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EX-21 - LIST OF SUBSIDIARIES - PRIME GLOBAL CAPITAL GROUP Incpgcg_10qex21.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Incpgcg_10qex3101.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Incpgcg_10qex3201.htm
EX-32.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - PRIME GLOBAL CAPITAL GROUP Incpgcg_10qex3202.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - PRIME GLOBAL CAPITAL GROUP Incpgcg_10qex3102.htm
EXCEL - IDEA: XBRL DOCUMENT - PRIME GLOBAL CAPITAL GROUP IncFinancial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


 

FORM 10-Q

 

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2015

 

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

 

Commission File Number 000-54288

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

NEVADA   26-4309660
(State or Other Jurisdiction   (I.R.S. Employer
of Incorporation or Organization)   Identification No.)

 

E-5-2, Megan Avenue 1, Block E

Jalan Tun Razak

50400 Kuala Lumpur, Malaysia

603 2162 0773

(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   Accelerated filer S
     
Non-accelerated filer o   Smaller reporting company o
(Do not check if smaller reporting company)    

 

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

 

As of March 10, 2015, the issuer had outstanding 512,682,393 shares of common stock.

 

 
 

 

TABLE OF CONTENTS

 

    Page
     
     
PART I FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements  
     
  Condensed Consolidated Balance Sheets as of January 31, 2015 (Unaudited) and October 31, 2014 (Audited) 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended January 31, 2015 and 2014 (Unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2015 and 2014 (Unaudited) 3
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 4
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
     
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 31
     
ITEM 4 Controls and Procedures 32
     
PART II OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 33
     
ITEM 1A Risk Factors 33
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 33
     
ITEM 3 Defaults upon Senior Securities 33
     
ITEM 4 Mine Safety Disclosures 33
     
2ITEM 5 Other Information 33
     
ITEM 6 Exhibits 33
     
SIGNATURES   35
     

 

 
 

 

PART I   FINANCIAL INFORMATION

ITEM 1 Financial Statements

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

   January 31, 2015   October 31, 2014 
ASSETS          
Current assets:          
Cash and cash equivalents  $934,392   $1,785,334 
Accounts receivable   193,074    216,712 
Deposits and other receivables   23,575    36,824 
           
Total current assets   1,151,041    2,038,870 
           
Accounts receivable   873,088    972,569 
Property, plant and equipment, net   54,238,098    58,160,698 
 
TOTAL ASSETS
  $56,262,227   $61,172,137 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $4,536   $7,880 
Amount due to a related party   180,276    180,197 
Rental deposits from tenants   538,395    686,589 
Income tax payable    647,203    759,090 
Current portion of long-term bank loan   891,747    643,544 
Current portion of obligation under finance lease   2,478    2,737 
Accrued liabilities and other payables   301,944    340,238 
           
Total current liabilities   2,566,579    2,620,275 
           
Long-term liabilities:          
Long-term bank loan   12,567,132    14,051,758 
Amount due to a director   3,047,859    3,851,394 
Obligation under finance lease   5,569    6,834 
           
Total liabilities   18,187,139    20,530,261 
           
Commitments and contingencies          
           
Stockholders’ equity:          
Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding        
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 512,682,393 shares issued and outstanding, as of January 31, 2015 and October 31, 2014   512,683    512,683 
Additional paid-in capital   41,934,476    41,934,476 
Accumulated other comprehensive loss   (3,321,110)   (1,273,596)
Accumulated losses   (920,482)   (425,635)
    38,205,567    40,747,928 
Non-controlling interest   (130,479)   (106,052)
           
Total stockholders’ equity   38,075,088    40,641,876 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $56,262,227   $61,172,137 

 

See accompanying notes to condensed consolidated financial statements.

 

1
 


PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

   Three months ended January 31, 
   2015   2014 
Revenues, net:          
Plantation business  $51,572   $64,009 
Rental income   485,838    137,651 
Total revenues, net   537,410    201,660 
           
Cost of revenues   (113,517)   (103,692)
           
Gross profit   423,893    97,968 
           
Operating expenses:          
General and administrative   (613,445)   (461,045)
           
Loss from operations   (189,552)   (363,077)
           
Other (expense) income          
Interest income   14,869    15,233 
Interest expense   (344,697)   (294,368)
Other income   106    6,434 
           
Other (expense) income, total   (329,722)   (272,701)
           
Loss before income taxes   (519,274)   (635,778)
           
Income tax expense       (4,754)
           
Net loss  $(519,274)  $(640,532)
           
Less: Net loss attributable to non-controlling interest   (24,427)    
           
Net loss attributable to Prime Global Capital Group Incorporated  $(494,847)  $(640,532)
           
Other comprehensive loss:          
- Foreign exchange adjustment loss   (2,058,670)   (1,151,231)
           
COMPREHENSIVE LOSS  $(2,553,517)  $(1,791,763)
           
Net loss per share – Basic and diluted  $*(0.00)  $*(0.00)
           
Weighted average common stock outstanding – Basic and diluted   512,682,393    512,682,393 

 

* Less than $0.01 per share

 

See accompanying notes to condensed consolidated financial statements.

 

2
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars (“US$”))

(Unaudited)

 

   Three months ended January 31, 
   2015   2014 
Cash flows from operating activities:          
Net loss  $(519,274)  $(640,532)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property, plant and equipment   160,040    173,811 
Changes in operating assets and liabilities:          
Accounts receivable   11,250    (69,247)
Advances to suppliers       (458)
Deposits and other receivables   10,245    1,743 
Accounts payable   (2,726)   (2,972)
Income tax payable   (43,300)   4,754 
Rental deposits from tenants   (87,362)   334,740 
Accrued liabilities and other payables   (25,881)   (214,263)
Net cash used in operating activities   (497,008)   (412,424)
           
Cash flows from investing activities:          
Proceeds from non-controlling interest       6,040,654 
Purchase of property, plant and equipment   (17,508)   (1,532)
Net cash (used in) provided by investing activities   (17,508)   6,039,122 
           
Cash flows from financing activities:          
Repayment to related parties   (478,104)   (1,700,618)
Proceeds from bank loans   11,367,127     
Repayments on bank loans   (11,207,394)   (38,397)
Payments on finance lease   (650)   (962)
Net cash used in financing activities   (319,021)   (1,739,977)
           
Foreign currency translation adjustment   (17,405)   (101,311)
           

NET CHANGE IN CASH AND CASH EQUIVALENTS

   (850,942)   3,785,410 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   1,785,334    659,647 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $934,392   $4,445,057 
           
Cash paid for income tax  $43,300   $ 
Cash paid for interest  $344,697   $275,688 

 

See accompanying notes to condensed consolidated financial statements.

 

3
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 1 - BASIS OF PRESENTATION

 

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, 2014 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 January 31, 2015 are not necessarily indicative of the results to be expected for the entire fiscal year ending October 31, 2015 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, 2014.

 

 

NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND

 

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 name to Prime Global Capital Group Incorporated.

 

Currently, the Company, through its subsidiaries, is principally engaged in the operation of a palm oil plantation, leasing of commercial properties and development of residential real estate properties in Malaysia.

