UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

---

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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☒      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 ☒       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 ☒
(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 ☒

 

As of June 10, 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 April 30, 2016 (Unaudited) and October 31, 2015	3
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended April 30, 2016 and 2015 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2016 and 2015 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	36
ITEM 4	Controls and Procedures	36
PART II	OTHER INFORMATION
ITEM 1	Legal Proceedings	37
ITEM 1A	Risk Factors	37
ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
ITEM 3	Defaults upon Senior Securities	37
ITEM 4	Mine Safety Disclosures	37
ITEM 5	Other Information	37
ITEM 6	Exhibits	37
SIGNATURES		39

 

 

 

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)

 

		April 30, 2016				October 31, 2015
ASSETS			(Unaudited)
Current assets:
Cash and cash equivalents		$	679,913			$	836,794
Time deposits			1,277,466				1,661,692
Marketable securities, available-for-sale			298,354				334,452
Rental concession			28,104				25,605
Accounts receivable, net			130,075				112,439
Deposits and other receivables			36,438				50,172
Total current assets			2,450,350				3,021,154
Rental concession, non-current			775,209				719,080
Deferred development costs			68,164				38,566
Construction in progress			290,012				263,222
Property, plant and equipment, net			46,973,407				43,044,561
TOTAL ASSETS		$	50,557,142			$	47,086,583
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	32			$	14
Amount due to a related party			180,181				180,316
Rental deposits from tenants			445,152				405,570
Income tax payable			950,343				841,722
Short-term bank borrowings			3,832,397				3,491,620
Current portion of long-term bank loans			874,888				768,529
Current portion of obligation under finance lease			2,300				2,096
Deferred tax liabilities, current			7,026				6,401
Accrued liabilities and other payables			302,578				369,160
Total current liabilities			6,594,897				6,065,428
Long-term liabilities:
Long-term bank loans			10,674,460				10,111,418
Rental deposits from tenants			17,885				16,294
Amount due to a director			1,946,380				2,071,183
Deferred tax liabilities			196,756				182,461
Obligation under finance lease			2,294				3,137
Total liabilities			19,432,672				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 April 30, 2016 and October 31, 2015			512,683				512,683
Additional paid-in capital			41,934,476				41,934,476
Accumulated other comprehensive loss			(8,949,706	)			(11,715,152	)
Accumulated deficit			(2,230,912	)			(1,980,135	)
Total stockholders’ equity			31,266,541				28,751,872
Non-controlling interests			(142,071	)			(115,210	)
Total equity			31,124,470				28,636,662
TOTAL LIABILITIES AND EQUITY		$	50,557,142			$	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 and per-share data)

(Unaudited)

 

		Three months ended April 30,								Six months ended April 30,
		2016				2015				2016				2015
Revenues, net:
Plantation business		$	25,912			$	34,036			$	50,446			$	85,608
Rental income			409,527				462,487				797,742				948,325
Total revenues, net			435,439				496,523				848,188				1,033,933
Cost of revenues			(122,227	)			(163,097	)			(294,641	)			(413,627	)
Gross profit			313,212				333,426				553,547				620,306
Operating expenses:
General and administrative			(141,065	)			(503,041	)			(271,010	)			(979,130	)
Income (loss) from operations			172,147				(169,615	)			282,537				(358,824	)
Other (expense) income
Interest income			14,038				–				30,431				14,529
Interest expense			(252,213	)			(273,718	)			(495,692	)			(618,415	)
Other income			–				–				–				103
Loss before income taxes			(66,028	)			(443,333	)			(182,724	)			(962,607	)
Income tax expense			(50,751	)			–				(82,701	)			–
NET LOSS		$	(116,779	)		$	(443,333	)		$	(265,425	)		$	(962,607	)
Net gain (loss) attributable to non-controlling interests			(1,257	)			2,146				(14,648	)			(22,281	)
NET LOSS ATTRIBUTABLE TO THE COMPANY		$	(115,522	)		$	(445,479	)		$	(250,777	)		$	(940,326	)
Other comprehensive income (loss):
- Unrealized holding gain (loss) on available-for-sale securities			19,276				–				(49,394	)			–
- Foreign exchange adjustment gain (loss)			1,728,530				472,568				2,814,840				(1,586,102	)
COMPREHENSIVE INCOME (LOSS)		$	1,632,284			$	27,089			$	2,514,669			$	(2,526,428	)
Net loss per share – Basic and diluted*		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average common stock outstanding – Basic and diluted			512,682,393				512,682,393				512,682,393				512,682,393

