Attached files
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EXCEL - IDEA: XBRL DOCUMENT - PRIME GLOBAL CAPITAL GROUP Inc | Financial_Report.xls |
EX-32.2 - CERTIFICATION - PRIME GLOBAL CAPITAL GROUP Inc | pgcg_10q-ex3202.htm |
EX-31.1 - CERTIFICATION - PRIME GLOBAL CAPITAL GROUP Inc | pgcg_10q-ex3101.htm |
EX-32.1 - CERTIFICATION - PRIME GLOBAL CAPITAL GROUP Inc | pgcg_10q-ex3201.htm |
EX-31.2 - CERTIFICATION - PRIME GLOBAL CAPITAL GROUP Inc | pgcg_10q-ex3102.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2011
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-158713
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
NEVADA
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26-4309660
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(State or Other Jurisdiction
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(I.R.S. Employer
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of Incorporation or Organization)
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Identification No.)
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11-2, Jalan 26/70A, Desa Sri Hartamas
50480 Kuala Lumpur, Malaysia
603 6201 3198
(Address of Principal Executive Offices and Issuer’s
Telephone Number, including Area Code)
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 S 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 (§ 229.405 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 S No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company S
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(Do not check if smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No S
As of September 13, 2011, the issuer had outstanding 500,110,613 shares of common stock.
Page
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PART I
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FINANCIAL INFORMATION
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ITEM 1
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Financial Statements
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1
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Condensed Consolidated Balance Sheets as of July 31, 2011 (Unaudited) and October 31, 2010 (Audited)
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1
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended July 31, 2011 and 2010 (Unaudited)
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2
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2011 and 2010 (Unaudited)
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3
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Condensed Consolidated Statement of Stockholders’ Equity for the Nine Months Ended July 31, 2011 (Unaudited)
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4
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Notes to Condensed Consolidated Financial Statements (Unaudited)
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5
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ITEM 2
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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20
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ITEM 3
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Quantitative and Qualitative Disclosures about Market Risk
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29
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ITEM 4
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Controls and Procedures
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29
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PART II
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OTHER INFORMATION
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ITEM 1
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Legal Proceedings
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30
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ITEM 1A
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Risk Factors
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30
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ITEM 2
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Unregistered Sales of Equity Securities and Use of Proceeds
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30
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ITEM 3
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Defaults upon Senior Securities
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30
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ITEM 4
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(Removed and Reserved)
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30
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ITEM 5
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Other Information
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30
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ITEM 6
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Exhibits
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30
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SIGNATURES
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32
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i
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 2011 AND OCTOBER 31, 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
July 31, 2011
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October 31, 2010
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|||||||
(Unaudited) | (Audited) | |||||||
ASSETS
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||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 2,989,239 | $ | 527,189 | ||||
Marketable securities, available-for-sale
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1,710,852 | - | ||||||
Accounts receivable, trade
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- | 105,516 | ||||||
Deferred tax assets
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472 | - | ||||||
Deposits and other receivables
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300,813 | 40,619 | ||||||
Total current assets
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5,001,376 | 673,324 | ||||||
Non-current assets:
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||||||||
Deposits on plantation purchase
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823,355 | - | ||||||
Plant and equipment, net
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239,548 | 124,031 | ||||||
TOTAL ASSETS
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$ | 6,064,279 | $ | 797,355 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||||||
Current liabilities:
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||||||||
Accounts payable and accrued liabilities
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$ | 120,024 | $ | 156,744 | ||||
Other payables, related party
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926 | - | ||||||
Amount due to a director
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244,637 | 185,724 | ||||||
Current portion of obligation under finance lease
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5,582 | 6,268 | ||||||
Income tax payable
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180,218 | 21,229 | ||||||
Total current liabilities
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551,387 | 369,965 | ||||||
Long-term liabilities:
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||||||||
Obligation under finance lease
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46,204 | 49,636 | ||||||
Total liabilities
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597,591 | 419,601 | ||||||
Commitments and contingencies
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||||||||
Stockholders’ equity:
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||||||||
Preferred stock, $0.001 par value, 100,000,000 shares authorized; no shares issued and outstanding
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- | - | ||||||
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 500,000,003 and 20,000,003 shares issued and outstanding, July 31, 2011 and October 31, 2010
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500,000 | 20,000 | ||||||
Additional paid-in capital
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4,640,260 | 320,260 | ||||||
Accumulated other comprehensive income
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151,440 | 907 | ||||||
Retained earnings
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174,988 | 36,587 | ||||||
Total stockholders’ equity
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5,466,688 | 377,754 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$ | 6,064,279 | $ | 797,355 |
See accompanying notes to condensed consolidated financial statements.
1
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Three months ended July 31,
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Nine months ended July 31,
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2011
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2010
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2011
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2010
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Revenues, net:
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Software sales
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$ | 295,987 | $ | - | $ | 783,971 | $ | - | ||||||||
Product sales
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4,582 | - | 757,059 | - | ||||||||||||
Total revenues, net
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300,569 | - | 1,541,030 | - | ||||||||||||
Cost of revenues, related party
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594 | - | 98,217 | - | ||||||||||||
Cost of revenues, non related party
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14,170 | - | 620,661 | - | ||||||||||||
Total cost of revenue
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14,764 | - | 718,878 | - | ||||||||||||
Gross profit
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285,805 | - | 822,152 | - | ||||||||||||
Operating expenses:
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General and administrative
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(280,680 | ) | (13,728 | ) | (537,218 | ) | (13,903 | ) | ||||||||
Income (loss) from operations
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5,125 | (13,728 | ) | 284,934 | (13,903 | ) | ||||||||||
Other income (expense):
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Other income
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8,165 | - | 8,165 | |||||||||||||
Interest expense
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(499 | ) | - | (1,480 | ) | - | ||||||||||
Income (loss) before income taxes
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12,791 | (13,728 | ) | 291,619 | (13,903 | ) | ||||||||||
Income tax expense
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(64,721 | ) | - | (153,218 | ) | - | ||||||||||
NET (LOSS) INCOME
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$ | (51,930 | ) | $ | (13,728 | ) | $ | 138,401 | $ | (13,903 | ) | |||||
Other comprehensive income (loss):
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||||||||||||||||
- Unrealized holding loss on available-for-sale securities
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(10,519 | ) | - | (10,955 | ) | - | ||||||||||
- Foreign exchange adjustment (loss) gain
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(10,807 | ) | 2,730 | 161,488 | 2,662 | |||||||||||
COMPREHENSIVE (LOSS) INCOME
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$ | (73,256 | ) | $ | (10,998 | ) | $ | 288,934 | $ | (11,241 | ) | |||||
Net (loss) income per share – Basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | |||||
Weighted average common shares outstanding – Basic and diluted
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500,000,003 | 16,500,000 | 352,312,966 | 16,500,000 |
See accompanying notes to condensed consolidated financial statements.
