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Total Revenue: We generate revenue primarily from the leasing of commercial properties and the wholesale of various goods, as well as from some online sales of consumer products. For the six months ended June 30, 2012, approximately 4.5% and 95.5% of our revenues were derived from our real estate operation segment and wholesale segment, respectively, as compared to 1.8% and 98.2%, respectively, for the same period in 2011. Our total revenue decreased from approximately $100million in the six months ended June 30, 2011, to approximately $72million in the same period in 2012, representing a compounded growth rate of approximately -27.5% .

Revenue from our real estate operations segment increased by 77.1%, to $3.3 million in the six months ended June 30, 2012, from $1.8 million in the same period in 2011, due to our commercial leasing activities during the 2012 period. Revenue from commercial leasing increased by 77.1%, to $3.3 million in the six months ended June 30, 2012, from $1.8 million in the same period in 2011. The increase was primarily due to increase in revenues from the increased occupancy rate of Jiashan TFS and Shandong TFS and due to contribution from our subsidiary, TFS Bingzhou, which commenced operations in April 2011.We recorded $nil in our investing activities for the six months ended June 30, 2012, as compared to a $7.1 million gain on a business combination in the same period in 2011.None of our clients have taken advantage of our property management services to date and so we recorded $nil management fees and related expenses for the six months ended June 30, 2012 and 2011.No revenue applicable to property assignment was recognized for the six months ended June 30, 2012 and 2011, because no commercial property was sold during the period.

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Revenue from our wholesale segment, decreased by 29.5% to $69 million in the six months ended June 30, 2012, from $98 million in the same period in 2011. Sales of copper and zinc accounted for 99.9% of our segment revenue for first half of 2012. Sales of copper, steel and lamps accounted for 99.9% of our segment revenue for the first half of 2011. The decrease in revenue from our wholesale segment was a combined effect of :(1) increase in sales volume in first quarter of 2012 resulting from increased sales orders from Shanghai Senhong who made us their major supplier in 2011; and (2) decrease in sales volume in second quarter of 2012 as compared with the corresponding period of 2011, as affected by the slowdown of Chinese economy. In addition, we achieved orders from new customers. We expect this trend to continue during for the remaining 2012 quarters as a result of management’s continuing efforts to develop new customers and strengthen our management of suppliers to reduce purchasing costs and enhance our competitiveness.

Total Cost of Revenue: Our cost of revenue includes expenses applicable to our real estate operation segment, cost of goods sold for our wholesale segment and other expenses relating to our online sales. Our total cost of revenue was $71.3 million, or 98.6% of total revenue, for the six months ended June 30, 2012, as compared to $98 million, or 98.4% of total revenue, for the same period in 2011.

Expenses applicable to our real estate operation segment increased by 72.9% to $2.5 million in the six months ended June 30, 2012, from $1.4 million in the same period in 2011, due to our commercial leasing activities. Expenses applicable to our real estate operation segment increased by 72.9% to $2.5 million in the six months ended June 30, 2012, from $1.4 million in the same period in 2011. The increase was primarily due to the combined effect of the higher 2012 period depreciation expense resulting from newly acquired property in February and April 2011, and the decrease in staff costs and rental expense, as we liquidated our business in Liyang in late 2011.None of our clients have taken advantage of our property management services to date and so we recorded $nil expenses for the six months ended June 30, 2012 and 2011.There are no expenses related to our investing activities or property assignment activities for the six months ended June 30, 2012 and 2011.

Cost of goods sold for our wholesale segment includes the cost of the purchase of goods and freight costs. Cost of goods sold decreased by 28.9% to $69millionfor the first half of 2012, from $97 million for the first half of 2011. Such decrease was generally in line with the decrease in sales from our wholesale segment.

Gross Profit and Gross Margin: Our gross profit decreased by 36% to $1 million in the six months ended June 30, 2012, from $1.6 million in the same period in 2011, due to the combined effect of: (1)a decrease in gross profit from our wholesale segment, and (2)an increase in gross profit from our real estate operations segment. Gross profit as a percentage of total revenue (gross margin) was 1.4% and 1.6% for the six months ended June 30, 2012 and 2011, respectively.

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In our real estate operations segment we enjoyed a gross profit of $0.8 million in the six months ended June 30, 2012, a 92.3% increase, as compared to a gross profit of $0.4 million in the same period of 2011. Such change was primarily due to the establishment of new subsidiaries such as TFS Binzhou, and effective market strategies to boost leasing income and cut our costs in the undeveloped market of Liyang.

