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 and performance.

The Company continually seeks new markets in order to limit reliance on a single or few markets.

  1.2 Political Uncertainty

Thailand's tourism industry was adversely impacted from the airport blockades by anti-government protesters in 2008 which eventually resulted in a change of government. 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. There continues to be political tension in Thailand which may result in future political instability which could adversely impact the tourism sector and investor sentiment.

1.3 Interest Rate Fluctuation

  The Company’s exposure to interest rate risk relates primarily to the
  deposits with financial institutions, long-term trade accounts
  receivable and bank overdrafts and loans. Most of the financial assets
  and liabilities have floating interest rates or fixed interest rate as
  disclosed in the notes of financial statements and the interest rate
  risk is expected to be minimal. The Company does not use derivative
  financial instruments to hedge such risk.

1.4 Foreign Currency Fluctuation

  The Company has a financial instrument which has hedged the impact of
  the movement in Thai Baht: US dollar exchange rate on the reported
  financial results, as disclosed in the notes of financial statements.
  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.

1.5 Competition

1.5.1 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.

  Phuket is expected to remain as a popular destination compared to
  other emerging markets due to Phuket’s superior infrastructure and
  facilities. This includes an approved upgrade of the Phuket
  International Airport which once complete will result in increased
  capacity from the current 6.5 million to 11.5 million passengers per
  year.

1.5.2 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, the Marriott
  Courtyard and to a lesser extent the Amanpuri, Trisara and Six Senses
  Destination Spa, all of which are located in Phuket. There are still
  relatively few five-star hotel projects that are under construction
  with several projects being suspended or delayed due to the global
  financial crisis. The increased supply of new hotels and serviced
  apartments in Bangkok has resulted in a highly competitive market for
  Banyan Tree Bangkok hotel. The timely renovation of the Company’s
  hotels will ensure the product offering is up-to-date and remains
  competitive.

  1.5.3 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.

1.6 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.

1.7 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 the tsunami
  and the global economic crisis, 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.

  1.8 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 destination preferences;

-   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.

1.9 Operating Risks in the Property Industry

  The property sales business is 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 movements 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.