----

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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-Q**

**June 30, 2007**

**0-26573**

**PHYSICAL      PROPERTY HOLDINGS INC.**

| **Delaware**                                                                  |   | **98-0203281**                                      |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) |   | (IRS                Employer Identification Number) |

**40/F      Tower One, Times Square**

**No.      1 Matheson Street, Causeway Bay**

**Hong      Kong**

**(011)      (852) 2917-0000**

**Yes **
**x**

**June 30, 2007, 28,329,353      shares.**

**Nox**

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*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC.**

|                                                                                                                                         |                                                                                                                                                             | **PAGE**                            |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                                                                                                         |                                                                                                                                                             |                                |
| **PART                I - FINANCIAL INFORMATION**                                                                                            |                                                                                                                                                             |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                1.   FINANCIAL STATEMENTS                                                                                 | 3                                                                                                                                                                |
|                                                                                                                                         |                                                                                                                                                             |                                |
|                                                                                                                                         | Condensed                Consolidated Statements of Operations for the three-month and six-month                periods ended June 30, 2006 and 2007 (Unaudited) | 3                                   |
|                                                                                                                                         |                                                                                                                                                             |                                |
|                                                                                                                                         | Condensed                Consolidated Balance Sheets at December 31, 2006 and June 30, 2007                (Unaudited)                                           | 4                                   |
|                                                                                                                                         |                                                                                                                                                             |                                |
|                                                                                                                                         | Condensed                Consolidated Statements of Cash Flows for the six-month periods ended                June                30, 2006 and 2007 (Unaudited)  | 5                                   |
|                                                                                                                                         |                                                                                                                                                             |                                |
|                                                                                                                                         | Notes                to Financial Statements                                                                                                                     | 6                -                8 |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                CONDITION AND RESULTS OF OPERATIONS | 9                                                                                                                                                                |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                RISK                            | 11                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                4.   CONTROLS AND PROCEDURES                                                                              | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| **PART                II - OTHER INFORMATION**                                                                                               |                                                                                                                                                             |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                1.   LEGAL PROCEEDINGS                                                                                    | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS                           | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                3.   DEFAULTS UPON SENIOR SECURITIES                                                                      | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY                HOLDERS                                   | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                5.   OTHER INFORMATION                                                                                    | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
| ITEM                6.   EXHIBITS AND REPORTS ON FORM 8-K                                                                     | 12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                             |                                |
|                                                                                                                                         | SIGNATURES                                                                                                                                                       | 13                                  |

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*Table            of Contents*

