Company Quick10K Filing
Quick10K
Prime Global Capital Group
10-Q 2019-07-31 Quarter: 2019-07-31
10-Q 2019-04-30 Quarter: 2019-04-30
10-Q 2019-01-31 Quarter: 2019-01-31
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-K 2017-10-31 Annual: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-K 2016-10-31 Annual: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-K 2015-10-31 Annual: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-K 2014-10-31 Annual: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
8-K 2019-09-18 Shareholder Vote
8-K 2018-09-20 Shareholder Vote
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ECOM Channeladvisor 248
IGC India Globalization Capital 45
TMRC Texas Mineral Resources 20
BDCO Blue Dolphin Energy 6
YBAO YBCC 3
RVA Reva Medical 0
TRIS Tri-State Generation & Transmission Association 0
INFOR Infor 0
WRAP Wrap Technologies 0
PGCG 2019-07-31
Part I Financial Information
Item 1Financial Statements
Note-1Basis of Presentation
Note-2Organization and Business Background
Note-3Going Concern Uncertainties
Note-4Summary of Significant Accounting Policies
Note-5Property, Plant and Equipment
Note-6Amounts Due To Related Parties
Note-7Bank Loans
Note-8Income Taxes
Note-9Stockholders' Equity
Note-10Segment Information
Note-11Concentrations of Risk
Note-12Commitments and Contingencies
Note-13Subsequent Events
Item 2Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures About Market Risk
Item 4Controls and Procedures
Part II Other Information
Item 1Legal Proceedings
Item 1A Risk Factors
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
Item 3Defaults Upon Senior Securities
Item 4Mine Safety Disclosures
Item 5Other Information
Item 6Exhibits
EX-31.1 primeglobal_ex3101.htm
EX-32.1 primeglobal_ex3201.htm

Prime Global Capital Group Earnings 2019-07-31

PGCG 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 primeglobal_q3-07312019.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2019

 

      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)

 

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

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

 

Title of each Class Trading Symbol Name of each exchange on which registered
Common Stock, par value US$0.001 PGCG N/A

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and a “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☒
Emerging growth company ☐    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

As of September 13, 2019, the issuer had outstanding 512,682,393 shares of common stock.

 

 

 

 

   

 

 

TABLE OF CONTENTS

 

    Page
     
PART I FINANCIAL INFORMATION  
     
ITEM 1 Financial Statements 1
     
  Condensed Consolidated Balance Sheets as of July 31, 2019 (Unaudited) and October 31, 2018 (Audited) 1
     
  Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Nine Months Ended July 31, 2019 and 2018 (Unaudited) 2
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2019 and 2018 (Unaudited) 3
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 4
     
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk 44
     
ITEM 4 Controls and Procedures 45
     
PART II OTHER INFORMATION  
     
ITEM 1 Legal Proceedings 46
     
ITEM 1A Risk Factors 46
     
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 46
     
ITEM 3 Defaults upon Senior Securities 46
     
ITEM 4 Mine Safety Disclosures 46
     
ITEM 5 Other Information 46
     
ITEM 6 Exhibits 47
     
SIGNATURES   48

 

 

 

 i 

 

 

PART I FINANCIAL INFORMATION

 

ITEM 1Financial Statements

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

 

   July 31, 2019   October 31, 2018 
ASSETS          
Current assets:          
Cash and cash equivalents  $186,137   $503,197 
Marketable securities, available-for-sale   172,606    172,532 
Rental concession   26,674    26,304 
Accounts receivable, net   20,796    15,990 
Deposits and other receivables   46,210    26,804 
Total current assets   452,423    744,827 
           
Rental concession, non-current   622,388    633,484 
Deferred development costs   285,644    241,670 
Construction in progress   423,279    417,409 
Property, plant and equipment, net   43,203,868    42,935,354 
TOTAL ASSETS  $44,987,602   $44,972,744 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $20,692   $30,797 
Amount due to a related party   86,420    86,420 
Rental deposits from tenants   422,623    416,762 
Income tax payable   417,159    572,825 
Current portion of long-term bank loans   715,901    598,795 
Accrued liabilities and other payables   279,591    330,827 
Total current liabilities   1,942,386    2,036,426 
           
Long-term liabilities:          
Long-term bank loans   14,284,964    13,460,618 
Amount due to a director   1,322,740    2,270,089 
Deferred tax liabilities   157,500    160,050 
Total liabilities   17,707,590    17,927,183 
           
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 July 31, 2019 and October 31, 2018   512,683    512,683 
Additional paid-in capital   41,934,476    41,934,476 
Accumulated other comprehensive loss   (10,489,053)   (10,876,629)
Accumulated loss   (4,432,224)   (4,277,137)
Total stockholder’s equity   27,525,882    27,293,393 
Non-controlling interest   (245,870)   (247,832)
           
Total equity   27,280,012    27,045,561 
TOTAL LIABILITIES AND EQUITY  $44,987,602   $44,972,744 

 

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 July 31,   Nine months ended July 31, 
   2019   2018   2019   2018 
Revenues, net:                    
Plantation business  $117,832   $28,291   $153,827   $133,715 
Rental income   816,632    425,082    1,234,337    950,576 
Total revenues, net   934,464    453,373    1,388,164    1,084,291 
                     
Cost of revenues   (375,224)   (150,834)   (549,208)   (500,133)
                     
Gross profit   559,240    302,539    838,956    584,158 
                     
Operating expenses:                    
General and administrative   (188,498)   (116,405)   (288,102)   (381,979)
                     
Income/(loss) from operations   370,742    186,134    550,854    202,179 
                     
Other (expense) income                    
Interest expense   (367,256)   (215,659)   (552,867)   (592,780)
Other income   678        678     
Loss before income taxes   4,164    (29,525)   (1,335)   (390,601)
                     
Income tax expense   (100,416)   (55,826)   (148,314)   (115,820)
                     
NET LOSS   (96,252)   (85,351)  $(149,649)  $(506,421)
                     
Net (profit)/loss attributable to non-controlling interest   5,029    (1,946)   5,438    (28,588)
                     
NET LOSS ATTRIBUTABLE TO THE COMPANY  $(101,281)  $(83,405)  $(155,087)  $(477,833)
                     
Other comprehensive income (loss):                    
- Foreign exchange adjustment gain (loss)   58,687    (972,187)   387,576    1,192,578 
                     
COMPREHENSIVE INCOME (LOSS)  $(42,594)  $(1,055,592)  $232,489   $714,745 
                     
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)

 

   Nine months ended July 31, 
   2019   2018 
Cash flows from operating activities:          
Net loss  $(149,649)  $(506,421)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation of property, plant and equipment   363,664    401,740 
Gain on disposal of property, plant and equipment        
Forgiveness of debts        
Impairment loss on available-for-sale securities        
Changes in operating assets and liabilities:          
Accounts receivable   (4,574)   162,857 
Deposits and other receivables   (18,998)   9,736 
Accounts payable   (10,520)   (335)
Rental concession   19,972    48,246 
Income tax payable   (163,448)   (139,817)
Rental deposit from tenants       2,256 
Deferred taxation   (4,793)   (11,579)
Accrued liabilities and other payables   (53,124)   (116,969)
Net cash used in operating activities   (21,470)   (150,286)
           
Cash flows from investing activities:          
Addition of plantation development cost   (40,508)   (58,245)
Payment on construction in progress        
Proceeds from disposal of property, plant and equipment        
Purchase of property, plant and equipment   (28,881)   (28,168)
Net cash used in investing activities   (69,389)   (86,413)
           
Cash flows from financing activities:          
Advances from related parties   (975,210)   1,037,234 
Repayments on bank loans   (462,407)   (917,348)
Long term borrowings   1,204,880     
Net cash provided by/(used in) financing activities   (232,737)   119,886 
           
Foreign currency translation adjustment   6,536    9,264 
NET CHANGE IN CASH AND CASH EQUIVALENTS   (317,060)   (107,549)
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   503,197    294,261 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $186,137   $186,712 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for income tax  $317,825   $267,216 
Cash paid for interest  $552,867   $592,780 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 3 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

NOTE–1BASIS 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, 2018. All significant intercompany balances and transactions have been eliminated on 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 nine months ended July 31, 2019 is not necessarily indicative of the results that may be expected for other interim periods or the year ending October 31, 2019. The condensed consolidated financial data at October 31, 2018 is derived from audited financial statements included in our Annual Report on Form 10-K for the year ended October 31, 2018, filed on January 29, 2019.

