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EX-32.1 - EXHIBIT 32.1 - PHYSICAL PROPERTY HOLDINGS, INC.ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - PHYSICAL PROPERTY HOLDINGS, INC.ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - PHYSICAL PROPERTY HOLDINGS, INC.ex32-2.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934:

For the transition period from______ to _______
 
Commission File Number 0-26573

PHYSICAL PROPERTY HOLDINGS INC.
(Exact name of Registrant as specified in its charter)

Delaware
98-0203281
(State or other jurisdiction of incorporation or organization)
(IRS 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)
 
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
 
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 Exchange Act):    Yes o   No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  
May 11, 2012, 28,329,353 shares.

 
 

 
 
PHYSICAL PROPERTY HOLDINGS INC.

Form 10-Q for the period ended March 31, 2012

TABLE OF CONTENTS

     
Page
       
 
       
   
       
   
3
       
   
4
       
   
5
       
   
6 – 8
       
 
9
       
 
12
       
 
12
       
 
       
 
12
     
 
13
       
   
14
 
 
2

 

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three Months Ended March 31,
 
   
2011
   
2012
   
2012
 
   
HK$’000
   
HK$’000
   
US$’000
 
                   
Operating Revenues
                 
Rental income
   
193
     
231
     
30
 
Total operating revenues
   
193
     
231
     
30
 
                         
Operating Expenses
                       
Rent and related expenses
   
(22
)
   
(25
)
   
(3
)
Depreciation
   
(86
)
   
(86
)
   
(11
)
Other selling and administrative expenses
   
(184
)
   
(167
)
   
(22
)
Total operating expenses
   
(292
)
   
(278
)
   
(36
)
                         
Loss from operations
   
(99
   
(47
   
(6
                         
Non-operating expenses
                       
    Interest expenses
   
(53
)
   
(50
)
   
(6
)
Total non-operating expenses
   
(53
)
   
(50
)
   
(6
)
                         
Loss before income taxes
   
(152
)
   
(97
)
   
(12
)
                         
Provision for income taxes
   
--
     
--
     
--
 
                         
Net loss and total comprehensive loss
   
(152
)
   
(97
   
(12
)
                         
Loss per share of common stock (in cents) - Basic and diluted
   
(0.54
)
   
(0.34
)
   
(0.04
                         
Weighted average number of shares of common stock outstanding
   
28,329,353
     
28,329,353
     
28,329,353
 

Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for the convenience of the reader has been made at the exchange rate of US$1.00 = HK$7.8. No representation is made that the Hong Kong Dollar amounts could have been, or could be, converted into United States Dollars, at that rate on March 31, 2012 or at any other certain rate.

 
The financial statements should be read in conjunction with the accompanying notes.
 
 
3

 
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
As of
December 31, 2011
   
As of
March 31, 2012 (Unaudited)
 
   
HK$’000
   
HK$’000
   
US$’000
 
                   
ASSETS
                 
                   
Current assets
                 
Cash and bank balances
   
24
     
95
     
12
 
Trade receivables
   
12
     
15
     
2
 
Management fees and utility deposits
   
24
     
24
     
3
 
Total current assets
   
60
     
134
     
17
 
                         
Bank deposits, collateralized
   
82
     
82
     
11
 
    Property, plant and equipment, net of accumulated depreciation of HK$2,669,000 (US$342,000) as of March 31, 2012 (December 31, 2011: HK$2,583,000)
   
10,205
     
10,119
     
1,297
 
                         
Total assets
   
10,347
     
10,335
     
1,325
 
                         
LIABILITIES AND STOCKHOLDERS' EQUITY
                       
                         
Current liabilities
                       
Bank loans - (Note 3)
   
9,555
     
9,417
     
1,207
 
Other payables
   
258
     
283
     
36
 
Due to Principal Stockholder - (Note 5)
   
1,551
     
1,749
     
225
 
Total current liabilities
   
11,364
     
11,449
     
1,468
 
                         
Commitments and contingencies - (Note 6)
                       
