1. Risk Factors 

Economy and Tourism in Thailand

  As most of the Company’s revenue is generated from tourism and
  property sales in Thailand, the Company has exposure to both the world
  and Thai economies and the tourism industry in Thailand. Any
  conditions, such as changes in the attractiveness of Thailand as a
  tourism destination, an economic downturn, acts of terrorism, natural
  disasters, increased levels of criminal activity, civil unrest or
  epidemics which affect tourism in Thailand or result in a depression
  in property values in Phuket, may have an adverse effect on the
  Company’s business, financial condition, profitability and results of
  operations.

The world economy was volatile in 2008 with highly fluctuating oil prices, rising inflation and turmoil in financial markets spurned by the lack of liquidity coupled with the impact in investor confidence. The Company is seeking to penetrate into new markets (e.g. China) in order to diversify and limit reliance on the traditional key markets in prior years.

  1.2 Political Uncertainty

Thailand's tourism industry was adversely impacted following the closure of Phuket Airport by anti-government protesters in late August 2008 followed by the closure of Don Muang and Suvarnabhumi Airports in Bangkok at the end of November 2008. These events were internationally publicized and created a negative perception of Thailand as being a safe place to travel for foreign tourists and to invest.

1.3 Currency Fluctuation

  In the past, a significant portion of the rooms revenue and property
  sales were denominated in hard currencies, predominantly the US
  dollar. Because the vast majority of the expenses were incurred in
  Thai Baht, changes in the value of the Thai Baht against the US dollar
  could cause fluctuations in the results of the operations. During
  2008, the hotels successfully negotiated with wholesalers to contract
  rates in the currency of key source markets. For example, UK sourced
  business is now in pounds, European sourced business is now in Euros
  and Asian sourced business is now in Baht. Furthermore, all properties
  are now sold in Baht. Therefore, the risk from currency fluctuation is
  now being reduced.

  The Company does not have significant assets or liabilities
  denominated in foreign currencies with the exception of a financial
  instrument which has hedged the impact of the movement in Thai Baht:
  US dollar exchange rate on the reported financial results. This
  financial instrument has effectively converted Thai Baht loans to US
  dollar denominated loans and as a result the impact on exchange rate
  movements on the US dollar revenue streams are hedged by the resulting
  exchange gain or loss on the restatement on these US dollar
  denominated loans in the financial statements.

1.4 Competition

1.4.1 Destination

  Bali is the main direct competitor to Phuket within the region.
  Fortunately, Bali’s and Phuket’s high and low seasons are out of phase
  with one another, and the rate strategies are not greatly affected by
  Bali. Other destinations are emerging within both Thailand and the
  region but are not yet sufficiently developed to represent a
  significant threat at this point in time.

  Despite a downturn in tourist arrivals resulting form the economic and
  political events in 2008, Phuket is expected to remain as a popular
  destination for tourists with no significant competition from other
  emerging markets due to Phuket’s superior infrastructure and
  facilities.

1.4.2 Hotels

  The competitive set of the Laguna Phuket hotels comprises the JW
  Marriott Resort & Spa, the Anantara Phuket Resort, Le Meridien Phuket
  Beach Resort, Sala Phuket Resort & Spa, Twinpalms Phuket Resort, the
  Movenpick Resort & Spa, the Hilton Arcadia Resort & Spa and to a
  lesser extent the Amanpuri and Trisara, all of which are located in
  Phuket. There are still relatively few five-star hotel projects that
  are under construction. The only new projects that would be considered
  to be in the competitive set are the Marriott Courtyard at Surin and
  the Six Senses Destination Spa which commenced operations in 2008. The
  timely renovation of the Laguna Phuket hotels will ensure the product
  offering is up-to-date and remains competitive.

