Attached files
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EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Inc | primeglobal_ex3201.htm |
EX-31.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER - PRIME GLOBAL CAPITAL GROUP Inc | primeglobal_ex3101.htm |
EX-21 - LIST OF SUBSIDIARIES - PRIME GLOBAL CAPITAL GROUP Inc | primeglobal_ex21.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2017
o 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 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 (§ 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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company x | |
(Do not check if smaller reporting company) | ||
Emerging growth 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
As of June ___, 2017, the issuer had outstanding 512,682,393 shares of common stock.
i |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
April 30, 2017 | October 31, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 294,667 | $ | 685,876 | ||||
Marketable securities, available-for-sale | 250,295 | 279,042 | ||||||
Rental concession | 25,349 | 26,231 | ||||||
Accounts receivable, net | 137,199 | 137,207 | ||||||
Deposits and other receivables | 23,597 | 27,763 | ||||||
Deferred tax assets | 11,727 | 13,694 | ||||||
Total current assets | 742,834 | 1,169,813 | ||||||
Rental concession, non-current | 673,849 | 710,425 | ||||||
Deferred development costs | 80,928 | 76,159 | ||||||
Construction in progress | 261,576 | 270,683 | ||||||
Property, plant and equipment, net | 41,869,545 | 43,584,772 | ||||||
TOTAL ASSETS | $ | 43,628,732 | $ | 45,811,852 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | – | $ | 15,778 | ||||
Amount due to a related party | 107,654 | 108,149 | ||||||
Rental deposits from tenants | 394,591 | 408,329 | ||||||
Income tax payable | 828,849 | 985,353 | ||||||
Short-term bank borrowings | 3,456,619 | 3,576,964 | ||||||
Current portion of long-term bank loans | 844,573 | 844,436 | ||||||
Current portion of obligation under finance lease | – | 2,147 | ||||||
Deferred tax liabilities, current | 6,084 | 6,558 | ||||||
Accrued liabilities and other payables | 267,836 | 333,606 | ||||||
Total current liabilities | 5,906,206 | 6,281,320 | ||||||
Long-term liabilities: | ||||||||
Long-term bank loans | 8,804,659 | 9,550,320 | ||||||
Amount due to a director | 1,671,539 | 1,279,196 | ||||||
Deferred tax liabilities | 164,388 | 180,363 | ||||||
Obligation under finance lease | – | 1,067 | ||||||
Total liabilities | 16,546,792 | 17,292,266 | ||||||
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, 2017 and October 31, 2016 | 512,683 | 512,683 | ||||||
Additional paid-in capital | 41,934,476 | 41,934,476 | ||||||
Accumulated other comprehensive loss | (11,905,469 | ) | (10,918,664 | ) | ||||
Accumulated loss | (3,273,198 | ) | (2,846,486 | ) | ||||
Total stockholder’s equity | 27,268,492 | 28,682,009 | ||||||
Non-controlling interest | (186,552 | ) | (162,423 | ) | ||||
Total equity | 27,081,940 | 28,519,586 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 43,628,732 | $ | 45,811,852 |
See accompanying notes to condensed consolidated financial statements.
1 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
(Currency expressed in US$, except for number of shares)
(Unaudited)
Three months ended April 30, | Six months ended April 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues, net: | ||||||||||||||||
Plantation business | $ | 28,520 | $ | 25,912 | $ | 84,018 | $ | 50,446 | ||||||||
Rental income | 270,676 | 409,527 | 541,754 | 797,742 | ||||||||||||
Total revenues, net | 299,196 | 435,439 | 625,772 | 848,188 | ||||||||||||
Cost of revenues | (174,648 | ) | (122,227 | ) | (306,350 | ) | (294,641 | ) | ||||||||
Gross profit | 124,548 | 313,212 | 319,422 | 553,547 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative | (168,058 | ) | (141,065 | ) | (279,530 | ) | (271,010 | ) | ||||||||
Income/(loss) from operations | (43,510 | ) | 172,147 | 39,892 | 282,537 | |||||||||||
Other (expense) income | ||||||||||||||||
Interest income | – | 14,038 | – | 30,431 | ||||||||||||
Interest expense | (201,135 | ) | (252,213 | ) | (417,565 | ) | (495,692 | ) | ||||||||
Other income | 1,572 | – | 2,779 | – | ||||||||||||
Impairment loss on available-for-sale securities | (24,759 | ) | – | (24,759 | ) | – | ||||||||||
Loss before income taxes | (267,832 | ) | (66,028 | ) | (399,653 | ) | (182,724 | ) | ||||||||
Income tax expense | (17,394 | ) | (50,751 | ) | (56,095 | ) | (82,701 | ) | ||||||||
NET LOSS | (285,226 | ) | (116,779 | ) | $ | (455,748 | ) | $ | (265,425 | ) | ||||||
Less: Net loss attributable to non-controlling interest | (11,940 | ) | (1,257 | ) | (29,036 | ) | (14,648 | ) | ||||||||
NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | (273,286 | ) | $ | (115,522 | ) | $ | (426,712 | ) | $ | (250,777 | ) | ||||
Other comprehensive income (loss): | ||||||||||||||||
- Unrealized holding loss on available-for-sale securities | 19,840 | 19,276 | (24,759 | ) | (49,394 | ) | ||||||||||
- Impairment loss on available-for-sale securities | 24,759 | – | 24,759 | – | ||||||||||||
- Foreign exchange adjustment gain (loss) | 545,384 | 1,728,530 | (986,805 | ) | 2,814,840 | |||||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 316,697 | $ | 1,632,284 | $ | (1,413,517 | ) | $ | 2,514,669 | |||||||
Net loss per share – Basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average common stock outstanding – Basic and diluted | 512,682,393 | 512,682,393 | 512,682,393 | 512,682,393 |
* Less than $0.01 per share
See accompanying notes to condensed consolidated financial statements.
2 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in US$)
(Unaudited)
Six months ended April 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (455,748 | ) | $ | (265,425 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation of property, plant and equipment | 241,795 | 256,154 | ||||||
Gain on disposal of property, plant and equipment | (1,207 | ) | – | |||||
Impairment loss on available-for-sale securities | 24,759 | – | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (4,521 | ) | (6,249 | ) | ||||
Deposits and other receivables | 3,171 | 17,475 | ||||||
Accounts payable | (14,960 | ) | 15 | |||||
Rental concession | 12,436 | 13,181 | ||||||
Income tax payable | (121,032 | ) | 24,829 | |||||
Deferred taxation | (8,492 | ) | (3,295 | ) | ||||
Accrued liabilities and other payables | (62,054 | ) | (78,583 | ) | ||||
Net cash used in operating activities | (385,853 | ) | (41,898 | ) | ||||
Cash flows from investing activities: | ||||||||
Addition of plantation development cost | (7,195 | ) | (24,233 | ) | ||||
Payment on construction in progress | – | (1,032 | ) | |||||
Decrease in time deposit | – | 512,519 | ||||||
Proceeds from disposal of property, plant and equipment | 3,844 | – | ||||||
Purchase of property, plant and equipment | (271 | ) | (803 | ) | ||||
Net cash (used in) provided by investing activities | (3,622 | ) | 486,451 | |||||
Cash flows from financing activities: | ||||||||
Advances from (Repayment to) related parties | 421,444 | (290,722 | ) | |||||
Repayments on bank loans | (388,354 | ) | (368,124 | ) | ||||
Payments on finance lease | (3,047 | ) | (1,079 | ) | ||||
Net cash provided by (used in) financing activities | 30,043 | (659,925 | ) | |||||
Foreign currency translation adjustment | (31,777 | ) | 58,491 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | (391,209 | ) | (156,881 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 685,876 | 836,794 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 294,667 | $ | 679,913 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash paid for income tax | $ | 185,619 | $ | 61,168 | ||||
Cash paid for interest | $ | 417,565 | $ | 495,692 |
See accompanying notes to condensed consolidated financial statements.
