UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

AMENDMENT NO. 1

FORM 10-K

 

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended October 31, 2012
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

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 of		(I.R.S. Employer
incorporation or organization)		Identification No.)
11-2, Jalan 26/70A, Desa Sri Hartamas 50480 Kuala Lumpur, Malaysia		N/A
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: +603 6201 3198

 

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes o No x

 

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 x No o

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

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.

 

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

 

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

 

Aggregate market value of the voting stock held by non-affiliates of the registrant as of April 30, 2012, based upon the closing sale price reported by the Over-the-Counter Bulletin Board on that date: $608,895,284

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Common Stock		Outstanding at December 23, 2012
Common Stock, $.001 par value per share		512,682,393 shares

 

DOCUMENTS INCORPORATED BY REFERENCE: None

 

EXPLANATORY NOTE

 

This Amendment No. 1 to Form 10-K amends our Annual Report on Form 10-K for the period ended October 31, 2012, filed with the Securities and Exchange Commission on December 31, 2012. This Amendment No. 1 to Form 10-K is being filed to: (i) revise our disclosures regarding applicable government regulation in Item 1 Description of Business; (ii) revise the Management’s Discussion and Analysis portion of this report; (iii) revise Note 3 to the financial statements; (iv) amend the section entitled “Compensation of Directors”; (v) include the Report of Independent Registered Public Accounting Firm issued by Borgers & Cutler CPA’s PLLC for the fiscal year ended October 31, 2011, which was inadvertently excluded; and (vi) to amend the consent of HKCMCPA Company Limited attached as Exhibit 23 to reflect the correct date.

 

Except as described above, this Amendment No. 1 to Form 10-K does not amend, update or change any other items or disclosures in the original filing and does not purport to reflect any information or events subsequent to the filing date of the original filing. As such, this amended Form 10-K report speaks only as of the date the original filing was filed, and the Registrant has not undertaken herein to amend, supplement or update any information contained in the original filing to give effect to any subsequent events. Accordingly, this amended Form 10-K should be read in conjunction with the Registrant’s filings made with the Securities and Exchange Commission subsequent to the filing of the original filing, including any amendment to those filings.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I

 

ITEM 1 DESCRIPTION OF BUSINESS

 

The section entitled “Government Regulation” in Item 1, the “Description of Business’ is restated in its entirety as set forth below.

 

Government Regulation

 

Foreign Exchange Control and Administration

 

Foreign exchange in China is primarily regulated by:

 

·

The Foreign Currency Administration Rules (1996), as amended; and

·

The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

Under the Foreign Currency Administration Rules, if documents certifying the purposes of the conversion of RMB into foreign currency are submitted to the relevant foreign exchange conversion bank, the RMB will be convertible for current account items, including the distribution of dividends, interest and royalties payments, and trade and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is subject to the approval of SAFE or its local counterpart.

 

Under the Administration Rules for the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE or its local counterpart.

 

As an offshore holding company with a PRC subsidiary, we may (i) make additional capital contributions to our PRC subsidiaries, (ii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC subsidiaries or consolidated affiliated entities, or (iv) acquire offshore entities with business operations in China in offshore transactions. However, most of these uses are subject to PRC regulations and approvals. For example:

 

·

capital contributions to our PRC subsidiaries, whether existing or newly established ones, must be approved by the Ministry of Commerce or its local counterparts;

·

loans by us to our PRC subsidiaries, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local branches; and

·

loans by us to our consolidated affiliated entities, which are domestic PRC entities, must be approved by the National Development and Reform Commission and must also be registered with SAFE or its local branches.