 

NOTE–2ORGANIZATION 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 and 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.   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
                      
 3.   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

 

 

 

 4 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

 4.   PGCG Development Sdn. Bhd. (“PGCG Development”)   Malaysia    March 21, 2012   250,000 issued shares of ordinary shares of MYR 1 each  Inactive operation
                      
 5.    PGCG Plantations Sdn. Bhd. (“PGCG Plantation”)   Malaysia    October 4, 2011   2 issued shares of ordinary shares of MYR 1 each  Holding company of VSSB
                      
 6.   Dunford Corporation Sdn. Bhd.   Malaysia    October 4, 1990   242,000 issued shares of ordinary shares of MYR 1 each  Property holding land
                      
 7.   Impiana Maksima Sdn. Bhd.   Malaysia    March 15, 2013   2 issued shares of ordinary shares of MYR 1 each  Property development
                      
 8.   PGCG Constructions Sdn. Bhd.   Malaysia    April 16, 2013   2 issued shares of ordinary shares of MYR 1 each  Construction of properties
                      
 9.   Fiesta Senada Sdn Bhd   Malaysia    November 28, 2012   2 issued shares of ordinary shares of MYR 1 each  Inactive operation
                      
 10.   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–3GOING CONCERN UNCERTAINTIES

 

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

For the nine months ended July 31, 2019, the Company reported a loss of $149,649 and working capital deficit of $1,489,963 as of July 31, 2019. 

 

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 NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

NOTE–4SUMMARY 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 July 31, 2019 and October 31, 2018.

 

  · 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.

 

 

 

 6 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

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.

 

During the nine months ended July 31, 2019, 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.

 

  · 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 and orchard  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 in Kuala Lumpur, Malaysia  Indefinite, as per property titles
Building structure and improvements  Building structure of commercial buildings in Kuala Lumpur, Malaysia, including: 12 storey building “Megan Avenue” and 15 storey building  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.

 

 

Deferred development costs for oil palm that had been capitalized as part of freehold plantation land were not amortized over the useful life of the oil palms since these costs were not separately identifiable from the cost of freehold plantation land and buildings when the whole oil palm plantation was purchased in July 2011.

 

 

 

 7 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

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

 

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

 

Policy for Capitalizing Development Cost

 

The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to planning, developing, initial leasing and constructing a property are capitalized and classified as Real Estate in the consolidated balance sheets. Capitalized development costs include interest, and other direct project costs incurred during the period of development. As of July 31, 2019 and October 31, 2018, 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

 

Revenue recognition applicable from 1 November 2018

The Company recognizes its revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, usually upon delivery of palm oil fruit bunches and durian fruits. There are no significant payments terms, no significant financing component or any variable consideration. All of the company’s revenue from contracts with customers in the scope of ASC 606 is recognised in one geographical market in Malaysia, and one major product line, and plantation sales are transferred at a point in time.

 

 

 

 8 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

Revenue recognition applicable until 31 October 2018

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 plantation sales include the sale of palm oil fruit bunches and sale of durian. The sale is recognized upon confirmation of the weight of produces 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 July 31, 2019, sale of palm oil and durian was $117,832. For the three months ended July 31, 2018, sale of palm oil was $28,291. For the nine months ended July 31, 2019, sale of palm oil and durian was $153,827. For the nine months ended July 31, 2018, sale of palm oil was $133,715.

  

(b)Rental income

 

The Company generally leases the units under operating leases with terms of two years or less. For the nine months ended July 31, 2019 and 2018, we have recorded $1,234,337 and $950,576 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 July 31, 2019, 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    33% 
Le Apple Boutique Hotel KLCC
(fka “Menara CMY”)
   15    91,848    0% 

 

 

The Company expects to record approximately $1.62 million in annual lease revenue under the operating lease arrangements in the next twelve months through July 31, 2020.

 

  · 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.

 

   July 31, 2019   October 31, 2018 
           
Rental concession:          
Current portion  $26,674   $26,304 
Non-current portion   622,388    633,484 
           
Total  $649,062   $659,788 

 

 

 

 9 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

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

 

Period ending July 31:     
 2020   $26,674 
 2021    26,674 
 2022    26,674 
 2023    26,674 
 2024    26,674 
 Thereafter    515,692 
        
 Total   $649,062 

 

As of July 31, 2019, the minimum future rental receivables on the commercial properties to be collectible in the next five years and thereafter are as follows:

 

Period ending July 31:     
 2020   $1,615,413 
 2021    1,594,122 
 2022    1,573,753 
 2023    1,573,753 
 2024    1,573,753 
 Thereafter    30,425,891 
        
 Total   $38,356,685 

 

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 as expenses 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 and durian tree. Transportation and handling costs associated with the distribution of fresh fruit bunches and durians fruits 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.

 

 

 

 10 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

  · Non-controlling interests

 

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

 

  · Income taxes

 

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

 

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

 

The Company conducts major businesses in Malaysia and 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”), 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.

 

 

 

 11 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

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

 

   As of and for the period ended
July 31,
 
   2019   2018 
           
Period-end MYR : US$1 exchange rate   4.1239    4.0559 
Period-average MYR : US$1 exchange rate   4.1308    3.9900 

 

  · Related parties

 

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

  · Segment reporting

 

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. During the period ended July 31, 2019 and 2018, 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

 

 

 

 12 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

The following table summarizes information on the fair value measurement of the Company’s financial assets as of July 31, 2019 and October 31, 2018, 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 July 31, 2019               
Marketable securities, available-for-sale  $172,606   $   $ 
                
As of October 31, 2018               
Marketable securities, available-for-sale  $172,532   $   $ 

 

As of July 31, 2019, the Company did not have any non-financial 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.

 

· Adoption of new accounting standards

 

On 1 November 2018, the company adopted ASU 2014-09 Revenue from Contracts with Customers.

 

The adoption of this Topic does not have a material impact on our consolidated financial statements. There have been no significant judgements or changes in judgements made in applying the guidance in this Topic. There were no contract assets or liabilities recognised at year end.

 

The adoption of the other new accounting standards did not have a material impact on our consolidated financial statements.

 

  · Recent accounting pronouncements

 

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 do not anticipate that the adoption of this ASU to have a significant impact on our consolidated financial statements.

