Table of Contents

 

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 October 31, 2017

 

OR

 

o 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	46-5732930
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

 

Koyo Building, 2F, 2-36-10 Minamisuna
Koto-ku, Tokyo 136-0076 Japan
(Address of Principal Executive Offices including Zip Code)

 

+81-3-5632-7251
(Registrant's Telephone Number, Including Area Code)

 

21^st Floor, South Tower, New Pier Takeshiba
1-16-1, Kaigan, Minato-ku, Tokyo, Japan
(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 x    NO o

 

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 o

 

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.

 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o  (Do not check if a smaller reporting company)	Smaller reporting company x
Emerging growth company x

 

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.    o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO x

 

As of December 12, 2017, 31,800,000 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	22
ITEM 6 – EXHIBITS	22
SIGNATURES	22

 

 

 

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS

 

Consolidated Balance Sheets at October 31, 2017 (Unaudited) and July 31, 2017

 

Consolidated Statements of Operations (Unaudited) — Three Months Ended October 31, 2017 and 2016

 

Consolidated Statements of Comprehensive Income (Unaudited) — Three Months Ended October 31, 2017 and 2016

 

Consolidated Statements of Cash Flows (Unaudited) — Three Months Ended October 31, 2017 and 2016

 

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

GRAND PERFECTA, INC.

CONSOLIDATED BALANCE SHEETS

 

		October 31,				July 31,
		2017				2017
		(Unaudited)
Assets
Current assets
Cash		$	44,361			$	102,954
Accounts receivable, net			901,436				1,085,276
Accounts receivable - related party			–				27,300
Current portion of notes receivable			2,045,609				2,057,251
Deferred tax assets, current portion			199,470				206,270
Prepaid expenses and other current assets			37,381				30,803
Total current assets			3,228,257				3,509,854
Property and equipment, net			165,942				174,311
Other assets
Long-term notes receivables, net of current portion			574,490				605,449
Deferred tax assets, long-term portion			563,831				583,052
Goodwill			6,689,665				6,917,722
Other assets			181,189				183,590
Total other assets			8,009,175				8,289,813
Total assets		$	11,403,374			$	11,973,978
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and accrued expenses		$	3,324,124			$	3,467,660
Accounts payable to related party			125,042				109,813
Deferred revenues			851,155				866,865
Current portion of notes payable			4,351,973				4,427,536
Debt to related parties, net of discount			3,238,892				3,241,794
Taxes payable			520,236				514,021
Total current liabilities			12,411,422				12,627,689
Long-term portion of notes payable, net of current portion			501,600				737,100
Total liabilities			12,913,022				13,364,789
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, $0.001 par value, 100,000,000 shares authorized, 100,000 shares issued and outstanding as of October 31, 2017 (unaudited) and July 31, 2017			100				100
Common stock, $0.001 par value, 500,000,000 shares authorized, 31,800,000 shares issued and outstanding as of October 31, 2017 (unaudited) and July 31, 2017, respectively			31,800				31,800
Additional paid-in capital			5,752,362				5,752,362
Accumulated other comprehensive income			358,211				325,864
Accumulated deficit			(7,850,121	)			(7,705,687	)
Total GPI stockholders' equity (deficit)			(1,707,648	)			(1,595,561	)
Noncontrolling interest			198,000				204,750
Total stockholders' equity (deficit)			(1,509,648	)			(1,390,811	)
Total liabilities and stockholders' equity (deficit)		$	11,403,374			$	11,973,978

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

GRAND PERFECTA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016
		(Unaudited)				(Unaudited)
Net sales		$	2,571,079			$	3,724,502
Total revenues			2,571,079				3,724,502
Operating expenses:
Cost of sales			645,044				1,119,938
Depreciation and amortization expense			6,894				23,835
Advertising			37,059				30,143
Rent expense			100,273				242,879
Salaries and wages			878,920				1,227,644
Other general and administrative expenses			892,355				1,124,548
Total operating expenses			2,560,545				3,768,987
Income (loss) from operations			10,534				(44,485	)
Other income (expense):
Other income			35				3,648
Gain on exchange			6,906				5,859
Interest income			1,603				3,189
Interest expense			(241,284	)			(200,771	)
Total other income (expense)			(232,740	)			(188,075	)
Loss before benefit from income taxes			(222,206	)			(232,560	)
Benefit from income taxes			(77,772	)			(93,024	)
Net loss		$	(144,434	)		$	(139,536	)
Net loss per share, basic and diluted		$	(0.00	)		$	(0.00	)
Weighted average number of common
shares outstanding, basic and diluted			31,800,000				30,850,000

