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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
x  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2011
 
o  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]

For the transition period from ____________ to ____________
 
Commission file number 026573
 
PHYSICAL PROPERTY HOLDINGS INC.
(Exact name of issuer in its charter)
 
DELAWARE
 
98-0203281
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
23/F AIA Tower,
No. 183 Electric Road, North Point
Hong Kong
(Address of principal executive offices)
 
(011) (852) 2917-0000
(Registrant's telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x    No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   Yes x No  o

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

Large accelerated filer   o
Accelerated filer   o
Non-accelerated filer   o
Smaller reporting company  x

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 26, 2012 was $495 as computed by reference to the price at which the common equity was last sold, which was $0.0001 on August 24, 2011.

The number of shares outstanding of the registrant's common stock as of March 26, 2012: 28,329,353 shares, $.001 Par Value.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

PART I
   
     
3
     
8
     
8
     
9
     
PART II
   
     
9
     
9
     
9
     
12
     
13
     
25
     
25
     
25
     
PART III
   
     
26
     
27
     
29
     
29
     
29
     
PART IV
   
     
30
     
 
31
 
 
PART I

WE HAVE MADE FORWARD-LOOKING STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K. SHAREHOLDERS AND PROSPECTIVE SHAREHOLDERS SHOULD UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE FORWARD-LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE, THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE FORWARD LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.


BACKGROUND OF THE COMPANY

Physical Property Holdings Inc. (formerly known as Physical Spa & Fitness Inc.) (the “Company”), through its predecessor companies and its subsidiaries, had been an established commercial operator of fitness and spa centers in Hong Kong and China since 1986.
 
The Company was incorporated on September 21, 1988 in the state of Delaware under the name of "Foreclosed Realty Exchange, Inc", a development stage company seeking acquisitions with no material assets or liabilities. Prior to acquisition of Physical Beauty & Fitness Holdings Limited, a British Virgin Islands corporation ("Physical Limited"), the Company had no revenue producing operations, but planned to enter into joint ventures and/or acquisitions originally in the area of real estate, to expand its operations. In October, 1996, the Company closed a transaction with Ngai Keung Luk (“Mr. Luk”), a 100% shareholder of Physical Limited, whereby the Company entered into a Share Exchange Agreement with Mr. Luk, pursuant to which the Company issued 8,000,000 pre-split (6,000,000 post-split) shares of its Common Stock to Mr. Luk in exchange for all of the outstanding shares of Physical Limited (the "Closing").  At the Closing, the then current management of the Company resigned and was replaced by the current management of the Company.

On October 31, 2006, the Company entered into two material definitive agreements: (a) a Share Exchange Agreement (the “Share Exchange Agreement”) with Mr. Luk, the Chairman, CEO, and a majority shareholder of the Company, pursuant to which Mr. Luk agreed to transfer 100% of the shares which he owned of Ableforce International Limited, a British Virgin Islands corporation (“Ableforce”), to the Company in exchange for the issuance by the Company to Mr. Luk of 12,000,000 shares of common stock, $0.001 par value, and the issuance of an additional 3,328,070 shares of common stock as the repayment of amounts due to Mr. Luk on Ableforce’s books and records as of September 30, 2006, or a total of 15,328,070 shares of common stock.  Ableforce is primarily engaged in the real estate business in Hong Kong, and through Good Partner Limited, its wholly-owned subsidiary, owns five residential apartments that it leases to tenants; and (b) a Disposal Agreement  (the “Disposal Agreement”), with Mr. Luk, pursuant to which the Company agreed to transfer to Mr. Luk the sole outstanding common shares of Physical Limited, which is a holding company for subsidiaries that operate fitness and spa centers located in Hong Kong and the People’s Republic of China (including one in Macau), in exchange for the indemnification of the Company by Mr. Luk for all liabilities associated with the operations and assets of Physical Limited.  The transactions contemplated by the Share Exchange Agreement were consummated on February 5, 2007 and the transactions contemplated by the Disposal Agreement were consummated on February 27, 2007.  As a result of the transactions contemplated by the Disposal Agreement, including the sale of the stock of Physical Limited, the Company is no longer engaged in the fitness and spa center business, and owns and operates residential apartments.   In addition, the Company changed its name to Physical Property Holdings Inc. on March 5, 2007.  Reference is made to a Definitive Information Statement on Schedule 14C, which was filed with the Commission on February 2, 2007 for additional details concerning these matters.

The Company continued to engage in the spa and fitness business during the first quarter of fiscal 2007, until February 27, 2007, when the transactions contemplated by the Disposal Agreement were consummated.
 

On February 5, 2007, the transactions contemplated by the Share Exchange Agreement were consummated, resulting in the Company’s acquisition of all of the issued and outstanding shares of common stock of Ableforce. As discussed above, Ableforce, through its wholly-owned subsidiary Good Partner Limited, owns five residential apartments located in Hong Kong.
 
The Company had twenty-seven subsidiaries organized under the laws of Hong Kong, Mainland China, Macau and the British Virgin Islands until the closing of the Disposal Agreement on February 27, 2007. At such time, it had and currently has two subsidiaries, which are Ableforce International Limited and its wholly-owned subsidiary Good Partner Limited.  Ableforce is organized and existing under the laws of the British Virgin Islands, and Good Partner is organized and existing under the laws of Hong Kong.
 
In accordance with the requirements of the Statement of Financial Accounting Standards No. 141 and indication from SEC staff as referred to in EITF Abstracts Issue No.02-05, the acquisition of the stock of Ableforce pursuant to the Share Exchange Agreement has been accounted for as a merger of the Company with Ableforce since the business combination was effected through the transfer of assets to the Company in a share exchange.
 
In accordance with the requirements of generally accepted accounting practices, the transactions accomplished by the Disposal Agreement have been accounted for in the accounting records of the Company as a contribution from the majority stockholder.  As a result, the Company recorded a credit to additional paid-in capital to the extent that the consideration received by the Company relating to these transactions was higher than the net book values of these assets as reflected in the accounting records of the Company as at the date of the Disposal Agreement.

THE COMPANY'S BUSINESS

BUSINESS DEVELOPMENT

Upon consummation of the two definitive agreements as mentioned above, the Company engages in the business of buying, investing in, selling, renovating, and renting real estate, exclusively in the Hong Kong SAR of the People’s Republic of China. The Company has never been the subject of any bankruptcy or receivership proceeding. It has had no material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets except the purchase of five residential units located in The Metropolis Residence, No. 9 Metropolis Drive, Hunghom, Hong Kong.
 
THE APARTMENTS AT THE METROPOLIS RESIDENCE

The properties were acquired on September 8, 2003 at a total consideration of HK$12,435,000, with an average purchase price of approximately HK$2.5 million for each unit. They have been held for investment purposes.

Currently all of the five units have been leased for a term of two years. Monthly rentals vary from HK$15,000 to HK$16,000.  The tenants have a variety of occupations, including merchants and senior executives.

The units are managed by Citybase Property Management Ltd., which is a wholly-owned subsidiary of Cheung Kong (Holdings) Limited, an unrelated public company listed on the Hong Kong Stock Exchange.

OVERVIEW OF MARKET AREA

The properties occupy a preeminent position in the Kowloon traffic hub. They are located opposite to the Mass Transit Railway Station in Hunghom, providing the tenants with convenient access to other Kowloon districts and Mainland China.
 
The city of Hunghom is one of the four sub-districts of the Kowloon City District in Hong Kong, which lies on the outskirts of Kowloon peninsula, near the exit of the Cross Harbour Tunnel.  The estimated population of Kowloon City District in 2011 was approximately 0.4 million, and the estimated population of Hong Kong in 2011 was approximately 7.1 million.

