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EX-32 - EXHIBIT 32 - PHYSICAL PROPERTY HOLDINGS, INC.ex32.htm
EX-31.2 - EXHIBIT 31.2 - PHYSICAL PROPERTY HOLDINGS, INC.ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - PHYSICAL PROPERTY HOLDINGS, INC.ex31-1.htm
EX-21 - EXHIBIT 21 - PHYSICAL PROPERTY HOLDINGS, INC.ex21.htm
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2016

 

 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      No 

 

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      No 

 

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

 

Indicate by check mark whether the registrant has submitted electronically 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     No 

 

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  No 

 

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

 

Large accelerated filer   

Accelerated filer   

Non-accelerated filer   

Smaller reporting company  

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of March 16, 2017 was $495.00 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 16, 2017: 90,000,000 shares, $0.001 Par Value.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE 

 

 

 

 PHYSICAL PROPERTY HOLDINGS INC.

 

Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2016

 

Table of Contents

 

PART I

 

 

 

 

 

Item 1.

Business

3

     

Item 1A

Risk Factors

6

     
Item 1B. Unresolved Staff Comments 6
     

Item 2.

Properties

6

 

 

 

Item 3.

Legal Proceedings

6

 

 

 

Item 4.

Mine Safety Disclosures

7

 

 

 

PART II

 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

7

 

 

 

Item 6.

Selected Financial Data

7

 

 

 

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

7

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

11

 

 

 

Item 8.

Financial Statements and Supplementary Data

12

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

24

 

 

 

Item 9A.

Controls and Procedures

24

 

 

 

Item 9B.

Other Information

24

 

 

 

PART III

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

25

 

 

 

Item 11.

Executive Compensation

26

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

28

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

28

 

 

 

Item 14.

Principal Accounting Fees and Services

28

 

 

 

PART IV

 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

29

     

Item 16.

Form 10-K Summary

 

 

Signatures

30

 

 

  

PART I

 

THIS REPORT, INCLUDING ANY DOCUMENTS WHICH MAY BE INCORPORATED BY REFERENCE INTO THIS ANNUAL REPORT, CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 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.

  

ITEM 1.

BUSINESS

 

BACKGROUND OF THE COMPANY

 

Physical Property Holdings Inc. (the “Company”), through its subsidiary, is engaged in the real estate business by holding five residential apartments in Hong Kong.

 

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.

 

 

   

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 (now referred to as ASC 805, Business Combinations) 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 renovating and renting real estate already owned by the Company, 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 Company had negative working capital of HK$12,593,000 as of December 31, 2016 and incurred losses of HK$730,000 and HK$795,000 for the years ended December 31, 2016 and 2015 respectively. These conditions raised substantial doubt about the Company’s ability to continue as a going concern.

 

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.

 

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$17,000 to HK$20,000.  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 2015 was approximately 0.4 million, and the estimated population of Hong Kong in 2016 and 2015 was approximately 7.3 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 currently has no plan to acquire other rental properties.

 

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 two employees, in addition to its Chairman, Mr. Luk. It does not have an employment agreement with any of these three employees. The Company does not anticipate hiring any additional employees in the next 12 months.

 

ITEM 1A.

RISK FACTORS

 

As a smaller reporting company, we are not required to provide this information.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.

PROPERTIES

 

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$840,000 (US$108,000) in the year 2016 and 2015, 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.

 

ITEM 3.

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.

   

 

   

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company's Common Stock is currently a “grey market” stock with the symbol PPYH, which was not traded in the fiscal year 2016. The last reported sale was on August 24, 2011 at $0.0001 per share. Grey market stocks are not traded or quoted on an exchange or interdealer quotation system, but are reported by broker-dealers to their SelfRegulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites. They also trade on an unsolicited basis.

 

Date

 

High

   

Low

 

Jan – Mar 2016

    --       --  

Apr – Jun 2016

    --       --  

Jul – Sep 2016

    --       --  

Oct – Dec 2016

    --       --  
                 

Jan – Mar 2015

    --       --  

Apr – Jun 2015

    --       --  

Jul – Sep 2015

    --       --  

Oct – Dec 2015

    --       --  

[SOURCE: Reuters]

 

As of March 16, 2017, there were approximately 446 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.

 

ITEM 6.

SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

   

Years Ended December 31,

 
   

2016

   

2015

 
                 

Operating revenues

    100.00

%

    100.00

%

                 

Total operating expenses

    153.58

%

    159.53

%

                 

Loss from operations

    (53.58

%)

    (59.53

%)

                 

Loss before income taxes

    (67.10

%)

    (74.30

%)

                 

Provision for income taxes

    0.00

%

    0.00

%

                 

Net loss

    (67.10

%)

    (74.30

%)

 

FISCAL YEAR ENDED DECEMBER 31, 2016 COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2015

 

OPERATING REVENUES. Operating revenues for the fiscal year ended December 31, 2016 totaled HK$1,088,000 (US$139,000) compared to HK$1,070,000 for the year of 2015. This represented an increase of 2%, mainly due to a unit being vacant for five months in the previous year was rented out subsequently.

 

OPERATING EXPENSES. The Company's operating expenses totaled HK$1,671,000 (US$214,000), or 154% of operating revenues, for the fiscal year ended December 31, 2016, compared to HK$1,707,000, or 160% of operating revenues, for the year of 2015. This represented a decrease of 2%, mainly because of cost savings in other administrative expenses and repair and maintenance expenses.

 

NET NON-OPERATING EXPENSES. Net non-operating expenses for the fiscal year ended December 31, 2016 totaled HK$147,000 (US$19,000) compared to HK$158,000 in 2015. This represented a decrease of 7% 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 years ended December 31, 2016 and 2015 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$730,000 (US$94,000) for the fiscal year ended December 31, 2016, compared to a net loss and total comprehensive loss of HK$795,000 for 2015. This represented a decrease in loss of 8% due to the combined effect of the increase in rental income and the decrease in operating expenses 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, 2016 and December 31, 2015 were HK$49,000 (US$6,000) and HK$102,000, respectively.

 

Net cash used in operating activities was HK$477,000 (US$61,000) and HK$456,000 for fiscal years 2016 and 2015, respectively.

 

Net cash used in investing activities, which mainly includes increase in bank deposit, were HK$1,000 and Nil for the fiscal years ended December 31, 2016 and December 31, 2015

 

Net cash provided by financing activities, which mainly included a net advance from a stockholder and settlement of bank loans, was HK$425,000 (US$54,000) and HK$495,000 for fiscal years 2016 and 2015, respectively.

 

During the fiscal year ended December 31, 2016, 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 balances were HK$Nil as of December 31, 2016 and 2015, respectively. 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 2016 and 2015 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, 2016 and 2015.

 

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

 

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

Over the lease term

Leasehold improvement

20%

 

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.

    

 

    

ITEM 7A.

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 year ended December 31, 2016, the Company reported a negative working capital of HK$12,593,000, of which HK$6,021,000 of the bank loan principals would be due for repayment over one year according to the latest repayment terms notices issued by the bank and a net loss of HK$730,000, 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 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

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

 

  

Page

Report of Independent Registered Public Accounting Firm

13

  

  

Consolidated Statements of Operations for the years ended December 31, 2016 and 2015

14

  

  

Consolidated Balance Sheets as of December 31, 2016 and 2015

15

  

  

Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015

16

  

  

Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2016 and 2015

17

  

  

Notes to Financial Statements

18 – 23

 

 

  

Report of Independent Registered Public Accounting Firm

 

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, 2016 and 2015 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, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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, 2016 and 2015 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with United States generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 (b) to the consolidated financial statements, the Company had a negative working capital as of December 31, 2016 and incurred losses 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 consolidated 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 16, 2017

 

  

    

Physical Property Holdings Inc. and Subsidiaries

 

Consolidated Statements of Operations

 

           

Year ended December 31,

 
           

2016

   

2016

   

2015

 
 

Note

US$’000

HK$’000

 

HK$’000

 

Operating revenues

                               

Rental income

            139       1,088       1,070  
                                 

Operating expenses

                               

Rent and related expenses

            (20

)

    (155

)

    (143

)

Depreciation

            (36

)

    (284

)

    (284

)

Other selling and administrative expenses

            (158

)

    (1,232

)

    (1,280

)

                                 

Total operating expenses

            (214

)

    (1,671

)

    (1,707

)

                                 

Loss from operations

            (75

)

    (583

)

    (637

)

                                 

Non-operating income (expenses)

                               

Other income

            -       --       1  

Interest expenses

            (19

)

    (147

)

    (159

)

                                 

Net non-operating expenses

            (19

)

    (147

)

    (158

)

                                 

Loss before income taxes

            (94

)

    (730

)

    (795

)

                                 

Provision for income taxes

    6       -       -       -  
                                 

Net loss and total comprehensive loss

            (94

)

    (730

)

    (795

)

                                 

Loss per share of common stock (in cents) - Basic and diluted

            (0.10

)

    (0.81

)

    (0.88

)

                                 

Weighted average number of shares of common stock outstanding

            90,000,000       90,000,000       90,000,000  

 

