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PRIME GLOBAL CAPITAL GROUP INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) 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"). However, as we issue "penny stock," as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, we are ineligible to rely on these safe harbor provisions. 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. Overview History We were incorporated in the state of Nevada on January 26, 2009, to serve as a holding company for our former smart home business, which was conducted through our former subsidiary, Home Touch Limited, a Hong Kong Special Administrative Region of China corporation, or HTL. On January 26, 2009, we acquired HTL through a share exchange transaction in which we exchanged 40,000,000 shares of our Common Stock for 10,000 shares of HTL common stock. HTL was originally organized under the name Lexing Group Limited in July 2004 and was renamed Home Touch Limited in 2005. On July 15, 2010, we effectuated a 1-for-20 reverse stock split, or the Reverse Split, of all issued and outstanding shares of the Company's Common Stock in connection with our plans to attract additional financing and potential business opportunities. As a result of the Reverse Split, our issued and outstanding shares decreased from 40,000,000 to 2,000,003. On September 27, 2010, we filed a report on Form 8-K disclosing the sale to certain accredited investors on September 21, 2010, of an aggregate of 1,500,000 shares of our Common Stock at a per share price of $0.10, or $150,000 in the aggregate, in accordance with the terms and conditions of certain subscription agreements made with such investors. The Company received net proceeds of approximately $145,000 from the sale of the shares and intends to use the net proceeds for general corporate purposes. The shares were sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. Weng Kung Wong, who was appointed our Chief Executive Officer and director on November 15, 2010, purchased 375,000 shares of our Common Stock in this transaction. Change in Control and Sale of HTL and Our Smart Home Business On November 15, 2010, we consummated the sale to certain accredited investors of an aggregate of 80,000,000 shares of our Common Stock at a per share price of $0.01, or $800,000 in the aggregate, in accordance with the terms and conditions of certain subscription agreements made with such investors. The Company received net proceeds of approximately $795,000 from the sale of the shares and intends to use the net proceeds for general corporate purposes. The shares were sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. Weng Kung Wong, our Chief Executive Officer and director, purchased an additional 12,750,000 shares of our Common Stock in this transaction. A change of control occurred in connection with the sale of such shares. David Ng and Stella Wai Yau resigned from their positions as President and Chief Executive Officer of the Company, and as Chief Financial Officer, Chief Operating Officer and Secretary of the Company effective November 15, 2010. The following individuals were appointed to serve as executive officers of the Company: Name Office Weng Kung Wong Chief Executive Officer Liong Tat Teh Chief Financial Officer Sek Fong Wong Secretary Weng Kung Wong, Liong Tat Teh and Sek Fong Wong were further appointed to serve on our board of directors. 17 -------------------------------------------------------------------------------- On December 6, 2010, we consummated a share exchange, or the Share Exchange, pursuant to which Wooi Khang Pua and Kok Wai Chai, or the UHT Shareholders, transferred to us all of the issued and outstanding shares of Union Hub Technology Sdn. Bhd., a company organized under the laws of Malaysia, or UHT, in exchange for the issuance of 16,500,000 shares of our common stock, par value $0.001 per share, or the Common Stock. The Share Exchange was made pursuant to the terms of a Share Exchange Agreement, or the Exchange Agreement, by and among, and the Company, the UHT Shareholders and UHT. As result of the Share Exchange, UHT became our wholly owned subsidiary. Wooi Khang Pua and Kok Wai Chai serve as directors of UHT. We relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under, the Securities Act of 1933, as amended, or the Securities Act, in issuing the UHT Shares. Concurrently with the Share Exchange, we sold to Up Pride Investments Limited, a British Virgin Islands limited liability company owned by David Gunawan Ng, and Magicsuccess Investments Limited, a British Virgin Islands limited liability company owned by Stella Wai Yau, all of the issued and outstanding securities of Home Touch Limited, a Hong Kong Special Administrative Region of China corporation, or HTL, for cash consideration of $20,000. In connection with the sale, Mr. Ng and Ms. Yau, our former founders and executive officers, resigned from their positions on our board of directors. Our smart home business was conducted through HTL, and as result of the sale, we ceased our smart home business operations. The sale of HTL securities was made pursuant to the terms of a Common Stock Purchased Agreement, or the Common Stock Purchase Agreement, by and among the Company, HTL, Up Pride Investments Limited and Magicsuccess Investments Limited. We relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under, the Securities Act of 1933, as