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

GRAND PERFECTA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016
		(Unaudited)				(Unaudited)
Net loss		$	(144,434	)		$	(139,536	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			32,347				(8,544	)
Total other comprehensive income (loss), net of tax			32,347				(8,544	)
Comprehensive loss			(112,087	)			(148,080	)
Comprehensive income (loss) attributable to noncontrolling interest			(6,750	)			(6,688	)
Comprehensive loss attributable to GPI stockholders		$	(118,837	)		$	(154,768	)

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

GRAND PERFECTA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net loss		$	(144,434	)		$	(139,536	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization			6,894				23,835
Amortization of debt discount			16,333				12,437
Changes in operating assets and liabilities:
Accounts receivable			152,114				28,752
Accounts receivable - related party			27,000				(294,000	)
Prepaid expenses and other current assets			(7,582	)			(1,502	)
Other assets			(3,710	)			(17,439	)
Accounts payable and accrued expenses			(55,709	)			(141,527	)
Accounts payable to related party			19,277				(66,137	)
Deferred revenue			13,160				(367,588	)
Taxes payable			23,687				53,907
Net cash provided by (used in) operating activities			47,030				(908,798	)
Cash flows from investing activities
Purchase of property and equipment			(4,212	)			–
Proceeds from collection of notes receivables			86,250				272,968
Payments for notes receivable lending			(132,458	)			(206,972	)
Net cash provided by (used in) investing activities			(50,420	)			65,996
Cash flows from financing activities
Proceeds from notes payable			180,000				539,000
Payments on notes payable			(324,000	)			(392,000	)
Payments on convertible note payable			–				(784,000	)
Proceeds from related party notes payable			207,000				686,000
Payments on related party notes payable			(117,000	)			(245,000	)
Proceeds from sale of common stock			–				1,000,000
Net cash provided by (used in) financing activities			(54,000	)			804,000
Effect of exchange rate fluctuations on cash			(1,203	)			(795	)
Net change in cash			(58,593	)			(39,597	)
Cash, beginning of the period			102,954				83,295
Cash, end of the period		$	44,361			$	43,698
Supplemental disclosure of cash flow information:
Interest paid		$	195,007			$	188,334
Income taxes paid		$	–			$	–
Supplemental disclosure of non-cash investing and financing information:
Increase in additional paid in capital and debt discount for imputed interest		$	–			$	24,986

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

GRAND PERFECTA, INC.

 

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. (“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.

 

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 and Umajin HK. LinkBit currently operates 6 websites through its various subsidiaries, which generate 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. The Company is pursuing development of a fantasy sports offering through Sports Perfecta, which has not yet generated any significant revenue.

 

Going Concern

 

Based on operating losses and negative cash from operations, substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plan in this regard is to improve sales and further reduce costs, including the shift of its broadcast program from satellite television to web TV. To finance operations while it improves operating results, it has sold $1,630,000 of common stock during the year ended July 31, 2017 and if necessary will continue financing activity such as taking loans, issuing new stock and asking existing creditors to convert their loans to shares of the Company’s common stock.

 

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.

 

 

 

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

  

The accompanying unaudited consolidated financial statements of the Company as of October 31, 2017, and for the three months ended October 31, 2017 and 2016, 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, 2017 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, 2017 and 2016 included in the Company's Form 10-K filed on November 2, 2017.

 

Principles of Consolidation

 

The accompanying 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.

 

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 subsidiary LinkBit. 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. 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’ deficit 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’ deficit.

