UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

---

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2016

 

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

 

Commission File Number 000-54288

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

Jalan Tun Razak

50400 Kuala Lumpur, Malaysia

603 2162 0773

(Address of Principal Executive Offices and Issuer’s
Telephone Number, including Area Code)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  S  No  ☐

 

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 ☐
Non-accelerated filer ☐		Smaller reporting company S
(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 S

 

As of March 16, 2016, the issuer had outstanding 512,682,393 shares of common stock.

 

 

TABLE OF CONTENTS

 

		Page
PART I	FINANCIAL INFORMATION
ITEM 1	Financial Statements
	Condensed Consolidated Balance Sheets as of January 31, 2016 (Unaudited) and October 31, 2015 (Audited)	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended January 31, 2016 and 2015 (Unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended January 31, 2016 and 2015 (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	33
ITEM 4	Controls and Procedures	33
PART II	OTHER INFORMATION
ITEM 1	Legal Proceedings	34
ITEM 1A	Risk Factors	34
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	34
ITEM 3	Defaults upon Senior Securities	34
ITEM 4	Mine Safety Disclosures	34
ITEM 5	Other Information	34
ITEM 6	Exhibits	34
SIGNATURES		36

 

 

PART I   FINANCIAL INFORMATION

 

ITEM 1  Financial Statements

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

 

		January 31, 2016				October 31, 2015
ASSETS
Current assets:
Cash and cash equivalents		$	454,788			$	836,794
Time deposits			1,724,307				1,661,692
Marketable securities, available-for-sale			270,347				334,452
Rental concession			26,570				25,605
Accounts receivable, net			119,825				112,439
Deposits and other receivables			55,883				50,172
Total current assets			2,651,720				3,021,154
Rental concession, non-current			739,533				719,080
Deferred development costs			51,498				38,566
Construction in progress			274,181				263,222
Property, plant and equipment, net			44,536,941				43,044,561
TOTAL ASSETS		$	48,253,873			$	47,086,583
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	15			$	14
Amount due to a related party			179,635				180,316
Rental deposits from tenants			420,852				405,570
Income tax payable			879,300				841,722
Short-term bank borrowings			3,623,188				3,491,620
Current portion of long-term bank loans			811,848				768,529
Current portion of obligation under finance lease			2,175				2,096
Deferred tax liabilities, current			6,643				6,401
Accrued liabilities and other payables			321,646				369,160
Total current liabilities			6,245,302				6,065,428
Long-term liabilities:
Long-term bank loans			10,295,560				10,111,418
Rental deposits from tenants			16,908				16,294
Amount due to a director			2,004,919				2,071,183
Deferred tax liabilities			187,676				182,461
Obligation under finance lease			2,712				3,137
Total liabilities			18,753,077				18,449,921
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 100,000,000 shares authorized; no shares issued and outstanding			–				–
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 512,682,393 shares issued and outstanding, as of January 31, 2016 and October 31, 2015			512,683				512,683
Additional paid-in capital			41,934,476				41,934,476
Accumulated other comprehensive loss			(10,697,512	)			(11,715,152	)
Accumulated deficit			(2,115,390	)			(1,980,135	)
Total stockholders’ equity			29,634,257				28,751,872
Non-controlling interests			(133,461	)			(115,210	)
Total equity			29,500,796				28,636,662
TOTAL LIABILITIES AND EQUITY		$	48,253,873			$	47,086,583

 

See accompanying notes to condensed consolidated financial statements.

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

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

(Unaudited)

 

		Three months ended January 31,
		2016				2015
Revenues, net:
Plantation business		$	24,534			$	51,572
Rental income			388,215				485,838
Total revenues, net			412,749				537,410
Cost of revenues			(172,414	)			(250,530	)
Gross profit			240,335				286,880
Operating expenses:
General and administrative			(129,945	)			(476,432	)
Income (loss) from operations			110,390				(189,552	)
Other (expense) income
Interest income			16,393				14,869
Interest expense			(243,479	)			(344,697	)
Other income			–				106
Loss before income taxes			(116,696	)			(519,274	)
Income tax expense			(31,950	)			–
NET LOSS		$	(148,646	)		$	(519,274	)
Net loss attributable to non-controlling interests			(13,391	)			(24,427	)
NET LOSS ATTRIBUTABLE TO THE COMPANY		$	(135,255	)		$	(494,847	)
Other comprehensive income (loss):
- Unrealized holding loss on available-for-sale securities			(68,670	)			–
- Foreign exchange adjustment gain (loss)			1,086,310				(2,058,670	)
COMPREHENSIVE INCOME (LOSS)		$	882,385			$	(2,553,517	)
Net loss per share – Basic and diluted*		$	(0.00	)		$	(0.00	)
Weighted average common shares outstanding – Basic and diluted			512,682,393				512,682,393

 

* Less than $0.01 per share

 

See accompanying notes to condensed consolidated financial statements.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)

 