amended, or the Securities Act, in selling the HTL securities. On January 25, 2011, we changed our name to Prime Global Capital Group Incorporated and increased our authorized capital to 1,000,000,000 shares of common stock and 100,000,000 shares of preferred stock from 100,000,000 shares of common stock and 10,000,000 shares of preferred stock. Effective January 25, 2011, we changed our fiscal year end from March 31 to October 31. On February 8, 2011, we sold an aggregate of 400,000,000 shares of our common stock, par value $0.001 (the "Shares"), at a per share price of $0.01, or $4,000,000 in the aggregate, to 19 of our existing accredited stockholders in accordance with the terms and conditions of certain subscription agreements made with such investors (the "Subscription Agreements"). Weng Kung Wong, our Chief Executive Officer and director, participated in the transaction and purchased 32,300,000 shares of our common stock on the same terms and conditions as the other stockholders. The Subscription Agreements contain terms and conditions that are normal and customary for a transaction of this type. The Company received net proceeds of approximately $3,989,000 from the sale of the Shares, which will be used for general corporate purposes. The Shares were sold pursuant to the exemption provided by Section 4(2) of the Securities Act of 1933, as amended and Regulation D promulgated thereunder. On April 21, 2011, the Company entered into an employment agreement (the "Agreement", and collectively, the "Agreements")) with each of its Chief Executive Office, Chief Financial Officer and Corporate Secretary (collectively the "Executives"). Each Agreement has an initial term of two years, which expires on April 20, 2013. Thereafter each Agreement automatically renews for subsequent one-year periods unless otherwise terminated pursuant to the terms of the Agreement. Pursuant to the Agreements, the Company shall pay the Executives an annual base salary in an aggregated amount of $360,000. The base salary shall be payable in shares of the Company's common stock at a per share price equal to the volume weighted average closing price (or if no closing price is available, the average of the bid and asked prices per share reported on a consolidated basis on the principal stock exchange or market on which the security is then traded) of the Company's common stock during the ten trading days immediately preceding the end of each fiscal quarter. Such shares shall be delivered as soon as practicable after the end of each such fiscal quarter. 18 --------------------------------------------------------------------------------Current Business Segments We operate in two business segments: (i) the design, development and operation of one or more technologies which enable a community of users to engage in social networking, research and e-commerce on a mobile platform, or the m-commerce business; and (ii) the distribution of consumer goods such as high-end timepieces to distributors, independent retailers and individual end-users. In July 2010, we launched our business operations and began developing, servicing and distributing software products to third parties as a means of generating revenue. Our consumer goods distribution business was launched in October 2010. We conduct both our software development and distribution and product distribution businesses through UHT. We are also actively seeking business opportunities in the castor oil and palm oil industries with a focus on the acquisition, lease or management of existing castor oil and palm oil plantations located in Asia. We have identified one or more castor oil plantations and are in discussions regarding a possible acquisition and or business venture. We hope to consummate an acquisition or business venture with one or more castor oil or palm oil plantations during the third or fourth quarter of our fiscal year. Upon the consummation of such acquisition or business venture, we expect to scale back our m-commerce business and focus on the operations of the castor oil or palm oil business. We are not parties to any binding agreements or commitments regarding any such acquisition or business venture, and there can be no assurance that we will be able to successfully consummate such acquisition or business venture. Results of Operations Comparison of the three months ended April 30, 2011 to the three months ended April 30, 2010 The following table shows our revenues by type for the three months ended April 30, 2011 compared to the three months ended April 30, 2010. For the Three Months Ended April 30, $ % 2011 2010 Change Change Net Revenues $ 496,456 $ - $ $496,456 NM Software sales 487,662 - 487,662 0% Product sales 8,794 - 8,794 NM Cost of revenue 117,865 - 117,865 NM Gross profit 378,591 - 378,591 NM General and administrative expenses 146,211 132 146,079 NM Other expense 496 - 496 NM Income tax expense 64,559 - 64,559 NM Net income (loss) 167,325 (132) 167,457 NM *NM means not meaningful Revenue. In July 2010, we commenced our business operations with the sale of software products and, in October 2010, with the distribution of luxury consumer products such as high-end timepieces. As a result, we generated net revenue of $496,456 for the three months ended April 30, 2011 with software sales accounting for $487,662, or 98.2% of net revenues, and product sales accounting for $8,794, or 1.8% of net revenues. We did not