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EX-21 - LIST OF SUBSIDIARIES - PRIME GLOBAL CAPITAL GROUP Incprimeglobal_10q-ex21.htm
EX-32.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - PRIME GLOBAL CAPITAL GROUP Incprimeglobal_10q-ex3202.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Incprimeglobal_10q-ex3201.htm
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Incprimeglobal_10q-ex3101.htm
EX-31.2 - CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER - PRIME GLOBAL CAPITAL GROUP Incprimeglobal_10q-ex3102.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED JULY 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 þ     No 

 

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  þ  No  

 

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    Accelerated filer þ
     
Non-accelerated filer    Smaller reporting company 
(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 ☐     No þ

 

As of September 14, 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 July 31, 2015 (Unaudited) and October 31, 2014 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended July 31, 2015 and 2014 (Unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 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 22
     
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 35
     
ITEM 4 Controls and Procedures 35
     
PART II OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 36
     
ITEM 1A Risk Factors 36
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 36
     
ITEM 3 Defaults upon Senior Securities 36
     
ITEM 4 Mine Safety Disclosures 36
     
ITEM 5 Other Information 36
     
ITEM 6 Exhibits 36
     
SIGNATURES   38
     

 

 

 

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)

 

   July 31, 2015   October 31, 2014 
ASSETS          
Current assets:          
Cash and cash equivalents  $1,507,823   $1,785,334 
Time deposits   1,832,461     
Marketable securities, available-for-sale   235,052     
Accounts receivable   227,542    216,712 
Deposits and other receivables   30,860    36,824 
           
Total current assets   3,833,738    2,038,870 
           
Accounts receivable   815,881    972,569 
Deferred development costs   21,798     
Property, plant and equipment, net   

48,562,646

    58,160,698 
           

TOTAL ASSETS

  $53,234,063   $61,172,137 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $2,989   $7,880 
Amount due to a related party   180,287    180,197 
Rental deposits from tenants   442,494    686,589 
Revolving line of credit   3,926,702     
Income tax payable   568,861    759,090 
Current portion of long-term bank loans   874,341    643,544 
Current portion of obligation under finance lease   2,357    2,737 
Accrued liabilities and other payables   226,422    340,238 
           
Total current liabilities   

6,224,453

    2,620,275 
           
Long-term liabilities:          
Long-term bank loans   11,555,214    14,051,758 
Amount due to a director   2,669,560    3,851,394 
Obligation under finance lease   4,118    6,834 
           
Total liabilities   20,453,345    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   512,683    512,683 
Additional paid-in capital   41,934,476    41,934,476 
Accumulated other comprehensive loss   (8,080,082)   (1,273,596)
Accumulated loss   (1,475,690)   (425,635)
    32,891,387    40,747,928 
Non-controlling interest   (110,669)   (106,052)
           
Total stockholders’ equity   32,780,718    40,641,876 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $53,234,063   $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 July 31,   Nine months ended July 31, 
   2015   2014   2015   2014 
Revenues, net:                    
Plantation business  $47,199   $71,468   $132,807   $215,629 
Rental income   457,558    543,781    1,405,883    1,485,341 
Total revenues, net   504,757    615,249    1,538,690    1,700,970 
                     
Cost of revenues   (79,157)   (56,398)   (225,348)   (286,696)
                     
Gross profit   425,600    558,851    1,313,342    1,414,274 
                     
Operating expenses:                    
General and administrative   (318,434)   (456,000)   (1,565,000)   (1,702,300)
                     
Income (loss) from operations   107,166    102,851    (251,658)   (288,026)
                     
Other (expense) income                    
Interest income   (217)   154    14,312    16,420 
Interest expense   (286,244)   (293,981)   (904,659)   (868,920)
Loss on disposal of property, plant and equipment       (1,921)       (1,921)
Other income   71,336    54    71,439    8,610 
                     
Other (expense) income, total   

(215,125

)   

(295,694

)   

(818,908

)   

(845,811

)
                     
Loss before income taxes   (107,959)   (192,843)   (1,070,566)   (1,133,837)
                     
Income tax expense       (98)       (9,356)
                     
NET LOSS   (107,959)   (192,941)  $(1,070,566)  $(1,143,193)
                     
Net (income) loss attributable to non-controlling interest   (1,770)   (6,890)   20,511   (53,924)
                     
NET LOSS ATTRIBUTABLE TO THE COMPANY  $(109,729)  $(199,831)  $(1,050,055)  $(1,197,117)
                     
Other comprehensive income (loss):                    
- Unrealized loss on available-for-sale securities   

(25,853

)       

(25,853

)    
- Foreign exchange adjustment gain (loss)   (5,194,531)   227,502    (6,780,633)   (396,026)
                     
COMPREHENSIVE INCOME (LOSS)  $(5,330,113)  $27,671   $(7,856,541)  $(1,593,143)
                     
Net loss per share – Basic and diluted*  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average common stock outstanding – Basic and diluted   512,682,393    512,682,393    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)

 

   Nine months ended July 31, 
   2015   2014 
Cash flows from operating activities:          
Net loss  $(1,070,566)  $(1,143,193)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property, plant and equipment   461,556    523,499 
Impairment loss on advances to suppliers       447,524 
Loss on disposal of property, plant and equipment       1,921 
Changes in operating assets and liabilities:          
Accounts receivable   (20,497)   (1,168,917)
Advances to suppliers       456 
Deposits and other receivables   901    (8,412)
Accounts payable   (4,024)   7,158 
Rental deposits from tenants   (157,668)   314,401 
Income tax payable   (91,580)   (67,515)
Accrued liabilities and other payables   (99,940)   566,019 
Net cash used in operating activities   (981,818)   (527,059)
           
