----

----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**FORM      10-Q**

**September 30, 2007**

**Nox**

** 0-26573**

**PHYSICAL      PROPERTY HOLDINGS INC.**

| **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**

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

**Yes      x**

----

*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC.**

**TABLE      OF CONTENTS**

|                                                                                                                                         |                                                                                                                                                                   | **PAGE**                            |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------|
|                                                                                                                                         |                                                                                                                                                                   |                                |
| **PART                I - FINANCIAL INFORMATION**                                                                                            |                                                                                                                                                                   |
|                                                                                                                                         |                                                                                                                                                                   |                                |
| ITEM                1.   FINANCIAL STATEMENTS                                                                                 | 3                                                                                                                                                                      |
|                                                                                                                                         |                                                                                                                                                                   |                                |
|                                                                                                                                         | Condensed                Consolidated Statements of Operations for the three-month and nine-month                periods ended September 30, 2006 and 2007 (Unaudited) | 3                                   |
|                                                                                                                                         |                                                                                                                                                                   |                                |
|                                                                                                                                         | Condensed                Consolidated Balance Sheets at December 31, 2006 and September 30,                2007                (Unaudited)                             | 4                                   |
|                                                                                                                                         |                                                                                                                                                                   |                                |
|                                                                                                                                         | Condensed                Consolidated Statements of Cash Flows for the nine-month periods                ended                September 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                            | 12                                                                                                                                                                     |
|                                                                                                                                         |                                                                                                                                                                   |                                |
| ITEM                4.   CONTROLS AND PROCEDURES                                                                              |  12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                                   |                                |
| **PART                II - OTHER INFORMATION**                                                                                               |  12                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                                   |                                |
| 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                                                                                    |  13                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                                   |                                |
| ITEM                6.   EXHIBITS AND REPORTS ON FORM 8-K                                                                     |  13                                                                                                                                                               |
|                                                                                                                                         |                                                                                                                                                                   |                                |
|                                                                                                                                         | SIGNATURES                                                                                                                                                             |  13                            |