 

* Less than $0.01 per share

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)

 

		Six months ended April 30,
		2016				2015
Cash flows from operating activities:
Net loss		$	(265,425	)		$	(962,607	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			256,154				312,378
Changes in operating assets and liabilities:
Accounts receivable			(6,249	)			(10,899	)
Deposits and other receivables			17,475				(2,310	)
Accounts payable			15				(4,339	)
Rental concession			13,181				–
Rental deposits from tenants			–				(160,062	)
Income tax payable			24,829				(84,519	)
Deferred tax liabilities			(3,295	)			–
Accrued liabilities and other payables			(78,583	)			(30,249	)
Net cash used in operating activities			(41,898	)			(942,607	)
Cash flows from investing activities:
Plantation development costs			(24,233	)			–
Decrease (increase) in time deposits			512,519				(1,972,109	)
Payments on construction in progress			(1,032	)			–
Purchase of property, plant and equipment			(803	)			(16,749	)
Refund of land deposit			–				72,421
Net cash provided by (used in) investing activities			486,451				(1,916,437	)
Cash flows from financing activities:
Repayment to related parties			(290,722	)			(659,090	)
Proceeds from long-term bank loans			–				11,093,957
Repayments on long-term bank loans			(368,124	)			(11,143,667	)
Proceeds from revolving line of credit			–				4,225,947
Payments on finance lease			(1,079	)			(1,268	)
Net cash (used in) provided by financing activities			(659,925	)			3,515,879
Foreign currency translation adjustment			58,491				(26,863	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			(156,881	)			629,972
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			836,794				1,785,334
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	679,913			$	2,415,306
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income tax		$	61,168			$	84,519
Cash paid for interest		$	495,692			$	618,415

 

See accompanying notes to condensed consolidated financial statements.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 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 and six months ended April 30, 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 durian plantation, leasing and development of commercial and 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 AND SIX MONTHS ENDED APRIL 30, 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		Inactive operation
7.		PGCG Plantations Sdn. Bhd. (“PGCG Plantation”)		Malaysia		October 4, 2011		2 issued shares of ordinary shares of MYR 1 each		Holding company of VSSB
8.		Max Trend International Limited (“Max Trend”)		Hong Kong		August 19, 2010		2 issued shares of ordinary shares of HK$ 1 each		Holding company of 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 six months ended April 30, 2016, the Company reported a loss of $265,425 and working capital deficit of $4,144,547 as of April 30, 2016. The Company had accumulated deficit of $2,230,912 as of April 30, 2016 from recurring losses and significant short-term debt obligations maturing in less than one year (notes 8 and 9). These factors raise 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 that the continuing financial support from 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 should the Company be unable to continue to operate as a going concern.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 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 $130,423 and $267,436 included in general and administrative expenses for the three and six months ended April 30, 2015 in prior period financial statements have been reclassified to cost of revenues.

The change in time deposits was classified into cash flows from financing activities in the Company's condensed consolidated statements of cash flows for the six months ended April 30, 2015. The Company has reclassified these amounts as components of cash flows from investing activities. As a result of such reclassification, net cash flows from investing activities for the six months ended April 30, 2015 has changed from net cash provided by investing activities of $55,672 to net cash used in investing activities of $1,916,437, and net cash provided by financing activities has changed from $1,543,770 to $3,515,879.

 

·

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.

 

		April 30, 2016				October 31, 2015
Bank balances held by financial institutions located in:
Malaysia		$	605,639			$	760,787
The PRC			72,819				74,595
			678,458				835,382
Cash on hand in Malaysia			1,455				1,412
		$	679,913			$	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 October 2016.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

·

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 considers 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 April 30, 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. The Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. During the three and six months ended April 30, 2016, the Company invested in equity securities listed on Bursa Malaysia with a total cost of $254,698 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 and six months ended April 30, 2016, the unrealized gain representing the change in fair value of $19,276 and unrealized loss of $49,394, respectively, was recorded as an addition or a charge to accumulated other comprehensive income in the Company’s condensed consolidated balance sheets.

 

·

Deferred development costs

 

Deferred development costs consist of replanting costs of durian such as soil amendments, cultivation, fertilization and purchase costs of sapling. Costs related to durian development projects at the Company’s plantation land are capitalized during the sapling, developing and planting durian fruit bunches and until the harvests are substantially available for commercial sale, 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		Land portion of 15 story 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, fixture and equipment				3-10 years
Motor vehicles				5 years

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.

