UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549







FORM
10-Q







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





For the
quarterly period ended September 30,
2008








Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12 b - 2 of the Exchange Act)   Yes  ̈Nox








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 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.    Yesx No
 ̈




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




Large
Accelerated Filer o   Accelerated
Filer o   Non-accelerated
Filer o   Smaller
Reporting Company x





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





State the
number of shares outstanding of each of the issuer's classes of common stock, as
of the latest practicable date: September 30, 2008, 28,329,353
shares.








PHYSICAL
PROPERTY HOLDINGS INC.





Form
10-Q for the period ended September 30, 2008





TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONITEM
      1 - FINANCIAL STATEMENTSCondensed
      Consolidated Statements of Operations for the three-month and nine-month
      periods ended
              September
      30, 2007 and 2008 (Unaudited)
            3Condensed
      Consolidated Balance Sheets as of December 31, 2007 and September 30,
      2008 (Unaudited)
            4Condensed
      Consolidated Statements of Cash Flows for the nine-month periods
      ended
              September
      30, 2007 and 2008 (Unaudited)
            5Notes
      to Financial Statements
            6 –
      9ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
            10ITEM
      3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
            12ITEM
      4 (A) - CONTROLS AND PROCEDURES
            12ITEM
      4 (A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING
            13PART
      II - OTHER INFORMATIONITEM
      1 - LEGAL PROCEEDINGS
            13ITEM
      2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
            13ITEM
      3 - DEFAULTS UPON SENIOR SECURITIES
            13ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            13ITEM
      5 - OTHER INFORMATION
            13ITEM
      6 – EXHIBITS
            13SIGNATURES
            14





- 2
-


PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In
thousands, except share and per share data)




Three
      months ended September 30
            
            
            Nine
      months ended September 302007
            
            
            2008
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2008HK$
            
            
            HK$
            
            
            US$
            
            
            HK$
            
            
            HK$
            
            
            US$Continuing
      OperationsOperating
      RevenueRental
      income
            
            
            169
            
            
            
            177
            
            
            
            23
            
            
            
            535
            
            
            
            544
            
            
            
            70Total
      operating revenues
            
            
            169
            
            
            
            177
            
            
            
            23
            
            
            
            535
            
            
            
            544
            
            
            
            70Operating
      ExpensesRent
      and related expenses
            
            
            (25
            )
            
            
            (23
            )
            
            
            (3
            )
            
            
            (79
            )
            
            
            (69
            )
            
            
            (9
            )Depreciation
            
            
            (71
            )
            
            
            (71
            )
            
            
            (9
            )
            
            
            (213
            )
            
            
            (213
            )
            
            
            (27
            )Other
      selling and administrative expenses
            
            
            (1,596
            )
            
            
            (147
            )
            
            
            (19
            )
            
            
            (2,633
            )
            
            
            (1,195
            )
            
            
            (153
            )Total
      operating expenses
            
            
            (1,692
            )
            
            
            (241
            )
            
            
            (31
            )
            
            
            (2,925
            )
            
            
            (1,477
            )
            
            
            (189
            )Loss
      from operations
            
            
            (1,523
            )
            
            
            (64
            )
            
            
            (8
            )
            
            
            (2,390
            )
            
            
            (933
            )
            
            
            (119
            )Non-operating
      expensesOther
      income, net
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            2
            
            
            
            --Interest
      expenses
            
            
            (124
            )
            
            
            (65
            )
            
            
            (8
            )
            
            
            (374
            )
            
            
            (221
            )
            
            
            (29
            )Total
      non-operating expenses
            
            
            (124
            )
            
            
            (65
            )
            
            
            (8
            )
            
            
            (374
            )
            
            
            (219
            )
            
            
            (29
            )Loss
      before income taxes
            
            
            (1,647
            )
            
            
            (129
            )
            
            
            (16
            )
            
            
            (2,764
            )
            
            
            (1,152
            )
            
            
            (148
            )Provision
      (Credit) for income taxes
            
            
            (13
            )
            
            
            --
            
            
            
            --
            
            
            
            (13
            )
            
            
            --
            
            
            
            --Loss
      from continuing operations
            
            
            (1,660
            )
            
            
            (129
            )
            
            
            (16
            )
            
            
            (2,777
            )
            
            
            (1,152
            )
            
            
            (148
            )Discontinued
      OperationsNet
      loss attributable to discontinued operations
            
