NOTES TO UNAUDITED 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, Grand Perfecta
completed an Agreement and Plan of Reorganization whereby it acquired 100% of the issued and outstanding shares of Link Bit Consulting
Co, Ltd. (“LBC”), a Japanese corporation, for 25,000,000 common shares in a transaction accounted for as a recapitalization
of LBC. Effective March 29, 2013, STI amended its Articles of Incorporation to change its name to Grand Perfecta, Inc. On May 27,
2013, Grand Perfecta 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. In August 2015, Grand Perfecta formed Sports Perfecta, Inc. (“SPI”), as a California
subsidiary to pursue development of a fantasy sports offering to horse racing fans. The operations of Grand Perfecta, LBC, Umajin
HK, and SPI are collectively referred to as the “Company.”
On December 16, 2015, LBC acquired 100%
of the outstanding shares of Basougu Shokuninkai Co., Ltd. (“Basougu”), a Japanese corporation. On January 7, 2016,
SPI acquired 100% of the outstanding stock of Just Mobile Sdn. Bhd. (“Just Mobile”), a Malaysian company. On January
20, 2016, Just Mobile changed its name to Sports Perfecta Technologies Sdn Bhd (“SPT”). The operations of Just Mobile
are referred to as SPT after the acquisition date of January 7, 2016.
In June 2018, Grand Perfecta completed
a disposition of a substantial portion of its assets and operations through two transactions.
On June 26, 2018, the Company transferred
100% of the common stock of Sports Perfecta, Inc., a California corporation and subsidiary of the Company, and a receivable representing
a sum owing to the Company by SPI in the amount of JPY 185,540,908 to Neo Sports Ltd., a Japanese company (“Neo Sports”),
in exchange for (a) 23,600,000 shares of Company common stock, (b) 100,000 shares of Company Series A Convertible Preferred Stock,
and (c) an outstanding contract option right to purchase 3,000,000 shares of the common stock of Company at a price of $1.00 per
share (the “SPI Transaction”). After this transaction, Neo Sports did not own any securities of the Company. All common
and preferred shares delivered to the Company as part of the SPI Transaction were immediately cancelled.
On June 27, 2018, the Company sold 100%
of the capital stock of Link Bit Consulting Co, Ltd., a Japanese company and subsidiary of the Company, to IS Digital Ltd., a Cayman
Islands company (“ISD”) for $420,000 in cash, and a sale to ISD of a receivable representing a sum owing to the Company
by LBC in the amount of JPY 8,089,625 for $80,000 in cash (the “LBC Transaction”).
On December 16, 2019, the Company transferred
100% of the common stock of Umajin HK, a Hong Kong corporation and a subsidiary of the Company to a Japanese corporation in exchange
for $1. Also on December 16, 2019, the Company transferred 100% of the common stock of WRN, a Japanese corporation and a subsidiary
of the Company to a Japanese corporation in exchange for $1 and the forgiveness of a payable to WRN in the amount of $90,956. After
these transfers, the Company had no subsidiaries.
Nature of Business
The Company was 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, WRN and Umajin HK. LinkBit operated 6 websites through its various subsidiaries, which
generated substantially all of the Company’s revenue. Umajin HK had been delivering information on horse racing to its users
through its website, however it terminated its service at the end of June 2017 and was sold on December 16, 2019. The Company was
also pursuing development of a fantasy sports offering through Sports Perfecta, which has not yet generated any significant revenue.
In June 2018, the Company discontinued the operations of its subsidiaries, LinkBit and SPI. WRN operated one of these websites
through April 2019 and was sold on December 16, 2019.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation
The accompanying unaudited consolidated
financial statements of the Company as of October 31, 2019, and for the three months ended October 31, 2019 and 2018, 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 October
31, 2019 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, 2019 and 2018 included in the Company's Form 10-K
filed on December 18, 2019.
