PRIME GLOBAL CAPITAL GROUP INCORPORATED 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 ofthe United States . References to "MYR" are to the Malaysian Ringgit, the legal currency ofMalaysia . Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.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 three months ended
· Oil palm and durian plantation in
· 21.8921 hectares (54.10 acres) of vacant development land located in
· two parcels of undeveloped land located in
approximately 31 acres;
· 15 story commercial building located at Geran 10010, Lot 238 Section 43, Town
and District of
· 12 story commercial building located at
Razak, 50400 Kuala Lumpur, Malaysia .
The following table sets forth certain operational data for the three months
ended January 31, 2020 :
Three months ended January 31, 2020
Plantation Real Estate
Business Business Corporate Total
Revenues from external
customer $ 62,617 $ 437,418 $ - $ 500,035
Inter-segment revenue - (25,459 ) - (25,459 )
Revenues, net 62,617 411,959 - 474,576
Cost of revenues (14,956 ) (141,742 ) - (156,698 )
Gross profit 47,661 270,217 - 317,878
Depreciation 3,022 116,174 561 119,757
Net (loss) / profit (5,684 ) 52,720 (75,107 ) (28,071 )
Total assets 6,438,537 38,593,095 236,600 45,268,232
Expenditure for
long-lived assets $ 14,851 $ - $ - $ 14,851
31
Challenges From Oil Palm Planting Operations
The oil palm business is a highly regulated industry with prices subject to wide fluctuations due to factors beyond our control such as weather conditions, competition, global demand and government policies.
We focus mainly on maintenance and operation of our oil palm plantation inMalaysia . We believe that the value of our oil palm plantation has increased since its acquisition, and while we have not pursued any discussions or received any formal offers regarding the sale of our plantation, we may consider sales offers in the future if a sale would maximize return to our investors.
Challenges From Durian Planting Operations
We commenced planting of 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 with premium durian trees. We planted an average of 30 trees per acre and anticipate an average production of 35-50 grade A fruits per tree for each of the two harvesting seasons per year. Since 2016, we have used the latest planting technology to reduce the maturity time of the durian tree from 5 years to 3 years. The durian trees planted during the first phase have begun to bear fruits, and our first major harvest occurred inJuly 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 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 ofJanuary 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 of the 4 floors are currently vacant and we are actively attempting
to lease these 4 floors.
Our 15 story building is fully leased toLe Apple Boutique Hotel KLCC which operates a boutique hotel on the premises. The Rental Agreement has an initial term of one (1) year commencingDecember 1, 2018 and expiringNovember 30, 2019 . Provided that there are no existing breaches by Le Apple, we will be required to renew the lease for additional one-year terms up to twenty-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 fromRM400,000 toRM550,000 (approximately$131,520 ) fromApril 1, 2018 .
Residential Property Development
OnJune 10, 2015 , we received approval to develop our leasehold land located in Puncak Alam. Due to challenges in the current Malaysian real property market, inNovember 2015 , we submitted a request to convert some of the planned semi-detached and bungalow home parcels into cluster semi-detached homes to improve the marketability of the development. received the approval for the revised development plan onMarch 4, 2016 . 32 OnJuly 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 Company's land (the "Land") located at Puncak Alam (the "Proposed JV"). The MOU was terminated onFebruary 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, the Company intend to develop, market, promote and complete the construction on their own. Due to market forces, the Company's plan to begin construction by the end of calendar 2023, to maximize profits.