3 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(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 condensed consolidated 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, 2016. 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 six months ended April 30, 2017 is not necessarily indicative of the results that may be expected for other interim periods or the year ending October 31, 2017. The condensed consolidated financial data at October 31, 2016 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2016, filed on February 10, 2017.
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 oil palm an durian plantation, leasing of commercial properties and development of residential real estate properties in Malaysia.
Summary of the Company’s subsidiaries
Name of entities |
Place of incorporation | Date of incorporation |
Issued capital |
Nature of business | ||||||
1. | Union Hub Technology Sdn. Bhd. (“UHT”) |
Malaysia |
February 22, 2008 | 1,000,000 issued shares of ordinary shares of MYR 1 each | Provision of corporate services 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 | |||||
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 |
4 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
8. | Max Trend International Limited (“Max Trend”) |
Hong Kong |
August 19, 2010 | 2 issued shares of ordinary shares of HK$ 1 each | Inactive operation | |||||
9. | Dunford Corporation Sdn. Bhd. | Malaysia | October 4, 1990 | 242,000 issued shares of ordinary shares of MYR 1 each | Property holding land | |||||
10. | Impiana Maksima Sdn. Bhd. | Malaysia | March 15, 2013 | 2 issued shares of ordinary shares of MYR 1 each | Property development | |||||
11. | PGCG Constructions Sdn. Bhd. | Malaysia | April 16, 2013 | 2 issued shares of ordinary shares of MYR 1 each | Construction of properties | |||||
12. | Fiesta Senada Sdn Bhd | Malaysia | November 28, 2012 | 2 issued shares of ordinary shares of MYR 1 each | Inactive operation | |||||
13. | 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, 2017, the Company reported a loss of $455,748 and working capital deficit of $5,163,372 as of April 30, 2017.
In order to continue as a going concern, the Company will expect, among other things, to generate more profitable operations in the future and/or additional capital resources. Management’s plan is to raise adequate resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking third party equity and/or debt financing.
These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
5 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), 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.
· | 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.
· | Accounts receivable |
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements’ assessment of known requirements, aging of receivables, payment history, the customer’s current credit worthiness and the economic environment. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. Based upon the aforementioned criteria, the Company did not write off accounts receivable on uncollectible rental receivable at April 30, 2017 and October 31, 2016.
· | Available-for-sale equity 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. Any unrealized losses that are deemed other-than-temporary are included in current period earnings and removed from accumulated other comprehensive income (loss).
Realized gains and losses on marketable securities are included in current period earnings. For purposes of computing realized gains and losses, the cost basis of each investment sold is generally based on the weighted average cost method.
The Company regularly evaluates whether the decline in fair value of available-for-sale securities is other-than-temporary and objective evidence of impairment could include:
· | The severity and duration of the fair value decline; | |
· | Deterioration in the financial condition of the issuer; and | |
· | Evaluation of the factors that could cause individual securities to have an other-than-temporary impairment. |
6 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
During the six months ended April 30, 2017, the Company invested in equity securities listed on Bursa Malaysia with a total cost of $265,606 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. The unrealized loss representing the change in fair value of $24,759 and $49,394 was charged against accumulated other comprehensive income (loss) for the six months ended April 30, 2017 and 2016, respectively.
· | 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 tree and until the harvests are substantially available for commercial sale, and deferred development costs will then commence to be amortized as components of plantation costs and expenses.
· | Property, plant and equipment |
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
Categories | Location of properties | Expected useful life | ||
Freehold plantation land | Oil palm and durian plantation in Malaysia | Indefinite, as per land titles | ||
Leasehold land under development | Leasehold land in Puncak Alam, Malaysia | Remaining lease life of 88 years, as per land titles | ||
Freehold land under development | Freehold land in Sungai Long, Cheras, Selangor, Malaysia | Indefinite, as per land titles | ||
Freehold land and land improvement for rental purpose commercial building | Land portion of 15 storey buildings “Menara CMY” in Kuala Lumpur, Malaysia | Indefinite, as per property titles | ||
Building structure and improvements | Building structure of commercial buildings in Kuala Lumpur, Malaysia, including: 12 story building “Megan Avenue” and 15 story building “Menara CMY” | 33 years | ||
Office furniture and equipment | 3-10 years | |||
Motor vehicle | 5 years |
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, the Company generally conducts its annual impairment evaluation to its long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for the periods presented.
The Company has separately identified the portion of freehold land and building structure, in which freehold land is not subject to amortization and buildings are to be amortized over 33 years on a straight-line method, based on applicable local laws and practice.
7 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
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, 2017 and October 31, 2016, 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 Topic 605, “Revenue Recognition”, upon the delivery of its plantation products when: (1) title and risk of loss are transferred; (2) persuasive evidence of an arrangement exists; (3) there are no continuing obligations to the customer; and (4) the collection of related accounts receivable is probable. The Company’s sale arrangements do not contain general rights of return.
(a) Plantation sales
Revenue from the sale of palm oil fruit bunches is recognized upon confirmation of the weight of fresh fruit bunches and transported 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. For the three months ended April 30, 2017 and 2016, sale of palm oil fruits was $28,520 and $nil, respectively. For the six months ended April 30, 2017 and 2016, sale of palm oil fruits was $84,018 and $nil, respectively.
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, BJ Bentong Trading Company (“BJ”) 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 $nil and $25,912 was recognized for the three months ended April 30, 2017 and 2016, respectively, and was included in revenue from plantation business. Rental income of $nil and $50,446 was recognized for the six months ended April 30, 2017 and 2016, respectively, and was included in revenue from plantation business.
On September 29, 2016, the Company and BJ entered into a letter agreement pursuant to which the parties mutually agreed to terminate the Tenancy Agreement.
The Company is currently directly managing its oil palm and durian plantation.
8 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
(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, 2017 and 2016, we have recorded $541,754 and $797,742 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, 2017, 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 | 67% |
Le Apple Boutique Hotel KLCC (fka “Menara CMY”) |
15 | 91,848 | 0% |
The Company expects to record approximately $1.1 million in annual lease revenue under the operating lease arrangements in the next twelve months through April 30, 2018.
· | 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 Le Apple Boutique Hotel KLCC (fka “Menara CMY”), the initial term of lease is one year. Provided that there are no existing breaches by the tenant, an irrecoverable annual renewal option is granted for up to twenty-nine years, with a maximum aggregate term of thirty years. Six-months’ rent-free period under the operating lease agreement is treated as long-term rent concession, which is being amortized as an offset to revenues collected over the term of the underlying lease of 30 years on a straight-line basis.