Gross profit from our wholesale segment decreased by 77.3% to a gross profit of $0.3million in the six months ended June 30, 2012, from $1.2 million in the same period in 2011. The decrease resulted from our strategy to expand our market share and be more competitive by lowering our selling price.

Selling Expenses: Our selling expenses consist primarily of compensation and benefits to our sales staff, advertising expenses, business travel, transportation costs and other sales related costs. Our selling and marketing expenses in the six months ended June 30, 2012 were $463,036, from $667,490 in the same 2011 period, representing a 30.6% decrease. The decrease was mainly due to a decrease in staff costs and advertising expense caused by the shrinking of our wholesale business.

General and Administrative Expenses: General and administrative expenses, net of amounts capitalized, consist primarily of management and employee salaries and other personnel costs and corporate overhead. Our administrative expenses increased $8 million, or 322%, to $10.5 million in the six months ended June 30, 2012, from $2.5 million in the same period in 2011. The increase was mainly due to the increase in the further doubtful provision against long aged accounts receivable with amount of $3.8 million in the second quarter of 2012. In addition, the increase was due to the increase during the 2012 period in professional expense, staff costs, office building rental expense and other administrative expenses as a result of the establishment of subsidiary companies in late 2011.

Interest income. Interest income increased $1 million in the six months ended June 30, 2012, from $3,319 in the same period in 2011. We have been engaged in providing exclusive agency services to assist a property development company to sell its properties, with the condition that we prepay approximately $33 million as a deposit towards the proceeds of such sales. We entered into a supplementary agreement with this company whereby they agreed to pay interest on the deposit, at a rate of 15% per annum for the cost of capital, commencing from February 1, 2011 to January 31, 2012. We recognized approximately $0.6 million in interest income in the first half of 2012.

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Interest Expense: Interest expense increased $1.3 million, or 29.3%, to $5.5 million in the six months ended June 30, 2012, from $4.3 million in the same period in 2011, primarily due to more borrowings and loans during the second quarter of 2012.

Net non-operating income/expense: On January 28, 2011, Shandong TFS entered into an entrustment loan agreement with CITIC Bank (as trustee on behalf of Shandong Shenli Steel Pipe Co., Ltd.), an unrelated third party, for a loan in the principal amount of $47,433,000 with an original maturity date of January 27, 2012. In January 2012, Shandong TFS applied for an extension of the loan agreement to July 31, 2012, which was finally agreed by Shandong Shenli in February 17, 2012. Since the agreement was 21 days after the original maturity date, CITIC Bank charged Shandong TFS a $0.2 million interest penalty.

Gain on business combination: Gain on business combination of $7.1 million during 2011 resulted from the acquisition of Longyun during the first quarter in 2011.

Income Taxes: Our income tax benefit increased by approximately $0.6 million, or 51.6%, to $1.8 million in the six months ended June 30, 2012, from $1.2 million in the same period of 2011. The increase was due to the combined effect of recognition of deferred tax assets and liabilities, and impacted by the provision of allowance against deferred tax assets.

Net income (Loss) from continuing operations: In the six months ended June 30, 2012, we suffered a net loss from continuing operations of $13 million in the six months ended June 30, 2012, while we recorded a net income from continuing operations of $2.6 million in the same period last year, as a result of the factors described above.

Net income (Loss): In the six months ended June 30, 2012, we suffered a net loss of $13 million in the six months ended June 30, 2012, while we recorded a net income of $2.6 million in the same period last year, as a result of the factors described above.

Liquidity and Capital Resources

As of June 30, 2012, we had cash and cash equivalents of $2.9 million and we had a working capital deficit of approximately $49 million. We provided approximately $26 million in cash for our operating activities in the six months ended June 30, 2012. We believe that these factors raise substantial doubt about the Company’s ability to continue as a going concern. Based on future projections of our profits and cash inflows from operations, including commercial property leasing and providing agent service to properties sales, sales of commercial properties, and our anticipated ability to obtain continued financing or loans from related parties to finance the Company’s continuing operations, we have prepared the consolidated financial statements on a going concern basis.

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Our short-term liquidity requirements primarily consists of operating expenses, interest on our debt, business acquisitions and capital expenditures, including tenant improvement costs. Our long-term liquidity uses generally consists of the retirement or refinancing of debt upon maturity, funding of existing and new property improvement projects and funding of purchase of commercial properties.