            
            --
            
            
            
            --
            
            
            
            --
            
            
            
            (8,649
            )
            
            
            --
            
            
            
            --Net
      loss and total comprehensive loss
            
            
            (1,660
            )
            
            
            (129
            )
            
            
            (16
            )
            
            
            (11,426
            )
            
            
            (1,152
            )
            
            
            (148
            )Loss
      per share of common stock
            
            
            (0.06
            )
            
            
            --
            
            
            
            --
            
            
            
            (0.47
            )
            
            
            (0.04
            )
            
            
            (0.01
            )Weighted
      average number of shares of common stock outstanding
            
            
            28,329,353
            
            
            
            28,329,353
            
            
            
            28,329,353
            
            
            
            24,078,671
            
            
            
            28,329,353
            
            
            
            28,329,353







Translation
of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for
the convenience of the readers 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, 2008 or at any other certain rate.




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


- 3
-


PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
thousands, except share and per share data)





As
      ofNote
            
            December
      31, 2007
            
            September
      30, 2008
              (Unaudited)HK$
            
            HK$
            
            US$ASSETSCurrent
      assetsCash and bank balances
            
            
            2,549
            
            1,596
            
            204Trade receivables
            
            
            22
            
            --
            
            --Rental and utility deposits
            
            
            26
            
            24
            
            3Prepayments and other current assets
            
            
            779
            
            --
            
            --Total
      current assets
            
            
            3,376
            
            1,620
            
            207Bank deposits, collateralized
            
            
            80
            
            82
            
            11Property, plant and equipment, net of accumulated depreciation of HK$1,490
      as of September 30, 2008 (December 31, 2007: HK$1,277)
            
            
            11,211
            
            10,998
            
            1,410Total
      assets
            
            
            14,667
            
            12,700
            
            1,628LIABILITIES
      AND STOCKHOLDERS'  EQUITYCurrent
      liabilitiesLong-term bank loans - current portion
            4
            
            435
            
            513
            
            66Due to a stockholder
            8
            
            531
            
            79
            
            10Other payables
            
            
            213
            
            215
            
            28Total
      current liabilities
            
            
            1,179
            
            807
            
            104Commitments
      and contingencies
            7Long-term bank loans - non-current portion
            4
            
            11,225
            
            10,782
            
            1,382Stockholders'
      equityCommon stock, par value US$0.001 each, 100 million shares of
      stock authorized; 28,329,353 shares of stock issued and
      outstanding
            
            
            221
            
            221
            
            28Additional paid-in capital
            
            
            73,608
            
            73,608
            
            9,437Accumulated losses
            
            
            (71,566
            )
            (72,718
            )
            (9,323
            )Total
      stockholders' equity
            
            
            2,263
            
            1,111
            
            142Total
      liabilities and stockholders' equity
            
            
            14,667
            
            12,700
            
            1,628







Translation
of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for
the convenience of the readers 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, 2008 or at any other certain rate.




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


- 4
-




PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)





Nine
      Months Ended September 30Note
            
            2007
            
            2008
            
            2008HK$
            
            HK$
            
            US$Cash
      flows from operating activitiesNet loss
            
            
            (11,426)
            
            (1,152
            )
            (148
            )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Minority interests
            
            
            7
            
            --
            
            --Depreciation
            
            
            7,331
            
            213
            
            27Changes in working capital:Trade
      and other receivables
            
            
            (1,725
            )
            22
            
            3Deposits,
      prepayments and other current assets
            
            
            1,289
            
            781
            
            100Inventories
            
            
            166
            
            --
            
            --Trade
      and other payables
            
            
            (10,039
            )
            2
            
            --Deferred
      income
            
            
            17,849
            
            --
            
            --Deferred
      liabilities
            
            
            (338
            )
            --
            
            --Income
      taxes payable
            
            
            773
            
            --
            
            --Taxes
      other than income
            
            
            (310
            )
            --
            
            --Net
      cash provided by (used in) operating activities
            
            
            3,577
            
            (134
            )
            (18
            )Cash
      flows from investing activitiesAcquisition of property, plant and equipment
            
            
            (951
            )
            --
            
            --Disposal of subsidiaries
            6
            
            (3,911
            )
            --
            
            --Increase in bank deposit, collateralized
            
            
            (28
            )
            (2
            )
            --Repayment
      to related companies
            