The accompanying unaudited consolidated
financial statements include the accounts of Grand Perfecta and its wholly-owned subsidiaries Umajin HK and WRN. The Company discontinued
the operations of its wholly-owned subsidiaries Umajin HK and WRN in December 2019. The accounts for these subsidiaries have been
presented in the discontinued operations in the accompanying consolidated financial statements. All intercompany balances and transactions
have been eliminated in consolidation. After the discontinued operations, the Company consists solely of Grand Perfecta.
Financial Statement Reclassification
Certain account balances from prior periods
have been reclassified in these consolidated financial statements to conform to current period classifications. The prior year
amounts have also been modified in these financial statements to properly report amounts under current operations and discontinued
operations (see note 7).
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.
Going Concern
Based on operating losses and negative
cash from operations and the discontinuation of most of the Company’s operations, substantial doubt exists about the Company’s
ability to continue as a going concern. Management’s plan in this regard is to find new operations into which to enter and
focus on building profitable operations. To finance operations while it finds new operations, the Company will continue financing
activity such as taking loans and issuing new shares of the Company’s common stock.
As of October 31, 2019, we had cash of
$590, of which $235 was from continuing operations and $355 was from discontinued operations, and a working capital deficit of
$60,403. As of July 31, 2019, we had cash of $751, of which $235 was from continuing operations and $516 was from discontinued
operations, and a working capital deficit of $33,587.
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.
Foreign Exchange
The Company’s primary operations
are conducted in Japan and performed by its wholly owned subsidiaries WRN and Umajin HK (UHK). UHK had been delivering information
on horse racing to its users through its website, however it terminated its service at the end of June 2017. WRN had been delivering
information on horse racing to its users through its website, however it terminated its service during April 2019. WRN functional
currency is the Japanese Yen and Umajin HK’s functional currency is the Hong Kong Dollar.
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 Umajin HK and WRN into USD at the following balance sheet dates.
|
|
Balance Sheet Dates
|
|
|
|
October 31, 2019
|
|
|
July 31, 2019
|
|
Japanese Yen to USD
|
|
|
0.0092
|
|
|
|
0.0092
|
|
Hong Kong Dollars to USD
|
|
|
0.1276
|
|
|
|
0.1278
|
|
The following rates were used to translate
the accounts of Umajin HK and WRN into USD for the following operating periods.
|
|
For the Three Months Ended
|
|
|
|
October 31, 2019
|
|
|
October 31, 2018
|
|
Japanese Yen to USD
|
|
|
0.0093
|
|
|
|
0.0089
|
|
Hong Kong Dollars to USD
|
|
|
0.1276
|
|
|
|
0.1275
|
|
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 October 31, 2019 and July 31, 2019.
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 October 31, 2019 and July 31, 2019.
Fair Value of Financial Instruments
In accordance with ASC 820, the carrying
value of cash and cash equivalents and accounts payable approximates fair value due to the short-term maturity of these instruments.
ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy
to classify the inputs used in measuring fair value as follows:
Level 1- Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date.
Level 2- Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets
that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable
market data.
Level 3- Inputs are unobservable inputs
which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The Company has determined that the book
value of its outstanding financial instruments as of October 31, 2019 and July 31, 2019 approximates the fair value.
Concentration of Credit Risk
Financial instruments that potentially
expose the Company to concentration of credit risk include cash and accounts receivable. The Company maintains its cash in banks
located in Japan, Hong Kong and the United States in financial institutions with high credit ratings. Substantially all of the
Company’s revenues have been generated from customers in Japan. The Company conducts periodic reviews of the financial condition
and payment practices of its customers. The Company had no losses related to the write off of accounts receivable during the three
months ended October 31, 2019 and 2018.
Revenue Recognition
Effective August 1, 2018 we adopted the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 606-10,
Revenue from Contracts with Customers (“ASC 606-10”). The adoption of ASC 606-10 had no impact on prior year or previously
disclosed amounts. In accordance with ASC 606-10, revenue is measured based on a consideration specified in a contract with a customer
and recognized when we satisfy the performance obligation specified in each contract.