The economy in the Company’s primary market area enjoys the presence of large employers such as Hutchison Estate Agents Limited, a member of the Hutchison Whampoa Property Group. Other employment and economic activity is provided by The Cross-Harbour Tunnel, The Hong Kong Polytechnic University, and a variety of wholesale and retail trade businesses.

The Company estimated that total floor area under potential development to the Hunghom district could reach at least 4 million square feet including the area of The Metropolis Residence. The development could be a complex consisting of an exhibition stadium, shopping mall, hotel, and office which collectively maximize the opportunities of business between Hong Kong and Mainland China. However, there is no assurance that such plan will be implemented.

These market factors form the setting in which the Company plans to execute its business model.
 

THE COMPANY’S PLAN TO ACQUIRE OTHER RENTAL PROPERTIES

The Company’s business plan is to buy more rental properties that management believes are undervalued, compared to their cash flows and estimated resale value. Its strategy is to identify rental properties with a favorable purchase price relative to their market value, as well as positive cash flow. The Company plans to buy properties primarily to lease to residential tenants.  It is prepared to make some improvements to its properties, so that it can increase occupancy, improve cash flows, and enhance potential resale value.

The success of the Company will be dependent upon implementing its plan of operations and the risks associated with its business plans. The Company operates primarily in the Hong Kong SAR of the People’s Republic of China. It plans to strengthen its position in this market. It also plans to expand its operations through its acquisition and improvement of real estate.

The Company presently owns five residential rental units in the Metropolis Residence. The Chairman of the Company, Mr. Luk, has previously owned and operated other residential real estate properties, and he is also the Chairman of Physical Beauty & Fitness Holdings Limited, a company that leases premises for the provision of spa and fitness facilities to the public. He has experience in the real estate business. The Company anticipates that it will continue to locate and negotiate for the purchase of additional properties. It hopes to acquire additional real estate in the next 12 months, and to utilize the proceeds from the resale of those properties, along with their revenues, to pay its operating costs for the next twelve months; however, there are no assurances that this revenue will be sufficient to cover the Company’s operating costs. Accordingly, if its revenues are not sufficient, the Company will rely upon capital infusions from Mr. Luk, however, there are no assurances that Mr. Luk will have sufficient funds to provide such capital infusions. He has made no assurance of the minimum or maximum he could provide.
 
The Company plans to acquire a critical mass of residential real estate properties first, and then consider entry on an opportunistic basis into other segments of the real estate market, such as the office market or the industrial/office market.

PROPERTY LOCATION PROCEDURES

The Company plans to conduct a preliminary analysis that consists of:
 
 
Reviewing real estate sales information provided by local realtor associations.  The information that would weigh in favor of proceeding with a property acquisition would be:
 
º  
High volume of real estate sales within the specific area
º  
New schools, major commercial developments and employment opportunities in the area
º  
Improved regional and city roads in the area
º  
Existing and proposed mass transit links to the area
º  
Low crime in the area

The information that would weigh against the Company’s proceeding with a property acquisition would be:

º  
Hazardous waste in the area
º  
High crime in the area
º  
Overcrowding in the area
º  
Rental market saturation in the area

The data that it analyzes to determine whether to purchase properties are:
 
 
Demographic data that suggests increased demand in a specific area. The data that would weigh in favor of the Company’s proceeding with a purchase would be:
 
º  
Increase in industrial activity such as a major corporation moving into the area creating new jobs and increasing residential housing demand
º  
Increase in the population’s median income levels for a certain area
º  
The character and form of existing building developments and open spaces in the area and the connectivity with adjacent districts or regions
º  
Planning and urban design objectives and outlook for the area
º  
Strong economic growth in the area

 
Demographic data that would weigh against a purchase would be:
 
º  
Migration of industrial companies outside the area
º  
Decrease in income levels
º  
Inadequate or no available mass transit to the area
 

 
In order to determine and evaluate the fastest growing areas, the Company will obtain reports on area development plans from local governments or agencies, statistics from real estate surveys and housing growth forecasts for the area. The Company will then study this detailed information to determine where the best areas of growth are likely to develop.

DETAILED MARKET AND FINANCIAL ANALYSIS

The Company will perform detailed market and financial analysis regarding each property it decides to review for purchase so as to determine whether the specific location is appropriate for acquisition and development.  That detailed information will include the following:
 
 
Number of properties on the market.
 
Number of properties sold in the past 12 months.
 
Sales prices asked per property.
 
Sales price sold per property.
 
Total square footage and acreage per property
 
Total number of units per property.
 
Total number of pending closings per property.
 
PURCHASE PROCEDURES

Once the Company has located a property that it may want to purchase, it will ascertain whether the owner is willing to sell the property. The Company will then negotiate a purchase price and ask the following questions of the prospective seller and/or obtain answers from third parties:
  
 
When does the owner want to sell and close?  Favorable conditions the Company will look for regarding this factor are:
 
º  
The seller is willing and able to sell within a six-month period.
º  
Typically, the timing and motivation of sellers to enter into contract to sell may include several factors such as: estate planning, gifts to family, age, health and other personal factors.
 
 
How much will the owner sell the property for?  Favorable conditions the Company will look for regarding this factor are:
 
º  
The price is below market value. The Company determines market value through appraisals and comparable sales reports in the area.
º  
With respect to price, the Company would also consider value trends, such as historical yearly increases in property values.
 
 
Are there any defects on the title?  Favorable conditions the Company will look for regarding this factor are:
 
º  
No liens and/or encumbrances.
º  
The buyer is able to deliver a clean title within the time the Company would like to close.
 
 
Does the seller have title insurance on the property?  Favorable conditions the Company will look for regarding this factor are:
 
º  
The seller has title insurance on the property.
º  
The seller is able to secure title insurance on the property.
º  
The Company would be able to obtain title insurance on the purchased property.

The Company will obtain the following documents from the seller during its due diligence on the property:
 
 
General maps;
 
Environmental reports;
 
Copies of existing zoning maps and regulations;
 
Land and/or building inspection procedures and reports;
 
Proposed zoning regulations;
 
Deeds;
 
Title insurance; and
 
Tax bills.
 
 
The Company will then verify the accuracy of these documents and determine how the information contained in the documents impacts the property that it is considering to purchase.

THE COMPANY’S FINANCING PROCEDURES

The Company will seek to obtain financing from local banks doing business within the area where it is attempting to purchase property. The Chairman, Mr. Luk, has, in the past, personally guaranteed repayment of debt for property purchases along with necessary corporate guarantees, and the Company plans to use such guarantees in the future, if necessary; however, there are no assurances that Mr. Luk, or the Company, will be in a financial position to do so.  Despite the fact that Mr. Luk has confirmed in writing his intention to provide financial support to maintain the Company as a going concern, the Company does not have any written agreements now or in the past with Mr. Luk, obligating him to guarantee repayment of future debt or any other obligations.  Mr. Luk is not otherwise under any legal obligation to provide the Company with capital. The Company hopes to leverage the property with a financial institution or private lender so that funds are available for additional purchases, based on using the property as collateral.
 
The procedures for obtaining financing are as follows:

1.
File loan application.
2.
Credit checks, property appraisal done.
3.
Loan documents drafted.
4.
Down payment made that is typically approximately 30% of the appraised value.
5.
Institution lends funds for the balance, less certain transaction fees that are typically between approximately 2 to 3%.
6.
A lien is then filed with the appropriate recorder’s office.

There are no assurances that the Company’s financing procedures will be adequate to secure the funds needed to sustain its operations.

DISTRIBUTION

The Company has no distribution agreements in place with anyone.  It plans to sell the properties it acquires primarily through direct selling efforts involving established real estate brokers and property managers and corporations that may have a need for residential and/or commercial real estate.  The Company plans to contract with real estate brokers, sub-contractors and other agents to assist in it on a project-by-project basis.

