Indicate by check mark if registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No x
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨
No x
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 such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No
¨
Indicate by check mark whether the registrant has submitted
electronically every interactive Data File required to be submitted 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 such files). Yes
¨ No x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company
(as defined in rule 12b-2 of the Exchange Act). Yes ¨ No
x
The aggregate market value of voting stock held by
non-affiliates on January 31, 2019, based on the average bid and asked prices on that day was $155,893.28. As of December 15,
2019, the Registrant had outstanding 7,977,332 shares of common stock, par value $0.001.
This annual report on Form 10-K may contain
certain “forward-looking” statements as such term is defined by the Securities and Exchange Commission in its rules,
regulations and releases, which represent the Company’s expectations or beliefs, including but not limited to, statements
concerning the Company’s operations, economic performance, financial condition, growth and acquisition strategies, investments,
and future operational plans. For this purpose, any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,”
“will,” “expect,” “believe,” “anticipate,” “intent,” “could,”
“estimate,” “might,” “plan,” “predict” or “continue” or the negative
or other variations thereof or comparable terminology are intended to identify forward-looking statements. This information may
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements
to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements.
This annual report contains forward-looking
statements, many of which relate to, or are based upon, (a) our plans for developing or participating in the development of new
markets for our horse racing and sports content, (b) our opportunities for implementing horse racing related fantasy sports offerings,
(c) our growth strategies, (d) anticipated trends in our industry, (e) our future financing plans, and (f) our anticipated need
for working capital. These statements may be found under Item 1. “Business,” “Item 2. Properties” and “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this annual
report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result
of various factors and matters described in this annual report. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this annual report will in fact occur.
Unless the context otherwise requires or
otherwise notes, references in this Annual Report to “Grand Perfecta,” the “Company,” “we,”
“our” or “us” means Grand Perfecta, Inc., and our subsidiaries that we owned for a portion of our fiscal
year: LinkBit Consulting Co, Ltd. (“LinkBit”), Umajin Hong Kong Ltd. (“Umajin HK”), Sports Perfecta, Inc.
(“Sports Perfecta”) and WRN Co., Ltd. (“WRN”). As described elsewhere in this document, the Company still
operates through two subsidiaries, Umajin HK, which had little to no operations in this fiscal year, and WRN, which is still operating.
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market Information
The common stock of
Grand Perfecta trades in the over-the-counter market under the symbol “GPIW.” The following table sets forth for the
respective periods indicated the prices of the common stock in the over-the-counter market, as reported and summarized on the OTC
Marketplace. Such prices are based on inter-dealer bid and ask prices, without markup, markdown, commissions, or adjustments and
may not represent actual transactions.
|
Calendar Quarter Ended
|
High Bid ($)
|
Low Bid ($)
|
|
|
|
|
|
October 31, 2016
|
$0.56
|
$0.10
|
|
January 31, 2017
|
$0.11
|
$0.04
|
|
April 30, 2017
|
$0.08
|
$0.06
|
|
July 31, 2017
|
$0.07
|
$0.04
|
|
|
|
|
|
October 31, 2017
|
$0.07
|
$0.04
|
|
January 31, 2018
|
$0.07
|
$0.03
|
|
April 30, 2018
|
$0.06
|
$0.03
|
|
July 31, 2018
|
$0.06
|
$0.03
|
|
|
|
|
|
October 31, 2018
|
$0.04
|
$0.02
|
|
January 31, 2019
|
$0.04
|
$0.02
|
|
April 30, 2019
|
$0.05
|
$0.04
|
|
July 31, 2019
|
$0.10
|
$0.03
|
Unregistered Sales of Equity Securities
There are no unregistered
sales of securities that have not been reported previously.
Dividends
We did not make any
distributions to shareholders in fiscal years 2019 or 2018. Our present intention is to retain any earnings for use in our business
activities, so it is not expected that any dividends on the common stock will be declared and paid in the foreseeable future.
Security Holders
At October 31, 2019,
there were approximately 592 holders of record of our common stock.