Currently, available working capital and borrowings from different financing sources are our principal source of funds to meet our short-term liquidity requirements. Other sources of funds for short-term liquidity needs include our operating activities, which we expect to be our principal source of funds in the future. We expect to meet our liquidity needs through a combination of:

• cash flow from operating activities;
• new borrowings and credit facilities to be obtained;
• revolving of existing borrowings
• the issuance of equity securities by the Group; and
• the disposition of non-core assets.

We expect to obtain more cash flow from operating activities with the increasing occupancy rate of our commercial properties and the expiration of contractual grace periods or holidays on the commencement of lease payments. In addition, we expect to enjoy commission income of up to RMB76 million (approximately $12 million) within the next 12 months in connection without exclusive agent services provided on the Mintai Project. We expect to complete the sales within one year, and will collect the remaining prepaid deposit of RMB178 million (approximately $28 million) upon completion of such sales.

Though there are restrictions on the convertibility of the RMB for capital account transactions, which principally includes investments and loans, we generally follow the regulations and apply to obtain the approval of SAFE and other relevant PRC governmental authorities. Our ability to pay dividends is primarily dependent on our receiving distributions of funds from our subsidiaries, which is restricted by certain regulatory requirements. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC Operating Subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory reserve fund until the amounts in said fund reaches 50% of their registered capital. The reserve that each of our PRC subsidiaries provided is to make provision for loss or transfer to capital. As of June 30, 2012, the accumulated statutory reserve fund of these subsidiaries was $3,992. Our PRC subsidiaries will be required to allocate 10% of our future net income, after deducting accumulated deficit, to a maximum reserve of RMB228.5 million (approximately $33.5 million), representing 50% of the total registered capital of our PRC subsidiaries amounting to RMB457 million (approximately $67 million) as of March 31, 2012. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends, which affects the nature of retained earnings: the part of retained earnings allocated to statutory reserve funds is treated as appropriated retained earnings, and the remaining part is unappropriated retained earnings. Our statutory reserve does not limit our ability to use cash from operations to fund our business, but affects the nature of retained earnings only. Allocations to statutory reserve are not transferrable as cash dividends. As investment holding companies, our off-shore subsidiaries, including Fifth Season HK and Business Real Estates, do not have material cash obligations to third parties. Therefore, the restriction does not impact the liquidity of the companies.

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We believe that our available cash and cash equivalents and cash provided by operating activities will meet part of our present cash needs, but we will require additional cash resources, including loans, to meet our expected capital expenditure and working capital for the next 12 months, which we expect to amount to approximately $22 million. We expect that our future capital expenditures will be the continued addition of more properties and the upgrade of our existing properties to enhance our competiveness in the rental market. As of June 30, 2012, our operating lease commitment and capital commitment, which will be paid during 2013, were $1.4 million and $10.3 million, respectively. We have also budgeted approximately $10 million for our future business acquisitions.

To satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects. Furthermore, we may not be able to repay, refinance or extend any or all of our debt at maturity or upon any acceleration. If any refinancing is done at higher interest rates, the increased interest expense could adversely affect our cash flow. Any such refinancing could also impose tighter financial ratios and other covenants that restrict our ability to take actions that could otherwise be in our best interest, such as funding property purchase activity and making opportunistic business acquisitions.

We believe that existing unmortgaged commercial properties and the properties to be acquired in the future will enhance our ability to obtain continued financing from lenders. We expect to obtain credit facilities from banks, by pledging the existing unmortgaged properties, up to $37 million in 2012, and expect no difficulties to revolve credit facilities or borrowings when necessary based on our good relationship with lenders. Except for the loan agreement entered between Longyun and China Construction Bank, there are no specific terms relating to financial ratios in our loan contracts signed up to June 30, 2012. Except for the short-term loan from China Construction Bank, we are currently in compliance with the covenants and other requirements with respect to our outstanding debt. We have received an oral exemption for our non-compliance from China Construction Bank as discussed in more detail under “Financing Activities – Loans” below. We also plan to sell our commercial buildings in Shanghai to Shandong Shenli Steel Pipe Co., Ltd at a price of not less than RMB380 million (approximately $60 million).

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The following table summarizes the key cash flow metrics from our condensed consolidated statements of cash flows for the six months ended June 30, 2012 and 2011.

Cash Flow
(all amounts in U.S. dollars)

Operating activities

Net cash provided by operating activities was $26 million for the six months ended June 30, 2012, as compared to $51 million net cash used in operating activities for the same period in 2011,primarily due to our enhanced trade receivables collection in 2012. The balance of trade receivables decreased by $40million as at June 30, 2012, compared to the balances at December 31, 2011.