		Three months ended January 31,
		2016				2015
Cash flows from operating activities:
Net loss		$	(148,646	)		$	(519,274	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			125,226				160,040
Changes in operating assets and liabilities:
Accounts receivable			(3,032	)			11,250
Deposits and other receivables			(3,678	)			10,245
Accounts payable			–				(2,726	)
Rental concession			6,395				–
Rental deposit from tenants			–				(87,362	)
Income tax payable			5,644				(43,300	)
Deferred tax liabilities			(1,599	)			–
Accrued liabilities and other payables			(51,266	)			(25,881	)
Net cash used in operating activities			(70,956	)			(497,008	)
Cash flows from investing activities:
Plantation development costs			(11,051	)			–
Construction in progress			(1,002	)			–
Purchase of property, plant and equipment			(465	)			(17,508	)
Net cash used in investing activities			(12,518	)			(17,508	)
Cash flows from financing activities:
Repayment to related parties			(132,609	)			(478,104	)
Proceeds from long-term bank loans			–				11,367,127
Repayments on long-term bank loans			(175,708	)			(11,207,394	)
Payments on finance lease			(523	)			(650	)
Net cash used in financing activities			(308,840	)			(319,021	)
Foreign currency translation adjustment			10,308				(17,405	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			(382,006	)			(850,942	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			836,794				1,785,334
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	454,788			$	934,392
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income tax		$	26,517			$	43,300
Cash paid for interest		$	243,479			$	344,697

 

See accompanying notes to condensed consolidated financial statements.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

(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, 2015. 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 result for the three months ended January 31, 2016 is not necessarily indicative of the results that may be expected for other interim periods or the year ending October 31, 2016. The consolidated condensed financial data at October 31, 2015 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2015, filed on January 29, 2016.

 

 

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 corporate service to group companies
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 and durian plantation
5.		PGCG Assets Holdings Sdn. Bhd. (“PGCG Assets”)		Malaysia		March 21, 2012		50,000,000 issued shares of ordinary shares of MYR 1 each		Investment in land & buildings

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

6.		PGCG Development Sdn. Bhd. (“PGCG Development”)		Malaysia		March 21, 2012		250,000 issued shares of ordinary shares of MYR 1 each		Investment holding
7.		PGCG Plantations Sdn. Bhd. (“PGCG Plantation”)		Malaysia		October 4, 2011		2 issued shares of ordinary shares of MYR 1 each		Holding company of VSSB
8.		Max Trend International Limited (“Max Trend”)		Hong Kong		August 19, 2010		2 issued shares of ordinary shares of HK$ 1 each		Holding company of SMTG
9.		Shenzhen Max Trend Green Energy Company Limited (“SMTG”)		The People’s Republic of China (“PRC”), Shenzhen		July 7, 2011		RMB 1,000,000		De-registered in August 2015
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 28, 2012		2 issued shares of ordinary shares of MYR 1 each		Inactive operation
14.		Havana Avenue Sdn Bhd		Malaysia		April 4, 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 three months ended January 31, 2016, the Company reported a loss of $148,646 and working capital deficit of $3,593,582 as of January 31, 2016. The Company had accumulated deficit of $2,115,390 as of January 31, 2016 from recurring losses and significant short-term debt obligations maturing in less than one year (notes 8 and 9).

 

These factors raise substantial doubt about the Company’s ability 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 or other capital sources. Management believes the existing shareholders or external debt financing will provide the additional cash to meet the Company’s obligations as they become due.

 

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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

(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 certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

 

·

Use of estimates

 

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheets and revenues and expenses during the periods reported. Actual results may differ from these estimates.

 

·

Reclassification

 

Depreciation of $137,013 included in General and Administrative Expenses in prior period financial statements have been reclassified to Cost of Revenues.

 

·

Basis of consolidation

 

The condensed consolidated financial statements include the accounts of PGCG and its subsidiaries. All significant inter-company balances and transactions between the Company and its subsidiaries have been eliminated upon consolidation.

 

·

Cash and cash equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

 

		January 31, 2016				October 31, 2015
Bank balances held by financial institutions located in:
Malaysia		$	381,800			$	760,787
The PRC			71,364				74,595
			453,164				835,382
Cash on hand in Malaysia			1,624				1,412
		$	454,788			$	836,794

 

·

Time deposit

 

Time deposit represents a certificate of deposit placed with a reputational financial institution with an original maturity beyond three months, expiry in April 2016.

 

·

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. Based upon the aforementioned criteria, the Company wrote off $nil and $25,850 accounts receivable on uncollectible rental receivable at January 31, 2016 and October 31, 2015, respectively.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

·

Available-for-sale marketable securities

 

Available-for-sale marketable 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 months ended January 31, 2016, the Company invested in equity securities listed on Bursa Malaysia with a total cost of $240,794 and escrow funds (which invested in equity securities listed in the U.S.) with a total cost of $200,000. The Company entered into an escrow agreement with Peijin Wu Hoppe (“Hoppe”), the Company’s former director, to set up an escrow fund up to $500,000 as a reserve to indemnify Hoppe from any claim of liability until July 29, 2022, the seventh year anniversary of the termination of Director Retainer Agreement, or any mutual agreement with the Company and Hoppe. For the three months ended January 31, 2016, the unrealized loss representing the change in fair value of $68,670 was recorded as a charge to accumulated other comprehensive income for the period.

 

·

Deferred development costs

 

Deferred development costs consist of replanting costs of durian plants such as soil amendments, cultivation, fertilization and purchase costs of sapling. Costs related to durian planting projects at the Company’s plantation land are capitalized during the sapling, developing and planting durian fruit and when the harvests are substantially available for commercial sale, 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 and durian 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 storey buildings “Menara CMY” in Kuala Lumpar, Malaysia		Indefinite, as per land 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, fixtures and equipment				3-10 years
Motor vehicles				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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

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 January 31, 2016 and October 31, 2015, there was no such capitalized interest.