2
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
Nine months ended July 31,
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2011
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2010
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Cash flows from operating activities:
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Net income (loss)
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$ | 138,401 | $ | (13,903 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
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Depreciation
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27,400 | 1,014 | ||||||
Stock based compensation
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70,000 | - | ||||||
Dividend income in lieu of stock
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(1,989 | ) | - | |||||
Gain on disposal of marketable securities
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(6,176 | ) | - | |||||
Deferred tax benefit
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(458 | ) | - | |||||
Changes in operating assets and liabilities:
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||||||||
Accounts receivable
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107,155 | - | ||||||
Deposits and other receivables
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(59,157 | ) | (18,631 | ) | ||||
Accounts payable and accrued liabilities
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(109,132 | ) | 155,114 | |||||
Income tax payable
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153,477 | - | ||||||
Net cash provided by operating activities
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319,521 | 123,594 | ||||||
Cash flows from investing activities:
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Purchase of marketable securities
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(1,856,762 | ) | - | |||||
Deposits on plantation purchase
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(799,674 | ) | - | |||||
Purchase of plant and equipment
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(134,100 | ) | (67,606 | ) | ||||
Net cash used in investing activities
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(2,790,536 | ) | (67,606 | ) | ||||
Cash flows from financing activities:
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||||||||
Advances from (to) a director
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54,142 | (414 | ) | |||||
Repayment of finance lease
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(6,475 | ) | - | |||||
Proceed from sale of common stock
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4,800,000 | 300,497 | ||||||
Net cash provided by financing activities
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4,847,667 | 300,083 | ||||||
Foreign currency translation adjustment
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85,398 | 15,839 | ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
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2,462,050 | 371,910 | ||||||
BEGINNING OF PERIOD
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527,189 | 501 | ||||||
END OF PERIOD
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$ | 2,989,239 | $ | 372,411 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash paid for income tax
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$ | - | $ | - | ||||
Cash paid for interest
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$ | 1,480 | $ | - |
See accompanying notes to condensed consolidated financial statement
3
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED JULY 31, 2011
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Preferred Stock
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Common Stock
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Additional
paid-in
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Accumulated
other
comprehensive
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Retained | Total stockholders’ | |||||||||||||||||||||||||||
No. of share
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Amount
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No. of share
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Amount
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capital
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income
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earnings
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equity | |||||||||||||||||||||||||
Balance as of November 1, 2010 (restated)
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- | $ | - | 16,500,000 | $ | 16,500 | $ | 320,260 | $ | 907 | $ | 36,587 | $ | 374,254 | ||||||||||||||||||
Sale of common stocks to investors
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- | - | 480,000,000 | 480,000 | 4,320,000 | - | - | 4,800,000 | ||||||||||||||||||||||||
Share effectively issued to former PGCG stockholders as part of the December 6, 2010 recapitalization
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- | - | 3,500,003 | 3,500 | - | - | - | 3,500 | ||||||||||||||||||||||||
Unrealized holding loss on available-for-sale securities
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- | - | - | - | - | (10,955 | ) | - | (10,955 | ) | ||||||||||||||||||||||
Net income for the period
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- | - | - | - | - | - | 138,401 | 138,401 | ||||||||||||||||||||||||
Foreign currency translation adjustment
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- | - | - | - | - | 161,488 | - | 161,488 | ||||||||||||||||||||||||
Balance as of July 31, 2011
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- | $ | - | 500,000,003 | $ | 500,000 | $ | 4,640,260 | $ | 151,440 | $ | 174,988 | $ | 5,466,688 |
See accompanying notes to condensed consolidated financial statements.
4
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 1
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BASIS OF PRESENTATION
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The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated balance sheet as of October 31, 2010, which has been derived from, audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended July 31, 2011 are not necessarily indicative of the results to be expected for the entire fiscal year ending October 31, 2011 or for any future period.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended October 31, 2010.
NOTE - 2
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ORGANIZATION AND BUSINESS BACKGROUND
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Prime Global Capital Group Incorporated (formerly Home Touch Holding Company) (“PGCG” or “the Company”) was incorporated in the State of Nevada on January 26, 2009. On January 25, 2011, the Company changed its current name to “Prime Global Capital Group Incorporated”.
The Company, through its subsidiary and variable interest entity (“VIE”) is principally engaged in the operation of palm oil plantation, provision of IT consulting and programming services and distributing consumer products in Malaysia.
On July 15, 2010, the Company approved the 1 for 20 reverse split of its common stock. All common stock and per share data for all periods presented in these condensed consolidated financial statements have been restated to give effect to the reverse stock split.
On January 25, 2011, the Company changed its the fiscal year from March 31 to October 31 and increased its authorized capital to 1 billion shares of common stock and 100 million shares of preferred stock.
On February 8, 2011, the Company consummated the sale to certain accredited investors of an aggregate of 400,000,000 shares of its common stock, par value $0.001, at a per share price of $0.01, or $4,000,000 in the aggregate, pursuant to certain subscription agreements.
Recapitalization and reorganization
On September 21, 2010, the Company consummated the sale to certain accredited investors of an aggregate of 1,500,000 shares of its common stock, par value $0.001, at a per share price of $0.10, or $150,000 in the aggregate, pursuant to certain subscription agreements.
On November 15, 2010, the Company consummated the sale to 18 accredited investors of an aggregate of 80,000,000 shares of its common stock, par value $0.001, at a per share price of $0.01, or $800,000 in the aggregate, pursuant to certain subscription agreements.
5
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Concurrently, on November 15, 2010, the Company appointed three new directors, Mr. Weng Kung Wong, Mr. Liong Tat Teh and Ms. Sek Fong Wong to the Company’s Board of Directors. Furthermore, all of the Company’s former officers resigned from their positions and Mr. Weng Kung Wong was appointed as the new chief executive officer, Mr. Teh Liong Tat as the new chief financial officer.
On December 6, 2010, the Company acquired Union Hub Technology Sdn. Bhd. (“UHT”), a company incorporated under the laws of Malaysia, through a share exchange transaction, or the Share Exchange. Pursuant to the Share Exchange, the Company acquired from the UHT shareholders all of the issued and outstanding shares of UHT in exchange for the issuance of 16,500,000 shares of its common stock. As a result of the Share Exchange, UHT became a wholly owned subsidiary of the Company.
Concurrently, on December 6, 2010, the Company entered into and executed agreement to sell its wholly owned subsidiary, Home Touch Limited (a corporation organized under the laws of the Hong Kong Special Administrative Region), to the former founders and directors for $20,000. Upon the completion of this sale, Mr. Ng and Ms. Yau, the former founders and executive officers, were resigned from their positions on the board of directors.
The share exchange transaction has been accounted for as a reverse acquisition and recapitalization of the Company whereby UHT is deemed to be the accounting acquirer (legal acquiree) and the Company to be the accounting acquiree (legal acquirer). The accompanying condensed consolidated financial statements are in substance those of UHT, with the assets and liabilities, and revenues and expenses, of the Company being included effective from the date of the reverse acquisition. The Company is deemed to be a continuation of the business of UHT.
Accordingly, the accompanying condensed consolidated financial statements include the following:
(1) the balance sheet consists of the net assets of the accounting acquirer at historical cost and the net assets of the accounting acquiree at historical cost;
(2) the financial position, results of operations, and cash flows of the accounting acquirer for all periods presented as if the recapitalization had occurred at the beginning of the earliest period presented and the operations of the accounting acquiree from the date of share exchange transaction.
PGCG and its subsidiary and VIE are hereinafter referred to as (the “Company”).
Summary of the Company’s subsidiary and VIE
Company name
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Place/date of incorporation
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Particulars of issued share capital
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Principal activities
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|||||
1
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Union Hub Technology Sdn. Bhd. (“UHT”)
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Malaysia
February 28, 2008
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1,000,000 issued shares of ordinary shares of MYR 1 each
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Provision of IT consulting and programming services and distributing consumer products
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||||
2
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Virtual Setup Sdn. Bhd. (“VSSB”) #
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Malaysia
July 17, 2010
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2 issued shares of ordinary shares of MYR 1 each
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Operation of palm oil plantation
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# represents variable interest entity (“VIE”)
6
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 3
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GOING CONCERN UNCERTAINTIES
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The Company’s condensed consolidated financial statements are presented on a going concern basis, which contemplates the continuity of operations and realization of assets and satisfaction of liabilities and commitments in the normal course of business.
The Company has committed and contracted for the purchase of palm oil plantation land which is expected to be completed in the next twelve to fifteen months. As of July 31, 2011, the Company has $2,989,239 available cash balance, whereas the Company may not have sufficient working capital to meet with the capital commitment of $7.4 million. The Company plans to obtain the additional capital injection from its shareholders or external financing. However, there can be no assurance that the Company will be able to obtain sufficient funds to meet with its obligations on a timely basis.
These factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
NOTE - 4
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.
l
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Use of estimates
|
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
l
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Basis of consolidation
|
The condensed consolidated financial statements include the accounts of PGCG and its subsidiary and VIE. All significant inter-company balances and transactions between the Company and its subsidiary and VIE have been eliminated upon consolidation.
The Company has adopted the Accounting Standards Codification (“ASC”) Topic 810-10-25, “Variable Interest Entities” (“ASC 810-10-25”). ASC 810-10-25 requires a variable interest entity or VIE to be consolidated by the Company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.
l
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Cash and cash equivalents
|
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
The Company maintains cash and cash equivalent balances at a financial institution in Malaysia. As of July 31, 2011, the Company has cash concentration risk of $2,989,239, which is held by Malayan Banking Berhad in Malaysia.
7
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
l
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Marketable securities, available-for-sale
|
These marketable securities are classified as available-for-sale and are recorded at their fair market values with the corresponding unrealized holding gains or losses, recorded as a separate component of other comprehensive income within stockholders’ equity. The fair value of marketable securities is determined based on quoted market prices at the balance sheet dates. Realized gains and losses are determined by the difference between historical purchase price and gross proceeds received when the marketable securities are sold.
The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to the ASC Topic 820.
l
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Plant and equipment
|
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
Expected useful life
|
|
Motor vehicle
|
5 years
|
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
Depreciation expense for the three months ended July 31, 2011 and 2010 were $9,949 and $1,014, respectively.
Depreciation expense for the nine months ended July 31, 2011 and 2010 were $27,400 and $1,014, respectively.
l
|
Impairment of long-lived assets
|
Long-lived assets primarily include plant and equipment. In accordance with the provision of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for any periods presented.
l
|
Finance leases
|
Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, “Imputation of Interest”.
8
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
l
|
Revenue recognition
|
Revenues from the sale of software and product sales are recognized and billed upon delivery of the product provided that persuasive evidence of an arrangement exists, collection is probable, payment terms are fixed or determinable and no significant obligations remain, in accordance with ASC Topic 605, “Revenue Recognition”.
(a) Software sales
The Company generally sells the software products under multiple element arrangements at the fixed fee, based upon the customers’ specifications or modifications, bundled with maintenance and support service for a certain period of time. Maintenance and support service consists of technical support and software upgrades and enhancements. The Company allocates the total arrangement fee among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. The Company limits its assessment of fair value of each element to the price charged when the same element is sold separately. If the fair value of each element in a multiple element arrangement cannot be reliably determined, and if the fair value of any undelivered element cannot also be reliably determined, all revenue under the arrangement is deferred until such time as the only remaining undelivered element is maintenance and support, at which time revenue is recognized over the remaining maintenance and support service period. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. For the billed software product sales, the revenue from the undelivered element is included in deferred revenue and amortized ratably to revenue over its contractual term, typically one year.
The Company generally offers product warranty and post-contract customer support (“PCS”) to its customers for a period of twelve months, free of charge. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
(b) Product sales
The Company also earns the revenue from trading of luxury consumer products. Revenue is recognized when title passes to the customer, which is generally when the product is delivered, assuming no significant Company obligations remain and the collection of relevant receivables is probable.
l
|
Income taxes
|
Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). 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 existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
9
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
For the nine months ended July 31, 2011 and 2010, the Company did not have any interest and penalties associated with tax positions. As of July 31, 2011, the Company did not have any significant unrecognized uncertain tax positions.
The Company conducts major businesses in Malaysia and is subject to tax in its own jurisdiction. As a result of its business activities, the Company will file separate tax returns that are subject to examination by the foreign tax authority.
l
|
Foreign currencies translation
|
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United States Dollars ("US$") and the accompanying condensed financial statements have been expressed in US$. In addition, the Company maintains its books and records in its local currency, Malaysian Ringgit ("MYR"), which is functional currency as being the primary currency of the economic environment in which the entity operates.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates for the respective periods:
July 31, 2011
|
July 31, 2010
|
|||
Period-end MYR : US$1 exchange rate
|
2.9666
|
3.1864
|
||
Period average MYR : US$1 exchange rate
|
3.0545
|
3.3278
|
l
|
Stock based compensation
|
The Company accounts for employee stock-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation" which requires to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services.
For the nine months ended July 31, 2011, the stock based compensation included in the general and administrative expenses was $70,000. As of July 31, 2011, the Company has 110,610 shares of common stock to be issued to the executive officers. These shares were issued on September 7, 2011.
l
|
Related parties
|
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
10
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
l
|
Segment reporting
|
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company operates in three reportable operating segments in Malaysia during the period ended July 31, 2011.
l
|
Fair value of financial instruments
|
The carrying value of the Company’s financial instruments (excluding obligation under finance lease): cash, deposits and other receivables, deferred revenue, income tax payable, amount due to a director, accounts payable and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its obligation under finance lease approximate the carrying amount.
The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
·
|
Level 1 : Observable inputs such as quoted prices in active markets;
|
·
|
Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
·
|
Level 3 : Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions
|
The following table summarizes information on the fair value measurement of the Company’s assets as of July 31, 2011 grouped by the categories described above:
Quoted prices in active markets
(Level 1)
|
Significant other observable inputs
(Level 2)
|
Significant unobservable inputs
(Level 3)
|
||||||||||
Securities available-for-sale
|
$ | 1,710,852 | $ | - | $ | - |
Securities available-for-sale as of July 31, 2011 were valued at the closing prices quoted on the Bursa Malaysia Securities Berhad Main Market on which the security is traded. The Company has an unrealized holding loss of $10,955 for the nine months ended July 31, 2011.
l
|
Recent accounting pronouncements
|
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
11
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 5
|
VARIABLE INTEREST ENTITY
|
On July 8, 2011, the Company, through VSSB, entered into a Land Purchase Agreement (the “Purchase Agreement”) with an independent third party to purchase four parcels of palm oil plantation land in a purchase price consideration of $8,233,550 (equivalent to MYR24,425,640) with a refundable deposit of $823,355 equal to 10% of its purchase price consideration. Pursuant to the Purchase Agreement, the completion of the purchase transaction is subject to final approval from the local government and local regulatory agency. Also, the Company, through VSSB agreed to lease from the landowner and manage these four parcels palm oil plantation land with a monthly rental of $13,483 (equivalent to MYR 40,000) for a term of 12 months under an operating lease agreement, subject to automatic termination upon the completion of the Purchase Agreement.
On August 29, 2011, the Company, through its wholly owned subsidiary, UHT, entered into a Memorandum of Understanding (the “MOU”) with the shareholders of VSSB, who are considered as related parties. Mr. Weng Kung Wong, the Chief Executive Officer and director of the Company, and Mr. Kok Wai Chai, a director of the Company’s subsidiary, are the shareholders and directors of VSSB. Pursuant to the MOU, the shareholders of VSSB mutually agreed to transfer all of their issued shares of VSSB to the Company, through UHT, upon the following conditions:
1.
|
the Company agreed to advance or continue to advance a sum equivalent to the purchase price or part thereof to complete the Purchase Agreement, and
|
2.
|
the shareholders of VSSB agreed to transfer their entire equity interest to the Company, upon the completion of the Purchase Agreement and the successful registration of the transfer of the land titles in favor of VSSB.
|
Management believes that all these contractual agreements with VSSB and the landowners are in compliance with laws of Malaysia and are legally enforceable.
With the above agreements, the Company has variable interest of VSSB, through UHT, including its financial interest and demonstrates its ability to control VSSB as a primary beneficiary. Under ASC 810-10-25, VSSB is considered a variable interest entity and its operating results are included in the accompanying condensed consolidated financial statements for the nine months ended July 31, 2011. VSSB incurred an operating loss of $20,247 with no revenue recognized during the period presented.