 

Summary of the Company’s subsidiaries

 

   

 

Name of entities

  Place of incorporation   Date of incorporation  

 

Issued capital

 

 

Nature of business

                     
1.   Union Hub Technology Sdn. Bhd. (“UHT”)  

Malaysia

 

  February 22, 2008   1,000,000 issued shares of ordinary shares of MYR 1 each   Provision of IT consulting and programming services and distributing consumer products
                     
2.   Power Green Investments Limited (“PGIL”)  

British Virgin Islands

 

  January 13, 2011   1 issued share of US$ 1 each   Inactive operation
                     
3.   PGCG Properties Investment Limited (“PPIL”)  

British Virgin Islands

 

  September 1, 2011   1 issued share of US$ 1 each   Inactive operation
                     
4.   Virtual Setup Sdn. Bhd. (“VSSB”)  

Malaysia

 

  January 17, 2010   2 issued shares of ordinary shares of MYR 1 each   Operation of Oil Palm plantation
                     
5.   PGCG Assets Holdings Sdn. Bhd. (“PGCG Assets”)  

Malaysia

 

  March 21, 2012   2,000,000 issued shares of ordinary shares of MYR 1 each   Investment in land & buildings

 

4
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

6.   PGCG Development Sdn. Bhd. (“PGCG Development”)  

Malaysia

 

  March 21, 2012   250,000 issued shares of ordinary shares of MYR 1 each   Inactive operation
                     
7.   PGCG Plantations Sdn. Bhd. (“PGCG Plantation”)  

Malaysia

 

  October 4, 2011   2 issued shares of ordinary shares of MYR 1 each   Holding company of VSSB
                     
8.   Max Trend International Limited (“Max Trend”)  

Hong Kong

 

  August 19, 2010   2 issued shares of ordinary shares of HK$ 1 each   Holding company of Max Trend WFOE
                     
9.   Shenzhen Max Trend Green Energy Company Limited (Max Trend WOFE) (“SMTG”)   The People’s republic of china (“PRC”), Shenzhen   January 7, 2011   RMB 1,000,000   Castor cultivation, advisory services, and trading, in the deregistration process currently
                     
10.   Dunford Corporation Sdn. Bhd.   Malaysia   October 4, 1990   242,000 issued shares of ordinary shares of MYR 1 each   Property holding land
                     
11.   Impiana Maksima Sdn. Bhd.   Malaysia   March 15, 2014   2 issued shares of ordinary shares of MYR 1 each   Property development
                     
12.   PGCG Constructions Sdn. Bhd.   Malaysia   April 16, 2014   2 issued shares of ordinary shares of MYR 1 each   Construction of properties
                     
13.   Fiesta Senada Sdn Bhd       Malaysia   November 20, 2012   2 issued shares of ordinary shares of MYR 1 each   Inactive
                     
14.   Havana Avenue Sdn Bhd       Malaysia   April 3, 2014   2 issued shares of ordinary shares of MYR 1 each   Inactive

 

PGCG and its subsidiaries are hereinafter referred to as (the “Company”).

 

 

NOTE 3 - GOING CONCERN UNCERTAINTIES

 

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As of January 31, 2015, the Company suffered from an operating loss and working capital deficit of $1,415,538. The continuation of the Company as a going concern is dependent upon improving the profitability and the continuing financial support from its stockholders. Management believes the existing shareholders or external financing will provide the additional cash to meet the Company’s obligations as they become due.

 

5
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

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 - 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.

 

·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 subsidiaries. All significant inter-company balances and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

 

·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.

 

  January 31, 2015   October 31, 2014 
Bank balances held by financial institutions located in:          
Malaysia  $831,804   $1,669,722 
The PRC   101,849    113,309 
    933,653    1,783,031 
Cash on hand in Malaysia   739    2,303 
   $934,392   $1,785,334 

 

As of January 31, 2015 and October 31, 2014, the restricted amount of cash held by our PRC subsidiary in China was $101,849 and $113,309.

 

·Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

 

6
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

·Properties, plant and equipment

 

Properties and 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:

 

Categories   Location of properties   Expected useful life
Freehold plantation land   Palm oil plantation in Malaysia   Indefinite, as per land titles
Leasehold land under development   Leasehold land in Puncak Alam, Malaysia   Remaining lease life of 88 years, as per land titles
Freehold land under development   Freehold land in Sungai Long, Cheras, Selangor, Malaysia   Indefinite, as per land titles
Freehold land and land improvement for rental purpose commercial building   Land portion of 15 story buildings “Menara CMY” in Kuala Lumpar, Malaysia

 

 

Indefinite, as per property titles
Building structure and improvements   Building structure of commercial buildings in Kuala Lumpar, Malaysia, including: 12 story building “Megan Avenue” and 15 story building “Menara CMY”   33 years
Office furniture and equipment       3-10 years
Motor vehicle       5 years

 

Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, 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.

 

Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “ Impairment or Disposal of Long-Lived Assets ”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. 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 the periods presented.

 

The Company has separately identified the portion of freehold land and building structure, in which freehold land is not subject to amortization and buildings are to be amortized over 33 years on a straight-line method, based on applicable local laws and practice.

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development.

 

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The Company adopts the capitalization policy on development properties, which is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, salaries and related costs and other costs incurred during the period of development. The Company considers a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.

 

7
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

The Company capitalizes leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. The Company allocates these costs to individual tenant leases and amortizes them over the related lease term.

 

·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

 

The Company recognizes its revenue in accordance with ASC 985-20 with respect to revenue generated in connection with software sales and ASC Topic 605, “Revenue Recognition”, upon the delivery of its plantation products when: (1) title and risk of loss are transferred; (2) persuasive evidence of an arrangement exists; (3) there are no continuing obligations to the customer; and (4) the collection of related accounts receivable is probable. The Company’s sale arrangements do not contain general rights of return.

 

(a) Plantation sales

 

Revenue from the sale of palm oilseed is recognized upon confirmation of the weight of fresh fruit bunches and shipment to the customer, when there is persuasive evidence of an arrangement, delivery has occurred and risk of loss has passed, the sales price is fixed or determinable at the date of sale, and collectability is reasonably assured.

 

(b) Rental income

 

The Company generally leases the units under operating leases with terms of two years or less. For the three months ended January 31, 2015 and 2014, we have recorded $485,838 and $137,651 in lease revenue, based upon its annual rental over the life of the lease under operating lease, using the straight-line method in accordance with ASC Topic 970-605, “Real Estate – General – Revenue Recognition” (“ASC Topic 970-605”).

 

As of January 31, 2015, the commercial buildings for lease are as follows:

 

 

Name of Commercial building

Number of units

(by floor)

Footage area

(square feet)

Vacancy percentage
Megan Avenue 12 19,987 50%
Menara CMY 15 91,848 0%

 

8
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

We expect to record approximately $2.1 million in annual lease revenue under the operating lease arrangements in the next twelve months through January 31, 2016.

