UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10−-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~June~~September 30, 2012

[_ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934~~ 1934m

For the transition period from ____________ to _____________

Commission File No. 000-53141

FIFTH SEASON INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware	26-0855681
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

C-22, Shimao Plaza, 9 Fuhong Lu Futian District, ~~Shenzhen~~ Shenzhen 518033 People’s Republic of China (Address of principal executive offices)

(86) 755 83 67 9378 (Registrant’s telephone number, including area code)

~~____________________________________________________________________~~_____________________________________________________ (Former name, former address and former fiscal year, if changed since ~~last~~ last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [_ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [_ ] No [_ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_ ] Accelerated filer [_ ] Non-accelerated filer [_ ] Smaller reporting company [X] (Do not check if a smaller reporting company) ~~Smaller reporting company [X]~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [_ ] No [X]

The number of shares outstanding of each of the issuer’s classes of common stock, as of ~~August~~November 1720, 2012 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.00001 par value	399,999,847

FIFTH SEASON INTERNATIONAL, INC. Quarterly Report on Form 10-Q ~~Six~~Nine Months Ended ~~June~~September 30, 2012 ~~TABLE OF CONTENTS~~

PART I		1
FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	17
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	38
ITEM 4.	CONTROLS AND PROCEDURES.	38
PART II		39
OTHER INFORMATION		39
ITEM 1.	LEGAL PROCEEDINGS.	39
ITEM 1A.	RISK FACTORS.	39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	39
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	39
ITEM 4.	(REMOVED AND RESERVED).	39
ITEM 5.	OTHER INFORMATION.	40
ITEM 6.	EXHIBITS.	40

TABLE OF CONTENTS

PART I		1
FINANCIAL INFORMATION		1


ITEM 1.	FINANCIAL STATEMENTS.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	32
ITEM 4.	CONTROLS AND PROCEDURES.	32

PART II		33
OTHER INFORMATION		33

ITEM 1.	LEGAL PROCEEDINGS.	33
ITEM 1A.	RISK FACTORS.	33
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	33
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	33
ITEM 4.	MINE SAFETY DISCLOSURES.	33
ITEM 5.	OTHER INFORMATION.	33
ITEM 6.	EXHIBITS.	33

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

FIFTH SEASON INTERNATIONAL, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE ~~SIX~~NINE AND THREE MONTHS ~~ENDEDJUNE30~~ENDED SEPTEMBER 30, 2012 AND 2011

	Page(s)
Financial Statements(unaudited)
Financial Statements (unaudited)
Consolidated Balance Sheets	2
Consolidated Statements of Operation and Comprehensive Income (Loss)	34
Condensed Consolidated Statements of Cash Flows	46
Notes to Consolidated Financial Statements	57 - 1219

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		June 30,			December 31,
		September 30,			December 31,
		2012			2011
		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2155,~~918,901~~690		$	308,661
Restricted cash		3843,~~420~~052,~~730~~100			25,076,180
Accrued straight-line rents receivable, net of doubtful provision in amount of $1,909,358 and nil, respectively		3,583,440			3,462,279
Accrued straight-line rents receivable, net of doubtful provision in amount of $3,333,965 and nil, respectively		1,711,639			3,462,279
Accounts receivable, net of doubtful provision in amount of $7,423,990 and 3,653,036, respectively		9,424,877			49,608,100
Accounts receivable, net of doubtful provision in amount of $5,462,783 and 3,653,036, respectively		4,786,323			49,608,100
Trade and Rents receivable from related parties		32,~~590~~749,~~956~~058			4,070,994
Inventories		5654,~~648~~591			295,737
Deposit with property developer		28,~~186~~004,~~222~~243			28,293,184
Advance to suppliers, related parties		-			8,570,341
Prepayments and other receivables		817,~~920~~626,~~825~~294			12,364,765
Loans receivable from related parties, net of doubtful provision in amount of $1,795,314 and nil, respectively		5,658,556			496,785
Loans receivable from related parties, net of doubtful provision in amount of $1,790,659 and nil, respectively		-			496,785
Current deferred tax assets		~~849~~961,~~962~~761			327,145
Deferred cost		3,~~573~~564,~~300~~034			3,586,860
Total current assets		~~105~~102,~~184~~665,~~417~~733			136,461,031
Non-current assets
Real estate and related assets, net		8281,~~665~~942,~~861~~238			84,610,919
Long term prepaid lease		~~330~~305,~~160~~358			428,718
Prepayment for acquisition of properties		4,704,357			4,722,209
Deposit for acquisition of noncontrolling interest		772,730			-
Long-term deferred tax assets		4,297,104			2,834,285
Prepayment for acquisition of properties		4,692,158			4,722,209
Total non-current assets		91,997,482			92,596,131
Long-term deferred tax assets		3,587,595			2,834,285
TOTAL ASSETS	$	197,181,899		$	229,057,162
Total non-current assets		91,300,079			92,596,131
TOTAL ASSETS	$	193,965,812		$	229,057,162
LIABILITIES AND EQUITY
Current liabilities
Short-term loans	$	6351,~~686~~903,~~708~~039		$	60,944,640
Accounts payable		125,~~892~~053,~~824~~681			37,396,108
Notes payable		5971,~~449~~911,~~360~~200			46,978,160
Advance from customers		73,~~004~~307,~~157~~227			737,647
Accrued expenses and other payables		45,~~006~~130,~~628~~012			3,775,324
Amounts due to third parties		~~395~~1,~~275~~939,710			6,824,530
Taxes payable		1,~~075~~178,~~744~~091			613,610
Current portion of long term borrowings, related party		4,250,000			-
Loans payable to related parties		549,~~934~~520,292			10,061,996
Current deferred tax liabilities		1863,~~348,207~~777			1,311,401
Total current liabilities		~~154~~155,~~163~~057,~~837~~029			168,643,416
Non-current liabilities
Long term borrowings, related party		-			4,250,000
Long term deferred tax liabilities		12,~~993~~839,~~239~~922			12,982,090
Total liabilities		167,157,076			185,875,506
Total non-current liabilities		12,839,922			17,232,090
Total liabilities		167,896,951			185,875,506
Commitment and contingencies
Stockholders’ equity
Preferred Stock,$0.00001 par value 20,000,000 shares authorized, none issued at June 30, 2012 and December 31, 2011		-			-
Common stock (US$0.00001 par value, 480,000,000 shares authorized, 399,999,847 and 399,999,847 shares issued and outstanding as of June 30, 2012 and December 31, 2011)		4,000			4,000
Additional paid in capital		30,191,115			30,191,115
Appropriated retained earnings		3,992			3,992
Unappropriated retained earnings		(3,932,073	)		9,000,724
Accumulated other comprehensive income		3,053,416			3,259,583
Total stockholders’ equity		29,320,450			42,459,414
Noncontrolling interest		704,373			722,242
Total equity		30,024,823			43,181,656
TOTAL LIABILITIES AND EQUITY	$	197,181,899		$	229,057,162

See notes to consolidated financial statements

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED ~~STATEMENTS~~BALANCE ~~OF OPERATION AND COMPREHENSIVE INCOME (LOSS) (Unaudited)~~SHEETS