 

On August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. Pursuant to SAFE Circular 142, RMB resulting from the settlement of foreign currency capital of a foreign-invested enterprise must be used within the business scope as approved by the applicable government authority and cannot be used for domestic equity investment, unless it is otherwise approved. Documents certifying the purposes of the settlement of foreign currency capital into RMB, including a business contract, must also be submitted for the settlement of the foreign currency. In addition, SAFE strengthened its oversight of the flow and use of RMB capital converted from foreign currency registered capital of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may not be used to repay RMB loans if such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary fines or penalties. We expect that our use of RMB funds have been, and will be, within the approved business scope of our PRC subsidiary. We believe that our PRC subsidiary is permitted to conduct its castor seeds distribution operations and provide consulting services to castor farmers. However, we may not be able to use such RMB funds to make equity investments in the PRC through our PRC subsidiaries. There are no costs associated with applying for registration or approval of loans or capital contributions with or from relevant PRC governmental authorities, other than nominal processing charges. Under PRC laws and regulations, the PRC governmental authorities are required to process such approvals or registrations or deny our application within a prescribed time period, which is usually less than 90 days. The actual time taken, however, may be longer due to administrative delays. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to our operations in China. If we fail to receive such registrations or approvals, our ability to use the proceeds from our funds to capitalize our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and ability to fund and expand our business.

  

 

 

The value of the Renminbi against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Historically, the conversion of Renminbi into foreign currencies, including US dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the US dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the US dollar.

 

The fluctuation of the Renminbi against the US dollar and other currencies may have an impact on our figures in our consolidated financial information presented elsewhere in this prospectus.

 

Dividend Distributions

 

The principal regulations governing dividend distributions of wholly foreign-owned enterprises include:

 

·

the Companies Law (2005);

·

the Wholly Foreign-Owned Enterprise Law (2000); and

·

the Wholly Foreign-Owned Enterprise Law Implementing Rules (2001).

 

Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, these wholly foreign-owned enterprises are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds, until the aggregate amount of such fund reaches 50% of its registered capital. At the discretion of these wholly foreign-owned enterprises, they may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

 

Max Trend WFOE is regulated by the laws governing foreign-invested enterprises in the PRC. Accordingly, it is required to allocate 10% of its after-tax profits based on PRC accounting standards each year to their general reserves until the accumulated amount of such reserves has exceeded 50% of its registered capital, after which no further allocation is required to be made. These reserve funds, however, may not be distributed to equity owners except in accordance with PRC laws and regulations. In addition, due to the failure of these laws and regulations to define or interpret the terms “non-profit,” “for-profit” or “for the purpose of making a profit” as they relate to our business, we cannot assure you that the PRC government authorities will not request our subsidiary to use its after-tax profits for its own development and restrict our subsidiary’s ability to distribute their after-tax profits to us as dividends.

 

On March 16, 2007, the National People’s Congress approved and promulgated a new tax law, the PRC Enterprise Income Tax Law, or “EIT Law,” which took effect on January 1, 2008. Pursuant to the new EIT law and its implementing regulations, dividends payable by a foreign-invested enterprise to its foreign enterprise (but not individual) investors will be subject to a 10% withholding tax if the foreign investors are considered as non-resident enterprises without any establishment or place of business within China or if the dividends payable have no connection with the establishment or place of business of the foreign investors within China, to the extent that the dividends are deemed China sourced income, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Hong Kong, where Max Trend HK is incorporated, has such a tax treaty with China.

 

In addition, as clarified by a notice jointly promulgated by the Ministry of Finance and the State Administration of Taxation of the PRC on February 22, 2008, distribution of accumulated profits of foreign-invested enterprises will be subject to withholding tax.

 

A fuller discussion of the EIT Law and its application to us is set forth in our risk factors under the section entitled “Risks Related to Our Operations In China”.

 

As of October 31, 2012, the registered capital of our PRC wholly foreign-owned subsidiary Shenzhen was US$158,485. Shenzhen has not made any profits to date, and thus is not subject to the statutory reserve fund requirement. Shenzhen has not and will not be able to pay dividends to our offshore entities until they generate accumulated profits and meet the requirements for statutory reserve funds. As of October 31, 2012, our Shenzhen had retained earnings of approximately US$761,000 in accordance with PRC accounting standards and regulations

 

As of October 31, 2012, the amount of cash held by our PRC subsidiary was $991,312, of which $831,000 is free of restriction and $160,312 is restricted. As of October 31, 2012, the amount of net assets held by our PRC subsidiary was $924,028, of which approximately $831,000 is free of restriction and $93,028 is restricted.