Cash flows from investing activities:          
Proceeds from non-controlling interest       6,226,553 
Purchase of marketable securities   (276,588)    
Purchase of property, plant and equipment   (16,498)   (31,870)
Plantation development cost   (23,108)    
Proceeds from disposal of property, plant and equipment       5,535 
Net cash (used in) provided by investing activities   (316,194)   6,200,218 
           
Cash flows from financing activities:          
Repayment to related parties   (711,247)   (2,534,572)
Repayments on bank loans   (11,166,073)   (307,577)
Increase in time deposits   (1,942,610)    
Long term borrowings   10,928,012     
Revolving line of credit   4,162,735     
Payments on finance lease   (1,874)   (2,080)
Net cash provided by (used in) financing activities   1,268,943    (2,844,229)
           
Foreign currency translation adjustment   (248,442)   (209,783)
           

NET CHANGE IN CASH AND CASH EQUIVALENTS

   (277,511)   2,619,147 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   1,785,334    659,647 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $1,507,823   $3,278,794 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for income tax  $

91,580

   $ 
Cash paid for interest  $904,659   $851,353 

 

See accompanying notes to condensed consolidated financial statements.

 

3

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 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.

 

These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2014. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the periods presented have been included in the interim period. Operating results for the three and nine months ended July 31, 2015 are not necessarily indicative of the results that may be expected for other interim periods or the year ending October 31, 2015. The consolidated condensed financial data at October 31, 2014 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2014, filed on January 20, 2015.

 

 

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   100,000,000 issued shares of ordinary shares of MYR 1 each   Provision of IT consulting and programming services and corporate service to group company
                     
2.   Power Green Investments Limited (“PGIL”)  

British Virgin Islands

 

  July 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

 

  July 19, 2010   4,000,000 issued shares of ordinary shares of MYR 1 each   Operation of Oil Palm plantation
                     

 

4

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

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

Malaysia

 

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

Malaysia

 

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

Hong Kong

 

  August 19, 2010   2 issued shares of ordinary shares of HK$ 1 each   Investment holding
                     
9.   Shenzhen Max Trend Green Energy Company Limited (Max Trend WOFE) (“SMTG”), de-registered in August 2015   The People’s Republic of China (“PRC”), Shenzhen   July 7, 2011   RMB 1,000,000   Castor cultivation, advisory services, and trading
                     
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, 2013   2 issued shares of ordinary shares of MYR 1 each   Property development
                     
12.   PGCG Constructions Sdn. Bhd.   Malaysia   April 16, 2013   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 operation
                     
14.   Havana Avenue Sdn Bhd       Malaysia   April 3, 2014   2 issued shares of ordinary shares of MYR 1 each   Inactive operation
                     

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.

 

For the nine months ended July 31, 2015, the Company reported a loss of $1,050,055 and working capital deficit of $2,390,715 as of July 31, 2015.

 

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. 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 debt 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 AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying condensed consolidated financial statements reflect the application of 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.

 

   July 31, 2015   October 31, 2014 
Bank balances held by financial institutions located in:          
Malaysia  $1,412,143   $1,669,722 
The PRC   94,391    113,309 
    1,506,534    1,783,031 
Cash on hand in Malaysia   1,289    2,303 
   $1,507,823   $1,785,334 

 

As of July 31, 2015 and October 31, 2014, the restricted amount of cash held by our PRC subsidiary in China was $94,391 and $113,309.

 

·

Time deposits

 

Time deposits represent a certificate of deposit placed with a reputational financial institution with an original maturity beyond three months, expiry in October 2015.

 

·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. No allowance for doubtful debts was considered necessary at July 31, 2015 and October 31, 2014.

 

6

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

·Available-for-sale equity securities

 

Available-for-sale equity securities are reported at fair value using the market approach based on the quoted prices in active markets at the reporting date. The Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. During the three and nine months ended July 31, 2015, the Company invested in equity securities listed on Bursa Malaysia with a total cost of $276,588. The unrealized loss representing the change in fair value of $25,853 was recorded as an addition to accumulated other comprehensive income in the Company’s consolidated balance sheets.

 

·Deferred development costs

 

Deferred development costs consist of replanting costs of durian such as soil amendments, cultivation, fertilization and purchase costs of sapling. Costs related to durian development projects at the Company's plantation land are capitalized during the sapling, developing and planting durian fruit bunches and until the harvests are substantially available for commercial sale, and deferred development costs will then commence to be amortized as components of plantation costs and expenses.

 

·Property, plant and equipment

 

Property, 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. As of July 31, 2015, there was no such capitalized interest.

 

7

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

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 the Company capitalizes 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.

 

·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 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 nine months ended July 31, 2015 and 2014, $1,405,883 and $1,485,341 rental income was recorded, 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”).

 

8

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

As of July 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 42%
Menara CMY 15 91,848 0%

 

The Company expects to record approximately $1.7 million in annual lease revenue under the operating lease arrangements in the next twelve months through July 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 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 a portion of accounts receivable.

 

   July 31, 2015   October 31, 2014 
Rental receivable:          
Current portion  $212,807   $205,082 
Non-current portion   815,881    972,569 
Total  $1,028,688   $1,177,651 

 

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

 

Period ending July 31:    
2016  $28,796 
2017   28,796 
2018   28,796 
2019   28,796 
2020   28,796 
Thereafter   700,697 
      
Total  $844,677 

 

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

 

Period ending July 31:    
2016  $1,698,953 
2017   1,698,953 
2018   1,698,953 
2019   1,698,953 
2020   1,698,953 
Thereafter   39,642,234 
      
Total  $48,136,999 

 

9

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

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.

 

·Cost of revenues

 

Cost of revenue on plantation sales includes material supplies, subcontracting costs and transportation 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.