 

 

 

 

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
			October 31,				July 31,
			2017				2017
Japanese Yen to USD			0.0088				0.0091
Hong Kong Dollars to USD			0.1282				0.1280
Malaysian Ringgit to USD			0.2362				0.2335

 

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

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016
Japanese Yen to USD			0.0090				0.0098
Hong Kong Dollars to USD			0.1280				0.1289
Malaysian Ringgit to USD			0.2356				0.2438

 

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, 2017 (unaudited) or July 31, 2017.

 

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, 2017 (unaudited) or July 31, 2017.

 

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. There was no impairment recorded during the three months ended October 31, 2017 or 2016.

 

 

 

 

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 long-lived assets identified during the three months ended October 31, 2017 or 2016.

 

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 October 31, 2017 (unaudited) and July 31, 2017 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, Malaysia 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 relating to the write off of notes receivables during the three months ended October 31, 2017 or 2016.

 

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, 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 certain users, payment is received at the time of purchase and for others it is received after purchase. In either case, the Company recognizes revenue for per-item sales when the requested information is supplied to the user and collection is reasonably assured. For information packages that span a period of time, the Company recognizes revenue over the term of the 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 (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average common shares outstanding during the period. Diluted income (loss) 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 (loss) per share because their impact was anti-dilutive. During the three months ended October 31, 2017 and 2016, the Company had total options of 3,000,000 which were excluded from the computation of net loss per share because they are anti-dilutive. During the three months ended October 31, 2016, the Company had convertible notes convertible into 259,091 shares of common stock which were excluded from the computation because they are anti-dilutive. There were no convertible notes payable outstanding during the three months ended October 31, 2017. As a result, the basic and diluted loss 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, 2017, 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 consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires that lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU No. 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The standard will take effect for fiscal years and interim periods within those fiscal years beginning after December 15, 2018 with earlier adoption permitted. The Company is assessing the impact of adopting ASU No. 2016-02 on the Company’s consolidated financial statements.

 

 

 

 

3.  PROPERTY AND EQUIPMENT, NET

 

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

 

		October 31,				July 31,
		2017				2017
			(Unaudited)
Buildings and fixtures		$	99,148			$	102,528
Autos and trucks			266,707				275,799
Tools and equipment			413,784				423,632
Computer software			1,395,190				1,442,753
			2,174,829				2,244,712
Less: accumulated depreciation			(2,008,887	)			(2,070,401	)
		$	165,942			$	174,311

 

Depreciation expense amounted to $6,894 (unaudited) and $14,804 (unaudited) for the three months ended October 31, 2017 and 2016, respectively.

 

4.  NOTES RECEIVABLE

 

The Company’s outstanding notes receivable consist of unsecured advances, including interest ranging from 0% to 3% per annum, payable in full on dates extending through 2039. As of October 31, 2017 and July 31, 2017, the Company had total outstanding notes receivable of $2,620,099 (unaudited) and $2,662,700, respectively. The portion of these outstanding notes receivables that were either due on demand or had scheduled due dates within one year amounted to $2,045,609 (unaudited) and $2,057,251 as of October 31, 2017 and July 31, 2017, respectively.

 

The future scheduled maturities of outstanding notes receivables as of October 31, 2017 based on contractual due dates are as follows.

 

				Year Ended
				July 31,
	2018 (remainder of)			$	2,038,602
	2019				7,006
	2020				9,657
	2021				–
	2022				28,597
	Thereafter				536,237
	Total			$	2,620,099

 

5.  GOODWILL

 

The Company has recorded goodwill relating to the purchase of Media 21, Inc.’s operations in 2011. The following is a summary of the activity relating to goodwill for the three months ended October 31, 2017.