 

The Company leases store location and office spaces to the tenants under operating lease arrangements. The Company receives rental income from the real estates it owns for a stated period of times. Rental income is recognized over the life of the operating lease agreement as it is earned in the period under ASC Topic 970-605. The typical leases contain initial terms of one to two years with renewal options and do not contain escalating rent amounts. Under the lease agreement of Menara CMY, the initial term of lease is one year, Provided that there are no existing breaches by the tenant, an irrevocable annual renewal option is granted for up to twenty-nine years, with a maximum aggregate term of thirty years. Six-months’ rent-free period under the operating lease agreement is treated as long-term rent concession, which is being amortized as an offset to revenues collected over the term of the underlying lease of 30 years on a straight-line basis. The balance of unamortized rent concession is recorded as non-current portion of accounts receivable.

 

  January 31, 2015   October 31, 2014 
Rental receivable:          
Current portion  $193,074   $216,712 
Non-current portion   873,088    972,569 
Total  $1,066,162   $1,189,281 

 

The estimated amortization on long-term rent concession in the next five years and thereafter is as follows:

 

Period ending January 31:    
2016  $30,281 
2017   30,281 
2018   30,281 
2019   30,281 
2020   30,281 
Thereafter   721,683 
      
Total  $873,088 

 

As of January 31, 2015, the minimum future rental receivables to be collectible in the next five years and thereafter are as follows:

 

Period ending January 31:    
2016  $1,786,549 
2017   1,786,549 
2018   1,786,549 
2019   1,786,549 
2020   1,786,549 
Thereafter   42,579,441 
      
Total  $51,512,186 

 

The Company also records operating costs directly attributable to the leasing properties, such as real estate taxes, depreciation of the leased properties and property management fees, which are charged to expense when incurred. For leases classified as operating, the Company’s lessee records rent expense on a straight-line basis over the lesser of the lease term, including renewal options, taking into consideration of rent holidays or any rent concessions.

 

9
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

·Cost of revenues

 

Cost of revenue on plantation sales includes rental on plantation land, material supplies and subcontracting costs incurred for planting, fertilizing and harvesting the palm oil tree. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues.

 

Rental expenses shown on the accompanying statements of operations include costs associated with on-site and property management personnel, repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs. Utility expenses are paid directly by tenants. 

 

·Comprehensive income

 

ASC Topic 220, “Comprehensive Income” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

 

·Income taxes

 

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 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 periods 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.

 

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 local and foreign tax authorities.

 

·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$”) and the accompanying financial statements have been expressed in US$. In addition, the Company maintains its books and record in a local currency, Malaysian Ringgit (“MYR”), Hong Kong Dollars (“HK$”) and Renminbi Yuan (“RMB”), which is functional currency as being the primary currency of the economic environment in which the entity operates.

 

10
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

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:

 

   As of and for the period ended January 31, 
   2015   2014 
Period-end RMB : US$1 exchange rate   6.15230    6.10790 
Period-average RMB : US$1 exchange rate   6.13310    6.11848 
Period-end HK$ : US$1 exchange rate   7.75200    7.76590 
Period-average HK$ : US$1 exchange rate   7.75390    7.75469 
Period-end MYR : US$1 exchange rate   3.63270    3.34550 
Period-average MYR : US$1 exchange rate   3.46420    3.26371 

 

·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. During the period ended January 31, 2015, the Company operates in two reportable operating segments in Malaysia.

 

·Fair value of financial instruments

 

The carrying value of the Company’s financial instruments (excluding obligation under finance lease): cash and cash equivalents, accounts receivable, deposits and other receivables, deferred revenue, income tax payable, amount due to a director, accrued liabilities and other payables 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 approximates the carrying amount.

 

The Company also follows the guidance of the 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

 

·Recent accounting pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do 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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following:

 

   January 31, 2015   October 31, 2014 
           
Freehold plantation land  $7,845,805   $7,845,805 
Leasehold land under development   4,276,764    4,276,764 
Freehold land under development   18,091,173    18,091,173 
Freehold land and land improvement for rental purpose commercial building   15,191,123    15,191,123 
Building structure and improvements   15,857,410    15,857,410 
Office furniture, fixture and equipment   124,852    123,798 
Motor vehicles   182,501    166,047 
Foreign translation difference   (6,113,599)   (2,214,927)
    55,456,029    59,337,193 
Less: accumulated depreciation   (1,502,475)   (1,342,435)
Less: foreign translation difference   284,544    165,940 
 
Property, plant and equipment, net
  $54,238,098   $58,160,698 

 

 

Depreciation expense for the three months ended January 31, 2015 and 2014 amounted to $160,040 and $173,811, respectively.

 

Both commercial buildings in Kuala Lumpur, Malaysia are pledged against the bank loans (note 8).

 

To date, the Company is in the process of preparing the development layout plan for submission to and approval by local authorities. Thereafter, the Company will begin the process of preparing the building plan for submission and approval. The Company anticipates the submission of building plans in the first calendar quarter of 2015 and will commence construction in the third calendar quarter of 2015.

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of January 31, 2015, there was no such capitalized interest.

 

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The Company adopts the capitalization policy on development properties, which is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, salaries and related costs and other costs incurred during the period of development. The Company considers a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.

 

The Company capitalizes leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. The Company allocates these costs to individual tenant leases and amortizes them over the related lease term.

 

12
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 6 - AMOUNTS DUE TO RELATED PARTIES

 

   January 31, 2015   October 31, 2014 
Current portion:          
Amount due to a related party, which were unsecured, interest-free and repayable on demand,          
Mr. Pua Woi Khang, a subsidiary’s director  $180,276   $180,197 
           
Non-current portion:          
Amount due to a related party, where was unsecured, interest-free and not expected to be repaid in the next twelve months          
Mr. Weng Kung Wong, the Company’s director  $3,047,859   $3,851,394 

 

 

NOTE 7 - ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consist of the following:

 

   January 31, 2015   October 31, 2014 
         
Accrued operating expenses  $69,564   $184,842 
Accrued interest expense   15,728    17,369 
Potential tax penalty liability   110,000    110,000 
Other payable   106,652    28,027 
 
  $301,944   $340,238 

 

 

NOTE 8 - BANK LOANS

 

   January 31, 2015   October 31, 2014 
Bank loans from financial institutions in Malaysia,          
Bank of China (Malaysia) Berhad  $10,839,871   $ 
Hong Leong Bank Berhad       11,787,157 
RHB Bank Berhad   2,619,008    2,908,145 
    13,458,879    14,695,302 
Less: current portion   (891,747)   (643,544)
 
Bank loans, net of current portion
  $12,567,132   $14,051,758 

 

15 Story Bank Loan

 

In December 2012, the Company, through PGCG Assets obtained a loan in the principal amount of RM41,000,000 from Hong Leong Bank Berhad, a financial institution in Malaysia to finance the acquisition of a fifteen story office building property, which bears interest at a rate of 1.75% per annum over the lending rate, variable rate quoted by the bank, with 180 monthly installments over a period of 15 years and will mature on January 31, 2028. The outstanding amount was fully repaid by a new loan refinanced by Bank of China (Malaysia) Berhad in December 2014, which bears interest at a rate of 1% per annum over the lending rate, currently 6.6% per annum, with 120 monthly installments over a period of 10 years and will mature in December 2024.

 

13
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

The loan from Bank of China Berhad is secured by all assets held by PGCG Assets and is personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and its subsidiary, UHT.