As of July 31, 2011, the deposit $823,335 on the land purchase is considered as non-current asset, accordingly. Purchase deposit is recorded when payment is made by the Company and the remaining balances will be subsequently settled upon the successful transfer of land title.
NOTE - 6
|
AMOUNT DUE TO A DIRECTOR
|
As of July 31, 2011, the balance represented temporary advances made to the Company by the director and chief executive officer of the Company, Mr. Weng Kung Wong, which was unsecured, non-interest bearing and repayable in the next twelve months.
12
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 7
|
OBLIGATION UNDER FINANCE LEASE
|
The Company purchased motor vehicle under a finance lease agreement with the effective interest rate of 6.58% per annum, due through July 21, 2017, with principal and interest payable monthly. The obligation under the finance lease is as follows:
July 31, 2011
|
||||
Finance lease
|
$ | 53,266 | ||
Less: interest expense
|
(1,480 | ) | ||
Net present value of finance lease
|
$ | 51,786 | ||
Representing as:
|
||||
Current portion
|
$ | 5,582 | ||
Non-current portion
|
46,204 | |||
Total
|
$ | 51,786 |
As of July 31, 2011, the maturities of the finance lease for each of the five years are as follows:
Years ending July 31:
|
||||
2012
|
$ | 5,582 | ||
2013
|
8,097 | |||
2014
|
8,671 | |||
2015
|
9,244 | |||
2016
|
9,818 | |||
Thereafter
|
10,374 | |||
Total
|
$ | 51,786 |
NOTE - 8
|
INCOME TAXES
|
For the nine months ended July 31, 2011 and 2010, the local (United States) and foreign components of income (loss) before income taxes were comprised of the following:
Nine months ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Tax jurisdictions from:
|
||||||||
– Local
|
$ | (332,819 | ) | $ | - | |||
– Foreign
|
624,438 | (13,903 | ) | |||||
Income (loss) before income taxes
|
$ | 291,619 | $ | (13,903 | ) |
Provision for income taxes (benefit) consisted of the following:
Nine months ended July 31,
|
||||||||
2011
|
2010
|
|||||||
Current:
|
||||||||
– Local
|
$ | - | $ | - | ||||
– Foreign
|
153,677 | - | ||||||
Deferred:
|
||||||||
– Local
|
- | - | ||||||
– Foreign
|
(459 | ) | - | |||||
Income tax expense
|
$ | 153,218 | $ | - |
13
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. During the nine months ended July 31, 2011 and 2010, the Company has a subsidiary and VIE that operates in Malaysia and are subject to tax in the jurisdictions in which they operate, as follows:
United States of America
PCGC is registered in the State of Nevada and is subject to United States of America tax law. As of July 31, 2011, the operations in the United States of America incurred $361,007 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2031, if unutilized. The Company has provided for a full valuation allowance of $122,742 against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
Malaysia
UHT and VSSB are subject to the Malaysia Corporate Tax Laws at a progressive income tax rate starting from 20% on the assessable income for its tax year. For the nine months ended July 31, 2011 and 2010, the operations in Malaysia generated an operating income of $624,438 and an operating loss of $13,903, respectively. A reconciliation of income (loss) before income taxes to the effective tax rate as follows:
Nine months ended July 31, | ||||||||
2011
|
2010
|
|||||||
Income (loss) before income taxes
|
$ | 624,438 | $ | (13,903 | ) | |||
Statutory income tax rate
|
20 | % | 20 | % | ||||
Income tax expense at statutory rate
|
124,888 | (2,780 | ) | |||||
Tax effect of non-deductible items
|
2,944 | - | ||||||
Tax effect of non-taxable income
|
(1,633 | ) | - | |||||
Tax effect of depreciation allowance recognized as deferred tax assets
|
(459 | ) | - | |||||
Tax adjustments
|
27,478 | - | ||||||
Net operating loss
|
- | 2,780 | ||||||
Income tax expense at effective rate
|
$ | 153,218 | $ | - |
NOTE - 9
|
STOCKHOLDERS’ EQUITY
|
On November 15, 2010, the Company consummated the sale to 18 accredited investors of an aggregate of 80,000,000 shares of its common stock, par value $0.001, at a per share price of $0.01, or $800,000 in the aggregate, pursuant to certain subscription agreements.
On December 6, 2010, the Company issued 16,500,000 shares of its common stock to the UHT shareholders in connection with the acquisition of UHT through the Share Exchange. The acquisition is a capital transaction in substance and therefore was accounted for as a recapitalization. The 16,500,000 shares issued was restated and adjusted to account for the effects of the Share Exchange.
14
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
On January 25, 2011, the Company increased its authorized capital to 1 billion shares of common stock and 100 million shares of preferred stock.
On February 8, 2011, the Company consummated the sale to 19 of its existing accredited stockholders of an aggregate of 400,000,000 shares of its common stock, par value $0.001, at a per share price of $0.01, or $4,000,000 in the aggregate, pursuant to certain subscription agreements. Mr. Weng Kung Wong, the Chief Executive Officer and director of the Company participated in the transaction and purchased 32,300,000 shares of the Company’s common stock on the same terms and conditions as the other stockholders. The Subscription Agreements contain terms and conditions that are normal and customary for a transaction of this type.
As of July 31, 2011, the number of shares of the Company’s common stock issued and outstanding was 500,000,003 shares. There are no shares of preferred stock issued and outstanding.
NOTE - 10
|
RELATED PARTY TRANSACTIONS
|
(a)
|
For the nine months ended July 31, 2011, the Company purchased software products at the current market value of $98,217 from a related company, which is controlled by the director of the Company’s subsidiary, Mr. Chai Kok Wai in the normal course of business.
|
(b)
|
For the nine months ended July 31, 2011, the Company leased an office premise at the current market value of $6,742 from a related company, which is controlled by the director and chief executive officer of the Company, Mr. Weng Kung Wong in the normal course of business.