 

Cost related to our real estate business shown on the accompanying statements of operations include costs associated with land tax, 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. Other accumulated comprehensive income, as presented in the accompanying statements of operations and comprehensive loss consists of changes in unrealized gains and losses on foreign currency translation and cumulative net change in the fair value of available-for-sale investments held at the balance sheet date.

 

·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.

 

10

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

·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 functional 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” or “RM”), 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.

 

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 July 31, 
   2015   2014 
Period-end RMB : US$1 exchange rate   6.1997    6.1690 
Period-average RMB : US$1 exchange rate   6.1151    6.1418 
Period-end HK$ : US$1 exchange rate   7.7515    7.7502 
Period-average HK$ : US$1 exchange rate   7.7534    7.7548 
Period-end MYR : US$1 exchange rate   3.8200    3.1859 
Period-average MYR : US$1 exchange rate   3.6034    3.2522 

 

·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 July 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, time deposits, accounts receivable, deposits and other receivables, revolving line of credit, deferred revenue, income tax payable, amount due to a related party, accrued liabilities and other payables approximate their fair values because of the short-term nature of these financial instruments. The carrying amount of the Company’s bank borrowings approximate fair value due to any changes in fair value, after considering discount rate, being immaterial.

 

11

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

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.

 

 

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

 

  July 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   124,478    123,798 
Motor vehicles   181,865    166,047 
Foreign translation difference   (11,557,508)   (2,214,927)
    50,011,110    59,337,193 
Less: accumulated depreciation   (1,803,991)   (1,342,435)
Less: foreign translation difference   355,527    165,940 
   $48,562,646   $58,160,698 

 

Depreciation expense for the three months ended July 31, 2015 and 2014 was $149,178 and $176,811, respectively.

 

Depreciation expense for the nine months ended July 31, 2015 and 2014 was $461,556 and $523,499, respectively.

 

Both commercial buildings in Kuala Lumpur, Malaysia are pledged against the bank loans (notes 8 and 9).

 

In this fiscal quarter, the Company’s development order regarding the development of 21.8921 hectares (54.10 acres) leasehold land located in Puncak Alam, Malaysia was approved by the Kuala Selangor District Council. The approved order allows the Company to proceed with its plans to construct its Shah Alam 2 Eco Residential Development project.

 

To date, the Company is in the process of preparing the building plans for submission to and approval by local authorities. The Company expects to submit the building plans in the fourth calendar quarter of 2015 and will commence construction in the first calendar quarter of 2016.

 

12

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

NOTE 6 - AMOUNTS DUE TO RELATED PARTIES

 

   July 31, 2015   October 31, 2014 
Current portion:          
Amount due to a related party, unsecured, interest-free and repayable on demand          
Mr. Pua Wooi Khang, a subsidiary’s director  $180,287   $180,197 
           
Non-current portion:          
Amount due to a related party, unsecured, interest-free and not expected to be repaid in the next twelve months          
Mr. Weng Kung Wong, the director of the Company  $2,669,560   $3,851,394 

 

 

NOTE 7 - ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consist of the following:

 

   July 31, 2015   October 31, 2014 
           
Accrued operating expenses  $55,534   $184,842 
Accrued interest expense       17,369 
Potential tax penalty liability (Note 11)   110,000    110,000 
Other payable   60,888    28,027 
   $226,422   $340,238 

 

13

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

NOTE 8 - BANK LOANS

 

   July 31, 2015   October 31, 2014 
Bank loans from financial institutions in Malaysia:          
Bank of China (Malaysia) Berhad  $9,954,756   $ 
Hong Leong Bank Berhad       11,787,157 
RHB Bank Berhad   2,474,799    2,908,145 
    12,429,555    14,695,302 
Less: current portion   (874,341)   (643,544)
Bank loans, net of current portion  $11,555,214   $14,051,758 

 

15 Story Facility 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 of RM40,000,000 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 of RM476,898 each (including interests) over a period of 10 years or until full settlement and will mature in December 2024.

 

The loan from Bank of China (Malaysia) Berhad is secured by the first party charge over 15-story commercial office building “Menara CMY” in Kuala Lumpur, Malaysia, deed of assignment of rental proceeds over the rights and interest to the rental of the 15-story commercial office building and is personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and a subsidiary of the Company, UHT . The loan is also secured by a debenture incorporating fixed and floating charge for RM55 million plus interest thereon over the assets of PGCG Assets. The cost of funds was 7.6% per annum for the three and nine months ended July 31, 2015.

 

12 Story Facility Bank Loan

 

In May 2013, 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 below the lending rate, variable rate quoted by the bank, with 288 monthly installments of RM57,045 each (including interests) over a period of 24 years and will mature in 2037.

 

The loan is secured by the 12-story commercial office building  “Megan Avenue” in Kuala Lumpar, Malaysia and is personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and a director of the Company’s subsidiary, Mr. Kok Wai Chai and a subsidiary of the Company, UHT. The cost of funds was 4.7% per annum for the three and nine months ended July 31, 2015.

 

 

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

 

Period ending July 31:     
2016  $874,341 
2017   936,075 
2018   1,000,626 
2019   1,070,931 
2020   1,146,338 
Thereafter   7,401,244 
      
Total:  $12,429,555 

 

14

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

 

NOTE 9 - REVOLVING LINE OF CREDIT

 

The revolving line of credit was granted concurrent with the term loans and pursuant to the same facility letter (see Note 8) by Bank of China (Malaysia) Berhad to the Company, which provided for up to RM15,000,000 (equal to US$3,926,702) for its working capital purpose. The line bears interest at an annual rate of 1.5% above the bank’s cost of funds on a daily basis. The line is repayable on demand or at rollover options of 1, 3, 6 & 12 months. The effective interest rate was 5.14% per annum for the three and nine months ended July 31, 2015.