Equity Compensation Plans
As of July 31, 2019,
there were no equity securities authorized for issuance under any Company compensation plans.
Repurchases of common stock
There were no repurchases
of equity securities by Grand Perfecta in the year ended July 31, 2019.
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
Disclosure under this
item is not required of a smaller reporting company.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
You should read
the following discussion and analysis of our financial condition and results of operations together with our financial statements
and related notes appearing in this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere
in this Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties. You should know that there are many factors, both within and outside
our control, that could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
General
Grand Perfecta was
engaged in the business of gathering, transmitting and providing horse racing information via various types of media, including
a website owned and operated by the wholly owned subsidiary WRN until it was sold on December 16, 2019.
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. Our significant accounting policies are more fully described in the notes
to our consolidated financial statements.
Basis of Presentation
The accompanying consolidated financial
statements of the Company have been prepared in accordance with principles generally accepted in the United States of America (“GAAP”)
and include the accounts of Grand Perfecta and its wholly owned subsidiaries, Umajin HK, and WRN.
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).
Going Concern
Based on operating losses and negative
cash from operations and the discontinued operations 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 to
enter into 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 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. As of July 31, 2018, we had cash of $52,716, of which $49,857 was from continuing
operations and $2,859 was from discontinued operations, and a working capital deficit of $574,780.
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.
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 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, 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 had no revenue from continuing operations during the year ended July
31, 2019 and 2018.
The majority of the Company’s revenue
is generated by per-item sales. For certain users, payment is received at the time of purchase and for others it is received after
purchase. In either case, our performance obligation is to provide the requested information to users. Therefore, we recognize
revenue for per-item sales when the requested information is 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 July 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.
Foreign Exchange
The Company’s
primary operations are conducted in Japan and performed by its wholly owned subsidiary WRN. WRN terminated their website services
in April 2019 and was sold on December 16, 2019. A wholly owned subsidiary, Umajin HK, had been delivering information on horse
racing to its users through its website similar to LinkBit, however it terminated its service at the end of June 2017 and was
sold on December 16, 2019. The Company also conducted business through wholly owned subsidiaries LinkBit and Sports Perfecta,
and its Malaysian subsidiary SPT until they were sold in June 2018. WRN and 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 Umajin HK and WRN into USD at the following balance sheet dates.
|
|
|
Balance Sheet Dates
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Japanese Yen to USD
|
|
|
0.0092
|
|
|
|
0.0090
|
|
|
Hong Kong Dollars to USD
|
|
|
0.1278
|
|
|
|
0.1274
|
|
The following rates were used to translate
the accounts of LinkBit, Umajin HK, SPT and WRN into USD for the following operating periods.
|
|
|
For the Year Ended
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Japanese Yen to USD
|
|
|
0.0090
|
|
|
|
0.0091
|
|
|
Hong Kong Dollars to USD
|
|
|
0.1276
|
|
|
|
0.1278
|
|
|
Malaysian Ringgit to USD
|
|
|
N/A
|
|
|
|
0.2470
|
|
Results of Operations for the Year Ended July 31, 2019
and 2018
The following are the
results of our operations for the year ended July 31, 2019 as compared to the year ended July 31, 2018:
|
|
|
For the Year Ended
|
|
|
|
|
|
|
|