 

 

 

Balance as of July 31, 2017		$	6,917,722
Foreign currency translation adjustment			(228,057	)
Balance as of October 31, 2017 (unaudited)		$	6,689,665

 

6.  NOTES PAYABLE

 

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

 

		October 31,				July 31,
		2017				2017
			(Unaudited)
Unsecured note payable issued on June 15, 2016, due on December 15, 2016, bearing interest at 15% per annum (21.9% per annum after the maturity date) due monthly. The Company is currently in default under the terms of the note.		$	880,000			$	910,000
Unsecured note payable issued on December 20, 2011, due on December 31, 2016, bearing interest at 15% per annum (18% per annum after the maturity date) due monthly. The Company is currently in default under the terms of the note.			1,848,000				1,911,000
Unsecured note payable issued on October 20, 2017, due in 10 monthly installments through August 20, 2018, bearing interest at 12% per annum due monthly.			176,000				–
Unsecured note payable issued on December 18, 2015, due in 20 monthly installments from July 31, 2017 through February 28, 2019, bearing interest at 12% per annum due monthly.			704,000				864,500
Unsecured note payable issued on February 5, 2016, due in 23 installments of JPY 3,000,000 beginning in February 2017 and a final installment of JPY 31,000,000 in January 2019, bearing interest at 12% per annum due monthly.			642,400				746,200
Unsecured note payable issued on June 28, 2017, payable in full on June 30, 2018, bearing interest at 12% per annum due monthly.			299,200				418,600
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.			264,000				273,000
Unsecured notes payable, non-interest bearing, due on demand			39,973				41,336
Total notes payable			4,853,573				5,164,636
Less: current portion of notes payable			4,351,973				4,427,536
Long-term portion of notes payable		$	501,600			$	737,100

 

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,
	2018 (remainder of)			$	4,123,173
	2019				730,400
	Total			$	4,853,573

 

 

 

 

7.  NOTES PAYABLE TO RELATED PARTIES

 

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

 

		October 31,				July 31,
		2017				2017
			(Unaudited)
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly. The balance is due to a related party entity which is owned by one of the directors of the Company.		$	880,000			$	910,000
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly. The balance is due to a related party entity which is owned by one of the directors of the Company.			440,000				455,000
Unsecured note payable issued on June 14, 2016, non-interest bearing and due on October 31, 2017 discounted using an effective interest rate of 12%. The balance is due to a related party entity which is owned by one of the directors of the Company.			264,000				273,000
Unsecured short-term borrowing on April 25, 2017, non-interest bearing and due on demand. The balance is due to a related party entity which is owned by one of the directors of the Company			422,400				345,800
Unsecured note payable issued on September 21, 2016, due on October 31, 2017 discounted using an effective interest rate of 12%. The balance is due to a related party entity which is owned by one of the directors of the Company.			264,000				273,000
Unsecured note payable due to the Company's Chairman and CEO, non-interest bearing and due on demand.			968,492				1,001,509
Total notes payable to related parties			3,238,892				3,258,309
Discount on notes payable to related parties			–				16,515
Notes payable to related parties, net		$	3,238,892			$	3,241,794

 

The Company imputed interest on the above notes payable received on June 14, 2016 and September 21, 2016 using the effective interest rate of 12%, which approximated the Company’s incremental borrowing rate. The total cumulative interest imputed as of October 31, 2017 amounted to $78,628. The imputed interest was recorded as a discount to the note payable and an increase to additional paid-in capital. The amounts are being amortized as interest expense through the maturity dates of the notes, which amounted to $16,333 and $12,437 during the three months ended October 31, 2017 and 2016, respectively.

 

8.  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 October 31, 2017 and July 31, 2017.

 

Stock Options

 

In connection with the sale of stock on June 11, 2014, the Company granted an option to the buyer to purchase an additional 3,000,000 shares of common stock for a purchase price of $3 million at any time prior to June 11, 2019. The options are outstanding as of October 31, 2017.

 

9.  RELATED PARTY TRANSACTIONS

 

As of October 31, 2017 and July 31, 2017, the Company had $3,238,892 (unaudited) and $3,241,794, respectively of notes payable due to related parties (see Note 7).

 

 

 

 

 

The Company and Umajin Japan, a related party company owned by one of its directors, revised a 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) 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 October 2017.

 

Total fees paid to Umajin Japan for the three months ended October 31, 2017 and 2016 amounted to $216,029 and $558,600, respectively. The fees paid to Umajin Japan are included in cost of sales in the accompanying consolidated statements of operations. As of October 31, 2017 and July 31, 2017, the Company had $123,830 (unaudited) and $108,604 due to Umajin Japan, respectively, which is reflected in accounts payable to related party in the accompanying consolidated balance sheets.