|
NOTE - 11
|
SEGMENT INFORMATION
|
The Company operates three reportable business segments in Malaysia, as defined by ASC Topic 280:
l
|
Software business – sale of software products
|
l
|
Trading business – trading of luxury consumer products
|
l
|
Plantation business – operation of palm oil plantation, commencing from July 2011
|
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 4). The Company had no inter-segment sales for the three and nine months ended July 31, 2011 and 2010. Summarized financial information concerning the Company’s reportable segments is shown in the following table for the three and nine months ended July 31, 2011 and 2010:
Three months ended July 31, 2011
|
||||||||||||||||||||
Software Business
|
Trading Business
|
Plantation Business
|
Corporate
|
Total
|
||||||||||||||||
Revenues, net
|
$ | 295,987 | $ | 4,582 | $ | - | $ | - | $ | 300,569 | ||||||||||
Cost of revenues
|
11,152 | 3,612 | - | - | 14,764 | |||||||||||||||
Gross profit
|
284,835 | 970 | - | - | 285,805 | |||||||||||||||
Depreciation
|
- | - | - | 9,949 | 9,949 | |||||||||||||||
Net income (loss)
|
284,835 | 970 | (20,247 | ) | (317,488 | ) | (51,930 | ) | ||||||||||||
Total assets
|
- | - | 1,388,320 | 4,675,959 | 6,064,279 | |||||||||||||||
Expenditure for long-lived assets
|
$ | - | $ | - | $ | 883,997 | $ | 49,777 | $ | 933,774 |
15
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Three months ended July 31, 2010
|
||||||||||||||||||||
Software Business
|
Trading Business
|
Plantation Business
|
Corporate
|
Total
|
||||||||||||||||
Revenues, net
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Cost of revenues
|
- | - | - | - | - | |||||||||||||||
Gross profit
|
- | - | - | - | - | |||||||||||||||
Depreciation
|
- | - | - | 1,014 | 1,014 | |||||||||||||||
Net loss
|
- | - | - | (13,728 | ) | (13,728 | ) | |||||||||||||
Total assets
|
- | - | - | 518,520 | 518,520 | |||||||||||||||
Expenditure for long-lived assets
|
$ | - | $ | - | $ | - | $ | 121,696 | $ | 121,696 |
Nine months ended July 31, 2011
|
||||||||||||||||||||
Software Business
|
Trading Business
|
Plantation Business
|
Corporate
|
Total
|
||||||||||||||||
Revenues, net
|
$ | 783,971 | $ | 757,059 | $ | - | $ | - | $ | 1,541,030 | ||||||||||
Cost of revenues
|
122,084 | 596,794 | - | - | 718,878 | |||||||||||||||
Gross profit
|
661,887 | 160,265 | - | - | 822,152 | |||||||||||||||
Depreciation
|
- | - | - | 27,400 | 27,400 | |||||||||||||||
Net income (loss)
|
661,887 | 160,265 | (20,247 | ) | (663,504 | ) | 138,401 | |||||||||||||
Total assets
|
- | - | 1,388,320 | 4,675,959 | 6,064,279 | |||||||||||||||
Expenditure for long-lived assets
|
$ | - | $ | - | $ | 883,997 | $ | 49,777 | $ | 933,744 |
Nine months ended July 31, 2010
|
||||||||||||||||||||
Software Business
|
Trading Business
|
Plantation Business
|
Corporate
|
Total
|
||||||||||||||||
Revenues, net
|
$ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
Cost of revenues
|
- | - | - | - | - | |||||||||||||||
Gross profit
|
- | - | - | - | - | |||||||||||||||
Depreciation
|
- | - | - | 1,014 | 1,014 | |||||||||||||||
Net loss
|
- | - | - | (13,903 | ) | (13,903 | ) | |||||||||||||
Total assets
|
- | - | - | 518,520 | 518,520 | |||||||||||||||
Expenditure for long-lived assets
|
$ | - | $ | - | $ | - | $ | 121,696 | $ | 121,696 |
16
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 12
|
CONCENTRATIONS OF RISK
|
The Company is exposed to the following concentrations of risk:
(a) Major customers
For the three months ended July 31, 2011, the customer who accounts for 10% or more of the Company’s revenue and its outstanding balance at period-end date, is presented as follows:
Three months ended July 31, 2011
|
July 31, 2011
|
|||||||
Revenues
|
Percentage
of revenues
|
Accounts
receivable
|
||||||
Customer C
|
$
|
97,497
|
33%
|
$
|
-
|
|||
Customer D
|
97,497
|
33%
|
-
|
|||||
Customer E
|
97,497
|
33%
|
-
|
|||||
Total:
|
$
|
292,491
|
99%
|
$
|
-
|
For the nine months ended July 31, 2011, the customer who accounts for 10% or more of the Company’s revenues and its outstanding balance at period-end date, is presented as follows:
Nine months ended July 31, 2011
|
July 31, 2011
|
|||||||
Revenues
|
Percentage
of revenues
|
Accounts
receivable
|
||||||
Customer A
|
$
|
757,059
|
49%
|
$
|
-
|
|||
Customer B
|
490,497
|
32%
|
-
|
|||||
Total:
|
$
|
1,247,556
|
81%
|
$
|
-
|
For the three and nine months ended July 31, 2010, there was no single customer who accounted for 10% or more of the Company’s revenue.
(b) Major vendors
For the three months ended July 31, 2011, there was no single vendor who accounted for 10% or more of the Company’s purchases.
For the nine months ended July 31, 2011, the vendor who accounts for 10% or more of the Company’s purchases and its outstanding balance at period-end date, is presented as follows:
Nine months ended July 31, 2011
|
July 31, 2011
|
|||||||
Purchases
|
Percentage
of purchases
|
Accounts
payable
|
||||||
Vendor A
|
$
|
446,191
|
62%
|
$
|
-
|
|||
Vendor B
|
150,603
|
21%
|
-
|
|||||
Vendor C, related party
|
98,217
|
14%
|
-
|
|||||
Total:
|
$
|
695,011
|
97%
|
$
|
-
|
For the three and nine months ended July 31, 2010, there was no single vendor who accounted for 10% or more of the Company’s purchases.
17
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
(c) Exchange rate risk
The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in MYR and a significant portion of the assets and liabilities are denominated in MYR. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and MYR. If MYR depreciates against US$, the value of MYR revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.
(d) Economic and political risks
Substantially all of the Company’s services are conducted in Malaysia and Asian region. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in Malaysia. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in Malaysia.
NOTE - 13
|
COMMITMENTS AND CONTINGENCIES
|
(a) Operating lease commitment
The Company’s subsidiary and VIE operating in Malaysia are committed under two non-cancelable operating leases of office premise and palm oil plantation for a term of 1 to 2 years, with fixed rental, due November 30, 2012. Total rent expenses for the nine months ended July 31, 2011 and 2010 was $19,838 and $0, respectively.
As of July 31, 2011, the aggregate future minimum rental payments due under various non-cancelable operating leases in the next two years are as follows:
Operating lease commitments
|
||||||||||||
Office premise
|
Oil palm plantation
|
Total
|
||||||||||
Year ending July 31:
|
||||||||||||
2012
|
$ | 9,822 | $ | 148,318 | $ | 158,140 | ||||||
2013
|
3,274 | - | 3,274 | |||||||||
Total:
|
$ | 13,096 | $ | 148,318 | $ | 161,414 |
(b) Capital commitment
As of July 31, 2011, the Company has future contingent payment of $7,410,195 under the purchase contract within three months upon the receipt of all government and other consents required to effectuate the land transfer. Management anticipates the completion of the land purchase in the next twelve to fifteen months.
18
PRIME GLOBAL CAPITAL GROUP INCORPORATED
(Formerly Home Touch Holding Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JULY 31, 2011 AND 2010
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE - 14
|
SUBSEQUENT EVENT
|
On August 29, 2011, the shareholders of VSSB entered into a Memorandum of Understanding (“MOU”) with the Company’s subsidiary and agreed to transfer all of the issued and outstanding shares of VSSB to the Company’s subsidiary. The shareholders of VSSB are Mr. Weng Kung Wong, the Chief Executive Officer and director of the Company, and Mr. Kok Wai Chai, a director of the Company’s subsidiary. VSSB’s primary asset is its right to purchase and operate an oil palm plantation located in Malaysia. Pursuant to the MOU, the Company’s subsidiary will advance funds to VSSB to purchase the oil palm plantation. The MOU terminates upon the consummation of the acquisition and the transfer of land title to the Company’s subsidiary.
On September 7, 2011, the Company issued 110,610 shares of restricted common stock to the executive officers as compensation for services rendered.
19
Forward-looking statements
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly report on Form 10-Q contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements contained in this discussion, including, without limitation, statements containing the words "believes," "anticipates," "expects" and the like, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, we are ineligible to rely on these safe harbor provisions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained herein to reflect future events or developments.
Overview
History
We were incorporated in the state of Nevada on January 26, 2009, to serve as a holding company for our former smart home business, which was conducted through our former subsidiary, Home Touch Limited, a Hong Kong Special Administrative Region of China corporation, or HTL. On January 26, 2009, we acquired HTL through a share exchange transaction in which we exchanged 40,000,000 shares of our Common Stock for 10,000 shares of HTL common stock. HTL was originally organized under the name Lexing Group Limited in July 2004 and was renamed Home Touch Limited in 2005.
On July 15, 2010, we effectuated a 1-for-20 reverse stock split, or the Reverse Split, of all issued and outstanding shares of the Company's Common Stock in connection with our plans to attract additional financing and potential business opportunities. As a result of the Reverse Split, our issued and outstanding shares decreased from 40,000,000 to 2,000,003.