                         
Stockholders' equity
                       
Common stock, par value US$0.001 each, 100 million shares of stock authorized; 28,329,353 shares of stock issued and outstanding
   
221
     
221
     
28
 
Additional paid-in capital
   
73,608
     
73,608
     
9,437
 
Accumulated losses
   
(74,846
)
   
(74,943
)
   
(9,608
)
Total stockholders' deficit
   
(1,017
)
   
(1,114
)
   
(143
)
                         
Total liabilities and stockholders' equity
   
10,347
     
10,335
     
1,325
 

Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for the convenience of the reader has been made at the exchange rate of US$1.00 = HK$7.8. No representation is made that the Hong Kong Dollar amounts could have been, or could be, converted into United States Dollars, at that rate on March 31, 2012 or at any other certain rate.

 
The financial statements should be read in conjunction with the accompanying notes.
 
 
4

 
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended March 31,
 
   
2011
   
2012
   
2012
 
   
HK$’000
   
HK$’000
   
US$’000
 
                   
Cash flows from operating activities
                 
Net loss
   
(152
)
   
(97
)
   
(12
)
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Depreciation
   
86
     
86
     
11
 
Changes in working capital:
                       
Trade receivables
   
--
     
(3
)
   
--
 
Other payables
   
(10
)
   
25
     
3
 
Net cash provided by (used in) operating activities
   
(76
)
   
11
     
2
 
                         
Cash flows from financing activities
                       
Repayment of bank loans
   
(136
)
   
(138
)
   
(18
)
Net advance from Principal Stockholder - (Note 5)
   
202
     
198
     
26
 
Net cash provided by financing activities
   
66
     
60
     
8
 
                         
Net increase (decrease) in cash and cash equivalents
   
(10
)
   
71
     
10
 
                         
Cash and cash equivalents at beginning of period
   
14
     
24
     
2
 
                         
Cash and cash equivalents at end of period
   
4
     
95
     
12
 

Translation of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for the convenience of the reader has been made at the exchange rate of US$1.00 = HK$7.8. No representation is made that the Hong Kong Dollar amounts could have been, or could be, converted into United States Dollars, at that rate on March 31, 2012 or at any other certain rate.
 
 
The financial statements should be read in conjunction with the accompanying notes.
 
 
5

 
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include the accounts of Physical Property Holdings Inc. and the subsidiaries that it controls (collectively referred to as the "Company"). The Company, through its subsidiaries, is engaged in the real estate business by holding five residential apartments in Hong Kong. Unless otherwise specified in the text, references to the Company include the Company and its subsidiaries. These financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

The Company had negative working capital of HK$11,315,000 as of March 31, 2012 and incurred losses of HK$97,000 and HK$152,000 for the three months ended March 31, 2012 and 2011 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.

For the three months ended March 31, 2012, Ngai Keung Luk, Chairman, Chief Executive Officer and the Principal Stockholder, made a net advance of HK$198,000 or US$26,000 to the Company as described in note 5 below.  Mr. Luk owns 82.52% of the Company’s issued and outstanding shares of common stock as of the date this quarterly report is filed.

The Company has evaluated subsequent events through the date this quarterly report is filed.

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

As of the date this quarterly report is filed, there are no recently issued accounting pronouncements which adoption would have a material impact on the Company’s financial statements.