 

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

 

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 April 30, 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 the Company capitalizes only those costs associated with the portion under construction.

 

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

 

·

Finance leases

 

Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, “Imputation of Interest”.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 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 proceeds thereto. Rental income of $25,912 and $50,446 was recognized for the three and six months ended April 30, 2016, respectively and included in revenue from plantation business. No rental income was recognized for the three and six months ended April 30, 2015.

 

As of April 30, 2016, the minimum future rental receivables on the oil palm land to be collectible are as follows:

 

Period ending April 30:
2017		$	107,307
2018			89,423
Total		$	196,730

 

(b) Rental income

 

The Company generally leases the units under operating leases with terms of two years or less. For the six months ended April 30, 2016 and 2015, the Company has recorded $797,742 and $948,325 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 April 30, 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 $1.7 million in annual lease revenue under the operating lease arrangements in the next twelve months through April 30, 2017.

 

·

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 rental 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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

		April 30, 2016				October 31, 2015
Rental concession:
Current portion		$	28,104			$	25,605
Non-current portion			775,209				719,080
Total		$	803,313			$	744,685

 

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

 

Period ending April 30:
2017		$	28,104
2018			28,104
2019			28,104
2020			28,104
2021			28,104
Thereafter			662,793
Total		$	803,313

 

As of April 30, 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 April 30:
2017		$	1,682,039
2018			1,658,150
2019			1,658,150
2020			1,658,150
2021			1,658,150
Thereafter			37,418,456
Total		$	45,733,095

 

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.

 

·

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 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. Accumulated other 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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

·

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 are 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.

 

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. The gains and losses are recorded as a separate component of accumulated other comprehensive income.

 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

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 April 30,
		2016				2015
Period-end RMB : US$1 exchange rate			6.47258				6.0850
Period-average RMB : US$1 exchange rate			6.48438				6.1286
Period-end HK$ : US$1 exchange rate			7.75634				7.7502
Period-average HK$ : US$1 exchange rate			7.76286				7.7542
Period-end MYR : US$1 exchange rate			3.91400				3.5481
Period-average MYR : US$1 exchange rate			4.17278				3.5495

 

·

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 April 30, 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, long-term bank loans and available-for-sale marketable securities): cash and cash equivalents, time deposits, accounts receivable, deposits and other receivables, short-term bank borrowings, amount due to a director and accrued liabilities and other payables approximate their fair values because of the short-term nature of these financial instruments.

 

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

 

The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” ("ASC 820-10"), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

	•	Level 1 : Observable inputs such as quoted prices in active markets;

	•	Level 2 : Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3 : Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions

 

·

Recent accounting pronouncements

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements is likely to cause a material impact on its financial condition or the results of its operations.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

NOTE 5     PROPERTY, PLANT AND EQUIPMENT

 

		April 30, 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, fixture and equipment			126,434				125,631
Motor vehicles			166,047				166,047
Foreign translation difference			(12,757,307	)			(17,096,349	)
			48,797,449				44,457,604
Less: accumulated depreciation			(2,185,006	)			(1,928,852	)
Less: foreign translation difference			360,964				515,809
		$	46,973,407			$	43,044,561

 

Depreciation expense for the three months ended April 30, 2016 and 2015 was $130,928 and $152,338, respectively.

 

Depreciation expense for the six months ended April 30, 2016 and 2015 was $256,154 and $312,378, respectively.

 

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

 

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

 

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

 

 

NOTE 6     AMOUNTS DUE TO RELATED PARTIES

 

		April 30, 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		$	180,181			$	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		$	1,946,380			$	2,071,183

 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

NOTE 7     ACCRUED LIABILITIES AND OTHER PAYABLES

 

Accrued liabilities and other payables consist of the following:

		April 30, 2016				October 31, 2015
Accrued operating expenses		$	67,197			$	115,883
Accrued interest expense			63,613				57,957
Potential tax penalty liability (Note 11)			135,000				135,000
Other payable			36,768				60,320
		$	302,578			$	369,160

 

 

NOTE 8     BANK LOANS

 

		April 30, 2016				October 31, 2015
Bank loans from financial institutions in Malaysia,
Bank of China (Malaysia) Berhad		$	9,179,981			$	8,692,957
RHB Bank Berhad			2,369,367				2,186,990
			11,549,348				10,879,947
Less: current portion			(874,888	)			(768,529	)
Bank loans, net of current portion		$	10,674,460			$	10,111,418