            
            (2,716
            )
            --
            
            --Net
      cash used in investing activities
            
            
            (7,606
            )
            (2
            )
            --Cash
      flows from financing activitiesSettlement of short-term bank loans
            
            
            (25
            )
            --
            
            --Proceeds
      from long-term bank loans
            
            
            11,760
            
            --
            
            --Repayment of long-term bank loans
            
            
            (8,847
            )
            (365
            )
            (47
            )Capital element of capital lease rental payments
            
            
            (267
            )
            --
            
            --Net
      repayment to a stockholder
            8
            
            (1,027
            )
            (452
            )
            (58
            )Net
      cash provided by (used in) financing activities
            
            
            1,594
            
            (817
            )
            (105
            )Net
      decrease in cash and cash equivalents
            
            
            (2,435
            )
            (953
            )
            (123
            )Cash
      and cash equivalents at beginning of period
            
            
            2,436
            
            2,549
            
            327Cash
      and cash equivalents at end of period
            
            
            1
            
            1,596
            
            204







Translation
of amounts from Hong Kong Dollars ("HK$") into United States Dollars ("US$") for
the convenience of the readers 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, 2008 or at any other certain rate.




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


- 5
-




PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES


NOTES TO
FINANCIAL STATEMENTS


(Amounts
in thousands, except share and per share data)







1.
BASIS OF PRESENTATION





The
accompanying unaudited consolidated financial statements include the accounts of
Physical Property Holdings Inc. ("the Company") and the subsidiaries that it
controls. The Company, through its subsidiaries, 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/A and Form 10-K/A Amendment No.2 for the year ended December 31,
2007.





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





The
Company was engaged in the spa and fitness business during the first quarter of
fiscal 2007, until February 27, 2007, when the transactions contemplated by the
Disposal Agreement were consummated. Accordingly, the Company’s results of
operations included in this Quarterly Report on Form 10-Q do not include the
results of operations of the disposed businesses after such date.





On
February 5, 2007, the transactions contemplated by the Share Exchange Agreement
were consummated, resulting in the Company’s acquisition of all of the issued
and outstanding shares of common stock of Ableforce. As discussed above,
Ableforce, through its wholly-owned subsidiary Good Partner Limited, owns five
residential apartments located in Hong Kong.





The
Company currently has two subsidiaries, which are: Ableforce International
Limited and its wholly-owned subsidiary Good Partner Limited. Ableforce is
organized and existing under the laws of the British Virgin Islands, and Good
Partner Limited is organized and existing under the laws of Hong
Kong.





In
accordance with the requirements of the Statement of Financial Accounting
Standards No. 141 and indication from SEC staff as referred to EITF Abstracts
Issue No. 02-05, the Company has accounted for its acquisition of the stock of
Ableforce pursuant to the Share Exchange Agreement as a merger of the Company
and  Ableforce under common control since the business combination is
being effected through the transfer of assets to the Company in a share
exchange.





In
accordance with the requirements of generally accepted accounting practices, the
transactions contemplated by the Disposal Agreement had been accounted for in
the accounting records of the Company as a contribution from the majority
stockholder. The Company recorded a credit to additional paid-in capital to the
extent that the consideration received by the Company relating to these
transactions was higher than the net book values of these assets as reflected in
the accounting records of the Company as at the date of the consummation of the
Disposal Agreement.





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. Accordingly, the information and footnotes required by generally
accepted accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading. 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, 2008 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2008.





The
balance sheet at December 31, 2007 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.




- 6
-


PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES
 NOTES TO
FINANCIAL STATEMENTS
 (Amounts
in thousands, except share and per share data)







2.
ADOPTION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS




In 2006,
the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157,
"Fair Value Measurements" (SFAS 157), which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
and expands disclosures about fair value measurements. SFAS 157 applies under
other existing accounting pronouncements that require or permit fair value
measurement, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, SFAS 157 does not require any new fair value measurements. However,
the application of this statement may change the current practice for fair value
measurements. SFAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. The adoption of SFAS 157 did not have a material impact on the Company's
financial statements.





In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS 159"), which gives entities the option
to measure eligible financial assets, and financial liabilities at fair value
under other instrument basis, that are otherwise not permitted to be accounted
for at fair value under other accounting standards. The election to use the fair
value option is available when an entity first recognizes a financial asset or
financial liability. Subsequent changes in fair value must be recorded in
earnings. This statement is effective as of the beginning of a company's first
fiscal year after November 15, 2007. The Company has chosen not to elect the
option.