Change in Control and Sale of HTL and Our Smart Home Business
On November 15, 2010, we consummated the sale to certain accredited investors of an aggregate of 80,000,000 shares of our Common Stock at a per share price of $0.01, or $800,000 in the aggregate, in accordance with the terms and conditions of certain subscription agreements made with such investors. The Company received net proceeds of approximately $795,000 from the sale of the shares and intends to use the net proceeds for general corporate purposes. The shares were sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. Weng Kung Wong, our Chief Executive Officer and director, purchased 12,750,000 shares of our Common Stock in this transaction.
A change of control occurred in connection with the sale of such shares. David Ng and Stella Wai Yau resigned from their positions as President and Chief Executive Officer of the Company, and as Chief Financial Officer, Chief Operating Officer and Secretary of the Company effective November 15, 2010. The following individuals were appointed to serve as executive officers of the Company:
Name
|
Office
|
Weng Kung Wong
|
Chief Executive Officer
|
Liong Tat Teh
|
Chief Financial Officer
|
Sek Fong Wong
|
Secretary
|
Weng Kung Wong, Liong Tat Teh and Sek Fong Wong were further appointed to serve on our board of directors.
20
On December 6, 2010, we consummated a share exchange, or the Share Exchange, pursuant to which Wooi Khang Pua and Kok Wai Chai, or the UHT Shareholders, transferred to us all of the issued and outstanding shares of Union Hub Technology Sdn. Bhd., a company organized under the laws of Malaysia, or UHT, in exchange for the issuance of 16,500,000 shares of our common stock, par value $0.001 per share, or the Common Stock. The Share Exchange was made pursuant to the terms of a Share Exchange Agreement, or the Exchange Agreement, by and among, and the Company, the UHT Shareholders and UHT. As result of the Share Exchange, UHT became our wholly owned subsidiary. Wooi Khang Pua and Kok Wai Chai serve as directors of UHT. We relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under, the Securities Act of 1933, as amended, or the Securities Act, in issuing the UHT Shares.
Concurrently with the Share Exchange, we sold to Up Pride Investments Limited, a British Virgin Islands limited liability company owned by David Gunawan Ng, and Magicsuccess Investments Limited, a British Virgin Islands limited liability company owned by Stella Wai Yau, all of the issued and outstanding securities of Home Touch Limited, a Hong Kong Special Administrative Region of China corporation, or HTL, for cash consideration of $20,000. In connection with the sale, Mr. Ng and Ms. Yau, our former founders and executive officers, resigned from their positions on our board of directors. Our smart home business was conducted through HTL, and as result of the sale, we ceased our smart home business operations. The sale of HTL securities was made pursuant to the terms of a Common Stock Purchased Agreement, or the Common Stock Purchase Agreement, by and among the Company, HTL, Up Pride Investments Limited and Magicsuccess Investments Limited. We relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under, the Securities Act of 1933, as amended, or the Securities Act, in selling the HTL securities.
On January 25, 2011, we changed our name to Prime Global Capital Group Incorporated and increased our authorized capital to 1,000,000,000 shares of common stock and 100,000,000 shares of preferred stock from 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. Effective January 25, 2011, we changed our fiscal year end from March 31 to October 31.
Execution of MOU to Acquire Oil Palm Plantation
On August 29, 2011, UHT entered into a binding Memorandum of Understanding, or the MOU, with Wong Weng Kung, our Chief Executive Officer an director, and Chai Kok Wai, a director of UHT, pursuant to which Messrs. Wong and Chai agreed to transfer to UHT all of the issued and outstanding securities of Virtual Setup Sdn. Bhd., a company organized under the laws of Malaysia, or VSSB. VSSB was formed on July 19, 2010, and is owned in equal parts by Messrs. Wong and Chai. VSSB’s primary asset is its right to purchase and operate an oil palm plantation located in Malaysia in accordance with the terms and conditions of that certain Sale and Purchase Agreement, or the Land Purchase Agreement, dated July 8, 2011, by and between VSSB and Persiaran Abadi Sdn. Bhd., an unaffiliated third party, and that certain Agreement for Rental of Oil Palm Land, or the Rental Agreement, effective July 1, 2011, by and between VSSB and Persiaran Abadi Sdn. Bhd., respectively. VSSB is considered a variable interest entity of UHT.
According to the terms of the MOU, upon the receipt of written notice from Messrs. Wong and Chai, UHT will advance and continue to advance, on VSSB’s behalf, funds up to the aggregate amount of the purchase price of the oil palm plantation as set forth in the Land Purchase Agreement. Messrs. Wong and Chai are obligated to transfer their VSSB securities upon the consummation of the Land Purchase Agreement. Prior to such consummation, Messrs. Wong and Chai are obligated, among other things, to safeguard and protect all assets of VSSB, including the oil palm plantation in accordance with the terms of the Rental Agreement. UHT expects to consummate the Land Purchase Agreement within the next 12 to 15 months.
Current Business Segments
We currently operate in three business segments: (i) the design, development and operation of one or more technologies which enable a community of users to engage in social networking, research and e-commerce on a mobile platform, or the m-commerce business; (ii) the distribution of consumer goods such as high-end timepieces to distributors, independent retailers and individual end-users; and (iii) the operation of an oil palm plantation, or our oilseeds business. Our m-commerce and consumer goods distribution businesses were launched in July 2010 and October 2010, respectively. We commenced operations of our oil palm plantation business in July 2011. We conduct our software development and distribution and product distribution businesses through UHT and our oilseeds business through VSSB, our VIE.
21
As a result of our oil palm plantation acquisition in July 2011, we have shifted our focus to establishing our new oilseeds business. We expect to scale back our m-commerce and product distribution businesses and anticipate winding down, selling or otherwise disposing of our m-commerce operations in the near future as the opportunity arises. We intend to continue to seek business opportunities in the castor oil and palm oil industries with a focus on the acquisition, lease or management of existing castor oil and palm oil plantations located in Asia. We are not parties to any binding agreements or commitments regarding any such disposition, acquisition or business venture, and there can be no assurance that we will be able to successfully consummate such disposition, acquisition or business venture.
Results of Operations
Comparison of the three months ended July 31, 2011 to the three months ended July 31, 2010
The following table shows our revenues by type for the three months ended July 31, 2011 compared to the three months ended July 31, 2010.
|
For the Three Months Ended July 31,
|
$
|
%
|
|||||||||||||
2011
|
2010
|
Change
|
Change
|
|||||||||||||
Net Revenues
|
$
|
300,569
|
$
|
-
|
$
|
300,569
|
NM
|
|||||||||
Software sales
|
295,987
|
-
|
295,987
|
NM
|
||||||||||||
Product sales
|
4,582
|
-
|
4,582
|
NM
|
||||||||||||
Cost of revenue
|
14,764
|
-
|
14,764
|
NM
|
||||||||||||
Gross profit
|
285,805
|
-
|
285,805
|
NM
|
||||||||||||
General and administrative expenses
|
280,680
|
13,728
|
266,952
|
1,945%
|
||||||||||||
Other Income
|
8,165
|
-
|
8,165
|
NM
|
||||||||||||
Interest expense
|
499
|
-
|
499
|
NM
|
||||||||||||
Income tax expense
|
64,721
|
-
|
64,721
|
NM
|
||||||||||||
Net loss
|
(51,930
|
) |
(13,728
|
) |
38,202
|
278%
|
*NM means not meaningful
Revenue. We generated net revenue of $300,569 for the three months ended July 31, 2011 with software sales accounting for $295,987, or 98.5% of net revenues, and product sales accounting for $4,582, or 1.5% of net revenues. We acquired our oilseeds operations in July 2011 and did not generate any revenue for the same period ended July 31, 2011. As we shift our focus to our oilseeds business, we anticipate revenues from our oilseeds business segment to increase and revenues from our m-commerce and product distribution business segments to gradually decrease. We did not generate any revenues for the three months ended July 31, 2010. Prior to the launch of our business operations in July 2010, we were a development stage company with minimal revenues.