 

12 Story Bank Loan

 

In May 2014, the Company, through PGCG Assets obtained a loan in the aggregate amount of RM9,840,000 from RHB Bank Berhad, a financial institution in Malaysia to finance the acquisition of a twelve story office building property, which bears interest at a rate of 1.90% per annum over the lending rate, variable rate quoted by the bank, with 288 monthly installments over a period of 24 years and will mature in 2037.

 

The loan is secured by all assets held by PGCG Assets and is personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and the director of the Company’s subsidiary, Mr. Kok Wai Chai and its subsidiary, UHT.

 

As of January 31, 2015, the minimum future payments of the aggregate bank borrowings in the next five years and thereafter are as follows:

 

Period ending January 31:    
2016  $891,747 
2017   952,241 
2018   1,018,757 
2019   1,090,055 
2020   1,167,187 
Thereafter   8,338,892 
      
Total:  $13,458,879 

 

For the three months ended January 31, 2015 and 2014, the lending rate is 6.6% per annum.

 

 

NOTE 9 - 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 April 8, 2018, with principal and interest payable monthly. The obligation under the finance lease is as follows:

 

   January 31, 2015   October 31, 2014 
         
Finance lease  $9,811   $11,335 
Less: interest expense   (1,764)   (1,764)
           
Net present value of finance lease  $8,047   $9,571 
           
Current portion  $2,478   $2,737 
Non-current portion   5,569    6,834 
           
Total  $8,047   $9,571 

 

14
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

As of January 31, 2015, the maturities of the finance lease for each of the four years are as follows:

 

Period ending January 31:            
2016         $ 2,478
2017           2,478
2018           2,478
2019           613
             
Total         $ 8,047

 

 

NOTE 10 - INCOME TAXES

 

The local (United States) and foreign components of loss before income taxes were comprised of the following:

 

   Three months ended January 31, 
   2015   2014 
Tax jurisdictions from:          
– Local  $(126,680)  $(17,137)
– Foreign, representing:          
Malaysia   (389,236)   (603,048)
Hong Kong       (52)
The PRC   (3,358)   (15,541)
Loss before income taxes  $(519,274)  $(635,778)

 

Provision for income taxes consisted of the following:

 

   Three months ended January 31, 
   2015   2014 
Current:          
– Local  $   $ 
– Foreign, representing:          
BVI        
Malaysia       4,754 
Hong Kong        
The PRC        
           
Deferred:          
– Local        
– Foreign        
Income tax expense  $   $4,754 

 

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 periods presented, the Company has a number of subsidiaries that operates in different countries and is subject to tax in the jurisdictions in which it subsidiaries operate, as follows:

 

United States of America

 

PGCG is registered in the State of Nevada and is subject to United States of America tax law. As of January 31, 2015, the operations in the United States of America incurred $388,724 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2035, if unutilized. The Company has provided for a full valuation allowance of $136,054 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.

 

15
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

The Company has adopted ASC 740-10 “Accounting for Income Taxes” and recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon. The amount, recorded as an obligation, is $110,000 at January 31, 2015, and represents the maximum possible penalty accrual for the late filing of the Company’s U.S. tax returns.

 

British Virgin Islands

 

Under the current BVI law, the Company’s subsidiaries are not subject to tax on income. No provision for income tax is required due to operating loss incurred.

 

Hong Kong

 

Max Trend is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% on its assessable income. No provision for income tax is required due to operating loss incurred. The Company has provided for a full valuation allowance against the deferred tax assets of $884 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.

 

The PRC

 

SMTG is subject to the Corporate Income Tax governed by the Income Tax Law of the People’s Republic of China with a unified statutory income tax rate of 25%. No provision for income tax is required due to operating loss incurred during the three months ended January 31, 2015.

 

Malaysia

 

All of the Company’s subsidiaries operating in Malaysia subject to the Malaysia Corporate Tax Laws at a progressive income tax rate starting from 20% on the assessable income for its tax year. A reconciliation of loss before income taxes to the effective tax rate as follows:

 

   Three months ended January 31, 
   2015   2014 
Loss before income taxes  $(389,236)  $(603,048)
Statutory income tax rate   20%   20%
Income tax at statutory tax rate   (77,847)   (120,609)
Tax effect of non-deductible expenses       7,502 
Net operating loss   77,847    117,861 
Income tax expense  $   $4,754 

 

The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of January 31, 2015 and October 31, 2014:

 

   January 31, 2015   October 31, 2014 
Deferred tax assets:          
Capital loss  $44,199   $44,199 
Net operating loss carryforwards:          
- United States of America   136,054    47,778 
- Hong Kong   884    884 
- The PRC   19,986    19,197 
Total deferred tax assets   201,123    112,058 
Less: valuation allowance   (201,123)   (112,058)
Deferred tax assets  $   $ 

 

16
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 11 - STOCKHOLDERS’ EQUITY

 

As of January 31, 2015, the number of shares of the Company’s common stock issued and outstanding is 512,682,393 shares. There are no shares of preferred stock issued and outstanding.

 

 

NOTE 12 - SEGMENT INFORMATION

 

(a)Business segment reporting

 

The Company operates two reportable business segments, as defined by ASC Topic 280:

 

·Plantation business – sale of palm oilseed in Malaysia
·Real estate business – acquisition and development of commercial and residential real estate properties in Malaysia

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 3). The Company had no inter-segment sales for the periods presented. Summarized financial information concerning the Company’s reportable segments is shown as below:

 

   Three months ended January 31, 2015 
   Software Business   Plantation Business   Real Estate Business   Corporate   Total 
                     
Revenues from external customer  $   $51,572   $493,580   $   $545,152 
Inter-segment revenue           (7,742)       (7,742)
Revenues, net       51,572    485,838        537,410 
Cost of revenues       (36,423)   (77,094)       (113,517)
                          
Gross profit       15,149    408,744        423,893 
Depreciation       5,230    148,952    5,858    (160,040)
Net loss       (17,611)   (268,593)   (233,070)   (519,274)
Total assets       6,932,786    49,211,484    117,956    56,262,227 
Expenditure for long-lived assets  $   $17,508   $   $   $17,508 

 

   Three months ended January 31, 2014 
   Software Business   Plantation Business   Real Estate Business   Corporate   Total 
                     
Revenues, net  $   $64,009   $137,651   $   $201,660 
Cost of revenues   (5,661)   (31,298)   (66,733)       (103,692)
Gross (loss)/profit   (5,661)   32,711    70,918        97,968 
Depreciation   1,032    4,428    158,737    9,614    173,811 
Net loss   (6,694)   (1,006)   (452,831)   (180,001)   (640,532)
Total assets   11,210    7,947,692    54,723,845    299,270    62,982,017 
Expenditure for long-lived assets  $   $   $   $1,532   $1,532 

 

All long-lived assets are located in Malaysia.