April 30, 2017 | October 31, 2016 | |||||||
Rental concession: | ||||||||
Current portion | $ | 25,349 | $ | 26,231 | ||||
Non-current portion | 673,849 | 710,425 | ||||||
Total | $ | 699,198 | $ | 736,656 | ||||
The estimated amortization on long-term rent concession in the next five years and thereafter is as follows:
Period ending April 30: | ||||||
2018 | $ | 25,349 | ||||
2019 | 25,349 | |||||
2020 | 25,349 | |||||
2021 | 25,349 | |||||
2022 | 25,349 | |||||
Thereafter | 572,453 | |||||
Total | $ | 699,198 |
9 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
As of April 30, 2017, 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: | ||||||
2018 | $ | 1,102,315 | ||||
2019 | 1,080,770 | |||||
2020 | 1,080,770 | |||||
2021 | 1,080,770 | |||||
2022 | 1,080,770 | |||||
Thereafter | 22,953,681 | |||||
Total | $ | 28,379,076 |
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. Transportation and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues.
Cost related to real estate business shown on the accompanying statements of operations include costs associated with land tax, on-site and property management personnel, repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs. Utility expenses are paid directly by tenants.
· | Comprehensive income |
ASC Topic 220, “Comprehensive Income ” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying statements of stockholders’ equity 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. This comprehensive income is not included in the computation of income tax expense or benefit.
· | 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.
10 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Income taxes |
Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company conducts major businesses in Malaysia and is subject to tax in its own jurisdiction. As a result of its business activities, the Company will file separate tax returns that are subject to examination by the local and foreign tax authorities.
· | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. In addition, the Company maintains its books and record in a local currency, Malaysian Ringgit (“MYR”) an Hong Kong Dollars (“HK$”), which is functional currency as being the primary currency of the economic environment in which the entity operates.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates for the respective periods:
As of and for the period ended April 30, | ||||||||
2017 | 2016 | |||||||
Period-end HK$ : US$1 exchange rate | 7.77748 | 7.75634 | ||||||
Period-average HK$ : US$1 exchange rate | 7.76138 | 7.76286 | ||||||
Period-end MYR : US$1 exchange rate | 4.33950 | 3.91400 | ||||||
Period-average MYR : US$1 exchange rate | 4.42268 | 4.17278 |
11 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Related parties |
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
· | Segment reporting |
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. During the period ended April 30, 2017 and 2016, 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, accounts receivable, deposits and other receivables, amount due to a related party and other payables approximate at their fair values because of the short-term 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 and long-term bank loans 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 |
The following table summarizes information on the fair value measurement of the Company’s financial assets as of April 30, 2017 and October 31, 2016, measured at fair value, grouped by the categories described above:
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||
As of April 30, 2017 | ||||||||||||
Marketable securities, available-for-sale | $ | 250,295 | $ | – | $ | – | ||||||
As of October 31, 2016 | ||||||||||||
Marketable securities, available-for-sale | $ | 279,042 | $ | – | $ | – |
As of April 30, 2017, the Company did not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at least annually, on a recurring basis, nor did the Company have any assets or liabilities measured at fair value on a non-recurring basis.
12 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Recent accounting pronouncements |
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The amendments in ASU 2014-09 are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The Company is evaluating the effect the ASUs will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of these standards on its ongoing financial reporting.
In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the potential impact of ASU 2016-15 on its financial statements and related disclosures.
The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE–5 PROPERTY, PLANT AND EQUIPMENT
April 30, 2017 | October 31, 2016 | |||||||
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 | 126,231 | 125,959 | ||||||
Motor vehicles | 162,505 | 173,811 | ||||||
Foreign translation difference | (17,542,619 | ) | (16,009,829 | ) | ||||
44,008,392 | 45,552,216 | |||||||
Less: accumulated depreciation | (2,699,568 | ) | (2,457,773 | ) | ||||
Less: foreign translation difference | 560,721 | 490,329 | ||||||
41,869,545 | $ | 43,584,772 |
Depreciation expense for the three months ended April 30, 2017 and 2016 was $120,560 and $130,928, respectively.
Depreciation expense for the six months ended April 30, 2017 and 2016 was $241,795 and $256,154, respectively.
13 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
As of April 30, 2017 and October 31, 2016, the Company has one motor vehicle under finance lease with a carrying value of $nil and $3,378, respectively.
Both commercial buildings in Kuala Lumpur, Malaysia are pledged against the bank loans (note 7 and 8).
In April 2015, the Company’s development order regarding the development of 21.8921 hectares (54.10 acres) leasehold land located in Puncak Alam, Malaysia was approved by the Kuala Selangor District Council. The approved order allows the Company to proceed with its plans to construct its Shah Alam 2 Eco Residential Development project. In November 2015, the Company submitted a request to convert some of its planned semi-detached and bungalow home parcels into cluster semi-detached homes to improve the marketability of the Company’s proposed development. On March 4, 2016, the Company received notification from the Kuala Selangor District Council that its revised Development Order relating to the Puncak Alam land was approved on February 24, 2016.
Pursuant to an 8-K filed on July 1, 2016, PGCG Assets entered into a memorandum of understanding (“MOU”) with Yong Tai Berhad, a public listed corporation in the main market of Bursa Malaysia Berhad (“YTB”) engaged in the business of commercial and residential property development, to jointly develop the land (the “Land”) located at Puncak Alam (the “Proposed JV”). Under the MOU, the parties agreed to use their best efforts to negotiate exclusively with each other regarding the terms and conditions of the definitive agreement to jointly develop the Land.
On February 15, 2017, PGCG Assets and YTB entered into a Mutual Termination of Memorandum of Understanding (the “Termination MOU”) pursuant to which the parties mutually agreed to terminate the MOU as the parties are unable to agree and finalize the terms of the Proposed JV. The parties further confirmed that there was no monetary payment due to either party pursuant to the MOU or the Termination MOU.
During the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of its property, plant and equipment. The impairment charge, if any, represented the excess of carrying amounts of the Company’s property, plant and equipment over the fair values of the assets. The Company believes that there was no impairment of its property, plant and equipment as of April 30, 2017.
NOTE–6 AMOUNTS DUE TO RELATED PARTIES
April 30, 2017 | October 31, 2016 | |||||||
Current portion: | ||||||||
Amount due to a related party, which were unsecured, interest-free and repayable on demand, | ||||||||
Mr. Chai Kok Wai, a director of UHT | $ | 107,654 | $ | – | ||||
Mr. Pua Woi Khang, a former director of UHT | – | 108,149 | ||||||
Non-current portion: | ||||||||
Amount due to a related party, where was unsecured, interest-free and not expected to be repaid in the next twelve months | ||||||||
Mr. Weng Kung Wong, the Company’s director | $ | 1,671,539 | $ | 1,279,196 |
During the period ended April 30, 2017, the related party loan to Mr. Pua Wooi Khang was re-assigned to Mr. Chai Kok Wai, a director of UHT because Mr. Pua Wooi Khang was no longer a director of UHT.
14 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE–7 BANK LOANS
April 30, 2017 | October 31, 2016 | |||||||
Bank loans from financial institutions in Malaysia | ||||||||
Bank of China (Malaysia) Berhad | $ | 7,573,393 | $ | 8,213,970 | ||||
RHB Bank Berhad | 2,075,839 | 2,180,786 | ||||||
9,649,232 | 10,394,756 | |||||||
Less: current portion | (844,573 | ) | (844,436 | ) | ||||
Bank loans, net of current portion | $ | 8,804,659 | $ | 9,550,320 |
15 Story Bank Loan
In December 2014, the Company, through PGCG Assets obtained a loan in the principal amount of RM40,000,000 from Bank of China (Malaysia) Berhad, which bears interest at a rate of 1% per annum over the lending rate, currently 6.6% per annum, with 120 monthly installments of RM476,898 each (including interests) over a period of 10 years or until full settlement. The loan 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 Le Apple Boutique Hotel KLCC (fka Menara CMY”) in Kuala Lumpur, Malaysia, deed of assignment of rental proceeds over the rights and interest to the rental of the 15-story commercial office building and is personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and a subsidiary of the Company, UHT. The loan is also secured by a debenture incorporating fixed and floating charge for RM55 million plus interest thereon over the assets of PGCG Assets. The cost of funds was 7.6% per annum for the period ended April 30, 2017.