We believe that we will require approximately
OnSeptember 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 onSeptember 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 uponMalaysia'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. The real estate 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 developed properties. Results of Operations The following table sets forth certain operational data for the three months endedJanuary 31, 2020 , compared to the three months endedJanuary 31, 2019 : Three months ended January 31, 2020 2019 Revenues, net:$ 474,576 $ 445,488 Plantation business 62,617 36,399 Real estate 411,959 409,089 Total cost of revenues (156,698 ) (146,925 ) Plantation business (14,956 ) (21,183 ) Real estate (141,742 ) (125,742 ) Gross profit 317,878 298,563 General and administrative (114,659 ) (122,934 ) (Loss) income from operations 203,219 175,629 Other expense, net (174,294 ) (189,276 ) Loss before income taxes 28,925 (13,647 ) Income tax (expense) / benefit (56,996 ) (50,161 ) NET LOSS$ (28,071 ) $ (63,808 ) 33
Comparison of the three months endedJanuary 31, 2020 andJanuary 31, 2019 Net Revenue. We generated net revenue of $ and$445,488 for the three months endedJanuary 31, 2020 and 2019, respectively. The increase in net revenue is primarily attributable to the increase in our real estate revenue, offset by a decrease in our plantation revenue. The decrease in plantation revenue for the quarter endedJanuary 31, 2020 , is primarily attributable to the decrease of oil palm price. The primary increase in real estate revenue is attributable to the recovery of monthly rental rate fromRM400,000 toRM550,000 (approximately$131,520 ) from the tenant of fifteen story building,Le Apple Boutique Hotel KLCC , effective fromApril 1, 2018 . The monthly rental rate onLe Apple Boutique Hotel KLCC was previously decreased from the initial rental rate ofRM550,000 toRM400,000 due to unfavourable market conditions. For the three months endedJanuary 31, 2020 , our plantation and real estate businesses accounted for approximately 13% and 87% of the net revenue, respectively. For the three months endedJanuary 31, 2019 , our plantation and real estate businesses accounted for approximately 8.2% and 91.8% 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
Three months ended January 31, January 31,
2020 2020
Trade
Percentage accounts
Business segment Revenues of revenues receivable
87% $ -
Three months ended January 31, January 31,
2019 2019
Trade
Percentage accounts
Business segment Revenues of revenues receivable
88%$ 4,899
All of our customers are located in
Cost of Revenue. For the three-month period endedJanuary 31, 2020 , cost of revenue as a percentage of net revenue was approximately 33.0% as compared to 33% for the same period endedJanuary 31, 2019 . Cost of plantation and real estate as a percentage of their respective net revenue was approximately 23.9% and 34.4%, respectively, for the quarter endedJanuary 31, 2020 . For the three months endedJanuary 31, 2019 , cost of plantation and real estate as a percentage of their respective net revenue was approximately 58.2% and 30.7%, respectively. Cost of revenue of our oil palm plantation consists of costs such as material supplies, subcontracting costs incurred for planting, fertilizing and harvesting the oil palm tree. Transportation and handling costs associated with the distribution of fresh fruit bunches to the customers are also included in cost of revenues. The cost of revenue of the plantation business decreased due to the decrease in costs from the oil palm and durian plantation. The cost of real estate revenue increased due to the increase in the revenue of our
real estate business. 34
For the three months ended
Gross Profit. For the three months endedJanuary 31, 2020 , we achieved gross profit of$317,678 as compared to$298,563 for the three months endedJanuary 31, 2019 . For the three months endedJanuary 31, 2020 , our plantation and real estate operations accounted for approximately 15% and 85% of our gross profit, respectively. For the three months endedJanuary 31, 2019 , our plantation and real estate operations accounted for approximately 5.1% and 94.9% of our gross profit, respectively.
Once we begin real estate development, we expect gross profit derived from our
real estate business to gradually increase as we commence sales activities with
respect to our developed properties. We also expect our plantation revenue to
increase once our premium durian orchard has matured and is able to produce
grade A fruits for distribution.
General and Administrative Expenses ("G&A"). We incurred G&A expenses of
$114,659 and $122,934 for the three months ended January 31, 2020 , and 2019,
respectively. The decrease in G&A was primarily attributable to the reduced cost
of insurance and compensation, and maintenance services.
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 gross
revenue was approximately 24.2% and 27.6% for the three months ended January 31,
2020 and 2019, respectively.
Other Expense, net. We incurred net other expense of$174,294 for the three months endedJanuary 31, 2020 , as compared to net other expense of$189,276 for the three months endedJanuary 31, 2019 . Net other expense for the three months endedJanuary 31, 2020 and 2019 consisted primarily of interest expense from our bank loans. Income Tax Expense. We recorded income tax expense of$56,996 and income tax income of$50,161 for the three months endedJanuary 31, 2020 and 2019, respectively. Our income tax was primarily attributable to the tax effect of non-business source rental income. The increase in income tax expense is primarily attributable to operating profit in real estate business.