		Six Months Ended						Three Months Ended
Stockholders’ equity
		June 30,						June 30,
Preferred Stock,$0.00001 par value 20,000,000 shares authorized, none issued at September 30, 2012 and December 31, 2011		-			-
		2012			2011			2012			2011
Common stock (US$0.00001 par value, 480,000,000 shares authorized, 399,999,847 and 399,999,847 shares issued and outstanding as of September 30, 2012 and December 31, 2011)		4,000			4,000
Sales	$	69,040,534		$	97,923,379		$	33,208,556		$	71,934,499
Additional paid in capital		30,191,115			30,191,115
Straight-line rental income		3,253,217			1,715,902			1,570,838			786,483
Appropriated retained earnings		3,992			3,992
Contingent rental income and others		4,572			123,716			1,686			42,682
Unappropriated retained earnings		(7,734,469	)		9,000,724
Total revenue		72,298,323			99,762,997			34,781,080			72,763,664
Accumulated other comprehensive income		2,901,766			3,259,583
Cost of goods sold		68,763,147			96,698,850			33,085,874			71,321,790
Total stockholders’ equity		25,366,404			42,459,414
Expenses applicable to straight-line rental income		2,497,621			1,291,839			1,280,940			288,466
Noncontrolling interest		702,457			722,242
Expenses applicable to contingent rental and others		-			152,375			-			54,739
Total equity		26,068,861			43,181,656
Total cost		71,260,768			98,143,064			34,366,814			71,664,995
TOTAL LIABILITIES AND EQUITY	$	193,965,812		$	229,057,162
Gross profit		1,037,555			1,619,933			414,266			1,098,669
Operating expenses
Selling expenses		463,036			667,490			170,424			448,378
General and administrative expenses		10,507,715			2,489,937			8,255,322			1,162,619
Total operating expenses		10,970,751			3,157,427			8,425,746			1,610,997
Loss from operations		(9,933,196	)		(1,537,494	)		(8,011,480	)		(512,328	)
Other income (expenses)
Interest income		965,867			3,319			350,443			1,773
Interest expense		(5,528,088	)		(4,274,918	)		(2,873,091	)		(2,123,941	)
Net non-operating (expense)/income		(225,255	)		139,220			10,035			135,683
Gain on business combination		-			7,116,499			-			-
Other income (expenses), net		(4,787,476	)		2,984,120			(2,512,613	)		(1,986,485	)
Income (loss) before income tax		(14,720,672	)		1,446,626			(10,524,093	)		(2,498,813	)
Income tax benefit		1,769,957			1,167,459			851,644			543,995
Net income (loss) from continuing operations		(12,950,715	)		2,614,085			(9,672,449	)		(1,954,818	)
Discontinued operations
Loss from operations of the discontinued component, including gain/loss on the disposal of Nil		-			(91,593	)		-			(48,516	)
Income tax		-			23,868			-			13,099
Net loss on discontinued operation		-			(67,725	)		-			(35,417	)
Income/(loss) before non-controlling interest		(12,950,715	)		2,546,360			(9,672,449	)		(1,990,235	)
Less: net loss attributable to the non-controlling interest		(17,918	)		(38,002	)		(851	)		(2,402	)
Net income (loss) attributable to the Fifth Season’s common stockholders	$	(12,932,797	)	$	2,584,362		$	(9,671,598	)	$	(1,987,833	)
Comprehensive income (loss):
Net income (loss)	$	(12,950,715	)	$	2,546,360		$	(9,672,449	)	$	(1,990,235	)
Foreign currency translation adjustment		(188,200	)		777,799			(248,943	)		621,632
Comprehensive income (loss)		(13,138,915	)		3,324,159			(9,921,392	)		(1,368,603	)
Less: comprehensive loss attributable to the non- controlling interests		49			(38,002	)		85			(2,257	)
Comprehensive income(loss) attributable to the Fifth Season’s common stockholders	$	(13,138,964	)	$	3,362,161		$	(9,921,477	)	$	(1,366,346	)
Basic and diluted weighted average shares outstanding		399,999,847			395,841,754			399,999,847			399,999,847
Basic and diluted earnings(loss) per share
-Continuing operations	$	(0.03	)	$	0.01		$	(0.02	)	$	(0.00	)
-Discontinued operations	$	-		$	(0.00	)	$	-		$	(0.00	)
-Continuing and discontinued operations	$	(0.03	)	$	0.01		$	(0.02	)	$	(0.00	)

See notes to consolidated financial statements

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES ~~CONDENSED~~ CONSOLIDATED STATEMENTS OF ~~CASH~~OPERATION ~~FLOWS~~AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

		Six Months Ended
		Nine Months Ended						Three Months Ended
		June 30,
		September 30,						September 30,
		2012			2011			2012			2011
Net cash provided (used) in operating activities	$	25,996,718		$	(50,963,678	)
Sales	$	89,608,464		$	133,634,400		$	20,567,930		$	35,711,021
Cash flows from investing activities
Straight line rental income and others		3,449,297			2,899,536			191,508			1,059,918
Purchase of real estate and related assets		(128,507	)		(17,103,832	)
Total revenue		93,057,761			136,533,936			20,759,438			36,770,939
Acquisition of subsidiaries, net of cash acquired		-			(5,739,598	)
Cost of goods sold		89,297,515			131,820,085			20,534,368			35,121,235
Change in amount due from third parties		(2,002,061	)		609,976
Expenses applicable to straight-line rental income and others		3,666,770			2,330,978			1,169,149			886,764
Change in amount due from related parties		(11,994,438	)		1,900,407
Total cost		92,964,285			134,151,063			21,703,517			36,007,999
Net cash used in investing activities		(14,125,006	)		(20,333,047	)
Gross profit/(loss)		93,476			2,382,873			(944,079	)		762,940
Cash flows from financing activities
Operating expenses
Proceeds from capital injection by non-controlling interest		-			756,740
Selling expenses		646,451			1,140,785			183,415			473,295
Additional capital contribution		-			931,825
General and administrative expenses		10,965,215			4,161,903			457,500			1,671,966
Proceeds from short-term loans		30,598,220			63,827,400
Total operating expenses		11,611,666			5,302,688			640,915			2,145,261
Proceeds from notes payable		59,611,040			44,640,960
Loss from operations		(11,518,190	)		(2,919,815	)		(1,584,994	)		(1,382,321	)
Proceeds from long-term loans		-			4,205,690
Other income (expenses)
Repayments of short-term loans		(27,617,668	)		(18,200,364	)
Interest income		1,191,019			3,099,491			225,152			3,096,172
Repayments of notes payable		(46,927,840	)		-
Interest expense		(7,556,162	)		(6,966,754	)		(2,028,074	)		(2,691,836	)
Change in amount due to third parties		(6,420,870	)		9,284,605
Net non-operating (expense)/income		(432,613	)		3,899			(207,358	)		(135,321	)
Change in amount due to related parties		(5,020,191	)		2,800,008
Gain on business combination		-			7,116,499			-			-
Change in restricted cash		(13,475,900	)		(36,449,038	)
Other income (expenses), net		(6,797,756	)		3,253,135			(2,010,280	)		269,015
Net cash provided by(used in) financing activities		(9,253,209	)		71,797,826
Income (loss) before income tax		(18,315,946	)		333,320			(3,595,274	)		(1,113,306	)
Effect of foreign currency fluctuation on cash and cash equivalents		(8,263	)		1,143
Income tax benefit/(expense)		1,719,198			1,347,124			(50,759	)		179,665
Net changes in cash and cash equivalents		2,610,240			502,244
Net income (loss) from continuing
Cash and cash equivalents, beginning of year		308,661			228,763
operations		(16,596,748	)		1,680,444			(3,646,033	)		(933,641	)
Cash and cash equivalents, end of period	$	2,918,901		$	731,007
Discontinued operations
Supplemental cash flow information:
Gain(Loss) of operations of the discontinued component		(19,163	)		(499,021	)		(19,163	)		(407,428	)
Interest paid	$	5,914,682		$	4,048,962
Gain(loss)on the disposal of the component		(139,121	)		-			(139,121	)		-
Income taxes paid	$	3,281		$	47,557
Income tax		-			(106,510	)		-			(130,378	)
Net loss on discontinued operation		(158,284	)		(605,531	)		(158,284	)		(537,806	)
Income/(loss) before non-controlling interest		(16,755,032	)		1,074,913			(3,804,317	)		(1,471,447	)
Less: net loss attributable to the non- controlling interest		(19,839	)		(41,857	)		(1,921	)		(3,855	)
Net income (loss) attributable to the Fifth Season’s common stockholders	$	(16,735,193	)	$	1,116,770		$	(3,802,396	)	$	(1,467,592	)
Comprehensive income (loss):
Net income (loss)	$	(16,755,032	)	$	1,074,913		$	(3,804,317	)	$	(1,471,447	)

See notes to consolidated financial statements

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED ~~Notes~~STATEMENTS toOF ~~unaudited~~OPERATION ~~consolidated~~AND ~~financial~~COMPREHENSIVE ~~statements~~INCOME (LOSS) (Unaudited)