 

15 Story Bank Loan

 

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

 

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. The loan 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 April 30, 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 periods ended April 30, 2016 and 2015, respectively.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

As of April 30, 2016, the minimum future payments of the aggregate bank loans in the next five years and thereafter are as follows:

 

Period ending April 30:
2017		$	874,888
2018			936,056
2019			1,003,713
2020			1,075,920
2021			1,156,825
Thereafter			6,501,946
Total:		$	11,549,348

 

 

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 $3,832,397) 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 5.11% per annum for the quarter ended April 30, 2016.

 

The aggregate amount outstanding under the revolving line of credit was $3,832,397 at April 30, 2016.

 

 

NOTE 10     OBLIGATION UNDER FINANCE LEASE

 

The Company purchased a 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:

 

		April 30, 2016				October 31, 2015
Finance lease		$	5,434			$	6,193
Less: interest expense			(840	)			(960	)
Net present value of finance lease		$	4,594			$	5,233
Current portion		$	2,300			$	2,096
Non-current portion			2,294				3,137
Total		$	4,594			$	5,233

 

As of April 30, 2016, the maturities of the finance lease for the remaining term is as follows:

 

Period ending April 30:
2017		$	2,300
2018			2,294
Total		$	4,594

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

NOTE 11     INCOME TAXES

 

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

 

		Six months ended April 30,
		2016				2015
Tax jurisdictions from:
– Local		$	(65,451	)		$	(120,143	)
– Foreign, representing:
BVI			–				–
Malaysia			(117,273	)			(837,392	)
Hong Kong			–				–
The PRC			–				(5,072	)
Loss before income taxes		$	(182,724	)		$	(962,607	)

 

Provision for income taxes consisted of the following:

 

		Six months ended April 30,
		2016				2015
Current:
– Local		$	–			$	–
– Foreign, representing:
BVI			–				–
Malaysia			85,996				–
Hong Kong			–				–
The PRC			–				–
Deferred:
– Local			–				–
– Foreign			(3,295	)			–
Income tax expense		$	82,701			$	–

 

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 operate in different countries and are subject to tax in the jurisdictions in which the 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 April 30, 2016 and October 31, 2015, the operations in the United States of America incurred $495,890 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 $173,562 (October 31, 2015: $163,743) against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as 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 (Note 7) at April 30, 2016 and October 31, 2015 in respect of potential tax penalty of the late filing of IRS return.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

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 April 30, 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 and six months ended April 30, 2015.

 

Malaysia

 

All of the Company’s subsidiaries operating in Malaysia are subject to the Malaysia Corporate Tax Laws at a progressive income tax rate starting from 20% (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:

 

		Six months ended April 30,
		2016				2015
Loss before income taxes		$	(117,273	)			(837,392	)
Statutory income tax rate			25%				20%
Income tax at statutory tax rate			(29,318	)			(167,478	)
Tax effect of non-deductible expenses			21,787				62,475
Tax effect of different tax rate			2,062				–
Tax effect of non-business source rental income			78,921				–
Net operating loss			9,249				105,003
Income tax expense		$	82,701				–

 

The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of April 30, 2016 and October 31, 2015:

 

		April 30, 2016				October 31, 2015
Deferred tax assets:
Capital loss		$	9,135			$	6,359
Net operating loss carryforwards:
- United States of America			173,562				163,743
- Malaysia			210,449				183,405
- Hong Kong			1,065				1,065
- PRC			–				–
Total deferred tax assets			394,211				354,572
Less: valuation allowance			(394,211	)			(354,572	)
Deferred tax assets		$	–			$	–
Deferred tax liabilities, current
Rental concession		$	7,026			$	6,401
Deferred tax liabilities, non-current
Property, plant and equipment			2,954				2,691
Rental concession			193,802				179,770
		$	196,756			$	182,461

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

NOTE 12     STOCKHOLDERS’ EQUITY

 

As of April 30, 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

 

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 April 30, 2016
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	25,912			$	416,145			$	–			$	442,057
Inter-segment revenue			–				(6,618	)			–				(6,618	)
Revenues, net			25,912				409,527				–				435,439
Cost of revenues			–				(122,227	)			–				(122,227	)
Gross profit			25,912				287,300				–				313,212
Depreciation			516				127,328				3,084				130,928
Net loss			(4,278	)			(27,648	)			(84,853	)			(116,779	)
Total assets			6,393,044				43,643,935				520,163				50,557,142
Expenditure for long-lived assets		$	14			$	354			$	–			$	368