generate any revenues for the three months ended April 30, 2010. Prior to the launch of our business operations in July 2010, we were a development stage company with minimal revenues. Cost of Revenue. Our cost of revenue for the three-month period ended April 30, 2011 was $117,865 as compared to $0 for the same period in 2010. Cost of revenue as a percentage of net revenue was approximately 23.7% for the three months ended April 30, 2011, as compared to 0% for the same period in 2010. The increase is primarily attributable to the operation of our software and product distribution businesses. Cost of revenue consisted primarily of software purchases from Gaeawave Sdn. Bhd., which is controlled by Kok Wai Chai, a director of UHT, in the amount of $97,623 (or approximately 82.8% of the cost of revenue), product costs and costs of labor that are directly attributable to the sale of software and luxury consumer products. 19 -------------------------------------------------------------------------------- Gross Profit. We achieved a gross profit of $378,591 for the three months ended April 30, 2011, as compared to $0 for the same period in 2010. The increase is attributable to the sale of our software products to a single customer during the three months ended April 30, 2011. General and Administrative Expenses ("G&A"). We incurred G&A expenses of $146,211 for the three months ended April 30, 2011, representing an increase of $146,079, as compared to $132 for the three months ended April 30, 2010. The increase in G&A is primarily attributable to stock based compensation to our Executives in the amount of $10,000 and the operation of our software and product distribution businesses during the three months ended April 30, 2011. As of April 30, 2011, we are committed to issue 53,022 shares of our common stock to the Executives. G&A as a percentage of net revenue was 29.5% for the three months ended April 30, 2011. Other Expense. We incurred other expenses of $496 for the three months ended April 30, 2011, as compared to $0 for the three months ended April 30, 2010. The increase in other expense is attributable primarily to interest incurred in connection with financing the purchase of a motor vehicle on or about the commencement of our business operations. Income Tax Expense. We recorded income tax expenses of $64,559 for the three months ended April 30, 2011, as compared to $0 for the three months ended April 30, 2010. The increase is primarily attributable to the revenue generated from the operation of our software and product distribution businesses in the three months ended April 30, 2011. Tax expense as a percentage of income before income tax was approximately 27.8% for the three months ended April 30, 2011. Comparison of the six months ended April 30, 2011 to the six months ended April 30, 2010 The following table shows our revenues by type for the six months ended April 30, 2011 compared to the six months ended April 30, 2010. For the Six Months Ended April 30, $ % 2011 2010 Change Change Net Revenues $ 1,240,461 $ - $ 1,240,461 NM Software sales 487,984 - 487,984 NM Product sales 752,477 - 752,477 NM Cost of revenue 704,114 - 704,114 NM Gross profit 536,347 - 536,347 NM General and administrative expenses 256,538 175 256,363 NM Other expense 981 - 981 NM Income tax expense 88,497 - 88,497 NM Net income (loss) 190,331 (175) 190,506 NM *NM means not meaningful Revenue. In July 2010, we commenced our business operations with the sale of software products and, in October 2010, with the distribution of luxury consumer products such as high-end timepieces. As a result, we generated net revenue of $1,240,461 for the six months ended April 30, 2011 with software sales accounting for $487,984, or 39.3% of net revenues, and product sales accounting for $752,477, or 60.7% of net revenues. We did not generate any revenues for the six months ended April 30, 2010. Prior to the launch of our business operations in July 2010, we were a development stage company with minimal revenues. 20 -------------------------------------------------------------------------------- Cost of Revenue. Our cost of revenue for the six-month period ended April 30, 2011 was $704,114 as compared to $0 for the same period in 2010. Cost of revenue as a percentage of net revenue was approximately 56.8% for the six months ended April 30, 2011, as compared to 0% for the same period in 2010. The increase is attributable to the operation of our software and product distribution businesses. Cost of revenue consisted primarily of software purchases from Gaeawave Sdn. Bhd., which is controlled by Chai Kok Wai, a director of UHT, in the amount of $97,623 (or approximately 13.9% of the cost of revenue), other software purchase costs from unrelated parties, product costs and costs of labor that are directly attributable to the sale of software and luxury consumer products. Gross Profit. We achieved a gross profit of $536,347 for the six months ended April 30, 2011, as compared to $0 for the same period in 2010. The increase is attributable to the operation of our software and product distribution businesses during the six months ended April 30, 2011. General and Administrative Expenses ("G&A"). We incurred G&A expenses of $256,538 for the six months ended April 30, 2011, representing an increase of $256,363, as compared to $175 for the six months ended April 30, 2010. The increase in G&A is primarily