**PART      I - FINANCIAL INFORMATION**

**ITEM      1.   FINANCIAL STATEMENTS**

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

|                                                                                                       |   |     |   |   | Three                months ended June 30, |   |   | Six                months ended June 30, |   |
|------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|--------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                                                       |   | **Note** |   |   | 2006                                       |   |   | 2007                                     |   |   | 2007 |   |   | 2006 |   |   | 2007 |   |   | 2007 |   |
|                                                                                                       |   |     |   |   | HK$                                        |   |   | HK$                                      |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Continuing                Operations**                                                                   |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                Revenues                                                                          |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rental                income                                                                               |   |     |   |   |                                       | 193    |   |                                     |   | 196 |   |   |   | 25 |   |   |   | 386 |   |   |   | 366 |   |   |   | 47 |   |
| Total                operating revenues                                                                    |   |     |   |   |                                       | 193    |   |                                     |   | 196 |   |   |   | 25 |   |   |   | 386 |   |   |   | 366 |   |   |   | 47 |   |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                Expenses**                                                                      |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent                and related expenses                                                                   |   |     |   |   |                                       | (31    | )      |                                     |   | (23 | ) |   |   | (3 | ) |   |   | (62 | ) |   |   | (54 | ) |   |   | (7 | ) |
| Depreciation                                                                                               |   |     |   |   |                                       | (71    | )      |                                     |   | (71 | ) |   |   | (9 | ) |   |   | (142 | ) |   |   | (142 | ) |   |   | (18 | ) |
| Other                selling and administrative expenses                                                   |   |     |   |   |                                       | (48    | )      |                                     |   | (1,022 | ) |   |   | (131 | ) |   |   | (96 | ) |   |   | (1,037 | ) |   |   | (133 | ) |
| Total                operating expenses                                                                    |   |     |   |   |                                       | (150   | )      |                                     |   | (1,116 | ) |   |   | (143 | ) |   |   | (300 | ) |   |   | (1,233 | ) |   |   | (158 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit                (Loss) from operations                                                               |   |     |   |   |                                       | 43     |   |                                     |   | (920 | ) |   |   | (118 | ) |   |   | 86 |   |   |   | (867 | ) |   |   | (111 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Non-operating                expenses**                                                                  |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                expenses                                                                           |   |     |   |   |                                       | (144   | )      |                                     |   | (128 | ) |   |   | (16 | ) |   |   | (288 | ) |   |   | (250 | ) |   |   | (32 | ) |
| Total                non-operating expenses                                                                |   |     |   |   |                                       | (144   | )      |                                     |   | (128 | ) |   |   | (16 | ) |   |   | (288 | ) |   |   | (250 | ) |   |   | (32 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes                                                                    |   |     |   |   |                                       | (101   | )      |                                     |   | (1,048 | ) |   |   | (134 | ) |   |   | (202 | ) |   |   | (1,117 | ) |   |   | (143 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for income taxes                                                                  |   |     |   |   |                                       | --     |   |                                     |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | -- |   |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                from continuing operations                                                             |   |     |   |   |                                       | (101   | )      |                                     |   | (1,048 | ) |   |   | (134 | ) |   |   | (202 | ) |   |   | (1,117 | ) |   |   | (143 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Discontinued                Operations**                                                                 |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss attributable to discontinued operations                                            |   |     | 3      |   |                                       |   | (5,254 | )                                        |   |   | -- |   |   |   | -- |   |   |   | (11,367 | ) |   |   | (8,649 | ) |   |   | (1,109 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss and total comprehensive loss                                                       |   |     |   |   |                                       |   | (5,355 | )                                        |   |   | (1,048 | ) |   |   | (134 | ) |   |   | (11,569 | ) |   |   | (9,766 | ) |   |   | (1,252 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                per share of common stock                                                              |   |     |   |   |                                       |   | (0.54  | )                                        |   |   | (0.04 | ) |   |   | -- |   |   |   | (1.16 | ) |   |   | (0.44 | ) |   |   | (0.06 | ) |
|                                                                                                       |   |     |   |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of shares of common stock outstanding (in                thousands) |   |     |   |   |                                       |   | 10,000 |                                     |   |   | 27,316 |   |   |   | 27,316 |   |   |   | 10,000 |   |   |   | 21,953 |   |   |   | 21,953 |   |