 

The aggregate outstanding under the revolving line of credit were $3,926,702 at July 31, 2015.

 

 

NOTE 10 - OBLIGATION UNDER FINANCE LEASE

 

The Company purchased motor vehicle under a finance lease agreement with the effective interest rate of 3.70% per annum, due through April 8, 2018, with principal and interest payable monthly. The obligation under the finance lease is as follows:

 

   July 31, 2015   October 31, 2014 
           
Finance lease  $7,663   $11,335 
Less: interest expense   (1,188)   (1,764)
           
Net present value of finance lease  $6,475   $9,571 
           
Current portion  $2,357   $2,737 
Non-current portion   4,118    6,834 
           
Total  $6,475   $9,571 

 

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

 

Years ending July 31:     
2016  $2,357 
2017   2,357 
2018   1,761 
      
Total  $6,475 

 

 

NOTE 11 - INCOME TAXES

 

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

 

   Nine months ended July 31, 
   2015   2014 
Tax jurisdictions from:          
– Local  $(140,869)  $(87,325)
– Foreign, representing:          
Malaysia   (924,613)   (569,891)
Hong Kong       (102)
The PRC   (5,084)   (476,519)
 Loss before income taxes  $(1,070,566)  $(1,133,837)

 

15

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

Provision for income taxes consisted of the following:

 

   Nine months ended July 31, 
   2015   2014 
Current:          
– Local  $   $ 
– Foreign, representing:          
BVI        
Malaysia       9,356 
Hong Kong        
The PRC        
           
Deferred:          
– Local        
– Foreign        
 Income tax expense  $   $9,356 

 

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 its 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 July 31, 2015, the operations in the United States of America incurred $402,914 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 $141,020 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.

 

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 in accrued expenses, is $110,000 (Note 7) at July 31, 2015.

 

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.

 

16

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

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 and nine months ended July 31, 2015.

 

Malaysia

 

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

 

   Nine months ended July 31, 
   2015   2014 
         
Loss before income taxes  $(924,613)  $(569,891)
Statutory income tax rate   20%   20%
Income tax at statutory tax rate   (184,923)   (113,978)
Tax effect of non-deductible expenses   92,311    118,021 
Net operating loss   92,612    5,313 
 Income tax expense  $   $9,356 

 

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

 

   July 31, 2015   October 31, 2014 
Deferred tax assets:          
Capital loss  $44,199   $44,199 
Net operating loss carryforwards:          
- United States of America   141,020    91,716 
- Hong Kong   884    884 
- The PRC   20,639    19,197 
- Malaysia   87,361     
Total deferred tax assets   294,103    155,996 
Less: valuation allowance   (294,103)   (155,996)
Deferred tax assets  $   $ 

 

 

NOTE 12 - STOCKHOLDERS’ EQUITY

 

As of July 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 13 - SEGMENT INFORMATION

 

(a)Business segment reporting

 

The Company currently 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

 

17

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 4). Summarized financial information concerning the Company’s reportable segments is shown as below:

 

   Three months ended July 31, 2015 
   Plantation Business   Real Estate Business   Corporate   Total 
                     
Revenues  $47,199   $464,775   $   $511,974 
Inter-segment revenue       (7,217)       (7,217)
Revenues, net   47,199    457,558        504,757 
Cost of revenues   (15,290)   (63,867)       (79,157)
Gross profit   31,909    393,691        425,600 
Depreciation   4,867    138,850    5,461    149,178 
Net income (loss)   75,128    (74,110)   (108,977)   (107,959)
Total assets   6,653,629    46,240,621    339,813    53,234,063 
Expenditure for long-lived assets  $   $   $   $ 

 

   Nine months ended July 31, 2015 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues  $132,807   $1,428,212   $   $1,561,019 
Inter-segment revenue       (22,329)       (22,329)
Revenues, net   132,807    1,405,883        1,538,690 
Cost of revenues   (77,077)   (148,271)       (225,348)
Gross profit   55,730    1,257,612        1,313,342 
Depreciation   15,064    429,596    16,896    461,556 
Net income (loss)   46,655    (660,250)   (456,971)   (1,070,566)
Total assets   6,653,629    46,240,621    339,813    53,234,063 
Expenditure for long-lived assets  $16,498   $   $   $16,498 

 

   Three months ended July 31, 2014 
   Software Business   Plantation Business   Real Estate Business   Corporate   Total 
                     
Revenues  $   $71,468   $554,777   $   $626,245 
Inter-segment revenue           (10,996)       (10,996)
Revenues, net       71,468    543,781        615,249 
Cost of revenues       (35,739)   (20,659)       (56,398)
Gross profit       35,729    523,122        558,851 
Depreciation   1,049    4,700    161,293    9,769    176,811 
Net loss   (1,049)   (11,971)   (5,111)   (174,810)   (192,941)
Total assets   11,771    7,886,423    56,103,766    166,081    64,168,041 
Expenditure for long-lived assets  $   $30,333   $   $   $30,333 

 

18

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

   Nine months ended July 31, 2014 
   Software Business   Plantation Business   Real Estate Business   Corporate   Total 
                     
Revenues  $   $215,629   $1,496,337   $   $1,711,966 
Inter-segment revenue           (10,996)       (10,996)
Revenues, net       215,629    1,485,341        1,700,970 
Cost of revenues       (124,956)   (161,740)       (286,696)
Gross profit       90,673    1,323,601        1,414,274 
Depreciation   3,108    13,553    477,894    28,944    523,499 
Net loss   (3,108)   (452,747)   (173,370)   (513,968)   (1,143,193)
Total assets   11,771    7,886,423    56,103,766    166,081    64,168,041 
Expenditure for long-lived assets  $   $30,333   $   $1,537   $31,870 

 

All long-lived assets are located in Malaysia.