Liquidity and Capital Resources
As of
We expect to incur significantly greater expenses in the near future, including the contractual obligations that have assumed as discussed below, when development activities begin. We also expect the general and administrative expenses to increase as we expand our finance and administrative staff, and
add infrastructure. We also expect our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a large accelerated filer, including directors' and officers' insurance and increased professional fees.
As of the date of this Annual Report, we have not paid dividends on Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, do not expect to pay dividends on Common Stock in the foreseeable future.
35
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.
Three months ended January 31,
2020 2019Net cash used in operating activities (100,982 ) (117,450 ) Net cash used in investing activities (40,364 ) (28,476 ) Net cash (used in) / provided by financing activities (95,984 )
(207,174 )
For the three months endedJanuary 31, 2020 , net cash used in operating activities was$100,982 , which consisted primarily of a net income (excluding non-cash depreciation) of$91,460 , offset by an increase in income tax payable of$15,169 . For the three months endedJanuary 31, 2019 , net cash used in operating activities was$117,450 , which consisted primarily of a net income (excluding non-cash depreciation) of$56,134 , offset by a decrease in income tax payable of$172,789 . 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.
For the three months ended
For the three months ended
We expect investing cash outflows to increase when our durian plantation matures and begins to generate revenues in 2020 at the earliest. We also expect investing cash outflows to increase due to expenditures associated with developing our residential projects.
36
For the three months ended
For the three months endedJanuary 31, 2019 , net cash provided by financing activities was$207,174 , consisting primarily of repayments of$59,909 toWeng Kung Wong , our Chief Executive Officer, Interim Chief Financial Officer and Interim Secretary and director, and repayments of$147,265 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 ofJanuary 31, 2020 : Less than 1 More than
Contractual Obligations Total Year 1-3 Years
3-5 Years 5 Years
$ $ $ $ $
Amounts due to related
parties 1,719,207 86,420 1,632,787 - -
Commercial commitments Bank
loan repayment 14,754,016 742,942 1,618,583 1,813,136 10,579,355
Total obligations 16,473,223 829,362 3,251,370 1,813,136 10,579,355
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe 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. 37 · 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 atJanuary 31, 2020
andOctober 31, 2019 .
· Marketable securities at fair value
Marketable securities at fair value are reported at fair value using the market approach based on the quoted prices in active markets at the reporting date. We classify the valuation techniques that use these inputs as Level 1 of fair value measurements. 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.
We regularly evaluate whether the decline in fair value of fair-value-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 years ended October 31, 2019 , and 2018, we 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 . We entered into an escrow agreement with Peijin Wu Hoppe ("Hoppe"),
our former director, to set up an escrow fund up to $500,000 as a reserve to
indemnify Hoppe from any claim of liability until July 29, 2022 , the seventh
year anniversary of the termination of Director Retainer Agreement, or any
mutual agreement with Hoppe and us. The unrealized gain representing the change
in fair value of $14,294 and the unrealized loss of $50,830 was charged against
accumulated other comprehensive income for the years ended October 31, 2019 and 2018, respectively. · Biological assets Biological assets are measured at their fair value less costs to sell at each reporting date. The fair value is determined as the net present value of cash flows expected to be generated by these crops (including a risk adjustment factor). Where fair value cannot be measured reliably, biological assets are measured at cost.
The valuation takes into account expected sales prices, yields, picked fruit quality and expected direct costs related to the production and sale of the assets and management must make a judgment as to the trend in these factors.
38
· Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and accumulated impairment losses, if any. Depreciation is calculated on the
straight-line basis over the following expected useful lives from the date on
which they become fully operational:
Categories Location of properties Expected useful
life
Freehold plantation land Oil palm and durian plantation Indefinite, as per
and orchard in Malaysia land titles
Leasehold land under Leasehold land in Puncak Alam, Remaining lease
development Malaysia life of 88 years,
as per land titles
Freehold land under Freehold land in Sungai Long, Indefinite, as per
development Cheras, Selangor, Malaysia land titles
Freehold land and land Land portion of 15 storey Indefinite, as per
improvement for rental buildings in Kuala Lumpur, property titles
purpose commercial Malaysia
building
Building structure and Building structure of commercial 33 years
improvements buildings in Kuala Lumpur,
Malaysia, including: 12 storey
building "Megan Avenue" and 15
storey building
Office furniture and 3-10 years
equipment
Motor vehicle 5 years
Bearer plants Oil palm and durian plantation 50 years
in Malaysia
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.