 

To date, we have not yet transferred any cash out of the PRC. We currently intend to reinvest PRC derived proceeds in the PRC. If we elect to move our cash outside of the PRC, we will be subject to withholding taxes of approximately 5%.

 

 

PART II

 

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The “Overview” portion of this section is restated in its entirety as set forth below.

 

 Overview

 

During fiscal year 2012, we operated in the following four business segments: (i) the provision of IT consulting, programming and website development services; (ii) our oilseeds business; (iii) our real estate business and (iv) the distribution of consumer products. Our software and oilseeds businesses each accounted for approximately half of our revenues for fiscal year 2012. We did not generate any revenues from any of our other business segments during fiscal year ended 2012. Summarized financial information regarding each revenue generating segment and the real estate business segment as of fiscal year end October 31, 2012 is as follows:

 

	Year ended October 31, 2012
	Software Business			Trading Business			Plantation Business			Real Estate Business			Corporate			Total
Revenues, net	$	1,505,606		$	-		$	1,540,736		$	-		$	-		$	3,046,342
Cost of revenues		(35,205)			-			(301,584)			-			-			(336,789)
Gross profit		1,470,401			-			1,239,152			-			-			2,709,553
General and administrative		-			-			(409,822)			-			(1,118,096)			(1,527,918)
Other income (expense)		-			-			33,993						777,259			811,252
Net income (loss)		1,413,613			-			595,857			-			(536,754)			1,472,716
Total assets		18,645			-			9,426,760			25,423,311		$	6,716,242			41,584,958
Expenditure for long-lived assets	$	-		$	-		$	7,061,225		$	24,965,918		$	31,010		$	32,058,153

 

Our m-commerce and consumer distribution products businesses are operated through UHT. Our oilseeds business is operated through Virtual Setup Sdn. Bhd., or VSSB, and Max Trend WFOE. Our real estate business is operated through PGCG Assets Holding Sdn. Bhd.

  

Our initial business plan broadly encompassed 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 began seeking business opportunities in the oilseeds industry in fiscal year 2011 with a specific focus on the acquisition, lease or management of existing castor seed and oil palm plantations located in Asia. Concurrently, we scaled back our consumer goods and all m-commerce activities except for the provision of IT consulting, programming and website development services related to software previously sold. We intend to engage in limited distribution activities, after sales consulting/website development activities and future sales activities only if such opportunities become readily available. As a result, we expect these business segments to generally account for a decreasing share of our net revenue in the near future.

 

 

Since the commencement of our oilseeds business segment, we have:

 

·

Acquired VSSB whose primary asset is an operating mature palm oil plantation in Malaysia (May 29, 2012);

·

Entered into a trial planting arrangement with Srira Cha province, Thailand, for the cultivation of castor plants (December 2011); and

·

Commenced selling castor seeds and advising castor farmers under a bundled sales arrangement in the People’s Republic of China (July 2012).

 

The oilseeds business is a highly regulated industry with prices subject to wide fluctuations due to factors beyond our control such as weather conditions, competition, global demand and government policies. Management has limited experience operating in this industry and may not be able to successfully navigate all industry specific factors in addition to any geopolitical factors in Malaysia, Thailand and the PRC. If we are not able to successfully respond to any of these factors, we may not be able to effectively compete and 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 operation in conjunction with our other business segments given limited management experience.

 

Concurrently with our oilseeds business, we also began our real estate business segment, which consist of the acquisition, development, management, operation and sale of commercial and residential real estate properties located in Malaysia, primarily in Kuala Lumpur and Selangor. We anticipate generating revenues from sales of developed properties and from rental income from our commercial properties. Developed property sales can include condominium units, individual villas and bungalows at our future Shah Alam 2 Eco Residential Development project and Bandar Sungai Long High Grade Villas development project located in Selangor, Malaysia. We may also sell properties under development, undeveloped properties or commercial properties, if opportunities arise that we believe will maximize overall asset values.