 

 

NOTE 14 - CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a) Major customers

 

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

 

      Three months ended July 31, 2015   July 31, 2015 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                   
Customer H  Real estate  $444,226    88%  $967,058 

 

      Three months ended July 31, 2014   July 31, 2014 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Customer H  Real estate  $499,829    81%  $1,173,923 
Customer I  Plantation   71,468    12%   9,275 

 

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

 

      Nine months ended July 31, 2015   July 31, 2015 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                   
Customer H  Real estate  $1,358,439    88%  $967,058 

 

      Nine months ended July 31, 2014   July 31, 2014 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Customer H  Real estate  $1,319,107    78%  $1,173,923 
Customer I  Plantation   215,629    13%   9,275 

 

All customers are located in Malaysia.

 

19

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2015

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

(Unaudited)

 

(b) Major vendors

 

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

 

   Three months ended July 31, 2015   July 31, 2015 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor E   1,624    11%    
Vendor F   4,140    27%    

 

   Three months ended July 31, 2014   July 31, 2014 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor E   8,620    25%    
Vendor F   3,906    11%    

 

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

 

   Nine months ended July 31, 2015   July 31, 2015 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor E   13,233    17%    
Vendor F   26,836    35%    

 

   Nine months ended July 31, 2014   July 31, 2014 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Vendor E   27,613    22%    
Vendor F   37,855    30%    

 

All vendors are located in Malaysia.

 

20

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JULY 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.

 

NOTE 15 - COMMITMENTS AND CONTINGENCIES

 

(a) Operating lease commitment

 

As of July 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 July 31, 2015, the Company does not have any significant capital commitments.

 

 

NOTE 16 - 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 July 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.

 

21

 

 

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 July 31, 2015, we operated in two business segments: (i) our oilseeds plantation business; and (ii) 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., whose deregistration was approved by the PRC tax office in April 2015 and was approved by PRC State Administration of Industry and Commerce in August 2015.

 

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

 

   Three months ended July 31, 2015 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues  $47,199   $464,775   $   $511,974 
Inter-segment revenue       (7,217)       (7,217)
Revenues, net   47,199    457,558        504,757 
Cost of revenues   (15,290)   (63,867)       (79,157)
Gross profit   31,909    393,691        425,600 
Depreciation   4,867    138,850    5,461    149,178 
Net income (loss)   75,128    (74,110)   (108,977)   (107,959)
Total assets   6,653,629    46,240,621    339,813    53,234,063 
Expenditure for long-lived assets  $   $   $   $ 

  

Our oilseeds business is operated through Virtual Setup Sdn. Bhd., or VSSB, and our discontinued castor seed business was previously operated through Shenzhen Max Trend Green Energy Co. Ltd., or Max Trend WFOE.

 

22

 

 

Our real estate business is primarily 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 approximately 22 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.

 

We commenced planting premium durian, of the “Musang King” variety, in the first quarter of calendar year 2014. As of the date of this report, we have replanted 60 acres of our oil palm with premium durian trees. We are in the process of replanting an additional 70 acres consisting of rubber trees with premium durian trees. By the fourth calendar quarter of 2015, we expect to complete 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, the earliest. At this time, we do not expect our durian orchard to exceed 130 acres in the near future.

 

23

 

 

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, 4 of the 12 stories of our 12 story building have been leased to tenants at market rates. We are in discussions with respect to leasing 5 of our 6 vacant units. We occupy the remaining two stories 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 years, for a maximum aggregate term of thirty years. The initial monthly rental rate is RM550,000 and is increased every three years by 5% to 10% or by the then prevailing market rate, whichever is lower.

 

Residential Property Development

 

We have secured Development Order regarding the development of leasehold land located in Puncak Alam and received the approval on 10 June 2015. We are in the process of preparing the Building Plans and conversion of land use which we expect to submit for approval by fourth calendar quarter of 2015. We expect to commence construction in the first calendar quarter of 2016. We hope to complete construction by the end of calendar 2020. We hope to commence sales activities in the first calendar quarter of 2016.

 

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 previous specific challenge arising from 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.

 

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 2016 to focus on implementing our business plan.

 

24

 

 

Results of Operations

 

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

 

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

 

   For the Three Months Ended July 31,         
   2015   2014   $ Change   % Change 
                 
Net Revenues  $504,757   $615,249    (110,492)   (18.0%)
Plantation sales   47,199    71,468    (24,269)   (34.0%)
Real estate   457,558    543,781    (86,223)   (15.9%)
Total cost of revenue   (79,157)   (56,398)   22,759    40.4%
Plantation sales   (15,290)   (35,739)   (20,449)   (57.2%)
Real estate   (63,867)   (20,659)   43,208    (209.1%)
Gross profit   425,600    558,851    (133,251)   (23.8%)
General and administrative expenses   (318,434)   (456,000)   (137,566)   (30.2%)
Other (expense) income, net   (215,125)   (295,694)   (80,569)   (27.2%)
Loss before income taxes   (107,959)   (192,843)   (84,884)   (44.0%)
Income tax expense       (98)   (98)   (100%)
Net loss   (107,959)   (192,941)   (84,982)   (44.0%)

 

Net Revenue. We generated net revenue of $504,757 and $615,249 for the three months ended July 31, 2015 and 2014, respectively. The decrease in net revenue for the quarter ended July 31, 2015, is primarily attributable to the reduction in output and price in plantation business, our decreased rental income from the twelve story building as well as weaker foreign exchange of the Malaysian Ringgit against the US Dollar.

 

For the three months ended July 31, 2015, our oilseeds and real estate businesses accounted for approximately 9.4% and 90.6% of our net revenue, respectively. For the same period ended July 31, 2014, our oilseeds and real estate businesses accounted for approximately 11.6% and 88.4% of our net revenue, respectively.