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

   

 

    

Physical Property Holdings Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

           

As of December 31,

 
           

2016

   

2016

   

2015

 
 

Note

US$’000

HK$’000

 

HK$’000

 

ASSETS

                               
                                 

Current assets

                               

Cash and bank balances

            6       49       102  

Management fees and utility deposits

            3       27       26  

Prepayments

            --       1       1  
                                 

Total current assets

            9       77       129  
                                 

Bank deposits, collateralized

            11       83       82  

Property, plant and equipment, net

    4       1,110       8,656       8,940  
                                 

Total assets

            1,130       8,816       9,151  
                                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

                               
                                 

Current liabilities

                               

Bank loans

    5       851       6,641       7,248  

Other payables

    7       44       340       370  

Due to Principal Stockholder

    9       729       5,689       4,657  
                                 

Total current liabilities

            1,624       12,670       12,275  
                                 

Commitments and contingencies

    8                          
                                 

Stockholders' deficit

                               

Common stock, par value of US$0.001 each, 100 million shares of stock authorized; 90,000,000 shares of stock issued and outstanding

            90       702       702  

Additional paid-in capital

            9,437       73,608       73,608  

Accumulated losses

            (10,021

)

    (78,164

)

    (77,434

)

                                 

Total stockholders’ deficit

            (494

)

    (3,854

)

    (3,124

)

                                 

Total liabilities and stockholders' deficit

            1,130       8,816       9,151  

 

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

     

 

   

Physical Property Holdings Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

 

   

Year ended December 31,

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 

Cash flows from operating activities:

                       

Net loss

    (94

)

    (730

)

    (795

)

                         

Adjustments to reconcile net loss to net cash used in operating activities:

                       

Depreciation

    36       284       284  
                         

Changes in working capital:

                       

Prepayments

    --       --       1  

Management fees and utility deposits

    --       (1

)

    --  

Other payables

    (3

)

    (30

)

    54  
                         

Net cash used in operating activities

    (61

)

    (477

)

    (456

)

                         

Cash flows from investing activities:

                       

Increase in bank deposit, collateralized

    --       (1

)

    --  
                         

Net cash used in investing activities

    --       (1

)

    --  
                         

Cash flows from financing activities:

                       

Repayment of bank loans

    (78

)

    (607

)

    (595

)

Net advance from the Principal Stockholder

    132       1,032       1,090  
                         

Net cash provided by financing activities

    54       425       495  
                         

Net (decrease) increase in cash and cash equivalents

    (7

)

    (53 )     39  
                         

Cash and cash equivalents at beginning of year

    13       102       63  
                         

Cash and cash equivalents at end of year, represented by cash and bank balances

    6       49       102  

 

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

  

 

   

Physical Property Holdings Inc. and Subsidiaries

 

Consolidated Statements of Stockholders' Deficit

 

   

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, 2015

    90,000,000       702       73,608       (76,639

)

    -       (2,329

)

    (299

)

                                                         

Net loss

    -       -       -       (795

)

    -       (795

)

    (101

)

                                                         

Balance (Deficit) as of December 31, 2015 and January 1, 2016

    90,000,000       702       73,608       (77,434

)

    -       (3,124

)

    (400

)

                                                         

Net loss

    -       -       -       (730

)

    -       (730

)

    (94

)

                                                         

Balance (Deficit) as of December 31, 2016

    90,000,000       702       73,608       (78,164

)

    -       (3,854

)

    (494

)

 

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

   

 

   

Physical Property Holdings Inc. and Subsidiaries

 

Notes to Financial Statements

 

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 95% 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, 2016 and 2015.

 

2.           BASIS OF PRESENTATION

 

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

 

The consolidated 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, 2016 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, 2016 or at any other date.

 

The Company has evaluated subsequent events after the balance sheet date of December 31, 2016 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$12,593,000 as of December 31, 2016 and incurred losses of HK$730,000 and HK$795,000 for the years ended December 31, 2016 and 2015 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 consolidated 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

 

Over the lease term

 

Leasehold improvement

    20%  

 

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, 2016 and 2015. 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 consolidated 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 excludes dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the periods.

 

Diluted loss per share is 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.

 

i)           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 consolidated financial statements and accompanying notes.  Actual amounts could differ from those estimates.

 

4.          PROPERTY, PLANT AND EQUIPMENT, NET

 

   

As of December 31,

 
   

2016

   

2016

   

2015

 
 

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

    (529

)

    (4,132

)

    (3,848

)

                         

Net book value

    1,110       8,656       8,940  

 

The above property, plant and equipment are held for use under operating leases to third party tenants for the years ended December 31, 2016 and 2015.