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

----

*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

|                                                                                                                                                                                                                                 |   |     |   |   | **As                of**        |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|---------------------------------|---------|
|                                                                                                                                                                                                                                 |   |     |   |   | December                31,2006 |    |   | June                30,2007 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   | (Unaudited) |   |
|                                                                                                                                                                                                                                 |   | **Note** |   |   | HK$                             |    |   | HK$ |   |   | **US$** |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |
| **ASSETS**                                                                                                                                                                                                                           |   |     |   |   |                            |    |   |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |
| Current                assets                                                                                                                                                                                                        |   |     |   |   |                            | 2,436   |   |   |   | 38 |   |   |   | 5 |   |
|                   Cash and bank balance                                                                                                                                                                                    |   |     |   |   |                            | 1,750   |   |   |   | -- |   |   |   | -- |   |
|                   Marketable securities, collateralized                                                                                                                                                                    |   |     |   |   |                            | 19,067  |   |   |   | -- |   |   |   | -- |   |
|                   Trade receivables                                                                                                                                                                                        |   |     |   |   |                            | 8,396   |   |   |   | 18 |   |   |   | 2 |   |
|                   Other receivables                                                                                                                                                                                        |   |     |   |   |                            | 32,983  |   |   |   | 9 |   |   |   | 1 |   |
|                   Rental and utility deposits                                                                                                                                                                              |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
|                   Prepayments to vendors and suppliers and other current                assets                                                                                                                             |   |     |   |   |                            | 6,753   |   |   |   | 2,875 |   |   |   | 369 |   |
|                   Inventories                                                                                                                                                                                              |   |     |   |   |                            | 2,814   |   |   |   | -- |   |   |   | -- |   |
|    Income                taxes recoverable                                                                                                                                                                            |   |     |   |   |                            | 2,094   |   |   |   | -- |   |   |   | -- |   |
| Total                current assets                                                                                                                                                                                                  |   |     |   |   |                            | 76,293  |   |   |   | 2,940 |   |   |   | 377 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
|                   Marketable securities, collateralized                                                                                                                                                                    |   |     |   |   |                            | 990     |   |   |   | -- |   |   |   | -- |   |
|                   Bank deposits, collateralized                                                                                                                                                                            |   |     |   |   |                            | 10,543  |   |   |   | -- |   |   |   | -- |   |
|                   Due from a stockholder                                                                                                                                                                                   |   |     |   |   |                            | 4,557   |   |   |   | -- |   |   |   | -- |   |
|                   Property, plant and equipment, net of accumulated depreciation of                HK$303                         as of June 30, 2007 (2006: HK$343,370) |   |     |   |   |                            | 124,157 |   |   |   | 3,027 |   |   |   | 388 |   |
|                   Goodwill, net                                                                                                                                                                                            |   |     |   |   |                            | 6,791   |   |   |   | -- |   |   |   | -- |   |
|    Lease                premium for land, net                                                                                                                                                                         |   |     |   |   |                            | 8,430   |   |   |   | 8,326 |   |   |   | 1,067 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
| **Total                assets**                                                                                                                                                                                                      |   |     |   |   |                            | 231,761 |   |   |   | 14,293 |   |   |   | 1,832 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' (DEFICIT) EQUITY**                                                                                                                                                                    |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
| Current                liabilities                                                                                                                                                                                                   |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |
|                   Short-term bank loans                                                                                                                                                                                    |   |     |   |   |                            | 6,170   |   |   |   | -- |   |   |   | -- |   |
|                   Long-term bank loans - current portion                                                                                                                                                                   |   |     | 4      |   |                            |    | 1,536 |   |   |   | 1,133 |   |   |   | 145 |   |
|                   Due to a stockholder                                                                                                                                                                                     |   |     |   |   |                            |    | -- |   |   |   | 1,277 |   |   |   | 164 |   |
|                   Trade payables                                                                                                                                                                                           |   |     |   |   |                            |    | 2,878 |   |   |   | -- |   |   |   | -- |   |
|                   Other payables                                                                                                                                                                                           |   |     |   |   |                            |    | 50,718 |   |   |   | 98 |   |   |   | 13 |   |
|    Obligations                under capital leases - current portion                                                                                                                                                  |   |     |   |   |                            |    | 568 |   |   |   | -- |   |   |   | -- |   |
|                   Deferred income - current portion                                                                                                                                                                        |   |     |   |   |                            |    | 124,301 |   |   |   | -- |   |   |   | -- |   |
|                   Deferred liabilities - current portion                                                                                                                                                                   |   |     |   |   |                            |    | 1,649 |   |   |   | -- |   |   |   | -- |   |
|                   Income taxes payable                                                                                                                                                                                     |   |     |   |   |                            |    | 248 |   |   |   | -- |   |   |   | -- |   |
|                   Taxes other than income                                                                                                                                                                                  |   |     |   |   |                            |    | 7,604 |   |   |   | -- |   |   |   | -- |   |
| Total                current liabilities                                                                                                                                                                                             |   |     |   |   |                            |    | 195,672 |   |   |   | 2,508 |   |   |   | 322 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |
| Deferred                income - non-current portion                                                                                                                                                                                 |   |     |   |   |                            |    | 78,463 |   |   |   | -- |   |   |   | -- |   |
| Deferred                liabilities - non-current portion                                                                                                                                                                            |   |     |   |   |                            |    | 4,443 |   |   |   | -- |   |   |   | -- |   |
| Obligations                under capital leases – non-current portion                                                                                                                                                          |   |     |   |   |                            |    | 114 |   |   |   | -- |   |   |   | -- |   |
| Long-term                bank loans - non-current portion                                                                                                                                                                            |   |     | 4      |   |                            |    | 7,755 |   |   |   | 7,078 |   |   |   | 907 |   |
| Minority                interests                                                                                                                                                                                                    |   |     |   |   |                            |    | 452 |   |   |   | -- |   |   |   | -- |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |
| Stockholders'                (deficit) equity                                                                                                                                                                                        |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |
| Common                stock, par value US$0.001 each, 100                million shares of stock authorized;    28,329,353                (2006: 11,481,283) shares of stock issued and outstanding              |   |     |   |   |                            |    | 90 |   |   |   | 221 |   |   |   | 28 |   |
| Additional                paid-in capital                                                                                                                                                                                            |   |     |   |   |                            |    | 2,066 |   |   |   | 73,608 |   |   |   | 9,437 |   |
| Accumulated                other comprehensive losses                                                                                                                                                                                |   |     |   |   |                            |    | 2,062 |   |   |   | -- |   |   |   | -- |   |
| Accumulated                losses                                                                                                                                                                                                    |   |     |   |   |                            |    | (59,356 | ) |   |   | (69,122 | ) |   |   | (8,862 | ) |
|       Total                stockholders' (deficit) equity                                                                                                                                              |   |     |   |   |                            |    | (55,138 | ) |   |   | 4,707 |   |   |   | 603 |   |
|                                                                                                                                                                                                                                 |   |     |   |   |                            |    |   |   |   |   |   |   |   |   |   |   |
| **Total                liabilities and stockholders' (deficit) equity**                                                                                                                                                              |   |     |   |   |                            |    | 231,761 |   |   |   | 14,293 |   |   |   | 1,832 |   |