 

Our real estate related revenues are derived from rentals earned from the tenants from our commercial buildings. We generally expect our real estate related revenues to gradually account for an increasing share of our net revenue in the future as we begin real estate development and sales activities.

 

For the three months ended July 31, 2015 and 2014, the customers that accounted for 10% or more of the Company’s revenues were located in Malaysia as presented below:

 

      Three months ended July 31, 2015   July 31, 2015 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                   
LeApple Boutique Hotel (KLCC) Sdn. Bhd. (“Le Apple”)  Real estate  $444,226    88%  $967,058 

  

      Three months ended July 31, 2014   July 31, 2014 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
LeApple Boutique Hotel (KLCC) Sdn. Bhd.  Real estate  $499,829    81%  $1,173,923 
Lim Joo Soon Enterprise*  Plantation   71,468    12%   9,275 

 

*Lim Joo Soon Enterprise is a reseller of our plantation harvest. It is also a fertilizer supplier and transportation service provider that ships our palm oil harvest to the manufacturing plant. Lim Joo Soon Enterprise purchases our plantation products on an “as needed” purchase order basis. All customers are located in Malaysia.

 

25

 

 

Cost of Revenue. Our cost of revenue as a percentage of net revenue was approximately 15.7% for the three months ended July 31, 2015, with our oilseeds and real estate businesses accounting for 19.3% and 80.7%, respectively. For the same period ended July 31, 2014, our cost of revenue as a percentage of net revenue was 9.2%, with our oilseeds and real estate businesses accounting for approximately 63.4% and 36.6% of our cost of revenues, respectively. Cost of revenue in 2015 and 2014 consisted primarily of the costs related to the palm oil plantation business such as material supplies, subcontracting costs and transportation costs incurred for planting, fertilizing and harvesting the palm oil tree and costs related to our real estate business such as land tax and maintenance. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues. The cost of revenue of the oilseed business decreased due to lower plantation sales. The cost of real estate increased due to land tax borne by us in 2015 but by Le Apple in 2014.

 

We expect our cost of revenue attributable to our real estate businesses to continue to increase if we begin development activities. We expect our cost of revenue attributable to our oilseeds business to stabilize absent acquisitions or other expansions of our oilseeds business.

 

For the three months ended July 31, 2015 and 2014, the vendors that accounted for 10% or more of the Company’s purchases  were located in Malaysia as presented below:

 

   Three months ended July 31, 2015   July 31, 2015 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Supri   1,624    11%    
Lim Joo Soon Enterprise*   4,140    27%    

 

   Three months ended July 31, 2014   July 31, 2014 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Supri   8,620    25%    
Lim Joo Soon Enterprise*   3,906    11%    

 

Gross Profit. For the three months ended July 31, 2015, we achieved gross profit of $425,600 as compared to $558,851 for the same period ended July 31, 2014. For 2015, the gross profit of our oilseeds business decreased to $31,909 for the three months ended July 31, 2015 from $35,729 for the same period in 2014. This is primarily due to a reduction in output. The real estate operations registered a profit of $393,691 compared to $523,122 for 2014. This is mainly due to a decrease in our real estate revenue from the twelve story building as well as the depreciation of the Malaysian Ringgit against the US Dollar.

 

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. If we begin development activities, we expect our gross profit to decrease to reflect the increased expenses associated with real estate development.

 

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $318,434 for the three months ended July 31, 2015, as compared to $456,000 for the same period ended July 31, 2014. The decrease in G&A expenses of $137,566 is primarily attributable to decrease in staff costs and the depreciation of the Malaysian Ringgit.

 

26

 

 

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 63.1% and 74.1% for the three months ended July 31, 2015 and 2014, respectively.

 

Other Income (Expense), net. We incurred net other expense of $215,125 for the three months ended July 31, 2015, as compared to net other expense of $295,694 for the three months ended July 31, 2014. Net other expense for the three months ended July 31, 2015 and 2014 consisted primarily of interest expense on our bank loans.

 

Income Tax Expense. We recorded income tax of $nil and $98 for the three months ended July 31, 2015 and 2014, respectively. For the three months ended July 31, 2015 and 2014, we incurred a loss before income taxes of $107,959 and $192,843, respectively.

 

Comparison of the nine months ended July 31, 2015 and July 31, 2014

 

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

 

   For the Nine Months Ended July 31,   $   % 
   2015   2014     Change     Change 
                 
Net Revenues  $1,538,690   $1,700,970   $(162,280)   (9.5%)
Plantation sales   132,807    215,629    (82,822)   (38.4%)
Real estate   1,405,883    1,485,341    (79,458)   (5.3%)
Total cost of revenue   (225,348)   (286,696)   (61,348)   (21.4%)
Plantation sales   (77,077)   (124,956)   (47,878)   (38.3%)
Real estate   (148,271)   (161,740)   (13,469)   (8.3%)
Gross profit   1,313,342    1,414,274    (100,932)   (7.1%)
General and administrative expenses   (1,565,000)   (1,702,300)   (137,300)   (8.1%)
Other (expense) income, net   (818,908)   (845,811)   (26,903)   (3.2%)
Loss before income taxes   (1,070,566)   (1,133,837)   (63,271)   (5.6%)
Income tax expense       (9,356)   (9,356)   (100%)
Net loss   (1,070,566)   (1,143,193)   (72,627)   (6.4%)

 

Net Revenue. We generated net revenue of $1,538,690 and $1,700,970 for the nine months ended July 31, 2015 and 2014, respectively. The decrease in net revenue for the nine months ended July 31, 2015 is primarily attributable to decreased plantation and real estate revenue. We experienced a decrease in plantation revenue during this period due to reduction in output and pricing decrease of fresh fruit bunches of our plantation business, a decrease in our real estate revenue from the twelve story building as well as the depreciation of the Malaysian Ringgit against the US Dollar.

