0.1285    0.1290 
Malaysian Ringgit to USD   0.2413     NA  

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD for the following operating periods.

 

 

   For the Six Months Ended 
   January 31,   January 31, 
   2016   2015 
         
         
Japanese Yen to USD   0.0083    0.0090 
Hong Kong Dollars to USD   0.1289    0.1290 
Malaysian Ringgit to USD   0.2347    NA  

 

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of January 31, 2016 (unaudited) or July 31, 2015.

 

 

 

 9 
 

Accounts Receivable

 

Accounts receivable are carried at net realizable value, representing the outstanding balance less an allowance for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering each customer's financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. The Company had no allowance for doubtful accounts as of January 31, 2016 (unaudited) and July 31, 2015.

 

Property and Equipment

 

Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives once the individual assets are placed in service. Estimated useful lives for the assets are as follows.

 

Buildings and fixtures   8 - 43 years
Autos and trucks   2 - 6 years
Tools and equipment   4 - 10 years
Computer software   5 years

  

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions.  Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level.  As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-20, the Company conducted an analysis of the goodwill on its single reporting unit using the Company. As of July 31, 2015, the assessment for impairment found that there is no impairment of goodwill. The Company has no accumulated impairment losses on goodwill.

 

Long-Lived Assets

 

In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There was no impairment of assets identified during the year ended July 31, 2015 or during the six months ended January 31, 2016 (unaudited).

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability.

 

GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

 

Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.

 

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:

 

  Quoted prices for similar assets or liabilities in active markets

 

  Quoted prices for identical or similar assets or liabilities in markets that are not active

 

  Inputs other than quoted prices that are observable for the asset or liability

 

  Inputs that are derived principally from or corroborated by observable market data by correlation or other means

 

Level 3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

 

The Company has determined that the book value of its outstanding financial instruments as of January 31, 2016 (unaudited) and July 31, 2015 approximates the fair value.

 

 10 
 

 

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to concentration of credit risk include cash, accounts receivable, notes receivable, and amounts due from related parties. The Company maintains its cash in banks located in Japan and Hong Kong in financial institutions with high credit ratings. Substantially all of the Company’s revenues are generated from customers in Japan. The Company conducts periodic reviews of the financial condition and payment practices of its customers and note receivable holders. The Company has not experienced significant losses relating to these concentrations in the past, other than the $1,312,276 loss on settlement of note receivable that was recorded during the six months ended January 31, 2016 (See Note 4).

 

Revenue Recognition

 

The Company’s revenue consists primarily of sales of comprehensive horse racing information through multiple websites focusing on all aspects of the horse racing industry in Japan. Publication of horse racing digital magazines, providing support for print publications, and participating in other public events and media programs related to the horse racing industry do not generate significant revenue directly. These activities are undertaken for the purpose of increasing the number of horse racing fans and driving potential customers to our websites so as to hopefully eventually convert them to paying customers.  

 

The Company recognizes revenue on arrangements in accordance with ASC 605, Revenue Recognition. Revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The majority of the Company’s revenue is generated by per-item sales. For all users, payment is received at the time of purchase. The Company recognizes revenue for per-item sales when the requested information is supplied to the user. For information packages that span a period of time, the Company recognizes revenue over the term of each package. Revenues are presented net of refunds, credits and known and estimated credit card chargebacks. The Company reports revenue net of any required taxes collected from customers and remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Rights to content purchased by customers in advance of the content being provided are recorded as deferred revenue.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective 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.

 

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, Earnings Per Share, the basic income per common share is computed by dividing the net income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. No dilutive potential common shares were included in the computation of diluted net income per share because their impact was anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had total options of 3,000,000, which were excluded from the computation of net income per share because they are anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had convertible notes convertible into 1,472,727 shares of common stock, which were excluded from the computation because they are anti-dilutive. As a result, the basic and diluted earnings per share were the same for each of the periods presented.

 

Recent Accounting Pronouncements 

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 creates a new topic in the ASC Topic 606 and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. Management is in the process of assessing the impact of ASU 2014-09 on the Company’s financial statements.

 

 

 11 
 

 

3.  PROPERTY AND EQUIPMENT, NET

 

The Company’s property and equipment consisted of the following.

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Buildings and fixtures  $268,598   $262,126 
Autos and trucks   301,785    294,513 
Tools and equipment   453,108    427,469 
Computer software   1,315,917    1,284,209 
Construction in progress   51,875     
Horses   24,070    24,454 
           
    2,415,353    2,292,771 
           
Less: accumulated depreciation   (2,105,689)   (2,019,508)
           
   $309,664   $273,263 

 

Depreciation expense amounted to $16,448 and $27,064 for the three months ended January 31, 2016 and 2015, respectively. Depreciation amounted to $36,318 and $56,645 for the six months ended January 31, 2016 and 2015, respectively.  

 

4.  DUE FROM RELATED PARTIES

 

The total amounts due from related parties amounted to $0 (unaudited) and $1,959,784 as of January 31, 2016 and July 31, 2015, respectively, which represented borrowings made to Umajin Co., Ltd. (“Umajin Japan”), a related party entity owned by one of the directors of the Company. Effective October 30, 2015, the Company entered into a Receivables Transfer Agreement with Europlus International (“EI”), in which the Company transferred $499,898 (JPY 60,228,650) of outstanding receivables due from Umajin Japan to EI in exchange for an account receivable of $494,899 (JPY 59,626,363) to be paid in three quarterly installments starting on January 31, 2016 and finishing on July 31, 2016.

 

Effective November 2, 2015, the Company entered into a Note Payable and Satisfaction Agreement (the “Satisfaction Agreement”) with Umajin Japan in order to settle the remaining receivable balance outstanding. The Company was the holder of a promissory note made by Umajin Japan in the principal amount of JPY 181,720,000 ($1,508,276 as of November 2, 2015). The promissory note was secured by 1,400,000 shares of the Company’s common stock, which were owned by Umajin Japan. Pursuant to the Satisfaction Agreement, Umajin Japan agreed to sell its shares of common stock to the Company, and the Company has agreed to release Umajin Japan from any further obligation due under the promissory note.  The fair value of the common stock sold to the Company amounted to $196,000. The difference between the fair value of the common stock and the outstanding balance of the note receivable amounted to $1,312,276, which was recorded as loss from settlement of note receivable in the accompanying consolidated statement of operations for the three and six months ended January 31, 2016.

 

5.  NOTES RECEIVABLE

 

The Company’s outstanding notes receivable consist of unsecured advances, including interest ranging from 0% to 8% per annum, payable in full on dates extending through 2039. As of January 31, 2016 and July 31, 2015, the Company had total outstanding notes receivable of $2,218,569 (unaudited) and $2,085,241, respectively. The portion of these outstanding notes receivables that were either due on demand or had scheduled due dates within one year amounted to $1,665,102 (unaudited) and $1,537,869 as of January 31, 2016 and July 31, 2015, respectively.

 

 

 12 
 

 

The future scheduled maturities of outstanding notes receivables as of January 31, 2016 based on contractual due dates are as follows.

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $1,665,102 
2017    
2018    
2019   7,330 
2020   15,426 
Thereafter   530,711 
Total  $2,218,569 

 

 

6.  GOODWILL

 

The Company has recorded goodwill relating to the purchase of Media 21, Inc. in 2011, as well as the acquisition of Umajin HK on May 27, 2013. The following is a summary of the activity relating to goodwill for the six months ended January 31, 2016 (unaudited):

 

Balance as of July 31, 2015  $6,257,112 
Foreign currency translation adjustment   151,652 
Balance as of January 31, 2016 (unaudited)  $6,408,764 

 

7.  ACQUISITIONS

 

On January 7, 2016, Sports Perfecta entered into a Share Purchase Agreement to acquire 100% of the outstanding shares of Just Mobile. The total aggregate purchase price for the outstanding shares of Just Mobile amounted to $200,000, of which $120,000 was paid on the closing date and the remaining $80,000 is due three months after the date of the agreement on April 7, 2016. The amount due to the sellers of Just Mobile is recorded as a component of accounts payable and accrued expenses in the accompanying consolidated balance sheet at January 31, 2016.

 

Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the income approach.

 

The purchase price was allocated as follows as of the acquisition date:

 

Cash  $38,908 
Accounts receivable   20,960 
Other current assets   6,751 
Intangible assets   134,476 
Current liabilities   (1,095)
   $200,000 

 

Intangible assets acquired represent developed technology which has an estimated useful life of 4 years. Amortization expense for intangible assets for the three and six months ended January 31, 2016 amounted to $2,247. Estimated future amortization of intangible assets as of January 31, 2016 is as follows.

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $17,876 
2017   35,753 
2018   35,753 
2019   35,753 
2020   15,525 
Total  $140,660 

 

 

 13 
 

 

On December 16, 2015, the Company entered into a purchase agreement to acquire 100% of the outstanding shares of Basougu. The total purchase price for the outstanding shares of Basougu amounted to 2 million Japanese Yen ($16,400 on the purchase date). The fair value of the net assets acquired from Basougu amounted to $27,100 as of the acquisition date. As the fair value of the net assets was greater than the purchase price, the Company recorded a gain on the acquisition of Basougu of $10,700, which is reflected as a component of other income on the accompanying statements of operations for the three and six months ended January 31, 2016. There was no goodwill or other intangible assets acquired in connection with the purchase of Basougu.

 

8.  NOTES PAYABLE

 

A summary of the Company’s outstanding notes payable is as follows:

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Unsecured notes payable originally issued on September 30, 2009 and November 30, 2010, due in full on November 30, 2015, bearing interest at 3.5% per annum due monthly.  $   $39,658 
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly.   830,000    810,000 
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly.   415,000    405,000 
Unsecured note payable issued on July 23, 2013, due on July 5, 2016, bearing interest at 1.2% per annum due monthly.   71,380    136,728 
Unsecured note payable issued on December 20, 2011, due on October 31, 2015, bearing interest at 15% per annum due monthly.   1,577,000    1,539,000 
Unsecured note payable issued on June 28, 2013, due on October 31, 2015, bearing interest at 15% per annum due monthly.   166,000    162,000 
Unsecured note payable issued on January 20, 2011, due on June 30, 2017, bearing interest at 12% per annum due monthly.   705,500    931,500 
Unsecured note payable issued on December 18, 2015, due on February 29, 2019, bearing interest at 12% per annum due monthly.   830,000     
Unsecured note payable resulting from the Company co-signing for debt of a vendor in 2010. The note is due on demand, bearing interest at 18% per annum due monthly.   207,500    348,300 
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.   249,000    243,000 
Unsecured notes payable, non-interest bearing, due on demand   37,702    48,855 
Total notes payable   5,089,082    4,664,041 
Less: current portion of notes payable   3,304,582    3,489,541 
Long-term portion of notes payable  $1,784,500   $1,174,500 

 

Substantially all of the above outstanding notes payable are personally guaranteed by the Company’s Chief Executive Officer.

 

Future scheduled maturities of long-term debt are as follows:

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $3,304,582 
2017   705,500 
2018   249,000 
2019   830,000 
Total  $5,089,082 

 

9.  NOTES PAYABLE TO RELATED PARTIES

 

As of January 31, 2016, the Company had an outstanding note payable balance due to its Chairman and CEO amounting to $910,559 and an outstanding note payable balance due to its President amounting to $171,188. The note payable balances are non-interest bearing and are due on demand.

 

 

 14 
 

 

10.  CONVERTIBLE NOTE PAYABLE

 

On March 5, 2015, the Company entered into a convertible note agreement for total principal borrowings of JPY 200,000,000 ($1,660,000 (unaudited) at January 31, 2016 and $1,620,000 at July 31, 2015). The amounts are due on March 5, 2016 and bear interest at a rate of 1% per annum. At the option of the debt holder, beginning 40 days after the issuance of the note, the debt holder may convert the outstanding balance of the note into shares of the Company’s common stock at a conversion rate equal to one share per JPY130.90 or $1.10 of outstanding principal and accrued interest.