 

5.           BANK LOANS

 

The bank loans are repayable on demand upon request at the bank’s discretion. As of December 31, 2016, 2015 and the date of these consolidated financial statements, no repayment other than the monthly progress repayments was demanded and the outstanding loan balances as of December 31, 2016 and 2015 are analyzed as follows:

 

End of maturity

Interest rate

 

Principal

 
     

2016

   

2016

   

2015

 
   

US$’000

HK$’000

 

HK$’000

 
                           

2026

2.1% per annum

    851       6,641       7,248  

 

Payables during the following periods according to bank repayment terms notices

 

   

Principal

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 
                         

2017 / 2016

    79       620       607  

2018 / 2017

    81       633       620  

2019 / 2018

    83       647       633  

2020 / 2019

    85       661       647  

2021 / 2020

    86       675       661  

Thereafter

    437       3,405       4,080  
                         
      851       6,641       7,248  

   

 

   

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, 2016 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$8,656,000;

(ii)  

fixed deposits of HK$83,000; and

(iii)  

joint and several guarantees provided by the Principal Stockholder 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, 2016 and 2015, 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 incurred losses for taxation purposes in the years ended December 31, 2016 and 2015. 

 

Reconciliation from the statutory tax rate in Hong Kong is as follows:

 

   

Year ended December 31,

 
   

2016

   

2015

 
 

%

 

%

 
                 

Statutory rate

    16.5       16.5  

Non-deductible expenses

    (11

)

    (11

)

Valuation allowance in respect of net operating losses

    (7

)

    (7

)

Valuation allowance in respect of temporary differences

    1.5       1.5  
                 

Effective rate

    -       -  

 

For the years ended December 31, 2016 and 2015, the Hong Kong subsidiary incurred losses for Hong Kong profits tax purposes. Therefore, no provision for current tax has been made for the years ended December 31, 2016 and 2015. As of December 31, 2016 and 2015, the Company has operating losses carry forward in respect of Hong Kong subsidiaries of HK$1,232,000 (US$160,000) and HK$934,000, respectively.

 

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

   

As of December 31,

 
   

2016

   

2016

   

2015

 
   

US$’000

   

HK$’000

   

HK$’000

 
                         

Taxable temporary differences in respect of property, plant and equipment

    (3

)

    (23

)

    (11

)

Operating losses carry forward

    26       203       154  

Valuation allowance (Note)

    (23

)

    (180

)

    (143

)

                         

Net deferred tax liabilities

    -       -       -  

 

Note:

 Valuation allowance was made for deferred tax (liabilities) assets arisen from tax benefit in respect of deductible temporary differences amounting to HK$136,000 (US$17,000) and HK$67,000 as of December 31, 2016 and 2015, respectively and tax losses carried forward amounting to HK$1,232,000 (US$158,000) and HK$934,000 as of December 31, 2016 and 2015, 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, 2016 and 2015 was an increase of HK38,000 (US$5,000) and HK$44,000, respectively.

   

 

   

7.           OTHER PAYABLES

 

   

As of December 31,

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 
                         

Deposits received

    20       152       196  

Other creditors

    24       188       174  
                         
      44       340       370  

 

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,

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 
                         

Within 2017 / 2016

    107       832       769  

Within 2018 / 2017

    43       336       160  
                         
      150       1,168       929  

  

9.           RELATED PARTY TRANSACTIONS

 

During the year ended December 31, 2016, the Company’s leasehold land and buildings with a net book value of HK$8,656,000 together with the rental were pledged to a bank to secure general banking facilities granted to a related company that is controlled by the Principal Stockholder of the Company.

 

During the years ended December 31, 2016 and 2015, 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$840,000 (US$108,000) for both years.

 

During the year ended December 31, 2016, cross corporate guarantees between the Company and companies which are controlled by the Principal Stockholder were executed for facilities at the aggregate amount of HK$127,000,000 to be utilized by the Company and these related companies. At December 31, 2016, no amounts had been drawn under the mentioned bank facilities.                                                                                                                                                             

   

 

    

In addition, during the years ended December 31, 2016 and 2015, the Company has net advance from the Principal Stockholder of HK$1,032,000 (US$132,000) and HK$1,090,000, 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,

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 
                         

Balance as of January 1

    597       4,657       3,567  
                         

Advance from the Principal Stockholder

    159       1,242       1,090  
                         

Repayment to the Principal Stockholder

    (27

)

    (210

)

    --  
                         

Net advance from the Principal Stockholder

    132       1,032       1,090  
                         

Balance as of December 31

    729       5,689       4,657  

  