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES
Foreign currency translation adjustment		(337,903	)		1,699,441			(149,703	)		921,642
	Fifth Season International, Inc. (the “Company” or “Fifth Season International”) was incorporated in the State of Delaware on October 5, 2007. It did not engage in any operations and was an inactive “shell” company from its inception until its reverse acquisition of The Fifth Season (Hong Kong) International Group Limited “Fifth Season HK” on March 31, 2011.
Comprehensive income (loss)		(17,092,935	)		2,774,354			(3,954,020	)		(549,805	)
	On March 31, 2011, Fifth Season International completed a reverse acquisition transaction through a share exchange with Fifth Season HK and its stockholders Cheng Chushing, Shaoping Lu and Power Guide Investment Limited, whereby Fifth Season International acquired 100% of the issued and outstanding capital stock of Fifth Season HK by issuing 391,543,500 shares to the Fifth Season HK’s stockholders, which constituted 98% of its issued and outstanding shares on a fully-diluted basis of Fifth Season International after the consummation of the reverse acquisition. As a result of the reverse acquisition, Fifth Season HK became Fifth Season International’ wholly-owned subsidiary, The share exchange transaction with Fifth Season HK was treated as a reverse acquisition, with Fifth Season HK as the accounting acquirer and Fifth Season International as the acquired party.
Less: comprehensive loss attributable to the non-controlling interests		75			(41,857	)		26			(3,855	)
	Fifth Season HK is a holding company and, through its consolidated subsidiaries, is principally engaged in the investment, management, assignment, and lease of commercial properties, as well as the operations of department stores; trading and online sales of goods; and hotel management in the People’s Republic of China (“PRC”). Fifth Season International and Fifth Season HK and its subsidiaries are collectively referred to as the “Group.”
Comprehensive income(loss) attributable to the Fifth Season’s common stockholders	$	(17,093,010	)	$	2,816,211		$	(3,954,046	)	$	(545,950	)
	The Group established Fifth Season Shandong Finance Lease Co., Ltd in Shandong Province on May 14, 2012. Details of the Group’s other subsidiaries are disclosed in the Company’s Annual Report on Form 10-K filed on April 16, 2012.
Basic and diluted weighted average shares outstanding		399,999,847			397,243,016			399,999,847			399,999,847
	The Fifth Season Jiashan Investment Management Co., Ltd has not started its operation in hotel management business as of June 30, 2012.Fifth Season Shandong Finance Lease Co., Ltd. has not started its operation as of June 30, 2012. The Fifth Season Suqian Investment Management Co., Ltd is in the process of cancelling its business registration which has no significant financial impact on the Group’s consolidated financial statements.
Basic and diluted earnings(loss) per share		(0.04	)		0.00			(0.01	)		(0.00	)
2.	Going concern
-Continuing operations	$	(0.04	)	$	0.00		$	(0.01	)	$	(0.00	)
	The consolidated financial statements have been prepared on the basis that the Group will continue to operate throughout the next twelve months as a going concern. The Group’s consolidated current liabilities exceeded its consolidated current assets by approximately $49million as of June 30, 2012. In addition the Group has commitments for the tenant improvement projects and the purchase of commercial properties totaled to $10.4million as of June 30, 2012. Management believes that these factors raise substantial doubt about its ability to continue as a going concern.
-Discontinued operations	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
	The Group has historically financed its operations principally from cash flows generating in operating activities and from external financing raised from banks and other lenders. The Group expects to generate more cash flow from operation activities with increasing occupancy rate of commercial properties and the expiration of lease holiday. In addition, the Group expects to enjoy a commission income up to RMB76 million (approximately $12 million), benefiting from exclusive agent services provided on the Mintai Project.
-Continuing and discontinued operations	$	(0.04	)	$	0.00		$	(0.01	)	$	(0.00	)
	The Group has also undertaken a plan to sell commercial buildings in Shanghai to Shandong Shenli Steel Pipe Co., Ltd at a price not less than RMB380 million (approximately $60 million) as discussed in footnote 12.
	The Group expects to obtain credit facilities from banks, by pledging the existing unmortgaged properties, up to $38 million, and expects no difficulties to revolve credit facilities or borrowings when necessary based on the good relationship with the lenders.

See notes to consolidated financial statements

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED ~~Notes~~CONSOLIDATED toSTATEMENTS ~~unaudited~~OF ~~consolidated~~CASH ~~financial statements~~FLOWS (Unaudited)

The Group believes that available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings, should enable it to meet presently anticipated cash needs for at least the next 12 months and the Group have prepared the consolidated financial statements on a going concern basis. However, the Group continues to have ongoing obligations and it expects that it will require additional capital in order to execute its longer-term business plan. If the Group is unable to raise additional capital, or encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing the Group’s business development activities, suspending the pursuit of its business plan, controlling overhead expenses and seeking to sell commercial properties. Management cannot provide any assurance that the Group will raise additional capital if needed. The Group has not received any commitments for new financing, and cannot provide any assurance a new financing will be available to the Group on acceptable terms, if at all. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

		Nine Months Ended
		September 30,
		2012			2011

Net cash provided (used) in operating activities	$	10,744,171		$	(68,679,864	)

Cash flows from investing activities
Purchase of real estate and related assets		(500,365	)		(18,540,715	)
Deposit for acquisition of noncontrolling interest		(775,670	)		-
Acquisition of subsidiaries, net of cash acquired		-			(6,932,592	)
Change in amount due from third parties		(1,318,340	)		614,086
Change in amount due from related parties		(5,790,113	)		(56,805	)
Net cash used in investing activities		(8,384,488	)		(24,916,026	)

Cash flows from financing activities
Proceeds from capital injection by non-controlling interest		-			743,820
Additional capital contribution		-			3,512,747
Proceeds from short-term loans		69,988,415			69,952,095
Proceeds from notes payable		95,929,800			71,426,553
Proceeds from long-term loans		-			4,203,726
Repayments of short-term loans		(78,675,100	)		(24,633,296	)
Repayments of notes payable		(70,601,800	)		-
Change in amount due to third parties		(4,859,810	)		7,849,410
Change in amount due to related parties		3,911,716			1,684,728
Change in restricted cash		(18,204,500	)		(41,004,087	)
Net cash provided by(used in) financing activities		(2,511,279	)		93,735,696

Effect of foreign currency fluctuation on cash and cash equivalents		(1,375	)		11,664
Net changes in cash and cash equivalents		(152,971	)		151,470
Cash and cash equivalents, beginning of year		308,661			227,664
Cash and cash equivalents, end of period	$	155,690		$	379,134

Supplemental cash flow information:
Interest paid	$	6,705,547		$	6,739,562
Income taxes paid	$	3,281		$	74,488

	(a)	Basis of presentation
		As a result of the share exchange on March 31, 2011, Fifth Season HK became a subsidiary of Fifth Season International. The former Fifth Season HK’s stockholders owned a majority of common stock of the Company. The transaction was regarded as a reverse merger whereby Fifth Season HK was considered to be the accounting acquirer as its shareholders retained control of the Company after the share exchange, although Fifth Season International is the legal parent company. The share exchange was treated as a recapitalization of the Company. As such, Fifth Season HK is the continuing entity for financial reporting purpose.
		The consolidated interim financial information as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted as permitted by SEC rules and regulations, although the management believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Group’s Form 10-K previously filed with the SEC on April 16, 2012.
		In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Group’s consolidated financial position as of June 30, 2012, its consolidated results of operations for the three and six months periods and cash flows for the six-month periods ended June 30, 2012 and 2011, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
		Details of significant accounting policies are disclosed our Annual Report on Form 10-K filed on April 16, 2012.
	(b)	Recently issued accounting standards affecting the Group
		Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Group’s consolidated financial statements.

See notes to consolidated financial statements

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to unaudited consolidated financial statements

4. PREPAYMENTS AND OTHER RECEIVABLES

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

	Fifth Season International, Inc. (the “Company” or “Fifth Season International”) was incorporated in the State of Delaware on October 5, 2007. It did not engage in any operations and was an inactive “shell” company from its inception until its reverse acquisition of The Fifth Season (Hong Kong) International Group Limited “Fifth Season HK” on March 31, 2011.

	On March 31, 2011, Fifth Season International completed a reverse acquisition transaction through a share exchange with Fifth Season HK and its stockholders Cheng Chushing, Shaoping Lu and Power Guide Investment Limited, whereby Fifth Season International acquired 100% of the issued and outstanding capital stock of Fifth Season HK by issuing 391,543,500 shares to the Fifth Season HK’s stockholders, which constituted 98% of its issued and outstanding shares on a fully-diluted basis of Fifth Season International after the consummation of the reverse acquisition. As a result of the reverse acquisition, Fifth Season HK became Fifth Season International’ wholly-owned subsidiary, The share exchange transaction with Fifth Season HK was treated as a reverse acquisition, with Fifth Season HK as the accounting acquirer and Fifth Season International as the acquired party.