----

*Table            of Contents*

**PART      I - FINANCIAL INFORMATION**

**ITEM      1.   FINANCIAL STATEMENTS**

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

|                                                                                                       |   |     |   |   | Three                months ended September 30, |   |    | Nine                months ended September 30, |   |
|------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|-------------------------------------------------|--------|---------|------------------------------------------------|--------|
|                                                                                                       |   | **Note** |   |   | 2006                                            |   |    | 2007                                           |   |   | 2007 |   |   | 2006 |   |   | 2007 |   |   | 2007 |   |
|                                                                                                       |   |     |   |   | HK$                                             |   |    | HK$                                            |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Continuing                Operations**                                                                   |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                Revenues                                                                          |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rental                income                                                                               |   |     |   |   |                                            | 179    |    |                                           |   | 169 |   |   |   | 22 |   |   |   | 565 |   |   |   | 535 |   |   |   | 69 |   |
| Total                operating revenues                                                                    |   |     |   |   |                                            | 179    |    |                                           |   | 169 |   |   |   | 22 |   |   |   | 565 |   |   |   | 535 |   |   |   | 69 |   |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating                Expenses**                                                                      |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent                and related expenses                                                                   |   |     |   |   |                                            | (36    | )       |                                           |   | (25 | ) |   |   | (3 | ) |   |   | (98 | ) |   |   | (79 | ) |   |   | (10 | ) |
| Depreciation                                                                                               |   |     |   |   |                                            | (81    | )       |                                           |   | (71 | ) |   |   | (9 | ) |   |   | (223 | ) |   |   | (213 | ) |   |   | (27 | ) |
| Other                selling and administrative expenses                                                   |   |     |   |   |                                            | (66    | )       |                                           |   | (1,596 | ) |   |   | (205 | ) |   |   | (162 | ) |   |   | (2,633 | ) |   |   | (338 | ) |
| Total                operating expenses                                                                    |   |     |   |   |                                            | (183   | )       |                                           |   | (1,692 | ) |   |   | (217 | ) |   |   | (483 | ) |   |   | (2,925 | ) |   |   | (375 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (Loss)                Profit from operations                                                               |   |     |   |   |                                            | (4     | )       |                                           |   | (1,523 | ) |   |   | (195 | ) |   |   | 82 |   |   |   | (2,390 | ) |   |   | (306 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Non-operating                expenses**                                                                  |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest                expenses                                                                           |   |     |   |   |                                            | (148   | )       |                                           |   | (124 | ) |   |   | (16 | ) |   |   | (436 | ) |   |   | (374 | ) |   |   | (48 | ) |
| Total                non-operating expenses                                                                |   |     |   |   |                                            | (148   | )       |                                           |   | (124 | ) |   |   | (16 | ) |   |   | (436 | ) |   |   | (374 | ) |   |   | (48 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes                                                                    |   |     |   |   |                                            | (152   | )       |                                           |   | (1,647 | ) |   |   | (211 | ) |   |   | (354 | ) |   |   | (2,764 | ) |   |   | (354 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for income taxes                                                                  |   |     |   |   |                                            | --     |    |                                           |   | (13 | ) |   |   | (2 | ) |   |   | -- |   |   |   | (13 | ) |   |   | (2 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                from continuing operations                                                             |   |     |   |   |                                            | (152   | )       |                                           |   | (1,660 | ) |   |   | (213 | ) |   |   | (354 | ) |   |   | (2,777 | ) |   |   | (356 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Discontinued                Operations**                                                                 |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss attributable to discontinued operations                                            |   |     | 3      |   |                                            |   | (13,660 | )                                              |   |   | -- |   |   |   | -- |   |   |   | (25,027 | ) |   |   | (8,649 | ) |   |   | (1,109 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss and total comprehensive loss                                                       |   |     |   |   |                                            |   | (13,812 | )                                              |   |   | (1,660 | ) |   |   | (213 | ) |   |   | (25,381 | ) |   |   | (11,426 | ) |   |   | (1,465 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss                per share of common stock                                                              |   |     |   |   |                                            |   | (1.38   | )                                              |   |   | (0.06 | ) |   |   | (0.01 | ) |   |   | (2.54 | ) |   |   | (0.47 | ) |   |   | (0.06 | ) |
|                                                                                                       |   |     |   |   |                                            |   |    |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of shares of common stock outstanding (in                thousands) |   |     |   |   |                                            |   | 10,000  |                                           |   |   | 28,329 |   |   |   | 28,329 |   |   |   | 10,000 |   |   |   | 24,079 |   |   |   | 24,079 |   |