7/31/2019
|
|
|
7/31/2018
|
|
|
$ Change
|
|
|
Net sales
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Total revenue
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Other general and administrative expenses
|
|
|
191,230
|
|
|
|
816,531
|
|
|
|
(625,301
|
)
|
|
Total operating expenses
|
|
|
191,230
|
|
|
|
816,531
|
|
|
|
(625,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(191,230
|
)
|
|
|
(816,531
|
)
|
|
|
625,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss)
|
|
|
713,000
|
|
|
|
–
|
|
|
|
713,000
|
|
|
Loss on extinguishment of related party debt
|
|
|
(74,600
|
)
|
|
|
–
|
|
|
|
(74,600
|
)
|
|
Gain on discontinued operations
|
|
|
–
|
|
|
|
2,245,490
|
|
|
|
(2,245,490
|
)
|
|
Total other income (expense)
|
|
|
638,400
|
|
|
|
2,245,490
|
|
|
|
(1,607,090
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before provision for income taxes
|
|
|
447,170
|
|
|
|
1,428,959
|
|
|
|
(981,789
|
)
|
|
Provision for (benefit from) income taxes
|
|
|
-
|
|
|
|
–
|
|
|
|
-
|
|
|
Net income (loss) from continuing operations
|
|
|
447,170
|
|
|
|
1,428,959
|
|
|
|
(981,789
|
)
|
|
Net income (loss) from discontinued operations
|
|
|
7,984
|
|
|
|
1,899,222
|
|
|
|
(1,891,238
|
)
|
|
Provision for (benefit from) income taxes for discontinued operations
|
|
|
(630)
|
|
|
|
(774,666
|
)
|
|
|
774,036
|
|
|
Net loss attributable to GPI stockholders
|
|
$
|
454,524
|
|
|
$
|
2,553,515
|
|
|
$
|
(2,098,991
|
)
|
Net Sales
Due to the sale
of WRN and UHK on December 16, 2019, we did not have any sales from continuing operations for the years ended July 31, 2019 or
July 31, 2018.
Operating Expenses
Total operating expenses
for the year ended July 31, 2019 were $191,230, which represented a decrease of $625,301 as compared to the year in 2018. The
lower operating expenses are due to the discontinued operations.
Other Income/ (Expenses)
Total other
income/expense for the year ended July 31, 2019 amounted to a gain of $638,400, which decreased by $1,607,090 as compared to the
year in 2018. The decrease in other expenses is primarily due to the gain on discontinued operations for the disposal of LinkBit
and SPI during the prior year offset by the other income from the abatement of the tax penalty, a refund of legal fees and a loss
on extinguishment of related part debt in the current year.
Liquidity and Capital Resources
Based on operating
losses and negative cash from operations and the discontinued operations of the majority 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 to bring in to the Company. To finance operations the Company will continue financing activity such as taking loans
and issuing new shares of the Company’s common stock.
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. As of July 31, 2018, we had cash of $52,716, of which $49,857 was from continuing operations and $2,859
was from discontinued operations, and a working capital deficit of $574,780.
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 years ended July 31, 2019 and 2018.
|
|
|
Year Ended
|
|
|
|
|
7/31/2019
|
|
|
7/31/2018
|
|
|
Cash flows provided by (used in) operating activities
|
|
$
|
(59,651
|
)
|
|
$
|
545,668
|
|
|
Cash flows used in investing activities
|
|
$
|
–
|
|
|
$
|
604,938
|
|
|
Cash flows provided by financing activities
|
|
$
|
10,900
|
|
|
$
|
(1,201,994
|
)
|
Net cash flows used
in operating activities for the year ended July 31, 2019 amounted to $59,651, compared to net cash provided by of $545,668 for
the year ended July 31, 2018. Net cash flows provided by operating activities were higher during the year ended July 31, 2018 due
to profitable operations during the year compared with net cash flows used by operations during the year ended July 31, 2019.
Net cash provided by investing activities amounted to $0 for
the year ended July 31, 2019, compared with net cash provided by investing activities amounted to $604,938 for the year ended July
31, 2018. There were no investing activities during the year ended July 31, 2019. The cash flows provided by investing activities
during the year ended July 31, 2018 was due primarily to the proceeds from the disposal of the subsidiaries of $427,673 and investing
activities of discontinued operations of $177,265 which was a result of proceeds from the collection of notes receivable lending
of $511,570 offset with payments for notes receivable lending of $330,046 and the purchase of property and equipment of $4,259.