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 of RM57,045 each (including interests) over a period of 24 years and will mature in 2037.
The loan is secured by the 12-story commercial office building “Megan Avenue” in Kuala 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% for the periods ended April 30, 2017.
As of April 30, 2017, the minimum future payments of the aggregate bank borrowings in the next five years and thereafter are as follows:
Period ending April 30: | ||||||
2018 | $ | 844,573 | ||||
2019 | 905,343 | |||||
2020 | 970,675 | |||||
2021 | 1,043,298 | |||||
2022 | 1,119,867 | |||||
Thereafter | 4,765,476 | |||||
Total: | $ | 9,649,232 |
15 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE–8 SHORT-TERM BANK BORROWINGS
The revolving line of credit was granted concurrent with the term loans and pursuant to the same facility letter by Bank of China (Malaysia) Berhad to the Company, which provided for up to RM15,000,000 (equal to $3,388,047) 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 4.98% per annum for the period ended April 30, 2017.
NOTE–9 INCOME TAXES
The local (United States) and foreign components of loss before income taxes were comprised of the following:
Six months ended April 30, | ||||||||
2017 | 2016 | |||||||
Tax jurisdictions from: | ||||||||
– Local | $ | (96,815 | ) | $ | (65,451 | ) | ||
– Foreign, representing: | ||||||||
Malaysia | (302,838 | ) | (117,273 | ) | ||||
Hong Kong | – | – | ||||||
Loss before income taxes | $ | (399,653 | ) | $ | (182,724 | ) |
Provision for income taxes consisted of the following:
Six months ended April 30, | ||||||||
2017 | 2016 | |||||||
Current: | ||||||||
– Local | $ | – | $ | – | ||||
– Foreign, representing: | ||||||||
BVI | – | – | ||||||
Malaysia | 64,587 | 85,996 | ||||||
Hong Kong | – | – | ||||||
Deferred: | ||||||||
– Local | – | – | ||||||
– Foreign | (8,492 | ) | (3,295 | ) | ||||
Income tax expense | $ | 56,095 | $ | 82,701 |
16 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. During the periods presented, the Company has a number of subsidiaries that operates in different countries and is subject to tax in the jurisdictions in which its subsidiaries operate, as follows:
United States of America
PGCG is registered in the State of Nevada and is subject to United States of America tax law. As of April 30, 2017 and October 31, 2016, the operations in the United States of America incurred $768,494 and $646,189, 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 $260,051 (October 31, 2016: $226,166) against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
The Company has adopted ASC 740-10 “Accounting for Income Taxes” and recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon. The amount, recorded as an obligation, is $135,000 at April 30, 2017 and October 31, 2016 (included in accrued liabilities and other payables) in respect of potential tax penalty of the late filing of IRS return and, if recognized, will affect the Company’s effective tax rate.
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. As of April 30, 2017 and October 31, 2016, the Company has provided for a full valuation allowance against the deferred tax assets of $1,065 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.
Malaysia
All of the Company’s subsidiaries operating in Malaysia subject to the Malaysia Corporate Tax Laws at a progressive income tax rate starting from 19% on the assessable income for its tax year (for company with paid up capital not more than RM2.5 million and on the first RM 500,000 income) and 24% (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. Any unutilized losses can be carried forward indefinitely to be utilized against income from any business source. As of April 30, 2017 and October 31, 2016, the Company has provided for a full valuation allowance against the deferred tax assets of and $227,187 and $221,223, respectively, on the expected future tax benefits from the net operating loss carry forwards as the management believes it is not likely that these assets will be realized in the future.
17 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
A reconciliation of loss before income taxes to the effective tax rate as follows:
Six months ended April 30, | ||||||||
2017 | 2016 | |||||||
Loss before income taxes | $ | (302,838 | ) | (117,273 | ) | |||
Statutory income tax rate | 24% | 25% | ||||||
Income tax at statutory tax rate | (72,681 | ) | (29,318 | ) | ||||
Tax effect of non-deductible expenses | 75,231 | 21,787 | ||||||
Tax effect of non-taxable income | (70 | ) | – | |||||
Tax effect of different tax rate | 826 | 2,062 | ||||||
Tax effect of non-business source rental income | 39,634 | 78,921 | ||||||
Net operating loss | 13,155 | 9,249 | ||||||
Income tax expense | $ | 56,095 | 82,701 |
During fiscals 2017 and 2016, the Company revisited the facts and circumstances and determined that rental income at “Megan Avenue” and “Menara CMY” should be more appropriately taxed as a non-business source under Section 4(d) of the Income Tax Act.
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of April 30, 2017 and October 31, 2016:
April 30, 2017 | October 31, 2016 | |||||||
Deferred tax assets: | ||||||||
Capital loss | $ | 11,550 | $ | 10,055 | ||||
Accrued interest expenses | 11,727 | 13,694 | ||||||
Net operating loss carryforwards: | ||||||||
- United States of America | 260,051 | 226,166 | ||||||
- Malaysia | 227,187 | 221,223 | ||||||
- Hong Kong | 1,065 | 1,065 | ||||||
Total deferred tax assets | 511,580 | 472,203 | ||||||
Less: valuation allowance | (499,853 | ) | (458,509 | ) | ||||
Deferred tax assets | $ | 11,727 | $ | 13,694 |
Deferred tax liabilities, current | ||||||||
Rent concession | $ | 6,084 | $ | 6,558 | ||||
Deferred tax liabilities, non-current | ||||||||
Property, plant and equipment | 2,664 | 2,757 | ||||||
Rent concession | 161,724 | 177,606 | ||||||
$ | 164,388 | $ | 180,363 |
18 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE–10 STOCKHOLDERS’ EQUITY
As of April 30, 2017 and October 31, 2016, the number of shares of the Company’s common stock issued and outstanding is 512,682,393 shares. There are no shares of preferred stock issued and outstanding.