 

The conversion feature associated with the convertible note payable created a derivative liability as of April 14, 2015, the date in which the note became convertible. The Company valued the derivative as of each subsequent reporting period using the Black-Scholes pricing model. The value at each of these dates amounted to $0. The assumptions used in the Black-Scholes model during the three months ended January 31, 2016 were as follows.

 

   Six Months Ended
   January 31,
   2016
    
Expected life in years  0.09
Stock price volatility  41.1%
Risk-free interest rate  0.22%
Expected dividends  None
Forfeiture rate  NA

 

11.  STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company is authorized to issue up to 100,000,000 shares of preferred stock with a par value of $0.001, with 100,000 shares designated as Series A Preferred Stock. The Series A Preferred Stock receive a 10 to 1 voting preference over common stock. Accordingly, for every share of Series A Preferred Stock held, the holder receives the voting rights equal to 10 shares of common stock. As such, the holders of the Series A Preferred Stock have the equivalent voting capability of 1,000,000 shares of common stock. The Series A Preferred Stock also has a $0.05 per share liquidation preference over common stock, and can be redeemed by the Company at any time, upon thirty days’ notice, for $0.05 per share.

 

The Company had 100,000 shares of Series A Preferred Stock issued and outstanding as of January 31, 2016 and July 31, 2015.

 

Common Stock Issuable

 

Effective January 25, 2016, the Company entered into a consulting agreement with an investor relations firm for a term of six months. Per the terms of the agreement, as compensation for the services to be provided, the Company is to issue 1,000,000 shares of its common stock within 14 days of the date of the agreement, which were fully vested on the date of the agreement. The Company issued the shares in connection with the agreement in February 2016. The total value of the shares as of the agreement date amounted to $120,000, which has been reflected as common stock issuable in the accompanying consolidated balance sheet as of January 31, 2016. The total value has been recorded as a component of prepaid expenses and other current assets in the accompanying consolidated balance sheet and is being amortized over the life of the agreement.

 

 

 15 
 

 

12.  RELATED PARTY TRANSACTIONS

 

As of January 31, 2016 (unaudited) and July 31, 2015, the Company had $0 and $1,959,784, respectively, of notes receivable due from related parties (see Note 4).

 

As of January 31, 2016, the Company had an outstanding note payable balance due to its Chairman and CEO amounting to $910,559 and an outstanding note payable balance due to its President amounting to $171,188 (see Note 9).

 

Concurrently with the Satisfaction Agreement (see Note 4), the Company and Umajin Japan, a related party company owned by one of its directors, modified the service agreement between them effective November 1, 2015, to set the monthly fee payable by the Company to Umajin Japan for providing horserace information at 16 million Yen per month (inclusive of consumption tax), and to set the monthly fee payable for providing a horseracing related email magazine and web page content at 7 million Yen per month (inclusive of consumption tax).

 

The fee paid to Umajin Japan for the three months ended January 31, 2016 and 2015 amounted to $526,460 and $325,000, respectively. The fee paid to Umajin Japan for the six months ended January 31, 2016 and 2015 amounted to $830,000 and $650,000, respectively. The fees paid to Umajin Japan are included in cost of sales in the accompanying consolidated statements of operations.

 

13.  SUBSEQUENT EVENTS

 

On February 5, 2016, the Company entered into a Money Loan Agreement with Fuji Kigyo, Ltd. (“Fuji Kigyo”) pursuant to which Fuji Kigyo agreed to lend the Company $100 million Yen (approximately $860,000). The loan accrues interest at 12% per annum and is due monthly. Principal is repaid in 23 monthly installments of 3 million Yen beginning in February 2017, and a final installment of 31 million Yen in January 2019.

  

On February 8, 2016, the Company issued 1,000,000 shares of common stock in connection with a consulting agreement (see Note 11).

 

In February 2016, the Company made a payment of 30 million Yen (approximately $249,000) on the outstanding principal of the convertible note payable (see Note 10), and the holder has agreed to extend the maturity date for an additional 6 months. The revised maturity date is September 5, 2016.  

 

 

 16 
 

 

ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the audited July 31, 2015, Consolidated Financial Statements and notes thereto, along with Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year ended July 31, 2015, previously filed with the Securities and Exchange Commission.

 

This document contains statements that are, or may be deemed to be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, which address activities, actions, goals, prospects, or new developments that we expect or anticipate will or may occur in the future, including such things as expansion and growth of our operations and other such matters are forward-looking statements. Any one or a combination of factors could materially affect our operations and financial condition. These factors include competitive pressures, success or failure of marketing programs, changes in pricing and availability of services and products offered to customers, availability of capital, and conditions in the capital markets. Forward-looking statements made by us are based on knowledge of our business and the environment in which we operate as of the date of this report. Because of the factors discussed in our most recent report on Form 10-K and factors disclosed in subsequent reports filed with the Securities and Exchange Commission, actual results may differ from those in the forward-looking statements.

 

As used in this "Management's Discussion and Analysis of Financial Condition and Results of Operation," except where the context otherwise requires, the term "we," "us," or "our" refers to the business of Grand Perfecta, Inc., and its wholly owned subsidiaries, LinkBit Consulting Co, Ltd. (“LinkBit”), Umajin Hong Kong Ltd. (“Umajin HK”), and Sports Perfecta, Inc. (“Sports Perfecta”).

 

Organization

 

In May 2012 Grand Perfecta completed an Agreement and Plan of Reorganization whereby it acquired 100% of the issued and outstanding shares of LinkBit for 25,000,000 common shares in a transaction accounted for as a recapitalization of LinkBit. In May 2013 the Company issued 272,668 shares in exchange for 100% of the issued and outstanding shares of Umajin HK.

 

Nature of Business

 

The Company is engaged in the business of transmitting and providing horse racing information via various types of media, including the various websites owned and operated by the wholly owned subsidiaries of LinkBit and Umajin HK.

 

Critical Accounting Policies

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  On an ongoing basis, management evaluates its estimates, including those related to collection of receivables, impairment of goodwill, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in material differences from the estimated amounts in the financial statements. 

 

For a summary of our critical accounting policies, refer to Note 2 of our unaudited consolidated financial statements included under Item 1 – Financial Statements in this Form 10-Q.

 

 

 17 
 

 

Results of Operations for the Three Months Ended January 31, 2016 and 2015

 

The following are the results of our operations for the three months ended January 31, 2016 as compared to the three months ended January 31, 2015:

 

   For the Three Months Ended     
   January 31,   January 31,     
   2016   2015   $ Change 
             
             
Net sales  $3,671,863   $4,908,922   $(1,237,059)
Total revenue   3,671,863    4,908,922    (1,237,059)
                
Operating Expenses:               
Cost of sales   1,280,896    1,197,191    83,705 
Depreciation and amortization expense   18,695    27,064    (8,369)
Advertising   45,512    152,706    (107,194)
Rent expense   212,706    199,521    13,185 
Salaries and wages   1,238,098    1,373,603    (135,505)
Other general and administrative expenses   1,117,763    985,895    131,868 
Total operating expenses   3,913,670    3,935,980    (22,310)
                
Income (loss) from operations   (241,807)   972,942    (1,214,749)
                
Other Income (Expense):               
Loss on settlement of note receivable   (1,312,276)       (1,312,276)
Other income (loss)   10,664    21,846    (11,182)
Gain (loss) on exchange   5,992    10,513    (4,521)
Interest income   4,456    3,292    1,164 
Interest expense   (150,669)   (206,782)   56,113 
Total other income (expense)   (1,441,833)   (171,131)   (1,270,702)
                
Net income (loss) before provision for income taxes   (1,683,640)   801,811    (2,485,451)
Provision for (benefit from) income taxes   (185,682)   400,906    (586,588)
Net income (loss)   (1,497,958)   400,905    (1,898,863)
Less: net loss attributable to noncontrolling interest   (15)       (15)
Net income (loss) attributable to GPI  $(1,497,943)  $400,905   $(1,898,848)

 

Net Sales

 

Our net sales consist primarily of information and other content relating to the horse racing industry in Japan sold to customers through our websites. Overall, our net sales decreased during the three months ended January 31, 2016 as compared to the same period in 2015 due to a decrease in sales of five services, or brands, during the three months ended January 31, 2016 as compared to the same period last year. We have been focusing on creating a new digital media to coincide with the reduced popularity of traditional paper media and advertising. We believe this will take time to penetrate our customer base and bring revenue growth.

 

Operating Expenses

 

Total operating expenses for the three months ended January 31, 2016 were $3,913,670 which represented an decrease of $22,310 as compared to the same period in 2015. Our operating expenses decreased due to a decrease in advertising costs resulting from a reduction in print advertising, as well as a decrease in salary expenses. These decreases were partially offset by an increase in other general and administrative expenses for professional fees incurred with our public filings.

 

Other Income/ (Expenses)

 

Total other expense for the three months ended January 31, 2016 amounted to $1,441,833, which increased by $1,270,702 as compared to the same period in 2015. The increase in other expenses is primarily due to a loss on the settlement of a note receivable of $1,312,276 from Umajin Japan, a related party entity owned by one of our directors. The increase in other expenses was partially offset by a decrease in interest expense of $56,113 due to a reduction of the outstanding notes payable as compared to the prior year.

 18 
 

 

Results of Operations for the Six Months Ended January 31, 2016 and 2015

 

The following are the results of our operations for the six months ended January 31, 2016 as compared to the six months ended January 31, 2015:

 

   For the Six Months Ended     
   January 31,   January 31,     
   2016   2015   $ Change 
             
             
Net sales  $7,248,175   $9,512,086   $(2,263,911)
Total revenue   7,248,175    9,512,086    (2,263,911)
                
Operating Expenses:               
Cost of sales   2,371,682    2,463,120    (91,438)
Depreciation and amortization expense   38,565    56,645    (18,080)
Advertising   98,145    453,844    (355,699)
Rent expense   422,813    416,658    6,155 
Salaries and wages   2,484,031    2,760,283    (276,252)
Other general and administrative expenses   2,121,513    1,995,278    126,235 
Total operating expenses   7,536,749    8,145,828    (609,079)
                
Income (loss) from operations   (288,574)   1,366,258    (1,654,832)
                
Other Income (Expense):               
Loss on settlement of note receivable   (1,312,276)       (1,312,276)
Other income (loss)   13,131    40,080    (26,949)
Gain (loss) on exchange   7,078    24,590    (17,512)
Interest income   7,248    7,022    226 
Interest expense   (298,771)   (456,387)   157,616 
Total other income (expense)   (1,583,590)   (384,695)   (1,198,895)
                
Net income (loss) before provision for income taxes   (1,872,164)   981,563    (2,853,727)
Provision for (benefit from) income taxes   (279,944)   490,782    (770,726)
Net income (loss)   (1,592,220)   490,781    (2,083,001)
Less: net loss attributable to noncontrolling interest   (15)       (15)
Net income (loss) attributable to GPI  $(1,592,205)  $490,781   $(2,082,986)

 

Net Sales

 

Our net sales consist primarily of information and other content relating to the horse racing industry in Japan sold to customers through our websites. Overall, our net sales decreased during the six months ended January 31, 2016 as compared to the same period in 2015 in part due to a decline in the average exchange rate in effect during these periods between the Japanese Yen and the U.S. Dollar of approximately 7%. The decrease in our net sales relating to the decline in the exchange rate for the six months ended January 31, 2016, as compared to the same period in 2015 amounted to approximately $700,000. Net sales also decreased in part due to a decrease in sales of five services, or brands, during the three months ended January 31, 2016 as compared to the same period last year. We have been focusing on creating a new digital media to coincide with the reduced popularity of traditional paper media and advertising. We believe this will take time to penetrate our customer base and bring revenue growth.