	Fifth Season HK is a holding company and, through its consolidated subsidiaries, is principally engaged in the investment, management, assignment, and lease of commercial properties, as well as the operations of department stores; trading and online sales of goods; and hotel management in the People’s Republic of China (“PRC”). Fifth Season International and Fifth Season HK and its subsidiaries are collectively referred to as the “Group.”

	The Group established Fifth Season Shandong Finance Lease Co., Ltd. in Shandong Province on May 14, 2012. Details of the Group’s other subsidiaries are disclosed in the Company’s Annual Report on Form 10-K filed on April 16, 2012.

	As of September 30, 2012, the Fifth Season Jiashan Investment Management Co., Ltd had not started its hotel management operations and Fifth Season Shandong Finance Lease Co., Ltd. had not started its operations. The Fifth Season Suqian Investment Management Co., Ltd. has cancelled its business registration which has no significant financial impact on the Group’s consolidated financial statements in the 2012 third quarter.

2.	Going concern

	The consolidated financial statements have been prepared on the basis that the Group will continue to operate throughout the next twelve months as a going concern. The Group’s consolidated current liabilities exceeded its consolidated current assets by approximately $52 million as of September 30, 2012. In addition the Group has commitments for tenant improvement projects and the purchase of commercial properties totaling $10.7 million as of September 30, 2012. Management believes that these factors raise substantial doubt about the Company’s ability to continue as a going concern.

	The Group has historically financed its operations principally from cash flows generating in operating activities and from external financing raised from banks and other lenders. The Group expects to generate more cash flow from operation activities with increasing occupancy rates in its commercial properties and the expiration of lease holidays. In addition, the Group expects to enjoy a commission income of up to RMB76 million (approximately $12 million), from exclusive agent services provided on the Mintai Project.

	The Group has also undertaken a plan to sell commercial buildings in Shanghai to Shandong Shengli Steel Pipe Co., Ltd. at a price of not less than RMB380 million (approximately $60 million), and a letter of intent with Shandong Shengli Steel Pipe Co., Ltd. for the sale of commercial properties in Shanghai was signed in August 2012. The selling of the commercial buildings is still currently in progress.

	The Group expects to obtain credit facilities from banks by pledging the existing unmortgaged properties, up to $46.7 million, and expects no difficulties to revolve credit facilities or borrowings when necessary based on the good relationship with the lenders.

Prepayments and other receivables consist of the following:

		June 30, 2012		December 31, 2011
Advance to suppliers	$	1,971,171	$	7,753,707
Tenant improvements of Mintai Building		2,978,624		2,989,928
Due from third party companies		2,680,755		686,720
Prepaid office rental, petty cash and others		811,539		479,502
Rental deposits to lessors		425,316		426,930
Prepaid taxes and input VAT		53,420		27,978
	$	8,920,825	$	12,364,765

	For the period ended June 30, 2012, due from third party companies were non-interest bearing loans to third parties for their working capital purposes.
	Advance to suppliers were mainly for prepayments to suppliers of the Group’s trading business segment to guarantee a supply of goods.
5.	BORROWINGS
	Borrowings consist of the following:

Short-term borrowings	June 30, 2012			December 31, 2011
	Interest rate	Maturity date	Balance	Interest rate	Maturity date	Balance
Entrusted bank loans
China CITIC Bank	1	July 31, 2012	$ 28,459,800	1	January 27, 2012	$ 47,613,000
Ningbo Bank	24%	June 30, 2012	7,589,280
Subtotal			36,049,080
Short-term bank loans
China Construction Bank	2	April 18,2012	1,549,478	2	April 18,2012	1,904,520
China CITIC Bank				3	April 13, 2012	5,554,850
China CITIC Bank	7.87%	October 5, 2012	3,952,750
China CITIC Bank	7.87%	October 17, 2012	3,162,200
Minfu Small-scale Credit Co, ltd.	14.40%	July 24, 2012	3,162,200
Minfu Small-scale Credit Co, ltd.	14.40%	July 27, 2012	1,581,100
Minfu Small-scale Credit Co, ltd.	14.40%	August 27, 2012	790,550
Minfu Small-scale Credit Co, ltd.	14.40%	August 28, 2012	3,636,530
Minfu Small-scale	14.40%	August 29,	316,220
Credit Co, ltd.		2012
Minfu Small-scale Credit Co, ltd.	14.40%	August 29, 2012	474,330
Minfu Small-scale Credit Co, ltd.	14.40%	August 30, 2012	2,371,650
Minfu Small-scale Credit Co, ltd.	14.40%	August 31, 2012	3,478,420
Guangdong Development Bank			-	4	January 15, 2012	2,698,070
China Minsheng Bank	5	August 1, 2012	3,162,200	5	August 1, 2012	3,174,200
Subtotal			27,637,628			13,331,640
			$ $63,686,708			$ 60,944,640

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to unaudited consolidated financial statements

	Long-term loan within one
	The Group believes that available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings, should enable it to meet presently anticipated cash needs for at least the next 12 months and the Group have prepared the consolidated financial statements on a going concern basis. However, the Group continues to have ongoing obligations and it expects that it will require additional capital in order to execute its longer-term business plan. If the Group is unable to raise additional capital or encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing the Group’s business development activities, suspending the pursuit of its business plan, controlling overhead expenses and seeking to sell commercial properties. Management cannot provide any assurance that the Group will raise additional capital if needed. The Group has not received any commitments for new financing and cannot provide any assurance a new financing will be available to the Group on acceptable terms, if at all.
	year, related party	June 30, 2012			December 31, 2011
3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
		Interest			Interest	Maturity
	(a)	Basis of presentation
	Lender	rate	Maturity date	Balance	rate	date	Balance
		As a result of the share exchange on March 31, 2011, Fifth Season HK became a subsidiary of Fifth Season International. The former Fifth Season HK’s stockholders owned a majority of common stock of the Company. The transaction was regarded as a reverse merger whereby Fifth Season HK was considered to be the accounting acquirer as its shareholders retained control of the Company after the share exchange, although Fifth Season International is the legal parent company. The share exchange was treated as a recapitalization of the Company. As such, Fifth Season HK is the continuing entity for financial reporting purpose.
	Shaoping Lu	12.00%	March 1, 2013	$ 4,250,000	12.00%	March 1, 2013	$ 4,250,000
		The consolidated interim financial information as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), have been condensed or omitted as permitted by SEC rules and regulations, although the management believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Group’s Form 10-K previously filed with the SEC on April 16, 2012.
	Subtotal			$ 4,250,000			$ 4,250,000
		In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Group’s consolidated financial position as of September 30, 2012, its consolidated results of operations for the three and nine months periods and cash flows for the nine- month periods ended September 30, 2012 and 2011, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
		Details of significant accounting policies are disclosed our Annual Report on Form 10-K filed on April 16, 2012.
		Certain reclassifications have been made to prior period balances on the consolidated statement of operation to conform to the presentation for three and nine months ended September 30,2011. Such reclassifications did not have any effect on results of operations.

1Floating rate, 258% of basis interest rate of PBOC, 16.29% as of June 30, 2012, 16.5% as of December 31, 2011

2Floating rate, 115% of basis interest rate of PBOC, 7.26% as of June 30, 2012

3Floating rate, 120% of basis interest rate of PBOC, 7.87% as of December 31, 2011

4Floating rate, 110% of basis interest rate of PBOC, 6.71% as of December 31, 2011

5Floating rate, 120% of basis interest rate of PBOC, 7.57% as of June 30, 2012, 7.87% as of December 31, 2011

The weighted average interest rate for the outstanding short-term bank loans was 15.15% and 14.53% as of June 30, 2012 and December 31, 2011, respectively.

As of June 30, 2012, the outstanding short-term loan from China Construction Bank amounting to $1,549,478 was pledged by commercial properties amounting to $9,035,163. Short-term borrowing amounting to $3,952,750 from China CITIC Bank was secured by a pledge of commercial properties amounting to $3,927,156 and guaranteed by Lianmo Wu, the Company’s Chairman, President and controlling stockholder. The short-term loan amounting to $3,162,200 from China CITIC Bank was pledged by commercial properties amounting to $4,002,177 and guaranteed by Mr. Wu and his wife, Chushing Cheung, also a stockholder of the Company. The short-term loan amounting to $3,162,200 from China Minsheng Bank, which was pledged by commercial properties amounting to $5,217,133 and guaranteed by Mr. Wu and Ms. Cheung, was repaid subsequently in July. The short-term loan totaling $15,811,000 from Minfu Small-scale Credit Co, ltd. was guaranteed by The Fifth Season Shandong Commercial Investment Co., Ltd., Guangzhou Jiezhimeng Energy and Technology Co, Ltd. The current portion of long-term borrowing from Shaoping Lu was guaranteed by Mr. Wu and Ms. Cheung.