 

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

 

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

 

·

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”.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

·

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 revenue

 

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.

 

Pursuant to a 8-K filing on September 23, 2015, in order to concentrate on durian plantation, the Company suspended the direct operation of oil palm plantation and leased out the oil palm land to a third party under an operating lease for 30 months from September 21, 2015 to March 20, 2018. Pursuant to this tenancy agreement, the tenant is entitled to manage the plantation, harvest and sell palm oil fresh fruit bunches and receive all proceed thereto. Rental income of $24,534 and $nil was recognized for the three months ended January 31, 2016 and 2015, respectively and included in revenue from plantation business.

 

As of January 31, 2016, the minimum future rental receivables on the oil palm land to be collectible are as follows:

 

Period ending January 31:
2017		$	101,449
2018			101,449
2019			8,454
Total		$	211,352

 

(b) Rental income

 

The Company generally leases the units under operating leases with terms of two years or less. For the three months ended January 31, 2016 and 2015, we have recorded $388,215 and $485,838 in lease revenue, based upon its annual rental over the life of the lease under operating lease, using the straight-line method in accordance with ASC Topic 970-605, “Real Estate – General – Revenue Recognition” (“ASC Topic 970-605”).

 

As of January 31, 2016, 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 $1.6 million in annual lease revenue under the operating lease arrangements in the next twelve months through January 31, 2016.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

·

Rental concession

 

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.

 

		January 31, 2016				October 31, 2015
Rental concession:
Current portion		$	26,570			$	25,605
Non-current portion			739,533				719,080
Total		$	766,103			$	744,685

 

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

 

Period ending January 31:
2017		$	26,570
2018			26,570
2019			26,570
2020			26,570
2021			26,570
Thereafter			633,253
Total		$	766,103

 

As of January 31, 2016, the minimum future rental receivables on the commercial properties to be collectible in the next five years and thereafter are as follows:

 

Period ending January 31:
2017		$	1,593,188
2018			1,571,739
2019			1,567,633
2020			1,567,633
2021			1,567,633
Thereafter			35,767,713
Total		$	43,635,539

 

The Company also records operating costs directly attributable to the leasing properties, such as real estate taxes, depreciation of the leased properties and maintenance fees, which are charged to expense when incurred.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

·

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 the real estate business includes costs associated with depreciation, 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 income (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.

 

·

Non-controlling interests

 

Non-controlling interests represent the equity interest in the capital contributions, income and loss of less than wholly-owned and consolidated entities that is not attributable to the Company.

 

·

Income taxes

 

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

 

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

 

·

Foreign currencies translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.

 

The 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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income.

 

Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates for the respective periods:

 

		As of and for the period ended January 31,
		2016				2015
Period-end RMB : US$1 exchange rate			6.6046				6.15230
Period-average RMB : US$1 exchange rate			6.4600				6.13310
Period-end HK$ : US$1 exchange rate			7.7813				7.75200
Period-average HK$ : US$1 exchange rate			7.7599				7.75390
Period-end MYR : US$1 exchange rate			4.1400				3.63270
Period-average MYR : US$1 exchange rate			4.3002				3.46420

 

·

Retirement plan costs

 

Contributions to retirement schemes (which are defined contribution plan) are charged to general and administrative expenses in the statements of operation and comprehensive loss as and when the related employee service is provided.

 

·

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 periods ended January 31, 2016 and 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, amount due to a related party and other payables approximate at their fair values because of the short-term bank borrowings nature of these financial instruments.

 

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of its obligation under finance lease approximates the carrying amount.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

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   As of January 31, 2016 and October 31, 2015, the Company did not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at least annually, on a recurring basis, nor did the Company have any assets or liabilities measured at fair value on a non-recurring basis.

 

·

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

		January 31, 2016				October 31, 2015
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, fixtures and equipment			126,096				125,631
Motor vehicles			166,047				166,047
Foreign translation difference			(15,421,117	)			(17,096,349	)
			46,133,301				44,457,604
Less: accumulated depreciation			(2,054,078	)			(1,928,852	)
Less: foreign translation difference			457,718				515,809
			44,536,941			$	43,044,561

 

Depreciation expense for the three months ended January 31, 2016 and 2015 was $125,226 and $160,040, respectively.

 

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

 

In April 2015, 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. In November 2015, the Company submitted a request to convert some of its planned semi-detached and bungalow home parcels into cluster semi-detached homes to improve the marketability of the Company’s proposed development. On March 4, 2016, the Company received notification from the Kuala Selangor District Council that its revised Development Order relating to the Puncak Alam land was approved on February 24, 2016.