 

17
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 13 - CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a) Major customers

 

For the three months ended January 31, 2015 and 2014, the customer who accounted for 10% or more of the Company’s revenues is presented as follows:

 

      Three months ended January 31, 2015   January 31, 2015 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Customer H  Real estate  $468,362    87%  $ 
Customer I  Plantation   51,226    10%    
Total:     $519,588    97%  $ 

 

      Three months ended January 31, 2014   January 31, 2014 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Customer H  Real estate   84,260    42%   82,200 
Customer I  Plantation  $64,009    32%  $ 
Customer J  Real estate   27,576    14%    
Total:     $175,845    88%  $82,200 

 

All customers are located in Malaysia.

 

(b) Major vendors

 

For the three months ended January 31, 2015 and 2014, the vendor who accounted for 10% or more of the Company’s purchases is presented as follows:

 

   Three months ended January 31, 2015   January 31, 2015 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor E  $7,561    21%  $ 
Vendor F   21,496    59%   4,473 
   $29,057    80%  $4,473 

 

   Three months ended January 31, 2014   January 31, 2014 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor D  $5,661    15%  $ 
Vendor E   8,379    23%   4,093 
Vendor F   14,848    40%    
Total:  $28,888    78%  $4,093 

 

All vendors are located in Malaysia.

 

18
 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

(c)Credit risk

 

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

 

(d) Interest rate risk

 

As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

 

The Company’s interest-rate risk arises from bank loans and finance leases. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of January 31, 2015, bank loans and finance leases were at fixed rates.

 

(e) Exchange rate risk

 

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in MYR and RMB, and a significant portion of the assets and liabilities are denominated in MYR and RMB. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$, MYR and RMB. If MYR and RMB depreciates against US$, the value of MYR and RMB revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

 

(f) 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 14 - COMMITMENTS AND CONTINGENCIES

 

(a) Operating lease commitment

 

As of January 31, 2015, the Company occupied its own building premises and has no future minimum rental payments due under various operating leases in the next twelve months.

 

(b) Capital commitment

 

As of January 31, 2015, the Company does not anticipate any significant future contingent payment in the next twelve months.

 

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PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2015

(Currency expressed in United States Dollars (“US$”), except for number of shares)

(Unaudited)

 

 

NOTE 15 - SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after January 31, 2015 up through the filing date of these condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

 

 

 

 

 

 

 

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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

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”). 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.

 

Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. References to “MYR” are to the Malaysian Ringgit, the legal currency of Malaysia. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

 

Overview

 

During the three months ended January 31, 2015, we operated in two business segments: (i) our oilseeds business; and (iii) our real estate business. In the fourth quarter of fiscal 2014, we discontinued our castor seeds business. In December 2014 we discontinued our software business. As a result, we no longer conduct business operations in China and anticipate winding down or otherwise selling our interests in the following entities: Power Green Investments Limited; Max Trend International Limited and Shenzhen Max Trend Green Energy Co Ltd.

 

Summarized financial information regarding each revenue generating segment for the three months ended January 31, 2015 is as follows:

 

  Three months ended January 31, 2015 
  Software Business   Plantation Business   Real Estate Business   Corporate   Total 
Revenues from external customer  $   $51,572   $493,580   $   $545,152 
Inter-segment revenue           (7,742)       (7,742)
Revenues, net       51,572    485,838        537,410 
Cost of revenues       (36,423)   (77,094)       (113,517)
Gross profit       15,149    408,744        423,893 
Depreciation       5,230    148,952    5,858    (160,040)
Net loss       (17,611)   (268,593)   (233,070)   (519,274)
Total assets       6,932,786    49,211,484    117,956    56,262,227 
Expenditure for long-lived assets  $   $17,508   $   $   $17,508 

 

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Our oilseeds business is operated through Virtual Setup Sdn. Bhd., or VSSB, and our castor seed business was operated through Shenzhen Max Trend Green Energy Co. Ltd., or Max Trend WFOE. We are in the process of winding down or otherwise selling the following subsidiaries that operated our discontinued castor business: Power Green Investments Limited, Max Trend International Limited and Max Trend WFOE.

 

Our real estate business is operated through PGCG Assets Holdings Sdn. Bhd., or PGCG Assets.

 

 Our initial business plan launched in July 2010 broadly contemplated the development, distribution and operation of mobile and online social networking, ecommerce and search products and services. However, as a result of the challenges we experienced in implementing our m-commerce business plan, we entered the oilseeds and real estate businesses in 2012 and in 2014 discontinued our software and consumer goods distribution businesses. Since the commencement of our business segments, we (through our subsidiaries):

 

  · Acquired a palm oil plantation in Malaysia which is operated through VSSB (May 2012);

 

 

  · Acquired 21.8921 hectares (54.10 acres) of vacant development land located in Selangor, Malaysia, which is subject to a 99-year leasehold, expiring July 30, 2100 (July 26, 2012);

 

  · Acquired Dunford Corporation Sdn. Bhd., or Dunford, whose primary assets consist of two parcels of undeveloped land located in Selangor, Malaysia aggregating approximately 31 acres (October 17, 2012);

 

  · Acquired a 15 story commercial building located at Geran 10010, Lot 238 Section 43, Town and District of Kuala Lumpur, Wilayah Persekutuan, Kuala Lumpur, Malaysia (December 2012); and

 

  · Acquired a 12 story commercial building located at Megan Avenue 1, No. 189, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia (July 2013).

 

As we continue to develop, we may continue to experience significant fluctuations in revenue which may cause our gross profit to fluctuate. Historically, we experienced higher profit margins with respect to software derived revenue and consulting revenue (arising from consultation to castor farmers) as compared to rental income revenue and oil palm plantation derived revenue. Accordingly, as our revenue composition shifts from software or consulting services to rental income or palm oil plantation revenue, we expect our profit margins to also decrease.

 

Challenges From Our Oilseeds Operations

 

The oilseeds business is a highly regulated industry with prices subject to wide fluctuations due to factors beyond our control such as weather conditions, competition, global demand and government policies. Management has limited experience operating in this industry and may not be able to successfully navigate all industry specific factors in addition to any geopolitical factors in Malaysia, Thailand and the PRC. For example, we were forced to discontinue our trial planting arrangement in Thailand as a result of unexpected changes in the local political climate. In addition, we discontinued our castor business in China due to our inability to effectively compete. If we are not able to successfully respond to any of these or other factors, our business operations and financial results may be adversely affected. There can be no assurance that we will be able to successfully operate a multi-national oilseeds business in conjunction with our other business segments given management’s limited experience.

 

Management is focused on the maintenance and operation of its oil palm plantation in Malaysia. Management believes that the value of its oil palm plantation has increased since its acquisition, and while it has not pursued any discussions or received any formal offers regarding the sale of its plantation, it may consider selling sales offers in the future if a sale would maximize return to its investors.

 

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We commenced planting premium durian, of the “Musang King” variety, in the first quarter of 2014. As of the date of this report, we have replanted 60 acres of our oil palm with premium durian trees. We expect to replant an additional 70 acres currently consisting of rubber trees with premium durian trees by the first half of calendar 2015 for an aggregate of 130 acres of premium durian. We hope to plant 35 trees per acre and anticipate an average production of 50 grade A fruits per tree for each of the two growing seasons per year. 

 

Premium durian trees require approximately 5 years to mature and produce grade A fruits. Accordingly, we do not expect revenue from our durian orchard until calendar year 2019. At this time, we do not expect our durian orchard to exceed 130 acres in the near future.

