UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

☐ 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 ☒ 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐

Accelerated Filer ☐

Non-accelerated Filer ☐

Smaller Reporting Company ☒

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

November 13, 2017, 90,000,000 shares, $0.001 par value.

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PHYSICAL PROPERTY HOLDINGS INC.

Form 10-Q for the quarter ended September 30, 2017

TABLE OF CONTENTS

			Page

PART I - FINANCIAL INFORMATION

	ITEM 1 - FINANCIAL STATEMENTS

		Unaudited Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2016 and 2017	3

		Condensed Consolidated Balance Sheets as of December 31, 2016 and September 30, 2017 (Unaudited)	4

		Unaudited Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2016 and 2017	5

		Notes to Condensed Consolidated Financial Statements	6 – 10

	ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		11-13

	ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		14

	ITEM 4 - CONTROLS AND PROCEDURES		14

PART II - OTHER INFORMATION			15

	ITEM 1 - LEGAL PROCEEDINGS		15

	ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		15

	ITEM 3 - DEFAULTS UPON SENIOR SECURITIES		15

	ITEM 4 - MINE SAFETY DISCLOSURES		15

	ITEM 5 - OTHER INFORMATION		15

	ITEM 6 - EXHIBITS		15

	SIGNATURES		16

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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three months ended September 30,									Nine months ended September 30,
	2016			2017			2017			2016			2017			2017
	HK$’000			HK$’000			US$’000			HK$’000			HK$’000			US$’000
Operating Revenues
Rental income		288			237			30			842			753			97
Total operating revenues		288			237			30			842			753			97

Operating Expenses
Rent and related expenses		(37	)		(38	)		(5	)		(117	)		(114	)		(15	)
Depreciation		(71	)		(71	)		(9	)		(213	)		(213	)		(27	)
Other selling and administrative expenses		(311	)		(269	)		(34	)		(912	)		(888	)		(114	)
Total operating expenses		(419	)		(378	)		(48	)		(1,242	)		(1,215	)		(156	)

Loss from operations		(131	)		(141	)		(18	)		(400	)		(462	)		(59	)

Non-operating expenses
Interest expenses		(36	)		(33	)		(4	)		(111	)		(101	)		(13	)
Total non-operating expenses		(36	)		(33	)		(4	)		(111	)		(101	)		(13	)

Loss before income taxes		(167	)		(174	)		(22	)		(511	)		(563	)		(72	)

Provision for income taxes		--			--			--			--			--			--

Net loss and total comprehensive loss		(167	)		(174	)		(22	)		(511	)		(563	)		(72	)

Loss per share of common stock (in cents) – Basic and diluted		(0.19	)		(0.19	)		(0.02	)		(0.57	)		(0.63	)		(0.08	)

Weighted average number of shares of common stock outstanding		90,000,000			90,000,000			90,000,000			90,000,000			90,000,000			90,000,000

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

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PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of December 31, 2016			As of September 30, 2017 (Unaudited)
	HK$’000			HK$’000			US$’000

ASSETS

Current assets
Cash and bank balances		49			39			5
Management fees and utility deposits		27			26			3
Prepayments		1			2			-
Total current assets		77			67			8

Bank deposits, collateralized		83			83			11
Property, plant and equipment, net of accumulated depreciation of HK$4,345,000 (US$557,000) as of September 30, 2017 (December 31, 2016: HK$4,132,000)		8,656			8,443			1,083

Total assets		8,816			8,593			1,102

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
Bank loans - (Note 3)		6,641			6,177			792
Other payables		340			323			41
Due to Principal Stockholder - (Note 5)		5,689			6,510			835
Total current liabilities		12,670			13,010			1,668

Commitments and contingencies - (Note 6)

Stockholders' deficit
Common stock, par value US$0.001 each, 100 million shares of stock authorized; 90,000,000 shares of stock issued and outstanding		702			702			90
Additional paid-in capital		73,608			73,608			9,437
Accumulated losses		(78,164	)		(78,727	)		(10,093	)
Total stockholders' deficit		(3,854	)		(4,417	)		(566	)

Total liabilities and stockholders' deficit		8,816			8,593			1,102

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

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PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine months ended September 30,
	2016			2017			2017
	HK$’000			HK$’000			US$’000

Cash flows from operating activities
Net loss		(511	)		(563	)		(72	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		213			213			27
Changes in working capital:
Management fees and utility deposits		--			1			--
Prepayments		(2	)		(1	)		--
Other payables		51			(17	)		(3	)
Net cash used in operating activities		(249	)		(367	)		(48	)

Cash flows used in investing activities

Increase in bank deposit, collateralized		(1	)		--			--
Net cash used in investing activities		(1	)		--			--

Cash flows from financing activities
Repayment of bank loans		(454	)		(464	)		(59	)
Net advance from Principal Stockholder - (Note 5)		733			821			106
Net cash provided by financing activities		279			357			47

Net increase (decrease) in cash and cash equivalents		29			(10	)		(1	)

Cash and cash equivalents at beginning of period		102			49			6

Cash and cash equivalents at end of period		131			39			5

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

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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, 2016.