 

To date, the Company is in the process of preparing the building plans and conversion of land use for which the Company received approvals in the third calendar quarter of 2016. The Company intends to commence construction in the fourth calendar quarter of 2016 and complete construction by the end of calendar 2021.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

NOTE – 6                       AMOUNTS DUE TO RELATED PARTIES

 

		January 31, 2016				October 31, 2015
Current portion:
Amount due to a related party, unsecured, interest-free and repayable on demand, Mr. Pua Wooi Khang, a subsidiary’s former director		$	179,635			$	180,316
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 Company’s director		$	2,004,919			$	2,071,183

 

 

NOTE –7                       ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consist of the following:

 

		January 31, 2016				October 31, 2015
Accrued operating expenses		$	91,558			$	115,883
Accrued interest expense			–				57,957
Potential tax penalty liability (note 11)			135,000				135,000
Other payable			95,088				60,320
		$	321,646			$	369,160

 

 

NOTE – 8                       BANK LOANS

 

		January 31, 2016				October 31, 2015
Bank loans from financial institutions in Malaysia,
Bank of China (Malaysia) Berhad		$	8,852,318			$	8,692,957
RHB Bank Berhad			2,255,090				2,186,990
			11,107,408				10,879,947
Less: current portion			(811,848	)			(768,529	)
Bank loans, net of current portion		$	10,295,560			$	10,111,418

 

15 Story Bank Loan

 

In December 2012, the Company, through PGCG Assets Sdn Bhd 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 6.85% 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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

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 7.85% and 7.60% per annum for the periods ended January 31, 2016 and 2015, respectively.

 

12 Story 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 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 Lumpur, 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 4.95% and 4.70% per annum for the period ended January 31, 2016 and 2015, respectively.

 

As of January 31, 2016, the minimum future payments of the aggregate bank loans in the next five years and thereafter are as follows:

 

Period ending January 31:
2017		$	811,848
2018			869,979
2019			932,724
2020			1,000,575
2021			1,073,832
Thereafter			6,418,450
Total:		$	11,107,408

 

 

NOTE – 9                       SHORT-TERM BANK BORROWINGS

 

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 $3,623,188) 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 5.22% per annum for the quarter ended January 31, 2016.

 

The aggregate amounts outstanding under the revolving line of credit were $3,623,188 at January 31, 2016.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

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:

 

		January 31, 2016				October 31, 2015
Finance lease		$	6,291			$	6,193
Less: interest expense			(1,404	)			(960	)
Net present value of finance lease		$	4,887			$	5,233
Current portion		$	2,175			$	2,096
Non-current portion			2,712				3,137
Total		$	4,887			$	5,233

 

As of January 31, 2016, the maturities of the finance lease for each of the three years are as follows:

 

Years ending January 31:
2017		$	2,175
2018			2,175
2019			537
Total		$	4,887

 

 

NOTE – 11                       INCOME TAXES

 

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

 

		Three months ended January 31,
		2016				2015
Tax jurisdictions from:
– Local		$	(30,782	)		$	(126,680	)
– Foreign, representing:
Malaysia			(85,914	)			(389,236	)
Hong Kong			–				–
The PRC			–				(3,358	)
Loss before income taxes		$	(116,696	)		$	(519,274	)

 

Income tax expenses consisted of the following:

 

		Three months ended January 31,
		2016				2015
Current:
– Local		$	–			$	–
– Foreign, representing:
BVI			–				–
Malaysia			33,549				–
Hong Kong			–				–
The PRC			–				–
Deferred:
– Local			–				–
– Foreign			(1,599	)			–
Income tax expense		$	31,950			$	–

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. During the periods presented, the Company has a number of subsidiaries that operates in different countries and is subject to tax in the jurisdictions in which it subsidiaries operate, as follows:

 

United States of America

 

PGCG is registered in the State of Nevada and is subject to United States of America tax law. As of January 31, 2016 and October 31, 2015, the operations in the United States of America incurred $479,675 and $467,838, respectively of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2031, if unutilized. The Company has provided for a full valuation allowance of $167,886 (October 31, 2015: $163,743) 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 liabilities and other payables, is $135,000 at January 31, 2016 and October 31, 2015 in respect of potential tax liability of the late filing of IRS return.

 

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 $1,065 at January 31, 2016 and October 31, 2015, on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

The PRC

 

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

 

Malaysia

 

All of the Company’s subsidiaries operating in Malaysia subject to the Malaysia Corporate Tax Laws at a progressive income tax rate starting from 20% (for company with paid up capital not more than RM2.5 million and on the first RM 500,000 income) and 25% (on all income for company with paid up capital more than RM2.5 million and on the remaining balance of income after the first RM500,000 income charged at 20% for company with paid up capital not more than RM2.5 million) on the assessable income for its tax year. A reconciliation of loss before income taxes to the effective tax rate as follows:

 

		Three months ended January 31,
		2016				2015
Loss before income taxes		$	(85,914	)			(389,236	)
Statutory income tax rate			25%				20%
Income tax at statutory tax rate			(21,478	)			(77,847	)
Tax effect of non-deductible expenses			28,153				–
Tax effect of different tax rate			1,321				–
Tax effect of non-business source rental income			28,639				–
Net operating loss			(4,685	)			77,847
Income tax expense		$	31,950				–

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of January 31, 2016 and October 31, 2015:

 

		January 31, 2016				October 31, 2015
Deferred tax assets:
Capital loss		$	7,617			$	6,359
Net operating loss carryforwards:
- United States of America			167,886				163,743
- Malaysia			184,243				183,405
- Hong Kong			1,065				1,065
- The PRC			–				–
Total deferred tax assets			360,811				354,572
Less: valuation allowance			(360,811	)			(354,572	)
Deferred tax assets		$	–			$	–
Deferred tax liabilities, current
Rental concession		$	6,643			$	6,401
Deferred tax liabilities, non-current
Property, plant and equipment			2,793				2,691
Rental concession			184,883				179,770
		$	187,676			$	182,461

 

 

NOTE – 12                       STOCKHOLDERS’ EQUITY

 

As of January 31, 2016, 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 – oil palm and durian plantation in Malaysia