 

Operating Expenses

 

Total operating expenses for the six months ended January 31, 2016 were $7,536,749, which represented an decrease of $609,079 as compared to the same period in 2015. Our operating expenses decreased partially due to a decline in the average exchange rate in effect during these periods between the Japanese Yen and the U.S. Dollar of approximately 7%. In addition, our operating expenses also decreased due to a decrease in advertising costs resulting from a reduction in print advertising due to lower than expected response rates. These decreases were partially offset by an increase to other general and administrative expenses for professional fees incurred in connection with our public filings.

 

Other Income/ (Expenses)

 

Total other expense for the six months ended January 31, 2016 amounted to $1,583,590, which increased by $1,198,895 as compared to the same period in 2015. The increase in other expenses is primarily due to a loss on the settlement of a note receivable of $1,312,276 from Umajin Japan, a related party entity owned by one of our directors. The increase in other expenses was partially offset by a decrease in interest expense of $157,616 due to a reduction of the outstanding notes payable as compared to the prior year.

 

 19 
 

 

Liquidity and Capital Resources

 

As of January 31, 2016, we had cash of $57,057 and a working capital deficit of $5,880,851 as compared to cash of $75,778 and a working capital deficit of $5,985,832 as at July 31, 2015. The decrease in cash as of January 31, 2016 was primarily the result of cash used in operations and to pay down outstanding notes payable during the period, offset by an increase in cash due to collection of notes receivable and amounts due from related parties, as well as additional note payable borrowing.

 

We continue to have a significant working capital deficit that adversely affects our business by limiting the resources we have available to pursue the promotion of our information services and develop new service opportunities for potential customers. Historically we have relied on extensions of note payment due dates and new debt financing to repay note obligations as they came due in order to continue operations. Going forward we will continue to use extensions and new debt financing to address note obligations that come due, endeavor to gradually reduce obligations with cash flow provided by operations, and pursue over the next 12 months equity financing that we can apply to debt reduction and business development. Nevertheless, the shortage of working capital adversely affects our ability to develop, sponsor, or participate in activities that promote our information services to prospective customers and to develop new content, because a substantial portion of cash flow goes to reduce debt rather than to advance operating activities. There is no assurance that our plans for addressing our working capital shortages will be successful, and our failure to be reasonably successful should be expected to result in a significant contraction of our operations and potentially a failure of the business.

 

The following is a summary of our cash flows from operating, investing and financing activities for the six months ended January 31, 2016 and 2015.

 

   January 31,   January 31, 
   2016   2015 
Cash flows used in operating activities  $(662,572)  $(445,613)
Cash flows provided by investing activities  $318,390   $293,067 
Cash flows provided by (used in) financing activities  $322,675   $(1,473,232)

 

Net cash flows used in operating activities for the six months ended January 31, 2016 amounted to $662,572, compared to cash flows used in operating activities of $445,613 for the six months ended January 31, 2015. Net cash flows used in operating activities for the six months ended January 31, 2016 were higher primarily due to a net loss of $1,592,220, offset by non-cash expenses of $1,354,797. During the six months ended January 31, 2015, we had a net income of $490,781.

 

Net cash provided by investing activities amounted to $318,390 for the six months ended January 31, 2016, compared to net cash provided by investing activities of $293,067 for the six months ended January 31, 2015. During the six months ended January 31, 2016, our cash provided by investing activities was primarily due to collections of note receivables and amounts outstanding from related parties totaling $741,473, offset by payments for note receivable lending of $260,129, net cash used for the acquisition of subsidiaries of $96,983, and purchases of property and equipment of $65,971. During the six months ended January 31, 2015, our cash provided by investing activities was lower primarily due to lower collections of note receivables and amounts outstanding from related parties during the period.

 

Net cash provided by financing activities for the six months ended January 31, 2016 amounted to $322,675, compared to cash used in financing activities of $1,473,232 for the six months ended January 31, 2015. The cash provided from financing activities for the six months ended January 31, 2016 was due to proceeds from additional notes payable borrowing of $830,436, offset by payments on outstanding notes payable of $507,761. During the six months ended January 31, 2015, we made payments on outstanding notes payable of $1,473,232 and we had no additional borrowing during the period.

 

 20 
 

 

Description of Indebtedness

 

The following is a summary of our outstanding notes payable as of January 31, 2016 and July 31, 2015.

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Unsecured notes payable originally issued on September 30, 2009 and November 30, 2010, due in full on November 30, 2015, bearing interest at 3.5% per annum due monthly.  $   $39,658 
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly.   830,000    810,000 
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly.   415,000    405,000 
Unsecured note payable issued on July 23, 2013, due on July 5, 2016, bearing interest at 1.2% per annum due monthly.   71,380    136,728 
Unsecured note payable issued on December 20, 2011, due on October 31, 2015, bearing interest at 15% per annum due monthly.   1,577,000    1,539,000 
Unsecured note payable issued on June 28, 2013, due on October 31, 2015, bearing interest at 15% per annum due monthly.   166,000    162,000 
Unsecured note payable issued on January 20, 2011, due on June 30, 2017, bearing interest at 12% per annum due monthly.   705,500    931,500 
Unsecured note payable issued on December 18, 2015, due on February 29, 2019, bearing interest at 12% per annum due monthly.   830,000     
Unsecured note payable resulting from the Company co-signing for debt of a vendor in 2010. The note is due on demand, bearing interest at 18% per annum due monthly.   207,500    348,300 
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.   249,000    243,000 
Unsecured notes payable, non-interest bearing, due on demand   37,702    48,855 
Total notes payable   5,089,082    4,664,041 
Less: current portion of notes payable   3,304,582    3,489,541 
 Long-term portion of notes payable  $1,784,500   $1,174,500 

 

Of the $5,089,082 of total debt outstanding as of January 31, 2016, $3,304,582 is either due on demand or will become due during the year ended July 31, 2016, $705,500 will become due during the year ended July 31, 2017, $249,000 will become due during the year ended July 31, 2018, and $830,000 is due during the year ended July 31, 2019.

 

As of January 31, 2016, we also had an outstanding note payable balance due to our Chairman and CEO amounting to $910,559 and an outstanding note payable balance due to our President amounting to $171,188. The note payable balances are non-interest bearing and are due on demand.

 

On March 5, 2015, we entered into a convertible note agreement for total principal borrowings of $1,660,000 outstanding as of January 31, 2016. The amounts are due on March 5, 2016, and bear interest at a rate of 1% per annum. At the option of the debt holder, beginning 40 days after the issuance of the note, the debt holder may convert the outstanding balance of the note into shares of the Company’s common stock at a conversion rate equal to one share per $1.10 of outstanding principal and accrued interest. Subsequent to January 31, 2016, the note holder has agreed to extend the due date for six months. The new maturity date of the convertible note is September 5, 2016.

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

This Report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

 

Internal Control over Financial Reporting

 

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management previously determined that the Company has a material weakness because of its lack of personnel on staff with significant understanding of GAAP and practical experience in the use and application of GAAP resulted in prior periods in failures to recognize, record, and otherwise account for financial events and relationships in accordance with GAAP. The Company proposes to remediate the material weakness by pursuing a search effort to recruit and employ the accounting personnel that have the knowledge, experience, and training in GAAP that will improve the Company’s ability to avoid GAAP errors in recording and accounting for its financial transactions, so the material weakness was not remediated as of January 31, 2016.

 

 21 
 

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and the chief financial officer, to allow timely decisions regarding required disclosures.

 

In connection with the preparation of this Report, the Company’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, reassessed the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as a result of the identification of a material weakness in internal control over financial reporting described above, which we view as an integral part of our disclosure controls and procedures, our disclosure controls and procedures were not effective as of January 31, 2016. Nevertheless, based on a number of factors, including the management’s internal review of our processes and procedures, assistance of consultants on financial controls and reporting processes, and the performance of additional procedures by management designed to ensure the reliability of our financial reporting, we believe that the consolidated financial statements in this Report fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended January 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 22 
 

 

PART II - OTHER INFORMATION

 

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

 

On February 8, 2016, the Company issued 1,000,000 shares of restricted common stock with a value of $120,000 to LP Funding, LLC, (DBA LPF Communications) as payment for services under a consulting agreement for public and investor relations services. The shares were issued to the consultant in reliance on the exemption set forth in Section 4(a)(2) of the Securities Act of 1933, and on the basis of its representation that it is an “accredited investor” as defined in Rule 501 of Regulation D.

 

ITEM 5 – OTHER INFORMATION 

 

On February 5, 2016, Link Bit Consulting Co., Ltd., the wholly-owned subsidiary of Grand Perfecta, Inc. (together with Link Bit Consulting Co., Ltd., “Grand Perfecta” or the “Company”) entered into a Money Loan Agreement with Fuji Kigyo Co., Ltd. (“Fuji Kigyo”), pursuant to which Fuji Kigyo agreed to lend to the Company JPY 100,000,000 (approximately US$860,000). Under the terms of the Money Loan Agreement, interest accrues on the unpaid principal at the rate of 12% per annum and is payable monthly. Principal is repaid in 23 equal monthly installments of JPY 3,000,000 beginning the last day of February 2017, and a final installment of JPY 31,000,000 at the end of January 2019. This borrowing is in addition to the JPY 100,000,000 loan made by Fuji Kigyo to the Company pursuant to the Money Loan Agreement dated December 18, 2015.

 

On March 14, 2016, the board of directors of the Company adopted resolutions decreasing the monthly compensation payable to our Chief Executive Officer and Chief Operations Officer, effective the next payment date on March 25, 2016.

 

Monthly compensation for Shuya Watanabe, our Chief Executive Officer will decrease from 7,500,000 Japanese Yen to 5,000,000 Japanese Yen.

 

Monthly compensation for Takashi Ozawa, our President and Chief Operations Officer will decrease from 6,500,000 Japanese Yen to 5,000,000 Japanese Yen.

 

ITEM 6 – EXHIBITS

 

The following exhibits are filed as part of this Report:

 

Exhibit No.   Description
     
10.1   Note Payable and Satisfaction Agreement with an effective date of November 2, 2015 *
     
10.2   Service Agreement with an effective date of November 1, 2015 *
     
10.3   Money Loan Agreement between Fuji Kigyo Co., Ltd., and Link Bit Consulting Co., Ltd., dated December 18, 2015
     
31.1   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

* These documents were filed as exhibits to the quarterly report on Form 10-Q for the period ended October 31, 2015, filed with the Securities and Exchange Commission on December 15, 2015, and are incorporated herein by this reference.

 

 

 23 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  GRAND PERFECTA, INC.  
       
       
March 16, 2016 By:  /s/ Shuya Watanabe  
    Shuya Watanabe  
    Chief Executive Officer,
(Principal Executive Officer)
 
       
       

 

March 16, 2016 By:  /s/ Masashi Takegaki  
    Masashi Takegaki  
    Chief Financial Officer
(Principal Financial Officer)
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 24 



Exhibit 10.3

 

 

Money Loan Agreement

 

This money loan agreement has been made and entered into by the Lender Fuji Kigyo Co., Ltd. and the borrower, Link Bit Consulting Co., Ltd., as follows.

 

Article 1 (Borrowing and Lending term)

 

On December 18, 2015 the lender lent the amount JPY100, 000,000 to the borrower by transferring it to the account specified by the borrower, and the borrower admitted the entry.