NEW PRODUCTS OR SERVICES

The Company currently has no new products or services announced to the public.  It will make public announcements in the future upon entering into material contracts to acquire any new real estate projects.

COMPETITIVE BUSINESS CONDITIONS

The Company faces significant competition both in acquiring rental properties and in attracting renters.  The Company’s primary market area of residential multi-family unit rentals is highly competitive, and the Company faces direct competition from a significant number of landlords, many with a local or regional presence and, in some cases, an international presence.  Many of these landlords are significantly larger and have greater financial resources than the Company.  The Company’s competition for renters comes from newer apartment complexes as well as older apartment buildings.

In addition, the Company faces significant competition from home builders and land developers, because some renters have moved out of the rental market into single-family homes due to recent mortgage interest rates, which have reached lows in some cases. Throughout Hong Kong and Mainland China there are over 10 major land developers. These developers have greater financial resources than the Company and are better poised for market retention and expansion than the Company is. Specifically, the Company’s competition with regional and international homebuilders is as follows:

Cheung Kong (Holdings) Limited – Owns the largest residential-style hotel with close to 5,000 hotel suites in the Hunghom district.
Henderson Land – Founded in 1976, it is one of the largest producers of new homes in Hong Kong.
Sun Hung Kai Properties – Incorporated in 1972, it has established itself as Hong Kong’s largest producer of private homes.

These regional and international homebuilders purchase land or lots of vacant land parcels to build multi-family buildings, housing condominiums and apartments, often in connection with nearby shopping centers and commercial buildings. These homebuilders have substantial resources to enable them to buy the land and build multi-family buildings for resale.
 

These builders engage in new construction and have greater financial resources than the Company does.  In addition, these companies have greater operational resources because they are able to perform a variety of development tasks themselves.  These companies purchase vacant land tracts and perform all the work necessary to construct the buildings, such as land clearing and road development and then construct the buildings themselves. In contrast, the Company does not have the financial or operational resources to perform these tasks. These regional and international builders are better equipped to acquire tracts of land equipped with these capabilities due to their operational and financial superiority over the Company.

The Company has no competitive advantages over any of the individuals and/or companies against whom it competes. It has significantly less capital, assets, revenues, employees and other resources than its local and/or national competition.  There are no barriers to entry into this market.

INTELLECTUAL PROPERTY

At present, the Company does not have any patents, trademarks, licenses, franchises, concessions, and royalty agreements, labor contracts or other proprietary interests.

GOVERNMENT REGULATION ISSUES

None.

RESEARCH AND DEVELOPMENT

The Company has spent no funds on research and development.

EMPLOYEES

Presently, the Company has no employees, other than its Chairman, Mr. Luk. It does not have an employment agreement with Mr. Luk. The Company does not anticipate hiring any additional employees in the next 12 months.


As mentioned above, the Company controls five residential units located in The Metropolis Residence, No. 9 Metropolis Drive, Hunghom, Hong Kong. They are rental units.

The Company’s office occupies space at 23/F, AIA Tower, No. 183 Electric Road, North Point, Hong Kong.   The Company reimbursed HK$324,000 (US$42,000) respectively in the year 2011 and 2010, to Global Fitness Management Limited (“Global”) for its share of office rental, equipment, clerical staff and general support.  Global is a company owned by Mr. Luk.  

Management believes that the existing facility of the Company is adequate to meet its current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms, although there is no assurance that future terms would be as favorable as the current terms.


There are no pending material legal proceedings to which the Company or any of its properties is subject, nor to the knowledge of the Company, are any such legal proceedings threatened, except as described below.
 
On or about October 22, 2007, the Securities and Exchange Commission (the “SEC”) sent a “voluntary request letter” seeking certain information and documents about the Company and another company known as Score One, Inc, in connection with an investigation into alleged spam e-mail campaigns and potential securities fraud violations.

Subsequently, on or about January 11, 2008, the SEC sent a subpoena to the Company for additional information and documents concerning the Company and Score One, Inc. in furtherance of its investigation into potential spam e-mail campaigns and securities fraud violations.  Management of the Company  retained counsel and responded to the subpoena.
 
On or about September 16, 2010, the SEC sent a letter to the Company in which they stated that they intended to institute an administrative proceeding against the Company, pursuant to Section 12(j) of the Exchange Act to determine whether it is appropriate to suspend or revoke the registration of the Company’s securities.  

On February 1, 2011, the SEC filed a complaint in US District Court, Eastern District of Michigan, Southern District, SEC v. Gregg M.S. Berger, et al., for securities fraud involving spamming stock, pump and dump schemes, misleading press releases, violation of numerous SEC rules governing the issuance of S-8 stock, misleading reverse mergers, etc.  The Company and its officers and directors were not named as defendants in the case.
 


Not applicable.

PART II


The Company's Common Stock is currently a grey market stock with the symbol PPYH, which trades only sporadically. As of December 31, 2011, the 52-week trading range was $0.0001 to $0.0001 per share. The last reported sale was on August 24, 2011 at $0.0001 per share. The reported sporadic sales in the fiscal year 2011 are set forth below. Grey market stocks are not traded or quoted on an exchange or interdealer quotation system, but are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites.

Date
 
High
 
Low
Jan – Mar 2011
 
0.0001
 
0.0001
Apr – Jun 2011
 
0.0001
 
0.0001
Jul – Sep 2011
 
0.0001
 
0.0001
Oct – Dec 2011
 
0.0001
 
0.0001
         
Jan – Mar 2010
 
0.0001
 
0.0001
Apr – Jun 2010
 
0.0001
 
0.0001
Jul – Sep 2010
 
0.0001
 
0.0001
Oct – Dec 2010
 
0.001
 
0.0001
[SOURCE: Reuters]

As of March 26, 2012, there were approximately 507 shareholders of the Company's Common Stock.

DIVIDEND POLICY

The Company has never paid any cash dividends on its Common Stock and does not anticipate paying any cash dividends in the future. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business.

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES

None.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.


Not applicable.


The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

Overview

On February 5, 2007, the Company acquired all of the issued and outstanding shares of common stock of Ableforce International Limited, a British Virgin Islands corporation (“Ableforce”).  Ableforce, through its wholly-owned subsidiary Good Partner Limited, owns five residential apartments located in Hong Kong.  
 

RESULTS OF OPERATIONS

Subsequent to entering into and consummation of the two material definitive agreements as mentioned above, the Company’s principal activities changed from fitness and spa businesses to properties investments.
 
The following table sets forth selected income data as a percentage of total operating revenue for the periods indicated.

   
Years Ended December 31,
   
2011
   
2010
 
             
Operating revenues
   
100.00%
     
100.00%
 
                 
Total operating expenses
   
137.96%
     
155.69%
 
                 
Loss from operations
   
(37.96%
)
   
(55.69%
)
                 
Loss before income taxes
   
(62.75%
)
   
(83.66%
)
                 
Provision for income taxes
   
0.00%
     
0.00%
 
                 
Net loss
   
(62.75%
)
   
(83.66%
)
 
FISCAL YEAR ENDED DECEMBER 31, 2011 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2010

OPERATING REVENUES. Operating revenues for the fiscal year ended December 31, 2011 totaled HK$835,000 (US$107,000) compared to HK$765,000 the previous year. This represented an increase of 9% mainly due to the rental increases for three of the properties.

OPERATING EXPENSES. The Company's operating expenses totaled HK$1,152,000 (US$147,000), or 138% of operating revenues, for the fiscal year ended December 31, 2011, compared to HK$1,191,000, or 156% of operating revenues, for the year of 2010. This represented a decrease of HK$39,000 (US$6,000), or 3%, mainly resulting from professional fees incurred in the previous year in relation to communication with the SEC regarding a potential administrative proceeding as mentioned in Item 3 of Part I.