 

In calendar year 2012, we:

 

·

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

·

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

·

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

·

Executed a Sales and Purchase Agreement to purchase a 12 story commercial building located at Megan Avenue 1, No. 189, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia (August 2012), which we expect to consummate within the next six months.

 

Residential Real Estate Development

 

We believe that the outlook for residential properties will remain positive for calendar 2013 and 2014, 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, however, 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. Management has limited experience developing residential properties and may not be able to successfully address the challenges involved in this industry such as competition, a high level of government regulation, local and regional economic factors, illiquidity of the asset base, and effect of interest rates on our buyer base. If we are not able to successfully respond to any of these factors, we may not be able to effectively compete and our business operations and financial results may be adversely affected. There can be no assurance that we will be able to successfully develop our properties in conjunction with operating a multi-national oilseeds operation given limited management experience in both these sectors.

 

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 

 

Commercial Real Estate

 

We expect demand for commercial property to remain steady and positive for calendar 2013 and 2014. As a result, we do not anticipate significant challenges in leasing out our 12 story and 15 story commercial buildings.

 

We generate rental income from our 12 story commercial property and anticipate generating income from the sale of developed properties. Currently, 10 of the 12 stories of our 12 story building have been leased to tenants at market rates. Most of these tenants are parties to two year leases. We expect to generate approximately $185,000 of gross rental income on an annualized basis from our 12 story building based upon full occupancy of our 12 story building at prevailing market rates.

 

We are actively seeking tenants for our 15 story building, which is currently vacant. There can be no assurance that we will be able to successfully lease out our building. If we are unable to lease out the building, our operating results may be materially and adversely affected.

 

As of October 31, 2012, we had approximately $1.3 million available cash balance, $6.4 million marketable securities available for sale and payment obligations of $27.6 million related to the purchase of two commercial buildings in Malaysia. We consummated the purchase of one of the commercial buildings in December 2012, financing the acquisition through a combination of cash and a bank loan. We will require approximately $3.7 million to consummate the purchase of the remaining 12 story commercial building. Consistent with past practice, we hope to obtain the necessary additional financing from our shareholders, executive officers and directors or through external financing. We are currently conducting internal discussions to obtain the necessary financing, however, there can be no assurance that we will be able to obtain sufficient funds on acceptable terms to timely meet our obligations.

 

Approval to Initiate Uplisting Process

 

On December 12, 2011, our board of directors approved, authorized and directed our officers to initiate the process for listing shares of the Company’s common stock on one or more U.S. national securities exchanges including the NYSE Amex Equities Exchange. We have elected to delay uplisting efforts until the end of calendar year 2014 to focus on implementing our business plan.

 

***

 

 

The following disclosures have been added to the Liquidity and Capital Resources section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations portion of the report.

 

 

Liquidity and Capital Resources

 

As of October 31, 2012, the amount of cash held by our PRC subsidiary was $991,312, of which $831,000 is free of restriction and $160,312 is restricted. As of October 31, 2012, the amount of net assets held by our PRC subsidiary was $924,028, of which approximately $831,000 is free of restriction and $93,028 is restricted.

 

We directly operate our businesses in China through a wholly-owned subsidiary, Shenzhen Max Trend Green Energy Co., Ltd., which is a 100% owned subsidiary of PGCG.

 

The following disclosures have been added to the Critical Accounting Policies and Estimates section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations portion of the report.

 

Critical Accounting Policies and Estimates

 

The following disclosures have been added to the subsection entitled “Cash and cash equivalents” under the Critical Accounting Policies and Estimates section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations portion of the report.

 

·

Cash and cash equivalents

 

As of October 31, 2012, the amount of cash held by our PRC subsidiary was $991,312, of which $831,000 is free of restriction and $160,312 is restricted. As of October 31, 2012, the amount of net assets held by our PRC subsidiary was $924,028, of which approximately $831,000 is free of restriction and $93,028 is restricted.

 

We directly operate our businesses in China through a wholly-owned subsidiary, Shenzhen Max Trend Green Energy Co., Ltd, which is a 100% owned subsidiary of PGCG.