 

Article 2 (Interest)

 

The interest rate is 12% per annum for the principal and shall be paid by every month-end according to the lender‘s instruction.

 

Article 3 (Repayment)

 

The borrower shall pay back the principal by installment for 20 times (5,000,000yen per month) starting from the end of July 2017 to the end of February 2019, after completing the principal repayment in accordance with "Agreement of the loan agreement change." dated April 13.2015.

 

Article 4 (acceleration clause)

 

If any of the following items has occurred, the borrower will lose the benefit of time and may need to repay the principal immediately even without any notification from the lender.

 

1. If the borrower is filed for compulsory execution or auction, commencement of bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings, special liquidation proceedings, by other liabilities.

 

2. If the borrower is filed for provisional attachment, or filed for attachment, auction, commencement of bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings, special liquidation proceedings, or other similar proceedings by other liabilities.

 

3. If the borrower violates any provision of this Agreement.

 

4. If the equivalent to the above items occurred that requires debt conservation.

 

Article 5 (Jurisdiction)

 

The court that has jurisdiction over the lender’s domicile shall have exclusive jurisdiction for the resolution of any disputes in connection with this Agreement.

 

IN WITNESS WHEREOF, both parties hereto have executed this Agreement in duplicate with their seals, and the lender shall retain the original and the borrower to retain one copy.

 

 

Dec.18, 2015

 

  Lender 2-3-34, Mita, Minato-ku Tokyo, Japan
    Fuji Co., Ltd.
    Yumiko Noda, Representative Director
     
  Borrower    1-16-1 Kaigan, Minato-ku, Tokyo, Japan
    New Pier Takeshiba Southtower 21st floor
    Link Bit Consulting Co., Ltd.
    Shuya Watanabe, CEO

 



Exhibit 31.1

 

Certification

 

I, Shuya Watanabe, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Grand Perfecta, Inc., for the period ended January 31, 2016;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) of the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: March 16, 2016 By: /s/ Shuya Watanabe  
    Shuya Watanabe, Chief Executive Officer  
    (Principal Executive Officer)  

 



Exhibit 31.2 

 

Certification

 

I, Masashi Takegaki, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Grand Perfecta, Inc., for the period ended January 31, 2016;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) of the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: March 16, 2016 By: /s/ Masashi Takegaki  
    Masashi Takegaki, Chief Financial Officer  
    (Principal Financial and Accounting Officer)  

 



Exhibit 32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002.

 

In connection with the Quarterly Report of Grand Perfecta, Inc. (the “Company”) on Form 10-Q for the period ending January 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shuya Watanabe, Principal Executive Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: March 16, 2016 By: /s/ Shuya Watanabe  
    Shuya Watanabe, Chief Executive Officer  
    (Principal Executive Officer)  

 

 

In connection with the Quarterly Report of Grand Perfecta, Inc. (the “Company”) on Form 10-Q for the period ending January 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Masashi Takegaki, Principal Financial and Accounting Officer of the Company, certify, to the best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: March 16, 2016 By: /s/ Masashi Takegaki  
    Masashi Takegaki, Chief Financial Officer  
    (Principal Financial and Accounting Officer)  

 

 

A signed original of this written statement required by Section 906 has been provided to Grand Perfecta, Inc. and will be retained by Grand Perfecta, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

 



v3.3.1.900
Document and Entity Information - shares
6 Months Ended
Jan. 31, 2016
Mar. 16, 2016
Document And Entity Information    
Entity Registrant Name Grand Perfecta, Inc.  
Entity Central Index Key 0001550053  
Document Type 10-Q  
Document Period End Date Jan. 31, 2016  
Amendment Flag false  
Current Fiscal Year End Date --07-31  
Is Entity a Well-known Seasoned Issuer? No  
Is Entity a Voluntary Filer? No  
Is Entity's Reporting Status Current? Yes  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   30,100,000
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2016  


v3.3.1.900
Consolidated Balance Sheets (Unaudited) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Current assets    
Cash $ 57,057 $ 75,778
Accounts receivable, net 1,361,211 612,553
Due from related parties 0 487,852
Current portion of notes receivable 1,665,102 1,537,869
Deferred tax assets, current portion 310,506 303,024
Prepaid expenses and other current assets 458,157 360,825
Total current assets 3,852,033 3,377,901
Property and equipment, net 309,664 273,263
Other assets    
Long-term notes receivables, net of current portion 553,467 547,372
Long-term portion due from related parties, net of current portion 0 1,471,932
Deferred tax assets, long-term portion 227,915 222,423
Goodwill 6,408,764 6,257,112
Other intangible assets, net 140,660 0
Other assets 595,116 552,402
Total other assets 7,925,922 9,051,241
Total assets 12,087,619 12,702,405
Current liabilities    
Accounts payable and accrued expenses 2,393,882 1,402,227
Deferred revenues 1,170,415 1,245,945
Current portion of notes payable 3,304,582 3,489,541
Notes payable to related parties 1,081,747 993,918
Convertible note payable 1,660,000 1,620,000
Taxes payable 122,258 612,102
Total current liabilities 9,732,884 9,363,733
Long-term portion of notes payable, net of current portion 1,784,500 1,174,500
Total liabilities $ 11,517,384 $ 10,538,233
Commitments and contingencies
Stockholders' equity    
Preferred stock, $0.001 par value, 100,000,000 shares authorized, 100,000 shares issued and outstanding as of January 31, 2016 (unaudited) and July 31, 2015 $ 100 $ 100
Common stock, $0.001 par value, 500,000,000 shares authorized, 29,100,000 and 30,500,000 shares issued and outstanding as of January 31, 2016 (unaudited) and July 31, 2015, respectively 29,100 30,500
Additional paid-in capital 3,926,434 4,121,034
Common stock issuable 120,000 0
Accumulated other comprehensive income 508,505 439,265
Accumulated deficit (4,238,078) (2,645,873)
Total GPI stockholders' equity 346,061 1,945,026
Noncontrolling interest 224,174 219,146
Total stockholders' equity 570,235 2,164,172
Total liabilities and stockholders' equity $ 12,087,619 $ 12,702,405


v3.3.1.900
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jan. 31, 2016
Jul. 31, 2015
Statement of Financial Position [Abstract]    
Preferred stock par value $ 0.001 $ 0.001
Preferred stock shares authorized 100,000,000 100,000,000
Preferred stock shares issued 100,000 100,000
Preferred stock shares outstanding 100,000 100,000
Common stock par value $ 0.001 $ 0.001
Common stock shares authorized 500,000,000 500,000,000
Common stock shares issued 29,100,000 30,500,000
Common stock shares outstanding 29,100,000 30,500,000


v3.3.1.900
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Income Statement [Abstract]        
Net sales $ 3,671,863 $ 4,908,922 $ 7,248,175 $ 9,512,086
Total revenues 3,671,863 4,908,922 7,248,175 9,512,086
Operating expenses:        
Cost of sales 1,280,896 1,197,191 2,371,682 2,463,120
Depreciation and amortization expense 18,695 27,064 38,565 56,645
Advertising 45,512 152,706 98,145 453,844
Rent expense 212,706 199,521 422,813 416,658
Salaries and wages 1,238,098 1,373,603 2,484,031 2,760,283
Other general and administrative expenses 1,117,763 985,895 2,121,513 1,995,278
Total operating expenses 3,913,670 3,935,980 7,536,749 8,145,828
Income (loss) from operations (241,807) 972,942 (288,574) 1,366,258
Other income (expense):        
Loss on settlement of note receivable (1,312,276) 0 (1,312,276) 0
Other income 10,664 21,846 13,131 40,080
Gain on exchange 5,992 10,513 7,078 24,590
Interest income 4,456 3,292 7,248 7,022
Interest expense (150,669) (206,782) (298,771) (456,387)
Total other income (expense) (1,441,833) (171,131) (1,583,590) (384,695)
Net income (loss) before provision for income taxes (1,683,640) 801,811 (1,872,164) 981,563
Provision for (benefit from) income taxes (185,682) 400,906 (279,944) 490,782
Net income (loss) (1,497,958) 400,905 (1,592,220) 490,781
Less: net loss attributable to noncontrolling interest (15) 0 (15) 0
Net income (loss) attributable to GPI $ (1,497,943) $ 400,905 $ (1,592,205) $ 490,781
Net income (loss) per share, basic and diluted $ (.05) $ 0.01 $ (.05) $ 0.02
Weighted average number of common shares outstanding, basic and diluted 29,130,435 30,500,000 29,815,217 30,500,000


v3.3.1.900
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Statement of Comprehensive Income [Abstract]        
Net income (loss) $ (1,497,958) $ 400,905 $ (1,592,220) $ 490,781
Other comprehensive income (loss), net of tax:        
Foreign currency translation adjustments 16,418 (21,463) 69,240 (158,682)
Total other comprehensive income (loss), net of tax 16,418 (21,463) 69,240 (158,682)
Comprehensive income (loss) (1,481,540) 379,442 (1,522,980) 332,099
Comprehensive income (loss) attributable to noncontrolling interest (31) (18,974) 5,013 (35,237)
Comprehensive income (loss) attributable to GPI stockholders $ (1,481,571) $ 360,468 $ (1,517,967) $ 296,862


v3.3.1.900
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Cash flows from operating activities    
Net income (loss) $ (1,592,220) $ 490,781
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 38,565 56,645
Loss on settlement of note receivable 1,312,276 0
Gain on bargain purchase of subsidiary (10,830) 0
Share-based compensation 3,956 0
Changes in operating assets and liabilities:    
Accounts receivable (711,335) (533,577)
Prepaid expenses and other current assets 34,781 (15,995)
Other assets (29,104) (5,002)
Accounts payable and accrued expenses 902,591 (830,696)
Deferred revenue (106,294) 55,282
Taxes payable (504,958) 336,949
Net cash used in operating activities (662,572) (445,613)
Cash flows from investing activities    
Purchase of property and equipment (65,971) (10,800)
Proceeds from related party loans, net 563,185 380,903
Proceeds from collection of notes receivables 178,288 111,800
Acquisition of subsidiaries, net of cash acquired (96,983) 0
Payments for notes receivable lending (260,129) (188,836)
Net cash provided by investing activities 318,390 293,067
Cash flows from financing activities    
Proceeds from notes payable 830,436 0
Payments on note payable (507,761) (1,473,232)
Net cash provided by (used in) financing activities 322,675 (1,473,232)
Effect of exchange rate fluctuations on cash 2,786 (155,255)
Net change in cash (18,721) (1,781,033)
Cash, beginning of the period 75,778 1,882,272
Cash, end of the period 57,057 101,239
Supplemental disclosure of cash flow information:    
Interest paid 23,290,263 456,387
Income taxes paid 225,014 153,833
Supplemental disclosure of non-cash investing and financing information:    
Settlement of related party note receivable through exchange of stock (1,508,276) 0
Decrease in common stock, par value, from settlement of related party note receivable (1,400) 0
Decrease in additional paid-in capital from settlement of related party note receivable $ (194,600) $ 0


v3.3.1.900
1. Description of Business
6 Months Ended
Jan. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
1. Description of Business

Organization

 

Grand Perfecta, Inc. (“Grand Perfecta”) was incorporated in the State of Nevada on March 25, 2002, as STI Holdings, Inc. (“STI”). On May 12, 2012, the Company completed an Agreement and Plan of Reorganization whereby it acquired 100% of the issued and outstanding shares of Link Bit Consulting Co, Ltd. (“LinkBit” or the “Company”), a Japanese corporation, for 25,000,000 common shares in a transaction accounted for as a recapitalization of LinkBit. Effective March 29, 2013, STI amended its Articles of Incorporation to change its name to Grand Perfecta, Inc. On May 27, 2013, the Company issued 272,668 shares in exchange for 100% of the issued and outstanding shares of Umajin Hong Kong Ltd. (“Umajin HK”), a Hong Kong corporation that maintains an office in Hong Kong. In August 2015, Grand Perfecta formed Sports Perfecta, Inc. (“Sports Perfecta”), as a California subsidiary to pursue development of a fantasy sports offering to horse racing fans. The operations of Grand Perfecta, LinkBit, Umajin HK, and Sports Perfecta are collectively referred to as the “Company.”