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 condensed consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated 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 nine-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

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 September 30, 2017 or at any other certain rate.

The Company had negative working capital of HK$12,943,000 as of September 30, 2017 and incurred losses of HK$563,000 and HK$511,000 for the nine months ended September 30, 2017 and 2016 respectively. For the three months ended September 30, 2017 and 2016, the Company incurred losses of HK$174,000 and HK$167,000 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 unaudited condensed 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.

During the nine months ended September 30, 2017, Ngai Keung Luk (“Mr. Luk”), Chairman, Chief Executive Officer and the Principal Stockholder, made a net advance of HK$821,000 or US$106,000 to the Company as described in Note 5 below. Mr. Luk owns 94.5% 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.

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PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

The Company is in the process of evaluating the impact of the following updates on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The guidance requires the lessees to recognize the assets and liabilities for the rights and obligations created by leases with terms of 12 months or more. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct finance leases. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable.

In November 2016, the FASB issued ASU 2016-18: Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments in this update should be applied using a retrospective transition method to each period presented.

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PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. BANK LOANS

During the nine-month periods ended September 30, 2017 and 2016, the Company repaid HK$464,000 and HK$454,000 of its existing bank loans, respectively. The outstanding loan balances as of September 30, 2017 and December 31, 2016 are analyzed as follows:

End of maturity

Interest rate

Principal

2016

2017

2017

HK$’000

US$’000

2026

2.1% per annum

6,641

6,177

792

Payables during the following periods according to bank repayment terms notices

Principal

2016

2017

2017

HK$’000

US$’000

2017 / 2018

620

630

2018 / 2019

633

644

2019 / 2020

647

657

2020 / 2021

661

671

2021 / 2022

675

685

Thereafter

3,405

2,890

370

6,641

6,177

792

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 condensed consolidated balance sheet.

The collaterals of the bank loans include:

(i)	leasehold properties in Hong Kong with a net book value of HK$8,443,000 and HK$8,656,000 as of September 30, 2017 and December 31, 2016 respectively;
(ii)	fixed deposits of HK$83,000 as of September 30, 2017 and December 31, 2016 respectively; and
(iii)	joint and several guarantee provided by the Principal Stockholder and his spouse.

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PHYSICAL PROPERTY HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Three months ended September 30,

Nine months ended September 30,

2016

2017

2016

2017

HK$’000

US$’000

HK$’000

US$’000

Cash paid for:

Interest expenses

111

101

5. RELATED PARTY TRANSACTIONS

During the nine-month periods ended September 30, 2017 and 2016, the Company had net advance from the Principal Stockholder of HK$821,000 and HK$733,000 respectively. The movements of the amount due to the Principal Stockholder are analyzed as follows:

	Nine months ended September 30,
	2016		2017
	HK$’000		HK$’000		US$’000
Balance at beginning of period		4,657		5,689		729

Net advance from the Principal Stockholder		733		821		106

Balance at end of period		5,390		6,510		835

In addition, during the three-month and nine-month periods ended September 30, 2017 and 2016, 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$210,000, HK$210,000, HK$630,000 and HK$630,000 respectively.

As of September 30, 2017 and December 31, 2016, cross corporate guarantees between the Company and companies which are controlled by the Principal Stockholder (“Related Companies”) were executed to the extent of HK$140,000,000 and HK$127,000,000, respectively, for banking facilities to be utilized by the Company and the Related Companies. As of September 30, 2017 and December 31, 2016, HK$40,000,000 and HK$Nil had been drawn by one of the Related Companies under the mentioned bank facilities respectively.

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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,

2016

As of September 30,

2017

HK$’000

US$’000

Within one year

832

711

In the second year

336

340

1,168

1,051

135

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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. FORWARD-LOOKING STATEMENTS SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED IN PART 1, ITEM 1 OF THIS REPORT. THIS DISCUSSION CONTAINS CERTAIN 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. 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. FORWARD-LOOKING STATEMENTS INCLUDE STATEMENTS THAT ARE NOT HISTORICAL FACTS AND CAN BE IDENTIFIED BY TERMS SUCH AS “ANTICIPATE,” “BELIEVE,” “COULD,” “SEEK,” “ESTIMATE,” “EXPECT,” “INTEND,” “MAY,” “PLAN,” “POTENTIAL,” “PREDICT,” “PROJECT,” “SHOULD,” “WILL,” “WOULD” OR SIMILAR EXPRESSIONS AND THE NEGATIVES OF THOSE TERMS. 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 September 30						Nine months ended September 30
	2016			2017			2016			2017

Operating Revenues		100.00	%		100.00	%		100.00	%		100.00	%

Total operating expenses		(145.49	%)		(159.49	%)		(147.51	%)		(161.35	%)

Loss from operations		(45.49	%)		(59.49	%)		(47.51	%)		(61.35	%)

Loss before income taxes		(57.99	%)		(73.42	%)		(60.69	%)		(74.77	%)

Provision for income taxes		--			--			--			--

Net loss		(57.99	%)		(73.42	%)		(60.69	%)		(74.77	%)

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THREE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED)

OPERATING REVENUES. Operating revenues for the third quarter of 2017 totaled HK$237,000 (US$30,000) compared to HK$288,000 for the corresponding period in 2016. This represented a decrease of 18% mainly due to a unit being vacant in the third quarter of 2017.