**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 |    |   | September                30,2007 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   | (Unaudited) |   |
|                                                                                                                                                                                                                                           |   | **Note** |   |   | HK$                              |    |   | HK$ |   |   | **US$** |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |
| **ASSETS**                                                                                                                                                                                                                                     |   |     |   |   |                             |    |   |   |   |   |   |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |
| Current                assets                                                                                                                                                                                                                  |   |     |   |   |                             |    |   |   |   |   |   |   |
| Cash                and bank balance                                                                                                                                                                                                           |   |     |   |   |                             | 2,436   |   |   |   | 1 |   |   |   | -- |   |
| Marketable                securities, collateralized                                                                                                                                                                                           |   |     |   |   |                             | 1,750   |   |   |   | -- |   |   |   | -- |   |
| Due                from related companies                                                                                                                                                                                                      |   |     |   |   |                             | --      |   |   |   | 2,716 |   |   |   | 348 |   |
| Trade                receivables                                                                                                                                                                                                               |   |     |   |   |                             | 19,067  |   |   |   | -- |   |   |   | -- |   |
| Other                receivables                                                                                                                                                                                                               |   |     |   |   |                             | 8,396   |   |   |   | 42 |   |   |   | 5 |   |
| Rental                and utility deposits                                                                                                                                                                                                     |   |     |   |   |                             | 32,983  |   |   |   | 26 |   |   |   | 3 |   |
| Prepayments                to vendors and suppliers and other current assets                                                                                                                                                                   |   |     |   |   |                             | 6,753   |   |   |   | 1,391 |   |   |   | 179 |   |
| Inventories                                                                                                                                                                                                                                    |   |     |   |   |                             | 2,814   |   |   |   | -- |   |   |   | -- |   |
| Income                taxes recoverable                                                                                                                                                                                                        |   |     |   |   |                             | 2,094   |   |   |   | -- |   |   |   | -- |   |
|       Total                current assets                                                                                                                                                                        |   |     |   |   |                             | 76,293  |   |   |   | 4,176 |   |   |   | 535 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
| 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$322 as                of                September 30, 2007 (2006: HK$343,370)                                                                              |   |     |   |   |                             | 124,157 |   |   |   | 3,008 |   |   |   | 386 |   |
| Goodwill,                net                                                                                                                                                                                                                   |   |     |   |   |                             | 6,791   |   |   |   | -- |   |   |   | -- |   |
| Lease                premium for land, net                                                                                                                                                                                                     |   |     |   |   |                             | 8,430   |   |   |   | 8,274 |   |   |   | 1,061 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
| **Total                assets**                                                                                                                                                                                                                |   |     |   |   |                             | 231,761 |   |   |   | 15,458 |   |   |   | 1,982 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' (DEFICIT) EQUITY**                                                                                                                                                                              |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
| Current                liabilities                                                                                                                                                                                                             |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |
| Short-term                bank loans                                                                                                                                                                                                           |   |     |   |   |                             | 6,170   |   |   |   | 41 |   |   |   | 5 |   |
| Long-term                bank loans - current portion                                                                                                                                                                                          |   |     | 4      |   |                             |    | 1,536 |   |   |   | 399 |   |   |   | 51 |   |
| Due                to a stockholder                                                                                                                                                                                                            |   |     |   |   |                             |    | -- |   |   |   | 488 |   |   |   | 63 |   |
| Trade                payables                                                                                                                                                                                                                  |   |     |   |   |                             |    | 2,878 |   |   |   | -- |   |   |   | -- |   |
| Other                payables                                                                                                                                                                                                                  |   |     |   |   |                             |    | 50,718 |   |   |   | 122 |   |   |   | 16 |   |
| 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 |   |   |   | 1,050 |   |   |   | 135 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |   |
| 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 |   |   |   | 11,361 |   |   |   | 1,457 |   |
| 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 | ) |   |   | (70,782 | ) |   |   | (9,075 | ) |
|       Total                stockholders' (deficit) equity                                                                                                                                                        |   |     |   |   |                             |    | (55,138 | ) |   |   | 3,047 |   |   |   | 390 |   |
|                                                                                                                                                                                                                                           |   |     |   |   |                             |    |   |   |   |   |   |   |   |   |   |   |
| **Total                liabilities and stockholders' (deficit) equity**                                                                                                                                                                        |   |     |   |   |                             |    | 231,761 |   |   |   | 15,458 |   |   |   | 1,982 |   |