TOTAL NON-OPERATING EXPENSES. Total non-operating expenses for the fiscal year ended December 31, 2011 totaled HK$207,000 (US$27,000) compared to HK$214,000 in 2010. This represented a decrease of 3% due to reduction in interest expenses attributable to the decrease in average loan balances as a result of the progress on repayment.

PROVISION FOR INCOME TAXES. The Company did not make any tax provision for the fiscal year ended December 31, 2011 in view of the losses incurred.

NET LOSS AND TOTAL COMPREHENSIVE LOSS. The Company has recorded a net loss and total comprehensive loss of HK$524,000 (US$67,000) for the fiscal year ended December 31, 2011, compared to a net loss and total comprehensive loss of HK$640,000 for 2010.  This represented a decrease of HK$116,000 (US$15,000) mainly due to the increase in rental income and less payment for professional fees in 2011 than 2010, as mentioned above.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations primarily through cash generated from operations and long-term bank loans.

Cash and cash equivalent balances for the fiscal years ended December 31, 2011 and December 31, 2010 were HK$24,000 (US$3,000) and HK$14,000, respectively.

Net cash used in operating activities were HK$168,000 (US$22,000) and HK$297,000 for fiscal years 2011 and 2010, respectively, which mainly resulted from the net loss incurred.
 
Net cash provided by financing activities, which mainly included net advance from a stockholder and settlement of bank loans, were HK$178,000 (US$23,000) and HK$289,000 for fiscal years 2011 and 2010, respectively.

During the fiscal year ended December 31, 2011, the Company did not enter into any transactions using derivative financial instruments or derivative commodity instruments and did not hold any marketable equity securities of publicly traded companies.
 
 
Consistent with the general practice of lessors of residential apartments, the Company generally receives monthly rentals that are due on the first day of each billing period and are non-refundable. This practice creates working capital that the Company generally utilizes for working capital purposes.

The Company’s trade receivable balance was HK$12,000 (US$2,000) as of December 31, 2011, which was due by a tenant for late payment. The Company obtains rental deposits from its tenants and has never experienced any significant problems with collection of accounts receivable.

Capital expenditures for fiscal years 2011 and 2010 were HK$Nil, respectively.

Management believes that cash flow generated from the operations of the Company, the tight cost and cash flow control measures, the existing credit facilities and the financial support from the Principal Stockholder, who has confirmed his intention to make available adequate funds to the Company as and when required to maintain the Company as a going concern, should be sufficient to satisfy the working capital requirement of the Company for at least the next 12 months.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Note 3, “Summary of Significant Accounting Policies” of Notes to Consolidated Financial Statements in this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition and impairment assessment on property, plant and equipment. Management considers these policies critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The management has reviewed these critical accounting policies and related disclosures.

Revenue recognition

Revenue represents rental income in connection with the leasing of five residential apartments located in Hong Kong, of which five tenants accounted for 100% of the total revenue for the years ended December 31, 2011 and 2010.

Rental income is recognized when the properties are let out and on the straight-line basis over the lease term.

NEW ACCOUNTING PROUNCEMENTS

In December 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (ASU) 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements on its financial position. This includes the effect or potential effect of rights of offset associated with an entity’s recognized assets and recognized liabilities and require improved information about financial instruments and derivative instruments that are either (1) offset in accordance with Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 915-10-45. The amendments are effective for annual reporting periods beginning on or after January 1, 2013 and retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. The Company believes that the adoption of ASU 2011-11 will not have any impact on the Company's consolidated results of operation and financial condition.
 
 

The operations of the Company are solely in Hong Kong and they are subject to risks associated with, among others, interest rate and liquidity risk. These risks have similar considerations and risks typically associated with investments in the real estate market of the United States and Western European countries. These are described further in the following:

INTEREST RATE RISK

The Company’s exposure to the risk of changes in market interest rates relates primarily to its long term debt obligations with a floating interest rate.  The Company monitors the movement of interest rates on an ongoing basis and evaluates the exposure of its debt obligations.

LIQUIDITY RISK

The Company’s financial statements have been prepared on a going concern basis. For the year ended December 31, 2011, the Company reported a negative working capital of HK$11,304,000, of which HK$8,996,000 of the bank loan principals would be due for repayment over one year according to the latest repayment terms notices issued by the bank, a net loss of HK$524,000 and net cash used in operations of HK$168,000, respectively. The Company has relied on private financing from the Principal Stockholder of the Company, who has confirmed his intention to make available adequate funds to the Company as and when required to maintain the Company as a going concern. However, there can be no assurance that the financing from him will be continued. The accompanying financial statements do not include or reflect any adjustments that might result from the outcome of these uncertainties.
 


The consolidated financial statements of the Company required to be included in Item 8 are set forth below.
 

 
 
To the Board of Directors and Stockholders of
Physical Property Holdings Inc.
 
We have audited the accompanying consolidated balance sheets of Physical Property Holdings Inc. (a Delaware Corporation) and its subsidiaries (collectively, the “Company”) as of December 31, 2011 and 2010 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the two-year period ended December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011, in conformity with United States generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 (b) to the financial statements, the Company had a negative working capital as of December 31, 2011 and incurred loss for the year then ended, which raised substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3 (b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Mazars CPA Limited
MAZARS CPA LIMITED
Certified Public Accountants
Hong Kong

Date:  March 26, 2012

 
Physical Property Holdings Inc. and Subsidiaries


     
Year ended December 31,
     
2011
   
2011
   
2010
 
 
Note
 
US$’000
   
HK$’000
   
HK$’000
 
Operating revenues
                   
Rental income
     
107
     
835
     
765
 
                           
Operating expenses
                         
Rent and related expenses
     
(12
)
   
(97
)
   
(92
)
Depreciation
     
(44
)
   
(344
)
   
(344
)
Other selling and administrative expenses
     
(91
)
   
(711
)
   
(755
)
                           
Total operating expenses
     
(147
)
   
(1,152
)
   
(1,191
)
                           
Loss from operations
     
(40
)
   
(317
)
   
(426
)
                           
Non-operating expenses
                         
Interest expenses
     
(27
)
   
(207
)
   
(214
)
                           
Total non-operating expenses
     
(27
)
   
(207
)
   
(214
)
                           
Loss before income taxes
     
(67
)
   
(524
)
   
(640
)
                           
Provision for income taxes
6
   
-
     
-
     
-
 
                           
Net loss and total comprehensive loss
     
(67
)
   
(524
)
   
(640
)
                           
Loss per share of common stock (in cents) - Basic and diluted
     
(0.24
)
   
(1.85
)
   
(2.26
)
                           
Weighted average number of shares of common stock outstanding
     
28,329,353
     
28,329,353
     
28,329,353
 
 
The financial statements should be read in conjunction with the accompanying notes.
 
 
Physical Property Holdings Inc. and Subsidiaries


     
As of December 31,
 
     
2011
   
2011
   
2010
 
  Note  
US$’000
   
HK$’000
   
HK$’000
 
ASSETS
                   
                     
Current assets
                   
Cash and bank balances
     
3
     
24
     
14
 
Management fees and utility deposits
     
3
     
24
     
24
 
Trade receivables
     
2
     
12
     
13
 
                           
Total current assets
     
8
     
60
     
51
 
                           
Bank deposits, collateralized
     
11
     
82
     
82
 
Property, plant and equipment, net
4
   
1,308
     
10,205
     
10,549
 
                           
Total assets
     
1,327
     
10,347
     
10,682
 
                           
LIABILITIES AND STOCKHOLDERS' EQUITY
                         
                           
Current liabilities
                         
Bank loans
5
   
1,225
     
9,555
     
10,102
 
Other payables
7
   
33
     
258
     
247
 
Due to Principal Stockholder
9
   
199
     
1,551
     
826
 
                           
Total current liabilities
     
1,457
     
11,364
     
11,175
 
                           
Commitments and contingencies
8
                       
                           
Stockholders' deficit
                         
Common stock, par value of US$0.001 each, 100 million shares of stock authorized; 28,329,353 shares of stock issued and outstanding
     
28
     
221
     
221
 
Additional paid-in capital
     
9,437
     
73,608
     
73,608
 
Accumulated losses
     
(9,595
)
   
(74,846
)
   
(74,322
)
                           
Total stockholders’ deficit
     
(130
)
   
(1,017
)
   
(493
)
                           
Total liabilities and stockholders' deficit
     
1,327
     
10,347
     
10,682
 
 
The financial statements should be read in conjunction with the accompanying notes.