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

----

*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

|                                                                                                          |   |     |   |   | Six                Months Ended June 30, |    |
|---------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|------------------------------------------|---------|
|                                                                                                          |   |     |   |   | 2006                                     |    |   | 2007 |   |   | 2007 |   |
|                                                                                                          |   | **Note** |   |   | HK$                                      |    |   | HK$ |   |   | **US$** |   |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |
| **Cash                flows from operating activities**                                                       |   |     |   |   |                                     |    |   |   |   |   |   |   |
| Net                loss                                                                                       |   |     |   |   |                                     | (11,569 | ) |   |   | (9,766 | ) |   |   | (1,252 | ) |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| Adjustments                to reconcile net loss to net cash provided by operating                activities: |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |
|     Minority                interests                                                     |   |     |   |   |                                     | 445     |   |   |   | 7 |   |   |   | 1 |   |
|     Depreciation                                                                          |   |     |   |   |                                     | 23,756  |   |   |   | 7,213 |   |   |   | 925 |   |
|     Loss                on disposal of property, plant and equipment                      |   |     |   |   |                                     | 51      |   |   |   | -- |   |   |   | -- |   |
| Changes                in working capital:                                                                    |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |
|     Trade                and other receivables                                            |   |     |   |   |                                     | 7,775   |   |   |   | (1,743 | ) |   |   | (223 | ) |
|     Deposits,                prepayments and other current assets                         |   |     |   |   |                                     | (4,451  | ) |   |   | 1,643 |   |   |   | 211 |   |
|     Inventories                                                                           |   |     |   |   |                                     | 1,447   |   |   |   | 166 |   |   |   | 21 |   |
|     Trade                and other payables                                               |   |     |   |   |                                     | (11,760 | ) |   |   | (10,063 | ) |   |   | (1,290 | ) |
|     Deferred                income                                                        |   |     |   |   |                                     | 4,285   |   |   |   | 17,849 |   |   |   | 2,288 |   |
|     Deferred                liabilities                                                   |   |     |   |   |                                     | (1,874  | ) |   |   | (338 | ) |   |   | (43 | ) |
|     Income                taxes payable/recoverable                                       |   |     |   |   |                                     | --      |   |   |   | 773 |   |   |   | 99 |   |
|     Taxes                other than income                                                |   |     |   |   |                                     | 357     |   |   |   | (310 | ) |   |   | (40 | ) |
| **Net                cash provided by operating activities**                                                  |   |     |   |   |                                     | 8,462   |   |   |   | 5,431 |   |   |   | 697 |   |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |
| **Cash                flows from investing activities**                                                       |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |
|     Acquisition                of property, plant and equipment                           |   |     |   |   |                                     | (5,769  | ) |   |   | (904 | ) |   |   | (116 | ) |
|     Sales                proceeds from disposal of marketable securities                  |   |     |   |   |                                     | 1,540   |   |   |   | -- |   |   |   | -- |   |
|     Sales                proceeds from disposal of property, plant and equipment          |   |     |   |   |                                     | 12      |   |   |   | -- |   |   |   | -- |   |
|     Disposal                of subsidiaries                                               |   |     | 6      |   |                                     |    | -- |   |   |   | (3,911 | ) |   |   | (501 | ) |
|     Increase                in bank deposit, collateralized                               |   |     |   |   |                                     |    | (1,206 | ) |   |   | (28 | ) |   |   | (4 | ) |
|     Due                from a stockholder                                                 |   |     |   |   |                                     |    | 598 |   |   |   | (2,017 | ) |   |   | (259 | ) |
| **Net                cash used in investing activities**                                                      |   |     |   |   |                                     |    | (4,825 | ) |   |   | (6,860 | ) |   |   | (880 | ) |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |
| **Cash                flows from financing activities**                                                       |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |
|     Settlement                of short-term bank loans                                    |   |     |   |   |                                     |    | (4,310 | ) |   |   | (66 | ) |   |   | (8 | ) |
|     Proceeds                from long-term bank loans                                     |   |     |   |   |                                     |    | 510 |   |   |   | -- |   |   |   | -- |   |
|     Repayment                of long-term bank loans                                      |   |     |   |   |                                     |    | (646 | ) |   |   | (636 | ) |   |   | (82 | ) |
|     Capital                element of capital lease rental payments                       |   |     |   |   |                                     |    | (242 | ) |   |   | (267 | ) |   |   | (34 | ) |
| **Net                cash used in financing activities**                                                      |   |     |   |   |                                     |    | (4,688 | ) |   |   | (969 | ) |   |   | (124 | ) |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |
| Net                decrease in cash and cash equivalents                                                      |   |     |   |   |                                     |    | (1,051 | ) |   |   | (2,398 | ) |   |   | (307 | ) |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at beginning of period                                               |   |     |   |   |                                     |    | 2,484 |   |   |   | 2,436 |   |   |   | 312 |   |
|                                                                                                          |   |     |   |   |                                     |    |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of period                                                     |   |     |   |   |                                     |    | 1,433 |   |   |   | 38 |   |   |   | 5 |   |

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

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*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**1.   BASIS      OF PRESENTATION**

**2.   RECENTLY      ISSUED ACCOUNTING PRONOUNCEMENTS**

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*Table          of Contents*