Net cash provided
by financing activities for the year ended July 31, 2019 amounted to $10,900, as compared to net cash used in financing activities
for the year ended July 31, 2018 amounting to $1,201,994. During the year ended July 31, 2019, the cash provided by financing
activities was the result of net borrowings of $10,900 from a related party. Our cash used in financing activities during the
year ended July 31, 2018 of $1,201,994 was the result of financing activities of discontinued operations which included $2,093,000
in proceeds from notes payable offset by payments made on outstanding notes payable of $3,130,400 and payments made on outstanding
notes payable to related parties of $164,594.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Disclosure under this item is not required
of a smaller reporting company.
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Grand Perfecta’s financial
statements appear at the end of this report beginning with the Index to Financial Statements on page F-1.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
Not applicable.
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b)
of the Exchange Act, the Company's management, under the supervision of its Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. The Company's disclosure
controls and procedures are designed to ensure that information required to be disclosed in reports that the Company files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules
and forms. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
the desired control objectives. Based upon such evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were not effective at July 31, 2019.
Changes in Internal Control over Financial
Reporting
There were no significant
changes in our internal control over financial reporting during the year ended July 31, 2019.
Management’s Annual Report on
Internal Control over Financial Reporting
Management of the Company
is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in
Rule 13a-15(f) and 15d-15(f) of the Exchange Act). The Company's internal control over financial reporting includes policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance
with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial
statements.
Owing to its inherent
limitations, any system of internal control over financial reporting, no matter how well designed and operated, can provide only
reasonable assurance with respect to financial statement preparation and presentation. Accordingly, the Company's internal controls
over financial reporting was designed to provide reasonable assurance to its management and board of directors regarding the preparation
and fair presentation of the Company's published financial statements.
Management assessed
the effectiveness of the Company's internal control over financial reporting as of July 31, 2019, using the criteria set forth
in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on such assessment, management concluded that the Company's internal control over financial reporting was not
effective as of July 31, 2019.
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. As a result of management’s
evaluation described above, it concluded that the Company had a significant control deficiency as of July 31, 2019 that constituted
a material weakness in our internal control over financial reporting. Management has determined that the Company lacks the processes
and procedures to ensure all financial events and transactions are recorded in accordance with US GAAP. More specifically, the
Company engages third party service providers to assist with the preparation of its financial statements in accordance with US
GAAP and to assist with the preparation of its US income taxes, however, the Company lacks in-house personnel capable of reviewing
and overseeing this effort.
This Annual Report
on form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control
over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm
pursuant to the rules of the SEC that permit the company to provide only management's report in this Annual Report.
|
ITEM 9B.
|
OTHER INFORMATION
|
None.
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, 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. (“LinkBit”), 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, 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. (“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. On January 7,
2016, Sports Perfecta 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.
On June 26, 2018, the Company discontinued
operations of its subsidiary Sports Perfecta, Inc. (“SPI”) along with its wholly owned subsidiary, Sports Perfecta
Technologies Sdn Bhd (“SPT”). Ownership of these two entities were transferred to Neo Sports Ltd., a Japanese company,
in exchange for 23,600,000 shares of the Company’s common stock, 100,000 shares of the Company’s Series A convertible
preferred stock and the contract option right to purchase 3,000,000 shares of the Company’s common stock. See note 7.
On June 27, 2018, the Company discontinued
operations of its subsidiary Link Bit Consulting Co., Ltd. (“LBC”) and all of its subsidiaries, except for WRN Co.,
Ltd. (“WRN”). The Company continued operations of WRN. On this date, the Company sold LBC and its subsidiaries and
assets to IS Digital Ltd., a Cayman Island company, in exchange for $500,000. See note 7.
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. See note 7.
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 consolidated financial
statements of the Company have been prepared in accordance with principles generally accepted in the United States of America (“GAAP”)
and include the accounts of Grand Perfecta and its wholly-owned subsidiaries LinkBit, Umajin HK, WRN and Sports Perfecta. The Company
discontinued the operations of its wholly-owned subsidiaries LinkBit and SPI in June 2018. 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. The Company has determined that three affiliated entities, Space Cultivation
Mobile, Japan Horse Circle and Basougu Shokuninkai, which LinkBit conducts business with were variable interest entities and that
the Company was 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 non-controlling interest. These three variable interest entities did business with LinkBit. Therefore, these three
entities have also been presented in the discontinued operations in the accompanying consolidated financial statements. After the
discontinued operations, the Company consists of Grand Perfecta and its two remaining wholly-owned subsidiaries, Umajin HK and
WRN. There are no variable interest entities since the Company discontinued operations in June 2018.