 

For the nine months ended July 31, 2015, our oilseeds and real estate businesses accounted for approximately 8.6% and 91.4% of our net revenue, respectively. For the same period ended July 31, 2014, our oilseeds and real estate businesses accounted for approximately 12.7% and 87.3% of our net revenue, respectively.

 

Our real estate related revenues are derived from rentals earned from the tenants from our commercial buildings. We generally expect our real estate related revenues to gradually account for an increasing share of our net revenue in the future as we begin real estate development and sales activities.

 

For the nine months ended July 31, 2015 and 2014, the customers that accounted for 10% or more of the Company’s revenues were located in Malaysia as presented below:

 

      Nine months ended July 31, 2015   July 31, 2015 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                   
LeApple Boutique Hotel (KLCC) Sdn. Bhd.  Real estate  $1,358,439    88%  $967,058 

 

27

 

 

      Nine months ended July 31, 2014   July 31, 2014 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
LeApple Boutique Hotel (KLCC) Sdn. Bhd.  Real estate  $1,319,107    78%  $1,173,923 
Lim Joo Soon Enterprise  Plantation   215,629    13%   9,275 

 

Cost of Revenue. Our cost of revenue as a percentage of net revenue was approximately 14.7% for the nine months ended July 31, 2015, with our oilseeds and real estate businesses accounting for 34.2% and 65.8%, respectively. For the same period ended July 31, 2014, our cost of revenue as a percentage of net revenue was 16.9%, with our oilseeds and real estate businesses accounting for approximately 43.6% and 56.4% of our cost of revenues, respectively. Cost of revenue in 2015 and 2014 consisted primarily of the costs related to the palm oil business such as material supplies, subcontracting costs and transportation costs incurred for planting, fertilizing and harvesting the palm oil tree and costs related to our real estate business such as land tax and maintenance. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues. The decrease is primarily attributable to reduction in plantation output.

 

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.

 

For the nine months ended July 31, 2015 and 2014, the vendors that accounted for 10% or more of the Company’s purchases  were located in Malaysia as presented below:

 

   Nine months ended July 31, 2015   July 31, 2015 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Supri   13,233    17%    
Lim Joo Soon Enterprise   26,836    35%    

 

   Nine months ended July 31, 2014   July 31, 2014 
   Purchase   Percentage
of purchase
   Trade accounts
payable
 
             
Supri   27,613    22%    
Lim Joo Soon Enterprise   37,855    30%    

 

Gross Profit. For the nine months ended July 31, 2015, we achieved gross profit of $1,313,342 as compared to $1,414,274 for the same period ended July 31, 2014. For 2015, our oilseeds and real estate operations accounted for approximately 4.2% and 95.8% of our gross profit, respectively. For the same period in 2014, our real estate and oilseeds operations accounted for approximately 93.6% and 6.4% of our gross profit, respectively. The decrease in gross profit is primarily attributable to the decrease in rental revenues and the depreciation of the Malaysian Ringgit.

 

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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 $1,565,000 for the nine months ended July 31, 2015, as compared to $1,702,300 for the same period ended July 31, 2014. The decrease in G&A expenses of $137,300 is primarily attributable to reduction in impairment loss on advances to suppliers in oilseed operations offset by increased cost in land development.

 

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 100% for the nine months ended July 31, 2015 and 2014.

 

Other Income (Expense), net. We incurred net other expense of $818,908 for the nine months ended July 31, 2015, as compared to net other expense of $845,811 for the nine months ended July 31, 2014. Net other expense for the nine months ended July 31, 2015 and 2014 consisted primarily of interest expense on our bank loans.

 

Income Tax Expense. We recorded income tax of $0 and $9,356 for the nine months ended July 31, 2015 and 2014, respectively. For the nine months ended July 31, 2015 and 2014, we incurred a loss before income taxes of $1,070,566 and $1,133,837, respectively.

 

Liquidity and Capital Resources

 

As of July 31, 2015, we had cash and cash equivalents of $1,507,823, as compared to $3,278,794 as of the same period last year. Our cash and cash equivalents decreased as a result of cash used in operation and purchase of marketable securities, offset by a net increase in bank loans and revolving line of credit.

 

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 an 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.

 

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.

 

   Nine Months Ended 
   7/31/2015   7/31/2014 
Net cash used in operating activities   (981,818)   (527,059)
Net cash (used in) provided by investing activities   (316,194)   6,200,218 
Net cash provided by (used in) financing activities   1,268,943    (2,844,229)

 

Net Cash Used In Operating Activities.

 

For the nine months ended July 31, 2015, net cash used in operating activities was $981,818, which consisted primarily of a net loss of $1,070,566, a decrease in rental deposits of $157,668, a decrease in income tax payables of $91,580, a decrease in accrued liabilities and other payables of $99,940 offset by depreciation of $461,556.

 

For the nine months ended July 31, 2014, net cash used in operating activities was $527,059, which consisted primarily of an increase in accrued liabilities and other payables of $566,019, depreciation of $523,499, an impairment loss on advances to suppliers of $447,524, and an increase of rental deposits from tenants of $314,401, offset by a net loss of $1,143,193, an increase in accounts receivables of $1,168,917 and a decrease in income tax payable of $67,515.

 

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We anticipate cash from our oilseeds operating activities to stabilize in the future as our operations mature. 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 debt financing, however, to finance our operations and future acquisitions.

 

Net Cash (Used in) Provided by Investing Activities.

 

For the nine months ended July 31, 2015, net cash used in investing activities was $316,194, which was primarily attributable the purchase of marketable securities of $276,588, plantation development costs of $23,108 and purchase of property, plant and equipment of $16,498.