 
Physical Property Holdings Inc. and Subsidiaries


   
Year ended December 31,
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
Cash flows from operating activities:
                 
Net loss
   
(67
)
   
(524
)
   
(640
)
                         
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation
   
44
     
344
     
344
 
                         
Changes in working capital:
                       
Trade receivables
   
-
     
1
     
(13
)
Management fees and utility deposits
   
-
     
-
     
(1
)
Other payables
   
1
     
11
     
13
 
                         
Net cash used in operating activities
   
(22
)
   
(168
)
   
(297
)
                         
Cash flows from financing activities:
                       
Repayment of bank loans
   
(70
)
   
(547
)
   
(537
)
Net advance from a stockholder
   
93
     
725
     
826
 
                         
Net cash provided by financing activities
   
23
     
178
     
289
 
                         
Net increase (decrease) in cash and cash equivalents
   
1
     
10
     
(8
)
                         
Cash and cash equivalents at beginning of year
   
2
     
14
     
22
 
                         
Cash and cash equivalents at end of year, represented by cash and bank balances
   
3
     
24
     
14
 
 
The financial statements should be read in conjunction with the accompanying notes.

 
Physical Property Holdings Inc. and Subsidiaries


   
Common stock
   
Additional
paid in
capital
   
Accumulated
losses
   
Accumulated
other
comprehensive
losses
   
Total
 
   
Number
   
HK$’000
   
HK$’000
   
HK$’000
   
HK$’000
   
HK$’000
   
US$’000
 
                                           
Balance (Deficit) as of January 1, 2010
   
28,329,353
     
221
     
73,608
     
(73,682
)
   
-
     
147
     
19
 
                                                         
Net loss
   
-
     
-
     
-
     
(640
)
   
-
     
(640
)
   
(82
)
                                                         
Balance (Deficit) as of December 31, 2010
   
28,329,353
     
221
     
73,608
     
(74,322
)
   
-
     
(493
)
   
(63
)
                                                         
Net loss
   
-
     
-
     
-
     
(524
)
   
-
     
(524
)
   
(67
)
                                                         
Balance (Deficit) as of December 31, 2011
   
28,329,353
     
221
     
73,608
     
(74,846
)
   
-
     
(1,017
)
   
(130
)
 
The financial statements should be read in conjunction with the accompanying notes.

 
Physical Property Holdings Inc. and Subsidiaries

 
1.            ORGANIZATION AND PRINCIPAL ACTIVITIES

Physical Property Holdings Inc. (“Physical Property”) was incorporated on September 21, 1988 under the laws of the United States of America.  Physical Property was incorporated with authorized share capital of 100 million shares of common stock with par value of US$0.001 each.  Approximately 83% of Physical Property’s issued and outstanding common stock is held by a stockholder (the "Principal Stockholder").  Physical Property is a U.S. public company and is currently a grey market stock that is not traded or quoted on an exchange or interdealer quotation system because there are no market makers in its stock. Physical Property and its subsidiaries are collectively referred to as the Company.

The Company is engaged in the real estate business by holding five residential apartments in Hong Kong, from which 100% of the Company’s income was generated through rents paid by the tenants for the years ended December 31, 2011 and 2010.
 
2.            BASIS OF PRESENTATION

The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

The financial statements are presented in Hong Kong dollars, which is the Company’s functional currency, because the Company’s operations are primarily located in Hong Kong. For illustrative purposes, the exchange rate adopted for the presentation of financial information as of and for the year ended December 31, 2011 has been made at HK$7.8 to US$1.00. No representation is made that the HK$ amount could have been, or could be, converted into United States Dollars at that rate on December 31, 2011 or at any other date.

The Company has evaluated subsequent events after the balance sheet date of December 31, 2011 through the date this annual report is filed.
 
3.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)           Principles of consolidation
 
The consolidated financial statements include the financial information of Physical Property and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.

b)           Preparation of financial statements
 
The Company had negative working capital of HK$11,304,000 as of December 31, 2011 and incurred losses of HK$524,000 and HK$640,000 for the years ended December 31, 2011 and 2010 respectively. These conditions raised substantial doubt about the Company’s ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon attaining profitable operations in the future, exercising tight cost and cash flow controls measures, and the financial support from the Principal Stockholder. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Principal Stockholder has undertaken to make available adequate funds to the Company as and when required to maintain the Company as a going concern. Having taken into consideration the undertaking provided by the Principal Stockholder, management believes that the Company will be able to settle its liabilities when they become due. However, there can be no assurance that the financing from the Principal Stockholder will be continued.

c)           Property, plant and equipment and depreciation
 
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss.
 
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.  Expenditure incurred after the assets have been put into operation, such as repair and maintenance expenses, is normally recognized as an expense in the period in which it is incurred.  In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets, the expenditure is capitalized.
 

When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of operations.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives from the date on which they become fully operational and after taking into account their estimated residual values, using the straight-line method at the following rates per annum:

Leasehold land held under long-term lease
Over the lease term
Buildings
20 to 50 years
 
The Company recognizes an impairment loss on property, plant and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets.

d)           Cash equivalents

The Company considers all short-term, highly liquid investments with an original maturity date of three months or less to be cash equivalents.

e)           Revenue recognition
 
Revenue represents rental income in connection with the leasing of five residential apartments located in Hong Kong, of which five tenants accounted for 100% of the total revenue for the years ended December 31, 2011 and 2010. The Company’s leases are regarded as operating leases where substantially all the rewards and risks of ownership of assets remain with the leasing company and are accounted for as operating leases.

Rental income is recognized when the properties are let out and on the straight-line basis over the lease term.
 
f)           Income taxes
 
The Company accounts for income tax under the provision of Accounting Standards Codification (“ASC”) Topic 740. Provision for income and other related taxes have been provided in accordance with the tax rates and laws in effect in the various places of operations.

The Company provides for deferred income taxes using the liability method, by which deferred income taxes are recognized for all significant temporary differences between the tax and financial statements bases of assets and liabilities.  The tax consequences of those differences are classified as current or non-current based upon the classification of the related assets or liabilities in the financial statements.

g)           Related parties
 
Parties are considered to be related if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests, those parties are related parties. Another party is also a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. Related parties include an enterprise and its principal owners, management or members of their immediate families.
 
h)           Loss per share

Basic loss per share exclude dilution and are computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the periods.

Diluted loss per share are computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding adjusted to reflect potentially dilutive securities.  There were no potentially dilutive securities outstanding during any of the years and, accordingly, basic and diluted loss per share are the same.
 

h)           Uses of estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.  Actual amounts could differ from those estimates.
 
i)           New accounting pronouncements

In December 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (ASU) 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities”. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements on its financial position. This includes the effect or potential effect of rights of offset associated with an entity’s recognized assets and recognized liabilities and require improved information about financial instruments and derivative instruments that are either (1) offset in accordance with Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 915-10-45. The amendments are effective for annual reporting periods beginning on or after January 1, 2013 and retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. The Company believes that the adoption of ASU 2011-11 will not have any impact on the Company's consolidated results of operation and financial condition.