  1.4.3 Low Season

  Low season in Phuket is from May until October and the hotels normally
  run at lower occupancies with reduced room rates mainly targeting
  regional markets. The continued growth of low cost airlines and
  penetration into new market segments will assist in driving business
  during the low season. The hotels in Laguna Phuket also undertake
  joint marketing efforts targeting the regional market, as well as the
  meetings and incentives business. One such example is the “Laguna
  Phuket Plus” campaign which has been a particular success in Laguna
  Phuket’s competitive advantage, and will continue to be further
  enhanced.

1.5 Land Title

  In recent years, there have been a number of disputes in Thailand
  relating to property owners having valid title to their properties.
  Although the Company is confident that it has valid title to all the
  land upon which it operates or which is for sale by it in Thailand,
  there can be no assurance that other parties will not challenge the
  claim of title. Even if such challenges are not successful, they may
  have a material adverse effect on the property sales business in
  Thailand if purchasers express concern that the Company is unable to
  transfer good title to them.

1.6 Thai Labour Laws

  Nearly all of the employees are based in Thailand. Labour laws in
  Thailand are highly protective of employees. Under Thai labour laws,
  the Company is generally prohibited from discharging employees without
  compensation absent gross misconduct, neglect, or acts of dishonesty.
  As such, the Company has limited measures at disposal to reduce
  headcount in order to increase efficiencies, reduce costs or achieve
  similar objectives. During crises in recent years such as outbreak of
  SARS in 2003 and effects of Tsunami in 2005, the Company was
  restricted from dismissing employees and could only institute a
  voluntary unpaid leave program. The Company has been restricted in the
  past and expects in the future to be limited to using voluntary
  separation plans where the Company is required to pay high amounts of
  severance pay and similar measures under which selected employees may
  elect to leave the Company in return for lump-sum compensation
  packages and other benefits.

  1.7 Operating Risks Inherent in the Hospitality Industry

  The hotels are subject to operating risks inherent in the hospitality
  industry. These risks include:

-   Seasonality of the industry in that the Company is subject to
    different levels of tourism and business/commercial travel across
    the year, and thereby the revenues tend to vary within the year;

-   The dependence on travel patterns and preferences with respect to
    Phuket;

-   Changes in regulatory conditions in Thailand;

-   Periodic local oversupply of or reduced demand for guest
    accommodation, which may adversely affect occupancy rates and actual
    room rates achieved;

-   Changes in general, regional and local economic conditions which may
    effect, among other things, the disposable income of consumers and
    the traveling public and which may not be offset by increased
    revenues;

-   Regional and local political and social conditions affecting market
    demand, including crime, civil disorder and terrorism;

-   Epidemics affecting the travel and tourism industries;

-   Travel advisories cautioning people to defer and/or avoid travel;

-   Foreign exchange rate movement;

-   Convenience of access to Thailand and in particular the airline
    capacity into Thailand and Phuket; and

-   Adverse weather conditions and natural disasters such as the Asian
    Tsunami which occurred at the end of 2004.

1.8 Operating Risks in the Property Industry

  The property sales are subject to operating risks inherent in the
  property industry. These risks include:

-   Changes in general, regional and local economic and political
    conditions which may effect, among other things, the disposable
    income of buyers and their confidence in the Phuket property market;

-   The difficulty in obtaining local bank financing by foreign buyers
    which may affect the future demand for properties;

-   The ability to generate sustainable investment returns which may
    affect the future demand for properties;

-   Foreign exchange rate movement which may affect the pricing and
    affordability of property for foreign buyers;

-   Developing new and innovative product designs which will appeal to
    buyers;

-   Provision of high quality after sales services to retain strong
    brand loyalty and buyer satisfaction;

-   Changes in regulatory conditions in Thailand which may impose
    restrictions on buyers, future development of land or types of
    product offerings;

-   Rising construction costs which may affect operating margins if
    selling prices cannot be adjusted accordingly; and

-   The ability to source and retain quality building contractors who
    can deliver a quality product on time.

  Any of these factors could have an adverse effect on the business and
  management monitor each of these closely so that the strategies can be
  quickly adapted to any changes in the operating environment.