 

In February 2017, FASB issued Accounting Standards Update 2017-06; Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task Force). The amendments in this ASU requires an employee benefit plan within the scope of Topic 960,1 962,2 or 9653 to present its interest in a master trust and the change in its interest in that master trust as single line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. In addition, the amendments update and align the disclosure requirements for an interest in a master trust across Topics 960, 962, and 965. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The amendments in the ASU should be adopted on a retrospective basis. We do not expect that adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

 13 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In March 2017, FASB issued Accounting Standards Update 2017-08; Receivables—Non refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shortens the amortization period for certain purchased callable debt securities held at a premium. Specifically, it requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The discount continues to be amortized to maturity. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2017, FASB issued Accounting Standards Update 2017-11; Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public Entities and Certain Mandatorily Redeemable Non controlling Interests with a Scope Exception. The guidance is intended to reduce the complexity associated with issuers’ accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature (as defined) would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2017, FASB issued Accounting Standards Update 2017-12; Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The guidance in this ASU will result in the simplification of certain accounting requirements for hedging activities, resolve hedge accounting practice issues that have arisen under the current guidance, and better align hedge accounting with an organization’s risk management activities. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early application is permitted in any interim period after issuance of the amendments for existing hedging relationships on the date of adoption. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In December 2017, FASB issued Accounting Standards Update 2017-15; Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995. The amendments in this ASU affect all entities that have unrecognized deferred taxes related to statutory reserve deposits that were made on or before December 15, 1992. Entities are required to recognize the unrecognized income taxes in accordance with Topic 740. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not anticipate that the adoption of this ASU to have a significant impact on our consolidated financial statements.

 

In February 2018, FASB issued Accounting Standards Update 2018-02; Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the ASU addresses the accounting issue pertaining to the deferred tax amounts that are “stranded” in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the Act). We do not expect that the adoption will have a material impact on our consolidated financial statements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We do not expect that the adoption will have a material impact on our consolidated financial statements.

 

 

 

 14 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In May 2018, FASB issued Accounting standards Update 2018-06; Codification Improvements to Topic 942 Financial Services – Depository and Lending which supersedes outdated guidance related to the office of the Comptroller of the Currency’s Baking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202). The amendments in this update remove outdated guidance related to Circular 202 and is effective upon issuance of this update. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-08—Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made which clarifies and improves the scope and accounting guidance around contributions of cash and other assets received and made by not-for-profit organizations and business enterprises. The amendment is effective for fiscal years beginning after June 15, 2018 (serving as resource recipient) and December 15, 2018 (serving as resource provider), including interim periods within that fiscal year. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-09—Codification Improvements which clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:

 

- Clarify when excess tax benefits should be recognized for share-based compensation awards
- Remove inconsistent guidance in income tax accounting for business combinations
- Clarify the circumstances when derivatives may be offset
- Clarify the measurement of liability or equity-classified financial instruments when an identical asset is held as an asset
- Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use the portfolio exception to valuation

 

The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update. However, many of the amendments in this Update do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-10—Codification Improvements to Topic 842, Leases which clarifies and corrects unintended application of narrow aspects of the lease accounting guidance. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

 15 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In August 2018, the FASB issued ASU 2018-11—Leases (Topic 842): Targeted Improvements which simplifies transition requirements and, for lessors, provides a practical expedient for the non separation of non-lease components from lease components if certain conditions are met. For entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update related to separating components of a contract are the same as the effective date and transition requirements in Update 2016-02. The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. The practical expedient may be applied either retrospectively or prospectively. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-12—Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts which improves financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care, and annuities. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application of the amendments is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which improves the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans which improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted for all entities. An entity should apply the amendments in this Update on a retrospective basis to all periods presented. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) which aligns the requirements for capitalizing implementation costs that are incurred in a hosting arrangement that is a service contract or incurred to develop or obtain internal-use software (and hosing arrangements that include an internal –use software license). This standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, for all entities. The amendments in this Update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In October 2018, FASB issued Accounting Standards Update 2018-16, Derivatives and Hedging (Topic 805): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The ASU amends ASC 815 to add the OIS rate based on the SOFR as a fifth US benchmark interest rate. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

 16 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In October 2018, FASB issued Accounting Standards Update 2018-17: Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard expands the application of a specific private company accounting alternative related to VIEs and changes the guidance for determining whether a decision-making fee is a variable interest. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In November 2018, FASB issued Accounting Standards Update 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The ASU amends ASC 808 to clarify ASC 606 should apply in entirety to certain transactions between collaborative arrangement participants. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In November 2018, FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The ASU changes the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Thus, the effective date for such entities’ annual financial statements is now aligned with that for these interim financial statements. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.

 

In December 2018, FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. The amendments are designed to make lessors adoption of the new leases standard easier such as accounting policy election on sales tax, exclude variable payments for all lessor costs, and clarification on lessor costs. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.

 

In March 2019, FASB Issued Accounting Standards Update 2019-01, Leases (Topic 842): Codification Improvements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In March 2019, FASB Issued Accounting Standards Update 2019-02, Leases (Topic 842): Improvements to Accounting for Costs of Films and License Agreements for Program Materials. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In March 2019, FASB Issued Accounting Standards Update 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections (Topic 958). We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements as the ASU is applicable to not-for-profit entities.

 

In April 2019, FASB Issued Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The ASU 2019-04 clarifies and improves guidance within the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments: The effective dates for amendments related to ASUs 2016-13 and 2017-12 align with the effective dates of those standards, unless an entity has already adopted one or both. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In May 2019, FASB Issued Accounting Standards Update 2019-05, Targeted Transition Relief. ASU 2019-05 provides transition relief for ASU 2016-13 (“credit losses standard”) by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard. For entities that have not yet adopted ASU 2016-13, the effective dates are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

 17 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In May 2019, FASB Issued Accounting Standards Update 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities. The amendments are affective upon issuance of the ASU. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

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–5PROPERTY, PLANT AND EQUIPMENT

 

   July 31, 2019   October 31, 2018 
           
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   170,980    157,084 
Motor vehicles   177,285    162,300 
Foreign translation difference   (15,242,102)   (15,884,845)
    46,368,438    45,696,814 
Less: accumulated depreciation   (3,612,627)   (3,248,963)
Less: foreign translation difference   448,057    487,503 
   $43,203,868   $42,935,354 

 

Depreciation expense for the three months ended July 31, 2019 and 2018 was $120,502 and $133,856, respectively.

 

Depreciation expense for the nine months ended July 31, 2019 and 2018 was $363,664 and $401,740, respectively.

 

Both commercial buildings in Kuala Lumpur, Malaysia are pledged against the bank loans (note 7).

 

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”). The parties terminated the MOU on February 15, 2017, in accordance with the terms of a Mutual Termination of Memorandum of Understanding (the “Termination MOU”). The parties further confirmed that there was no monetary payment due to either party pursuant to the MOU or the Termination MOU.

 

 

 

 18 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

In light of the termination of the Proposed JV with YTB, the Company plans to develop, market, promote and complete the construction on its own. As at the date of this report, clearing of the land for development is underway. The Company hopes to begin construction in the fourth calendar quarter of 2019 and complete construction by the end of calendar 2021. The Company believes that it 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.

 

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 July 31, 2019.

 

NOTE–6AMOUNTS DUE TO RELATED PARTIES

 

   July 31, 2019   October 31, 2018 
         
Current portion:          
Amount due to a related party, which were unsecured, interest-free and repayable on demand,
Mr. Kok Wai Chai, a director of UHT
  $86,420   $86,420 
           
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
  $1,322,740   $2,270,089 

 

NOTE–7BANK LOANS

 

   July 31, 2019   October 31, 2018 
         
Bank loans from financial institutions in Malaysia           
Public Islamic Bank Berhad          
-15 Storey bank loan  $12,964,496   $12,001,461 
-Financing loan        
RHB Bank Berhad   2,036,369    2,057,952 
    15,000,865    14,059,413 
Less: current portion   (715,901)   (598,795)
Bank loans, net of current portion  $14,284,964   $13,460,618 

 

15 Storey Bank Loan

 

In August 2018, the Company, through PGCG Assets obtained a loan in the principal amount of RM50,000,000 from Public Islamic Bank Berhad, a financial institution in Malaysia to finance the acquisition of a fifteen storey office building property, which bears interest at a rate of 1.50% per annum below the base financing rate, currently 6.97% per annum, with 180 monthly installments of RM407,750 each (including interests) over a period of 15 years or until full settlement and will mature in September 2033.