**PHYSICAL        PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**3.   DISCONTINUED      OPERATIONS**

|                                                                                   |   | Three                months ended June 30, |     |   | Six                months ended June 30, |   |
|----------------------------------------------------------------------------------------|--------|--------------------------------------------|----------|--------|------------------------------------------|--------|
|                                                                                   |   | 2006                                       |     |   | **2007**                                 |   |   | **2007** |   |   | 2006 |   |   | **2007** |   |   | **2007** |   |
|                                                                                   |   | HK$                                        |     |   | HK$                                      |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                                   |   |                                       |     |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Turnover                                                                               |   |                                       | 111,193  |   |                                     |   | -- |   |   |   | -- |   |   |   | 220,581 |   |   |   | 77,881 |   |   |   | 9,985 |   |
| Operating                costs                                                         |   |                                       | (116,798 | )      |                                     |   | -- |   |   |   | -- |   |   |   | (231,842 | ) |   |   | (85,824 | ) |   |   | (11,003 | ) |
| Finance                costs                                                           |   |                                       | (219     | )      |                                     |   | -- |   |   |   | -- |   |   |   | (714 | ) |   |   | (1,065 | ) |   |   | (137 | ) |
| Other                income                                                            |   |                                       | 523      |   |                                     |   | -- |   |   |   | -- |   |   |   | 1,054 |   |   |   | 366 |   |   |   | 47 |   |
|     Loss                before taxation                            |   |                                       | (5,301   | )      |                                     |   | -- |   |   |   | -- |   |   |   | (10,921 | ) |   |   | (8,642 | ) |   |   | (1,108 | ) |
| Taxation                                                                               |   |                                       | (1       | )      |                                     |   | -- |   |   |   | -- |   |   |   | (1 | ) |   |   | -- |   |   |   | -- |   |
|     Loss                before minority interest                   |   |                                       | (5,302   | )      |                                     |   | -- |   |   |   | -- |   |   |   | (10,922 | ) |   |   | (8,642 | ) |   |   | (1,108 | ) |
| Minority                interest                                                       |   |                                       | 48       |   |                                     |   | -- |   |   |   | -- |   |   |   | (445 | ) |   |   | (7 | ) |   |   | (1 | ) |
|     Net                loss attributable to discontinued operation |   |                                       | (5,254   | )      |                                     |   | -- |   |   |   | -- |   |   |   | (11,367 | ) |   |   | (8,649 | ) |   |   | (1,109 | ) |

**4.   LONG-TERM      BANK LOANS**

| Principal |   | Interest                Rate |   | Maturity                                         |
|-----------|--------|------------------------------|--------|--------------------------------------------------|
| HK$       |   | **US$**                      |   |                                             |   |   |
|      |   |                         |   |                                             |   |   |
| 8,211     |   | 1,052                        |   | HK$                prime, HK$ prime – 2.6% |   | 2013 |

| Principal |   | Payable                During the                Following Periods |
|-----------|--------|--------------------------------------------------------------------|
| HK$       |   | **US$**                                                            |   |   |
|      |   |                                                               |   |   |
| 1,133     |   | 145                                                                |   | 2007 |
|      |   |                                                               |   |   |
| 7,078     |   | 907                                                                |   | 2008                – 2013 |
|      |   |                                                               |   |   |
| 8,211     |   | 1,052                                                              |   |   |

**5.   SUPPLEMENTAL      DISCLOSURES OF CASH FLOW INFORMATION**

|                                                                             |   | Three                months ended June 30, |   |   | Six                months ended June 30, |   |
|----------------------------------------------------------------------------------|--------|--------------------------------------------|--------|--------|------------------------------------------|--------|
|                                                                             |   | 2006                                       |   |   | **2007**                                 |   |   | **2007** |   |   | 2006 |   |   | **2007** |   |   | **2007** |   |
|                                                                             |   | HK$                                        |   |   | HK$                                      |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                             |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                paid for:                                                    |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Interest                expenses                   |   |                                       | 219    |   |                                     |   | 128 |   |   |   | 16 |   |   |   | 714 |   |   |   | 1,315 |   |   |   | 169 |   |
|                                                                             |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-cash                operating, investing and financing activities:           |   |                                       |   |   |                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisition                of property, plant and equipment under capital leases |   |                                       | --     |   |                                     |   | -- |   |   |   | -- |   |   |   | 848 |   |   |   | -- |   |   |   | -- |   |
| Repayment                of amount due from a stockholder through share exchange |   |                                       | --     |   |                                     |   | -- |   |   |   | -- |   |   |   | -- |   |   |   | 4,660 |   |   |   | 597 |   |
| Common                stocks issued for services                                 |   |                                       | --     |   |                                     |   | 1,779 |   |   |   | 228 |   |   |   | -- |   |   |   | 1,779 |   |   |   | 228 |   |