  

		Three months ended April 30, 2015
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	34,036			$	469,857			$	–			$	503,893
Inter-segment revenue			–				(7,370	)			–				(7,370	)
Revenues, net			34,036				462,487				–				496,523
Cost of revenues			(25,597	)			(137,500	)			–				(163,097	)
Gross profit			8,439				324,987				–				333,426
Depreciation			4,967				141,794				5,577				152,338
Net loss			(10,862	)			(317,547	)			(114,924	)			(443,333	)
Total assets			7,077,060				52,927,039				404,957				60,409,056
Expenditure for long-lived assets		$	–			$	–			$	–			$	–

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

		Six months ended April 30, 2016
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	50,446			$	810,597			$	–			$	861,043
Inter-segment revenue			–				(12,855	)			–				(12,855	)
Revenues, net			50,446				797,742				–				848,188
Cost of revenues			–				(294,641	)			–				(294,641	)
Gross profit			50,446				503,101				–				553,547
Depreciation			976				247,323				7,855				256,154
Net income (loss)			3,312				(98,540	)			(170,197	)			(265,425	)
Total assets			6,393,044				43,643,935				520,163				50,557,142
Expenditure for long-lived assets		$	479			$	1,356			$	–			$	1,835

 

		Six months ended April 30, 2015
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	85,608			$	963,437			$	–			$	1,049,045
Inter-segment revenue			–				(15,112	)			–				(15,112	)
Revenues, net			85,608				948,325				–				1,033,933
Cost of revenues			(62,270	)			(351,357	)			–				(413,627	)
Gross profit			23,338				596,968				–				620,306
Depreciation			10,197				290,746				11,435				312,378
Net loss			(28,473	)			(586,140	)			(347,994	)			(962,607	)
Total assets			7,077,060				52,927,039				404,957				60,409,056
Expenditure for long-lived assets		$	16,749			$	–			$	–			$	16,749

 

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 and six months ended April 30, 2016 and 2015, the customer who accounted for 10% or more of the Company’s revenues is presented as follows:

Three months ended April 30, 2016

April 30, 2016

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

400,351

92%

$

112,417

 

Three months ended April 30, 2015

April 30, 2015

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

445,851

90%

$

–

 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

Six months ended April 30, 2016

April 30, 2016

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

777,659

92%

$

112,417

 

Six months ended April 30, 2015

April 30, 2015

Business segment

Revenues

Percentage of revenues

Trade accounts receivable

Customer H

Real estate

$

914,213

88%

$

–

 

All customers are located in Malaysia.

 

(b) Major vendors

 

For the three and six months ended April 30, 2016, no single vendor was accounted for 10% or more of the Company’s purchases.

 

For the three and six months ended April 30, 2015, the vendors who accounted for 10% or more of the Company’s purchases is presented as follows:

 

		Three months ended April 30, 2015								April 30, 2015
		Purchase				Percentage of purchase				Trade accounts payable
Vendor E		$	4,230				16%				–
Vendor F			1,717				7%				–
Total:		$	5,947				23%			$	–

  

		Six months ended April 30, 2015								April 30, 2015
		Purchase				Percentage of purchase				Trade accounts payable
Vendor E		$	11,609				19%				–
Vendor F			22,696				37%				–
Total:		$	34,305				56%			$	–

 

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.

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2016

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

(Unaudited)

 

 

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

 

(f)

Economic and political risks

 

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

 

 

NOTE 15     COMMITMENTS AND CONTINGENCIES

 

(a) Operating lease commitment

 

As of April 30, 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 April 30, 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 April 30, 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 April 30, 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 April 30, 2016 is as follows:

 

		Three months ended April 30, 2016
		Plantation Business				Real Estate Business				Corporate				Total
Revenues		$	25,912			$	416,145			$	–			$	442,057
Inter-segment revenue			–				(6,618	)			–				(6,618	)
Revenues, net			25,912				409,527				–				435,439
Cost of revenues			–				(122,227	)			–				(122,227	)
Gross profit			25,912				287,300				–				313,212
Depreciation			516				127,328				3,084				130,928
Net loss			(4,278	)			(27,648	)			(84,853	)			(116,779	)
Total assets			6,393,044				43,643,935				520,163				50,557,142
Expenditure for long-lived assets		$	14			$	354			$	–			$	368

 

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 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.