 

 

The subsections entitled “Properties, plant and equipment” and “Revenue recognition” under the Critical Accounting Policies and Estimates section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations portion of the report have been amended and restated in its entirety as set forth below.

 

·

Properties, plant and equipment

 

Properties and plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

 

Categories		Location of properties		Expected useful life
Freehold plantation land		Palm oil plantation in Malaysia		Indefinite, as per land titles
Leasehold land under development		Leasehold land in Puncak Alam, Malaysia		Remaining lease life of 88 years, as per land titles
Freehold land under development		Freehold land in Sungai Long, Cheras, Selangor, Malaysia		Indefinite, as per land titles
Office furniture and equipment				3-10 years
Motor vehicle				5 years

 

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

 

Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for the years presented.

 

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

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of October 31, 2012, there was no such capitalized interest.

 

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

 

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

 

 

·

Revenue recognition

 

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

 

(a)       Software sales

 

The Company generally sells the software products in an arrangement that is bundled with maintenance and support service and/or website development service, based upon the customers’ specification or modification.

 

The Company adopts ASC 985-20 and allocates the total arrangement fee among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. The Company limits its assessment of fair value of each element to the price charged when the same element is sold separately. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. For the billed software product sales, the revenue from the undelivered element is included in deferred revenue and amortized ratably to revenue over its contractual term, typically one year.

 

Revenues from the sale of software products are recognized and completely earned upon shipment or electronic delivery of the product provided that persuasive evidence of an arrangement exists, collection is probable, payment terms are fixed and determinable and no significant obligations remain.

 

Revenues from the provision of website development service including website design and development are recognized upon the ownership and operating rights of website domain are transferred to the customers.

 

Revenues from the provision of maintenance and support service are recognized when service rendered, which consist of technical support and software upgrades and enhancements. The Company generally offers maintenance and support service to its customers for a period of twelve months, free of charge or at a monthly fixed fee. Amounts invoiced or collected in advance from the customers of delivering maintenance and support service is recorded as deferred revenue. Revenue is recognized when the related service is rendered.

 

(b)       Luxury consumer products

 

The Company earns the revenue from trading of luxury consumer products. Revenue is recognized when title passes to the customer, which is generally when the product is shipped and delivered to the customers, assuming no significant the Company’s obligations remain and the collection of relevant receivables is probable.

 

(c)       Plantation sales

 

The Company offers two types of plantation products comprising of palm oil products and castor products.

 

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

 

Revenue from castor products includes sale of seeding and rendering of technical know-how under a bundled sales arrangement. The Company adopts ASC 605-25, “Multiple-Element Arrangements” and recognizes revenue as services are performed when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service offering has been delivered to the client; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the client is fixed or determinable. 

 

A bundled sale arrangement involves multiple deliverables provided by the Company, where bundled service deliverables are accounted for in accordance with ASC 605-25.

 

The Company’s multi-element arrangements generally include two deliverables. The first deliverable is castor oilseeds delivered at the time of sale. The second deliverable is rendering of technical know-how service to plant the castor oilseeds when the principal terms of the service agreement are fulfilled and the certificate of satisfaction is confirmed by the customers.

 

The Company uses a hierarchy to determine the allocation of revenues to the deliverables. The hierarchy is as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”).

 

(i)	VSOE generally exists only when a company sells the deliverable separately and is the price actually charged by the Company for that deliverable. Generally the Company does not sell the deliverables separately and, as such, does not have VSOE.
(ii)	TPE can be substantiated by determining the price that other parties sell similar or substantially similar offerings. The Company does not believe that there is accessible TPE evidence for similar deliverables.
(iii)	BESP reflects the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company believes that BESP is the most appropriate methodology for determining the allocation of revenue among the multiple elements.

 

The Company has allocated revenues between these two deliverables using the relative selling price method which is based on the estimated selling price for all deliverables. Revenues allocated to the delivered castor oilseeds and are recognized at the time of sale provided the other conditions for recognition of revenues have been met. Revenues allocated to the rendering of technical know-how service are deferred and recognized on a straight-line basis over the estimated life of the service, which currently is 6-12 months.