 

On December 16, 2015, LinkBit acquired 100% of the outstanding shares of Basougu Shokuninkai Co., Ltd. (“Basougu”), a Japanese corporation (See Note 7). On January 7, 2016, Sports Perfecta acquired 100% of the outstanding stock of Just Mobile Sdn. Bhd. (“Just Mobile”), a Malaysian company (see Note 7). On January 20, 2016, Just Mobile changed its name to Sports Perfecta Technologies Sbn Bhd (“SPT”). The operations of Just Mobile are referred to as SPT after the acquisition date of January 7, 2016.

 

Nature of Business

 

The Company is engaged in the business of transmitting and providing horse racing information via various types of media, including multiple websites owned and operated by the wholly owned subsidiaries of LinkBit, Umajin HK and Sports Perfecta.



v3.3.1.900
2. Summary of Significant Accounting Policies
6 Months Ended
Jan. 31, 2016
Accounting Policies [Abstract]  
2. Summary of Significant Accounting Policies

Basis of Presentation

  

The accompanying unaudited consolidated financial statements of the Company as of January 31, 2016, and for the three and six months ended January 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. In the opinion of management, such financial information includes all adjustments considered necessary for a fair presentation of the Company's financial position at such date and the operating results and cash flows for such periods. Operating results for the interim period ended January 31, 2016 are not necessarily indicative of the results that may be expected for the entire year.

 

Certain information and footnote disclosure normally included in financial statements in accordance with GAAP have been omitted pursuant to the rules of the United States Securities and Exchange Commission ("SEC"). These unaudited financial statements should be read in conjunction with our audited financial statements and accompanying notes for the years ended July 31, 2015 and 2014 included in the Company's Form 10-K filed on November 13, 2015.

 

Principals of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Grand Perfecta and its wholly-owned subsidiaries LinkBit, Umajin HK, and Sports Perfecta. All intercompany balances and transactions have been eliminated in consolidation. The Company has determined that two affiliated entities, Space Cultivation Mobile and Japan Horse Circle, which LinkBit conducts business with are variable interest entities and that the Company is the primary beneficiary of each entity. As a result, the Company has consolidated the accounts of these variable interest entities into the accompanying consolidated financial statements. As the Company does not have any ownership interest in these variable interest entities, the Company has allocated the contributed capital in these variable interest entities as a component of noncontrolling interest. All intercompany balances and transactions have been eliminated in consolidation.

 

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

 

Liquidity and Capital Resources

 

As of January 31, 2016, we had cash of $57,057 and a working capital deficit of $5,880,851 as compared to cash of $75,778 and a working capital deficit of $5,985,832 as at July 31, 2015. The decrease in cash as of January 31, 2016 was primarily the result of cash used in operations and to pay down outstanding notes payable during the period, offset by an increase in cash due to collection of notes receivable and amounts due from related parties, as well as additional note payable borrowing.

 

We continue to have a significant working capital deficit that adversely affects our business by limiting the resources we have available to pursue the promotion of our information services and develop new service opportunities for potential customers. Historically we have relied on extensions of note payment due dates and new debt financing to repay note obligations as they came due in order to continue operations. Going forward we will continue to use extensions and new debt financing to address note obligations that come due, endeavor to gradually reduce obligations with cash flow provided by operations, and pursue over the next 12 months equity financing that we can apply to debt reduction and business development. Nevertheless, the shortage of working capital adversely affects our ability to develop, sponsor, or participate in activities that promote our information services to prospective customers and to develop new content, because a substantial portion of cash flow goes to reduce debt rather than to advance operating activities. There is no assurance that our plans for addressing our working capital shortages will be successful, and our failure to be reasonably successful should be expected to result in a significant contraction of our operations and potentially a failure of the business.

  

Use of Estimates

 

The preparation of financial statements in conformity with 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 financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future.

 

Foreign Exchange

 

The Company’s primary operations are conducted in Japan and performed by its wholly owned subsidiaries LinkBit and Umajin HK. The Company also conducts operations through Sports Perfecta, and its Malaysian subsidiary SPT. LinkBit’s functional currency is the Japanese Yen and Umajin HK’s functional currency is the Hong Kong Dollar. SPT’s functional currency is the Malaysian Ringgit.

 

The financial statements of each entity are prepared using the applicable functional currencies, and have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable exchange rates at period-end. Stockholders’ equity is translated using historical exchange rates. Revenue and expenses are translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation adjustments in accumulated other comprehensive income in the Company’s stockholders’ equity.

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD at the following balance sheet dates.

 

   Balance Sheet Dates 
   January 31,   July 31, 
   2016   2015 
         
           
Japanese Yen to USD   0.0083    0.0081 
Hong Kong Dollars to USD   0.1285    0.1290 
Malaysian Ringgit to USD   0.2413     NA  

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD for the following operating periods.

 

 

   For the Six Months Ended 
   January 31,   January 31, 
   2016   2015 
         
         
Japanese Yen to USD   0.0083    0.0090 
Hong Kong Dollars to USD   0.1289    0.1290 
Malaysian Ringgit to USD   0.2347    NA  

 

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of January 31, 2016 (unaudited) or July 31, 2015.

 

Accounts Receivable

 

Accounts receivable are carried at net realizable value, representing the outstanding balance less an allowance for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering each customer's financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. The Company had no allowance for doubtful accounts as of January 31, 2016 (unaudited) and July 31, 2015.

 

Property and Equipment

 

Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives once the individual assets are placed in service. Estimated useful lives for the assets are as follows.

 

Buildings and fixtures   8 - 43 years
Autos and trucks   2 - 6 years
Tools and equipment   4 - 10 years
Computer software   5 years

  

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions.  Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level.  As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-20, the Company conducted an analysis of the goodwill on its single reporting unit using the Company. As of July 31, 2015, the assessment for impairment found that there is no impairment of goodwill. The Company has no accumulated impairment losses on goodwill.

 

Long-Lived Assets

 

In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There was no impairment of assets identified during the year ended July 31, 2015 or during the six months ended January 31, 2016 (unaudited).

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability.

 

GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

 

Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.

 

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:

 

  Quoted prices for similar assets or liabilities in active markets

 

  Quoted prices for identical or similar assets or liabilities in markets that are not active

 

  Inputs other than quoted prices that are observable for the asset or liability

 

  Inputs that are derived principally from or corroborated by observable market data by correlation or other means

 

Level 3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

 

The Company has determined that the book value of its outstanding financial instruments as of January 31, 2016 (unaudited) and July 31, 2015 approximates the fair value.

 

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to concentration of credit risk include cash, accounts receivable, notes receivable, and amounts due from related parties. The Company maintains its cash in banks located in Japan and Hong Kong in financial institutions with high credit ratings. Substantially all of the Company’s revenues are generated from customers in Japan. The Company conducts periodic reviews of the financial condition and payment practices of its customers and note receivable holders. The Company has not experienced significant losses relating to these concentrations in the past, other than the $1,312,276 loss on settlement of note receivable that was recorded during the six month ended January 31, 2016 (See Note 4).

 

Revenue Recognition

 

The Company’s revenue consists primarily of sales of comprehensive horse racing information through multiple websites focusing on all aspects of the horse racing industry in Japan. Publication of horse racing digital magazines, providing support for print publications, and participating in other public events and media programs related to the horse racing industry do not generate significant revenue directly. These activities are undertaken for the purpose of increasing the number of horse racing fans and driving potential customers to our websites so as to hopefully eventually convert them to paying customers.  

 

The Company recognizes revenue on arrangements in accordance with ASC 605, Revenue Recognition. Revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The majority of the Company’s revenue is generated by per-item sales. For all users, payment is received at the time of purchase. The Company recognizes revenue for per-item sales when the requested information is supplied to the user. For information packages that span a period of time, the Company recognizes revenue over the term of each package. Revenues are presented net of refunds, credits and known and estimated credit card chargebacks. The Company reports revenue net of any required taxes collected from customers and remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Rights to content purchased by customers in advance of the content being provided are recorded as deferred revenue.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective 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.

 

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, Earnings Per Share, the basic income per common share is computed by dividing the net income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. No dilutive potential common shares were included in the computation of diluted net income per share because their impact was anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had total options of 3,000,000, which were excluded from the computation of net income per share because they are anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had convertible notes convertible into 1,472,727 shares of common stock, which were excluded from the computation because they are anti-dilutive. As a result, the basic and diluted earnings per share were the same for each of the periods presented.

 

Recent Accounting Pronouncements 

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 creates a new topic in the ASC Topic 606 and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. Management is in the process of assessing the impact of ASU 2014-09 on the Company’s financial statements.



v3.3.1.900
3. Property and Equipment, net
6 Months Ended
Jan. 31, 2016
Property, Plant and Equipment [Abstract]  
3. Property and Equipment, net

The Company’s property and equipment consisted of the following.

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Buildings and fixtures  $268,598   $262,126 
Autos and trucks   301,785    294,513 
Tools and equipment   453,108    427,469 
Computer software   1,315,917    1,284,209 
Construction in progress   51,875     
Horses   24,070    24,454 
           
    2,415,353    2,292,771 
           
Less: accumulated depreciation   (2,105,689)   (2,019,508)
           
   $309,664   $273,263 

 

Depreciation expense amounted to $16,448 and $27,064 for the three months ended January 31, 2016 and 2015, respectively. Depreciation amounted to $36,318 and $56,645 for the six months ended January 31, 2016 and 2015, respectively.  



v3.3.1.900
4. Due from Related Parties
6 Months Ended
Jan. 31, 2016
Related Party Transactions [Abstract]  
4. Due from Related Parties

The total amounts due from related parties amounted to $0 (unaudited) and $1,959,784 as of January 31, 2016 and July 31, 2015, respectively, which represented borrowings made to Umajin Co., Ltd. (“Umajin Japan”), a related party entity owned by one of the directors of the Company. Effective October 30, 2015, the Company entered into a Receivables Transfer Agreement with Europlus International (“EI”), in which the Company transferred $499,898 (JPY 60,228,650) of outstanding receivables due from Umajin Japan to EI in exchange for an account receivable of $494,899 (JPY 59,626,363) to be paid in three quarterly installments starting on January 31, 2016 and finishing on July 31, 2016.

 

Effective November 2, 2015, the Company entered into a Note Payable and Satisfaction Agreement (the “Satisfaction Agreement”) with Umajin Japan in order to settle the remaining receivable balance outstanding. The Company was the holder of a promissory note made by Umajin Japan in the principal amount of JPY 181,720,000 ($1,508,276 as of November 2, 2015). The promissory note was secured by 1,400,000 shares of the Company’s common stock, which were owned by Umajin Japan. Pursuant to the Satisfaction Agreement, Umajin Japan agreed to sell its shares of common stock to the Company, and the Company has agreed to release Umajin Japan from any further obligation due under the promissory note.  The fair value of the common stock sold to the Company amounted to $196,000. The difference between the fair value of the common stock and the outstanding balance of the note receivable amounted to $1,312,276, which was recorded as loss from settlement of note receivable in the accompanying consolidated statement of operations for the three and six months ended January 31, 2016.



v3.3.1.900
5. Notes Receivable
6 Months Ended
Jan. 31, 2016
Receivables [Abstract]  
5. Notes Receivable

The Company’s outstanding notes receivable consist of unsecured advances, including interest ranging from 0% to 8% per annum, payable in full on dates extending through 2039. As of January 31, 2016 and July 31, 2015, the Company had total outstanding notes receivable of $2,218,569 (unaudited) and $2,085,241, respectively. The portion of these outstanding notes receivables that were either due on demand or had scheduled due dates within one year amounted to $1,665,102 (unaudited) and $1,537,869 as of January 31, 2016 and July 31, 2015, respectively.