The Company’s revenue consisted 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, and participating in other public events and media programs related to
the horse racing industry do not generate significant revenue directly. These activities were 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 majority of the Company’s revenue
was generated by per-item sales. For certain users, payment was received at the time of purchase and for others it was received
after purchase. In either case, our performance obligation was to provide the requested information to users. Therefore, we recognized
revenue for per-item sales when the requested information was supplied to the user or for information packages that span a period
of time, ratably over the subscription period. 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 information
purchased by customers in advance of the information being provided are recorded as deferred.
As of October 31, 2019, the Company had
$0 in deferred revenues. The Company will amortize these deferred revenues based on the monthly subscriptions and record revenue
in line with the amortization of these advance payments.
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.
Advertising Costs
The Company expenses advertising costs
as incurred. Advertising costs incurred amounted to $0 and $0 for the three months ended October 31, 2019 and 2018, respectively.
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. The basic and diluted earnings per share were
the same for each of the periods presented.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by FASB that are adopted by the Company as of the specified effective date. If not discussed, management believes that
the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial
statements upon adoption.
3.
|
ADVANCE PAYABLE – RELATED PARTY
|
During the three months ended October 31, 2019, the Company
received $1,000 in funds advance by a related party. This advance is due on demand, unsecured and non-interest bearing.
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 zero shares of Series A
Preferred Stock issued and outstanding as of October 31, 2019 and July 31, 2019.
Common Stock
The Company had 7,977,332 shares of Common
Stock issued and outstanding as of October 31, 2019 and July 31, 2019.
5.
|
COMMITMENTS AND CONTINGENCIES
|
Litigation
In the ordinary course of business, the
Company may be or has been involved in legal proceedings from time to time. As of the date of this annual report, there have been
no material legal proceedings relating to the Company.
6.
|
RELATED PARTY TRANSACTIONS
|
In June 2018, the Company entered into
a consulting agreement with its new CEO and sole director. The agreement was for five months from June through October. The Company
agreed to pay him $3,000 per month for his services in running the Company and making sure that the required audit and filings
get completed. This agreement was extended for seventeen additional months through December 2019 at which time he resigned from
all his position with the Company. During the three months ending October 31, 2019 and 2018 the Company had expensed $9,000 and
$9,000 in consulting fees for this agreement, respectively.
During the three months ended October 31, 2019, the Company
received $1,000 in funds advance by the now former CEO. This advance is due on demand, unsecured and non-interest bearing.
During the year ended July 31, 2019 and
prior to May 5, 2019, the Company received $26,849 in advances from its now former CEO of which they paid $15,949 back. On May
5, 2019, the Company issued 3,000,000 shares of common stock to its now former CEO and sole director as payment of the remaining
$10,900 in advances and also $4,500 in consulting services accrued at that time for the agreement listed above and recognized a
loss on extinguishment of related party debt of $74,600.
7.
|
DISCONTINUED OPERATIONS
|
In December 2019, the Company decided to
discontinue its remaining operations. This was done by the way of two transactions.
On December 16, 2019, the Company transferred
100% of the common stock of Umajin HK, a Hong Kong corporation and a subsidiary of the Company to a Japanese corporation in exchange
for $1. Also on December 16, 2019, the Company transferred 100% of the common stock of WRN, a Japanese corporation and a subsidiary
of the Company to a Japanese corporation in exchange for $1 and the forgiveness of a payable to WRN in the amount of $90,956. After
these transfers, the Company had no subsidiaries.