In
December 2007, the FASB issued SFAS No. 141R, Business Combinations ("SFAS
141R"), which broadens the guidance of SFAS No. 141, extending its applicability
to all transactions and other events in which one entity obtains control over
one or more other businesses. It broadens the fair value measurement and
recognition of assets acquired, liabilities assumed, and interests transferred
as a result of business combinations; and stipulated that acquisition related
costs be expensed rather than included as part of the basis of the acquisition.
SFAS 141R expands required disclosures to improve the ability to evaluate the
nature and financial effects of business combinations. SFAS 141R is effective
for all transactions entered into, on or after January 1, 2009. The adoption of
this Statement is not expected to have a material effect on the Company's
financial statements.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51 ("SFAS 160").
SFAS 160 requires a noncontrolling interest in a subsidiary to be reported as
equity and the amount of consolidated net income specifically attributable to
the noncontrolling interest to be identified in the consolidated financial
statements. SFAS 160 also calls for consistency in the manner of reporting
changes in the parent's ownership interest and required fair value measurement
of any noncontrolling equity investment retained in a deconsolidation. SFAS 160
is effective on January 1, 2009. The adoption of this Statement is not expected
to have a material effect on the Company's financial statements.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities – An Amendment of SFAS No. 133 ("SFAS 161"). SFAS 161 expands
the disclosure requirements in SFAS 133, regarding an entity's derivative
instruments and hedging activities. SFAS 161 is effective on January 1, 2009.
The adoption of this Statement is not expected to have a material effect on the
Company's financial statements.





In May
2008, the FASB issued SFAS No. 162. The Hierarchy of Generally Accepted
Accounting Principles ("SFAS 162"). The new standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles for non-governmental entities. SFAS 162 is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. The Company is currently evaluating
the impact of the adoption of SFAS 162 on the Company's financial
statements.





On
September 12, 2008, the FASB issued FASB staff position No. 133-1 (FSP 133-1)
and FIN 45-4, Disclosures about credit derivatives and Certain Guarantees – An
amendment of SFAS 133 and FIN 45; and Clarification of the Effective Date of
SFAS 161. FSP 13-1 and FIN 45-4 expand the disclosure requirement of credit
derivatives and guarantees and are effective for reporting periods (annual or
interim) ending after November 15, 2008. The adoption of these statements is not
expected to have a material effect on the Company's financial
statements.





In
October 10, 2008, the FASB issued a FASB Staff Position No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the Market For That Assets
Is Not Active (FSP 157-3), clarifies the application of SFAS 157 in a market
that is not active. Besides, The FASB also issued a FASB Staff Position No. FAS
157-2, Effective Date of FAS 13 Statement No. 157, amending SFAS 157 for non
financial assets and non financial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis lat least annually, until fiscal years beginning after November 15, 2008,
and interim period within these fiscal years. The adoption of these statements
is not expected to have a material effect on the Company's financial
statements.




- 7
-




PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES
 NOTES TO
FINANCIAL STATEMENTS
 (Amounts
in thousands, except share and per share data)







3.
DISCONTINUED OPERATIONS





As more
fully explained in note 1 to the financial statements, the Company entered into
the Disposal Agreement with Mr. Luk, which was consummated in February 2007, to
dispose of all its interests in Physical Limited, at nil
consideration.





The
results of the discontinued operations for the period ended September 30, 2007
are summarized as follows:





NINE
      MONTHS ENDED SEPTEMBER 30,2007
            
            2008
            
            2008HK$
            
            HK$
            
            US$Turnover
            77,881
            
            --
            
            --Operating
      costs
            (85,824
            )
            --
            
            --Finance
      costs
            (1,065
            )
            --
            
            --Other
      income
            366
            
            --
            
            --Loss
      before taxation
            (8,642
            )
            --
            
            --Taxation
            --
            
            --
            
            --Loss
      before minority interest
            (8,642
            )
            --
            
            --Minority interest
            (7
            )
            --
            
            --Net
      loss attributable to discontinued operations
            (8,649
            )
            --
            
            --





4.
LONG-TERM BANK LOANS





During
the period under review, the Company repaid HK$365 of its outstanding bank loans
which are secured by five residential properties owned by the Company. The
outstanding loan balances as of September 30, 2008 were analyzed as
follows:





PRINCIPAL
            
            INTEREST
      RATEHK$
            
            US$11,295
            
            1,448
            
            HK$
      prime – 3.2% to
              HK$
      prime – 3.15%





Maturities
of the long-term bank loans are as follows:





PRINCIPAL
            
            PAYABLE
      DURING THE FOLLOWING PERIODSHK$
            
            US$513
            
            66
            
            2008
      - 200910,782
            
            1,382
            
            2009
      - 202611,295
            
            1,448





5.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION





THREE
      MONTHS ENDED SEPTEMBER 30
            
            NINE
      MONTHS ENDED SEPTEMBER 302007
            
            2008
            
            2008
            
            2007
            
            2008
            
            2008HK$
            
            HK$
            
            US$
            
            HK$
            
            HK$
            
            US$Cash
      paid for:Interest
      expenses
            124
            
            65
            
            9
            
            1,439
            
            221
            
            29




- 8
-


PHYSICAL
PROPERTY HOLDINGS INC. AND SUBSIDIARIES


NOTES TO
FINANCIAL STATEMENTS
 (Amounts
in thousands, except share and per share data)






6.
DISPOSAL OF SUBSIDIARIES DURING THE NINE MONTHS ENDED SEPTEMBER 30,
2007





2007HK$Net
      assets disposed of:Property, plant and equipment
            
            114,925Investments
            
            2,740Inventories
            
            2,648Trade and other receivables
            
            79,760Cash and bank balances
            
            14,482Trade and other payables
            
            (284,059
            )Minority interest
            
            (459
            )Accumulated other comprehensive losses
            
            (2,062
            )(72,025
            )Goodwill realized upon disposal of subsidiaries
            
            6,791Amount
      transferred to additional paid-in capital
            
            (65,234
            )





Analysis
of outflow of cash and cash equivalents in respect of disposal of businesses
during the nine months ended September 30, 2007:





2007HK$Cash
      consideration
            
            --Cash
      and cash equivalents disposed
            
            (3,911
            )Net
      outflow of cash and cash equivalents
            
            (3,911
            )





7.
COMMITMENTS AND CONTINGENCIES





The
Company provided corporate guarantee to the extent of HK$8,000 to secure
overdraft facilities granted to a related company, of which HK$2,743 was
utilized as of December 31, 2007. The guarantee was cancelled in July, 2008 upon
the renewal of such facilities.





As of
September 30, 2008 and December 31, 2007, the Company had no material
outstanding commitment.








8.
RELATED PARTY TRANSACTIONS





During
the nine-month period ended September 30, 2008, the Company has made a net
repayment of HK$452 to a stockholder. The movements of the amount due to the
stockholder are analyzed as follows:





2008
            
            2008HK$
            
            US$Balance
      as at January 1, 2008
            531
            
            68Advance
      from the stockholder
            7,236
            
            927Repayment
      to the stockholder
            (7,743
            )
            (992
            )Expenses
      paid by the stockholder on behalf of the Company
            55
            
            7Balance
      as at September 30, 2008
            79
            
            10


- 9
-




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





PRELIMINARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS





ALL
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE
ACHIEVED.





Overview
of Company's Business:





The
Company, through its predecessor companies and its subsidiaries, had been an
established commercial operator of fitness and spa centers in Hong Kong and
China since 1986. The Company operated seventeen facilities: thirteen in Hong
Kong and four in China (including one in Macau). In addition, the Company was
appointed by an outside investor to manage a fitness and spa center in Dalian,
China. The Company also granted the use of the trade name to a third party for
operating a fitness and spa center in Hangzhou, China. The Company offered to
its customers, at each location, access to a wide range of U.S.-styled fitness
and spa services.





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





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





The
Company no longer engages in the spa and fitness business and is entirely
engaged in the real estate development business through its two subsidiaries
Good Partner Limited and Ableforce International Limited. Accordingly, the
Company’s results of operations included in this Quarterly Report on Form 10-Q
do not include the results of operations of the disposed
businesses.





The
Company’s common stock was the subject of an Order of Suspension of Trading
commencing on December 19, 2007 and terminating on January 3, 2008. The
Securities and Exchange Commission was of the opinion that the public interest
and the protection of investors required a suspension of trading in the
securities of the Company due to the adequacy and accuracy of press releases and
other publicly disseminated information concerning the Company.