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 discontinued operations 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 to
enter into 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 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. As of July 31,
2018, we had cash of $52,716, of which $49,857 was from continuing operations and $2,859 was from discontinued operations, and
a working capital deficit of $574,780.
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 subsidiary WRN. WRN terminated their website services in April 2019 and
was sold on December 16, 2019. A wholly owned subsidiary, Umajin HK, had been delivering information on horse racing to its users
through its website similar to LinkBit, however it terminated its service at the end of June 2017 and was sold on December 16,
2019. The Company also conducted business through wholly owned subsidiaries LinkBit and Sports Perfecta, and its Malaysian subsidiary
SPT until they were sold in June 2018. WRN and 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 Umajin HK and WRN into USD at the following balance sheet dates.
|
|
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Balance Sheet Dates
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Japanese Yen to USD
|
|
|
0.0092
|
|
|
|
0.0090
|
|
|
Hong Kong Dollars to USD
|
|
|
0.1278
|
|
|
|
0.1274
|
|
The following rates were used to translate
the accounts of LinkBit, Umajin HK, SPT and WRN into USD for the following operating periods.
|
|
|
For the Year Ended
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Japanese Yen to USD
|
|
|
0.0090
|
|
|
|
0.0091
|
|
|
Hong Kong Dollars to USD
|
|
|
0.1276
|
|
|
|
0.1278
|
|
|
Malaysian Ringgit to USD
|
|
|
N/A
|
|
|
|
0.2470
|
|
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 July 31, 2019 and 2018.
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 July 31, 2019 or 2018.
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
|
The Company did not have any property and equipment as of July
31, 2019 and 2018.
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. The Company performed this
analysis at July 31, 2019 and 2018. There was no impairment of long-lived assets identified during the years ended July 31, 2019
and 2018.
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 July 31, 2019 and 2018 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, Hong Kong, and the United States 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 had
no losses related to the write off of notes receivable during the year ended July 31, 2019 or July 31, 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 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, 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 had no revenue from continuing operations during the year ended July 31, 2019 and 2018.
The majority of the Company’s revenue
is generated by per-item sales. For certain users, payment is received at the time of purchase and for others it is received after
purchase. In either case, our performance obligation is to provide the requested information to users. Therefore, we recognize
revenue for per-item sales when the requested information is 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 July 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 $94,997 from discontinued operations for the years ended July 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. As a result, 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. 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.
On June 26, 2018, as part of the transfer
agreement of SPI, the Company received the outstanding 100,000 shares of Series A Preferred Stock and immediately cancelled these
shares (see note 7).
The Company had 0 shares of Series A Preferred Stock issued
and outstanding as of July 31, 2019 and 2018.
Common Stock Transactions
On June 26, 2018, as part of the transfer
agreement of SPI, the Company received 23,600,000 shares of Common Stock and immediately cancelled these shares (see note 7).
On July 9, 2018, the Company cancelled
3,222,668 shares of common stock that had been returned to the Company by the stock holders for no compensation.
On May 27, 2019, the Company issued 3,000,000
shares of common stock to its sole director and officer for $10,900 in advances payable and $4,500 in services rendered to the
Company. This stock was valued at $0.03 per share for a total of $90,000. The Company recognized a loss on the extinguishment of
related party debt of $74,600.
The Company had 7,977,332 and 4,977,332
shares of common stock issued and outstanding as of July 31, 2019 and 2018, respectively.
Stock Options
On June 26, 2018, as part of the transfer
agreement of SPI, the Company received the contract option right to purchase 3,000,000 shares of Common Stock and immediately cancelled
this contract option (see note 7). There were no options outstanding as of July 31, 2019 and 2018.