~~FIFTH~~(b) ~~SEASON~~Recently ~~INTERNATIONAL,~~issued ~~INC.~~accounting ~~AND~~standards ~~SUBSIDIARIES~~affecting ~~Notes~~the ~~to unaudited consolidated financial statements~~Group

~~The~~In ~~interest~~July ~~expenses~~2012, ~~were~~the $5FASB issued ASU 2012-02,~~528,088~~ “Intangibles-Goodwill and ~~$4,274,918~~Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment." This ASU simplifies how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the ~~six~~fair ~~months~~value ~~ended~~of ~~June~~an ~~30,~~indefinite-lived ~~2012~~intangible ~~and~~asset ~~2011,~~is ~~respectively,~~less than its ~~and~~carrying ~~$2,873,091~~value. ~~and~~For ~~$2,123,941~~assets ~~for~~in which this assessment concludes it is more likely than not that the ~~three~~fair ~~months~~value ~~ended~~is ~~June~~more 30than its carrying value, ~~2012~~these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. The guidance is effective for annual and ~~2011~~interim impairment tests performed for fiscal years beginning after September 15, 2012, early adoption is permitted. The adoption of this standard ~~respectively~~is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

The weighted average amounts of the borrowings were $65,979,185 for the six months ended June 30, 2012.

The maturity date of the China Construction Bank loan to Longyun originally totaling $1,897,320 (RMB12,000,000) was April 18, 2012 and Longyun was in default on the loan until its repayment at the beginning of July. The Group had already repaid $347,842 (RMB2,200,000) as of June 30, 2012, the repaid the $1,549,478 balance at the beginning of July, along with an additional 50% interest penalty interest rate charged during the default period in accordance with the loan agreement. Furthermore, according to the loan agreement, Longyun’s debt and capital ratio should not have been higher than 65%, its current ratio should not be lower than 1, and its quick ratio should not be lower than 0.7. Longyun’s current ratio and quick ratio were lower than 1 as of June 30, 2012, which is not in compliance with the covenant, but no penalty was charged by China Construction Bank for this incompliance.

The short-term loan from Ningbo Bank amounting to $7,589,280 was pledged by commercial properties amounting to $10,522,819. The loan was fully repaid three days after the maturity date which fell on a weekend and so no interest penalty was charged.

The entrusted loan amounting to $28,459,800 from China CITIC Bank which matured on July 31, 2012 was fully repaid subsequently on August 16, 2012. During the period that the loan was in default, the Group was required to pay an additional interest penalty charged at 50% of the interest rate defined in the original loan agreement.

The loans amounting to $3,162,200 and $1,581,100 respectively from Minfu Small-scale Credit Co., ltd have been renewed in July 2012, whose maturity date is January 2013.

The following table summarizes the unused lines of credit:

June 30,

2012

Lender

Starting date

Maturity date

Facility amount

Unused facility

Guangdong Development Bank

July 4, 2011

July 4, 2012

2,687,870

Under the line of credit contract signed with Guangdong Development Bank on July 4, 2011, the above line of credit was guaranteed by Hangzhou the Fifth Season Store Co, Ltd., the shareholders Lianmo Wu and Chushing Cheung and Chief Operating Officer, Xiaolei Xing, and also collateralized by third party pledges of property and private dwellings. As of June 30, 2012, the Group did not execute any credit facility with Guangdong Development Bank and $2,687,870 remained unused. After the maturity date, the group applied for a new line of credit from Guangdong Development Bank but has not yet received approval.

~~FIFTH SEASON INTERNATIONAL, INC~~4. PREPAYMENTS AND ~~SUBSIDIARIES~~OTHER ~~Notes to unaudited consolidated financial statements~~RECEIVABLES

6.Prepayments ~~ACCRUED EXPENSES AND OTHER PAYABLES Accrued expenses~~ and other ~~payables~~ receivables consist of the following:

		June 30,		December 31,
		September 30, 2012		December 31, 2011
		2012		2011
Advance to suppliers	$	11,396,281 $		7,753,707
Accrued rental expense and other related costs	$	1,592,518	$	1,254,600
Tenant improvements of Mintai Building		2,970,900		2,989,928
Accrued interest expense		695,035		1,082,958
Due from third party companies		1,995,694		686,720
Payroll and welfare payable		16,777		20,239
Prepaid office rental, petty cash and others		771,824		479,502
Rental deposits from lessees and others		1,702,298		1,417,527
Rental deposits to lessors		424,213		426,930
	$	4,006,628	$	3,775,324
Prepaid taxes and input VAT		67,382		27,978
	$	17,626,294 $		12,364,765

7. TAXATION The Company and its consolidated entities each files tax returns separately.

	For the period ended September 30, 2012, due from third party companies were non-interest bearing loans to third parties for their working capital purposes.

	Advance to suppliers were mainly for prepayments to suppliers of the Group’s trading business segment to guarantee a supply of goods.

5.	BORROWINGS

	Borrowings consist of the following:

a) Income tax expenses (benefits) The reconciliation of income taxes from continuing operation computed at the statutory tax rates applicable to the PRC and Hong Kong, to income tax benefits is as follows:

Short-term borrowings	September 30, 2012					December 31, 2011
	Interest					Interest
	rate		Maturity date		Balance	rate	Maturity date		Balance
Lender
Xichen Song	14.40%		December 15, 2012		29,036,539				-
Sungeng Ye	28.80%		September 28, 2013		2,365,500				-
Subtotal				$	31,402,039			$	-
Entrusted bank loans
China CITIC Bank					-	1	January 27, 2012		47,613,000
Subtotal		$		$	-			$	47,613,000

Short-term bank loans

China Construction Bank						2	April 18, 2012		1,904,520
China CITIC Bank						3	April 13, 2012		5,554,850
China CITIC Bank	7.87%		October 5, 2012		3,942,500				-
China CITIC Bank	7.87%		October 17, 2012		3,154,000				-
Minfu Small-scale Credit Co, ltd.	18.00%		February 23, 2013		4,731,000				-
Minfu Small-scale Credit Co, ltd.	18.00%		February 26, 2013		788,500				-
Guangdong Development Bank					-	4	January 15, 2012		2,698,070
China Minsheng Bank					-	5	August 1, 2012		3,174,200
China Minsheng Bank	6.44%		October 23, 2012		3,154,000				-
Chouzhou Bank	7.80%		June 21, 2013		4,731,000				-
Subtotal				$	20,501,000			$	13,331,640
				$	51,903,039			$	60,944,640

		Six months ended June 30,						Three months ended June 30,
		2012			2011			2012			2011
				$
Income (loss) before income tax	$	(14,720,672	)		1,446,626		$	(10,524,093	)	$	(2,498,813	)
Tax at statutory rate		(3,628,649	)		432,696			(2,614,056	)		(602,569	)
Gain on the business combination		-			(1,779,125	)
Change in valuation allowance		1,858,692			137,901			1,762,412			42,571
Non-deductible expenses					41,069						16,003
Income tax benefit	$	(1,769,957	)	$	(1,167,459	)	$	(851,644	)	$	(543,995	)

The charges for income tax expenses are based on the results for the periods as adjusted for items which are non-assessable or disallowed. They are calculated using tax rates that have been enacted or granted at the balance sheet dates.