 

 

 

 19 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

The loan from Public Islamic Bank Berhad is secured by the first party charge over 15-storey commercial office building in Kuala Lumpur, Malaysia, deed of assignment of rental proceeds over the rights and interest to the rental of the 15-storey 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 RM50 million plus interest thereon over the assets of PGCG Assets. The cost of funds was 5.47% per annum for the period ended July 31, 2019.

 

12 Storey 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 the 12-storey 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 RM58,317 each (including interests) over a period of 24 years and will mature in 2037.

 

The loan is secured by the 12-storey 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 period ended July 31, 2019.

 

Financing Loan

 

In April 2019, the Company, through VSSB obtained a loan in the aggregate amount of RM5,000,000 from Public Islamic Bank Berhad, a financial institution in Malaysia for working capital purpose, which bears interest at a rate of 1.00% per annum above base financing rate, variable rate quoted by the bank, with 120 monthly instalments of RM60,590 each (including interests) over a period of 10 years and will mature in 2029.

 

The loan is secured by the first party charge over agricultural lands under Lot 3695, Lot 3696 and Lot 1552 situated at Pahang, Malaysia, and a third-party charge over the 15-storey commercial office building registered under PGCG Assets. The loan is also secured by a specific debenture on the oil palm and durian plantation is to be obtained, and personally guaranteed by the director and chief executive officer of the Company, Mr. Weng Kung Wong and subsidiaries of the Company, UHT and PGCG Assets. The cost of funds was 7.97% per annum for the period ended July 31, 2019.

 

As of July 31, 2019, the minimum future payments of the aggregate bank borrowings in the next five years and thereafter are as follows:

 

Period ending July 31:     
 2020   $715,901 
 2021    757,658 
 2022    801,910 
 2023    848,811 
 2024    898,525 
 Thereafter    10,978,060 
 Total:   $15,000,865 

 

 

 

 20 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

NOTE–8INCOME TAXES

 

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

 

   Nine months ended July 31, 
   2019   2018 
         
Tax jurisdictions from:          
– Local  $(49,972)  $(45,587)
– Foreign, representing:          
Malaysia   48,637    (345,014)
Loss before income taxes  $(1,335)  $(390,601)

 

Income tax expense consisted of the following:

 

   Nine months ended July 31, 
   2019   2018 
         
Current:        
– Local  $–    $–  
– Foreign, representing:          
Malaysia   153,107    127,399 
           
Deferred:           
– Local   –     –  
– Foreign   (4,793)   (11,579)
Income tax expense  $148,314   $115,820 

 

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

 

United States of America

 

PGCG is registered in the State of Nevada and is subject to United States of America tax law. As of July 31, 2019 and October 31, 2018, the operations in the United States of America incurred $1,085,151 and $1,035,179, 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 $379,803 (October 31, 2018: $362,313) 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 July 31, 2019 and October 31, 2018 (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.

 

 

 

 21 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

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 18% 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. The Company has provided full valuation allowance of $157,944 and $162,104 as of July 31, 2019 and October 31, 2018, respectively.

 

A reconciliation of loss before income taxes to the effective tax rate as follows:

 

   Nine months ended July 31, 
   2019   2018 
         
Loss before income taxes  $48,636    (345,014)
Statutory income tax rate   24%    24% 
Income tax at statutory tax rate   11,673    (82,803)
Tax effect of non-deductible expenses   39,484    43,685 
Tax effect of different tax rate        
Tax effect of non-business source rental income   97,157    154,938 
Net operating loss        
Income tax expense  $148,314    115,820 

 

During fiscals 2019 and 2018, the Company revisited the facts and circumstances and determined that rental income at “Megan Avenue” and “Le Apple” 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 July 31, 2019 and October 31, 2018:

 

   July 31, 2019   October 31, 2018
        
Deferred tax assets:       
Net operating loss carryforwards:         
-United States of America  $379,803   $362,313
-Malaysia   157,944    162,104
Total deferred tax assets   537,747    524,417
Less: valuation allowance   (537,747)   (524,417
Deferred tax assets  $   $
Deferred tax liabilities, non-current                
Property, plant and equipment     1,725       1,701  
Rent concession     155,775       158,349  

 

  $ 157,500     $ 160,050  

 

 

 

 22 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

NOTE–9STOCKHOLDERS’ EQUITY

 

As of July 31, 2019 and October 31, 2018, 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–10SEGMENT 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 July 31, 2019 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues from external customer  $117,832   $823,125   $   $940,957 
Inter-segment revenue       (6,493)       (6,493)
Revenues, net   117,832    816,632        934,464 
Cost of revenues   (38,618)   (336,606)       (375,224)
Gross profit   79,214    480,026        559,240 
Depreciation   9,198    469,805    7,881    486,884 
Net loss   248    51,094    (147,594)   (96,252)
Total assets   6,318,283    38,433,936    235,383    44,987,602 
Expenditure for long-lived assets  $13,896   $   $   $13,896 

 

   Three months ended July 31, 2018 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues from external customer  $28,291   $431,781   $   $460,072 
Inter-segment revenue       (6,699)       (6,699)
Revenues, net   28,291    425,082        453,373 
Cost of revenues   (18,216)   (132,618)       (150,834)
Gross profit   10,075    292,464        302,539 
Depreciation   1,703    130,128    2,025    133,856 
Net loss   (9,627)   2,391    (78,115)   (85,351)
Total assets   6,204,571    39,309,386    254,032    45,767,989 
Expenditure for long-lived assets  $546   $(45)  $   $501 

 

 

 

 23 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

   Nine months ended July 31, 2019 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues from external customer  $153,827   $1,253,815   $   $1,407,642 
Inter-segment revenue       (19,478)       (19,478)
Revenues, net   153,827    1,234,337        1,388,164 
Cost of revenues   (62,401)   (486,807)       (549,208)
Gross profit   91,426    747,530        838,956 
Depreciation   6,756    351,019    5,889    363,664 
Net loss   (20,922)   83,174    (211,901)   (149,649)
Total assets   6,318,283    38,433,936    235,383    44,987,602 
Expenditure for long-lived assets  $28,881   $   $   $28,881 

 

   Nine months ended July 31, 2018 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues  $133,715   $970,741   $   $1,104,456 
Inter-segment revenue       (20,165)       (20,165)
Revenues, net   133,715    950,576        1,084,291 
Cost of revenues   (58,811)   (441,322)       (500,133)
Gross profit   74,904    509,254        584,158 
Depreciation   5,094    390,550    6,096    401,740 
Net loss   6,716    (288,240)   (224,897)   (506,421)
Total assets   6,204,571    39,309,386    254,032    45,767,989 
Expenditure for long-lived assets  $1,579   $26,589   $   $28,168 

 

All long-lived assets are located in Malaysia.

 

NOTE–11CONCENTRATIONS OF RISK

 

The Company is exposed to the following concentrations of risk:

 

(a)Major customers

 

For the three and nine months ended July 31, 2019 and 2018, the customers who accounted for 10% or more of the Company’s revenues is presented as follows:

 

      Three months ended July 31, 2019   July 31, 2019 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $392,781    42%   $ 
Lim Joo Soon Enterprise  Plantation Business   117,832    13%    9,562 
      $510,613    55%   $9,562 

 

 

 

 24 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

      Three months ended July 31, 2018   July 31, 2018 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $406,642    90%   $ 
Lim Joo Soon Enterprise  Plantation Business   28,291    6%     
      $434,933    96%   $ 

 

      Nine months ended July 31, 2019   July 31, 2019 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $1,178,343    84%   $ 
Lim Joo Soon Enterprise  Plantation Business   153,827    11%    9,562 
      $1,332,170    95%   $9,562 

 

      Nine months ended July 31, 2018   July 31, 2018  
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $894,110    83%   $ 
Lim Joo Soon Enterprise  Plantation Business   133,715    12%     
      $1,027,825    95%   $ 

 

All customers are located in Malaysia.