- 10
-




RESULTS
OF OPERATIONS





Prior to
February 27, 2007, the Company's revenues were mainly derived from its two lines
of business of fitness and spa services in the following principal ways:
admission fees and monthly subscription fees from the fitness customers, and the
sale of beauty treatments and skin care products to the beauty
patrons.





Subsequent
to the entering into and consummation of the two material definitive agreements
as mentioned above, the Company’s principal activities have been changed from
fitness and spa businesses to properties investments.





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





Three
      Months Ended September 30
            
            
            Nine
      Months Ended September 302007
            
            
            2008
            
            
            2007
            
            
            2008Operating
      Revenues
            100.00
            %
            
            100.00
            %
            
            100.00
            %
            
            100.00
            %Total
      operating expenses
            1,001.18
            %
            
            136.16
            %
            
            546.73
            %
            
            271.51
            %Operating
      loss
            (901.18
            %)
            
            (36.16
            %)
            
            (446.73
            %)
            
            (171.51
            %)Loss
      before income taxes
            (974.56
            %)
            
            (72.88
            %)
            
            (516.64
            %)
            
            (211.76
            %)Provision
      for income taxes
            (7.69
            %)
            
            --
            
            
            (2.43
            %)
            
            --Net
      loss
            (982.25
            %)
            
            (72.88
            %)
            
            (2,135.70
            %)
            
            (211.76
            %)





THREE
MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED) COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2007 (UNAUDITED)





OPERATING
REVENUES. Operating revenues for the third quarter of 2008 totaled HK$177,000
(US$23,000) compared to HK$169,000 (US$22,000) for the third quarter of 2007.
This represented an increase of HK$8,000 (US$1,000) or 5%, mainly contributed
from the full occupancy of its residential apartments recorded for this
quarter.





OPERATING
EXPENSES. The Company's operating expenses totaled HK$241,000 (US$31,000), or
136% of operating revenues, for the third quarter of 2008, compared to
HK$1,692,000 (US$217,000), or 1,001% of operating revenues, for the third
quarter of 2007. This represented a decrease of HK$1,451,000 (US$186,000) or
86%, resulting from the full amortization of prepaid management consultancy fees
in June 2008.





TOTAL
NON-OPERATING EXPENSES. Total non-operating expenses for the third quarter of
2008 totaled HK$65,000 (US$8,000) compared to HK$124,000 (US$16,000) for the
third quarter of 2007. This represented a decrease of 48% due to reduction in
interest expenses as a result of interest saving from a refinancing arrangement
by the end of September 2007.





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$129,000 (US$16,000) for the third quarter of 2008,
compared to a net loss and total comprehensive loss of HK$1,660,000 (US$213,000)
for the third quarter of 2007. This represented a decrease of HK$1,531,000
(US$196,000), mainly due to less operating expenses incurred for this
quarter.





NINE
MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED) COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2007 (UNAUDITED)





OPERATING
REVENUES. Operating revenues for the first nine months of 2008 totaled
HK$544,000 (US$70,000) compared to HK$535,000 (US$69,000) for the same period
last year. This represented a slight increase of 2% reflecting the stabilization
in the property market.





OPERATING
EXPENSES. The Company's operating expenses totaled HK$1,477,000 (US$189,000), or
272% of operating revenues, for the first nine months of 2008, compared to
HK$2,925,000 (US$375,000), or 547% of operating revenues, for the first nine
months of 2007. This represented a decrease of HK$1,448,000 (US$186,000) or 50%,
mainly due to the full amortization of prepaid management consultancy fees in
June, 2008.





TOTAL
NON-OPERATING EXPENSES. Total non-operating expenses for the first nine months
of 2008 totaled HK$219,000 (US$29,000) compared to HK$374,000 (US$48,000) for
the first nine months of 2007. This represented a decrease of 41% as a result of
interest saving from a refinancing arrangement by the end of September
2007.





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$1,152,000 (US$148,000) for the first nine months of
2008, compared to a net loss and total comprehensive loss of HK$11,426,000
(US$1,465,000) for the first nine months of 2007. This represented a decrease of
HK$10,274,000 (US$1,317,000), mainly due to the net loss attributable to
discontinued operations in the first quarter of 2007.





- 11
-






LIQUIDITY
AND CAPITAL RESOURCES





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





Cash and
cash equivalent balances as of September 30, 2008 and December 31, 2007 were
HK$1,596,000 (US$204,000) and HK$2,549,000 (US$327,000),
respectively.