Cost of Revenue. Our cost of revenue for the three-month period ended July 31, 2011 was $14,764 as compared to $0 for the same period in 2010. Cost of revenue as a percentage of net revenue was approximately 4.9% for the three months ended July 31, 2011, as compared to 0% for the same period in 2010. The increase is primarily attributable to the operation of our software and product distribution businesses. Cost of revenue consisted primarily of costs of labor that are directly attributable to the sale of software.
Gross Profit. We achieved a gross profit of $285,805 for the three months ended July 31, 2011, as compared to $0 for the same period in 2010. The increase is attributable to the sale of our software products to three customers during the three months ended July 31, 2011.
22
General and Administrative Expenses (“G&A”). We incurred G&A expenses of $280,680 for the three months ended July 31, 2011, representing an increase of $266,952, as compared to $13,728 for the three months ended July 31, 2010. The increase in G&A is primarily attributable to stock based compensation to our Executives in the amount of $60,000, the setup cost for our operation of the oil palm plantation business and the operation of our software and product distribution businesses during the three months ended July 31, 2011. As of July 31, 2011, we were committed to issue 110,610 shares of our common stock to the Executives. These shares were issued on September 7, 2011. G&A as a percentage of net revenue was 93.4% for the three months ended July 31, 2011.
Other Income (Expense). We generated other income of $8,165 for the three months ended July 31, 2011, as compared to $0 for the same period ended July 31, 2010. The other income is attributable to dividend income in lieu of stock of $1,989 and gain on disposal of marketable securities of $6,176. We incurred interest expenses of $499 for the three months ended July 31, 2011, as compared to $0 for the three months ended July 31, 2010. The increase in other expense is attributable primarily to interest incurred in connection with financing the purchase of a motor vehicle on or about the commencement of our business operations.
Income Tax Expense. We recorded income tax expenses of $64,721 for the three months ended July 31, 2011, as compared to $0 for the three months ended July 31, 2010. The increase is primarily attributable to the revenue generated from the operation of our software and product distribution businesses in the three months ended July 31, 2011. Tax expense as a percentage of income before income tax was approximately 506% for the three months ended July 31, 2011.
Comparison of the nine months ended July 31, 2011 to the nine months ended July 31, 2010
The following table shows our revenues by type for the nine months ended July 31, 2011 compared to the nine months ended July 31, 2010.
|
For the Nine Months Ended July 31,
|
$
|
%
|
|||||||||||||
2011
|
2010
|
Change
|
Change
|
|||||||||||||
Net Revenues
|
$
|
1,541,030
|
$
|
-
|
$
|
1,541,030
|
NM
|
|||||||||
Software sales
|
783,971
|
-
|
783,971
|
NM
|
||||||||||||
Product sales
|
757,059
|
-
|
757,059
|
NM
|
||||||||||||
Cost of revenue
|
718,878
|
-
|
718,878
|
NM
|
||||||||||||
Gross profit
|
822,152
|
-
|
822,152
|
NM
|
||||||||||||
General and administrative expenses
|
537,218
|
13,903
|
523,315
|
3,764%
|
||||||||||||
Other Income
|
8,165
|
-
|
8,165
|
NM
|
||||||||||||
Interest expense
|
1,480
|
-
|
1,480
|
NM
|
||||||||||||
Income tax expense
|
153,218
|
-
|
153,218
|
NM
|
||||||||||||
Net income (loss)
|
138,401
|
(13,903
|
) |
152,304
|
1,095%
|
*NM means not meaningful
Revenue. We generated net revenue of $1,541,030 for the nine months ended July 31, 2011 with software sales accounting for $783,971, or 50.9% of net revenues, and product sales accounting for $757,059, or 49.1% of net revenues. We acquired our oilseeds operations in July 2011 and did not generate any revenue for the same period ended July 31, 2011. As we shift our focus to our oilseeds business, we anticipate revenues from our oilseeds business segment to increase and revenues from our m-commerce and product distribution business segments to gradually decrease. We did not generate any revenues for the nine months ended July 31, 2010. Prior to the launch of our business operations in July 2010, we were a development stage company with minimal revenues.
Cost of Revenue. Our cost of revenue for the nine-month period ended July 31, 2011 was $718,878 as compared to $0 for the same period in 2010. Cost of revenue as a percentage of net revenue was approximately 46.6% for the nine months ended July 31, 2011, as compared to 0% for the same period in 2010. The increase is attributable to the operation of our software and product distribution businesses. Cost of revenue consisted primarily of software purchases from Gaeawave Sdn. Bhd., which is controlled by Chai Kok Wai, a director of UHT, in the amount of $98,217 (or approximately 13.7% of the cost of revenue), other software purchase costs from unrelated parties, product costs and costs of labor that are directly attributable to the sale of software and luxury consumer products.
23
Gross Profit. We achieved a gross profit of $822,152 for the nine months ended July 31, 2011, as compared to $0 for the same period in 2010. The increase is attributable to the operation of our software and product distribution businesses during the nine months ended July 31, 2011.
General and Administrative Expenses (“G&A”). We incurred G&A expenses of $537,218 for the nine months ended July 31, 2011, representing an increase of $523,315 as compared to $13,903 for the nine months ended July 31, 2010. The increase in G&A is primarily attributable to stock based compensation to our Executives in the amount of $70,000, the setup cost for our operation of the oil palm plantation business and the operation of our software and product distribution businesses during the nine months ended July 31, 2011. As of July 31, 2011, we were committed to issue 110,610 shares of our common stock to the Executives. These shares were issued on September 7, 2011. G&A as a percentage of net revenue was 34.9% for the nine months ended July 31, 2011.
Other Income (Expense). We generated other income of $8,165 for the nine months ended July 31, 2011, as compared to $0 for the same period ended July 31, 2010. The other income is attributable to dividend income in lieu of stock of $1,989 and gain on disposal of marketable securities of $6,176. We incurred interest expense of $1,480 for the nine months ended July 31, 2011, as compared to $0 for the nine months ended July 31, 2010. The increase in other expense is attributable primarily to interest incurred in connection with financing the purchase of a motor vehicle on or about the commencement of our business operations.
Income Tax Expense. We recorded income tax expenses of $153,218 for the nine months ended July 31, 2011, as compared to $0 for the nine months ended July 31, 2010. The increase is primarily attributable to the revenue generated from the operation of our software and product distribution businesses in the nine months ended July 31, 2011. Tax expense as a percentage of income before income tax was approximately 52.5% for the nine months ended July 31, 2011.
Liquidity and Capital Resources
Sources of Liquidity. We generated net income of $138,401 for the nine months ended July 31, 2011. To date, we have financed our operations through private placements of our common stock which are summarized below:
Private Placement Transactions
|
Gross Proceeds
|
Sale of 999,998 UHT shares of common stock on 9/30/2010
|
$323,760
|
Sale of 1,500,000 shares of the Company’s common stock on 9/27/2010
|
$150,000
|
Sale of 80,000,000 shares of the Company’s common stock on 11/15/2010
|
$800,000
|
Sale of 400,000,000 shares of the Company’s common stock on 2/8/2011
|
$4,000,000
|
Total:
|
$5,273,760
|
Net Cash Provided By Operating Activities. For the nine months ended July 31, 2011, net cash provided by operating activities was $319,521 which consisted primarily of net income of $138,401, stock based compensation of $70,000, dividend income of $1,989, depreciation of $27,400, a gain of $6,176 from disposal of marketable securities, a decrease in accounts receivable of $107,155 and an increase in income tax payables of $153,477, offset by an increase of deposits and other receivables of $59,157 and a decrease in accounts payable and accrued liabilities of $109,132. For the nine months ended July 31, 2010, net cash provided by operating activities was $123,594, which consisted of net loss of $13,903, depreciation of $1,014 and an increase in accounts payable and accrued liabilities of $155,114, offset by an increase of deposits and other receivables of $18,631.