 

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. 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 our oil palm plantation has increased since its acquisition, and while we have not pursued any discussions or received any formal offers regarding the sale of our plantation, we may consider such offers in the future if a sale would maximize return to our 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 expect 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 April 30, 2016, 5 of the 12 stories of our 12 story building have been leased to tenants at market rates. We are in the eviction process with respect to 2 of our stories and are continuing efforts to lease 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$131,807) 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.

 

The approved order allows us to proceed with our plans to construct the Shah Alam 2 Eco Residential Development project.

 

We are in the process of preparing the building plans and conversion of land use for which we expect to receive approvals in September 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 are also exploring other options including selling the land or entering into a joint venture with other reputable developers to develop the land.

 

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

 

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

 

Comparison of the three months ended April 30, 2016 and April 30, 2015

 

The following table sets forth certain operational data for the three months ended April 30, 2016, compared to the three months ended April 30, 2015:

 

		For the three months ended April 30,
		2016				2015				$ Change				% Change
Net Revenues		$	435,439			$	496,523				(61,084	)			(12.3%	)
Plantation sales			25,912				34,036				(8,124	)			(23.9%	)
Real estate			409,527				462,487				(52,960	)			(11.5%	)
Total cost of revenue			(122,227	)			(163,097	)			(40,870	)			(25.1%	)
Plantation sales			–				(25,597	)			(25,597	)			(100.0%	)
Real estate			(122,227	)			(137,500	)			(15,273	)			(11.1%	)
Gross profit			313,212				333,426				(20,214	)			(6.1%	)
General and administrative expenses			(141,065	)			(503,041	)			(361,976	)			(72.0%	)
Other income (expense), net			(238,175	)			(273,718	)			(35,543	)			(13.0%	)
Loss before income taxes			(66,028	)			(443,333	)			(377,305	)			(85.1%	)
Income tax expense			(50,751	)			–				50,751				100.0%
Net loss			(116,779	)			(443,333	)			(326,554	)			(73.7%	)

 

Net Revenue. We generated net revenue of $435,439 and $496,523 for the three months ended April 30, 2016 and 2015, respectively. The decrease in net revenue for the quarter ended April 30, 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 April 30, 2016, our plantation and real estate businesses accounted for approximately 6% and 94% of our net revenue, respectively. For the three months ended April 30, 2015, our plantation and real estate businesses accounted for approximately 6.9% and 93.1% 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 until such time as we are able to generate sales from our durian orchard in 2019. Except lost income attributable to our durian plantings, we generally expect our plantation and real estate related revenues to gradually increase in the future as those business segments continue to develop.

 

Cost of Revenue. For the three months ended April 30, 2016, our cost of revenue as a percentage of net revenue was approximately 28.1% with our real estate businesses accounting for 100% of the cost of revenues. For the same period ended April 30, 2015, our cost of revenue as a percentage of net revenue was approximately 32.8%, with our oilseeds and real estate businesses accounting for 15.7% and 84.3%, 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 in cost of revenue is primarily attributable to change to business mode in plantation business and depreciation of the Malaysian Ringgit against the US Dollar.

 

 

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

 

Gross Profit. For the three months ended April 30, 2016, we achieved gross profit of $313,212 as compared to $333,426 for the three months ended April 30, 2015. For the three months ended April 30, 2016, our plantation and real estate operations achieved a gross profit margin of approximately 100% and 70.2%, respectively. For the three months ended April 30, 2015, our plantation and real estate operations achieved a gross profit margin of approximately 24.8% and 70.3%, respectively.

 

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 $141,065 and $503,041 for the three months ended April 30, 2016 and 2015, respectively. The decrease in G&A expenses of $361,976 is primarily attributable to the professional fees incurred for application for 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 32.4% and 101.3% for the three months ended April 30, 2016 and 2015, respectively.

 

Other Income (Expense), net. We incurred net other expense of $238,175 for the three months ended April 30, 2016, as compared to net other expense of $273,718 for the three months ended April 30, 2015. Net other expense for the three months ended April 30, 2016 consisted primarily of interest expense from our bank loans offset by interest income from time deposits. Net other expense for the same period ended April 30, 2015, consisted solely of interest expense from our bank loans.

 

Income Tax Expense. We recorded income tax expense of $50,751 and $0 for the three months ended April 30, 2016 and 2015, respectively. The increase is primarily attributable to the tax effect of non-business source rental income.