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

----

*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

|                                                                                                          |   |     |   |   | Nine                Months Ended September 30, |    |
|---------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|------------------------------------------------|---------|
|                                                                                                          |   |     |   |   | 2006                                           |    |   | 2007 |   |   | 2007 |   |
|                                                                                                          |   | **Note** |   |   | HK$                                            |    |   | HK$ |   |   | **US$** |   |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |
| **Cash                flows from operating activities**                                                       |   |     |   |   |                                           |    |   |   |   |   |   |   |
| Net                loss                                                                                       |   |     |   |   |                                           | (25,381 | ) |   |   | (11,426 | ) |   |   | (1,465 | ) |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |
| Adjustments                to reconcile net loss to net cash provided by operating                activities: |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |
|     Minority                interests                                                     |   |     |   |   |                                           | 224     |   |   |   | 7 |   |   |   | 1 |   |
|     Depreciation                                                                          |   |     |   |   |                                           | 35,249  |   |   |   | 7,331 |   |   |   | 940 |   |
|     Loss                on disposal of property, plant and equipment                      |   |     |   |   |                                           | 109     |   |   |   | -- |   |   |   | -- |   |
| Changes                in working capital:                                                                    |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |
|     Trade                and other receivables                                            |   |     |   |   |                                           | 843     |   |   |   | (1,725 | ) |   |   | (221 | ) |
|     Deposits,                prepayments and other current assets                         |   |     |   |   |                                           | (7,311  | ) |   |   | 1,289 |   |   |   | 165 |   |
|     Inventories                                                                           |   |     |   |   |                                           | 1,790   |   |   |   | 166 |   |   |   | 21 |   |
|     Trade                and other payables                                               |   |     |   |   |                                           | (6,182  | ) |   |   | (10,039 | ) |   |   | (1,287 | ) |
|     Deferred                income                                                        |   |     |   |   |                                           | 12,507  |   |   |   | 17,849 |   |   |   | 2,288 |   |
|     Deferred                liabilities                                                   |   |     |   |   |                                           | (2,380  | ) |   |   | (338 | ) |   |   | (43 | ) |
|     Income                taxes payable/recoverable                                       |   |     |   |   |                                           | 166     |   |   |   | 773 |   |   |   | 99 |   |
|     Taxes                other than income                                                |   |     |   |   |                                           | 104     |   |   |   | (310 | ) |   |   | (40 | ) |
| **Net                cash provided by operating activities**                                                  |   |     |   |   |                                           | 9,738   |   |   |   | 3,577 |   |   |   | 458 |   |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |
| **Cash                flows from investing activities**                                                       |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |
|     Acquisition                of property, plant and equipment                           |   |     |   |   |                                           | (7,047  | ) |   |   | (951 | ) |   |   | (122 | ) |
|     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                               |   |     |   |   |                                           |    | (1,268 | ) |   |   | (28 | ) |   |   | (4 | ) |
|     Due                from a stockholder                                                 |   |     |   |   |                                           |    | 912 |   |   |   | (1,027 | ) |   |   | (132 | ) |
|     Due                from related companies                                             |   |     |   |   |                                           |    | -- |   |   |   | (2,716 | ) |   |   | (348 | ) |
| **Net                cash used in investing activities**                                                      |   |     |   |   |                                           |    | (5,851 | ) |   |   | (8,633 | ) |   |   | (1,107 | ) |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
| **Cash                flows from financing activities**                                                       |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
|     Settlement                of short-term bank loans                                    |   |     |   |   |                                           |    | (3,855 | ) |   |   | (25 | ) |   |   | (3 | ) |
|     Proceeds                from long-term bank loans                                     |   |     |   |   |                                           |    | 510 |   |   |   | 11,760 |   |   |   | 1,508 |   |
|     Repayment                of long-term bank loans                                      |   |     |   |   |                                           |    | (972 | ) |   |   | (8,847 | ) |   |   | (1,134 | ) |
|     Capital                element of capital lease rental payments                       |   |     |   |   |                                           |    | (397 | ) |   |   | (267 | ) |   |   | (34 | ) |
| **Net                cash (used in) provided by financing activities**                                        |   |     |   |   |                                           |    | (4,714 | ) |   |   | 2,621 |   |   |   | 337 |   |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
| Net                decrease in cash and cash equivalents                                                      |   |     |   |   |                                           |    | (827 | ) |   |   | (2,435 | ) |   |   | (312 | ) |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at beginning of period                                               |   |     |   |   |                                           |    | 2,484 |   |   |   | 2,436 |   |   |   | 312 |   |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
| Cumulative                translation adjustments                                                             |   |     |   |   |                                           |    | 33 |   |   |   | -- |   |   |   | -- |   |
|                                                                                                          |   |     |   |   |                                           |    |   |   |   |   |   |   |   |   |   |   |
| Cash                and cash equivalents at end of period                                                     |   |     |   |   |                                           |    | 1,690 |   |   |   | 1 |   |   |   | -- |   |