 

(b)Major vendors

 

For the three and nine months ended July 31, 2019 and 2018, 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.

 

 

 

 25 

 

 

PRIME GLOBAL CAPITAL GROUP INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED JULY 31, 2019

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

(Unaudited)

 

(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.

 

(f)Commodity price

 

The Company’s primary market risk exposure results from the price it receives for its palm oil and durian product. 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 and durian product. Pricing for palm oil and durian product 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–12COMMITMENTS AND CONTINGENCIES

 

(a)Operating lease commitment

 

As of July 31, 2019, the Company occupied its own building premises and has no future minimum rental payments due under various operating leases in the next twelve months.

 

(b)Capital commitment

 

As of July 31, 2019, the Company does not have any significant capital commitments.

 

NOTE–13SUBSEQUENT EVENTS

 

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after July 31, 2019 up through the filing date of these condensed consolidated financial statements. During the period, the Company did not have any material recognizable subsequent events.

 

 

 

 26 

 

 

ITEM 2Management’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 nine months ended July 31, 2019, 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 storey commercial building located at Geran 10010, Lot 238 Section 43, Town and District of Kuala Lumpur, Wilayah Persekutuan, Kuala Lumpur, Malaysia; and
  · 12 storey 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 nine months ended July 31, 2019:

 

   Nine months ended July 31, 2019 
   Plantation Business   Real Estate Business   Corporate   Total 
                 
Revenues from external customer  $153,827   $1,253,815   $   $1,407,642 
Inter-segment revenue       (19,478)       (19,478)
Revenues, net   153,827    1,234,337        1,388,164 
Cost of revenues   (62,401)   (486,807)       (549,208)
Gross profit   91,426    747,530        838,956 
Depreciation   6,756    351,019    5,889    363,664 
Net loss   (20,922)   83,174    (211,901)   (149,649)
Total assets   6,318,283    38,433,936    235,383    44,987,602 
Expenditure for long-lived assets  $28,881   $   $   $28,881 

 

 

 

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Challenges From Our Oil Palm Planting Operations; Durian Planting Operations;

 

The oil palm and durian 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 and durian plantation in Malaysia. We believe that the value of our oil palm and durian plantation has increased since its acquisition. 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 approximately 180 acres of our oil palm plantation land with premium durian trees. Durian trees have one or two fruiting periods per year, although the timing may vary depending on the species, cultivars, and localities. We have planted 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 used the latest planting technology in 2016 to reduce the maturity time of the durian tree from 5 years to 3 years. The durian trees planted during the first phase has begun bearing fruit, and our first major harvest occurred in July 2019. We expect the second and third phase to begin bearing fruit by 2021 and the fourth phase by 2023, at the latest.

 

Challenges From Our Real Estate Operations 

 

Commercial Buildings

 

We generate rental income from our 12 storey and 15 storey commercial properties and anticipate generating income from the sale of developed properties. As of July 31, 2019, we occupy 2 floors of our 12 storey commercial building as our corporate headquarters, 6 floors have been leased to tenants at market rate. The balance 4 floors are currently vacant and we are actively attempting to lease these 4 floors.  

 

Our 15 storey building is fully leased to Le Apple Boutique Hotel KLCC which operates a boutique hotel on the premises. The Rental Agreement had an initial term of one (1) year commenced December 1, 2018 and expiring November 30, 2019. 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-four years, for a maximum aggregate term of thirty years. The monthly rental rate shall be increased every three years at an increment rate of 5% to 10% of the current monthly rental rate, or shall be based on the prevailing market rate, whichever is lower. Our current rental rate has increased from RM400,000 to RM550,000 (approximately $131,520) from April 1, 2018.

 

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”). The MOU was terminated on February 15, 2017, pursuant to the terms of a Mutual Termination of Memorandum of Understanding (the “Termination MOU”). 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.

 

 

 

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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.

  

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.

 

We are considering applying for such money lender’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 labour, 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 July 31, 2019, compared to the three months ended July 31, 2018:

 

   Three months ended July 31, 
   2019   2018 
         
Revenues, net:  $934,464   $453,373 
Plantation business   117,832    28,291 
Real estate   816,632    425,082 
Total cost of revenues   (375,224)   (150,834)
Plantation business   (38,618)   (18,216)
Real estate   (336,606)   (132,618)
Gross profit   559,240    302,539 
General and administrative   (188,498)   (116,405)
(Loss) income from operations   370,742    186,134 
Other income/expense, net   (366,578)   (215,659)
Loss before income taxes   4,164    (29,525)
Income tax expense   (100,416)   (55,826)
NET LOSS  $(96,252)  $(85,351)

 

Comparison of the three months ended July 31, 2019 and July 31, 2018

 

Net Revenue. We generated net revenue of $934,464 and $453,373 for the three months ended July 31, 2019 and 2018, respectively. The increase in net revenue is primarily attributable to increases in our plantation and real estate revenues. The increase in plantation revenue for the quarter ended July 31, 2019, is primarily attributable to the commencement of durian sales. The increase in real estate revenue is primarily attributable to the recovery of monthly rental rate from RM400,000 to RM550,000 from our tenant of our fifteen storey building, Le Apple Boutique Hotel KLCC, effective from April 1, 2018. The monthly rental rate on Le Apple Boutique Hotel KLCC was previously decreased from our initial rental rate of RM550,000 to RM400,000 due to unfavourable market conditions.

 

 

 

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For the three months ended July 31, 2019, our plantation and real estate businesses accounted for approximately 12.6% and 87.4% of our net revenue, respectively. For the three months ended July 31, 2018, our plantation and real estate businesses accounted for approximately 6.2% and 93.8% of our net revenue, respectively.

 

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

 

During the three months ended July 31, 2019, and 2018, the following customers accounted for 10% or more of our total net revenues:

 

      Three months ended July 31, 2019   July 31, 2019 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $392,781    42%   $ 
Lim Joo Soon Enterprise  Plantation Business   117,832    13%    9,562 
      $510,613    55%   $9,562 

 

      Three months ended July 31, 2018   July 31, 2018 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $406,642    90%   $ 
Lim Joo Soon Enterprise  Plantation Business   28,291    6%     
      $434,933    96%   $ 

 

All of our customers are located in Malaysia.

 

Cost of Revenue. For the three-month period ended July 31, 2019, our cost of revenue as a percentage of net revenue was approximately 40.1% as compared to 33.3% for the same period ended July 31, 2018. Cost of plantation and real estate revenue as a percentage of their respective net revenue was approximately 32.8% and 41.2%, respectively, for the quarter ended July 31, 2019. For the three months ended July 31, 2018, cost of plantation and real estate as a percentage of their respective net revenue was approximately 64.4% and 31.2%, respectively. Cost of plantation revenue consists primarily of costs such as material supplies, subcontracting costs incurred for planting, fertilizing and harvesting the oil palm and durian trees. Transportation and handling costs associated with the distribution of fresh fruit bunches and durian fruits to the customers are also included in cost of revenues. The cost of revenue of the plantation business increased as a result of increased plantation sales. However, the cost of plantation revenue as a percentage of revenue decreased due the increased revenue received from the durian harvest. The cost of real estate revenue increased due to the increase in real estate revenue.

 

For the three months ended July 31, 2019 and 2018, no vendor accounted for 10% or more of our purchases.

