PART II

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 global financial crisis which started in 2008 and the prolonged
  Thai political turmoil in recent years revealed the Company’s
  vulnerability and confirmed the Company’s concerns that it has too
  much exposure in Phuket and Thailand. As a result, the Company has
  reduced its investment portfolio in Phuket by disposing of Dusit Thani
  Laguna Phuket and Laguna Beach Resort in October 2010 and May 2011
  respectively.

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 has been adversely impacted in recent years from ongoing political tensions especially violent political protests in central Bangkok during 2010. 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. Political uncertainty in Thailand may 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 the financial statements and the interest
  rate risk is not expected to be significant. 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 the 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 of these US
  dollar denominated loans in the financial statements. The relative
  strength of the Thai Baht as compared to the currencies in the UK and
  European markets in recent times has also made Thailand a more
  expensive tourism destination for these market segments.

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 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.

  1.7 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.

-   Competition from new resorts and hotels both locally and within the
    region.

-   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
    affect, 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 floods
    in late 2011.

1.8 Operating Risks Inherent 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 affect, 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.