 

Comparison of the six months ended April 30, 2016 and April 30, 2015

 

The following table sets forth certain operational data for the six months ended April 30, 2016, compared to the six months ended April 30, 2015:

 

		For the six months ended April 30,
		2016				2015				$ Change				% Change
Net Revenues		$	848,188				1,033,933				(185,745	)			(17.9%	)
Plantation sales			50,446				85,608				(35,162	)			(41.1%	)
Real estate			797,742				948,325				(150,583	)			(15.9%	)
Total cost of revenue			(294,641	)			(413,627	)			(118,986	)			(28.8%	)
Plantation sales			–				(62,270	)			(62,270	)			(100.0%	)
Real estate			(294,641	)			(351,357	)			(56,716	)			(16.1%	)
Gross profit			553,547				620,306				(66,759	)			(10.8%	)
General and administrative expenses			(271,010	)			(979,130	)			(708,120	)			(72.3%	)
Other income (expense), net			(465,261	)			(603,783	)			(138,522	)			(22.9%	)
Loss before income taxes			(182,724	)			(962,607	)			(779,883	)			(81.0%	)
Income tax expense			(82,701	)			–				82,701				100.0%
Net loss			(265,425	)			(962,607	)			(697,182	)			(72.4%	)

 

 

Net Revenue. We generated net revenue of $848,188 and $1,033,933 for the six months ended April 30, 2016 and 2015, respectively. The decrease in net revenue for the six months ended April 30, 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 six months ended April 30, 2016, our plantation and real estate businesses accounted for approximately 5.9% and 94.1% of our net revenue, respectively. For the six months ended April 30, 2015, our plantation and real estate businesses accounted for approximately 8.3% and 91.7% 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 until such time as we are able to generate sales from our durian orchard in 2019. Except lost income attributable to our durian plantings, we generally expect our plantation and real estate related revenues to gradually account for an increasing share of our net revenue in the future as those business segments continue to develop.

 

Cost of Revenue. For the six months ended April 30, 2016, our cost of revenue as a percentage of net revenue was approximately 34.7% with our real estate business accounting for 100% of the cost of revenue. For the same period ended April 30, 2015, our cost of revenue as a percentage of net revenue was approximately 40.0%, with our oilseeds and real estate businesses accounting for 15.1% and 84.9%, 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 in cost of revenue is primarily attributable to change to business mode in plantation business and depreciation of the Malaysian Ringgit against the US Dollar.

 

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

 

Gross Profit. For the six months ended April 30, 2016, we achieved gross profit of $553,547 as compared to $620,306 for the same period ended April 30, 2015. For the six months ended April 30, 2016, our plantation and real estate operations achieved a gross profit margin of approximately 100% and 63.1%, respectively. For the six months ended April 30, 2015, our plantation and real estate operations achieved a gross profit margin of approximately 27.3% and 62.9%, respectively.

 

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $271,010 and $979,130 for the six months ended April 30, 2016 and 2015, respectively. The decrease in G&A expenses of $708,120 is primarily attributable to the decrease in professional fees, stamping and declaration fees and valuation fees primarily incurred for the application of banking facilities in the six months ended April 30, 2016.

 

Other Income (Expense), net. We incurred net other expense of $465,261 for the six months ended April 30, 2016, as compared to net other expense of $603,783 for the six months ended April 30, 2015. Net other expense for the six months ended April 30, 2016 and 2015 consisted primarily of interest expense from our bank loans offset by interest income from time deposits.

 

Income Tax Expense. We recorded income tax expense of $82,701 and $0 for the six months ended April 30, 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 April 30, 2016, we had cash and cash equivalents of $679,913, as compared to $836,794 as of October 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.

 

		Six Months Ended April 30,
		2016				2015
Net cash used in operating activities			(41,898	)			(942,607	)
Net cash provided by (used in) investing activities			486,451				(1,916,437	)
Net cash (used in) provided by financing activities			(659,925	)			3,515,879

 

Net Cash Used In Operating Activities.

 

For the six months ended April 30, 2016, net cash used in operating activities was $41,898, which consisted primarily of a net loss of $265,425, a decrease in accrued liabilities and other payables of $78,583, and an increase in accounts receivable of $6,249, offset by depreciation of $256,154, a decrease in deposits and other receivables of $17,475 and a decrease in rental concession of $13,181.