Bearer plants consist of replanting costs of durian such as soil amendments,
cultivation, fertilization and purchase costs of sapling. Costs related to
durian development projects on our plantation land, are capitalized during the
sapling, developing and planting durian fruit bunches and when the harvests are
substantially available for commercial sale. The bearer plants will then
commence to be depreciated as components of plantation costs and expenses.
Deferred development costs for oil palms 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 .
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.
39
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 ofJanuary 31, 2020 andOctober 31, 2019 , 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
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 inMalaysia , and one major product line, and plantation sales are transferred at a point in time.
Revenue recognition applicable until
We recognize our revenue in accordance with ASC Topic 605, "Revenue Recognition", upon the delivery of our plantation products when: (1) title and risk of loss are transferred; (2) persuasive evidence of an arrangement exists; (3) there are no continuing obligations to the customer; and (4) the collection of related accounts receivable is probable. Our sale arrangements do not contain general rights of return. (a) Plantation sales Revenue from plantation sales include the sale of palm oil fruit bunches and sale of durian fruits. 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 endedJanuary 31, 2020 and 2019, sales from plantation was$62,617 and$36,399 , respectively. 40 (b) Rental income
We generally lease the units under operating leases with terms of two years or less. For the three months endedJanuary 31, 2020 and 2019, we have recorded$411,959 and$409,089 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 ofJanuary 31, 2020 , the commercial buildings for lease are as follows: Number of units Footage area Name of Commercial building (by floor) (square feet) Vacancy percentage Megan Avenue 12 19,987 33% Le Apple Boutique Hotel KLCC 15 91,848 0% (fka "Menara CMY") We expect to record approximately$1.62 million in annual lease revenue under the operating lease arrangements in the next twelve months through January
31, 2021. · 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 fruit bunches 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. · 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.
41
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
· 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
As of and for the period ended
January 31,
2020 2019
Period-end MYR : US$1 exchange rate 4.0916 4.0895
Period-average MYR :US$1 exchange rate 4.1242 4.1546 · 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. 42 · 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 endedJanuary 31, 2019 and 2018, we operate in two reportable operating segments
inMalaysia .
· Fair value of financial instruments
The carrying value of our financial instruments (excluding obligation under
finance lease, long-term bank loans and marketable securities at fair value):
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 ofJanuary 31, 2020 andOctober 31, 2019 , measured at fair value, grouped by the categories described above: Quoted prices Significant in active Significant other unobservable markets observable inputs inputs (Level 1) (Level 2) (Level 3) As ofJanuary 31, 2020
Marketable securities at fair value$ 186,941 $ - $ - As ofOctober 31, 2019 Marketable securities at fair value$ 186,835 $
- $ -
As of January 31, 2020 , 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 we have any assets
or liabilities measured at fair value on a non-recurring basis.