10.        SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

   

Year ended December 31,

 
   

2016

   

2016

   

2015

 
 

US$’000

HK$’000

 

HK$’000

 
                         

Cash paid for:

                       

Interest expenses

    19       147       159  

     

 

    

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

(a)

Evaluation of Disclosure Controls and Procedures

 

Rule 15d-15(e) under the Exchange Act defines the term “disclosure controls and procedures” as those controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Based upon an evaluation of the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) performed by our management, with the participation of our Chief Executive Officer, and Chief Financial Officer, as of the end of the period covered by this annual report, our management concluded that our disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the required time periods. The foregoing conclusion is based, in part, on the fact that we are a small public company with limited revenues and employees.

 

(b)

Management’s Annual Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 15d-15(f) under the Exchange Act. Our management, with the participation of our Chief Executive Officer, and Chief Financial Officer, conducted an evaluation of the effectiveness of our control over financial reporting based on the framework in Internal Control-Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s evaluation under the framework, management has concluded that our internal control over financial reporting was effective as of December 31, 2016.

 

We continuously seek to improve and strengthen our control processes to ensure that all of our controls and procedures are adequate and effective. Any failure to implement and maintain improvements in the controls over our financial reporting could cause us to fail to meet our reporting obligations under the SEC’s rules and regulations. Any failure to improve our internal controls to address the weakness we have identified could also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading price of our common stock. 

 

This annual report does not include an attestation report of the Company’s 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 SEC rules that permit us to provide only management’s report in this annual report.

 

There have been no changes in our internal controls over financial reporting during the fourth quarter of the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

   

ITEM 9B.

OTHER INFORMATION

 

None.

   

 

   

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

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

 

 

60

 

Chairman of the Board of Directors, Chief Executive Officer

 

 

 

 

 

 

Yuk Wah Ho

 

 

61

 

President and Director

 

 

 

 

 

 

Darrie Lam

 

 

53

 

Chief Financial Officer and Secretary, Director

 

 

 

 

 

 

Yat Ming Lam

 

 

59

 

Director

 

 

 

 

 

 

Allan Wah Chung Li

 

 

59

 

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 94.50% 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, 2016.

 

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 function 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 officers 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 31, 2016. 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.

 

ITEM 11.

EXECUTIVE COMPENSATION

 

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 shareholder 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 2016, 2015, and 2014 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 2016, 2015, and 2014.

 

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,

 

2016

    --       --       --       --       --       --       --       --  

CEO, Chairman

 

2015

    --       --       --       --       --       --       --       --  
   

2014

    --       --       --       --       --       --       --       --  
                                                                     

Darrie Lam,

 

2016

    --       --       --       --       --       --       --       --  

CFO

 

2015

    --       --       --       --       --       --       --       --  
   

2014

    --       --       --       --       --       --       --       --  
                                                                     

Yuk Wah Ho,

 

2016

    --       --       --       --       --       --       --       --  

President, COO

 

2015

    --       --       --       --       --       --       --       --  
   

2014

    --       --       --       --       --       --       --       --  

 

(1) No officers received or will receive any salaries, bonus or other annual compensation during fiscal year 2016. 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 2016 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 2016.

 

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.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 16, 2017, 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

    85,048,718       94.50 %

YUK WAH HO, PRESIDENT (3)

    85,048,718       94.50 %

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)

    85,048,718       94.50 %

 

(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 90,000,000 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.

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

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.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

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$183,000 (US$23,000) and HK$180,000 for 2016 and 2015, 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

 

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(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.

 

  

ITEM 16.

FORM 10-K SUMMARY

 

The Company has elected not to include summary information.

 

 

   

SIGNATURES

 

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 16, 2017.

 

  

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 16, 2017

Ngai Keung Luk

  

(Principal Executive Officer)

  

  

  

  

  

  

  

  

  

  

  

  

/s/ Yuk Wah Ho

  

President and Director

  

Date: March 16, 2017

Yuk Wah Ho

  

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ Darrie Lam

  

Chief Financial Officer, Secretary and Director

  

Date: March 16, 2017

Darrie Lam

  

(Principal Accounting and Financial Officer)

  

  

  

  

  

  

  

  

  

  

  

  

/s/ Yat Ming Lam

  

Director

  

Date: March 16, 2017

Yat Ming Lam

  

  

  

  

  

  

  

  

  

  

  

  

  

  

/s/ Allan Wah Chung Li

  

Director

  

Date: March 16, 2017

Allan Wah Chung Li

  

  

  

  

    

 

30