NOTE–11 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 and development of commercial and residential real estate properties in Malaysia |
The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 4). Summarized financial information concerning the Company’s reportable segments is shown as below:
Three months ended April 30, 2017 | ||||||||||||||||
Plantation Business | Real Estate Business | Corporate | Total | |||||||||||||
Revenues from external customer | $ | 28,520 | $ | 276,735 | $ | – | $ | 305,255 | ||||||||
Inter-segment revenue | – | (6,059 | ) | – | (6,059 | ) | ||||||||||
Revenues, net | 28,520 | 270,676 | – | 299,196 | ||||||||||||
Cost of revenues | (14,765 | ) | (159,883 | ) | – | (174,648 | ) | |||||||||
Gross profit | 13,755 | 110,793 | – | 124,548 | ||||||||||||
Depreciation | 2,207 | 116,593 | 1,760 | 120,560 | ||||||||||||
Net loss | (16,658 | ) | (36,518 | ) | (232,050 | ) | (285,226 | ) | ||||||||
Total assets | 5,760,574 | 37,561,503 | 306,655 | 43,628,732 | ||||||||||||
Expenditure for long-lived assets | $ | – | $ | – | $ | – | $ | – |
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 |
19 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Six months ended April 30, 2017 | ||||||||||||||||
Plantation Business | Real Estate Business | Corporate | Total | |||||||||||||
Revenues from external customer | $ | 84,018 | $ | 553,882 | $ | – | $ | 637,900 | ||||||||
Inter-segment revenue | – | (12,128 | ) | – | (12,128 | ) | ||||||||||
Revenues, net | 84,018 | 541,754 | – | 625,772 | ||||||||||||
Cost of revenues | (31,779 | ) | (274,571 | ) | – | (306,350 | ) | |||||||||
Gross profit | 52,239 | 267,183 | – | 319,422 | ||||||||||||
Depreciation | 4,416 | 233,359 | 4,020 | 241,795 | ||||||||||||
Net loss | (3,175 | ) | (220,611 | ) | (231,962 | ) | (455,748 | ) | ||||||||
Total assets | 5,760,574 | 37,561,503 | 306,655 | 43,628,732 | ||||||||||||
Expenditure for long-lived assets | $ | 271 | $ | – | $ | – | $ | 271 |
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 |
All long-lived assets are located in Malaysia.
NOTE–12 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, 2017 and 2016, the customers who accounted for 10% or more of the Company’s revenues is presented as follows:
Three months ended April 30, 2017 | April 30, 2017 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Customer A | Real estate | $ | 264,914 | 89% | $ | 101,394 | ||||||||
Customer B | Plantation Business | 28,520 | 10% | 6,469 | ||||||||||
$ | 293,434 | 99% | $ | 107,863 |
Three months ended April 30, 2016 | April 30, 2016 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Customer A | Real estate | $ | 400,351 | 92% | $ | 112,417 |
20 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Six months ended April 30, 2017 | April 30, 2017 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Customer A | Real estate | $ | 530,222 | 85% | $ | 101,394 | ||||||||
Customer B | Plantation Business | 84,018 | 13% | 6,469 | ||||||||||
$ | 614,240 | 98% | $ | 107,863 |
Six months ended April 30, 2016 | April 30, 2016 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Customer A | Real estate | $ | 777,659 | 92% | $ | 112,417 |
All customers are located in Malaysia.
(b) Major vendors
For the three and six months ended April 30, 2017 and 2016, no vendor accounted for 10% or more of the Company’s purchases.
All vendors are located in Malaysia.
(c) | Credit risk |
Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
(d) Interest rate risk
The Company’s exposure to interest rate risk primarily relates to the interest 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$. To date the majority of the revenues and costs are denominated in MYR, and a significant portion of the assets and liabilities are denominated in MYR. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and MYR. If MYR depreciates against US$, the value of MYR revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial foreign exchange risk.
21 |
PRIME GLOBAL CAPITAL GROUP INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED APRIL 30, 2017
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
(f) Commodity price
The Company’s primary market risk exposure results from the price it receives for its palm oil product and oilseeds. The Company does not currently engage in any commodity hedging activities, although it may do so in the future. Realized commodity pricing for the Company’s operation is primarily driven by the prevailing worldwide price for palm oil product and oilseeds. Pricing for palm oil product and oilseeds has been volatile and unpredictable in recent years, and the Company expects this volatility to continue in the foreseeable future. The prices the Company receives for operation depend on many factors outside of its control, including volatility in the differences between product prices at sales points and the applicable commodity index price.
(g) Malaysian real estate market risk
The Company’s 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 the Company’s results of operations, financial condition or ability to expand its operations.
(h) Market risk related to marketable securities
The Company is 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.
NOTE–13 COMMITMENTS AND CONTINGENCIES
(a) Operating lease commitment
As of April 30, 2017, 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, 2017, the Company does not have any significant capital commitments.
NOTE–14 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, 2017 up through the filing date of these condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.
22 |
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly report on Form 10-Q contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements contained in this discussion, including, without limitation, statements containing the words "believes," "anticipates," "expects" and the like, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained herein to reflect future events or developments.
Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. References to “MYR” are to the Malaysian Ringgit, the legal currency of Malaysia. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Overview
During the six months ended April 30, 2017, we operated in two business segments: (i) our oil palm and durian plantation business; and (ii) our real estate business. Our oil palm and durian plantation business is operated through Virtual Setup Sdn. Bhd., or VSSB, and our real estate business is primarily operated through PGCG Assets Holdings Sdn. Bhd., or PGCG Assets, and Dunford Corporation Sdn Bhd. Our primary assets are:
· | Oil palm and durian plantation in Malaysia which is operated through VSSB; |
· | 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; |
· | two parcels of undeveloped land located in Selangor, Malaysia aggregating approximately 31 acres; |
· | 15 story commercial building located at Geran 10010, Lot 238 Section 43, Town and District of Kuala Lumpur, Wilayah Persekutuan, Kuala Lumpur, Malaysia; and |
· | 12 story commercial building located at Megan Avenue 1, No. 189, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia. |
The following table sets forth certain operational data for the six months ended April 30, 2017:
Six months ended April 30, 2017 | ||||||||||||||||
Plantation Business | Real Estate Business | Corporate | Total | |||||||||||||
Revenues from external customer | $ | 84,018 | $ | 553,882 | $ | – | $ | 637,900 | ||||||||
Inter-segment revenue | – | (12,128 | ) | – | (12,128 | ) | ||||||||||
Revenues, net | 84,018 | 541,754 | – | 625,772 | ||||||||||||
Cost of revenues | (31,779 | ) | (274,571 | ) | – | (306,350 | ) | |||||||||
Gross profit | 52,239 | 267,183 | – | 319,422 | ||||||||||||
Depreciation | 4,416 | 233,359 | 4,020 | 241,795 | ||||||||||||
Net loss | (3,175 | ) | (220,611 | ) | (231,962 | ) | (455,748 | ) | ||||||||
Total assets | 5,760,574 | 37,561,503 | 306,655 | 43,628,732 | ||||||||||||
Expenditure for long-lived assets | $ | 271 | $ | – | $ | – | $ | 271 |
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Challenges From Our Oil Palm Operations
The oil palm 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. 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.
We are 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 sales offers in the future if a sale would maximize return to our investors.
We commenced planting premium durian, of the “Musang King” variety, in the first quarter of calendar year 2014. As of the date of this report, we have replanted 300 acres of our oil palm plantation with premium durian trees. We plant an average of 35 trees per acre and anticipate an average production of 50 grade A fruits per tree for each of the two harvesting seasons per year.
We have used the latest planting technology in 2016, which we hope will reduce the maturity time of the durian tree from 5 years to 3 years. All the durian trees planted on the 130 acres will begin to bear fruit by 2019 at the latest. Accordingly, we do not expect revenue from our durian orchard until calendar year 2019. At this time, we do not expect our durian orchard to exceed 300 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, 2017, 2 of the 12 stories of our 12 story building have been leased to tenants at market rates. We are actively attempting to lease our 8 vacant units. We occupy the remaining two stories as our corporate headquarters.
Our 15 story building is fully leased to Le Apple Boutique Hotel KLCC 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 Boutique Hotel KLCC, 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. Our current monthly rate is RM400,000 (approximately $92,177), which rate is increased every three years by 5% to 10% or to the then prevailing market rate, whichever is lower. Our current rate represents a decrease from our initial rental rate of RM500,000 due to unfavorable market conditions.
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 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.