 

Gross Profit. For the three months ended July 31, 2019, we achieved gross profit of $559,240 as compared to $302,539 for the three months ended July 31, 2018. For the three months ended July 31, 2019, our plantation and real estate operations accounted for approximately 14.2% and 85.8% of our gross profit, respectively. For the three months ended July 31, 2018, our plantation and real estate operations accounted for approximately 3.3% and 96.7% of our gross profit, respectively. The increase in overall gross profit is primarily attributable to higher rental income on our commercial properties and the commencement of our durian sales.

 

 

 

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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 as our premium durian orchard matures and is able to increase production of grade A fruits for distribution.

 

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $188,498 and $116,405 for the three months ended July 31, 2019, and 2018, respectively. The increase in G&A expenses is primarily attributable to the commencement of durian sales.

 

As a general matter, we expect our G&A to increase in the foreseeable future as we begin development of our real estate assets and sales of durianG&A as a percentage of net revenue was approximately 20.2% and 25.7% for the three months ended July 31, 2019 and 2018, respectively.

 

Other Expense, net. We incurred net other expense of $366,578 for the three months ended July 31, 2019, as compared to net other expense of $215,659 for the three months ended July 31, 2018. Net other expense for the three months ended July 31, 2019 and 2018 consisted primarily of interest expense from our bank loans.

 

Income Tax Expense. We recorded income tax expense of $100,416 and $55,826 for the three months ended July 31, 2019 and 2018, respectively. The increase in income tax expense is primarily attributable to higher operating profit in our real estate business. Our income tax was primarily attributable to the tax effect of non-business source rental income. 

 

Comparison of the nine months ended July 31, 2019 and July 31, 2018

 

The following table sets forth certain operational data for the nine months ended July 31, 2019, compared to the nine months ended July 31, 2018:

 

   Nine months ended July 31, 
   2019   2018 
         
Revenues, net:  $1,388,164   $1,084,291 
Plantation business   153,827    133,715 
Real estate   1,234,337    950,576 
Total cost of revenues   (549,208)   (500,133)
Plantation business   (62,401)   (58,811)
Real estate   (486,807)   (441,322)
Gross profit   838,956    584,158 
General and administrative   (288,102)   (381,979)
(Loss) income from operations   550,854    202,179 
Other income/expense, net   (552,189)   (592,780)
Loss before income taxes   (1,335)   (390,601)
Income tax expense   (148,314)   (115,820)
NET LOSS  $(149,649)  $(506,421)

 

Net Revenue. We generated net revenue of $1,388,164 and $1,084,291 for the nine months ended July 31, 2019 and 2018, respectively. The increase in net revenue is primarily attributable to the increase in our real estate revenue and an increase in our plantation revenue. The increase in plantation revenue for the nine months ended July 31, 2019, is primarily attributable to the commencement of durian sales. The primary increase in real estate revenue is attributable to the recovery of monthly rental rate from RM400,000 to RM550,000 from our tenant of fifteen story building, Le Apple Boutique Hotel KLCC, effective from April 1, 2018. The monthly rental rate on Le Apple Boutique Hotel KLCC was previously decreased from our initial rental rate of RM550,000 to RM400,000 due to unfavourable market conditions.

 

 

 

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For the nine months ended July 31, 2019, our plantation and real estate businesses accounted for approximately 11.1% and 88.9% of our net revenue, respectively. For the nine months ended July 31, 2018, our plantation and real estate businesses accounted for approximately 12.3% and 87.7% of our net revenue, respectively.

 

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

 

For the nine months ended July 31, 2019, and 2018, the following customers accounted for 10% or more of our total net revenues:

 

      Nine months ended July 31, 2019   July 31, 2019 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $1,178,343    85%   $ 
Lim Joo Soon Enterprise  Plantation Business   153,827    11%     
      $1,332,170    96%   $ 

 

      Nine months ended July 31, 2018   July 31, 2018 
   Business segment  Revenues   Percentage
of revenues
   Trade accounts
receivable
 
                
Le Apple Boutique Hotel (KLCC) Sdn. Bhd  Real estate  $894,110    83%   $ 
Lim Joo Soon Enterprise  Plantation Business   133,715    12%     
      $1,027,825    95%   $ 

 

All of our customers are located in Malaysia.

 

Cost of Revenue. For the nine months ended July 31, 2019, our cost of revenue as a percentage of net revenue was approximately 39.6% with our plantation and real estate businesses accounting for 11.4% and 88.6% of the cost of revenue. For the nine months ended July 31, 2018, our cost of revenue as a percentage of net revenue was approximately 46.1% with our plantation and real estate businesses accounting for 11.8% and 88.2% of the cost of revenue. Cost of real estate revenue in 2019 and 2018 primarily consisted of land taxes, maintenance and depreciation of the leased properties of our real estate. Cost of plantation revenue in 2019 consisted primarily of the costs related to the oil palm and durian business such as material supplies, subcontracting costs and transportation costs incurred for planting, fertilizing and harvesting the oil palm and durian trees. Shipping and handling costs associated with the distribution of fresh fruit bunches and durian fruits to the customers are also included in cost of revenues.

 

For the nine months ended July 31, 2019 and 2018, no vendor accounted for 10% or more of our purchases.

 

Gross Profit. For the nine months ended July 31, 2019, we achieved gross profit of $838,956 as compared to $584,158 for the same period ended July 31, 2018. As of July 31, 2019, our plantation and real estate businesses accounted for approximately 10.9% and 89.1%, respectively, of our gross profit. For the nine months ended July 31, 2018, our plantation and real estate operations accounted for approximately 12.8% and 87.2% of our gross profit, respectively. The increase in overall gross profit is primarily attributable to higher rental income on our commercial properties and the commencement of our durian sales.

 

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 as our premium durian orchard matures and is able to increase production of grade A fruits for distribution.

 

 

 

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General and Administrative Expenses (“G&A”). We incurred G&A expenses of $288,102 and $381,979 for the nine months ended July 31, 2019, and 2018, respectively. The decrease in G&A expenses is primarily attributable to decrease 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 20.8% and 35.2% for the nine months ended July 31, 2019 and 2018, respectively.

 

Other Expense, net. We incurred net other expense of $552,189 for the nine months ended July 31, 2019, as compared to net other expense of $592,780 for the nine months ended July 31, 2018. Net other expense for the nine months ended July 31, 2019 and 2018 consisted primarily of interest expense from our bank loans.

 

Income Tax Expense. We recorded income tax expense of $148,314 and $115,820 for the nine months ended July 31, 2019 and 2018, respectively. Our income tax was primarily attributable to the tax effect of non-business source rental income. The increase in income tax is primarily attributable to higher operating profit in our real estate business.

 

Liquidity and Capital Resources

 

As of July 31, 2019, we had cash and cash equivalents of $186,137 as compared to $186,712 as of the same period last year. Our cash and cash equivalents increased as a result of receiving a new bank loan.

 

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, and add infrastructure.

 

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.

 

   Nine months ended July 31, 
   2019   2018 
         
Net cash used in operating activities  $(21,470)  $(150,286)
Net cash used in investing activities  $(69,389)  $(86,413)
Net cash (used in)/provided by financing activities  $(232,737)  $119,886 

 

Net Cash Used In Operating Activities.

 

For the nine months ended July 31, 2019, net cash used in operating activities was $21,470, which consisted primarily of a net loss (excluding non-cash depreciation) of $214,015, a decrease in income tax payable of $163,448, a decrease in accrued liabilities and other payables of $53,124, a decrease in account payables of $10,520, offset by a increase in rental concession of $19,972 and decrease in account receivable of $18,998.