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

----

*Table            of Contents*

**PHYSICAL      PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES      TO FINANCIAL STATEMENTS**

**1.      BASIS OF PRESENTATION**

----

*Table          of Contents*

**PHYSICAL        PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES        TO FINANCIAL STATEMENTS**

**2.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**

**3.      DISCONTINUED OPERATIONS**

|                                                                                   |   | Three                months ended September 30, |     |   | Nine                months ended September 30, |   |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------------|----------|--------|------------------------------------------------|--------|
|                                                                                   |   | 2006                                            |     |   | **2007**                                       |   |   | **2007** |   |   | 2006 |   |   | **2007** |   |   | **2007** |   |
|                                                                                   |   | HK$                                             |     |   | HK$                                            |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                                   |   |                                            |     |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Turnover                                                                               |   |                                            | 108,256  |   |                                           |   | -- |   |   |   | -- |   |   |   | 328,837 |   |   |   | 77,881 |   |   |   | 9,985 |   |
| Operating                costs                                                         |   |                                            | (121,854 | )      |                                           |   | -- |   |   |   | -- |   |   |   | (353,696 | ) |   |   | (85,824 | ) |   |   | (11,003 | ) |
| Finance                costs                                                           |   |                                            | (455     | )      |                                           |   | -- |   |   |   | -- |   |   |   | (1,169 | ) |   |   | (1,065 | ) |   |   | (137 | ) |
| Other                income                                                            |   |                                            | 172      |   |                                           |   | -- |   |   |   | -- |   |   |   | 1,226 |   |   |   | 366 |   |   |   | 47 |   |
|     Loss                before taxation                            |   |                                            | (13,881  | )      |                                           |   | -- |   |   |   | -- |   |   |   | (24,802 | ) |   |   | (8,642 | ) |   |   | (1,108 | ) |
| Taxation                                                                               |   |                                            | --       |   |                                           |   | -- |   |   |   | -- |   |   |   | (1 | ) |   |   | -- |   |   |   | -- |   |
|     Loss                before minority interest                   |   |                                            | (13,881  | )      |                                           |   | -- |   |   |   | -- |   |   |   | (24,803 | ) |   |   | (8,642 | ) |   |   | (1,108 | ) |
| Minority                interest                                                       |   |                                            | 221      |   |                                           |   | -- |   |   |   | -- |   |   |   | (224 | ) |   |   | (7 | ) |   |   | (1 | ) |
|     Net                loss attributable to discontinued operation |   |                                            | (13,660  | )      |                                           |   | -- |   |   |   | -- |   |   |   | (25,027 | ) |   |   | (8,649 | ) |   |   | (1,109 | ) |

**4.      LONG-TERM BANK LOANS**

| Principal |   | Interest                Rate |   | Maturity                                                       |
|-----------|--------|------------------------------|--------|----------------------------------------------------------------|
| HK$       |   | **US$**                      |   |                                                           |   |   |
|      |   |                         |   |                                                           |   |   |
| 11,760    |   | 1,508                        |   | HK$                prime – 3.2%, HK$ prime – 3.15% |   | 2026 |

| Principal |   | Payable                During the Following Periods |
|-----------|--------|-----------------------------------------------------|
| HK$       |   | **US$**                                             |   |   |
|      |   |                                                |   |   |
| 399       |   | 51                                                  |   | 2007 |
|      |   |                                                |   |   |
| 11,361    |   | 1,457                                               |   | 2008                – 2026 |
|      |   |                                                |   |   |
| 11,760    |   | 1,508                                               |   |   |