 

 

 

ITEM 8.   Financial Statements and Supplementary Data.

 

Separate Report on the Audit of Internal Control

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of Prime Global Capital Group Incorporated:

 

We have audited Prime Global Capital Group Incorporated’s internal control over financial reporting as of October 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Prime Global Capital Group Incorporated’s management is responsible for maintaining effective internal control over financial reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 or procedures may deteriorate.

 

A material weakness is a control deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. The Company had not effectively implemented comprehensive entity-level internal controls and had not completed the documentation or testing of these controls at year end.

 

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2011 financial statements, and this report does not affect our report dated January 17, 2012 on those financial statements.

 

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Prime Global Capital Group Incorporated’s has not maintained effective internal control over financial reporting as of October 31, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and the related statement of income, stockholder equity and comprehensive income, and cash flows of Prime Global Capital Group Incorporated, and our report dated January 17, 2012 expressed a unqualified opinion.

 

/s/ Borgers & Cutler CPA’s PC

 

Borgers & Cutler CPA’s PLLC
Denver, CO
January 30, 2012

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

  

 

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The following disclosures have been added to the section entitled “Cash and cash equivalents” under Note 3 to the Financial Statements.

 

·

Cash and cash equivalents

 

As of October 31, 2012, the amount of cash held by our PRC subsidiary was $991,312, of which $831,000 is free of restriction and $160,312 is restricted. As of October 31, 2012, the amount of net assets held by our PRC subsidiary was $924,028, of which approximately $831,000 is free of restriction and $93,028 is restricted.

 

We directly operate our businesses in China through a wholly-owned subsidiary, Shenzhen Max Trend Green Energy Co., Ltd, which is a 100% owned subsidiary of PGCG.

 

The sections entitled “Properties, plant and equipment” and “Revenue recognition” under Note 3 to the Financial Statements have been amended and restated in their entirety as set forth below.

 

·

Properties, plant and equipment

 

Properties and plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

 

Categories		Location of properties		Expected useful life
Freehold plantation land		Palm oil plantation in Malaysia		Indefinite, as per land titles
Leasehold land under development		Leasehold land in Puncak Alam, Malaysia		Remaining lease life of 88 years, as per land titles
Freehold land under development		Freehold land in Sungai Long, Cheras, Selangor, Malaysia		Indefinite, as per land titles
Office furniture and equipment				3-10 years
Motor vehicle				5 years

 

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

 

Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for the years presented.

 

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

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of October 31, 2012, there was no such capitalized interest.

 

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

 

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

 

·

Revenue recognition

 

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

 

(a)       Software sales

 

The Company generally sells the software products in an arrangement that is bundled with maintenance and support service and/or website development service, based upon the customers’ specification or modification.

 

The Company adopts ASC 985-20 and allocates the total arrangement fee among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. The Company limits its assessment of fair value of each element to the price charged when the same element is sold separately. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. For the billed software product sales, the revenue from the undelivered element is included in deferred revenue and amortized ratably to revenue over its contractual term, typically one year.

 

Revenues from the sale of software products are recognized and completely earned upon shipment or electronic delivery of the product provided that persuasive evidence of an arrangement exists, collection is probable, payment terms are fixed and determinable and no significant obligations remain.

 

Revenues from the provision of website development service including website design and development are recognized upon the ownership and operating rights of website domain are transferred to the customers.

 

Revenues from the provision of maintenance and support service are recognized when service rendered, which consist of technical support and software upgrades and enhancements. The Company generally offers maintenance and support service to its customers for a period of twelve months, free of charge or at a monthly fixed fee. Amounts invoiced or collected in advance from the customers of delivering maintenance and support service is recorded as deferred revenue. Revenue is recognized when the related service is rendered.

 

(b)       Luxury consumer products

 

The Company earns the revenue from trading of luxury consumer products. Revenue is recognized when title passes to the customer, which is generally when the product is shipped and delivered to the customers, assuming no significant the Company’s obligations remain and the collection of relevant receivables is probable.