Net cash
provided by (used in) operating activities were HK$3,577,000 (US$459,000) and
HK$(134,000) (US$(18,000)) for the nine-month periods ended September 30, 2007
and 2008, respectively. The Company's operating activities were historically
financed by cash flows from operations.





Net cash
used in investing activities were HK$7,606,000 (US$975,000) and HK$2,000
(US$Nil) for the nine-month periods ended September 30, 2007 and 2008,
respectively.  The significant cash outflows in the nine-month period
ended September 30, 2007 were mainly due to (a) repayment made to related
companies and acquisition of equipment used in the spa and fitness business
prior to its disposal in February 2007; and (b) cash disposed of as a result of
the discontinuance of the spa and fitness business.





Net cash
provided by (used in) financing activities, which mainly include settlement of
bank loans, were HK$1,594,000 (US$204,000) and HK$(817,000) (US$(105,000)) in
the nine-month periods ended September 30, 2007 and 2008,
respectively.





During
the nine-month period ended September 30, 2008, the Company has not entered into
any transactions using derivative financial instruments or derivative commodity
instruments nor held any marketable equity securities of publicly traded
companies. Accordingly, the Company believes its exposure to market interest
rate risk and price risk is not material. The Company's long-term loans bear
effective interest rates varying from 2.3% to 2.35% per annum during the period.
The total balance outstanding as of September 30, 2008 on such loan was
HK$11,295,000 (US$1,448,000). The last repayment on the loan is due in
2026.





During
the nine-month period ended September 30, 2008, the Company has no material
purchases of investments.





CRITICAL
ACCOUNTING POLICIES





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





The
critical accounting policies and use of estimates are discussed in and should be
read in conjunction with the annual consolidated financial statements and notes
included in the latest Form 10-K/A and Form 10-K/A Amendment No. 2, as filed
with the SEC, which includes audited consolidated financial statements for the
three fiscal years ended December 31, 2007.





ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Since the
operations of the Company are solely operated in Hong Kong, they are subject to
similar considerations and risks typically associated with investments in the
real estate market of United States and Western European companies. These
include risks associated with, among others, interest rate and liquidity risk.
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 and the costs of available hedging for
its debt obligations.




LIQUIDITY
RISK





The
Company’s objective is to maintain a balance between continuity of funding and
flexibility through the use of its available cash and banking
facilities.





ITEM
4(A) - 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, 2008, that the design and
operation of the Company's "disclosure controls and procedures" (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange
Act")) are effective to ensure that information required to be disclosed in the
reports filed or submitted by the Company under the Exchange Act is accumulated,
recorded, processed, summarized and reported to the management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.





- 12
-






ITEM
4(A)T – INTERNAL CONTROL OVER FINANCIAL REPORTING





(a) The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934, as amended). Management conducted an
evaluation of the effectiveness of the Company’s internal control over financial
reporting based on the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this evaluation, management has concluded that the
Company’s internal control over financial reporting was effective as of
September 30, 2008.





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





(c) There
were no changes in the Company's internal controls over financial reporting,
known to the chief executive officer or the chief financial officer that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.







PART
II - OTHER INFORMATION





ITEM
1 - LEGAL PROCEEDINGS





There are
no pending material legal proceedings to which the Company or any of its
properties is subject, nor to the knowledge of the Company, are any such legal
proceedings threatened, except as described below.





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





Subsequently,
on or about January 11, 2008, the SEC sent a subpoena to the
Company for additional information and documents concerning the Company and
Score One, Inc. in furtherance of its investigation into potential spam e-mail
campaigns and securities fraud violations.  Management of the
Company has retained counsel and responded to the subpoena.





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





None.




ITEM
3 - DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





None.





ITEM
5 - OTHER INFORMATION





None.





ITEM
6 - EXHIBITS




31.1
            Certification
      of the Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule
      15d-14(a) of the Securities Exchange Act of 193431.2
            Certification
      of the Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule
      15d-14(a) of the Securities Exchange Act of 193432.1
            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
      200232.2
            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







- 13
-








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
      14, 2008
            /s/
      Ngai Keung LukNgai
      Keung LukChairman
      and Chief Executive Officer(Principal
      Executive Officer)November
      14, 2008
            /s/
      Darrie LamDarrie
      LamChief
      Financial Officer(Principal
      Financial and Accounting Officer)









- 14
-