  

The future scheduled maturities of outstanding notes receivables as of January 31, 2016 based on contractual due dates are as follows.

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $1,665,102 
2017    
2018    
2019   7,330 
2020   15,426 
Thereafter   530,711 
Total  $2,218,569 

 



v3.3.1.900
6. Goodwill
6 Months Ended
Jan. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
6. Goodwill

The Company has recorded goodwill relating to the purchase of Media 21, Inc. in 2011, as well as the acquisition of Umajin HK on May 27, 2013. The following is a summary of the activity relating to goodwill for the six months ended January 31, 2016 (unaudited):

 

Balance as of July 31, 2015  $6,257,112 
Foreign currency translation adjustment   151,652 
Balance as of January 31, 2016 (unaudited)  $6,408,764 

 



v3.3.1.900
7. Acquisitions
6 Months Ended
Jan. 31, 2016
Business Combinations [Abstract]  
7. Acquisitions

On January 7, 2016, Sports Perfecta entered into a Share Purchase Agreement to acquire 100% of the outstanding shares of Just Mobile. The total aggregate purchase price for the outstanding shares of Just Mobile amounted to $200,000, of which $120,000 was paid on the closing date and the remaining $80,000 is due three months after the date of the agreement on April 7, 2016. The amount due to the sellers of Just Mobile is recorded as a component of accounts payable and accrued expenses in the accompanying consolidated balance sheet at January 31, 2016.

 

Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The fair values of identifiable intangible assets were based on valuations using the income approach.

 

The purchase price was allocated as follows as of the acquisition date:

 

Cash  $38,908 
Accounts receivable   20,960 
Other current assets   6,751 
Intangible assets   134,476 
Current liabilities   (1,095)
   $200,000 

 

Intangible assets acquired represent developed technology which has an estimated useful life of 4 years. Amortization expense for intangible assets for the three and six months ended January 31, 2016 amounted to $2,247. Estimated future amortization of intangible assets as of January 31, 2016 is as follows.

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $17,876 
2017   35,753 
2018   35,753 
2019   35,753 
2020   15,525 
Total  $140,660 

 

On December 16, 2015, the Company entered into a purchase agreement to acquire 100% of the outstanding shares of Basougu. The total purchase price for the outstanding shares of Basougu amounted to 2 million Japanese Yen ($16,400 on the purchase date). The fair value of the net assets acquired from Basougu amounted to $27,100 as of the acquisition date. As the fair value of the net assets was greater than the purchase price, the Company recorded a gain on the acquisition of Basougu of $10,700, which is reflected as a component of other income on the accompanying statements of operations for the three and six months ended January 31, 2016. There was no goodwill or other intangible assets acquired in connection with the purchase of Basougu.

 



v3.3.1.900
8. Notes Payable
6 Months Ended
Jan. 31, 2016
Debt Disclosure [Abstract]  
8. Notes Payable

A summary of the Company’s outstanding notes payable is as follows:

 

   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Unsecured notes payable originally issued on September 30, 2009 and November 30, 2010, due in full on November 30, 2015, bearing interest at 3.5% per annum due monthly.  $   $39,658 
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly.   830,000    810,000 
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly.   415,000    405,000 
Unsecured note payable issued on July 23, 2013, due on July 5, 2016, bearing interest at 1.2% per annum due monthly.   71,380    136,728 
Unsecured note payable issued on December 20, 2011, due on October 31, 2015, bearing interest at 15% per annum due monthly.   1,577,000    1,539,000 
Unsecured note payable issued on June 28, 2013, due on October 31, 2015, bearing interest at 15% per annum due monthly.   166,000    162,000 
Unsecured note payable issued on January 20, 2011, due on June 30, 2017, bearing interest at 12% per annum due monthly.   705,500    931,500 
Unsecured note payable issued on December 18, 2015, due on February 29, 2019, bearing interest at 12% per annum due monthly.   830,000     
Unsecured note payable resulting from the Company co-signing for debt of a vendor in 2010. The note is due on demand, bearing interest at 18% per annum due monthly.   207,500    348,300 
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.   249,000    243,000 
Unsecured notes payable, non-interest bearing, due on demand   37,702    48,855 
Total notes payable   5,089,082    4,664,041 
Less: current portion of notes payable   3,304,582    3,489,541 
Long-term portion of notes payable  $1,784,500   $1,174,500 

 

Substantially all of the above outstanding notes payable are personally guaranteed by the Company’s Chief Executive Officer.

 

Future scheduled maturities of long-term debt are as follows:

 

   Year Ended 
   July 31, 
      
2016 (remainder of)  $3,304,582 
2017   705,500 
2018   249,000 
2019   830,000 
Total  $5,089,082 

 



v3.3.1.900
9. Notes Payable To Related Parties
6 Months Ended
Jan. 31, 2016
Related Party Transactions [Abstract]  
9. Notes Payable To Related Parties

As of January 31, 2016, the Company had an outstanding note payable balance due to its Chairman and CEO amounting to $910,559 and an outstanding note payable balance due to its President amounting to $171,188. The note payable balances are non-interest bearing and are due on demand.

 



v3.3.1.900
10. Convertible Note Payable
6 Months Ended
Jan. 31, 2016
Convertible Notes Payable [Abstract]  
10. Convertible Note Payable

On March 5, 2015, the Company entered into a convertible note agreement for total principal borrowings of JPY 200,000,000 ($1,660,000 (unaudited) at January 31, 2016 and $1,620,000 at July 31, 2015). The amounts are due on March 5, 2016 and bear interest at a rate of 1% per annum. At the option of the debt holder, beginning 40 days after the issuance of the note, the debt holder may convert the outstanding balance of the note into shares of the Company’s common stock at a conversion rate equal to one share per JPY130.90 or $1.10 of outstanding principal and accrued interest.

 

The conversion feature associated with the convertible note payable created a derivative liability as of April 14, 2015, the date in which the note became convertible. The Company valued the derivative as of each subsequent reporting period using the Black-Scholes pricing model. The value at each of these dates amounted to $0. The assumptions used in the Black-Scholes model during the three months ended January 31, 2016 were as follows.

 

   Six Months Ended
   January 31,
   2016
    
Expected life in years  0.09
Stock price volatility  41.1%
Risk-free interest rate  0.22%
Expected dividends  None
Forfeiture rate  NA

 



v3.3.1.900
11. Stockholders' Equity
6 Months Ended
Jan. 31, 2016
Equity [Abstract]  
11. Stockholders' Equity

Preferred Stock

 

The Company is authorized to issue up to 100,000,000 shares of preferred stock with a par value of $0.001, with 100,000 shares designated as Series A Preferred Stock. The Series A Preferred Stock receive a 10 to 1 voting preference over common stock. Accordingly, for every share of Series A Preferred Stock held, the holder receives the voting rights equal to 10 shares of common stock. As such, the holders of the Series A Preferred Stock have the equivalent voting capability of 1,000,000 shares of common stock. The Series A Preferred Stock also has a $0.05 per share liquidation preference over common stock, and can be redeemed by the Company at any time, upon thirty days’ notice, for $0.05 per share.

 

The Company had 100,000 shares of Series A Preferred Stock issued and outstanding as of January 31, 2016 and July 31, 2015.

 

Common Stock Issuable

 

Effective January 25, 2016, the Company entered into a consulting agreement with an investor relations firm for a term of six months. Per the terms of the agreement, as compensation for the services to be provided, the Company is to issue 1,000,000 shares of its common stock within 14 days of the date of the agreement, which were fully vested on the date of the agreement. The Company issued the shares in connection with the agreement in February 2016. The total value of the shares as of the agreement date amounted to $120,000, which has been reflected as common stock issuable in the accompanying consolidated balance sheet as of January 31, 2016. The total value has been recorded as a component of prepaid expenses and other current assets in the accompanying consolidated balance sheet and is being amortized over the life of the agreement.



v3.3.1.900
12. Related Party Transactions
6 Months Ended
Jan. 31, 2016
Related Party Transactions [Abstract]  
12. Related Party Transactions

As of January 31, 2016 (unaudited) and July 31, 2015, the Company had $0 and $1,959,784, respectively, of notes receivable due from related parties (see Note 4).

 

As of January 31, 2016, the Company had an outstanding note payable balance due to its Chairman and CEO amounting to $910,559 and an outstanding note payable balance due to its President amounting to $171,188 (see Note 9).

 

Concurrently with the Satisfaction Agreement (see Note 4), the Company and Umajin Japan, a related party company owned by one of its directors, modified the service agreement between them effective November 1, 2015, to set the monthly fee payable by the Company to Umajin Japan for providing horserace information at 16 million Yen per month (inclusive of consumption tax), and to set the monthly fee payable for providing a horseracing related email magazine and web page content at 7 million Yen per month (inclusive of consumption tax).

 

The fee paid to Umajin Japan for the three months ended January 31, 2016 and 2015 amounted to $526,460 and $325,000, respectively. The fee paid to Umajin Japan for the six months ended January 31, 2016 and 2015 amounted to $830,000 and $650,000, respectively. The fees paid to Umajin Japan are included in cost of sales in the accompanying consolidated statements of operations.



v3.3.1.900
13. Subsequent Events
6 Months Ended
Jan. 31, 2016
Subsequent Events [Abstract]  
13. Subsequent Events

On February 5, 2016, the Company entered into a Money Loan Agreement with Fuji Kigyo, Ltd. (“Fuji Kigyo”) pursuant to which Fuji Kigyo agreed to lend the Company $100 million Yen (approximately $860,000). The loan accrues interest at 12% per annum and is due monthly. Principal is repaid in 23 monthly installments of 3 million Yen beginning in February 2017, and a final installment of 31 million Yen in January 2019.

  

On February 8, 2016, the Company issued 1,000,000 shares of common stock in connection with a consulting agreement (see Note 11).

 

In February 2016, the Company made a payment of 30 million Yen (approximately $249,000) on the outstanding principal of the convertible note payable (see Note 10), and the holder has agreed to extend the maturity date for an additional 6 months. The revised maturity date is September 5, 2016.  



v3.3.1.900
2. Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jan. 31, 2016
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

  

The accompanying unaudited consolidated financial statements of the Company as of January 31, 2016, and for the three and six months ended January 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. In the opinion of management, such financial information includes all adjustments considered necessary for a fair presentation of the Company's financial position at such date and the operating results and cash flows for such periods. Operating results for the interim period ended January 31, 2016 are not necessarily indicative of the results that may be expected for the entire year.

 

Certain information and footnote disclosure normally included in financial statements in accordance with GAAP have been omitted pursuant to the rules of the United States Securities and Exchange Commission ("SEC"). These unaudited financial statements should be read in conjunction with our audited financial statements and accompanying notes for the years ended July 31, 2015 and 2014 included in the Company's Form 10-K filed on November 13, 2015.

Principals of Consolidation

Principals of Consolidation

 

The accompanying condensed consolidated financial statements include the accounts of Grand Perfecta and its wholly-owned subsidiaries LinkBit, Umajin HK, and Sports Perfecta. All intercompany balances and transactions have been eliminated in consolidation. The Company has determined that two affiliated entities, Space Cultivation Mobile and Japan Horse Circle, which LinkBit conducts business with are variable interest entities and that the Company is the primary beneficiary of each entity. As a result, the Company has consolidated the accounts of these variable interest entities into the accompanying consolidated financial statements. As the Company does not have any ownership interest in these variable interest entities, the Company has allocated the contributed capital in these variable interest entities as a component of noncontrolling interest. All intercompany balances and transactions have been eliminated in consolidation.