 

Challenges From Our Real Estate Operations

 

Commercial Buildings

 

We generate rental income from our 12 story and 15 story commercial properties and anticipate generating income from the sale of developed properties. As of the date of this report, 10 of the 12 stories of our 12 story building have been leased to tenants at market rates.  Tenants for 6 of the 10 stories will commence tenancy in April or May of 2015. The remaining two stories are occupied by us and serve as our corporate headquarters.

 

Our 15 story building is fully leased to Le Apple which operates a boutique hotel on the premises. The Rental Agreement has an initial term of one (1) year commencing December 1, 2013 and expiring November 30, 2014. This agreement was renewed for a second year, expiring November 30, 2015. Provided that there are no existing breaches by Le Apple, we will be required to renew the lease for additional one-year terms up to twenty nine times, for a maximum aggregate term of thirty years. The initial monthly rental rate is RM550,000 (approximately US$169,492) and is increased every three years by 5% to 10% or to the then prevailing market rate, whichever is lower.

 

Residential Property Development

 

The previous Chief Minister of Selangor state government imposed a freeze on development approvals affecting the land on which our project will be situated in connection with a legal dispute with a township developer. We have made an appeal to the state government to approve our development order based upon the fact that we are the rightful landowner and should not be affected by the legal dispute between the state government and the township developer. Due to certain political developments, the prior Chief Minster resigned and a new Chief Minister was appointed on September 23, 2014. His new administration team has recommenced the review and approval process for various applications that were previously deferred. If the development order can be successfully secured in the first  calendar quarter of 2015, we hope to submit building plans in the second calendar quarter of 2015 and commence construction in the third calendar quarter of 2015.  We hope to complete construction by the end of calendar 2020.  We intend to commence sales activities in the third calendar quarter of 2015. There is no assurance that we will be able to successfully secure a development order by the first quarter of 2015 or at all. If we are unable to secure such an order, we will be unable to develop our Shah Alam 2 Eco Residential Project, which would materially and adversely affect our business plan, results of operations and financial condition.

 

We believe that we will require approximately $3.5 million to obtain the necessary permits and $3.6 million to commence the first of six phases of construction. We believe that we will require approximately $15 million in the aggregate to market, promote and complete construction of our Shah Alam 2 Eco Residential Development Project. We hope to finance the $15 million through a combination of loans, funds from ongoing building sales and operating capital.

 

We do not intend to commence development of our Bandar Sungai Long High Grade Villas Community project until we have successfully sold Phase 2 of the Shah Alam 2 Eco Residential Development project. If we are not able to successfully develop, market and sell our Shah Alam 2 Eco Residential Development project, we may not be able to complete all or any portion of our Bandar Sungai Long High Grade Villas Community project.

 

We believe that the outlook for residential properties will remain positive for the remainder of 2015 based upon Malaysia’s stable employment outlook, growth in household income, formation of new households, and increased demand for affordable residential property from first time home buyers. In addition to our specific challenge arising for the development order freeze imposed by the Selangor government, developers such as us are facing challenges of inconsistent supply and high cost of labor, increased costs of building materials (such as cement and steel bars) and general increased costs of doing business. Our market is also sensitive to changes in lending rates and lending requirements as many homebuyers rely on financing to make purchases. As a result, government or bank policies that result in increased interest rates and or stricter lending requirements may adversely affect the sales of our developed properties.

 

23
 

 

Approval to Initiate Uplisting Process

 

On December 12, 2011, our board of directors approved, authorized and directed our officers to initiate the process for listing shares of the Company’s common stock on one or more U.S. national securities exchanges including the NYSE Amex Equities Exchange. We have elected to delay uplisting efforts until the end of calendar year 2015 or 2016 to focus on implementing our business plan.

 

Results of Operations

 

The following table sets forth certain operational data for the three months ended January 31, 2015, compared to the three months ended January 31, 2014:

 

  For the Three Months Ended January 31,    $   % 
   2015   2014   Change   Change 
Net Revenues  $537,410   $201,660   $335,750    166.5%
Plantation sales   51,572    64,009    (12,437)   (19%)
Real estate   485,838    137,651    348,187    252.9%
Total cost of revenue   (113,517)   (103,692)   9,825    9.5%
Plantation sales   (36,423)   (31,298)   5,125    16.3%
Real estate   (77,094)   (66,733)   10,361    15.5%
Gross profit   423,893    97,968    325,925    332.7%
General and administrative expenses   (613,445)   (461,045)   152,400    33.1%
Other income, net (expense)   (329,722)   (272,701)   57,021    20.9%
Loss before income taxes   (519,274)   (635,778)   (116,504)   (18.3%)
Income tax expense       (4,754)   (4,754)   (100%)
Net loss   (519,274)   (640,532)   (121,258)   (18.9%)

 

Comparison of the three months ended January 31, 2015 and January 31, 2014

 

Net Revenue. We generated net revenue of $537,410 and $201,660 for the three months ended January 31, 2015 and 2014, respectively. The increase in net revenue for the quarter ended January 31, 2015, is primarily attributable to increased rental revenue from the lease of our 15-story commercial building.

 

For the three months ended January 31, 2015, our oilseeds and real estate businesses accounted for approximately 9.5% and 90.5% of our net revenue, respectively. For the same period ended January 31, 2014, our oilseeds and real estate businesses accounted for approximately 31.7% and 68.3% of our net revenue, respectively.

 

Our real estate related revenues are derived from the tenants from our commercial buildings. We generally expect our oilseeds and real estate related revenues to gradually account for an increasing share of our net revenue in the future as those business segments continue to develop.

 

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Cost of Revenue. Our cost of revenue as a percentage of net revenue was approximately 20% for the three months ended January 31, 2015, with our oilseeds and real estate businesses accounting for 70.1% and 15.9%, respectively. For the same period ended January 31, 2014, our cost of revenue as a percentage of net revenue was 51.4%, with our oilseeds, real estate and former software businesses accounting for approximately 30.2%, 64.3% and 5.5% of our cost of revenues. Cost of revenue in 2015 and 2014 consisted primarily of the costs related to the palm oil business such as rental on plantation land, material supplies and subcontracting costs incurred for planting, fertilizing and harvesting the palm oil tree. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues. The increase is primarily attributable to increased real estate operations.

 

We expect our cost of revenue attributable to our real estate businesses to continue to increase as our real estate business continues to develop. We expect our cost of revenue attributable to our oilseeds business to stabilize absent acquisitions or other expansions of our oilseeds business.

 

Gross Profit. For the three months ended January 31, 2015, we achieved gross profit of $423,893 as compared to $97,968 for the three months ended January 31, 2014. For 2015, our oilseeds and real estate operations accounted for approximately 29.9% and 84.1% of our gross profit. As of January 31, 2014, our software business generated a loss of $5,661 while our real estate and oilseeds operations accounted for approximately 72.4% and 33.4% of our gross profit. The increase in gross profit is primarily attributable to the increase in rental revenues derived from our real estate business segment.

 

We expect gross profit derived from our real estate businesses to gradually increase as our business matures and gross profit from the oilseeds segment to stabilize.