4. INCOME TAXES
The Company records its deferred taxes
under the liability method, whereby 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 and liabilities are determined based on multi-national, multi-jurisdictional nature of the Company’s operations.
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.
Net deferred tax assets from continuing
operations consisted of the following as of July 31, 2019 and 2018.
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Loss carryforwards
|
|
$
|
472,294
|
|
|
$
|
569,710
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(472,294
|
)
|
|
|
(569,710
|
)
|
|
Net deferred tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
The income tax provision differs from the
amount of income tax determined by applying the applicable income tax rate to pretax income from continuing operations for the
years ended July 31, 2019 and 2018 due to the following.
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Income tax expense (benefit) based on book income at the statutory rate
|
|
$
|
93,906
|
|
|
$
|
536,238
|
|
|
IRS tax penalty abatement
|
|
|
(126,000
|
)
|
|
|
–
|
|
|
Permanent book to tax differences
|
|
|
16,611
|
|
|
|
(471,553
|
)
|
|
Valuation allowance
|
|
|
15,483
|
|
|
|
(64,685
|
)
|
|
Total income tax provision
|
|
$
|
–
|
|
|
$
|
–
|
|
The Company classifies income tax penalties
and interest, if any, as part of other general and administrative expenses in the accompanying consolidated statements of operations.
The Company had accrued penalties of $600,000 as of July 31, 2018 resulting from the failure to timely file required returns in
the US from 2013 through 2016. This penalty was officially abated during the year ended July 31, 2019.
At July 31, 2019, the Company had net operating
loss carryforwards of approximately $2,249,000, of which approximately $2,175,00 may be offset against future taxable income from
the year 2020 through 2039. The remainder will carry forward indefinitely. No tax benefit has been reported in the July 31, 2019
consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company's
tax years for its Federal and State US jurisdictions which are currently open for examination are the years of 2015 - 2018. The
Company’s tax years in Japanese jurisdictions that are open for examination are the years of 2014 – 2018.
5. COMMITMENTS AND CONTINGENCIES
Operating Leases
Prior to June 27, 2018, the Company was
leasing its corporate headquarters and administrative offices in Tokyo, Japan, as well as the administrative offices of SPT in
Kuala Lumpur, Malaysia under non-cancelable operating leases extending through April 15, 2019. These leases were transferred with
the discontinued operations. The lease of the Umajin HK office ended on July 21, 2017. The Company also leases other office space
as needed on a month-to-month basis.
The Company incurred rent expense of $0
for the year ended July 31, 2019 and for continuing operations of $0 and for discontinued operations of $363,976 for the year ended
July 31, 2018.
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 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. As of July 31, 2019 the Company had $9,000 in accrued
liabilities for this agreement.
During the year ended July 31, 2019 and
prior to May 5, 2019, the Company received $26,849 in advances from its CEO of which they paid $15,949 back. On May 5, 2019, the
Company issued 3,000,000 shares of common stock to its 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.
The following related party transactions
were all related to the Company’s previous management and the discontinued operations. These related party transactions all
were eliminated with the discontinuation of LBC and SPI (see note 7):
Umajin Co., Ltd. (“Umajin Japan”),
was a related party entity owned by one of the former directors of the Company. The Company and Umajin Japan entered into a service
agreement which was modified on 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) for a total of 23 million
Yen per month. The Company and Umajin Japan agreed to reduce the monthly fees from 23 million Yen to 11 million Yen subsequent
to October 2016. Subsequent to February 2017, the Company and Umajin Japan agreed to reduce the fee to 8 million Yen per month
through July 2018.
Total fees paid to Umajin Japan for the
year ended July 31, 2019 and 2018 amounted to $0 and $793,520, respectively. The fees paid to Umajin Japan are included in income
(loss) from operations of discontinued operations in the accompanying consolidated statements of operations. As of July 31, 2019
and 2018 the Company had $0 due to Umajin Japan due to the sale of LBC (see note 7).