3. BANK LOANS

During the three-month periods ended March 31, 2012 and 2011, the Company repaid HK$138,000 and HK$136,000 of its existing bank loans, respectively. The outstanding loan balances as of March 31, 2012 and December 31, 2011 are analyzed as follows:

End of maturity
 
Interest rate
 
Principal
 
       
2011
   
2012
   
2012
 
       
HK$’000
   
HK$’000
   
US$’000
 
                       
2026
 
2.1% per annum
   
9,555
     
9,417
     
1,207
 
 
 
6

 
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
3. BANK LOANS (Continued)
 
Payables during the following periods according to bank repayment terms notices
   
Principal
 
     
2011
   
2012
   
2012
 
     
HK$’000
   
HK$’000
   
US$’000
 
2012 / 2013
     
559
     
561
     
72
 
2013 / 2014
     
570
     
573
     
73
 
2014 / 2015
     
583
     
586
     
75
 
2015 / 2016
     
595
     
598
     
77
 
2016 / 2017
     
607
     
611
     
78
 
    Thereafter
     
6,641
     
6,488
     
832
 
                           
       
9,555
     
9,417
     
1,207
 
 
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 of the bank loans is presented as current liabilities in the consolidated balance sheet.  
 
The collateral of the bank loans includes:

(i)  
leasehold properties in Hong Kong with a net book value of HK$10,004,000 and HK$10,075,000 as of March 31, 2012 and December 31, 2011 respectively;
(ii)  
fixed deposits of HK$82,000 as of March 31, 2012 and December 31, 2011; and
(iii)  
joint and several guarantee provided by the Principal Stockholder and his spouse.
 
4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
   
Three months ended March 31,
 
   
2011
   
2012
   
2012
 
   
HK$’000
   
HK$’000
   
US$’000
 
Cash paid for:
                 
Interest expenses
   
53
     
50
     
6
 

 
5. RELATED PARTY TRANSACTIONS
 
During the three-month periods ended March 31, 2012 and 2011, the Company had net advance from the Principal Stockholder of HK$198,000 and HK$202,000 respectively. The movements of the amount due to the Principal Stockholder are analyzed as follows:
 
   
Three months ended March 31,
 
   
2011
   
2012
 
   
HK$’000
   
HK$’000
   
US$’000
 
Balance at beginning of period
   
826
     
1,551
     
199
 
                         
Advance from the Principal Stockholder
   
114
     
117
     
15
 
Expenses paid by the Principal Stockholder on behalf of the Company
   
88
     
81
     
11
 
                         
Net advance from the Principal Stockholder
   
202
     
198
     
26
 
                         
Balance at end of period
   
1,028
     
1,749
     
225
 
 
In addition, during the three-month periods ended March 31, 2012 and 2011, a related company which 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$81,000 and HK$81,000, respectively.
 
 
7

 
 
PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
6. COMMITMENTS AND CONTINGENCIES

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
   
As of March 31,
2012
 
   
HK$’000
   
HK$’000
   
US$’000
 
                   
Within one year
   
785
     
678
     
87
 
In the second year
   
251
     
112
     
14
 
                         
     
1,036
     
790
     
101
 

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 March 31, 2012 and December 31, 2011, the Company had no material outstanding commitments and contingencies.
 
 
8

 
 
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS ABOUT OUR OPERATIONS. 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.

Overview of Company's Business:

The Company, through its wholly-owned subsidiary, Good Partner Limited, owns five residential apartments located in Hong Kong.

RESULTS OF OPERATIONS

The following table sets forth selected data as a percentage of total operating revenue for the periods indicated.

   
Three Months Ended March 31,
 
   
2011
   
2012
 
             
Operating Revenues
   
100.00
%
   
100.00
%
                 
Total operating expenses
   
151.30
%
   
120.35
%
                 
Operating loss
   
(51.30
%)
   
(20.35
%)
                 
Loss before income taxes
   
(78.76
%)
   
(41.99
%)
                 
Provision for income taxes
   
--
     
--
 
                 
Net loss
   
(78.76
%)
   
(41.99
%)
 
 
9

 
 
THREE MONTHS ENDED MARCH 31, 2012 (UNAUDITED) COMPARED TO THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED)

OPERATING REVENUES. Operating revenues for the first quarter of 2012 totaled HK$231,000 (US$30,000) compared to HK$193,000 for the corresponding period in 2011. This represented an increase of 20% mainly due to rental increases for the properties.