·

Real estate business – acquisition, development and leasing of commercial and residential real estate properties in Malaysia

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

(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 January 31, 2016
			Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	24,534			$	394,452			$	–			$	418,986
Inter-segment revenue			–				(6,237	)			–				(6,237	)
Revenues, net			24,534				388,215				–				412,749
Cost of revenues			–				(172,414	)			–				(172,414	)
Gross profit			24,534				215,801				–				240,335
Depreciation			460				119,995				4,771				125,226
Net income/(loss)			7,590				(70,892	)			(85,344	)			(148,646	)
Total assets			6,057,408				41,745,650				450,815				48,253,873
Expenditure for long-lived assets		$	465			$	1,002			$	–			$	1,467

 

 

		Three months ended January 31, 2015
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	51,572			$	493,580			$	–			$	545,152
Inter-segment revenue			–				(7,742	)			–				(7,742	)
Revenues, net			51,572				485,838				–				537,410
Cost of revenues			(36,673	)			(213,857	)			–				(250,530	)
Gross profit			14,899				271,981				–				286,880
Depreciation			5,230				148,952				5,858				160,040
Net loss			(17,611	)			(268,593	)			(233,070	)			(519,274	)
Total assets			6,932,786				49,211,484				117,957				56,262,227
Expenditure for long-lived assets		$	17,508			$	–			$	–			$	17,508

 

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 January 31, 2016 and 2015, the customer who accounted for 10% or more of the Company’s revenues is presented as follows:

 

Three months ended January 31, 2016

January 31, 2016

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

377,308

91%

$

106,280

 

Three months ended January 31, 2015

January 31, 2015

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

468,362

87%

$

–

Customer I

Plantation

51,226

10%

–

 

All customers are located in Malaysia.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

(b) Major vendors

 

For the three months ended January 31, 2016, no vendor accounted for 10% or more of the Company’s purchases.

 

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

 

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

 

All vendors are located in Malaysia.

 

(c) Credit risk

 

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

 

(d) Interest rate risk

 

The Company’s exposure to interest rate risk primarily relates to the interest income generated from excess cash invested in time deposits, and interest expense incurred on bank borrowings. The Company has not used derivative financial instruments in its investment portfolio in order to reduce this risk. The Company has not been exposed nor does it anticipate being exposed to material risks due to changes in interest rates.

 

(e) Exchange rate risk

 

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

 

(f) Economic and political risks

 

Substantially all of the Company’s services are conducted in Malaysia and Asian region. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in Malaysia. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations in Malaysia.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JANUARY 31, 2016

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

(Unaudited)

 

NOTE – 15                       COMMITMENTS AND CONTINGENCIES

 

(a) Operating lease commitment

 

As of January 31, 2016, the Company occupied its own building premises and has no future minimum rental payments due under various operating leases in the next twelve months.

 

(b) Capital commitment

 

As of January 31, 2016, the Company does not have any significant capital commitments.

 

(c) Indemnification agreements

 

The Company entered into an indemnification agreement with each of its independent directors, pursuant to which the Company agreed to indemnify the independent directors against expenses, judgments, fines, penalties or other amount actually and reasonably incurred by the independent directors in connection with any proceeding if the independent directors acted in good faith and in the best interests of the Company.

 

 

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 January 31, 2016 up through the filing date of these condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

 

 

 

 

 

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” or “RM” 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.

 

Overview

 

During the three months ended January 31, 2016, we operated in two business segments: (i) oilseeds and durian plantation business; and (ii) real estate business. In the fourth quarter of fiscal 2014, we discontinued our castor seeds business, and in December 2014, we discontinued our software business. As a result, we no longer conduct business operations in China, and Power Green Investments Limited and Max Trend International Limited, the entities through which we operated our business in China, are currently dormant. The de-registration of Shenzhen Max Trend Green Energy Co. Ltd was approved by the PRC tax office in April 2015 and by PRC State Administration of Industry and Commerce in August 2015.

 

Summarized financial information regarding each revenue generating segment for the three months ended January 31, 2016 is as follows:

 

		Three months ended January 31, 2016
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	24,534			$	394,452			$	–			$	418,986
Inter-segment revenue			–				(6,237	)			–				(6,237	)
Revenues, net			24,534				388,215				–				412,749
Cost of revenues			–				(172,414	)			–				(172,414	)
Gross profit			24,534				215,801				–				240,335
Depreciation			460				119,995				4,771				125,226
Net income/(loss)			7,590				(70,892	)			(85,344	)			(148,646	)
Total assets			6,057,408				41,745,650				450,815				48,253,873
Expenditure for long-lived assets		$	465			$	1,002			$	–			$	1,467

 

 

Our oilseeds and durian plantation 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.

 

Our real estate business is primarily operated through PGCG Assets Holdings Sdn. Bhd., or PGCG Assets, and Dunford Corporation Sdn Bhd.

 

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 (July 8, 2011);

 

•

Acquired 21.8921 hectares (54.10 acres) of vacant development land located in Selangor, Malaysia, which is subject to a 99-year leasehold, expiring July 30, 2100 (March 30, 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 (April 18, 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 (August 2, 2012); and

 

•

Acquired a 12 story commercial building located at Megan Avenue 1, No. 189, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia (August 14, 2012).

 

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.