During the years ended July 31, 2019 and
2018, the Company received consulting services from Cheval Attache, a related party entity owned by one of the Company’s
former directors, (including amounts for consumption tax) of $0 and $108,108, respectively, which are included in income (loss)
from operations of discontinued operations in the accompanying consolidated statements of operations.
G-Liberta, a subsidiary of Cheval Attache,
performed certain advertising and research services for the Company. Total expenses related to G-Liberta during the year ended
July 31, 2019 and 2018 amounted to $0 and $2,800, respectively, and are reflected as part of income (loss) from operations of discontinued
operations in the accompanying consolidated statements of operations. As of July 31, 2019 and 2018 the Company had $0 due to G-Liberta
due to the sale of LBC (see note 7).
7. DISCONTINUED OPERATIONS
During the year ended July 31, 2018 the
Company decided to discontinue most of its operating activities. This was done by way of the following two transactions:
On June 26, 2018, the Company exchanged
all the issued and outstanding shares of common stock of its wholly owned subsidiary, Sports Perfecta, Inc. (“SPI”)
to Neo Sports, Ltd, a Japanese company, for 100,000 shares of the Company’s series A preferred stock, 23,600,000 shares of
the Company’s common stock and an option contract right for 3,000,000 shares of the Company’s common stock. This transaction
included SPI’s wholly owned subsidiary, Sports Perfecta Technologies Sdn Bhd.
On June 27, 2018, the Company exchanged
all the issued and outstanding shares of common stock of its wholly owned subsidiary, Link Bit Consulting Co. Ltd. (“LBC”)
to IS Digital Ltd., a Cayman Island company for $420,000 in cash and 100% of the account receivable balance owed to the Company
by LBC for $80,000 in cash. This transaction included all of LBC’s subsidiaries, except for WRN Co. Ltd. (“WRN”).
WRN’s issued and outstanding common stock was transferred to the Company from LBC on this date.
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 July
31, 2019 and July 31, 2018, and consist of the following:
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
CURRENT ASSETS OF DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
516
|
|
|
$
|
2,859
|
|
|
Accounts receivable, net
|
|
|
–
|
|
|
|
8,632
|
|
|
TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS
|
|
$
|
516
|
|
|
$
|
11,491
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
6,581
|
|
|
$
|
14,483
|
|
|
Deferred revenues
|
|
|
–
|
|
|
|
8,462
|
|
|
Taxes payable
|
|
|
1,365
|
|
|
|
–
|
|
|
TOTAL CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
|
|
$
|
7,946
|
|
|
$
|
22,945
|
|
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 years ended July 31, 2019 and 2018 have been reflected as discontinued operations in the consolidated statements of operations
and comprehensive income (loss) for the years ended July 31, 2019 and 2018, and consist of the following.
|
|
|
Year Ended
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
REVENUES OF DISCONTINUED OPERATIONS
|
|
$
|
96,657
|
|
|
$
|
11,400,259
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES OF DISCONTINUED OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
79,938
|
|
|
|
2,714,727
|
|
|
Depreciation and amortization expense
|
|
|
–
|
|
|
|
25,867
|
|
|
Advertising expense
|
|
|
–
|
|
|
|
94,997
|
|
|
Rent Expense
|
|
|
–
|
|
|
|
363,976
|
|
|
Salaries and wages expense
|
|
|
–
|
|
|
|
2,938,904
|
|
|
Other general and administrative expenses
|
|
|
8,736
|
|
|
|
2,672,042
|
|
|
|
|
|
88,674
|
|
|
|
8,810,513
|
|