 

For the nine months ended July 31, 2014, net cash provided by investing activities was $6,200,218, which was primarily attributable to proceeds from the sale of the equity interests in PGCG Assets of $6,226,553, offset by the purchase of property, plant and equipment of $31,870.

 

Net Cash Provided by (Used in) Financing Activities.

 

For the nine months ended July 31, 2015, net cash provided by financing activities was $1,268,943, consisting primarily of a revolving line of credit of $4,162,735, offset by an increase in time deposits made by the Company of $1,942,610 and repayments to Weng Kung Wong, our Chief Executive Officer and director, of $711,247. We also refinanced a bank which is reflected by the repayment of $11,166,073 in bank loans and offset by a new bank loan in the amount of $10,928,012.

 

For the nine months ended July 31, 2014, net cash used in financing activities was $2,844,229, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $2,524,256, repayments of $307,577 on outstanding bank loans, repayment to a related party of $10,316 and repayments on a finance lease of $2,080. Advances by Mr. Wong previously made to us were made on an interest-free, unsecured basis and are not expected to be repaid in the next twelve months.

 

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 July 31, 2015:

 

Contractual Obligations  Total   Less than 1 Year   1-3 Years   3-5 Years   More than 5 Years 
Amounts due to related parties   2,849,847    180,287    2,669,560         
Commercial commitments                         
Bank loan repayment   12,429,555    874,341    1,936,701    2,217,269    7,401,244 
Revolving line of credit   3,926,702    3,926,702             
Finance lease obligation   6,475    2,357    4,118         
Total obligations   19,212,579    4,983,687    4,610,379    2,217,269    7,401,244 

 

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.

 

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·Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. We extend unsecured credit to our 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. We will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of our 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. We do not have any off-balance-sheet credit exposure related to its customers. No allowance for doubtful debts was considered necessary at July 31, 2015 and October 31, 2014.

 

·Available-for-sale equity securities

 

Available-for-sale equity securities are reported at fair value using the market approach based on the quoted prices in active markets at the reporting date. We classify the valuation techniques that use these inputs as Level 1 of fair value measurements. During the three and nine months ended July 31, 2015, we invested in equity securities listed on Bursa Malaysia with a total of $276,588. The unrealized loss representing the change in fair value of $25,853 was recorded as an addition to accumulated other comprehensive income in our consolidated balance sheets.

 

·Deferred development costs

 

Deferred development costs consist of replanting costs of durian such as soil amendments, cultivation, fertilization and purchase costs of sapling. Costs related to durian development projects at our plantation land, are capitalized during the sapling, developing and planting durian fruit bunches and until the harvests are substantially available for commercial sale, and deferred development costs will then commence to be amortized as components of plantation costs and expenses.

 

·Property, plant and equipment

 

Property 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

 

 

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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 ”, we generally conduct our 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.

 

We have 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 July 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. We adopt 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. We consider 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. We cease 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.

 

We capitalize 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. We allocate these costs to individual tenant leases and amortizes them over the related lease term.

 

·Revenue recognition

 

We recognize our revenue in accordance with 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. Our 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

 

We generally lease the units under operating leases with terms of two years or less. For the nine months ended July 31, 2015 and 2014, we have recorded $1,405,883 and $1,485,341 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”).

 

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We lease store location and office spaces to the tenants under operating lease arrangements. We receive rental income from the real estates we own 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 a portion of accounts receivable.

 

We also record 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.

 

·Cost of revenues

 

Cost of revenue on plantation sales includes material supplies, subcontracting costs and transportation 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.

 

Costs related to real estate business shown on the accompanying statements of operations include costs associated with land tax, 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. Other accumulated comprehensive income, as presented in the accompanying statements of operations and comprehensive loss consists of changes in unrealized gains and losses on foreign currency translation and cumulative net change in the fair value of available-for-sale investments held at the balance sheet date.

 

·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.

 

We conduct major businesses in Malaysia and is subject to tax in its own jurisdiction. As a result of our business activities, we will file separate tax returns that are subject to examination by the local and foreign tax authorities.

 

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·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.

 

Our functional currency is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. In addition, we maintain our 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 our 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.

 

·Related parties

 

Parties, which can be a corporation or individual, are considered to be related if we have 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 our internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. During the period ended July 31, 2015, we operate in two reportable operating segments in Malaysia.

 

·Fair value of financial instruments

 

The carrying value of our financial instruments (excluding obligation under finance lease): cash and cash equivalents, time deposits, accounts receivable, deposits and other receivables, revolving line of credit, deferred revenue, income tax payable, amount due to a related party, accrued liabilities and other payables approximate their fair values because of the short-term nature of these financial instruments. The carrying amount of our bank borrowings approximate fair value due to any changes in fair value, after considering discount rate, being immaterial.

 

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.

 

We also follow 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

 

We have 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 our financial condition or the results of our operations.

 

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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 denominated in RMB. 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.

 

Interest rate risk

 

Our exposure to interest rate risk , revolving line of credit primarily relates to the interest income generated from excess cash invested in demand deposits, and interest expense generated from bank loans, revolving line of credit and finance lease. We have not used derivative financial instruments in our investment portfolio in order to reduce this risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.

 

Commodity price risk

 

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 fair 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.

 

Economic and political risks

 

Substantially all of our services are conducted in Malaysia. Our operations are subject to various political, economic, and other risks and uncertainties inherent in Malaysia. Among other risks, our 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.

 

 

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) and 15(d)-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of July 31, 2015 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.

 

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Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended July 31, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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 Taxonomy Extension Schema Document*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
101.PRE XBRL Taxonomy Extension 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:       September 14, 2015   Chief Financial Officer

 

 

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