Financial Statement Reclassification

Financial Statement Reclassification

 

Certain account balances from prior periods have been reclassified in these consolidated financial statements to conform to current period classifications.

Liqudity and Capital Resources

Liquidity and Capital Resources

 

As of January 31, 2016, we had cash of $57,057 and a working capital deficit of $5,880,851 as compared to cash of $75,778 and a working capital deficit of $5,985,832 as at July 31, 2015. The decrease in cash as of January 31, 2016 was primarily the result of cash used in operations and to pay down outstanding notes payable during the period, offset by an increase in cash due to collection of notes receivable and amounts due from related parties, as well as additional note payable borrowing.

 

We continue to have a significant working capital deficit that adversely affects our business by limiting the resources we have available to pursue the promotion of our information services and develop new service opportunities for potential customers. Historically we have relied on extensions of note payment due dates and new debt financing to repay note obligations as they came due in order to continue operations. Going forward we will continue to use extensions and new debt financing to address note obligations that come due, endeavor to gradually reduce obligations with cash flow provided by operations, and pursue over the next 12 months equity financing that we can apply to debt reduction and business development. Nevertheless, the shortage of working capital adversely affects our ability to develop, sponsor, or participate in activities that promote our information services to prospective customers and to develop new content, because a substantial portion of cash flow goes to reduce debt rather than to advance operating activities. There is no assurance that our plans for addressing our working capital shortages will be successful, and our failure to be reasonably successful should be expected to result in a significant contraction of our operations and potentially a failure of the business.

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with 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 financial statements, and the reported amounts of revenues and expenses during the reported periods. Amounts could materially change in the future.

Foreign Exchange

Foreign Exchange

 

The Company’s primary operations are conducted in Japan and performed by its wholly owned subsidiaries LinkBit and Umajin HK. The Company also conducts operations through Sports Perfecta, and its Malaysian subsidiary SPT. LinkBit’s functional currency is the Japanese Yen and Umajin HK’s functional currency is the Hong Kong Dollar. SPT’s functional currency is the Malaysian Ringgit.

 

The financial statements of each entity are prepared using the applicable functional currencies, and have been translated into U.S. dollars (“USD”). Assets and liabilities are translated into USD at the applicable exchange rates at period-end. Stockholders’ equity is translated using historical exchange rates. Revenue and expenses are translated at the average exchange rates for the period. Any translation adjustments are included as foreign currency translation adjustments in accumulated other comprehensive income in the Company’s stockholders’ equity.

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD at the following balance sheet dates.

 

   Balance Sheet Dates 
   January 31,   July 31, 
   2016   2015 
         
           
Japanese Yen to USD   0.0083    0.0081 
Hong Kong Dollars to USD   0.1285    0.1290 
Malaysian Ringgit to USD   0.2413     NA  

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD for the following operating periods.

 

 

   For the Six Months Ended 
   January 31,   January 31, 
   2016   2015 
         
         
Japanese Yen to USD   0.0083    0.0090 
Hong Kong Dollars to USD   0.1289    0.1290 
Malaysian Ringgit to USD   0.2347    NA  

 

Cash and Cash Equivalents

Cash and Cash Equivalents

 

The Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents. The Company had no cash equivalents as of January 31, 2016 (unaudited) or July 31, 2015.

Accounts Receivable

Accounts Receivable

 

Accounts receivable are carried at net realizable value, representing the outstanding balance less an allowance for doubtful accounts based on a review of all outstanding amounts. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering each customer's financial condition and credit history, as well as current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. The Company had no allowance for doubtful accounts as of January 31, 2016 (unaudited) and July 31, 2015.

Property and Equipment

Property and Equipment

 

Property and equipment are recorded at historical cost and depreciated on a straight-line basis over their estimated useful lives once the individual assets are placed in service. Estimated useful lives for the assets are as follows.

 

Buildings and fixtures   8 - 43 years
Autos and trucks   2 - 6 years
Tools and equipment   4 - 10 years
Computer software   5 years
Goodwill

Goodwill

 

The Company’s goodwill represents the excess of purchase price over tangible and intangible assets acquired, less liabilities assumed arising from business acquisitions. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level.  As required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-20, the Company conducted an analysis of the goodwill on its single reporting unit using the Company. As of July 31, 2015, the assessment for impairment found that there is no impairment of goodwill. The Company has no accumulated impairment losses on goodwill.

Long-Lived Assets

Long-Lived Assets

 

In accordance with ASC 360-10, the Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. There was no impairment of assets identified during the year ended July 31, 2015 or during the six months ended January 31, 2016 (unaudited).

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous market for the specific asset or liability.

 

GAAP provides for a three-level hierarchy of inputs to valuation techniques used to measure fair value, defined as follows:

 

Level 1 — Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access.

 

Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:

 

  Quoted prices for similar assets or liabilities in active markets

 

  Quoted prices for identical or similar assets or liabilities in markets that are not active

 

  Inputs other than quoted prices that are observable for the asset or liability

 

  Inputs that are derived principally from or corroborated by observable market data by correlation or other means

 

Level 3 — Inputs that are unobservable and reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

 

The Company has determined that the book value of its outstanding financial instruments as of January 31, 2016 (unaudited) and July 31, 2015 approximates the fair value.

Concentration of Credit Risk

Concentration of Credit Risk

 

Financial instruments that potentially expose the Company to concentration of credit risk include cash, accounts receivable, notes receivable, and amounts due from related parties. The Company maintains its cash in banks located in Japan and Hong Kong in financial institutions with high credit ratings. Substantially all of the Company’s revenues are generated from customers in Japan. The Company conducts periodic reviews of the financial condition and payment practices of its customers and note receivable holders. The Company has not experienced significant losses relating to these concentrations in the past, other than the $1,312,276 loss on settlement of note receivable that was recorded during the six month ended January 31, 2016 (See Note 4).

Revenue Recognition

Revenue Recognition

 

The Company’s revenue consists primarily of sales of comprehensive horse racing information through multiple websites focusing on all aspects of the horse racing industry in Japan. Publication of horse racing digital magazines, providing support for print publications, and participating in other public events and media programs related to the horse racing industry do not generate significant revenue directly. These activities are undertaken for the purpose of increasing the number of horse racing fans and driving potential customers to our websites so as to hopefully eventually convert them to paying customers.  

 

The Company recognizes revenue on arrangements in accordance with ASC 605, Revenue Recognition. Revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The majority of the Company’s revenue is generated by per-item sales. For all users, payment is received at the time of purchase. The Company recognizes revenue for per-item sales when the requested information is supplied to the user. For information packages that span a period of time, the Company recognizes revenue over the term of each package. Revenues are presented net of refunds, credits and known and estimated credit card chargebacks. The Company reports revenue net of any required taxes collected from customers and remitted to government authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Rights to content purchased by customers in advance of the content being provided are recorded as deferred revenue.

Income Taxes

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective 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.

Basic and Diluted Earnings Per Share

Basic and Diluted Earnings Per Share

 

In accordance with ASC 260, Earnings Per Share, the basic income per common share is computed by dividing the net income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. No dilutive potential common shares were included in the computation of diluted net income per share because their impact was anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had total options of 3,000,000, which were excluded from the computation of net income per share because they are anti-dilutive. During the six months ended January 31, 2016 and 2015, the Company had convertible notes convertible into 1,472,727 shares of common stock, which were excluded from the computation because they are anti-dilutive. As a result, the basic and diluted earnings per share were the same for each of the periods presented.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 creates a new topic in the ASC Topic 606 and establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics, and expands and improves disclosures about revenue. In addition, ASU 2014-09 adds a new Subtopic to the Codification, ASC 340-40, Other Assets and Deferred Costs: Contracts with Customers, to provide guidance on costs related to obtaining a contract with a customer and costs incurred in fulfilling a contract with a customer that are not in the scope of another ASC Topic. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early application is not permitted. Management is in the process of assessing the impact of ASU 2014-09 on the Company’s financial statements.



v3.3.1.900
2. Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jan. 31, 2016
Accounting Policies [Abstract]  
Schedule of foreign translation rates

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD at the following balance sheet dates.

 

   Balance Sheet Dates 
   January 31,   July 31, 
   2016   2015 
         
           
Japanese Yen to USD   0.0083    0.0081 
Hong Kong Dollars to USD   0.1285    0.1290 
Malaysian Ringgit to USD   0.2413     NA  

 

The following rates were used to translate the accounts of LinkBit, Umajin HK and SPT into USD for the following operating periods.

 

 

   For the Six Months Ended 
   January 31,   January 31, 
   2016   2015 
         
         
Japanese Yen to USD   0.0083    0.0090 
Hong Kong Dollars to USD   0.1289    0.1290 
Malaysian Ringgit to USD   0.2347    NA  

 

Schedule of estimated useful lives of property and equipment
Buildings and fixtures   8 - 43 years
Autos and trucks   2 - 6 years
Tools and equipment   4 - 10 years
Computer software   5 years


v3.3.1.900
3. Property and Equipment, net (Tables)
6 Months Ended
Jan. 31, 2016
Property, Plant and Equipment [Abstract]  
Schedule of property and equipment
   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Buildings and fixtures  $268,598   $262,126 
Autos and trucks   301,785    294,513 
Tools and equipment   453,108    427,469 
Computer software   1,315,917    1,284,209 
Construction in progress   51,875     
Horses   24,070    24,454 
           
    2,415,353    2,292,771 
           
Less: accumulated depreciation   (2,105,689)   (2,019,508)
           
   $309,664   $273,263 


v3.3.1.900
5. Notes Receivable (Tables)
6 Months Ended
Jan. 31, 2016
Receivables [Abstract]  
Schedule of future maturities of notes receivable
   Year Ended 
   July 31, 
      
2016 (remainder of)  $1,665,102 
2017    
2018    
2019   7,330 
2020   15,426 
Thereafter   530,711 
Total  $2,218,569 


v3.3.1.900
6. Goodwill (Tables)
6 Months Ended
Jan. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]  
Schedule of goodwill
Balance as of July 31, 2015  $6,257,112 
Foreign currency translation adjustment   151,652 
Balance as of January 31, 2016 (unaudited)  $6,408,764 


v3.3.1.900
8. Notes Payable (Tables)
6 Months Ended
Jan. 31, 2016
Debt Disclosure [Abstract]  
Schedule of notes payable
   January 31,   July 31, 
   2016   2015 
   (Unaudited)     
           
Unsecured notes payable originally issued on September 30, 2009 and November 30, 2010, due in full on November 30, 2015, bearing interest at 3.5% per annum due monthly.  $   $39,658 
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly.   830,000    810,000 
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly.   415,000    405,000 
Unsecured note payable issued on July 23, 2013, due on July 5, 2016, bearing interest at 1.2% per annum due monthly.   71,380    136,728 
Unsecured note payable issued on December 20, 2011, due on October 31, 2015, bearing interest at 15% per annum due monthly.   1,577,000    1,539,000 
Unsecured note payable issued on June 28, 2013, due on October 31, 2015, bearing interest at 15% per annum due monthly.   166,000    162,000 
Unsecured note payable issued on January 20, 2011, due on June 30, 2017, bearing interest at 12% per annum due monthly.   705,500    931,500 
Unsecured note payable issued on December 18, 2015, due on February 29, 2019, bearing interest at 12% per annum due monthly.   830,000     
Unsecured note payable resulting from the Company co-signing for debt of a vendor in 2010. The note is due on demand, bearing interest at 18% per annum due monthly.   207,500    348,300 
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.   249,000    243,000 
Unsecured notes payable, non-interest bearing, due on demand   37,702    48,855 
Total notes payable   5,089,082    4,664,041 
Less: current portion of notes payable   3,304,582    3,489,541 
Long-term portion of notes payable  $1,784,500   $1,174,500 
Schedule of future long-term debt maturities
   Year Ended 
   July 31, 
      