8. RELATED PARTY TRANSACTIONS AND BALANCES All the related parties are as follows:

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to unaudited consolidated financial statements

Long-term loan within one

year, related party

September 30, 2012

December 31, 2011

Interest

Lender

rate

Maturity date

Balance

rate

Maturity date

Balance

Shaoping Lu

12.00%

March 1, 2013

4,250,000

12.00%

March 1, 2013

4,250,000

Subtotal

4,250,000

~~Name~~1Floating ~~of related party Relationship with the Group Zhejiang the Fifth Season Investment Co.~~rate, 258% ~~Ltd.~~of ~~(“Zhejiang~~basis ~~Fifth~~interest ~~Season”)~~rate ~~Controlled by one~~ of ~~stockholders Zhejiang the Fifth Season Industrial Co.~~PBOC, ~~Ltd~~16.5% ~~(Original:~~as ~~Huaren Costume ) Controlled by one~~ of ~~stockholders~~December ~~Hangzhou the Fifth Season E-commerce Co.~~31, ~~Ltd.~~2011 2Floating ~~(Original: Hangzhou the Fifth Season Costume Co.~~rate, ~~Ltd.)~~115% ~~Controlled by one~~ of ~~stockholders~~basis ~~The~~interest ~~Fifth~~rate ~~Season Hangzhou Real Estate Planning and Services Co.~~of PBOC, ~~Ltd~~7.26% ~~(“Hangzhou~~as ~~Real Estate”) Controlled by one~~ of ~~stockholders~~December ~~The~~31, ~~Fifth~~2011 ~~Season~~3Floating ~~Nantong Commercial Investment Management Co.~~rate, 120% ~~Ltd. (“Nantong Commercial”) Controlled by one~~ of ~~stockholders~~basis ~~The~~interest ~~Fifth~~rate ~~Season Shandong Trade Co., Ltd Controlled by one~~ of ~~stockholders Hangzhou Yinli Decorative Lighting Co.~~PBOC, ~~Ltd~~7.87% ~~(“Yinli~~as ~~Decorative Lighting”) Controlled by one~~ of ~~the~~December ~~key~~31, ~~management~~2011 4Floating ~~Hangzhou~~rate, ~~Buy~~110% ~~Bar Controlled by one~~ of ~~stockholders~~basis ~~Shandong~~interest ~~Demian~~rate ~~Group Co.~~of PBOC, ~~Ltd~~6.71% ~~(“Shandong~~as ~~Demian”) Controlled by one~~ of ~~stockholders~~December ~~Hangzhou~~31, ~~Yiyue~~2011 ~~E-commerce~~5Floating ~~Co.~~rate, 120% ~~Ltd. Controlled by one~~ of ~~stockholders~~basis ~~Lianmo~~interest Wurate ~~Stockholder and Chairman~~ of ~~Board~~PBOC, of7.87% ~~Directors~~as ~~Shaoping Lu Stockholder and CEO~~ of ~~Group~~December ~~Hangzhou~~31, ~~Hengji~~2011 ~~Energy Company Ltd. (“Hangzhou Hengji”) Stockholder Hongsen Xu Key management Dacheng Rao Key management Huaiqu Wen Key management~~

a)The ~~Trade~~weighted ~~and~~average ~~rents~~interest ~~receivables~~rate ~~from~~for the ~~related~~outstanding ~~parties~~short-term ~~consist~~loans was 13.46% and 14.53% as of ~~the~~September ~~following:~~30, 2012 and December 31, 2011, respectively.

		June 30,		December 31,
		2012		2011
Shandong Demian Group Co. Ltd.	$	2,756,205	$	2,766,665
The Fifth Season Shandong Trade Co., Ltd		-		631,666
Zhejiang the Fifth Season Industrial Co., Ltd. (Original: Huaren Costume)		-		200,262
Dacheng Rao		834,751		472,401
	$	3,590,956	$	4,070,994

As of September 30, 2012, short-term borrowing amounting to $3,942,500 from China CITIC Bank was secured by a pledge of commercial properties amounting to $3,883,436 and guaranteed by Lianmo Wu, the Company’s Chairman, President and controlling stockholder. The short-term loan amounting to $3,154,000 from China Minsheng Bank, was pledged by commercial properties amounting to $5,160,712 and guaranteed by the Company’s Chairman and controlling stockholder, Lianmo Wu, and his wife Chushing Cheung. The short-term loan amounting to $3,154,000 from China CITIC Bank was pledged by commercial properties amounting to $3,957,614 and guaranteed by the Company’s Chairman and controlling stockholder, Lianmo Wu, and his wife Chushing Cheung. The short-term loan totaling $5,519,500 from Minfu Small-scale Credit Co, Ltd. was guaranteed by The Fifth Season Shandong Commercial Investment Co., Ltd. and Guangzhou Jiezhimeng Energy and Technology Co, Ltd. The short-term loan amounting to $4,731,000 from Chouzhou Bank was pledged by commercial properties amounting to $10,406,643 and guaranteed by Hangzhou Hengding Plastic Wood Tools Co., Ltd., Hangzhou Yinli Decorative Lighting Co., Ltd., the Fifth Season Hangzhou Department Store Investment Management Co., Ltd., Lianmo Wu, Chushing Cheung, Weidong Zhong, Xiaolan Yuan, Lide Zhu and Wenwei Shan. The short-term loan from Xichen Song amounting to $29,036,539 was guaranteed by Zibo Mintai Property Development Co., Ltd. The short-term loan from Sungeng Ye was pledged by commercial properties amounting to $1,100,647 and guaranteed by Lianmo Wu, the Company’s Chairman, President and controlling stockholder. The borrowing of $4.25 million from Shaoping Lu was guaranteed by Mr. Wu and Ms. Cheung.

The interest expenses were $7,556,162 and $6,966,754 for the nine months ended September 30, 2012 and 2011, respectively, and $2,028,074 and $2,691,836 for the three months ended September 30, 2012 and 2011, respectively.

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to unaudited consolidated financial statements

	The weighted average amounts of the borrowings were $64,870,676 for the nine months ended September 30, 2012.

	The loans amounting to $3,942,500 and $3,154,000 respectively from China CITIC Bank have been repaid in October 2012. The loan amounting to $3,154,000 from China Minsheng Bank was also repaid after the maturity date. During the period that the loan was in default, the Group was required to pay an additional interest penalty charged at 50% of the interest rate defined in the original loan agreement. On May 25, 2012, Longyun borrowed $15,770,000 in total 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. The Company sought an extension of the repayment date for this loan before it became due. The roll-over contract renewed the term of interest rate at 18.00% per annum. In the third quarter, Longyun repaid $10,250,500 and as of September 30, 2012, the balance of the loan was $5,519,500 in total.

6.	ACCRUED EXPENSES AND OTHER PAYABLES

	Accrued expenses and other payables consist of the following:

Approximately $0.6 million of rent receivable from Dacheng Rao was settled in August 2012. b) Loans receivables from related parties consist of the following:

		September 30,		December 31,
		2012		2011
Accrued rental expense and other related costs	$	1,949,271	$	1,254,600
Accrued interest expense		1,940,150		1,082,958
Payroll and welfare payable		16,650		20,239
Rental deposits from lessees and others		1,223,941		1,417,527
	$	5,130,012	$	3,775,324

			June 30,			December 31,
7.	TAXATION
			2012			2011
	The Company and its consolidated entities each files tax returns separately.
	Nantong Commercial	$	3,162		$	25,871
	a)	Income tax expenses (benefits)
	Hangzhou E-commerce( Original: Hangzhou Costume)		2,482,336			312,839
		The reconciliation of income taxes from continuing operation computed at the statutory tax rates applicable to the PRC and Hong Kong, to income tax benefits is as follows:
	Yinli Decorative Lighting		1,795,314			-
	Zhejiang Investment		3,031,391			-
	Hangzhou Yiyue E-commerce		-			15,871
	Huaiqu Wen		141,667			142,204
		$	7,453,870		$	496,785
	Doubtful provision		(1,795,314	)		-
		$	5,658,556		$	496,785

	Loans receivable from related parties were short-term loans for additional working capital purpose of such related parties, which were non-interest bearing and were due on demand. In return, related parties lend non-interest bearing short-term loans to the Group when necessary. Historically, the Group has received more non-interest bearing short-term loans from related parties than loans to them.
		Nine months ended						Three months ended
	The Group has been advised that, despite their potential indirect benefit to the Group, the foregoing loans to related parties contravened the Company's related transactions policies and procedures, as well as Section 402 of the Sarbanes-Oxley Act of 2002 ("SOX"), which prohibits a US public company from granting personal loans to its officers, directors and other control persons, either directly or indirectly. The Group had taken steps, as of August 17, 2012, to settle approximately $5.5 million in these loan receivables and expects to settle the remaining $0.1 million by the end of the third quarter. As a result of the event, management is reviewing the Group's internal controls and procedures with, and educating its financial accounting personnel to ensure that all future transactions are in compliance with the requirements of SOX and the Company’s related transactions policies and procedures.
		September 30,						September 30,
c)	Advance to suppliers, related parties consists of the following:
		2012			2011			2012			2011
Income (loss) before income tax	$	(18,315,946	)	$	333,320		$	(3,595,274	)	$	(1,113,306	)
Tax expense (benefit) at statutory rate		(4,507,815	)		171,299			(879,166	)		(261,397	)
Gain on the business combination		-			(1,779,125	)		-			-
Change in valuation allowance		2,788,617			170,742			929,925			32,841
Non-deductible expenses		-			89,960			-			48,891
Income tax expense (benefit)	$	(1,719,198	)	$	(1,347,124	)	$	50,759		$	(179,665	)

		June 30,		December 31,
		2012		2011
Yinli Decorative Lighting	$	-	$	5,713,561
Hangzhou Hengji		-		2,856,780
Total	$	-	$	8,570,341

~~FIFTH~~The ~~SEASON~~charges ~~INTERNATIONAL,~~for ~~INC~~income tax expenses are based on the results for the periods as adjusted for items which are non-assessable or disallowed. ~~AND~~They ~~SUBSIDIARIES~~are ~~Notes~~calculated tousing ~~unaudited~~tax ~~consolidated~~rates ~~financial~~that ~~statements~~have been enacted or granted at the balance sheet dates.