4.           PROPERTY, PLANT AND EQUIPMENT, NET
 
   
As of December 31,
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                         
Land and buildings
   
1,601
     
12,488
     
12,488
 
Leasehold improvement
   
38
     
300
     
300
 
     
1,639
     
12,788
     
12,788
 
Less: Accumulated depreciation
   
(331
)
   
(2,583
)
   
(2,239
)
                         
Net book value
   
1,308
     
10,205
     
10,549
 
 
The above property, plant and equipment are held for use under operating leases to third party tenants for the years ended December 31, 2011 and 2010.
 
5.           BANK LOANS
 
The bank loans are repayable on demand upon request at the bank’s discretion. As of December 31, 2011, 2010 and the date of these financial statements, no repayment other than the monthly progress repayments was demanded and the outstanding loan balances as of December 31, 2011 and 2010 are analyzed as follows:

End of maturity
Interest rate
 
Principal
 
     
2011
   
2011
   
2010
 
     
US$’000
   
HK$’000
   
HK$’000
 
                           
2026
2.1% per annum
   
1,225
     
9,555
     
10,102
 
 
Payables during the following periods according to bank repayment terms notices
 
Principal
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                   
2012 / 2011
   
72
     
559
     
547
 
2013 / 2012
   
73
     
570
     
559
 
2014 / 2013
   
75
     
583
     
570
 
2015 / 2014
   
76
     
595
     
582
 
2016 / 2015
   
78
     
607
     
595
 
Thereafter
   
851
     
6,641
     
7,249
 
                         
     
1,225
     
9,555
     
10,102
 
 
 
As the bank loans are repayable on demand upon request at the bank’s discretion, regardless of the expected repayment dates of the outstanding loan principals as set out in the repayment terms notices issued by the bank, the entire balance as at December 31, 2011 is presented as current liabilities in the consolidated balance sheet.
 
The collaterals of the bank loans include:

(i)  
leasehold properties in Hong Kong with a net book value of HK$10,075,000;
(ii)  
fixed deposits of HK$82,000; and
(iii)  
joint and several guarantee provided by Mr. Luk and his spouse.

6.           INCOME TAXES
 
Under the provision of ASC Topic 740, the Company has analyzed its filing position in the jurisdictions where it is subject to income taxes. The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they are domiciled and operate. As of December 31, 2011 and 2010, the Company has identified its operations in the United States and Hong Kong are subject to income taxes. Based on the evaluations noted above, no income taxes have been provided for as the Company has incurred losses for taxation purposes in the years ended December 31, 2011 and 2010. 
 
Reconciliation from the statutory tax rate in Hong Kong is as follows:
 
   
Year ended December 31,
 
   
2011
   
2010
 
   
%
   
%
 
             
Statutory rate
   
16.5
     
16.5
 
Non-deductible expenses
   
(15.7
)
   
(14.4
)
Valuation allowance in respect of net operating losses
   
(1.1
)
   
(2.3
)
Valuation allowance in respect of temporary differences
   
0.3
     
0.2
 
                 
Effective rate
   
-
     
-
 
 
Since the Hong Kong subsidiary incurred losses for Hong Kong profits tax purposes, no provision for current tax has been made for the years ended December 31, 2011 and 2010. As of December 31, 2011 and 2010, the Company has operating losses carry forward in respect of Hong Kong subsidiaries of HK$277,000 (US$35,000) and HK$240,000, respectively.

Recognized deferred tax assets (liabilities) comprised of the following:

   
As of December 31,
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                   
Deductible temporary differences in respect of property, plant and equipment
   
2
     
13
     
15
 
Operating losses carry forward
   
6
     
46
     
40
 
Valuation allowance (Note)
   
(8
)
   
(59
)
   
(55
)
                         
Net deferred tax liabilities
   
-
     
-
     
-
 
 
Note:
Valuation allowance was made for deferred tax assets arisen from tax benefit in respect of deductible temporary differences amounting to HK$81,000 (US$10,000) and HK$91,000 as of December 31, 2011 and 2010, respectively and tax losses carried forward amounting to HK$277,000 (US$35,000) and HK$240,000 as of December 31, 2011 and 2010, respectively, as it is more likely than not that the assets will not be realized. The net change in valuation allowance for the year ended December 31, 2011 and 2010 was an increase of HK$4,000 (US$500) and HK$36,000 (US$5,000), respectively.
 

7.           OTHER PAYABLES
 
   
As of December 31,
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                   
Deposits received
   
20
     
154
     
148
 
Other creditors
   
13
     
104
     
99
 
                         
     
33
     
258
     
247
 
 
8.           COMMITMENTS AND CONTINGENCIES

Operating lease commitment

The Company leases out its properties under operating leases with average lease terms of two years. The future aggregate minimum rental receivables under non-cancellable operating leases are as follows:

   
As of December 31,
 
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                   
Within 2012 / 2011
   
101
     
785
     
628
 
Within 2013 / 2012
   
32
     
251
     
320
 
                         
     
133
     
1,036
     
948
 
 
Potential administrative proceeding

On or about October 22, 2007, the Securities and Exchange Commission (the “SEC”) sent a “voluntary request letter” seeking certain information and documents about the Company and another company known as Score One, Inc, in connection with an investigation into alleged spam e-mail campaigns and potential securities fraud violations.

Subsequently, on or about January 11, 2008, the SEC sent a subpoena to the Company for additional information and documents concerning the Company and Score One, Inc. in furtherance of its investigation into potential spam e-mail campaigns and securities fraud violations.  Management of the Company retained counsel and responded to the subpoena.
 
On or about September 16, 2010, the SEC sent a letter to the Company in which they stated that they intended to institute an administrative proceeding against the Company, pursuant to Section 12(j) of the Exchange Act to determine whether it is appropriate to suspend or revoke the registration of the Company’s securities.  

On or about February 1, 2011, the SEC filed a complaint in US District Court, Eastern District of Michigan, Southern District, SEC v. Gregg M.S. Berger, et al., for securities fraud involving spamming stock, pump and dump schemes, misleading press releases, violation of numerous SEC rules governing the issuance of S-8 stock, misleading reverse mergers, etc.  The Company and its officers and directors were not named as defendants in the case.

Other than the above, as of December 31, 2011 and 2010, the Company had no other material outstanding commitments and contingencies.

9.           RELATED PARTY TRANSACTIONS

During the years ended December 31, 2011 and 2010, a related company that is controlled by the Principal Stockholder of the Company provided office space and general support for the Company’s activities with an aggregate charge of HK$324,000 (US$42,000), respectively.
 
 
In addition, during the years ended December 31, 2011 and 2010, the Company has net advance from the Principal Stockholder of HK$725,000 (US$93,000) and HK$826,000, respectively. The movements of the amount due to the Principal Stockholder, which is unsecured, interest-free and repayable on demand, are analyzed as follows:

   
Year ended December 31,
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                   
Balance as of January 1
   
106
     
826
     
-
 
                         
Advance from the Principal Stockholder
   
93
     
725
     
857
 
Repayment to the Principal Stockholder
   
-
     
-
     
(31
)
                         
Net advance from the Principal Stockholder
   
93
     
725
     
826
 
                         
Balance as of December 31
   
199
     
1,551
     
826
 
 
10.        SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
   
Year ended December 31,
   
2011
   
2011
   
2010
 
   
US$’000
   
HK$’000
   
HK$’000
 
                         
Cash paid for:
                       
Interest expenses
   
27
     
207
     
214
 
 
11.         STOCK OPTION PLAN
 
The Company has a Stock Option Plan (the “Plan”) which was adopted by the Company’s stockholders and its Board of Directors on April 23, 1997. Under the Plan, the Company may issue incentive stock options, non-qualified options, restricted stock grants, and stock appreciation rights to selected directors, officers, advisors and employees of the Company.  A total of 500,000 shares of Common Stock of the Company are reserved for issuance under the Plan.  Stock options may be granted as non-qualified or incentive options.  Incentive stock options may not be granted at a price less than the fair market value of the stock as of the date of grant while non-qualified stock options may not be granted at a price less than 85% of the fair market value of the stock as of the date of grant.  The plan will be administered by an option committee which is to be composed of two or more disinterested directors of the Board of Directors (the “Committee”).  The option can be exercised during a period of time fixed by the Committee subject to the condition that no option may be exercised ten years after the date of grant or three years after death or disability, whichever is later.  As of the date of this report, no stock options have been granted by the Company under the Plan.

