1. Risk Factors

1.1 Currency Fluctuation

  A significant portion of the rooms revenue is denominated in hard
  currencies, predominantly the US dollar. Because the vast majority of
  the expenses are incurred in Thai Baht, changes in the value of the
  Thai Baht against the US dollar can cause fluctuations in the results
  of the operations. Depreciation in the US dollar against the Thai Baht
  would consequently have an adverse effect on reported financial
  results. In addition, an appreciation of the Thai Baht against other
  currencies may increase the value of the properties for sale making
  them more expensive and less affordable to foreign buyers.

  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.

1.2 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 tourism industry in Thailand has been particularly impacted in the
  last several years by terrorist attacks in New York and Bali, the Iraq
  War, SARS, Bird Flu and the Asian Tsunami. These events have had a
  flow on effect onto the Company’s results. Conversely the property
  market in Phuket has grown significantly since 2003 although a slow
  down was experienced in 2005 following the Tsunami. Property sales has
  been an important growth area for the Company and will assist in
  diversifying risk.

1.3 Competition

1.3.1 Destination

  Bali is the main direct competitor to Phuket within the region.
  Subsequent to the October 2002 bombing, Bali experienced a downturn in
  tourism but has now returned to its normal business levels.
  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.

Hotels

  The competitive set of the Laguna Phuket hotels comprises the JW
  Marriott Resort & Spa, Le Meridien Phuket Beach Resort, Le Royal
  Meridien Phuket Yacht Club, 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
  Hyatt Regency, the Sala Phuket and Anantara Resort all of which are
  planned to open in 2008 and the Shangri-La Resort & Spa which is
  planned to open in 2010. The timely renovation of the Laguna Phuket
  hotels will ensure the product offering is up-to-date and remains
  competitive.

1.3.3 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.

1.4. Management Risk

  The Company’s success depends largely on the skills, experience and
  performance of key members of senior management team. If the Company
  was to lose one or more of these key employees, the ability to set and
  implement successfully the strategy could be adversely affected. The
  Company’s future success also depends on the continued service of the
  key operating, marketing, design and administrative personnel.

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 the outbreak of SARS in 2003, 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.