2016 (remainder of)  $3,304,582 
2017   705,500 
2018   249,000 
2019   830,000 
Total  $5,089,082 


v3.3.1.900
10. Convertible Note Payable (Tables)
6 Months Ended
Jan. 31, 2016
Convertible Notes Payable [Abstract]  
Assumptions used to calculate derivative liabilty
   Six Months Ended
   January 31,
   2016
    
Expected life in years  0.09
Stock price volatility  41.1%
Risk-free interest rate  0.22%
Expected dividends  None
Forfeiture rate  NA


v3.3.1.900
7. Acquisitions (Tables)
6 Months Ended
Jan. 31, 2016
Business Combinations [Abstract]  
Allocation of purchase price
Cash  $38,908 
Accounts receivable   20,960 
Other current assets   6,751 
Intangible assets   134,476 
Current liabilities   (1,095)
   $200,000 
Estimated future amortization of intangible assets
   Year Ended 
   July 31, 
      
2016 (remainder of)  $17,876 
2017   35,753 
2018   35,753 
2019   35,753 
2020   15,525 
Total  $140,660 


v3.3.1.900
1. Description of Business (Details Narrative)
Jan. 31, 2016
LinkBit [Member]  
Equity ownership percentage 100.00%
Umajin HK [Member]  
Equity ownership percentage 100.00%


v3.3.1.900
2. Summary of Significant Accounting Policies (Details - Foreign currency rates)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Japan, Yen      
Foreign currency rates .0083   .0090
Foreign currency rates over duration .0083 .0090  
Hong Kong, Dollars      
Foreign currency rates .1289   0.1290
Foreign currency rates over duration .1289 .1290  
Malaysia, Ringgits      
Foreign currency rates .2413  
Foreign currency rates over duration .2347  


v3.3.1.900
2. Summary of Significant Accounting Policies (Details - Estimated useful lives)
6 Months Ended
Jan. 31, 2016
Building and fixtures [Member]  
Estimated useful lives 8-43 years
Autos and trucks [Member]  
Estimated useful lives 2-6 years
Tools and equipment [Member]  
Estimated useful lives 4-10 years
Computer software [Member]  
Estimated useful lives 5 years


v3.3.1.900
2. Summary of Significant Accounting Policies (Details Narrative) - USD ($)
6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Cash equivalents $ 0  
Allowance for doubtful accounts 0  
Accumulated impairment losses on goodwill 0  
Asset impairment charges $ 0  
Options [Member]    
Shares considered anti-dilutive 3,000,000 3,000,000
Convertible Notes Payable [Member]    
Shares considered anti-dilutive 1,472,727 1,472,727


v3.3.1.900
3. Property and Equipment, net (Details) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Jan. 31, 2015
Property and equipment, gross $ 2,415,353 $ 2,292,771  
Less: accumulated depreciation (2,105,689) (2,019,508)  
Property and equipment, net 309,664 273,263  
Building and fixtures [Member]      
Property and equipment, gross 268,598 262,126  
Autos and trucks [Member]      
Property and equipment, gross 301,785 294,513  
Tools and equipment [Member]      
Property and equipment, gross 453,108 427,469  
Computer software [Member]      
Property and equipment, gross 1,315,917 1,284,209  
Construction in Progress [Member]      
Property and equipment, gross 51,875   $ 0
Horses [Member]      
Property and equipment, gross $ 24,070 $ 24,454  


v3.3.1.900
3. Property and Equipment, net (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Property, Plant and Equipment [Abstract]        
Depreciation expense $ 16,448 $ 27,064 $ 36,318 $ 56,645


v3.3.1.900
4. Due from Related Parties (Details Narrative)
3 Months Ended 6 Months Ended
Jan. 31, 2016
USD ($)
Jan. 31, 2015
USD ($)
Jan. 31, 2016
USD ($)
Jan. 31, 2016
JPY (¥)
Jan. 31, 2015
USD ($)
Jul. 31, 2015
USD ($)
Due from related parties $ 0   $ 0     $ 1,959,784
Loss on settlement of note receivable $ 1,312,276 $ 0 1,312,276   $ 0  
Europlus International [Member]            
Transfer of due from related party to account receivable, transferred amount     499,898      
Europlus International [Member] | Japan, Yen            
Transfer of due from related party to account receivable, transferred amount | ¥       ¥ 60,228,650    
Umajin HK [Member]            
Loss on settlement of note receivable     $ (1,312,276)      


v3.3.1.900
5. Notes Receivable (Details - Notes Receivable) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Receivables [Abstract]    
2016 (remainder of) $ 1,665,102  
2017 0  
2018 0  
2019 7,330  
2020 15,426  
Thereafter 530,711  
Total $ 2,218,569 $ 2,085,241


v3.3.1.900
5. Notes Receivable (Details Narrative) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Receivables [Abstract]    
Notes receivable outstanding $ 2,218,569 $ 2,085,241
Notes receivable current $ 1,665,102 $ 1,537,869


v3.3.1.900
6. Goodwill (Details)
6 Months Ended
Jan. 31, 2016
USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill, beginning balance $ 6,257,112
Foreign currency translation adjustment 151,652
Goodwill, ending balance $ 6,408,764


v3.3.1.900
7. Acquisitions (Details-allocation) - Just Mobile [Member]
Jan. 07, 2016
USD ($)
Cash $ 38,908
Accounts receivable 20,960
Other current assets 6,751
Intangible assets 134,476
Current liabilities (1,095)
Total consideration $ 200,000


v3.3.1.900
7. Acquisitions (Details-Intangibles) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Business Combinations [Abstract]    
2016 (remainder of) $ 17,876  
2017 35,753  
2018 35,753  
2019 35,753  
2020 15,525  
Total intangible assets $ 140,660 $ 0


v3.3.1.900
7. Acquisitions (Details Narrative) - USD ($)
3 Months Ended 5 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 07, 2016
Dec. 16, 2015
Jan. 31, 2016
Amortization expense $ 2,247     $ 2,247
Just Mobile [Member]        
Consideration for business acquisition   $ 200,000    
Equity interest owned   100.00%    
Basougu [Member]        
Consideration for business acquisition     $ 16,400  
Fair value of net assets acquired     27,100  
Gain on acquisition     $ 10,700  


v3.3.1.900
8. Notes Payable (Details - Schedule of debt) - USD ($)
6 Months Ended 7 Months Ended
Jan. 31, 2016
Jan. 31, 2016
Jul. 31, 2015
Jan. 31, 2015
Unsecured notes payable $ 5,089,082 $ 5,089,082 $ 4,664,041  
Notes payable, current portion 3,304,582 3,304,582 3,489,541  
Notes payable, long-term portion 1,784,500 1,784,500 1,174,500  
Note 1 [Member]        
Unsecured notes payable $ 0 $ 0 39,658  
Debt maturity date Nov. 30, 2015      
Stated interest rate 3.50% 3.50%    
Note 2 [Member]        
Unsecured notes payable $ 830,000 $ 830,000 810,000  
Debt maturity date Mar. 26, 2012      
Stated interest rate 1.00% 1.00%    
Note 3 [Member]        
Unsecured notes payable $ 415,000 $ 415,000 405,000  
Debt maturity date   Jan. 31, 2013    
Stated interest rate 1.00% 1.00%    
Note 4 [Member]        
Unsecured notes payable $ 71,380 $ 71,380 136,728  
Debt maturity date Jul. 23, 2013      
Stated interest rate 1.20% 1.20%    
Note 5 [Member]        
Unsecured notes payable $ 1,577,000 $ 1,577,000 1,539,000  
Debt maturity date Oct. 31, 2015      
Stated interest rate 15.00% 15.00%    
Note 6 [Member]        
Unsecured notes payable $ 166,000 $ 166,000 162,000  
Debt maturity date Jun. 28, 2013      
Stated interest rate 15.00% 15.00%    
Note 7 [Member]        
Unsecured notes payable $ 705,500 $ 705,500 931,500  
Debt maturity date Jun. 30, 2017      
Stated interest rate 12.00% 12.00%    
Note 8 [Member]        
Unsecured notes payable $ 830,000 $ 830,000 0  
Debt maturity date   Feb. 28, 2019    
Stated interest rate 12.00% 12.00%    
Note 9 [Member]        
Unsecured notes payable $ 207,500 $ 207,500 348,300  
Stated interest rate 18.00% 18.00%    
Note 10 [Member]        
Unsecured notes payable $ 249,000 $ 249,000 $ 243,000  
Debt maturity date   Jul. 20, 2018    
Stated interest rate 12.00% 12.00%    
Note 11 [Member]        
Unsecured notes payable $ 37,702 $ 37,702   $ 48,855


v3.3.1.900
8. Notes Payable (Details - Maturities of debt) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Debt Disclosure [Abstract]    
2016 (remainder of) $ 3,304,582  
2017 705,500  
2018 249,000  
2019 830,000  
Total notes payable $ 5,089,082 $ 4,664,041


v3.3.1.900
9. Notes Payable From Related Parties (Details Narrative) - USD ($)
Jan. 31, 2016
Jul. 31, 2015
Note payable to related party $ 1,081,747 $ 993,918
Chairman and Chief Executive Officer [Member]    
Note payable to related party 910,559  
President [Member]    
Note payable to related party $ 171,188  


v3.3.1.900
10. Convertible Note Payable (Details)
6 Months Ended
Jan. 31, 2016
$ / shares
Convertible Notes Payable [Abstract]  
Expected life in years 1 month 2 days
Stock price volatility 41.10%
Risk-free interest rate 0.22%
Expected dividends $ 0
Forfeiture rate NA


v3.3.1.900
9. Convertible Note Payable (Details Narrative) - USD ($)
12 Months Ended
Jul. 31, 2015
Jan. 31, 2016
Convertible note payable $ 1,620,000 $ 1,660,000
Convertible Debt [Member]    
Debt maturity date Mar. 05, 2016  
Stated interest rate 1.00%  
Debt conversion terms At the option of the debt holder, beginning40 days after the issuance of the note, the debt holder may convert the outstanding balance of the note into shares of the Company's common stock at a conversion rate equal to one share per $1.10 of outstanding principal and accrued interest.  


v3.3.1.900
11. Stockholders' Equity (Details Narrative) - USD ($)
6 Months Ended
Jan. 31, 2016
Jul. 31, 2015
Stockholders' equity    
Preferred stock par value $ 0.001 $ 0.001
Preferred stock shares authorized 100,000,000 100,000,000
Preferred stock shares issued 100,000 100,000
Preferred stock shares outstanding 100,000 100,000
Shares issued for services, shares issued 1,000,000  
Shares issued for services, value $ 120,000  


v3.3.1.900
12. Related Party Transactions (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jan. 31, 2016
Jan. 31, 2015
Jan. 31, 2016
Jan. 31, 2015
Jul. 31, 2015
Due from related parties $ 0   $ 0   $ 1,959,784
Note payable to related party 1,081,747   1,081,747   $ 993,918
Fees paid to related entity for providing content 526,460 $ 325,000 830,000 $ 650,000  
Chairman and Chief Executive Officer [Member]          
Note payable to related party 910,559   910,559    
President [Member]          
Note payable to related party $ 171,188   $ 171,188