OPERATING EXPENSES. The Company's operating expenses totaled HK$378,000 (US$48,000), or 159% of operating revenues, for the third quarter of 2017, compared to HK$419,000, or 145% of operating revenues, for the third quarter of 2016. This represented a decrease of 10%, mainly due to decrease in administration expenses in this quarter.

TOTAL NON-OPERATING EXPENSES. Total non-operating expenses for the third quarter of 2017 totaled HK$33,000 (US$4,000) compared to HK$36,000 for the third quarter of 2016. This represented a decrease of 8% 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 third 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$174,000 (US$22,000) for the third quarter of 2017, compared to a net loss and total comprehensive loss of HK$167,000 for the third quarter of 2016. This represented an increase in loss of 4% due to the net effect of the decrease in rental income and decrease in operating expenses as mentioned above.

NINE MONTHS ENDED SEPTEMBER 30, 2017 (UNAUDITED) COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2016 (UNAUDITED)

OPERATING REVENUES. Operating revenues for the nine months of 2017 totaled HK$753,000 (US$97,000) compared to HK$842,000 for the corresponding period in 2016. This represented a decrease of 11% mainly due to a unit being vacant for a longer period than last year in the first nine months of 2017.

OPERATING EXPENSES. The Company's operating expenses totaled HK$1,215,000 (US$156,000), or 161% of operating revenues, for the first nine months of 2017, compared to HK$1,242,000, or 148% of operating revenues, for the first nine months of 2016. This represented a decrease of 2% mainly because of reduction in administrative expenses in the first nine months of 2017.

TOTAL NON-OPERATING EXPENSES. Total non-operating expenses for the first nine months of 2017 totaled HK$101,000 (US$13,000) compared to HK$111,000 for the first nine months of 2016. This represented a decrease of 9% 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 period under review because there were losses incurred.

NET LOSS AND TOTAL COMPREHENSIVE LOSS. The Company has recorded a net loss and total comprehensive loss of HK$563,000 (US$72,000) for the first nine months of 2017, compared to a net loss and total comprehensive loss of HK$511,000 for the first nine months of 2016. This represented an increase in loss of 10% due to the net effect of the decrease in rental income and decrease in operating expenses as mentioned above.

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LIQUIDITY AND CAPITAL RESOURCES

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

Cash and cash equivalent balances as of September 30, 2017 and December 31, 2016 were HK$39,000 (US$5,000) and HK$49,000, respectively.

Net cash used in operating activities was HK$367,000 (US$48,000) and HK$249,000 for the nine-month periods ended September 30, 2017 and 2016, respectively.

Net cash used in investing activities, which mainly included increase in bank deposit, were Nil and HK$1,000 for the nine-month periods ended September 30, 2017 and 2016, respectively.

Net cash provided by financing activities, which mainly includes repayment of bank loans and advances from the Principal Stockholder, were HK$357,000 (US$47,000) and HK$279,000 during the nine-month periods ended September 30, 2017 and 2016, respectively.

During the nine-month periods ended September 30, 2017 and 2016, the Company had 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 had no trade receivable balance as of September 30, 2017 and December 31, 2016. 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 had therefore been made for the period under review.

During the nine-month periods ended September 30, 2017 and 2016, 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 audited financial statements and notes included in the Company’s latest 10-K, as filed with the SEC on March 16, 2017, which includes audited consolidated financial statements for the year ended December 31, 2016.

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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 unaudited condensed consolidated financial statements have been prepared on a going concern basis. For the nine months ended September 30, 2017, the Company reported a negative working capital of HK$12,943,000, of which HK$5,547,000 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$563,000. 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 unaudited condensed consolidated 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 September 30, 2017, that the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) and 15d-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 nine months ended September 30, 2017, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-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.

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PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

None.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

Not applicable to our Company.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

(a) Exhibits

Exhibit No.		Description


31.1		CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002*

31.2		CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002*

32.1		CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

32.2		CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002*

101		The following materials from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, 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)

November 13, 2017	/s/ Ngai Keung Luk
	Ngai Keung Luk
	Chairman and Chief Executive Officer
	(Principal Executive Officer)


November 13, 2017	/s/ Darrie Lam
	Darrie Lam
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

PHYSICAL PROPERTY HOLDINGS, INC. 10-Q