 

During the three months ended October 31, 2017 and 2016, the Company received consulting services from Cheval Attache Co., Ltd., a related party entity owned by one of its directors, of approximately $29,160 and $31,752, respectively, which are included in cost of sales in the accompanying consolidated statements of operations.

 

G-Liberta, a subsidiary of Cheval Attache, performs certain advertising and research services for the Company. Total expenses related to G-Liberta during the three months ended October 31, 2017 and 2016 amounted to $948 and $0, respectively, and are reflected as part of cost of sales. As of October 31, 2017 and July 31, 2017, the Company had $1,212 (unaudited) and $1,209 due to G-Liberta, respectively, which is reflected in accounts payable to related party in the accompanying consolidated balance sheets

 

On October 17, 2016, the Company entered into an agreement with Clara Ltd., a related party entity owned by one of its directors, allowing Clara Ltd. access to the Company’s database containing certain horse racing information owned by the Company for an indefinite period. As compensation, the Company received a total of 30,000,000 Yen, payable in 10 monthly installments starting in November 2016. The revenue related to this transaction of $294,000 is reflected as net sales on the accompanying statement of operations for the three months ended October 31, 2016. As of October 31, 2017 and July 31, 2017, the amount due under this agreement was $0 (unaudited) and $27,300 and is included in accounts receivable – related party on the accompanying consolidated balance sheets.

 

10.  SUBSEQUENT EVENTS

 

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events through the date of this filing, and has determined that there are no subsequent events that require disclosure.

 

 

 

 

 

 

 

 

 

 

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, 2017 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, 2017, 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. In August 2015, Grand Perfecta formed 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 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 subsidiary LinkBit. LinkBit currently operates 6 websites through its various subsidiaries, which generate 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. The Company is pursuing development of a fantasy sports offering through Sports Perfecta, which has not yet generated any significant revenue.

 

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.

 

Results of Operations for the Three Months Ended October 31, 2017 and 2016

 

The following are the results of our operations for the three months ended October 31, 2017 as compared to the three months ended October 31, 2016:

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016				$ Change
Net sales		$	2,571,079			$	3,724,502			$	(1,153,423	)
Total revenue			2,571,079				3,724,502				(1,153,423	)
Operating Expenses:
Cost of sales			645,044				1,119,938				(474,894	)
Depreciation expense			6,894				23,835				(16,941	)
Advertising			37,059				30,143				6,916
Rent expense			100,273				242,879				(142,606	)
Salaries and wages			878,920				1,227,644				(348,724	)
Other general and administrative expenses			892,355				1,124,548				(232,193	)
Total operating expenses			2,560,545				3,768,987				(1,208,442	)
Income (loss) from operations			10,534				(44,485	)			55,019
Other Income (Expense):
Other income (loss)			35				3,648				(3,613	)
Gain (loss) on exchange			6,906				5,859				1,047
Interest income			1,603				3,189				(1,586	)
Interest expense			(241,284	)			(200,771	)			(40,513	)
Total other income (expense)			(232,740	)			(188,075	)			(44,665	)
Net loss before benefit from income taxes			(222,206	)			(232,560	)			10,354
Benefit from income taxes			(77,772	)			(93,024	)			15,252
Net loss		$	(144,434	)		$	(139,536	)		$	(4,898	)

 

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 October 31, 2017 as compared to the same period in 2016 due primarily to the content and platforms in certain of our service lines requiring new materials or methods to fulfill our customers’ needs. 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. The decrease in net sales was also attributed to a decrease in the average exchange rate in effect during these periods between the Japanese Yen and the U.S. Dollar of approximately 8%.