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*Table          of Contents*

**PHYSICAL        PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**6.      DISPOSAL OF SUBSIDIARIES**

|                                                                              |   | HK$    |     |   | **US$** |   |
|-----------------------------------------------------------------------------------|--------|--------|----------|--------|---------|--------|
|                                                                              |   |   |     |   |    |   |
| Net                liabilities disposed of:                                       |   |   |     |   |    |   |
|     Property,                plant and equipment              |   |   | 114,925  |   |    |   | 14,734 |   |
| **    **Investments                                           |   |   | 2,740    |   |    |   | 351 |   |
| **    **Inventories                                           |   |   | 2,648    |   |    |   | 339 |   |
| **    **Trade                and other receivables            |   |   | 79,760   |   |    |   | 10,226 |   |
| **    **Cash                and bank balances                 |   |   | 14,482   |   |    |   | 1,857 |   |
| **    **Trade                and other payables               |   |   | (284,059 | )      |    |   | (36,418 | ) |
| **    **Minority                interest                      |   |   | (459     | )      |    |   | (59 | ) |
| **    **Accumulated                other comprehensive losses |   |   | (2,062   | )      |    |   | (264 | ) |
|                                                                              |   |   | (72,025  | )      |    |   | (9,234 | ) |
|                                                                              |   |   |     |   |    |   |   |   |
| Goodwill                realized upon disposal of subsidiaries                    |   |   | 6,791    |   |    |   | 871 |   |
|                                                                              |   |   |     |   |    |   |   |   |
| Amount                transferred to additional paid-in capital                   |   |   | (65,234  | )      |    |   | (8,363 | ) |

|                                                    |   | HK$    |   |   | **US$** |   |
|---------------------------------------------------------|--------|--------|--------|--------|---------|--------|
|                                                    |   |   |   |   |    |   |
| Cash                consideration                       |   |   | --     |   |    |   | -- |   |
| Cash                and cash equivalents disposed       |   |   | (3,911 | )      |    |   | (501 | ) |
| Net                outflow of cash and cash equivalents |   |   | (3,911 | )      |    |   | (501 | ) |

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*Table            of Contents*

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

**Overview      of Company's Business**

**RESULTS      OF OPERATIONS**

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*Table          of Contents*

|                                    |   | Three                Months Ended June 30, |      |   | Six                Months Ended June 30, |   |
|-----------------------------------------|--------|--------------------------------------------|-----------|--------|------------------------------------------|--------|
|                                    |   | 2006                                       |      |   | **2007**                                 |   |   | 2006 |   |   | **2007** |   |
|                                    |   |                                       |      |   |                                     |   |   |   |   |   |   |   |
| Operating                Revenues       |   |                                       | 100.00    | %      |                                     |   | 100.00 | % |   |   | 100.00 | % |   |   | 100.00 | % |
|                                    |   |                                       |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Total                operating expenses |   |                                       | 77.72     | %      |                                     |   | 569.39 | % |   |   | 77.72 | % |   |   | 336.89 | % |
|                                    |   |                                       |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Operating                profit (loss)  |   |                                       | 22.28     | %      |                                     |   | (469.39 | %) |   |   | 22.28 | % |   |   | (236.89 | %) |
|                                    |   |                                       |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes |   |                                       | (52.33    | %)     |                                     |   | (534.69 | %) |   |   | (52.33 | %) |   |   | (305.19 | %) |
|                                    |   |                                       |      |   |                                     |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                 |   |                                       | (2,774.61 | %)     |                                     |   | (534.69 | %) |   |   | (2,997.15 | %) |   |   | (2,668.31 | %) |