 

For the six months ended April 30, 2015, net cash used in operating activities was $942,607, which consisted primarily of a net loss of $962,607, a decrease in rental deposits of $160,062, a decrease in income tax payables of $84,519, a decrease in accrued liabilities and other payables of $30,249, an increase in accounts receivable of $10,899 offset by depreciation of $312,378.

 

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 Provided By (Used in) Investing Activities.

 

For the six months ended April 30, 2016, net cash provided by investing activities was $486,451, which was primarily attributable to the decrease in time deposits of $512,519, offset by payment of plantation development costs of $24,233 and $1,032 of construction in progress cost.

 

For the six months ended April 30, 2015, net cash used in investing activities was $1,916,437, which was primarily attributable to the increase in time deposits of $1,972,109 and purchase of property, plant and equipment of $16,749 offset by a refund of our land deposit of $72,421.

 

Net Cash (Used in) Provided By Financing Activities.

 

For the six months ended April 30, 2016, net cash used in financing activities was $659,925, consisting primarily of repayments to Weng Kung Wong, our Chief Executive Officer and director, of $290,722, repayments of $368,124 on outstanding bank loans and repayments on a finance lease of $1,079.

 

For the six months ended April 30, 2015, net cash provided by financing activities was $3,515,879, consisting primarily of proceeds from a new bank loan of $11,093,957, a revolving line of credit of $4,225,947, offset by repayment of $11,143,667 in bank loans and repayments to Weng Kung Wong, our Chief Executive Officer and director, of $659,090.

 

 

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 April 30, 2016:

 

Contractual Obligations		Total				Less than 1 Year				1-3 Years				3-5 Years				More than 5 Years
Amounts due to related parties			2,126,561				180,181				1,946,380				–				–
Commercial commitments
Bank loan repayment			15,381,745				4,707,285				1,939,769				2,232,745				6,501,946
Finance lease obligation			4,594				2,300				2,294				–				–
Total obligations			17,512,900				4,889,766				3,888,443				2,232,745				6,501,946

 

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 consider the allowance for doubtful accounts for any estimated losses resulting from the inability of our customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Based upon the aforementioned criteria, we wrote off $nil and $25,850 accounts receivable on uncollectible rental receivable at April 30, 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 and six months ended April 30, 2016, we invested in equity securities listed on Bursa Malaysia with a total cost of $254,698 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 and six months ended April 30, 2016, the unrealized gain representing the change in fair value of $19,276 and unrealized loss of $49,394, respectively, was recorded as an addition or a charge to accumulated other comprehensive income in the condensed consolidated balance sheets.

 

·

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		Land portion of 15 story 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, fixture 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 asset group. 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.

 

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 April 30, 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 amortize 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. Our 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, 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 $25,912 and $50,446 was recognized for the three and six months ended April 30, 2016, respectively and included in revenue from plantation business. No rental income was recognized for the three and six months ended April 30, 2015.

 

(b) Rental income

 

We generally lease the units under operating leases with terms of two years or less. For the six months ended April 30, 2016 and 2015, we have recorded $797,742 and $948,325 in lease revenue, based upon our 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 April 30, 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 $1.7 million in annual lease revenue under the operating lease arrangements in the next twelve months through April 30, 2017.

 

 

·

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 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. Accumulated other 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 are 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 of our Company 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. The gains and losses are recorded as a separate component of accumulated other comprehensive income.

 

 

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

		As of and for the period ended April 30,
		2016				2015
Period-end RMB : US$1 exchange rate			6.47258				6.0850
Period-average RMB : US$1 exchange rate			6.48438				6.1286
Period-end HK$ : US$1 exchange rate			7.75634				7.7502
Period-average HK$ : US$1 exchange rate			7.76286				7.7542
Period-end MYR : US$1 exchange rate			3.91400				3.5481
Period-average MYR : US$1 exchange rate			4.17278				3.5495

 

·

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 April 30, 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, long-term bank loans and available-for-sale marketable securities): cash and cash equivalents, time deposits, accounts receivable, deposits and other receivables, short-term bank borrowings, amount due to a director and accrued liabilities and other payables approximate 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. All of our assets are denominated in MYR except for some cash and cash equivalents which are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate among US dollar, MYR and RMB. If the MYR/RMB depreciates against the US dollar, the value of our MYR/RMB revenues, earnings and assets as expressed in our US dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

 

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 April 30, 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 April 30, 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:       June 14, 2016		Chief Financial Officer