OPERATING EXPENSES. The Company's operating expenses totaled HK$278,000 (US$36,000), or 120% of operating revenues, for the first quarter of 2012, compared to HK$292,000, or 151% of operating revenues, for the first quarter of 2011. This represented a decrease of 5%, mainly because no professional fees in relation to communication with SEC regarding a potential administrative proceeding, as mentioned in Item 1 of Part II below, was incurred in this quarter.

TOTAL NON-OPERATING EXPENSES. Total non-operating expenses for the first quarter of 2012 totaled HK$50,000 (US$6,000) compared to HK$53,000 for the first quarter of 2011. This represented a decrease of 6% 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 first quarter 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$97,000 (US$12,000) for the first quarter of 2012, compared to a net loss and total comprehensive loss of HK$152,000 for the first quarter of 2011. This represented a decrease of 36% due to the increase in rental income and the decrease in administrative expenses as mentioned above.
 
 
10

 
 
LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations primarily through advances from the Principal Stockholder.

Cash and cash equivalent balances as of March 31, 2012 and December 31, 2011 were HK$95,000 (US$12,000) and HK$24,000, respectively.

Net cash provided by (used in) operating activities was HK$11,000 (US$2,000) and HK$(76,000) for the three-month periods ended March 31, 2012 and 2011, respectively.

Net cash provided by financing activities, which mainly includes repayment of bank loans and advances from the Principal Stockholder, were HK$60,000 (US$8,000) and HK$66,000 during the three-month periods ended March 31, 2012 and 2011, respectively.

During the three-month period ended March 31, 2012, the Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments or held any marketable equity securities of publicly traded companies.

Consistent with the general practice of lessors of residential apartments, the Company receives monthly rentals, which 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$15,000 (US$2,000) as of March 31, 2012, which represents a monthly rental amount due by a tenant. The Company obtains rental deposits from its tenants and has never experienced any significant problems with collection of accounts receivable. No provision for doubtful receivables is therefore made for the period under review.

During the three-month periods ended March 31, 2012 and 2011, the Company had no purchases of investments.

Management believes that cash flow generated from the operations of the Company, the tight cost and cash flow control measures and the existing cash and bank balances on hand should be sufficient to satisfy the working capital requirement of the Company for at least the next 12 months as the Principal Stockholder 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.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In recording transactions and balances resulting from business operations, the Company uses estimates based on the best information available for such items as depreciable lives. The Company revises the recorded estimates when better information is available, facts change or actual amounts can be determined. These revisions can affect operating results.

The critical accounting policies and use of estimates are discussed in and should be read in conjunction with the annual consolidated financial statements and notes included in the Company’s latest 10-K, as filed with the SEC on March 26, 2012, which includes audited consolidated financial statements for the year ended December 31, 2011.

 
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 three months ended March 31, 2012, the Company reported a negative working capital of HK$11,315,000, of which HK$8,856,000 would be due for repayment over one year according to the latest repayment terms notices issued by the bank and a net loss of HK$97,000, 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.

ITEM 4 - CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer (the principal executive officer and principal financial officer, respectively) of the Company have concluded, based on their evaluation as of March 31, 2012, that the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) are effective to ensure that information required to be disclosed in the reports filed or submitted by the Company under the Exchange Act is accumulated, recorded, processed, summarized and reported to the management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required.

During the three months ended March 31, 2012, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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.
 
 
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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.

ITEM 6 – EXHIBITS

 
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The following materials from our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) the Consolidated Balance Sheets, (iii) the Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.**

*
Filed herewith
**
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.

 
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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
PHYSICAL PROPERTY HOLDINGS INC.
(Registrant)
 
May 11, 2012
/s/ Ngai Keung Luk
 
Ngai Keung Luk
 
Chairman and Chief Executive Officer
 
(Principal Executive Officer)
   
   
May 11, 2012
/s/ Darrie Lam
 
Darrie Lam
 
Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 
 
 
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