 

We focused on the maintenance and operation of our oil palm plantation in Malaysia. We believe 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 such offers in the future if a sale would maximize return to its investors. Due to challenges associated with labor shortages and labor management, we contracted out the management and operation of our oil palm plantation to BJ Bentong Trading effective from September 21, 2015 to March 20, 2018.

 

 

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 130 acres of our oil palm plantation land with premium durian trees. 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.

 

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 January 31 2016, 5 of the 12 stories of our 12 story building have been leased to tenants at market rates. We terminated prior discussions to lease six stories of our building to an intended college and have elected to commence leasing the remaining five stories on the open market. Two stories are occupied by us and serve as our corporate headquarters.

 

Our 15 story building is fully leased to Le Apple which operates a boutique hotel on the premises. The Rental Agreement has an initial term of one (1) year commencing December 1, 2013 and expiring November 30, 2014. 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 (approximately US$127,901) and is increased every three years by 5% to 10% or to the then prevailing market rate, whichever is lower.

 

Residential Property Development

 

On June 10, 2015, we received approval to develop our leasehold land located in Puncak Alam. Due to challenges in the current Malaysian real property market, in November 2015, we submitted a request to convert some of our planned semi-detached and bungalow home parcels into cluster semi-detached homes to improve the marketability of the development. We received approval of our revised development plan on March 4, 2016. We are in the process of preparing the building plans and conversion of land use for which we expect to receive approvals by the third quarter of calendar 2016. We hope to commence construction in the fourth quarter of calendar 2016 and complete construction by the end of calendar 2021. We hope to commence sales activities in the third calendar quarter of calendar 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 both Phase 1 and Phase 2 of the Shah Alam 2 Eco Residential Development project. If we are not able to successfully develop, market and sell both phases of 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. Any failure to develop, market and sell our Shah Alam 2 Eco Residential Development Project would materially and adversely affect our business plan, results of operations and financial condition.

 

We believe that the outlook for residential properties will remain positive for fiscal 2016 based upon Malaysia’s stable employment outlook, growth in household income, formation of new households, and increased demand for affordable residential property from first time home buyers. In addition to our specific challenge arising for the development order freeze imposed by the Selangor government, developers such as us are facing challenges of inconsistent supply and high cost of labor, increased costs of building materials (such as cement and steel bars) and general increased costs of doing business. Our market is also sensitive to changes in lending rates and lending requirements as many homebuyers rely on financing to make purchases. As a result, government or bank policies that result in increased interest rates and or stricter lending requirements may adversely affect the sales of our developed properties.

 

 

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 indefinitely delay uplisting efforts to focus on implementing our business plan.

 

Results of Operations

 

The following table sets forth certain operational data for the three months ended January 31, 2016, compared to the three months ended January 31, 2015:

 

		For the Three Months Ended January 31,								$				%
		2016				2015				Change				Change
Net Revenues		$	412,749			$	537,410			$	(124,661	)			(23.2%	)
Plantation business			24,534				51,572				(27,038	)			(52.4%	)
Real estate			388,215				485,838				(97,623	)			(20.1%	)
Total cost of revenue			(172,414	)			(250,530	)			(78,116	)			(31.2%	)
Plantation business			–				(36,673	)			(36,673	)			(100%	)
Real estate			(172,414	)			(213,857	)			(41,443	)			(19%	)
Gross profit			240,335				286,880				(46,545	)			(16.2%	)
General and administrative expenses			(129,945	)			(476,432	)			(346,487	)			(72.7%	)
Other income (expense), net			(227,086	)			(329,722	)			(102,636	)			(31.1%	)
Loss before income taxes			(116,696	)			(519,274	)			(402,578	)			(77.5%	)
Income tax expense			(31,950	)			–				31,950				100%
Net loss			(148,646	)			(519,274	)			(370,628	)			(71.4%	)

 

Comparison of the three months ended January 31, 2016 and January 31, 2015

 

Net Revenue. We generated net revenue of $412,749 and $537,410 for the three months ended January 31, 2016 and 2015, respectively. The decrease in net revenue for the quarter ended January 31, 2016 is primarily attributable to the decrease in our real estate revenue attributable to a weaker foreign exchange of the Malaysian Ringgit against the US Dollar. Also, revenue from our plantation business decreased after we contracted out the management and operation of our oil palm plantation in September 2015.

 

For the three months ended January 31, 2016, our plantation and real estate businesses accounted for approximately 5.9% and 94.1% of our net revenue, respectively. For the three months ended January 31, 2015, our plantation and real estate businesses accounted for approximately 9.6% and 90.4% of our net revenue, respectively.

 

Our real estate related revenues are derived from the tenants from our commercial buildings. As we increase our durian plantings, we expect revenue from our plantation business to be impacted when we are able to generate sales from our durian orchard in 2019.

 

 

Cost of Revenue. For the three-month period ended January 31, 2016, our cost of revenue as a percentage of net revenue was approximately 41.8%. For the same period ended January 31, 2015, our cost of revenue as a percentage of net revenue was approximately 46.6% for the three months ended January 31, 2015, with our oilseeds and real estate businesses accounting for 14.6% and 85.4% of cost of revenue, respectively. Cost of real estate revenue in 2016 and 2015 consisted primarily of land taxes, maintenance and depreciation of the leased properties of our real estate. Cost of plantation revenue in 2015 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. 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 change to business mode in plantation business and depreciation of the Malaysian Ringgit against the US Dollar.