43
· Recent accounting pronouncements
InJune 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 afterDecember 15, 2019 . Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2018 . We do not expect the adoption of this ASU to have a significant impact on our consolidated financial statements. InJuly 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. InAugust 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. InAugust 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 afterDecember 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. InAugust 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 afterDecember 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. InAugust 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 afterDecember 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. 44 InAugust 2018 , the FASB issued ASU 2018-15-Intangibles-Goodwill andOther-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 theFASB 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 afterDecember 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. InOctober 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. InOctober 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. InNovember 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. InNovember 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 afterDecember 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. InDecember 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. InMarch 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 afterDecember 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. InMarch 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 afterDecember 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. InMarch 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 our consolidated financial statements as the ASU is applicable to not-for-profit entities. 45
InApril 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. InMay 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 afterDecember 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. InMay 2019 , FASB Issued Accounting Standards Update 2019-06, Extending the Private Company Accounting Alternatives onGoodwill 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. InNovember 2019 , the FASB issued Accounting Standards Update 2019-08-Compensation-Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements-Share-Based Consideration Payable to a Customer. This ASU will affect companies that issue share-based payments (e.g., options or warrants) to their customers. Similar to issuing a cash rebate to a customer, issuing a share-based payment to a customer can incentivize additional purchases. The share-based payments can also serve a strategic purpose by aligning the interests of a supplier and its customer, because the customer's additional purchases increase its investment in the supplier. For entities that have not yet adopted the amendments in Update 2018-07, the amendments in this update are effective in fiscal years beginning afterDecember 15, 2019 . We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. InNovember 2019 , the FASB issued Accounting Standards Update 2019-09-Financial Services-Insurance (Topic 944). This ASU will affect companies that issue share-based payments (e.g., options or warrants) to their customers. Similar to issuing a cash rebate to a customer, issuing a share-based payment to a customer can incentivize additional purchases. The share-based payments can also serve a strategic purpose by aligning the interests of a supplier and its customer, because the customer's additional purchases increase its investment in the supplier. The amendments in this Update are effective in fiscal years beginning afterDecember 15, 2021 . We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. [ InNovember 2019 , the FASB issued Accounting Standards Update 2019-10-Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. This ASU discusses the FASB's proposed ASU Codification Improvements to Hedge Accounting, which would clarify certain amendments made by ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, to the guidance in ASC 815 on hedging activities. The FASB issued the proposal in response to feedback and questions received from stakeholders related to their implementation of ASU 2017-12. The ASU also discusses the recent issuance of FASB ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. The ASU provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 changes some effective dates for ASU 2017-12 on hedging, ASU 2016-02 on leasing, ASU 2016-13 on current expected credit losses, and ASU 2017-04 on simplifying the goodwill impairment test. The amendments in this Update amend the mandatory effective dates Credit Losses for all entities as follows or fiscal years beginning afterDecember 15, 2019 . The effective dates for Hedging after applying this update are as follows: for fiscal years beginning afterDecember 15, 2018 . The effective dates for Leases after applying this Update are as follows for fiscal years beginning afterDecember 15, 2018 . We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. 46 InDecember 2019 , the FASB issued Accounting Standards Update 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU summarizes the FASB's recently issued Accounting Standards Update (ASU) No. 2019-12, simplifying the Accounting for Income Taxes. The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2020 . We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. InJanuary 2020 , the FASB issued Accounting Standards Update 2020-01-Investments-Equity Securities (Topic 321),Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This ASU clarifies the interaction between accounting standards related to equity securities (ASC 321), equity method investments (ASC 323), and certain derivatives (ASC815). The amendments in this Update are effective for fiscal years beginning afterDecember 15, 2020 . We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. InMarch 2020 , the FASB issued Accounting Standards Update 2020-03-Codification Improvements to Financial Instruments. The Standard is part of FASB's ongoing project to improve and clarify its Accounting Standards Codification and avoid unintended application. The items addressed are not expected to significantly affect current practice or create a significant administrative cost for most entities. The amendment is divided into issues 1 to 7 with different effective dates as follows: The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 are conforming amendments. For public business entities, the amendments are effective upon issuance of this update. For all other entities, the amendments are effective for fiscal years beginning afterDecember 15, 2019 , and interim periods within those fiscal years beginning afterDecember 15, 2020 . The amendment related to Issue 3 is a conforming amendment that affects the guidance related to the amendments in 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The effective date of this update for the amendments to Update 2016-01 is for fiscal years beginning afterDecember 15, 2019 , including interim periods within those fiscal years. For entities that have not yet adopted the amendments related to Update 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in Update 2016-13. For entities that have adopted the guidance in Update 2016-13, the amendments are effective for fiscal years beginning afterDecember 15, 2019 , including interim periods within those fiscal years. For those entities, the amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to opening retained earnings in the statement of financial position as of the date that an entity adopted the amendments in Update 2016-13. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements. We have reviewed all other recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial condition or the results of our operations.
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