24
Net Cash Used in Investing Activities. For the nine months ended July 31, 2011, net cash used in investing activities was $2,790,536, $1,856,762 of which was used to purchase of marketable securities, $799,674 of which was placed as a deposit to purchase our oil palm plantation and $134,100 of which was used to purchase of plant and equipment. Our portfolio of marketable securities consist of securities listed on the Bursa Malaysia and are selected and managed internally by management. During the nine months ended July 31, 2010, net cash used in investing activities consisted of $67,606 used in the purchase of plant and equipment.
Net Cash Provided By Financing Activities. For the nine months ended July 31, 2011, net cash provided by financing activities was $4,847,667, consisting primarily of $4,800,000 from the sale of our common stock, $54,142 of advances from Mr. Wong, our Chief Executive Officer and director, and offset by payments of $6,475 on a finance lease. During the comparable period ended July 31, 2010, net cash provided by financing activities was $300,083, consisting of $300,497 from the sale of our common stock and $414 of repayments to Mr. Wong of previously made advances.
Funding Requirements. We expect to incur greater expenses, including expenses related to the hiring of sales personnel and the establishment of international offices in the near future. We expect that our general and administrative expenses will also increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a public company, including directors’ and officers’ insurance, investor relations programs, and increased professional fees. Our future capital requirements will depend on a number of factors, including the timing of future business acquisitions, if any, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property rights, the acquisition of strategic partnerships, the status of competitive products, the availability of financing, and our success in developing markets for our products and services.
We believe that the net proceeds from our recent private placement transactions, together with our existing cash, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the end of the second calendar quarter of 2012. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, especially if we acquire one or more businesses or choose to expand our product development efforts more rapidly than we presently anticipate. In addition, we may decide to raise additional funds even before we need them if the conditions for raising capital are favorable. In such event, we may finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We may also seek to sell additional equity or debt securities or obtain one or more credit facilities. We do not currently have any commitments for future external funding.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.
25
Use of estimates
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.
Basis of consolidation
The condensed consolidated financial statements include the accounts of PGCG and its subsidiary and VIE. All significant inter-company balances and transactions between the Company and its subsidiary and VIE have been eliminated upon consolidation.
The Company has adopted the Accounting Standards Codification (“ASC”) Topic 810-10-25, “Variable Interest Entities” (“ASC 810-10-25”). ASC 810-10-25 requires a variable interest entity or VIE to be consolidated by the Company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.
Cash and cash equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Marketable securities, available-for-sale
These marketable securities are classified as available-for-sale and are recorded at their fair market values with the corresponding unrealized holding gains or losses, recorded as a separate component of other comprehensive income within stockholders’ equity. The fair value of marketable securities is determined based on quoted market prices at the balance sheet dates. Realized gains and losses are determined by the difference between historical purchase price and gross proceeds received when the marketable securities are sold.
The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to the ASC Topic 820.
Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
Expected useful life
|
|
Motor vehicle
|
5 years
|
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
Impairment of long-lived assets
Long-lived assets primarily include plant and equipment. In accordance with the provision of ASC Topic 360-10-5, “Impairment or Disposal of Long-Lived Assets”, the Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for any periods presented.
26
Finance leases
Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, “Imputation of Interest”.
Revenue recognition
Revenues from the sale of software and product sales are recognized and billed upon delivery of the product provided that persuasive evidence of an arrangement exists, collection is probable, payment terms are fixed or determinable and no significant obligations remain, in accordance with ASC Topic 605, “Revenue Recognition”.
(a) Software sales
The Company generally sells the software products under multiple element arrangements at the fixed fee, based upon the customers’ specifications or modifications, bundled with maintenance and support service for a certain period of time. Maintenance and support service consists of technical support and software upgrades and enhancements. The Company allocates the total arrangement fee among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. The Company limits its assessment of fair value of each element to the price charged when the same element is sold separately. If the fair value of each element in a multiple element arrangement cannot be reliably determined, and if the fair value of any undelivered element cannot also be reliably determined, all revenue under the arrangement is deferred until such time as the only remaining undelivered element is maintenance and support, at which time revenue is recognized over the remaining maintenance and support service period. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. For the billed software product sales, the revenue from the undelivered element is included in deferred revenue and amortized ratably to revenue over its contractual term, typically one year.
The Company generally offers product warranty and post-contract customer support (“PCS”) to its customers for a period of twelve months, free of charge. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
(b) Product sales
The Company also earns the revenue from trading of luxury consumer products. Revenue is recognized when title passes to the customer, which is generally when the product is delivered, assuming no significant Company obligations remain and the collection of relevant receivables is probable.
Income taxes
Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). 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 existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United States Dollars ("US$") and the accompanying condensed financial statements have been expressed in US$. In addition, the Company maintains its books and records in its local currency, Malaysian Ringgit ("MYR"), which is functional currency as being the primary currency of the economic environment in which the entity operates.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Stock based compensation
The Company accounts for employee stock-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation" which requires to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services.
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
Segment reporting
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements.
Fair value of financial instruments
The carrying value of the Company’s financial instruments (excluding obligation under finance lease): cash, deposits and other receivables, deferred revenue, income tax payable, amount due to a director, accounts payable and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its obligation under finance lease approximate the carrying amount.
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The Company also follows the guidance of ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
·
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Level 1: Observable inputs such as quoted prices in active markets;
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·
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Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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·
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Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions
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Recent Accounting Pronouncements
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations
Not applicable.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of July 31, 2011, and during the period prior to and including the date of this report, were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Changes In Internal Control Over Financial Reporting
There have been no material changes in internal control over financial reporting that occurred during the fiscal quarter ended July 31, 2011, that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
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We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
Not applicable.
None.
None.
None.
Exhibit No.
|
Name of Exhibit
|
2.1
|
Articles of Exchange (1)
|
2.2
|
Share Exchange Agreement, dated December 6, 2010, by and between Home Touch Holding Company, on the one hand, and Union Hub Technology Sdn. Bhn., Wooi Khang Pua and Kok Wai Chai, on the other hand (2)
|
2.3
|
Share Exchange Agreement, dated January 26, 2009, by and between Home Touch Holding Company and Home Touch Limited (3)
|
3.1
|
Amended and Restated Articles of Incorporation of Home Touch Holding Company (Incorporated by reference from Exhibit 2.1 hereto)
|
3.2
|
Amended and Restated Bylaws of Home Touch Holding Company (4)
|
4.1
|
Form of common stock certificate (1)
|
21
|
List of Subsidiaries (2)
|
31.1
|
Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
|
31.2
|
Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
32.2
|
Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
101.INS
|
XBRL Instance Document*
|
101.SCH
|
XBRL Schema Document*
|
101.CAL
|
XBRL Calculation Linkbase Document*
|
101.DEF
|
XBRL Definition Linkbase Document*
|
101.LAB
|
XBRL Label Linkbase Document*
|
101.PRE
|
XBRL Presentation Linkbase Document* |
______________________
* Filed herewith.
(1)
|
Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 22, 2011.
|
(2)
|
Incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on December 7, 2010.
|
(3)
|
Incorporated by reference from Amendment No. 2 to our registration statement filed on Form S-1 with the Securities and Exchange Commission on September 2, 2009.
|
(4)
|
Incorporated by reference from Exhibit 2 to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on January 5, 2011.
|
30
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.
PRIME GLOBAL CAPITAL GROUP INCORPORATED
|
||
By:
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/s/ Weng Kung Wong
|
|
Weng Kung Wong
|
||
Chief Executive Officer
|
||
By:
|
/s/ Liong Tat Teh
|
|
Liong Tat Teh
|
||
Date: September 14, 2011
|
Chief Financial Officer
|
31