 

 

 

 

Operating Expenses

 

Total operating expenses for the three months ended October 31, 2017 were $2,560,545, which represented a decrease of $1,208,442 as compared to the same period in 2016. Our operating expenses decreased due primarily to lower cost of sales from a reduction in sales volume, as well as from lower monthly service fees paid to Umajin Japan and lower television production costs. Our rent expense also decreased in 2017 due to our moving to new office headquarters during the fourth quarter of the year end July 31, 2017, which generated lower rent expense in the quarter ended October 31, 2017 as compared to 2016. Our general and administrative expenses were also lower primarily due to higher professional costs in the prior year associated with our public filings. The decrease in operating expenses was also attributed to a decrease in the average exchange rate in effect during these periods between the Japanese Yen and the U.S. Dollar of approximately 8%.

 

Other Income/ (Expenses)

 

Total other expense for the three months ended October 31, 2017 amounted to $232,740, which increased by $44,665 as compared to the same period in 2016. The increase in other expenses is primarily due to an increase in interest expense due to the interest rates of the outstanding notes being higher than the prior period, including approximately $30,000 of default interest expense charged on two notes in default.

 

Going Concern and Capital Resources

 

As of October 31, 2017, we had cash of $44,361 and a working capital deficit of $9,183,165 as compared to cash of $102,954 and a working capital deficit of $9,117,835 as at July 31, 2017. The decrease in cash as of October 31, 2017 was primarily the result of cash used in operations and to pay down outstanding notes payable during the period, offset by additional note payable borrowing during the period.

 

Based on operating losses and negative cash from operations, substantial doubt exists about the Company’s ability to continue as a going concern. Management’s plan in this regard is to improve sales and further reduce costs, including the shift of its broadcast program from satellite television to web TV. To finance operations while it improves operating results, it has sold $1,630,000 of common stock during the year ended July 31, 2017 and if necessary will continue financing activity such as taking loans, issuing new stock and asking existing creditors to convert their loans to shares of the Company’s common stock.

 

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 three months ended October 31, 2017 and 2016.

 

		For the Three Months Ended
		October 31,				October 31,
		2017				2016
Cash flows provided by (used in) operating activities		$	47,030			$	(908,798	)
Cash flows provided by (used in) investing activities		$	(50,420	)		$	65,996
Cash flows provided by (used in) financing activities		$	(54,000	)		$	804,000

 

Net cash flows provided by operating activities for the three months ended October 31, 2017 amounted to $47,030, compared to cash flows used in operating activities of $(908,798) for the three months ended October 31, 2016. Our net loss for the three months ended October 31, 2017 of $144,434 was consistent with the net loss for the three months ended October 31, 2016. However, our cash used in operations was greater during 2016 due to increases in accounts receivable from related parties of $294,000, as well as decreases in accounts payable and accrued expenses of $141,527 and deferred revenue of $367,588 during the three months October 31, 2016.

 

 

 

 

Net cash used in investing activities during the three months ended October 31 2017 was $(50,420), compared to net cash provided by investing activities of $65,996 for the three months ended October 31, 2016. The cash flows provided by investing activities were higher during the three months ended October 31, 2016 was due primarily to collections of notes receivables of $272,968 offset by payments of $206,972 for note receivable lending. During 2017, we had proceeds of $86,250 from the collection of notes receivables, offset payments of $132,458 for note receivable lending and $4,212 of property and equipment purchases.

 

Net cash used in financing activities for the three months ended October 31, 2017 amounted to $(54,000), compared to net cash provided of $804,000 for the three months ended October 31, 2016. During the three months ended October 31, 2017, the cash used in financing activities was the result of payments of outstanding notes payable of $324,000 and payments on outstanding related party notes payable of $117,000 offset by proceeds of $180,000 from additional note payable borrowing and borrowings of $207,000 from related parties. The cash provided by financing activities during the three months ended October 31, 2016 was the result of proceeds of $1,000,000 for the sale of common stock, as well as $539,000 in additional note payable borrowing and $686,000 in borrowing from related parties. These amounts were offset by payments of $392,000 for repayments of notes payable, $784,000 for the repayment of a convertible note payable and $245,000 for the repayment of related party notes payable.

 

Description of Indebtedness

 

The following is a summary of our outstanding notes payable as of October 31, 2017 and July 31, 2017.