Investing activities

Net cash used in investing activities for the six months ended June 30, 2012 was $14.1 million, as compared to $20.3 million net cash used in investing activities for the same period in 2011. The decrease was primarily due to less expenditure on the purchase of real estate and related assets in 2012 period as compared to such expenditure during the 2011 period.

Financing activities

Net cash used in financing activities for the six months ended June 30, 2012 was $9.3 million, as compared to $72million net cash provided by financing activities for the same period in 2011. Such decrease was primarily due to the maturity and repayment in the 2012 period of more short-term and long-term borrowings obtained in the 2011 period.

Loans

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As of June 30, 2012, the amount, maturity date and term of each of our bank loans were as follows:

(All amounts in U.S. Dollars)

* Calculated based on the exchange rate of $1 = RMB 6.3249

As at June 30, 2012, except for the loan agreement entered between Longyun and China Construction Bank, we were in material compliance with all our outstanding loans as disclosed in more detail as follows:

• On January 28, 2011, Shandong TFS entered into an entrustment loan agreement with CITIC Bank (as trustee on behalf of Shandong Shengli Steel Pipe Co., Ltd., or Shengli Steel, an unrelated third party), for a loan in the principal amount of $47,661,000. The loan was unsecured and repayable in 12 months at an annual interest rate of 258% of the base rate published by the People’s Bank of China, payable each month by Shandong TFS. An Entrusted Loan is a form of agency service provided by banks in China. In this case, CITIC Bank acted as the trustee to lend out money on behalf of Shengli Steel. Shengli Steel provided instruction which specifies target borrowers, use of funds, loan term, interest rate, project organizer and beneficiary. CITIC Bank did not assume liability for the repayment of the loan on behalf of the borrower if the loan was not repaid upon maturity of the loan. The loan was due and payable on January 27, 2012, and was guaranteed by Longyun, the Company’s subsidiary. In January 2012, Shandong TFS applied for an extension of the maturity date to July 31, 2012, which was finally granted by Shandong Shengli on February 17, 2012. However, since the agreement was 21 days after the original maturity date, CITIC Bank charged Shandong TFS a $0.2 million interest penalty on behalf of Shengli Steel. At June 30, 2012, approximately $19 million of the principal amount had been repaid. The remaining loan balance of $28,459,800 which matured on July 31, 2012, was fully repaid on August 16, 2012 by Shandong TFS (with a portion of the funds borrowed from Longyun discussed below). During the 16-day period that the loan is in default, the Company was required to pay an additional interest penalty at 50% of the interest rate in accordance with the loan agreement.

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• On May 25, 2012, Longyun borrowed $15,494,780 from Minfu Small-scale Credit Co, Ltd., at an interest rate of 14.4% per annum for a term of 90 days in order to help Shandong TFS meet its obligations under the entrustment loan to Shengli Steel. This loan is guaranteed jointly and severally by Shandong TFS and Guangzhou Jie Zhi Meng Resource Technology Co., Ltd., an unaffiliated third party. The Company plans to seek an extension of the repayment date for this loan when it becomes due, and will be required to pay an additional interest penalty at 50% of the original interest rate.
• On March 30, 2012, TFS Trade entered into an entrustment loan agreement with Ningbo Bank (as trustee on behalf of Junling Property Consulting (Shanghai) Co., Ltd, or Junling, an unrelated third party), pursuant to which, TFS Trade borrowed funds in the principal amount of $7,625,760 for the purpose of funding working capital. The loan was repayable on June 30, 2012, at an interest rate of 24% and was secured by commercial properties valued at $10,552,819. If TFS Trade failed to repay the loan when due and payable, Junlin was entitled to receive an additional penalty interest of 50% of the current interest rate of the unpaid amount. The loan was fully repaid three days after the due date but no interest penalty was charged as the maturity date fell on a weekend day.
• Longyun entered into a loan agreement with China Construction Bank on April 18, 2011 to borrow a sum of $1,906,440 for the purpose of maintaining cash flow. The loan was secured by commercial properties valued at approximately $9 million. The loan was repayable in 12 months at an interest rate of 15% above the base rate published by the People’s Bank of China. The maturity date of the loan was April 18, 2012, but as at June 30, 2012, Longyun had only repaid $347,842 (RMB2,200,000) of the loan and was in default on repayment of the $1,549,478 balance. The balance of the loan was repaid in full at the beginning of July, but during the period that the loan is in default, the Company had to pay an interest penalty of an additional50% of the interest rate defined in the original loan agreement.