**THREE      MONTHS ENDED JUNE 30, 2007 (UNAUDITED) COMPARED TO THREE MONTHS ENDED JUNE      30,      2006 (UNAUDITED)**

**SIX      MONTHS ENDED JUNE 30, 2007 (UNAUDITED) COMPARED TO SIX MONTHS ENDED JUNE 30,      2006 (UNAUDITED)**

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*Table          of Contents*

**LIQUIDITY      AND CAPITAL RESOURCES**

|                                                                                                                                     |   | (in                thousands)             |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                                                     |   | Six                months ended March 31, |   |
|                                                                                                                                     |   | **2006**                                  |   |   | 2007 |   |   | 2007 |   |
|                                                                                                                                     |   | HK$                                       |   |   | HK$ |   |   | **US$** |   |
|                                                                                                                                     |   |                                      |   |   |   |   |   |   |   |
| Cash                purchases of property, plant and equipment                                                                           |   |                                      | 5,769  |   |   |   | 904 |   |   |   | 116 |   |
| Non-cash                property, plant and equipment purchases financed through capital                lease                obligations |   |                                      | 848    |   |   |   | -- |   |   |   | -- |   |
| **Total                capital expenditures**                                                                                            |   |                                      | 6,617  |   |   |   | 904 |   |   |   | 116 |   |

|                                                                                                                  |   | (in                thousands)             |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|
|                                                                                                                  |   | Six                months ended March 31, |   |
|                                                                                                                  |   | **2006**                                  |   |   | 2007 |   |   | 2007 |   |
|                                                                                                                  |   | HK$                                       |   |   | HK$ |   |   | **US$** |   |
|                                                                                                                  |   |                                      |   |   |   |   |   |   |   |
| Capital                expenditures for purchase of property, plant and equipment                                     |   |                                      | --     |   |   |   | 904 |   |   |   | 116 |   |
| Capital                expenditures for maintenance and updating existing centers and corporate                office |   |                                      | 6,617  |   |   |   | -- |   |   |   | -- |   |
| **Total                capital expenditures**                                                                         |   |                                      | 6,617  |   |   |   | 904 |   |   |   | 116 |   |

**CRITICAL      ACCOUNTING POLICIES**

**ITEM      3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET      RISK**

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*Table          of Contents*

**ITEM      4.   CONTROLS AND PROCEDURES**

**PART      II - OTHER INFORMATION**

**ITEM      1.   LEGAL PROCEEDINGS**

**ITEM      2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF      PROCEEDS**

**ITEM      3.   DEFAULTS UPON SENIOR SECURITIES**

**ITEM      4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY      HOLDERS**

**ITEM      5.   OTHER INFORMATION**

**ITEM      6.   EXHIBITS AND REPORTS ON FORM 8-K**

| Number |   | Description                                                                                                                                                                                                              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                     |
| 31     |   | Certification                of the Chief Executive Officer and Chief                Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of                the                Securities Exchange Act of 1934 |
|   |   |                                                                                                                                                                                                                     |
| 32.1   |   | Certification                of the Company's Chief Executive Officer                Pursuant to 18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of                the                Sarbanes-Oxley Act of 2002      |
|   |   |                                                                                                                                                                                                                     |
| 32.2   |   | Certification                of the Chief Financial Officer Pursuant to                18 U.S.C. SS. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley                Act of 2002                               |

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*Table            of Contents*

**SIGNATURES**

|                                 | **PHYSICAL                PROPERTY HOLDINGS INC.**  |
|--------------------------------------|-----------------------------------------------------|
|                                 | (Registrant)                                        |
|                                 |                                                |
|                                 |                                                |
| Date:                August 14, 2007 | **/s/                Ngai Keung Luk**               |
|                                 | Ngai                Keung Luk,                      |
|                                 | Chairman                and Chief Executive Officer |
|                                 |                                                |
|                                 |                                                |
| Date:                August 14, 2007 | **/s/                Darrie Lam**                   |
|                                 | Darrie                Lam,                          |
|                                 | Chief                Financial Officer              |
|                                 |                                                |
|                                 |                                                |

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