 

 

		October 31,				July 31,
		2017				2017
			(Unaudited)
Unsecured note payable issued on June 15, 2016, due on December 15, 2016, bearing interest at 15% per annum (21.9% per annum after the maturity date) due monthly. The Company is currently in default under the terms of the note.		$	880,000			$	910,000
Unsecured note payable issued on December 20, 2011, due on December 31, 2016, bearing interest at 15% per annum (18% per annum after the maturity date) due monthly. The Company is currently in default under the terms of the note.			1,848,000				1,911,000
Unsecured note payable issued on October 20, 2017, due in 10 monthly installments through August 20, 2018, bearing interest at 12% per annum due monthly.			176,000				–
Unsecured note payable issued on December 18, 2015, due in 20 monthly installments from July 31, 2017 through February 29, 2019, bearing interest at 12% per annum due monthly.			704,000				864,500
Unsecured note payable issued on February 5, 2016, due in 23 installments of JPY 3,000,000 beginning in February 2017 and a final installment of JPY 31,000,000 in January 2019, bearing interest at 12% per annum due monthly.			642,400				746,200
Unsecured note payable issued on June 28, 2017, payable in full on June 30, 2018, bearing interest at 12% per annum due monthly.			299,200				418,600
Unsecured note payable issued on July 20, 2011, due on July 20, 2018, bearing interest at 12% per annum due monthly.			264,000				273,000
Unsecured notes payable, non-interest bearing, due on demand			39,973				41,336
Total notes payable			4,853,573				5,164,636
Less: current portion of notes payable			4,351,973				4,427,536
Long-term portion of notes payable		$	501,600			$	737,100

 

Of the $4,853,573 of total debt outstanding as of October 31, 2017, $4,123,173 is either due on demand or will become due during the remainder of the year ended July 31, 2018 and $730,400 will become due during the year ended July 31, 2019.

 

We also have notes payable outstanding from related parties, all of which are either due on demand or due during the year ended July 31, 2018. The following is a summary of our outstanding balances due to related parties as of October 31, 2017 and July 31, 2017.

 

 

 

 

		October 31,				July 31,
		2017				2017
			(Unaudited)
Unsecured note payable issued on March 26, 2012, due on demand, bearing interest at 1% per annum due monthly. The balance is due to a related party entity which is owned by one of the directors of the Company.		$	880,000			$	910,000
Unsecured note payable issued on January 30, 2013, due on demand, bearing interest at 1% per annum due monthly. The balance is due to a related party entity which is owned by one of the directors of the Company.			440,000				455,000
Unsecured note payable issued on June 14, 2016, non-interest bearing and due on October 31, 2017 discounted using an effective interest rate of 12%. The balance is due to a related party entity which is owned by one of the directors of the Company.			264,000				273,000
Unsecured short-term borrowing on April 25, 2017, non-interest bearing and due on demand. The balance is due to a related party entity which is owned by one of the directors of the Company			422,400				345,800
Unsecured note payable issued on September 21, 2016, due on October 31, 2017 discounted using an effective interest rate of 12%. The balance is due to a related party entity which is owned by one of the directors of the Company.			264,000				273,000
Unsecured note payable due to the Company's Chairman and CEO, non-interest bearing and due on demand.			968,492				1,001,509
Total notes payable to related parties			3,238,892				3,258,309
Discount on notes payable to related parties			–				16,515
Notes payable to related parties, net		$	3,238,892			$	3,241,794

 

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.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our interim principal executive officer and our interim principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We carried out an evaluation under the supervision and with the participation of our management of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d- 15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based on this evaluation, we concluded that our disclosure controls and procedures were not effective as of October 31, 2017.

 

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 October 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

PART II – OTHER INFORMATION

 

ITEM 6 – EXHIBITS

 

The following exhibits are filed as part of this Report:

 

Exhibit No.		Description
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

 

 

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.
December 12, 2017	By:	/s/ Shuya Watanabe
		Shuya Watanabe
		Chief Executive Officer, (Principal Executive Officer)

December 12, 2017	By:	/s/ Masashi Takegaki
		Masashi Takegaki
		Chief Financial Officer (Principal Financial Officer)