On July 1, 2016, PGCG Assets entered into a memorandum of understanding (“MOU”) with Yong Tai Berhad, a public listed corporation in the main market of Bursa Malaysia Berhad (“YTB”) engaged in the business of commercial and residential property development, to jointly develop our land (the “Land”) located at Puncak Alam (the “Proposed JV”). Under the MOU, the parties agreed to use their best efforts to negotiate exclusively with each other regarding the terms and conditions of the definitive agreement to jointly develop the Land. On February 15, 2017, PGCG Assets and YTB entered into a Mutual Termination of Memorandum of Understanding (the “Termination MOU”) pursuant to which the parties mutually agreed to terminate the MOU as the parties are unable to agree and finalize the terms of the Proposed JV. In light of the termination of the Proposed JV with YTB, we plan to develop, market, promote and complete the construction on our own. As at the date of this report, clearing of the land for development is underway. We hope to begin construction in the fourth calendar quarter of 2019 and complete construction by the end of calendar 2021.
We believe that we will require approximately RM5 to RM10 million in the aggregate to market, promote and complete construction of each phase of our Shah Alam 2 Eco Residential Development Project.
24 |
On September 8, 2016, the Urban Wellbeing, Housing and Local Government Ministry of Malaysia announced the introduction of an initiative that will enable property developers to provide loans to buyers at an annual interest rate between 12 and 18 percent. Developers will be able to begin applying to the ministry on September 8, 2016, for a moneylending license. It is our understanding that loans made pursuant to such license will not be restricted to first time homebuyers. The Urban Wellbeing, Housing and Local Government Ministry of Malaysia has not yet established the application guidelines.
Depending upon the guidelines, we may apply for such moneylender’s license to enable us to provide financing to prospective buyers of our future properties. If we apply and are successful in obtaining such license, we hope that we will be able to boost sales of our properties that we have earmarked for development.
We continue to maintain a cautious but positive outlook for the residential market 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.
Results of Operations
The following table sets forth certain operational data for the three months ended April 30, 2017, compared to the three months ended April 30, 2016:
Three months ended April 30, | ||||||||
2017 | 2016 | |||||||
Revenues, net: | $ | 299,196 | $ | 435,439 | ||||
Plantation business | 28,520 | 25,912 | ||||||
Real estate | 270,676 | 409,527 | ||||||
Total cost of revenues | (174,648 | ) | (122,227 | ) | ||||
Gross profit | 124,548 | 313,212 | ||||||
General and administrative | (168,058 | ) | (141,065 | ) | ||||
(Loss) income from operations | (43,510 | ) | 172,147 | |||||
Other expense, net | (224,322 | ) | (238,175 | ) | ||||
Loss before income taxes | (267,832 | ) | (66,028 | ) | ||||
Income tax expense | (17,394 | ) | (50,751 | ) | ||||
NET LOSS | (285,226 | ) | (116,779 | ) | ||||
COMPREHENSIVE INCOME | $ | 316,697 | $ | 1,632,284 |
Comparison of the three months ended April 30, 2017 and April 30, 2016
Net Revenue. We generated net revenue of $299,196 and $435,439 for the three months ended April 30, 2017 and 2016, respectively. The decrease in net revenue for the quarter ended April 30, 2017 is primarily attributable to a significant decrease in our rental revenue from our commercial properties, which was offset by an increase in our plantation revenue. The decrease in our real estate revenue is attributable to the decrease in rental income from both the twelve story and fifteen story buildings. Effective from September 1, 2016, our current monthly rate on Le Apple Boutique Hotel KLCC is RM400,000 (approximately $92,177), representing a decrease from our initial rental rate of RM500,000 due to unfavorable market conditions.
In the quarter ended April 30, 2016, we contracted out the management and operation of our oil palm plantation and earned rental income of $25,912. We terminated this arrangement in September 2016, and are currently managing our plantation and earned $28,520 from sale of palm oil fruits in the quarter ended April 30, 2017.
25 |
For the three months ended April 30, 2017, our plantation and real estate businesses accounted for approximately 9.5% and 90.5% of our net revenue, respectively. For the three months ended April 30, 2016, our plantation and real estate businesses accounted for approximately 6.0% and 94.0% of our net revenue, respectively.
During the three months ended April 30, 2017, and 2016, the following customers accounted for 10% or more of our total net revenues:
Three months ended April 30, 2017 | April 30, 2017 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Le Apple Boutique Hotel (KLCC) Sdn. Bhd | Real estate | $ | 264,914 | 89% | $ | 101,394 | ||||||||
Lim Joo Soon Enterprise | Plantation Business | 28,520 | 10% | 6,469 | ||||||||||
$ | 293,434 | 99% | $ | 107,863 |
Three months ended April 30, 2016 | April 30, 2016 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Le Apple Boutique Hotel (KLCC) Sdn. Bhd | Real estate | $ | 400,351 | 92% | $ | 112,417 |
All of our customers are located in Malaysia.
Cost of Revenue. For the three-month period ended April 30, 2017, our cost of revenue as a percentage of net revenue was approximately 58.4% as compared to 28.1% for the same period ended April 30, 2016. Cost of plantation and real estate as a percentage of their respective net revenue was approximately 51.8% and 59.1%, respectively, for the quarter ended April 30, 2017. For the three months ended April 30, 2016, no cost of revenue was incurred on our plantation business, while cost of real estate revenue accounted for approximately 29.8% of the respective net revenue. Cost of revenue of our oil palm consists of costs such as material supplies, subcontracting costs incurred for planting, fertilizing and harvesting the oil palm tree. Transportation and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues.
For the three months ended April 30, 2017 and 2016, no vendor accounted for 10% or more of our purchases.
Gross Profit. For the three months ended April 30, 2017, we achieved gross profit of $124,548 as compared to $313,212 for the three months ended April 30, 2016. For the three months ended April 30, 2017, our plantation and real estate operations accounted for approximately 11% and 89% of our gross profit, respectively. For the three months ended April 30, 2016, our plantation and real estate operations accounted for approximately 8.3% and 91.7% of our gross profit, respectively. The decrease in our real estate gross profit is primarily attributable to lower rental income on our commercial properties.
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 $168,058 and $141,065 for the three months ended April 30, 2017, and 2016, respectively. The increase in G&A expenses of $26,993 is primarily attributable to increase in professional fees.
As a general matter, we expect our G&A to increase in the foreseeable future as we begin development of our real estate assets. G&A as a percentage of net revenue was approximately 56.2% and 32.4% for the three months ended April 30, 2017 and 2016, respectively.
26 |
Other Expense, net. We incurred net other expense of $224,322 for the three months ended April 30, 2017, as compared to net other expense of $238,175 for the three months ended April 30, 2016. Net other expense for the three months ended April 30, 2017 and 2016 consisted primarily of interest expense from our bank loans.
Income Tax Expense. We recorded income tax of $17,394 and $50,751 for the three months ended April 30, 2017 and 2016, respectively. Our income tax was primarily attributable to the tax effect of non-business source rental income.