 

None.


(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures (as defined under Rule 13a-15(e) or 15d-15(e) under the Exchange Act) were effective as of December 31, 2011.

(b) Management's Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2011 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and in accordance with the interpretive guidance issued by the SEC in Release No. 34-55929. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2011.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

(c) Changes in internal controls.

There were no changes in internal control over financial reporting during the quarter ended December 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


None.

PART III


Directors and Executive Officers

The officers and directors of the Company, their ages and present positions held with the Company are as follows:

NAME
 
AGE
 
POSITIONS WITH THE COMPANY
         
Ngai Keung Luk
 
55
 
Chairman of the Board of Directors, Chief Executive Officer
         
Yuk Wah Ho
 
56
 
President and Director
         
Darrie Lam
 
48
 
Chief Financial Officer and Secretary, Director
         
Yat Ming Lam
 
54
 
Director
         
Allan Wah Chung Li
 
54
 
Director
 
The following is a brief summary of the background of each director and executive officer of the Company:

NGAI KEUNG LUK, CHIEF EXECUTIVE OFFICER, CHAIRMAN. Mr. Luk has been the Chairman of the Board of Directors and Chief Executive Officer of the Company since October, 1996. He is the founder of its predecessor companies and brings to the Company over twenty years' experience in the real estate market. Since 1986, Mr. Luk has been a member of the Board of Directors of the Physical Group, a chain of fitness and beauty centers in Hong Kong, China and Macau.  Mr. Luk contributes to the Board of Directors his overall business experience managing companies doing business throughout China. Mr. Luk is a controlling shareholder of the Company and beneficially owns approximately 82.52% of the Company's Common Stock.

YUK WAH HO, PRESIDENT, DIRECTOR. Ms. Ho has been a Director of the Company since October, 1996.   Since 1986, Ms. Ho has been a member of the Board of Directors of the Physical Group, a chain of fitness and beauty centers in Hong Kong, China and Macau.  Ms. Ho contributes to the Board of Directors her 25 years of experience of managing and working with companies whose operations are based in Hong Kong.  Ms. Ho is currently responsible for the business development of the Company. She is the wife of Mr. Luk.

DARRIE LAM, CHIEF FINANCIAL OFFICER, SECRETARY, DIRECTOR.  Ms. Lam has been a Vice-President and Secretary of the Company since October, 1996 and was appointed as Chief Financial Officer in July, 2005. Ms. Lam is a fellow member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Chartered Association of Certified Accountants (UK). She is responsible for the Company's secretarial affairs, finance and administration functions. Ms. Lam received an MBA degree from the University of Manchester, U.K.  Ms. Lam’s extensive experience in accounting and corporate finance has led the Board of Directors to conclude that she has the requisite qualifications to serve as a director of the Company and facilitate its continued growth.

YAT MING LAM, DIRECTOR. Mr. Lam has been a Director of the Company since August, 1997. In the recent years, Mr. Lam has run his own business in China.  He has also been a consultant in the fields of real estate and business strategy.  Mr. Lam’s experience in executive management oversight has led the Board of Directors to conclude that he has the varied expertise necessary to serve as a director of the Company.

ALLAN WAH CHUNG LI, DIRECTOR. Mr. Li has been a Director of the Company since June, 1998. Mr. Li is a solicitor qualified to practice law in Canada, England and Hong Kong. He had practiced law in Vancouver, Toronto and Hong Kong for ten years and also worked for the Listing Division of the Stock Exchange of Hong Kong. He received B.Comm. and L.L.B degrees from the University of British Columbia, Canada. Mr. Li is currently serving as a vice-president of a company listed in Hong Kong.  Mr. Li’s expertise and experience in managing the legal operations of many listed companies has led the Board of Directors to conclude that he has the background and skills necessary to serve as a director of the Company.

Family Relationships

Yuk Wah Ho, our President and Director, is the wife of Mr. Luk, our Chairman and CEO.  There are no other familial relationships between our officers and directors.

Meetings of Our Board of Directors

The Registrant’s Board of Directors took all actions by unanimous written consent without a meeting during the fiscal year ended December 31, 2011.

Audit Committee

The Board of Directors established an Audit Committee, composed of the two outside directors, Yat Ming Lam and Allan Wah Chung Li, and our Chief Financial Officer Darrie Lam, who serves as the audit committee’s financial expert. The principal functions of the Audit Committee include making recommendations to the Board regarding the selection of independent public accountants to audit annually the books and records of the Company, reviewing the proposed scope of each audit and reviewing the recommendations of the independent public accountants as a result of their audit of the Company. The Audit Committee also periodically reviews the activities of the Company's accounting staff and the adequacy of the Company's internal controls.
 

Code of Business Conduct and Ethics

The Company has adopted a code of business conduct and ethics to guide all directors, officers and employees, a copy of which is included as Exhibit 14 to the Company’s Form 10-K for the fiscal year ended December 31, 2006.

Compensation of Directors

The Company reimburses each Director for reasonable expenses (such as travel and out-of-pocket expenses) in attending meetings of the Board of Directors. Directors are not separately compensated for their services as Directors.

Significant Employees

Other than the directors and officer described above, we do not expect any other individuals to make a significant contribution to our business.

Involvement in Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Section 16(A) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and the Company is required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2011. The Company believes that all of these filing requirements were satisfied by its executive officers, directors and by the beneficial owners of more than 10% of the Company’s common stock. In making this statement, the Company has relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.


Compensation Discussion and Analysis

The Company maintains a peer-based executive compensation program comprised of fixed and performance variable elements. The design and operation of the program reflect the following objectives:

Recruiting and retaining talented leadership.
Implementing measurable performance targets.
Correlating compensation directly with shareowner value.
Emphasizing performance based compensation, progressively weighted with seniority level.
Adherence to high ethical, safety and leadership standards.
 
 
Designing a Competitive Compensation Package

Recruitment and retention of leadership to manage the Company requires a competitive compensation package. The Board of Directors emphasizes (i) fixed compensation elements of base salary that compare with its compensation peer group of companies, and (ii) variable compensation contingent on above-target performance. The compensation peer group consists of those companies in the Hong Kong S.A.R. which the Company deems to compete with it for executive talent. Individual compensation will vary depending on factors such as performance, job scope, abilities, tenure and retention risk.

Fixed Compensation

The principal element of fixed compensation not directly linked to performance targets is base salary. The Company targets the value of fixed compensation generally at the median of its compensation peer group to facilitate a competitive recruitment and retention strategy.

Incentive Compensation

The Company’s incentive compensation programs are linked directly to earnings growth, cash flow, and total shareowner return. Annual bonuses are tied to the current year’s performance of our company. Restrictive stock awards are tied to an individual’s success in exceeding targeted results set by management.

The following table sets forth all compensation awarded to, earned by, or paid for all services rendered to the Company during the fiscal years 2011, 2010, and 2009 by those persons who served as Chief Executive Officer and Chief Financial Officer, and any Named Executive Officer who received compensation in excess of US$100,000 during the fiscal years 2011, 2010, and 2009.