 

Gross Profit. For the three months ended January 31, 2016, we achieved gross profit of $240,335 as compared to $286,880 for the three months ended January 31, 2015. For the three months ended January 31, 2016, our plantation and real estate operations achieved a gross profit margin of approximately 100.0% and 55.6%, respectively. For the three months ended January 31, 2015, our plantation and real estate operations achieved a gross profit margin of approximately 28.9% and 56.0%.

 

Until we begin real estate development activities, we expect gross profit from our real estate business to stabilize. Once we begin real estate development, we expect gross profit derived from our real estate business to gradually increase as we commence sales activities with respect to our developed properties. We also expect our plantation revenue to increase once our premium durian orchard has matured and is able to produce grade A fruits for distribution. We expect the fruits to begin generating revenue sometime in 2019.

 

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $129,945 and $476,432 for the three months ended January 31, 2016, and 2015, respectively. The decrease in G&A expenses of $346,487 is primarily attributable to the reduction of professional fees, stamping and declaration fees and valuation fees primarily incurred for the application of banking facilities in prior period.

 

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 31.5% and 88.7% for the three months ended January 31, 2016 and 2015, respectively.

 

Other Income (Expense), net. We incurred net other expense of $227,086 for the three months ended January 31, 2016, as compared to net other expense of $329,722 for the three months ended January 31, 2015. Net other expense for the three months ended January 31, 2016 and 2015 consisted primarily of interest expense from our bank loans.

 

Income Tax Expense. We recorded income tax expense of $31,950 and $0 for the three months ended January 31, 2016 and 2015, respectively. The increase is primarily attributable to the tax effect of non-business source rental income.

 

Liquidity and Capital Resources

 

As of January 31, 2016, we had cash and cash equivalents of $454,788, as compared to $934,392 as of January 31, 2015. Our cash and cash equivalents decreased as a result of cash used in operation and repayment of bank loans and repayment to related parties.

 

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 cope with our development activities, 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.

 

Going Concern Uncertainties

 

The continuation of the Company as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. 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 short-term and long-term debts. While we believe that we will obtain external financing and the existing shareholders will continue to provide the additional cash to meet our obligations as they become due, there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support operations for at least the next 12 months.

 

	Three Months Ended
	1/31/2016	1/31/2015
Net cash used in operating activities	(70,956)	(497,008)
Net cash used in investing activities	(12,518)	(17,508)
Net cash used in financing activities	(308,840)	(319,021)

 

Net Cash Used In Operating Activities.

 

For the three months ended January 31, 2016, net cash used in operating activities was $70,956, which consisted primarily of a net loss of $148,646, a decrease in accrued liabilities and other payables of $51,266, offset by rental concession of $6,395 and depreciation of $125,226.

 

For the three months ended January 31, 2015, net cash used in operating activities was $497,008, which consisted primarily of a net loss of $519,274, decrease in rental deposits from tenants of $87,362 and decrease in accrued liabilities and other payables of $25,881, offset by a decrease in accounts receivable of $11,250, decrease in deposits and other receivables of $10,245 and depreciation of $160,040.

 

We anticipate cash from our oilseeds operating activities to reduce after we subcontracted our oil palm plantation. We expect rental income from our real estate operations to stabilize once our two commercial properties are at or near full capacity. We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.

 

Net Cash Used in Investing Activities.

 

For the three months ended January 31, 2016, net cash used in investing activities was $12,518, $11,051 of which was attributable to the payment of plantation development costs and $1,002 of construction in progress cost.

 

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

 

We expect investing cash outflows to increase when we develop our durian plantation until the orchard matures and begins to generate revenues in 2019 at the earliest. We also expect investing cash outflows to increase due to expenditures associated with developing our residential projects.

 

Net Cash Used in Financing Activities.

 

For the three months ended January 31, 2016, net cash used in financing activities was $308,840, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $132,609, repayments of $175,708 on outstanding bank loans and repayments on a finance lease of $523.

 

 

 

For the three months ended January 31, 2015, net cash used in financing activities was $319,021, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $478,104, repayments of $11,207,394 on outstanding bank loans and repayments on a finance lease of $650. Proceeds from new bank loan were $11,367,127.

 

Off-Balance Sheet Arrangements

 

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

 

Contractual Obligations and Commercial Commitments

 

We had the following contractual obligations and commercial commitments as of January 31, 2016:

 

Contractual Obligations		Total				Less than 1 Year				1-3 Years				3-5 Years				More than 5 Years
Amounts due to related parties			2,184,554				179,635				2,004,919				–				–
Commercial commitments
Bank loan repayment			14,730,596				4,435,036				1,802,703				2,074,407				6,418,450
Finance lease obligation			4,887				2,175				2,712				–				–
Total obligations			16,920,037				4,616,846				3,810,334				2,074,407				6,418,450

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.

 

·

Accounts receivable

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. 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, our 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 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. We do not have any off-balance-sheet credit exposure related to our customers. Based upon the aforementioned criteria, We wrote off $nil and $25,850 accounts receivable on uncollectible rental receivable at January 31, 2016 and October 31, 2015, respectively.