Comparison of the six months ended April 30, 2017, and April 30, 2016
The following table sets forth certain operational data for the six months ended April 30, 2017, compared to the six months ended April 30, 2016:
Six months ended April 30, | ||||||||
2017 | 2016 | |||||||
Revenues, net: | $ | 625,772 | $ | 848,188 | ||||
Plantation business | 84,018 | 50,446 | ||||||
Real estate | 541,754 | 797,742 | ||||||
Total cost of revenues | (306,350 | ) | (294,641 | ) | ||||
Gross profit | 319,422 | 553,547 | ||||||
General and administrative | (279,530 | ) | (271,010 | ) | ||||
Income from operations | 39,892 | 282,537 | ||||||
Other expense, net | (439,545 | ) | (465,261 | ) | ||||
Loss before income taxes | (399,653 | ) | (182,724 | ) | ||||
Income tax expense | (56,095 | ) | (82,701 | ) | ||||
NET LOSS | $ | (455,748 | ) | $ | (265,425 | ) | ||
Net Revenue. We generated net revenue of $625,772 and $848,188 for the six months ended April 30, 2017, and 2016, respectively. The decrease in net revenue is primarily attributable to a significant decrease in rental income, which was offset by an increase in our plantation income. Effective from September 1, 2016, our current monthly rate on Le Apple Boutique Hotel KLCC is RM400,000 (approximately $92,177), representing a decrease from our initial rental rate of RM500,000 due to unfavorable market conditions.
For the six month period ended April 30, 2016, we contracted out the management and operation of our oil palm plantation and earned rental income of $50,446. We terminated this arrangement in September 2016, and are currently managing our plantation and earned $84,018 from sale of palm oil fruits in the six months ended April 30, 2017.
For the six months ended April 30, 2017, our plantation and real estate businesses accounted for approximately 13.4% and 86.6% of our net revenue, respectively. 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.
27 |
For the six months ended April 30, 2017 and 2016, the customers who accounted for 10% or more of the Company’s revenues are presented as follows:
Six months ended April 30, 2017 | April 30, 2017 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Le Apple Boutique Hotel (KLCC) Sdn. Bhd | Real estate | $ | 530,222 | 85% | $ | 101,394 | ||||||||
Lim Joo Soon Enterpise | Plantation Business | 84,018 | 13% | 6,469 | ||||||||||
$ | 614,240 | 98% | $ | 107,863 |
Six months ended April 30, 2016 | April 30, 2016 | |||||||||||||
Business segment | Revenues | Percentage of revenues | Trade accounts receivable | |||||||||||
Le Apple Boutique Hotel (KLCC) Sdn. Bhd | Real estate | $ | 777,659 | 92% | $ | 112,417 |
All customers are located in Malaysia.
Cost of Revenue. For the six months ended April 30, 2017, our cost of revenue as a percentage of net revenue was approximately 49.0% with our plantation and real estate businesses accounting for 10.4% and 89.6% of the 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. Cost of real estate revenue in 2017 and 2016 primarily consisted of land taxes, maintenance and depreciation of the leased properties of our real estate. Cost of plantation revenue in 2017 and 2016 consisted primarily of the costs related to the oil palm business such as material supplies, subcontracting costs and transportation costs incurred for planting, fertilizing and harvesting the oil palm tree. Shipping and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues. The increase in cost of revenue is primarily attributable to the increase in plantation cost of revenue arising from our direct operation of the plantation.
For the six months ended April 30, 2017 and 2016, no vendor accounted for 10% or more of the Company’s purchases.
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, 2017, we achieved gross profit of $319,422 as compared to $553,547 for the same period ended April 30, 2016. As of April 30, 2017, our plantation and real estate businesses accounted for approximately 16.4% and 83.6%, respectively, of our gross profit. For the six months ended April 30, 2016, our plantation and real estate operations accounted for approximately 9.1% and 90.9% of our gross profit, respectively. The decrease in overall gross profit is primarily attributable to lower rental income on our commercial properties..
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.
28 |
General and Administrative Expenses (“G&A”). We incurred G&A expenses of $279,530 and $271,010 for the six months ended April 30, 2017 and 2016, respectively.
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 44.7% and 32.0% for the six months ended April 30, 2017 and 2016, respectively.
Other Expense, net. We incurred net other expense of $439,545 for the six months ended April 30, 2017, as compared to net other expense of $465,261 for the same period ended April 30, 2016. Net other expense for the six months ended April 30, 2017 and 2016 consisted primarily of interest expense from our bank loans.
Income Tax Expense. We recorded income tax expense of $56,095 and $82,701 for the six months ended April 30, 2017 and 2016, respectively. The decrease is primarily attributable to tax effect of non-business source rental income.
Liquidity and Capital Resources
As of April 30, 2017, we had cash and cash equivalents of $294,667, as compared to $679,913 as of the same period last year. Our cash and cash equivalents decreased as a result of cash used in operation.
We expect to incur significantly greater expenses in the near future, including the contractual obligations that we have assumed discussed below, to begin development activities. We also expect our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a large accelerated filer, including directors’ and officers’ insurance and increased professional fees.
We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future.
Going Concern Uncertainties
Our continuation 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, | ||||||||
2017 | 2016 | |||||||
Net cash used in operating activities | (385,853 | ) | (41,898 | ) | ||||
Net cash (used in) provided by investing activities | (3,622 | ) | 486,451 | |||||
Net cash provided by (used in) financing activities | 30,043 | (659,925 | ) |
Net Cash Used In Operating Activities.
For the six months ended April 30, 2017, net cash used in operating activities was $385,853, which consisted primarily of a net loss (excluding non-cash depreciation and gain on disposal of property, plant and equipment) of $215,160, a decrease in income tax payable of $121,032, a decrease in accrued liabilities and other payables of $62,054 and a decrease in accounts payable of $14,960, offset by a decrease in rental concession of $12,436.
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.
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We expect rental income from our real estate operations to increase as we increase the occupancy rates of our commercial buildings, which will be offset by the increased expenses associated with developing our residential projects. We expect to continue to rely on cash generated through private placements of our securities, however, to finance our operations and future acquisitions.
Net Cash (Used in) Provided by Investing Activities.
For the six months ended April 30, 2017, net cash used in investing activities was $3,622, consisting of $7,195 of plantation development construction costs offset by $3,844 of proceeds from the disposal of property, plant and equipment.
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.
We expect investing cash outflows to increase when we develop our durian plantation until the orchard matures and begins to generate revenues in 2019 at the earliest. We also expect investing cash outflows to increase due to expenditures associated with developing our residential projects.
Net Cash Provided by (Used in) Financing Activities.
For the six months ended April 30, 2017, net cash provided by financing activities was $30,043, consisting primarily of advances of $421,444 from Weng Kung Wong, our Chief Executive Officer, Interim Chief Financial Officer and Interim Secretary and director, offset by repayments of $388,354 on outstanding bank loans.
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.
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, 2017:
Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
$ | $ | $ | $ | $ | ||||||||||||||||
Amounts due to related parties | 1,779,193 | 107,654 | 1,671,539 | – | – | |||||||||||||||
Commercial commitments | ||||||||||||||||||||
Bank loan repayment | 13,105,851 | 4,301,192 | 1,876,018 | 2,163,165 | 4,765,476 | |||||||||||||||
Total obligations | 14,885,044 | 4,408,846 | 3,547,557 | 2,163,165 | 4,765,476 |
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.
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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, the customer’s current credit worthiness and the economic environment. We will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of our customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We do not have any off-balance-sheet credit exposure related to our customers. Based upon the aforementioned criteria, we did not write off accounts receivable on uncollectible rental receivable at April 30, 2017 and October 31, 2016.