attributable to stock based compensation to our Executives in the amount of $10,000 and the operation of our software and product distribution businesses during the six months ended April 30, 2011. As of April 30, 2011, we are committed to issue 53,022 shares of our common stock to the Executives. G&A as a percentage of net revenue was 20.7% for the six months ended April 30, 2011. Other Expense. We incurred other expenses of $981 for the six months ended April 30, 2011, as compared to $0 for the six months ended April 30, 2010. The increase in other expense is attributable primarily to interest incurred in connection with financing the purchase of a motor vehicle on or about the commencement of our business operations. Income Tax Expense. We recorded income tax expenses of $88,497 for the six months ended April 30, 2011, as compared to $0 for the six months ended April 30, 2010. The increase is primarily attributable to the revenue generated from the operation of our software and product distribution businesses in the six months ended April 30, 2011. Tax expense as a percentage of income before income tax was approximately 31.7% for the six months ended April 30, 2011. Liquidity and Capital Resources Sources of Liquidity. We generated net income of $190,331 for the six months ended April 30, 2011. To date, we have financed our operations through private placements of our common stock which are summarized below: Private Placement Transactions Gross Proceeds Sale of 999,998 UHT shares of $323,760 common stock on 9/30/2010 Sale of 1,500,000 shares of the $150,000 Company's common stock on 9/27/2010 Sale of 80,000,000 shares of the $800,000 Company's common stock on 11/15/2010 Sale of 400,000,000 shares of the $4,000,000 Company's common stock on 2/8/2011 Total: $5,273,760 Net Cash Provided By Operating Activities. For the six months ended April 30, 2011, net cash provided by operating activities was $380,273 which consisted primarily of net income of $190,331, a decrease in accounts receivable of $106,506 and an increase in income tax payables of $88,497, offset by a decrease in accounts payable and accrued liabilities of $22,380 and an increase of deposits and other receivables of $10,262. For the six months ended April 30, 2010, net cash provided by operating activities was $166, which consisted of net loss of $175 and an increase in accounts payable and accrued liabilities of $341. Net Cash Used in Investing Activities. For the six months ended April 30, 2011, net cash used in investing activities was $1,037,451, $969,022 of which was used to purchase of marketable securities and $68,429 of which was used to purchase of plant and equipment. Our portfolio of marketable securities consist of securities listed on the Bursa Malaysia and are selected and managed internally by management. We did not engage in investing activities for the three months ended April 30, 2010. 21-------------------------------------------------------------------------------- Net Cash Provided By Financing Activities. For the six months ended April 30, 2011, net cash provided by financing activities was $4,843,544, consisting primarily of $4,800,000 from the sale of our common stock, $47,835 of advances from Mr. Wong, our Chief Executive Officer and director, and offset by payments of $4,291 on a finance lease. During the comparable period ended April 30, 2010, net cash used in financing activities was $628, consisting solely of repayments to Mr. Wong of previously made advances. Funding Requirements. We expect to incur greater expenses, including expenses related to the hiring of sales personnel and the establishment of international offices in the near future. We expect that our general and administrative expenses will also increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being a public company, including directors' and officers' insurance, investor relations programs, and increased professional fees. Our future capital requirements will depend on a number of factors, including the timing of future business acquisitions, if any, the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property rights, the acquisition of strategic partnerships, the status of competitive products, the availability of financing, and our success in developing markets for our products and services. We believe that the net proceeds from our recent private placement transactions, together with our existing cash, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements through the end of the first calendar quarter of 2012. We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, especially if we acquire one or more businesses or choose to expand our product development efforts more rapidly than we presently anticipate. In addition, we may decide to raise additional funds even before we need them if the conditions for raising capital are favorable. In such event, we may finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We may also seek to sell additional equity or debt securities or obtain one or more credit facilities. We do not currently have any commitments for future external funding. 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. 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. Use of estimates In preparing these 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. 