 

 

 

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For the nine months ended July 31, 2018, net cash used in operating activities was $150,286, which consisted primarily of a net loss (excluding non-cash depreciation) of $104,681, a decrease in income tax payable of $139,817 a decrease in accrued liabilities and other payables of $116,969, offset by a decrease in rental concession of $48,246 and decrease in account receivable of $162,857.

 

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 nine months ended July 31, 2019, net cash used in investing activities was $69,389, consisting of $40,508 of plantation development construction costs, and cost of purchase of property, plant and equipment of $28,881.

 

For the nine months ended July 31, 2018, net cash used in investing activities was $86,413, consisting of $58,245 of plantation development construction costs, and cost of purchase of property, plant and equipment of $28,168.

 

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 nine months ended July 31, 2019, net cash used in financing activities was $232,737, consisting primarily of proceeds from a new loan of $1,204,880, offset by repayment of $975,210 to Weng Kung Wong, our Chief Executive Officer, Interim Chief Financial Officer and Interim Secretary and director and repayments of $462,407 on outstanding bank loans.

 

For the nine months ended July 31, 2018, net cash provided by financing activities was $119,886, consisting primarily of advances of $1,037,234 from Weng Kung Wong, our Chief Executive Officer, Interim Chief Financial Officer and Interim Secretary and director, offset by repayments of $917,348 on outstanding bank loans.

 

Off-Balance Sheet Arrangements

 

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

 

Contractual Obligations and Commercial Commitments

 

We had the following contractual obligations and commercial commitments as of July 31, 2019:

 

Contractual Obligations  Total   Less than 1
Year
   1-3 Years   3-5 Years   More than 5 Years 
                     
Amounts due to related parties  $1,409,160   $86,420   $1,322,740   $   $ 
Commercial commitments                         
Bank loan repayment   15,000,865    715,901    1,559,568    1,747,336    10,978,060 
Total obligations  $16,410,025   $802,321   $2,882,308   $1,747,336   $10,978,060 

 

 

 

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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 July 31, 2019 and October 31, 2018.

 

  · 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 and orchard  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 in Kuala Lumpur, Malaysia  Indefinite, as per property titles
Building structure and improvements  Building structure of commercial buildings in Kuala Lumpur, Malaysia, including: 12 storey building “Megan Avenue” and 15 storey building  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.

 

Deferred development costs for oil palm that had been capitalized as part of freehold plantation land were not amortized over the useful life of the oil palms since these costs were not separately identifiable from the cost of freehold plantation land and buildings when the whole oil palm plantation was purchased in July 2011.

 

 

 

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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 July 31, 2019 and October 31, 2018, 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

 

Revenue recognition applicable from 1 November 2018

The Company recognizes its revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is measured based on a consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, usually upon delivery of palm oil fruit bunches and durian fruits. There are no significant payments terms, no significant financing component or any variable consideration. All of the company’s revenue from contracts with customers in the scope of ASC 606 is recognised in one geographical market in Malaysia, and one major product line, and plantation sales are transferred at a point in time.

 

Revenue recognition applicable until 31 October 2018

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.

 

 

 

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(a)Plantation sales

 

Revenue from plantation sales include the sale of palm oil fruit bunches and sale of durian. The sale is recognized upon confirmation of the weight of produces 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 July 31, 2019, sales of palm oil and durian was $117,832. For the three months ended July 31, 2018, sales of palm oil was $28,291. For the nine months ended July 31, 2019, sales of palm oil and durian was $153,827. For the nine months ended July 31, 2018, sales of palm oil was $133,715.

 

(b)Rental income

 

We generally lease the units under operating leases with terms of two years or less. For the nine months ended July 31, 2019 and 2018, we have recorded $1,234,337 and $950,576 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 July 31, 2019, 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 33%

Le Apple Boutique Hotel KLCC (fka “Menara CMY”)

15 91,848 0%

 

We expect to record approximately $1.62 million in annual lease revenue under the operating lease arrangements in the next twelve months through July 31, 2020.

 

  · 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 and durian trees. Transportation and handling costs associated with the distribution of fresh oil palm fruit bunches and durian fruits 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 and Malaysian Ringgit (“MYR”), 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
July 31,
 
   2019   2018 
         
Period-end MYR : US$1 exchange rate   4.1239    4.0559 
Period-average MYR : US$1 exchange rate   4.1308    3.9900 

 

  · 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 July 31, 2019 and 2018, 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 July 31, 2019 and October 31, 2018, 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 July 31, 2019               
Marketable securities, available-for-sale  $172,606   $   $ 
                
As of October 31, 2018               
Marketable securities, available-for-sale  $172,532   $   $ 

  

As of July 31, 2019, 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.

 

 

 

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Recent accounting pronouncements

 

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 do not anticipate that the adoption of this ASU to have a significant impact on our consolidated financial statements.

 

In February 2017, FASB issued Accounting Standards Update 2017-06; Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting (a consensus of the Emerging Issues Task Force). The amendments in this ASU requires an employee benefit plan within the scope of Topic 960,1 962,2 or 9653 to present its interest in a master trust and the change in its interest in that master trust as single line items in the statement of net assets available for benefits and the statement of changes in net assets available for benefits, respectively. In addition, the amendments update and align the disclosure requirements for an interest in a master trust across Topics 960, 962, and 965. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The amendments in the ASU should be adopted on a retrospective basis. We do not expect that adoption of this ASU to have a material effect on our consolidated financial statements.

 

In March 2017, FASB issued Accounting Standards Update 2017-08; Receivables—Non refundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shortens the amortization period for certain purchased callable debt securities held at a premium. Specifically, it requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount. The discount continues to be amortized to maturity. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2017, FASB issued Accounting Standards Update 2017-11; Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480): Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Non public Entities and Certain Mandatorily Redeemable Non controlling Interests with a Scope Exception. The guidance is intended to reduce the complexity associated with issuers’ accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, a down round feature (as defined) would no longer cause a freestanding equity-linked financial instrument (or an embedded conversion option) to be accounted for as a derivative liability at fair value with changes in fair value recognized in current earnings. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2017, FASB issued Accounting Standards Update 2017-12; Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The guidance in this ASU will result in the simplification of certain accounting requirements for hedging activities, resolve hedge accounting practice issues that have arisen under the current guidance, and better align hedge accounting with an organization’s risk management activities. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early application is permitted in any interim period after issuance of the amendments for existing hedging relationships on the date of adoption. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In December 2017, FASB issued Accounting Standards Update 2017-15; Codification Improvements to Topic 995, U.S. Steamship Entities: Elimination of Topic 995. The amendments in this ASU affect all entities that have unrecognized deferred taxes related to statutory reserve deposits that were made on or before December 15, 1992. Entities are required to recognize the unrecognized income taxes in accordance with Topic 740. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. We do not anticipate that the adoption of this ASU to have a significant impact on our consolidated financial statements.

 

 

 

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In February 2018, FASB issued Accounting Standards Update 2018-02; Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in the ASU addresses the accounting issue pertaining to the deferred tax amounts that are “stranded” in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (the Act). We do not expect that the adoption will have a material impact on our consolidated financial statements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We do not expect that the adoption will have a material impact on our consolidated financial statements.