· | 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 | Oil palm and durian plantation in Malaysia | Indefinite, as per land titles | ||
Leasehold land under development | Leasehold land in Puncak Alam, Malaysia | Remaining lease life of 88 years, as per land titles | ||
Freehold land under development | Freehold land in Sungai Long, Cheras, Selangor, Malaysia | Indefinite, as per land titles | ||
Freehold land and land improvement for rental purpose commercial building | Land portion of 15 storey buildings “Menara CMY” in Kuala Lumpur, Malaysia | Indefinite, as per property titles | ||
Building structure and improvements | Building structure of commercial buildings in Kuala Lumpur, Malaysia, including: 12 story building “Megan Avenue” and 15 story building “Menara CMY” | 33 years | ||
Office furniture and equipment | 3-10 years | |||
Motor vehicle | 5 years |
Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of property, plant and equipment is the difference between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the statement of operations.
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Long-lived assets primarily include freehold plantation land, leasehold land held for development, freehold land and land improvement for rental purpose and building structure and improvements. In accordance with the provision of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, we generally conduct our annual impairment evaluation to our long-lived assets, usually in the fourth quarter of each year, or more frequently if indicators of impairment exist, such as a significant sustained change in the business climate. The recoverability of long-lived assets is measured at the reporting unit level. If the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. There has been no impairment charge for the periods presented.
We have separately identified the portion of freehold land and building structure, in which freehold land is not subject to amortization and buildings are to be amortized over 33 years on a straight-line method, based on applicable local laws and practice.
Policy for Capitalizing Development Cost
The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of April 30, 2017 and October 31, 2016, 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 sales
Revenue from the sale of palm oil fruit bunches is recognized upon confirmation of the weight of fresh fruit bunches and transported 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. For the three months ended April 30, 2017 and 2016, sale of palm oil fruits was $28,520 and $nil, respectively. For the six months ended April 30, 2017 and 2016, sale of palm oil fruits was $84,018 and $nil, respectively.
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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, BJ Bentong Trading Company (“BJ”) 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 $nil and $25,912 was recognized for the three months ended April 30, 2017 and 2016, respectively, and was included in revenue from plantation business. Rental income of $nil and $50,446 was recognized for the six months ended April 30, 2017 and 2016, respectively, and was included in revenue from plantation business.
On September 29, 2016, we entered into a letter agreement with BJ pursuant to which the parties mutually agreed to terminate the Tenancy Agreement.
We are currently directly managing our oil palm and durian plantation.
(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, 2017 and 2016, we have recorded $541,754 and $797,742 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, 2017, 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 | 67% |
Le Apple Boutique Hotel KLCC (fka “Menara CMY”) |
15 | 91,848 | 0% |
We expect to record approximately $1.1 million in annual lease revenue under the operating lease arrangements in the next twelve months through April 30, 2018.
· | Cost of revenues |
Cost of revenue on plantation sales includes material supplies, subcontracting costs and transportation costs incurred for planting, fertilizing and harvesting the oil palm tree. Transportation and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues.
Cost related to our real estate business shown on the accompanying statements of operations include costs associated with land tax, on-site and property management personnel, repairs and maintenance, property insurance, marketing, landscaping and other on-site and related administrative costs. Utility expenses are paid directly by tenants.
· | Comprehensive income |
ASC Topic 220, “Comprehensive Income” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying statements of stockholders’ equity 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. This comprehensive income is not included in the computation of income tax expense or benefit.
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· | 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 its own jurisdiction. As a result of our business activities, we will file separate tax returns that are subject to examination by the local and foreign tax authorities.
· | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.
The reporting currency of the Company is the United States Dollars (“US$”) and the accompanying financial statements have been expressed in US$. In addition, we maintain our books and record in a local currency, Malaysian Ringgit (“MYR”), and Hong Kong Dollars (“HK$”), which is functional currency as being the primary currency of the economic environment in which the entity operates.
In general, for consolidation purposes, assets and liabilities of our subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity. The gains and losses are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Translation of amounts from the local currency of the Company into US$1 has been made at the following exchange rates for the respective periods:
As of and for the period ended April 30, | ||||||||
2017 | 2016 | |||||||
Period-end HK$ : US$1 exchange rate | 7.77748 | 7.75634 | ||||||
Period-average HK$ : US$1 exchange rate | 7.76138 | 7.76286 | ||||||
Period-end MYR : US$1 exchange rate | 4.33950 | 3.91400 | ||||||
Period-average MYR : US$1 exchange rate | 4.42268 | 4.17278 |
· | 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.
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· | Segment reporting |
ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with our internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. During the period ended April 30, 2017 and 2016, 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, accounts receivable, deposits and other receivables, amount due to a related party and other payables approximate at their fair values because of the short-term nature of these financial instruments.
Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of our obligation under finance lease and long-term bank loans 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 |
The following table summarizes information on the fair value measurement of our financial assets as of April 30, 2017 and October 31, 2016, measured at fair value, grouped by the categories described above:
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
||||||||||
As of April 30, 2017 | ||||||||||||
Marketable securities, available-for-sale | $ | 250,295 | $ | – | $ | – | ||||||
As of October 31, 2016 | ||||||||||||
Marketable securities, available-for-sale | $ | 279,042 | $ | – | $ | – |
As of April 30, 2017, we did not have any nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements, at least annually, on a recurring basis, nor did we have any assets or liabilities measured at fair value on a non-recurring basis.
Recent accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The amendments in ASU 2014-09 are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The standard permits the use of either the retrospective or cumulative effect transition method. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. We are evaluating the effect the ASUs will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of these standards on our ongoing financial reporting.
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In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted. We are currently assessing the potential impact of ASU 2016-15 on our financial statements and related disclosures.
We have reviewed all other 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
Interest rate risk
Our exposure to interest rate risk primarily relates to the interest expense incurred on bank borrowings. We have not used derivative financial instruments in our investment portfolio in order to reduce this risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates.
Foreign exchange risk
The reporting currency of the Company is US$. To date the majority of the revenues and costs are denominated in MYR, and a significant portion of the assets and liabilities are denominated in MYR. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and MYR. If MYR depreciates against US$, the value of our MYR revenues, earnings and assets as expressed in our US$ 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 fruit bunches. 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 fruit bunches. Pricing for palm oil fruit bunches 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 our properties are located. Such conditions may impact our results of operations, financial condition or ability to expand our operations.
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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 Interim Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Interim Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of April 30, 2017, 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 Interim 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, 2017, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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.
None.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3 Defaults upon Senior Securities
None.
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ITEM 4 Mine Safety Disclosures
Not applicable.
None.
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 Offer issued by the Bank of China (Malaysia) Berhad to PGCG Assets Holdings Sdn. Bhd. effective October 31, 2014 (7) |
10.5 | 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) |
10.6 | 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) |
10.7 | 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* |
24 | Power of Attorney* |
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) |
* | Filed herewith. |
(1) | Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Securities and Exchange on February 22, 2011. |
(2) | Incorporated by reference from Exhibit 2.1 to Current Report on Form 8-K filed with the Securities and Exchange on December 7, 2010. |
(3) | Incorporated by reference from Amendment No. 2 to our registration statement filed on Form S-1 with the Securities and Exchange Commission on September 2, 2009. |
(4) | Incorporated by reference from Exhibit 2 to Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 23, 2010. |
(5) | Incorporated by reference From Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange on August 18, 2014. |
(6) | Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2011. |
(7) | Incorporated by referenced from our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 3, 2014. |
(8) | Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013. |
(9) | Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 2, 2012. |
(10) | Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Commission on April 27, 2012. |
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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 | ||
Date: June 13, 2017 |
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