SUMMARY COMPENSATION TABLE (US$)

Name and
Principal
Position
 
Year
   
Salary
(1)
   
Bonus
(2)
   
Stock
Awards
   
Option
Awards
   
Non-Equity
Incentive Plan
Compensation
(3)
   
Nonqualified
Deferred
Compensation
   
All Other
Compensation
   
Total
 
                                                       
Ngai Keung Luk,
CEO, Chairman
   
2011
2010
2009
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
 
                                                                         
Darrie Lam,
CFO
   
2011
2010
2009
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
 
                                                                         
Yuk Wah Ho,
President, COO
   
2011
2010
2009
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
     
--
--
--
 
 
(1) No officers received or will receive any salaries, bonus or other annual compensation during fiscal year 2011. Management believes that the value of other non-cash benefits and compensation distributed to executive officers of the Company individually or as a group during fiscal year 2011 did not exceed the lesser of US$50,000 or ten percent of such officers' individual cash compensation or, with respect to the group, US$50,000 times the number of persons in the group or ten percent of the group's aggregate cash compensation.

(2) Bonus awarded based on performance.

(3) No officers received or will receive any long term incentive plan (LTIP) payouts or other payouts during fiscal year 2011.
 
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS

The Company’s executives do not have the typical employment agreements that specify compensation or length of employment. These matters are left to the discretion of the Board of Directors and the employee. There are no employment agreements with any executives or key employees at this time.
 

Limitation of Liability of Directors

The laws of the State of Delaware and the Company's By-laws provide for indemnification of the Company's directors for liabilities and expenses that they may incur in such capacities. In general, directors and officers are indemnified with respect to actions taken in good faith in a manner reasonably believed to be in, or not opposed to, the best interests of the Company, and with respect to any criminal action or proceeding, actions that the indemnitee had no reasonable cause to believe were unlawful.

The Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is, therefore, unenforceable.


The following table sets forth, as of March 26, 2012, the stock ownership of all persons known to beneficially own five percent or more of the Company's Common Stock and all directors and officers of the Company, individually and as a group. Each person has sole voting and investment power over the shares indicated, except as noted. Unless otherwise indicated, the address for each stockholder is 23/F., AIA Tower, No. 183 Electric Road, North Point, Hong Kong.

DIRECTORS, OFFICERS AND 5% STOCKHOLDERS

NAME AND ADDRESS OF BENEFICIAL OWNER
 
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP
(1)
 
PERCENTAGE
BENEFICIALLY
OWNED
(2)
 
           
NGAI KEUNG LUK, CHIEF EXECUTIVE OFFICER
 
23,378,071
 
82.52%
 
YUK WAH HO, PRESIDENT (3)
 
23,378,071
 
82.52%
 
DARRIE LAM, CHIEF FINANCIAL OFFICER
 
0
 
0.00%
 
YAT MING LAM, DIRECTOR
 
0
 
0.00%
 
ALLAN WAH CHUNG LI, DIRECTOR
 
0
 
0.00%
 
           
ALL OFFICERS AND DIRECTORS AS A GROUP (5 PERSONS)
 
23,378,071
 
82.52%
 

(1) Except as otherwise indicated, the Company believes that the beneficial owners of Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.

(2) Based upon 28,329,353 shares of Common Stock outstanding.

(3) Ms. Ho is the wife of Ngai Keung Luk. Accordingly Ms. Ho is the beneficial owner of shares owned by Mr. Luk under Rule 13d-3 of the Exchange Act.


The Company had transactions with related companies as provided in the Financial Statements, Note 9.

Director Independence

Our securities are classified as a grey market stock that is not traded or quoted on an exchange or interdealer quotation system, and, therefore, does not have any director independence requirements.  Once we engage further directors and officers, we will develop a definition of independence and examine the composition of our Board of Directors with regard to this definition.


Set forth below are fees paid to the Company's independent accountants for the past two years for the professional services performed for the Company.
 

Audit Fees: The Company paid Mazars CPA Limited HK$173,000 (US$22,000) and HK$169,000 for 2011 and 2010, respectively, in connection with the annual audit, to review the quarterly filings made on Form 10-Q and for services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit Related Fees: NONE.

Tax Fees: NONE.

All Other Fees: NONE.

PART IV

 
(a)(1) Financial Statements
 
See "Table of Contents to Consolidated Financial Statements" set forth on page 13.
 
(a)(2) Financial Statement Schedules
 
None. The financial statement schedules are omitted because they are inapplicable or the requested information is shown in our financial statements or related notes thereto.

(a)(3) Exhibits

The following exhibits of the Company are included herein.

   2.1
Share Exchange Agreement between Foreclosed Realty Exchange, Inc. and Ngai Keung Luk, together with amendments (1)
   3.1
Articles of Incorporation of Physical Spa & Fitness Inc., a Delaware Corporation (1)
   3.2
Certificate of Amendment of Articles of Incorporation changing the number of directors (1)
   3.3
Certificate of Amendment of Articles of Incorporation changing the Company's name (1)
   3.4
Certificate of Amendment of Articles of Incorporation changing the authorized capital (1)
   3.5
By-Laws of Physical Spa & Fitness Inc. (1)
   3.6
Amended By-Laws of Physical Spa & Fitness Inc. (1)
   10.7
Repayment Agreement between the Company and Ngai Keung Luk (1)
   10.8
Pledge Agreement between the Company and Ngai Keung Luk (1)
   10.9
1997 Stock Option Plan and form of Stock Option Agreement (1)
   10.10
Share Exchange Agreement dated October 31, 2006 (3)
   10.11
Disposal Agreement dated October 31, 2006 (4)
   14
Code of Ethics (5)
   16
Letter on changes in certifying accountant (2)
   21
Subsidiaries of the Registrant (6)
   31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
   31.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
   32
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (6)
101.INS**
XBRL Instance
101.SCH**
XBRL Taxonomy Extension Schema
101.CAL**
XBRL Taxonomy Extension Calculation
101.DEF**
XBRL Taxonomy Extension Definition
101.LAB**
XBRL Taxonomy Extension Labels
101.PRE**
XBRL Taxonomy Extension Presentation

(1)
Filed with the Commission as exhibit to the Registration Statement filed on October 24, 1997 or amendments to the Registration Statement
(2)
Filed with the Commission as exhibit 16 to Form 8-K, filed on July 10, 2007
(3)
Filed with the Commission as exhibit 10.1 to Form 8-K filed November 6, 2006
(4)
Filed with the Commission as exhibit  10.2 to Form 8-K filed November 6, 2006
(5)
Filed with the Commission as exhibit 14 to Form 10-K filed April 16, 2007
(6)
Filed herewith

** XBRL
Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 26, 2012.
 
 
PHYSICAL PROPERTY HOLDINGS INC.
 
     
By: 
/s/ Ngai Keung Luk
 
 
Ngai Keung Luk
 
 
Chairman and Chief Executive Officer
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
         
         
/s/ Ngai Keung Luk
 
Chairman and Chief Executive Officer
 
Date: March 26, 2012
Ngai Keung Luk
 
(Principal Executive Officer)
   
         
         
         
/s/ Yuk Wah Ho
 
President and Director
 
Date: March 26, 2012
Yuk Wah Ho
       
         
         
         
/s/ Darrie Lam
 
Chief Financial Officer, Secretary and Director
 
Date: March 26, 2012
Darrie Lam
 
(Principal Accounting and Financial Officer)
   
         
         
         
/s/ Yat Ming Lam
 
Director
 
Date: March 26, 2012
Yat Ming Lam
       
         
         
         
/s/ Allan Wah Chung Li
 
Director
 
Date: March 26, 2012
Allan Wah Chung Li
       
 
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