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• TFS GM entered into a loan agreement with China CITIC Bank on April 13, 2011 to borrow a sum of $5,560,450 for working capital. The loan was repayable in 12 months at an interest rate of 20% above the base rate published by the People’s Bank of China. The outstanding short-term loan from China CITIC Bank was secured by a pledge of commercial properties with net book value amounting to $3,979,819 and was guaranteed by Mr. Lianmo Wu, the Chairman of our Board of Directors and a major stockholder of the Company. This loan has been repaid in full. A total of $3,177,400 was repaid on March 31, 2012 and a balance of $2,383,050 was repaid in April 2012.
• We entered into a loan agreement with China Minsheng Bank on August 1, 2011, to borrow a sum of $3,177,400 for the purpose of purchasing goods for our wholesale business. The loan was repayable in 12 months at an interest rate of 20% above the base rate published by the People’s Bank of China. The outstanding short-term loan from China Minsheng Bank was pledged by commercial properties valued at $5,217,133 and was guaranteed by Mr. Wu and his wife, Ms. Cheung. The loan was fully repaid in July 2012.
• On February 23, 2011, Fifth Season HK entered into a loan agreement with Mr. Shaoping Lu, our Chief Executive Officer and Director, for a loan in the principal amount of $4,250,000. The loan from Mr. Lu was guaranteed by Mr. Wu and his wife, Ms. Cheung. The loan is repayable in 2 years at an annual interest rate of 12%. The purpose of the loan is for purchasing properties in Zibo, Shandong. The loan is secured by the entire assets of Fifth Season HK, Mr. Wu and Ms. Cheung. The repayment must be made in Renminbi at the official foreign exchange rate of the PRC on the day of the repayment, and must be used to first settle penalty interest, handling charge and overdue fines (if any), and then to settle the interest and the principal. Mr. Lu is entitled to rescind the loan agreement if any of the following circumstances occurs: (1) Fifth Season HK provides untrue information, (2) the repayment of the loan is overdue for more than 5 days, (3) the loan is used outside of the permitted purpose, (4) Fifth Season HK fails to inform Mr. Lu of a material change in the business of the Company, (5) Fifth Season HK provides a third-party guarantee without informing Mr. Lu in writing 30 days in advance, (6) Mr. Wu and Ms. Cheung commence divorce proceedings or (7) Fifth Season HK breaches the loan agreement.

Obligations under Material Contracts

In addition to the loan commitments described above, we have the following material payment obligation:

On December 31, 2011, pursuant to the terms of the Property Sale and Purchase Agreement dated June 8, 2009, by and between TFS GM and Shanghai Shuangou Property Co., Ltd. (“Shanghai Shuangou”), TFS GM is required to pay RMB 37 million (approximately $5.9 million) before the end of 2012, but the payment terms may be extended at the request of TGS GM. In addition, pursuant to the terms of certain tenant improvement contracts signed in 2011, TFS GM is required to pay an additional RMB 31 million to Shanghai Shuangou (approximately $4.9 million) before the end of 2012.

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Critical Accounting Policies

The preparation of financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from our estimates.

The policies used in the preparation of our Consolidated Financial Statements are described in Note 3 to our Consolidated Financial Statements. However, certain of our significant accounting policies contain an increased level of assumptions used or estimates made in determining their impact in our Consolidated Financial Statements. Management has reviewed and determined the appropriateness of our critical accounting policies and estimates.

We consider our critical accounting estimates to be those used in the determination of the reported amounts and disclosure related to the following:

• Revenue recognition;
• Impairment of long-lived assets;
• Allowance for doubtful accounts; and
• Deferred tax assets and liabilities

Revenue Recognition

Sales of Goods

We primarily generate revenue from goods sales to distributors and end users. The delivery of our sales is made based on sales contracts from customers, which specify particular sales prices for the goods. Delivery occurs only upon receipt of the goods by the customer’s warehouse or designated destination, or at the time the goods are picked up by the customer. We granted certain credit terms and limits to customers that we believed to be low risk of collectability based on our credit assessment. Historically, no material collectability problem has occurred. Revenue is recognized when delivery occurs and collectability is reasonably assured. We have no post-delivery obligations on our goods sold.

The installment method of recognizing revenue is used where the collectability of the sales price is not reasonably assured. The installment method apportions each cash receipt between cost recovered and profit. The apportionment is in the same ratio as total cost and total profit bear to the sales value. Certain sales are reported under the installment collection method resulting in deferred revenue (net of any allowance for bad debts) and costs until the collection of the sale.