As8. ~~the~~RELATED ~~Group’s~~PARTY ~~customer~~TRANSACTIONS ~~cancelled~~AND ~~its~~BALANCES ~~purchase~~All ~~order,~~ the ~~Group terminated the purchase contract with the two above mentioned suppliers, and obtained a refund of its advances to them in the second quarter of 2012. d) Short term loans payable to~~ related parties ~~consists~~are ofas ~~the following~~follows:

		June 30,		December 31,
		2012		2011
Fifth Season Industrial	$	-	$	574,530
Zhejiang Investment		-		1,169,858
Hangzhou Real Estate		-		40,471
Hangzhou Buy Bar		-		8,024
The Fifth Season Shandong Trade Co., Ltd		-		5,351,384
Hongsen Xu		-		57,070
Yinli Decorative Lighting		-		344,231
Lianmo Wu		54,934		929,328
Hangzhou Hengji		-		1,587,100
	$	54,934	$	10,061,996

	Name of related party		Relationship with the Group
	Zhejiang the Fifth Season Investment Co., Ltd. (“Zhejiang Fifth Season”)		Controlled by a Company stockholder
	Zhejiang the Fifth Season Industrial Co., Ltd. (Original: Huaren Costume )		Controlled by a Company stockholder
	Hangzhou the Fifth Season E-commerce Co., Ltd. (Original: Hangzhou the Fifth Season Costume Co., Ltd.)		Controlled by a Company stockholder
	The Fifth Season Hangzhou Real Estate Planning and Services Co., Ltd. (“Hangzhou Real Estate”)		Controlled by a Company stockholder
	The Fifth Season Nantong Commercial Investment Management Co., Ltd. (“Nantong Commercial”)		Controlled by a Company stockholder
	The Fifth Season Shandong Trade Co., Ltd.		Controlled by a Company stockholder
	Hangzhou Yinli Decorative Lighting Co., Ltd. (“Yinli Decorative Lighting”)		Controlled by one of the Company’s key management
	Hangzhou Buy Bar		Controlled by a Company stockholder
	Shandong Demian Group Co., Ltd. (“Shandong Demian”)		Controlled by a Company stockholder
	Hangzhou Yiyue E-commerce Co., Ltd.		Controlled by a Company stockholder
	Lianmo Wu		Stockholder and Chairman of Board of Directors
	Shaoping Lu		Stockholder and CEO of Group
	Hangzhou Hengji Energy Company Ltd. (“Hangzhou Hengji”)		Stockholder
	Hongsen Xu		Key management of the Company
	Dacheng Rao		Key management of the Company
	Huaiqu Wen		Key management of the Company
	Dezhou Jinmian Textile Co., Ltd.		Controlled by a Company stockholder
	The Fifth Season International Investment Holding Co., Ltd.		Controlled by a Company stockholder

Loans payable to related parties were short-term loans from related parties for the Group’s additional working capital purpose, which were non-interest bearing and due on demand. e) Long-term loans payable to related parties consists of the following

			June 30, 2012			December 31, 2011
	Shaoping Lu	$	4,250,000		$	4,250,000

Long-term loans to related party were interest bearing, see Note 6 for the interest rate and guarantee of the loan. f) Significant related party transactions other than loans are as follows:

			Six Months Ended
			June 30,
	Transaction		2012		2011
Dacheng Rao	Leasing	$	469,317	$	-

9. COMMITMENTS AND CONTINGENCIES

a) Purchase Commitments Commitments for the purchase of commercial properties and construction for building totaled $10,386,323 as of June 30, 2012.

~~FIFTH~~a) ~~SEASON~~Trade ~~INTERNATIONAL,~~and ~~INC.~~rents ~~AND~~receivables ~~SUBSIDIARIES~~from ~~Notes~~related toparties ~~unaudited~~consist ~~consolidated~~of ~~financial~~the ~~statements~~following:

b) Lease commitments As of June 30, 2012, future minimum rental payments under non-cancellable operating leases having initial or remaining lease terms of more than one year are as follows:

		September 30,		December 31,
		2012		2011
Shandong Demian Group Co. Ltd.	$	2,749,058	$	2,766,665
The Fifth Season Shandong Trade Co., Ltd.		-		631,666
Zhejiang the Fifth Season Industrial Co., Ltd. (Original: Huaren
Costume)		-		200,262
Dacheng Rao		-		472,401
	$	2,749,058	$	4,070,994

Year		Amount
2012	$	1,477,055
2013		2,053,948
2014		2,106,557
2015		1,851,892
2016		1,025,819
Thereafter		787,982
	$	9,303,253

Loans receivables from related parties consist of the following:

c)	Contingencies
		September 30,			December 31,
	The Group is a defendant 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. The Group believes the suit is completely without merit and intends to vigorously defend its position. The Group is unable at this time to predict the outcome of this litigation or whether the Group will incur any liability associated with the litigation, or to estimate the effect such outcome would have on the financial condition, results of operations, or cash flows of the Group.
		2012			2011
	As of June 30, 2012, the Group had mortgaged certain of the Group’s commercial properties amounting to $1.1 million as collateral for private loans for Fifth Season Industrial. The Group would be obligated to fulfill Fifth Season Industrial’s obligations under the loans in the event that Fifth Season Industrial is unable to meet these obligations. Should the Group be required to pay any portion of the total amount of the loans it would attempt to recover some or the entire amount from Fifth Season Industrial.
Nantong Commercial	$	-		$	25,871
	The Group did not accrue for any contingencies as of June 30, 2012.
Hangzhou E-commerce( Original: Hangzhou Costume)		-			312,839
Yinli Decorative Lighting		1,790,659			-
Hangzhou Yiyue E-commerce		-			15,871
Huaiqu Wen		-			142,204
	$	1,790,659		$	496,785
Doubtful provision		(1,790,659	)		-
	$	-		$	496,785

10.	SEGMENT FINANCIAL INFORMATION
	The Group determines segments based on how management makes decisions about allocating resources to segments and measuring their performance.
	The Group’s operations are mainly classified into two principal reportable segments that provide different products or services: commercial properties leasing, and the purchase and sale of goods, which we refer to as trading. Separate management of each segment is required because each business unit is subject to different marketing, operation, and technology strategies.
	Accounting policies of the transactions between segments are the same as those described in the summary of significant accounting policies. Performance is measured by various factors such as segment revenue and segment profit. Individual segment assets are not measurement reviewed by management. All corporate expenses and income tax expenses are allocated to the segments.

Loans receivable from related parties were short-term loans for additional working capital purpose of such related parties, which were non-interest bearing and were due on demand. In return, related parties lent non-interest bearing short-term loans to the Group when necessary. Historically, the Group has received more non-interest bearing short-term loans from related parties than loans to them.

The Group has been advised that, despite their potential indirect benefit to the Group, the foregoing loans to related parties contravene the Group's related transactions policies and procedures, as well as Section 402 of the Sarbanes-Oxley Act of 2002 ("SOX"), which prohibits a U.S, public company from granting personal loans to its officers, directors and other control persons, either directly or indirectly. Since August 17, 2012, the Group has taken steps to settle these loan receivables and only $1.79 million due from Yinli Decorative Lighting (“Yinli”) remained by the end of the third quarter. Yinli’s financial position is weak and the Group is doubtful whether this amount will be repaid. Full doubtful provision has been made for the balance. The Group has taken steps to collect the loan receivable from Yinli, including the assignment of a financial supervisor over Yinli to monitor its financial performance and negotiating with the owner of Yinli to raise funds to repay the loan. Management is reviewing the Group's internal controls and procedures with, and educating its financial accounting personnel to ensure that all future transactions are in compliance with the requirements of SOX and the Company’s related transactions policies and procedures.