 

In May 2018, FASB issued Accounting standards Update 2018-06; Codification Improvements to Topic 942 Financial Services – Depository and Lending which supersedes outdated guidance related to the office of the Comptroller of the Currency’s Baking Circular 202, Accounting for Net Deferred Tax Charges (Circular 202). The amendments in this update remove outdated guidance related to Circular 202 and is effective upon issuance of this update. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07—Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting which is intended to reduce cost and complexity and to improve financial reporting for nonemployee share-based payments. The amendment is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-08—Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made which clarifies and improves the scope and accounting guidance around contributions of cash and other assets received and made by not-for-profit organizations and business enterprises. The amendment is effective for fiscal years beginning after June 15, 2018 (serving as resource recipient) and December 15, 2018 (serving as resource provider), including interim periods within that fiscal year. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-09—Codification Improvements which clarifies, corrects errors in, and makes improvements to several Codification Topics, including to:

 

- Clarify when excess tax benefits should be recognized for share-based compensation awards
- Remove inconsistent guidance in income tax accounting for business combinations
- Clarify the circumstances when derivatives may be offset
- Clarify the measurement of liability or equity-classified financial instruments when an identical asset is held as an asset
- Allow portfolios of financial instruments and nonfinancial instruments accounted for as derivatives to use the portfolio exception to valuation

 

The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update. However, many of the amendments in this Update do have transition guidance with effective dates for annual periods beginning after December 15, 2018. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

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In July 2018, the FASB issued ASU 2018-10—Codification Improvements to Topic 842, Leases which clarifies and corrects unintended application of narrow aspects of the lease accounting guidance. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-11—Leases (Topic 842): Targeted Improvements which simplifies transition requirements and, for lessors, provides a practical expedient for the non separation of non-lease components from lease components if certain conditions are met. For entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update related to separating components of a contract are the same as the effective date and transition requirements in Update 2016-02. The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. The practical expedient may be applied either retrospectively or prospectively. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-12—Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts which improves financial reporting for insurance companies that issue long-duration contracts, such as life insurance, disability income, long-term care, and annuities. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application of the amendments is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which improves the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. Effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans which improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted for all entities. An entity should apply the amendments in this Update on a retrospective basis to all periods presented. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15—Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) which aligns the requirements for capitalizing implementation costs that are incurred in a hosting arrangement that is a service contract or incurred to develop or obtain internal-use software (and hosing arrangements that include an internal –use software license). This standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, for all entities. The amendments in this Update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In October 2018, FASB issued Accounting Standards Update 2018-16, Derivaties and Hedging (Topic 805): Inclusion of the Secured Overnight Financing Rate (SOFR) Overight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The ASU amends ASC 815 to add the OIS rate based on the SOFR as a fifth US benchmark interest rate. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

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In October 2018, FASB issued Accounting Standards Update 2018-17: Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. This standard expands the application of a specific private company accounting alternative related to VIEs and changes the guidance for determining whether a decision-making fee is a variable interest. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In November 2018, FASB issued Accounting Standards Update 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The ASU amends ASC 808 to clarify ASC 606 should apply in entirety to certain transactions between collaborative arrangement participants. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In November 2018, FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The ASU changes the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Thus, the effective date for such entities’ annual financial statements is now aligned with that for these interim financial statements. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.

 

In December 2018, FASB issued Accounting Standards Update 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. The amendments are designed to make lessors adoption of the new leases standard easier such as accounting policy election on sales tax, exclude variable payments for all lessor costs, and clarification on lessor costs. We are currently evaluating the impact that the standard will have on our consolidated financial statements and related disclosures.

 

In March 2019, FASB Issued Accounting Standards Update 2019-01, Leases (Topic 842): Codification Improvements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In March 2019, FASB Issued Accounting Standards Update 2019-02, Leases (Topic 842): Improvements to Accounting for Costs of Films and License Agreements for Program Materials. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In March 2019, FASB Issued Accounting Standards Update 2019-03, Not-for-Profit Entities (Topic 958): Updating the Definition of Collections (Topic 958). We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements as the ASU is applicable to not-for-profit entities.

 

In April 2019, FASB Issued Accounting Standards Update 2019-04 Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The ASU 2019-04 clarifies and improves guidance within the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments: The effective dates for amendments related to ASUs 2016-13 and 2017-12 align with the effective dates of those standards, unless an entity has already adopted one or both. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In May 2019, FASB Issued Accounting Standards Update 2019-05, Targeted Transition Relief. ASU 2019-05 provides transition relief for ASU 2016-13 (“credit losses standard”) by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard. For entities that have not yet adopted ASU 2016-13, the effective dates are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

 

 

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In May 2019, FASB Issued Accounting Standards Update 2019-06, Extending the Private Company Accounting Alternatives on Goodwill and Certain Identifiable Intangible Assets to Not-for-Profit Entities. The amendments are affective upon issuance of the ASU. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

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.

 

ITEM 3Quantitative 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 and durian fruits. 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 and durian fruits. Pricing for palm oil fruit bunches and durian fruits 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.

 

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.

 

 

 

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ITEM 4Controls 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 July 31, 2019, 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 July 31, 2019, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

 

 

 

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PART II OTHER INFORMATION

 

ITEM 1Legal Proceedings

 

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

 

ITEM 1A Risk Factors

 

Not Applicable.

 

ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

ITEM 3Defaults upon Senior Securities

 

None.

 

ITEM 4Mine Safety Disclosures

 

Not applicable.

 

ITEM 5Other Information

 

None.

 

 

 

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ITEM 6Exhibits

 

Exhibit No. Name of Exhibit
2.1 Articles of Exchange (1)
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (2)
4.1 Form of common stock certificate (1)
10.1 Tenancy Agreement, dated October 18, 2014, by and between PGCG Assets Holdings Sdn. Bhd. and Le Apple Boutique Hotel (KLCC) Sdn. Bhd. (3)
10.2 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 (4)
10.3 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 (4)
10.4 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 (4)
10.5 Letter of Offer issued by Public Islamic Bank Berhad to PGCG Assets Holdings Sdn. Bhd. effective July 10, 2018 (5)
10.6 Letter of Appointment dated July 19, 2011, by and between Union Hub Technology Sdn. Bhd. and Weng Kung Wong (6)
10.7 Escrow Agreement dated July 7, 2014, by and among Chen-Drake Law Group, P.C. Prime Global Capital Group Incorporated, and Peijin Wu Hoppe (7)
10.8 Letter of Offer issued by Public Islamic Bank Berhad to Virtual Setup Sdn. Bhd. effective March 28, 2019 (8)
14 Code of Business Conduct and Ethics (9)
21 List of Subsidiaries (10)
31.1 Certification of Certification of Chief Executive Officer and Interim Chief Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
32.1 Certification of Chief Executive Officer and Chief 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 (11)
99.2 Charter to Audit Committee (11)
99.3 Charter to Corporate Governance Committee (11)
99.4 Audit Committee Pre-Approval Procedures (7)
101.INS XBRL Instance Document*
101.SCH XBRL Schema Document*
101.CAL XBRL Calculation Linkbase Document*
101.DEF XBRL Definition Linkbase Document*
101.LAB XBRL Label Linkbase Document*
101.PRE XBRL Presentation Linkbase Document*
   
* Filed herewith.

 

  (1) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Securities and Exchange on February 22, 2011.
  (2) Incorporated by reference from Exhibit 2 to Preliminary Information Statement on Schedule 14C filed with the Securities and Exchange Commission on December 23, 2010.
  (3) 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.
  (4) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013.
  (5) Incorporated by reference from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2019.
  (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 reference from our Annual Report on Form 10-K filed with the Securities and Exchange Commission on January 29, 2016.
  (8) Incorporated by reference from our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on June 14, 2019.
  (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 Exhibit 21.1 to the Company’s Form 10-K filed with the Securities and Exchange Commission on January 30, 2018.
  (11) Incorporated by reference from our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 27, 2012.

 

 

 

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SIGNATURES

 

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

 

  PRIME GLOBAL CAPITAL GROUP INCORPORATED
   
   
  By: /s/Weng Kung Wong                                  
    Weng Kung Wong
   

Chief Executive Officer

 

 

 

Date:       September 16, 2019

 

 

 

 

 

 

 

 

 

 

 

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