 

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $613,445 for the three months ended January 31, 2015, as compared to $461,045 for the same period ended January 31, 2014. The increase in G&A expenses of $152,400 is primarily attributable to increased professional fees.

 

As a general matter, we expect our G&A to increase in the foreseeable future as we begin development of our real estate assets. G&A as a percentage of net revenue was approximately 114% and 228.6% for the three months ended January 31, 2015 and 2014, respectively.

 

Other Income (Expense), net. We incurred net other expense of $329,722 for the three months ended January 31, 2015, as compared to net other expense of $272,701 for the three months ended January 31, 2014. Net other expense for the three months ended January 31, 2015 and 2014, consisted primarily of interest expense from our bank loans.

 

Income Tax Expense. We recorded income tax of $0 and $4,754 for the three months ended January 31, 2015 and 2014, respectively. The decrease is primarily attributable to operating losses. For the three months ended January 31, 2015 and 2014, we incurred a loss before income taxes of $519,274 and $635,778, respectively.

 

Liquidity and Capital Resources

 

As of January 31, 2015, we had cash and cash equivalents of $934,392, as compared to $4,445,057 as of the same period last year. Our cash and cash equivalents decreased as a result of cash used in operation and payment of interest expenses.

 

We expect to incur significantly greater expenses in the near future, including the contractual obligations that we have assumed discussed below, to begin development activities. We also expect our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a large accelerated filer, including directors’ and officers’ insurance and increased professional fees.

 

We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future.

 

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The success of our growth strategy is dependent upon the availability of additional capital resources on terms satisfactory to management. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions and public offerings, capital leases and long-term debt. There can be no assurance that we can raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support operations for at least the next 12 months.

 

  Three Months Ended 
   1/31/2015   1/31/2014 
Net cash used in operating activities   (497,008)   (412,424)
Net cash  (used in) provided by investing activities   (17,508)   6,039,122 
Net cash used in financing activities   (319,021)   (1,739,977)

 

Net Cash Used In Operating Activities.

 

For the three months ended January 31, 2015, net cash used in operating activities was $497,008, which consisted primarily of a net loss of $519,274, an decrease in accrued liabilities and other payables of $25,881, an decrease in accounts receivable of $11,250, offset by rental deposits from tenants of $87,362 and depreciation of $160,040.

 

For the three months ended January 31, 2014, net cash used in operating activities was $412,424, which consisted primarily of a net loss of $640,532, an increase in accrued liabilities and other payables of $214,263, an increase in accounts receivable of $69,247, offset by rental deposits from tenants of $334,740 and depreciation of $173,811.

 

We anticipate cash from our oilseeds operating activities to increase as we focus on our oilseeds operations. We expect rental income from our real estate operations to increase as we increase the occupancy rates of our commercial buildings, which will be offset by the increased expenses associated with developing our residential projects. We expect to continue to rely on cash generated through private placements of our securities, however, to finance our operations and future acquisitions.

 

Net Cash (Used in) Provided by Investing Activities.

 

For the three months ended January 31, 2015, net cash used in investing activities was $17,508, which was primarily attributable to the purchase of property, plant and equipment of $17,508.

 

For the three months ended January 31, 2014, net cash provided by investing activities was $6,039,122, which was primarily attributable to proceeds from the sale of the securities of PGCG Assets of $6,040,654, offset by the purchase of property, plant and equipment of $1,532.

 

Net Cash Used in Financing Activities.

 

For the three months ended January 31, 2015, net cash used in financing activities was $319,021, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $478,104, repayments of $11,207,394 on outstanding bank loans and repayments on a finance lease of $650. Proceeds from new bank loan were $11,367,127. Advances by Mr. Wong previously made to us were made on an interest-free, unsecured basis and are repayable on demand.

 

For the three months ended January 31, 2014, net cash used in financing activities was $1,739,977, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $1,700,618, repayments of $38,397 on outstanding bank loans and repayments on a finance lease of $962. Advances by Mr. Wong previously made to us were made on an interest-free, unsecured basis and are repayable on demand.

 

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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.

 

Contractual Obligations and Commercial Commitments

 

We had the following contractual obligations and commercial commitments as of January 31, 2015:

 

Contractual Obligations  Total   Less than 1 Year   1-3 Years  3-5 Years   More than 5 Years 
Amount due to related parties   3,228,135    180,276   3,047,859        
Commercial commitments                       
Bank loan repayment   13,458,879    891,748   1,970,998   2,257,242    8,338,891 
Finance lease obligation   8,047    2,478   4,956   613     
Total obligations   16,695,061    1,074,502   5,023,813   2,257,855    8,338,891 

 

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.

 

·Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

 

·Properties, plant and equipment

 

Properties and 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:

 

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Categories   Location of properties   Expected useful life
Freehold plantation land   Palm oil plantation in Malaysia   Indefinite, as per land titles
Leasehold land under development   Leasehold land in Puncak Alam, Malaysia   Remaining lease life of 88 years, as per land titles
Freehold land under development   Freehold land in Sungai Long, Cheras, Selangor, Malaysia   Indefinite, as per land titles
Freehold land and land improvement for rental purpose commercial building   Land portion of 15 story buildings “Menara CMY” in Kuala Lumpar, Malaysia

 

 

Indefinite, as per property titles
Building structure and improvements   Building structure of commercial buildings in Kuala Lumpar, Malaysia, including: 12 story building “Megan Avenue” and 15 story building “Menara CMY”   33 years
Office furniture and equipment       3-10 years
Motor vehicle       5 years

 

Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, 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.

 

Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “ Impairment or Disposal of Long-Lived Assets ”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. 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 the years presented.

 

The Company has separately identified the portion of freehold land and building structure, in which freehold land is not subject to amortization and buildings are to be amortized over 33 years on a straight-line method, based on applicable local laws and practice.

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of January 31, 2015, there was no such capitalized interest.

 

A variety of costs are incurred in the acquisition, development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The Company adopts the capitalization policy on development properties, which is guided by ASC Topic 835-20 “Interest – Capitalization of Interest” and ASC Topic 970 “Real Estate - General”. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, salaries and related costs and other costs incurred during the period of development. The Company considers a construction project as substantially completed and held available for occupancy upon the receipt of certificates of occupancy, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.

 

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The Company capitalizes leasing costs which include commissions paid to outside brokers, legal costs incurred to negotiate and document a lease agreement and any internal costs that may be applicable. The Company allocates these costs to individual tenant leases and amortizes them over the related lease term.

 

·Revenue recognition

 

The Company recognizes its revenue in accordance with ASC 985-20 with respect to revenue generated in connection with software sales and ASC Topic 605, “Revenue Recognition”, upon the delivery of its plantation products when: (1) title and risk of loss are transferred; (2) persuasive evidence of an arrangement exists; (3) there are no continuing obligations to the customer; and (4) the collection of related accounts receivable is probable. The Company’s sale arrangements do not contain general rights of return.

 

(a) Plantation sales

 

Revenue from the sale of palm oilseed is recognized upon confirmation of the weight of fresh fruit bunches and shipment to the customer, when there is persuasive evidence of an arrangement, delivery has occurred and risk of loss has passed, the sales price is fixed or determinable at the date of sale, and collectibility is reasonably assured.