|
OPERATING INCOME (LOSS) OF DISCONTINUED OPERATIONS
|
|
|
7,983
|
|
|
|
2,589,746
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (INCOME) EXPENSE OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Other (income) expense
|
|
|
–
|
|
|
|
(714
|
)
|
|
(Gain) loss on foreign exchange
|
|
|
–
|
|
|
|
(18,040
|
)
|
|
Interest income
|
|
|
(1
|
)
|
|
|
(5,854
|
)
|
|
Interest expense
|
|
|
–
|
|
|
|
715,132
|
|
|
|
|
|
(1
|
)
|
|
|
690,524
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS) BEFORE INCOME TAXES OF DISCONTINUED OPERATIONS
|
|
|
7,984
|
|
|
|
1,899,222
|
|
|
Provision for income taxes of discontinued operations 1
|
|
|
630
|
|
|
|
774,666
|
|
|
NET INCOME (LOSS) OF DISCONTINUED OPERATIONS
|
|
$
|
7,354
|
|
|
$
|
1,124,556
|
|
_______________
1 The income tax provision
differs from the amount of income tax determined by applying the applicable income tax rate to pretax income from discontinued
operations for the year ended July 31, 2019 and 2018 due to the following:
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
Income tax expense (benefit) based on book income at Japanese statutory rate
|
|
$
|
630
|
|
|
$
|
748,934
|
|
|
Entertainment expense
|
|
|
–
|
|
|
|
65,333
|
|
|
Additional taxes
|
|
|
–
|
|
|
|
3,966
|
|
|
Tax rate difference between current tax and deferred tax assets
|
|
|
–
|
|
|
|
3,539
|
|
|
Others
|
|
|
–
|
|
|
|
(47,106
|
)
|
|
Total income tax provision
|
|
$
|
630
|
|
|
$
|
774,666
|
|
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 year ended July 31, 2019 and 2018 have been reflected
as discontinued operations in the consolidated statements of cash flows for the years ended July 31, 2019 and 2018, and consist
of the following.
|
|
|
Year Ended
|
|
|
|
|
July 31, 2019
|
|
|
July 31, 2018
|
|
|
DISCONTINUED OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,354
|
|
|
$
|
1,124,556
|
|
|
Depreciation and amortization
|
|
|
–
|
|
|
|
25,867
|
|
|
Amortization of debt discount
|
|
|
–
|
|
|
|
16,515
|
|
|
Provision for (benefit from) deferred taxes
|
|
|
–
|
|
|
|
73,810
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
8,632
|
|
|
|
(506,051
|
)
|
|
Accounts receivable - related party
|
|
|
–
|
|
|
|
18,200
|
|
|
Prepaid expenses and other current assets
|
|
|
–
|
|
|
|
18,175
|
|
|
Other assets
|
|
|
–
|
|
|
|
(11,475
|
)
|
|
Accounts payable and accrued expenses
|
|
|
(7,988
|
)
|
|
|
(139,631
|
)
|
|
Accounts payable and accrued expenses to related party
|
|
|
–
|
|
|
|
39,511
|
|
|
Deferred revenue
|
|
|
(8,462
|
)
|
|
|
(110,029
|
)
|
|
Taxes payable
|
|
|
1,365
|
|
|
|
818,287
|
|
|
Net cash provided by operating activities of discontinued operations
|
|
$
|
871
|
|
|
$
|
1,367,735
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
$
|
–
|
|
|
$
|
(4,259
|
)
|
|
Proceeds from collection of notes receivables
|
|
|
–
|
|
|
|
511,570
|
|
|
Payments for notes receivable lending
|
|
|
–
|
|
|
|
(330,046
|
)
|
|
Net cash provided by (used in) investing activities of discontinued operations
|
|
$
|
–
|
|
|
$
|
177,265
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
$
|
–
|
|
|
$
|
2,093,000
|
|
|
Payments on note payable
|
|
|
–
|
|
|
|
(3,130,400
|
)
|
|
Payments on notes payable - related parties
|
|
|
–
|
|
|
|
(164,594
|
)
|
|
Net cash used in financing activities of discontinued operations
|
|
$
|
–
|
|
|
$
|
(1,201,994
|
)
|
8. SUBSEQUENT EVENTS
Management has evaluated subsequent events,
in accordance with FASB ASC Topic 855, “Subsequent Events,” through December 18, 2019, the date which the consolidated
financial statements were available to be 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.