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Rental Revenue

Rental revenue includes rents that each tenant pays in accordance with the terms of its respective lease reported evenly over the non-cancelable term of the lease. Most of our leases contain rental increases at specified intervals. We recognize such revenues on a straight-line basis by averaging the non-cancelable rental revenues over the lease terms. Contingent rental revenue, such as percentage rent on sale volume of tenant, is accrued when the contingency is removed.

Impairment of long-lived assets

A long-lived asset (asset group) classified as held for sale is measured at the lower of its carrying amount or fair value less cost to sell. A long-lived asset is not depreciated (amortized) while it is classified as held for sale. A gain or loss not previously recognized that results from the sale of a long-lived asset (asset group) are recognized at the date of sale.

A long-lived asset (asset group) classified as held for use is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. An impairment loss is recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). These cash flows are estimated based on a number of assumptions that are subject to economic and market uncertainties including among others, tenant’s payment history and financial condition, the likelihood of lease renewal, business condition in the industry in which tenants operate, changes in market rental rates, costs to operate property. The assessment is based on the carrying amount of the asset (asset group) at the date it is tested for recoverability, whether in use or under development. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.

Allowance for Doubtful Accounts

Accrued straight-line rents receivable, trade receivable, other receivables and due from third parties/related parties are reviewed periodically as to whether they are past due based on contractual terms and their carrying values have become impaired. An allowance for doubtful accounts is recorded in the period in which loss is determined to be probable based on an assessment of specific evidence indicating doubtful collection, historical experience, account balance aging and prevailing economic conditions. Measurement of such losses requires consideration of historical loss experience, including the need to adjust for current conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and financial health of specific customers. We have considered all available information in our assessments of the adequacy of the provision for doubtful accounts and we do not expect there would be significant changes on conditions that would result in material effect on the allowance estimation. We will continue to assess our receivable portfolio in light of the current economic environment and its impact on our estimation of the adequacy of the allowance for doubtful accounts.

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Deferred tax assets and liabilities

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and tax planning strategies in making this assessment. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against all or a significant portion of our deferred tax assets resulting in a substantial adverse impact on our operating results.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introduction.

Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change in our industry and continually maintain effective cost control in operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and, in the absence of a Chief Financial Officer, to our Principal accountant, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer, Shaoping Lu, and our Principal Accountant, Chen Dongdang, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2012. Based on that evaluation, our management concluded that, as of June 30, 2012, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, because of the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.

During its evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2012, our management determined that the Company continued to lack an audit committee and an internal audit department as described in Item 9A of the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011. In addition our management determined that the Company lacked effective procedures to ensure its transactions with related parties are in compliance with the requirements of the Sarbanes-Oxley Act of 2002. Management believes that this weakness is primarily attributable to the Company’s status as an emerging company with limited personnel with insufficient knowledge and experience of SEC rules and regulations. Management is currently seeking for and plans to establish an audit committee and appoint qualified personnel as soon as possible to remediate this material weakness. Management also plans to allocate additional human and financial resources to ensure compliance with SOX, including review of the Company’s recently adopted related party transaction policies and procedures with the Company’s management and accounting personnel.

Notwithstanding management’s determination that our internal control over financial reporting was ineffective as of June 30, 2012, we believe that the consolidated financial statements included in this report correctly present our financial condition, results of operations and cash flows for the periods covered thereby in all material respects.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business. Except for the legal proceeding described below, we are currently not aware of any such legal proceedings or claims that we believe will have a material adverse affect on our business, financial condition or operating results.

Our subsidiaries, the Fifth Season Hangzhou Department Store Investment Management Co., Ltd and the Fifth Season Liyang Investment Management Co., Ltd., are a defendants in a lawsuit filed in the Liyang People’s Court by one of our lessees, Jianhua Si, for alleged breach of contract. We are defending in a lawsuit filed by a former lessor for alleged breach of contract. The suit asks for actual and punitive damages totaling approximately $1 million. We believe the suit is completely without merit and intends to vigorously defend its position. We are unable at this time to predict the outcome of this litigation or whether we will incur any liability associated with the litigation, or to estimate the effect such outcome would have on our financial condition, results of operations, or cash flows.

ITEM 1A. RISK FACTORS.

There are no material changes from the risk factors previously disclosed in Item 1A “Risk Factors” of our Annual Report on Form 10-K filed on April 16, 2012.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

None.

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ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a report on Form 8-K during the period covered by this report, but was not reported. There have been no material changes to the procedures by which security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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