 

(b) Rental income

 

The Company generally leases the units under operating leases with terms of two years or less. For the three months ended January 31, 2015 and 2014, we have recorded $485,838 and $137,651 in lease revenue, based upon its annual rental over the life of the lease under operating lease, using the straight-line method in accordance with ASC Topic 970-605, “Real Estate – General – Revenue Recognition” (“ASC Topic 970-605”).

 

The Company leases store location and office spaces to the tenants under operating lease arrangements. The Company receives rental income from the real estates it owns for a stated period of times. Rental income is recognized over the life of the operating lease agreement as it is earned in the period under ASC Topic 970-605. The typical leases contain initial terms of one to two years with renewal options and do not contain escalating rent amounts. Under the lease agreement of Menara CMY, the initial term of lease is one year, Provided that there are no existing breaches by the tenant, an irrecoverable annual renewal option is granted for up to twenty-nine years, with a maximum aggregate term of thirty years. Six-months’ rent-free period under the operating lease agreement is treated as long-term rent concession, which is being amortized as an offset to revenues collected over the term of the underlying lease of 30 years on a straight-line basis. The balance of unamortized rent concession is recorded as non-current portion of accounts receivable.

 

The Company also records operating costs directly attributable to the leasing properties, such as real estate taxes, depreciation of the leased properties and property management fees, which are charged to expense when incurred. For leases classified as operating, the Company’s lessee records rent expense on a straight-line basis over the lesser of the lease term, including renewal options, taking into consideration of rent holidays or any rent concessions.

 

·Cost of revenues

 

Cost of revenue on plantation sales includes rental on plantation land, material supplies and subcontracting costs incurred for planting, fertilizing and harvesting the palm oil tree. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues.

 

Rental expenses shown on the accompanying statements of operations include costs associated with on-site and property management personnel, repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs. Utility expenses are paid directly by tenants. 

 

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·Comprehensive income

 

ASC Topic 220, “Comprehensive Income” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statements of stockholders’ equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

 

·Income taxes

 

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 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 periods 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.

 

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 local and foreign tax authorities.

 

·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$”) and the accompanying financial statements have been expressed in US$. In addition, the Company maintains its books and record in a local currency, Malaysian Ringgit (“MYR”), Hong Kong Dollars (“HK$”) and Renminbi Yuan (“RMB”), 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.

 

·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.

 

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·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. During the period ended January 31, 2015, the Company operates in two reportable operating segments in Malaysia.

 

·Fair value of financial instruments

 

The carrying value of the Company’s financial instruments (excluding obligation under finance lease): cash and cash equivalents, accounts receivable, deposits and other receivables, deferred revenue, income tax payable, amount due to a director, accrued liabilities and other payables 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 approximates the carrying amount.

 

The Company also follows the guidance of the 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

 

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.

 

 

ITEM 3 Quantitative and Qualitative Disclosures about Market Risk

 

Foreign Exchange Risk

 

While our reporting currency is the US dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in MYR and RMB. All of our assets are denominated in MYR except for some cash and cash equivalents and accounts receivables. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate among US dollar, MYR and RMB. If the MYR/RMB depreciates against the US dollar, the value of our MYR/RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

 

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Commodity price

 

Our primary market risk exposure results from the price we receive for our palm oil product and oilseeds. We do not currently engage in any commodity hedging activities, although we may do so in the future. Realized commodity pricing for our operation is primarily driven by the prevailing worldwide price for palm oil product and oilseeds. Pricing for palm oil product and oilseeds has been volatile and unpredictable in recent years, and we expect this volatility to continue in the foreseeable future. The prices we receive for operation depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable commodity index price.

 

Malaysian real estate market risk

 

Our real estate business may be affected by market conditions and economic challenges experienced by the economy as a whole in Malaysia, conditions in the credit markets or by local economic conditions in the markets in which its properties are located. Such conditions may impact our results of operations, financial condition or ability to expand its operations.

 

Market risk related to marketable securities

 

We are also exposed to the risk of changes in the value of financial instruments, caused by fluctuations in equity prices related to marketable securities. Changes in these factors could cause fluctuations in earnings and cash flows.

 

 

ITEM 4 Controls and Procedures  

 

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 Rule 13a-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 January 31, 2015, 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.

 

Inherent Limitations

 

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. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended January 31, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II OTHER INFORMATION

 

ITEM 1 Legal Proceedings

 

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.

 

 

ITEM 1A Risk Factors

 

None.

 

 

ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds

  

None.

 

 

ITEM 3 Defaults upon Senior Securities

 

None.

 

ITEM 4 Mine Safety Disclosures

 

Not applicable.

 

 

ITEM 5 Other Information

  

None.

 

 

ITEM 6  Exhibits

 

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 (1)
3.2 Amended and Restated Bylaws (4)
4.1 Form of common stock certificate (1)
10.1 Common Stock Purchase Agreement, dated December 6, 2010, by and among Home Touch Holding Company, Home Touch Limited, Up Pride Investments Limited and Magicsuccess Investments Limited (2)
10.2 Tenancy Agreement, dated August 18, 2014, by and between PGCG Assets Holdings Sdn. Bhd. and Le Apple Boutique Hotel (KLCC) Sdn. Bhd. (5)
10.3 Letter of Appointment dated July 19, 2011, by and between Union Hub Technology Sdn. Bhd. and Weng Kung Wong (6)
10.4 Letter of Appointment dated July 19, 2011, by and between Union Hub Technology Sdn. Bhd. and Liong Tat Teh (6)
10.5 Letter of Appointment dated July 19, 2011, by and between Union Hub Technology Sdn. Bhd. and Sek Fong Wong (6)
10.6 Letter of Offer issued by the Bank of China (Malaysia) Berhad to PGCG Assets Holdings Sdn. Bhd. effective October 31, 2014 (7)

 

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10.7 Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to four banking facilities in the aggregate principal amount of up to RM 3,452,000 (8)
10.8 Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to two banking facilities in the aggregate principal amount of up to RM 1,680,000 (8)
10.9 Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to six banking facilities in the aggregate principal amount of up to RM 4,708,000 (8)
14 Code of Business Conduct and Ethics (9)
21 List of Subsidiaries*
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.*
99.1 Charter to Compensation Committee (10)
99.2 Charter to Audit Committee (10)
99.3 Charter to Corporate Governance Committee (10)
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 on February 22, 2011.

(2) Incorporated by reference from Exhibit 2.1 to Current Report on Form 8-K filed with the Securities and Exchange 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 Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 23, 2010.

(5) Incorporated by reference From Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange on August 18, 2014.

(6) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2011.

(7) Incorporated by referenced from our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2014.

(8) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013.

(9) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2012.

(10) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Commission on April 27, 2012.

 

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SIGNATURES

 

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

 

 

  PRIME GLOBAL CAPITAL GROUP INCORPORATED
   
   
  By: /s/Weng Kung Wong
    Weng Kung Wong
    Chief Executive Officer
     
     
  By: /s/ Liong Tat Teh
    Liong Tat Teh
Date:       March 10, 2015   Chief Financial Officer

 

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