----

*Table          of Contents*

**PHYSICAL        PROPERTY HOLDINGS INC. AND SUBSIDIARIES**

**NOTES        TO FINANCIAL STATEMENTS**

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

|                                                                             |   | Three                months ended September 30, |   |   | Nine                months ended September 30, |   |
|----------------------------------------------------------------------------------|--------|-------------------------------------------------|--------|--------|------------------------------------------------|--------|
|                                                                             |   | 2006                                            |   |   | **2007**                                       |   |   | **2007** |   |   | 2006 |   |   | **2007** |   |   | **2007** |   |
|                                                                             |   | HK$                                             |   |   | HK$                                            |   |   | **US$** |   |   | HK$ |   |   | HK$ |   |   | **US$** |   |
|                                                                             |   |                                            |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                paid for:                                                    |   |                                            |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Interest                expenses                   |   |                                            | 148    |   |                                           |   | 124 |   |   |   | 16 |   |   |   | 1,605 |   |   |   | 1,439 |   |   |   | 185 |   |
|                                                                             |   |                                            |   |   |                                           |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 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 |   |

**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 | ) |

----

*Table            of Contents*

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

----

*Table          of Contents*

|                                      |   | Three                Months Ended September 30, |      |   | Nine                Months Ended September 30, |   |
|-------------------------------------------|--------|-------------------------------------------------|-----------|--------|------------------------------------------------|--------|
|                                      |   | 2006                                            |      |   | **2007**                                       |   |   | 2006 |   |   | **2007** |   |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |
| Operating                Revenues         |   |                                            | 100.00    | %      |                                           |   | 100.00 | % |   |   | 100.00 | % |   |   | 100.00 | % |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Total                operating expenses   |   |                                            | 102.23    | %      |                                           |   | 1,001.18 | % |   |   | 85.49 | % |   |   | 546.73 | % |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Operating                (loss) profit    |   |                                            | (2.23     | %)     |                                           |   | (901.18 | %) |   |   | 14.51 | % |   |   | (446.73 | %) |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Loss                before income taxes   |   |                                            | (84.92    | %)     |                                           |   | (974.56 | %) |   |   | (62.65 | %) |   |   | (516.64 | %) |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Provision                for income taxes |   |                                            | --        |   |                                           |   | -- |   |   |   | -- |   |   |   | -- |   |
|                                      |   |                                            |      |   |                                           |   |   |   |   |   |   |   |   |   |   |   |
| Net                loss                   |   |                                            | (7,716.20 | %)     |                                           |   | (982.25 | %) |   |   | (4,492.21 | %) |   |   | (2,135.70 | %) |

----

*Table          of Contents*

|                                                                                                                                     |   | (in                thousands)                  |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                                     |   | Nine                months ended September 30, |   |
|                                                                                                                                     |   | **2006**                                       |   |   | 2007 |   |   | 2007 |   |
|                                                                                                                                     |   | HK$                                            |   |   | HK$ |   |   | **US$** |   |
|                                                                                                                                     |   |                                           |   |   |   |   |   |   |   |
| Cash                purchases of property, plant and equipment                                                                           |   |                                           | 7,047  |   |   |   | 951 |   |   |   | 122 |   |
| Non-cash                property, plant and equipment purchases financed through capital                lease                obligations |   |                                           | 848    |   |   |   | -- |   |   |   | -- |   |
| **Total                capital expenditures**                                                                                            |   |                                           | 7,895  |   |   |   | 951 |   |   |   | 122 |   |

|                                                                                                                  |   | (in                thousands)                  |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
|                                                                                                                  |   | Nine                months ended September 30, |   |
|                                                                                                                  |   | **2006**                                       |   |   | 2007 |   |   | 2007 |   |
|                                                                                                                  |   | HK$                                            |   |   | HK$ |   |   | **US$** |   |
|                                                                                                                  |   |                                           |   |   |   |   |   |   |   |
| Capital                expenditures for purchase of property, plant and equipment                                     |   |                                           | --     |   |   |   | 951 |   |   |   | 122 |   |
| Capital                expenditures for maintenance and updating existing centers and corporate                office |   |                                           | 7,895  |   |   |   | -- |   |   |   | -- |   |
| **Total                capital expenditures**                                                                         |   |                                           | 7,895  |   |   |   | 951 |   |   |   | 122 |   |

----

*Table          of Contents*

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

**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**

----

*Table          of Contents*

**ITEM      5 - OTHER INFORMATION**

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

**SIGNATURES**

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

----

*Table            of Contents*