22 --------------------------------------------------------------------------------Basis of consolidation The consolidated financial statements include the financial statements of PGCG and its wholly owned subsidiary. All significant inter-company balances and transactions within the Company have been eliminated. 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. Marketable securities, available-for-sale These marketable securities are classified as available-for-sale and are recorded at their fair market values with the corresponding unrealized holding gains or losses, recorded as a separate component of other comprehensive income within stockholders' equity. The fair value of marketable securities is determined based on quoted market prices at the balance sheet dates. Realized gains and losses are determined by the difference between historical purchase price and gross proceeds received when the marketable securities are sold. The Company uses quoted prices in active markets for identical assets (consistent with the Level 1 definition in the fair value hierarchy) to measure the fair value of its investments on a recurring basis pursuant to the ASC Topic 820. Plant and equipment 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: Expected useful life Motor vehicle 5 years Expenditure for maintenance and repairs is expensed as incurred. The gain or loss on the disposal of 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. Impairment of long-life assets Long-lived assets primarily include plant and equipment. In accordance with ASC Topic 360-10-5, "Impairment or Disposal of Long-Lived Assets," the Company periodically reviews its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. 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 any periods presented. Finance leases Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company's normal depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, "Imputation of Interest". 23 --------------------------------------------------------------------------------Revenue recognition Revenues from the sale of software products are recognized and billed upon delivery of the product provided that persuasive evidence of an arrangement exists, collection is probable, payment terms are fixed or determinable and no significant obligations remain, in accordance with ASC Topic 605, "Revenue Recognition". (a) Software sales The Company generally sells the software products under multiple element arrangements at the fixed fee, based upon the customers' specifications or modifications, bundled with maintenance and support service for a certain period of time. Maintenance and support service consists of technical support and software upgrades and enhancements. The Company allocates the total arrangement fee among each element based on vendor-specific objective evidence of the relative fair value of each of the elements. The Company limits its assessment of fair value of each element to the price charged when the same element is sold separately. If the fair value of each element in a multiple element arrangement cannot be reliably determined, and if the fair value of any undelivered element cannot also be reliably determined, all revenue under the arrangement is deferred until such time as the only remaining undelivered element is maintenance and support, at which time revenue is recognized over the remaining maintenance and support service period. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue, assuming collection is probable. For the billed software product sales, the revenue from the undelivered element is included in deferred revenue and amortized ratably to revenue over its contractual term, typically one year. The Company generally offers product warranty and post-contract customer support ("PCS") to its customers for a period of twelve months, free of charge. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. (b) Product sales The Company also earns the revenue from trading of luxury goods. Revenue is recognized when title passes to the customer, which is generally when the product is delivered, assuming no significant Company obligations remain and the collection of relevant receivables is probable. Income taxes Income taxes are determined in accordance with the provisions of ASC Topic 740, "Income Taxes" ("ASC 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 years 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. 24 --------------------------------------------------------------------------------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. Stock based compensation The Company accounts for employee stock-based compensation in accordance with ASC Topic 718, "Compensation - Stock Compensation" which requires to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. 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. 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): cash, deposits and other receivables, deferred revenue, income tax payable, amount due to a director, accounts payable and accrued liabilities 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 approximate the carrying amount. The Company also follows the guidance of 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 Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 25 --------------------------------------------------------------------------------Recent Accounting Pronouncements The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does 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. |