 

(c)       Plantation sales

 

The Company offers two types of plantation products comprising of palm oil products and castor products.

 

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

 

Revenue from castor products includes sale of seeding and rendering of technical know-how under a bundled sales arrangement. The Company adopts ASC 605-25, “Multiple-Element Arrangements” and recognizes revenue as services are performed when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the service offering has been delivered to the client; (3) the collection of fees is probable; and (4) the amount of fees to be paid by the client is fixed or determinable. 

 

A bundled sale arrangement involves multiple deliverables provided by the Company, where bundled service deliverables are accounted for in accordance with ASC 605-25.

 

The Company’s multi-element arrangements generally include two deliverables. The first deliverable is castor oilseeds delivered at the time of sale. The second deliverable is rendering of technical know-how service to plant the castor oilseeds when the principal terms of the service agreement are fulfilled and the certificate of satisfaction is confirmed by the customers.

 

The Company uses a hierarchy to determine the allocation of revenues to the deliverables. The hierarchy is as follows: (i) vendor-specific objective evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“BESP”).

 

(i)	VSOE generally exists only when a company sells the deliverable separately and is the price actually charged by the Company for that deliverable. Generally the Company does not sell the deliverables separately and, as such, does not have VSOE.
(ii)	TPE can be substantiated by determining the price that other parties sell similar or substantially similar offerings. The Company does not believe that there is accessible TPE evidence for similar deliverables.
(iii)	BESP reflects the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-alone basis. The Company believes that BESP is the most appropriate methodology for determining the allocation of revenue among the multiple elements.

 

The Company has allocated revenues between these two deliverables using the relative selling price method which is based on the estimated selling price for all deliverables. Revenues allocated to the delivered castor oilseeds and are recognized at the time of sale provided the other conditions for recognition of revenues have been met. Revenues allocated to the rendering of technical know-how service are deferred and recognized on a straight-line basis over the estimated life of the service, which currently is 6-12 months.

 

ITEM 11.   EXECUTIVE COMPENSATION.

 

Compensation of Directors

 

During our fiscal year ended October 31, 2012, we did not provide compensation to any of our employee directors for serving as our director. We currently have no formal plan for compensating our employee directors for their services in their capacity as directors, although we may elect to issue stock options to such persons from time to time.

 

Non-Employee Director Fees

 

Our Compensation Committee and Board determines the form and amount of compensation for our non-employee directors based on informal surveys of similar companies and the amount necessary to attract and retain such directors. For the fiscal year ended October 31, 2012, we paid each of our non-employee directors as follows:

 

Name	Fees earned or paid in cash* ($)	Stock awards ($)	Option awards ($)	Non-equity incentive plan compensation ($)	Change in pension value and nonqualified deferred compensation earnings	All other compensation ($)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)
Amirrudin Bin Che Embi	$5,974.56						$5,974.56
Peijin Wu Harrison	$15,500						$15,000
Ee Ring Yap	$5,974.56						$5,974.56

*Cash compensation was paid in Malaysian Ringgit, our functional currency. The Malaysian Ringgit was converted into United States Dollars using the exchange rate prevailing at the dates of payment at an average annualized rate of 3.1132 for fiscal year ended October 31, 2012.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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
	(Registrant)
	By:	/s/Weng Kung Wong
		Weng Kung Wong
		Chief Executive Officer
	Dated:	September 25, 2014

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the dates indicated:

 

Signature		Title		Date
/s/ Weng Kung Wong		Chief Executive Officer
Weng Kung Wong		and Director		September 25, 2014
		(Principal Executive Officer)
/s/ Liong Tat Teh Liong Tat Teh		Chief Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer)		September 25, 2014
/s/ Dato’ Amiruddin Bin Che Embi Dato’ Amiruddin Bin Che Embi		Director		September 25, 2014
/s/ Peijin W. Harrison Peijin W. Harrison		Director		September 25, 2014
/s/ Ham Poh Chai Ham Poh Chai		Director		September 25, 2014