 

·

Available-for-sale marketable securities

 

Available-for-sale marketable 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 months ended January 31, 2016, we invested in equity securities listed on Bursa Malaysia with a total cost of $240,794 and escrow funds (which invested in equity securities listed in the U.S.) with a total cost of $200,000. On July 7, 2014, we entered into an escrow agreement with Peijin Wu Hoppe (“Hoppe”), our former director, to set up an escrow fund up to $500,000 as a reserve to indemnify Hoppe from any claim of liability until July 29, 2022, the seventh year anniversary of the termination of Director Retainer Agreement, or any mutual agreement with Hoppe and us. For the three months ended January 31, 2016, the unrealized loss representing the change in fair value of $68,670 was recorded as a charge to accumulated other comprehensive income for the period.

 

 

·

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 and durian 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 storey buildings “Menara CMY” in Kuala Lumpar, Malaysia		Indefinite, as per land 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, fixtures and equipment				3-10 years
Motor vehicles				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”, we generally conduct our annual impairment evaluation to our 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 January 31, 2016 and October 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 our 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. We sale arrangements do not contain general rights of return.

 

(a) Our Plantation revenue

 

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.

 

Pursuant to a 8-K filing on September 23, 2015, in order to concentrate on durian plantation, we suspended the direct operation of oil palm plantation and leased out the oil palm land to a third party under an operating lease for 30 months from September 21, 2015 to March 20, 2018. Pursuant to this tenancy agreement, the tenant is entitled to manage the plantation, harvest and sell palm oil fresh fruit bunches and receive all proceeds thereto. Rental income of $24,534 and $nil was recognized for the three months ended January 31, 2016 and 2015, respectively and included in revenue from plantation business.

 

(b) Rental income

 

We generally lease the units under operating leases with terms of two years or less. For the three months ended January 31, 2016 and 2015, we have recorded $388,215 and $485,838 in lease revenue, based upon its annual rental over the life of the lease under operating lease, using the straight-line method in accordance with ASC Topic 970-605, “Real Estate – General – Revenue Recognition” (“ASC Topic 970-605”).

 

As of January 31, 2016, 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%

 

We expect to record approximately $1.6 million in annual lease revenue under the operating lease arrangements in the next twelve months through January 31, 2016.

 

·

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 statements of operations include costs associated with depreciation, 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 income (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 our 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.

 

·

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” 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 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 within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income.

 

Translation of amounts from the local currency into US$1 has been made at the following exchange rates for the respective periods:

 

		As of and for the period ended January 31,
		2016				2015
Period-end RMB : US$1 exchange rate			6.6046				6.15230
Period-average RMB : US$1 exchange rate			6.4600				6.13310
Period-end HK$ : US$1 exchange rate			7.7813				7.75200
Period-average HK$ : US$1 exchange rate			7.7599				7.75390
Period-end MYR : US$1 exchange rate			4.1400				3.63270
Period-average MYR : US$1 exchange rate			4.3002				3.46420

 

 

·

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 periods ended January 31, 2016 and 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, short-term bank borrowings, amount due to a related party and other payables approximate at their fair values because of the short-term nature of these financial instruments.

 

We believe, based on the current market prices or interest rates for similar debt instruments, the fair value of our 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.

 

 

 

 

ITEM 3                   Quantitative and Qualitative Disclosures about Market Risk

 

Foreign Exchange Risk

 

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

 

Commodity price

 

Our primary market risk exposure results from the price we receive for our palm oil and durian 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 and durian product and oilseeds has been volatile and unpredictable in recent years, and we expect this volatility to continue in the foreseeable future. The prices we receive for operation depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable commodity index price.

 

Malaysian real estate market risk

 

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

 

Market risk related to marketable securities

 

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

 

 

ITEM 4                   Controls and Procedures  

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of January 31, 2016, and during the period prior to and including the date of this report, were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Inherent Limitations

 

Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

 

Changes in Internal Control over Financial Reporting

 

Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended January 31, 2016, 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)
10.7	Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to four banking facilities in the aggregate principal amount of up to RM 3,452,000 (8)
10.8	Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to two banking facilities in the aggregate principal amount of up to RM 1,680,000 (8)
10.9	Offer Letter dated March 26, 2013, issued by RHB Bank Berhad with respect to six banking facilities in the aggregate principal amount of up to RM 4,708,000 (8)
14	Code of Business Conduct and Ethics (9)
21	List of Subsidiaries*
31.1	Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
31.2	Certification of Principal Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
99.1	Charter to Compensation Committee (10)
99.2	Charter to Audit Committee (10)
99.3	Charter to Corporate Governance Committee (10)
101.INS	XBRL Instance Document*
101.SCH	XBRL Schema Document*
101.CAL	XBRL Calculation Linkbase Document*
101.DEF	XBRL Definition Linkbase Document*
101.LAB	XBRL Label Linkbase Document*
101.PRE	XBRL Presentation Linkbase Document*

 

 

* Filed herewith.

(1) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Securities and Exchange on February 22, 2011.

(2) Incorporated by reference from Exhibit 2.1 to Current Report on Form 8-K filed with the Securities and Exchange on December 7, 2010.

(3) Incorporated by reference from Amendment No. 2 to our registration statement filed on Form S-1 with the Securities and Exchange Commission on September 2, 2009.

(4) Incorporated by reference from Exhibit 2 to Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 23, 2010.

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

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

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

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

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

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

 

 

SIGNATURES

 

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

 

 

	PRIME GLOBAL CAPITAL GROUP INCORPORATED
	By:	/s/Weng Kung Wong
		Weng Kung Wong
		Chief Executive Officer
	By:	/s/ Liong Tat Teh
		Liong Tat Teh
Date:       March 17, 2016		Chief Financial Officer