In accordance with the provisions of ASC
205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance
sheets. The assets and liabilities have been reflected as discontinued operations in the consolidated balance sheets as of October
31, 2019 and July 31, 2019, and consist of the following:
|
|
October 31, 2019
|
|
|
July 31, 2019
|
|
CURRENT ASSETS OF DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
355
|
|
|
$
|
516
|
|
Prepaid expenses and other current assets
|
|
|
–
|
|
|
|
–
|
|
TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS
|
|
$
|
355
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
6,432
|
|
|
$
|
6,581
|
|
Taxes payable
|
|
|
4,265
|
|
|
|
1,365
|
|
TOTAL CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
|
|
$
|
10,697
|
|
|
$
|
7,946
|
|
In accordance with the provisions of ASC
205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations
in the consolidated statements of operations and comprehensive income (loss). The results of operations from discontinued operations
for the three months ended October 31, 2019 and 2018 have been reflected as discontinued operations in the consolidated statements
of operations and comprehensive income (loss) for the three months ended October 31, 2019 and 2018, and consist of the following:
|
|
For the Three Months Ended
|
|
|
|
October 31, 2019
|
|
|
October 31, 2018
|
|
REVENUES OF DISCONTINUED OPERATIONS
|
|
$
|
–
|
|
|
$
|
30,662
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES OF DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
–
|
|
|
|
26,397
|
|
Other general and administrative expenses
|
|
|
83
|
|
|
|
1,912
|
|
|
|
|
83
|
|
|
|
28,309
|
|
OPERATING INCOME (LOSS) OF DISCONTINUED OPERATIONS
|
|
|
(83
|
)
|
|
|
2,353
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES OF DISCONTINUED OPERATIONS
|
|
|
(83
|
)
|
|
|
2,353
|
|
Provision for income taxes of discontinued operations
|
|
|
2,938
|
|
|
|
–
|
|
NET INCOME (LOSS) OF DISCONTINUED OPERATIONS
|
|
$
|
(3,021
|
)
|
|
$
|
2,353
|
|
In accordance with the provisions of ASC
205-20, the Company has separately reported the cash flow activity of the discontinued operations in the consolidated statements
of cash flows. The cash flow activity from discontinued operations for the three months ended October 31, 2019 and 2018 have been
reflected as discontinued operations in the consolidated statements of cash flows for the three months ended October 31, 2019 and
2018, and consist of the following:
|
|
Three Months Ended
|
|
|
|
October 31, 2019
|
|
|
October 31, 2018
|
|
DISCONTINUED OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,982
|
)
|
|
$
|
2,353
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
–
|
|
|
|
1,826
|
|
Accounts payable and accrued expenses
|
|
|
2,819
|
|
|
|
(897
|
)
|
Net cash provided by operating activities of discontinued operations
|
|
$
|
(163
|
)
|
|
$
|
3,282
|
|
Management has evaluated subsequent events, in accordance with
FASB ASC Topic 855, “Subsequent Events,” through the date which the consolidated financial statements were issued and
there are no material subsequent events, except as noted below.
On December 16, 2019, the Company executed
two stock purchase agreements to sell its two operating subsidiaries of the Company. The Company sold 100% of the shares issued
and outstanding of its subsidiary, Umajin HK (UHK), for $1.00 to a Japanese corporation. The Company also sold 100% of the shares
issued and outstanding of its subsidiary, WRN, for $1.00 to a Japanese corporation. Additionally, in conjunction with these agreements,
the payable in the amount of $90,956 of the Company to WRN will be forgiven and a payable in the amount of approximately $15,541
of its subsidiary UHK to WRN will also be forgiven.
On December 18, 2019, Grand Perfecta, Inc.
(the “Company”) entered into and consummated an Agreement for the Purchase of Common Stock (the “Purchase Agreement”)
dated December 4, 2019, with Steve Ketter and Liu Yang (“Mr. Liu”) pursuant to which the Company agreed to sell to
Mr. Liu, and Mr. Liu agreed to purchase from the Company, 4,350,000 shares of the Company’s common stock for a purchase price
of $182,000. On December 18, 2019, the Company issued to Mr. Liu an aggregate of 11,931,500 shares of common stock in consideration
of $182,000 paid pursuant to the Purchase Agreement and for the efforts of Mr. Liu in acquiring a majority of the outstanding shares
of the Company, the expenses incurred in connection therewith and the understanding that he will fund the immediate capital needs
of the Company. On December 18, 2019, Steve Ketter, the Chairman of the Board, Chief Executive Officer, Chief Financial Officer
and sole director of the Company, sold 3,000,000 shares of the Company’s common stock to Liu Yang for a purchase price of
$268,000 pursuant to the Purchase Agreement. As a result of the foregoing transactions, Mr. Liu owns 14,931,500 shares of the Company’s
common stock, representing approximately 75% of the Company’s outstanding shares of common stock.