~~FIFTH~~c) ~~SEASON~~Advance ~~INTERNATIONAL~~to suppliers, ~~INC.~~related ~~AND~~parties ~~SUBSIDIARIES~~consists ~~Notes~~of tothe ~~unaudited consolidated financial statements~~following:

Six months ended June 30, 2012 (Unaudited)

		September 30,		December 31,
		2012		2011
Yinli Decorative Lighting	$	-	$	5,713,561
Hangzhou Hengji		-		2,856,780
Total	$	-	$	8,570,341

		Commercial											Total
		properties			Trading			Others			Elimination		segments
		leasing
External revenue	$	3,257,789		$	69,040,534		$	-		$	-	$	72,298,323
Segment profit (loss)		(6,868,016	)		(5,476,595	)		(606,104	)		-		(12,950,715	)

		As the Group’s customer cancelled its purchase order, the Group terminated the purchase contracts with the two above mentioned suppliers, and obtained a refund of its advances to them in the second quarter of 2012.

	d)	Short term loans payable to related parties consists of the following:

Six months ended June 30, 2011 (Unaudited)

		September 30,		December 31,
		2012		2011
Fifth Season Industrial	$	2,143,143	$	574,530
Zhejiang Fifth Season		-		1,169,858
Hangzhou Real Estate		98,089		40,471
Hangzhou Buy Bar		-		8,024
The Fifth Season Shandong Trade Co., Ltd		766,107		5,351,384
Hongsen Xu		-		57,070
Yinli Decorative Lighting		-		344,231
Lianmo Wu		1,318,357		929,328
Hangzhou Hengji		1,577,000		1,587,100
Dezhou Jinmian Textile Co., Ltd		172,617		-
The Fifth Season International Investment Holding Co., Ltd		3,444,979		-
	$	9,520,292	$	10,061,996

		Commercial									Total
		properties		Trading		Others			Elimination		segments
		leasing
External revenue	$	1,839,618	$	97,923,379	$	-		$	-	$	99,762,997
Gain on business Combination		7,116,499		-		-			-		7,116,499
Segment profit (loss)		3,439,420		109,876		(935,211	)		-		2,614,085

		Loans payable to related parties were short-term loans from related parties for the Group’s additional working capital purpose, which were non-interest bearing and due on demand.

	e)	Current portion of Long-term loans payable to related parties consists of the following

Three months ended June 30, 2012 (Unaudited)

			September 30, 2012			December 31, 2011
	Shaoping Lu	$	4,250,000		$	4,250,000

		Commercial											Total
		properties			Trading			Others			Elimination		segments
		leasing
External revenue	$	1,572,524		$	33,208,556		$	-		$	-	$	34,781,080
Segment profit (loss)		(4,581,502	)		(4,891,332	)		(199,615	)		-		(9,672,449	)

		Current portion of Long-term loans to related party were interest bearing, see Note 5 for the interest rate and guarantee of the loan.

	f)	Significant related party transactions other than loans are as follows:

Three months ended June 30, 2011 (Unaudited)

			Nine Months Ended
			September 30,
	Transaction		2012	2011
Dacheng Rao	Leasing	$	468,606 $	-

		Commercial
		properties											Total
		leasing			Trading			Others			Elimination		segments
External revenue	$	829,165		$	71,934,499		$			$	-	$	72,763,664
Segment profit (loss)		(1,635,302	)		(100,291	)		(219,225	)		-		(1,954,818	)

*Revenue from other segment consist of small on-line sales of goods

11.	SUBSEQUENT EVENT
	Management of the Group has evaluated subsequent events through the issuance of the consolidated financial statements and identified the following subsequent event:
	In July 2012, the Group obtained a loan of RMB20 million (approximately $3 million) from Minsheng Bank for working capital, as well as a RMB100 million (approximately $16 million) non-interest bearing bank acceptance from Minsheng Bank which matures in October, 2012, and is secured by a RMB50 million (approximately $8 million) bank deposit and a pledge of commercial properties of the Group, guaranteed by Mr. Wu and his wife Ms. Cheung.
	In July 2012, the Group obtained a RMB130 million (approximately $21 million) non-interest bearing bank acceptance from Shengjing Bank which matures in January, 2013, and is secured by a RMB65 million (approximately $10.5 million) bank deposit and a pledge of commercial properties of the Group, guaranteed by Mr. Wu and his wife Ms. Cheung.

FIFTH SEASON INTERNATIONAL, INC. AND SUBSIDIARIES Notes to unaudited consolidated financial statements

9.	STRAIGHT-LINE RENTAL INCOME AND RELATED EXPENSES

	a) The Group’s real estate assets are leased to customers under operating leases. These leases have initial terms of 1 to 20 years, and usually the Group offers a rental holiday ranging from 2 to 12 months. The minimum rental amounts under the leases are generally subject to scheduled fixed increases.

	The following table summarizes future minimum base rents to be received from customers for leases in effect as of September 30, 2012:

In August 2012, the Group obtained a personal loan of approximately RMB184 million (approximately $29 million) from Song Xichen, a non-affiliate, which is secured by a pledge of commercial properties of Longyun.

Year		Amount
2013	$	1,874,524
2014		2,019,284
2015		1,915,432
2016		1,423,372
2017		1,380,620
Thereafter		8,679,699
	$	17,292,931

InThe ~~July~~following ~~2012,~~table ~~Kairui~~summarizes ~~(Hangzhou)~~future ~~Commercial~~minimum ~~Property~~base ~~Management~~rents ~~Co.,~~to ~~Ltd.~~be ~~(“Kairui”)~~received afrom ~~subsidiary~~customers ofunder ~~the~~subleases ~~Group cancelled~~as ~~its~~of ~~business registration. Kairui never commenced operations since its~~September ~~registration~~30, so2012: ~~the cancellation has no financial impact on the Group’s consolidated financial statements.~~

In August 2012, the Group signed a letter to intent with Shandong Shengli Steel Pipe Co., Ltd. for the sale of commercial properties in Shanghai.

Year		Amount
2013	$	1,391,623
2014		623,578
2015		606,290
2016		296,194
2017		225,521
Thereafter		1,847
	$	3,145,053

10.	COMMITMENTS AND CONTINGENCIES

	a)	Purchase Commitments

		Commitments for the purchase of commercial properties and construction for building totaled $10,687,564 as of September 30, 2012.

	b)	Lease commitments

		As of September 30, 2012, future minimum rental payments under non-cancellable operating leases having initial or remaining lease terms of more than one year are as follows:

Year		Amount
2012	$	1,361,570
2013		2,048,621
2014		2,101,095
2015		1,847,089
2016		1,023,159
Thereafter		785,938
	$	9,167,472

	c)	Contingencies

		The Group is a defendant 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. The Group believes the suit is completely without merit and intends to vigorously defend its position. The Group is unable at this time to predict the outcome of this litigation or whether the Group will incur any liability associated with the litigation, or to estimate the effect such outcome would have on the financial condition, results of operations, or cash flows of the Group.

		The Group did not accrue for any contingencies as of September 30, 2012.

11.	SEGMENT FINANCIAL INFORMATION

	The Group determines segments based on how management makes decisions about allocating resources to segments and measuring their performance.

The Group’s operations are mainly classified into two principal reportable segments that provide different products or services: commercial properties leasing, and the purchase and sale of goods, which we refer to as trading. Separate management of each segment is required because each business unit is subject to different marketing, operation, and technology strategies.

Accounting policies of the transactions between segments are the same as those described in the summary of significant accounting policies. Performance is measured by various factors such as segment revenue and segment profit. Individual segment assets are not measurement reviewed by management. All corporate expenses and income tax expenses are allocated to the segments.

Nine months ended September 30, 2012 (Unaudited)

		Commercial											Total
		properties			Trading			Others			Elimination		segments
		leasing
External revenue	$	3,449,297		$	89,608,464		$	-		$	-	$	93,057,761
Segment profit (loss)		(11,023,048	)		(4,894,873	)		(837,111	)		-		(16,755,032	)

Nine months ended September 30, 2011 (Unaudited)

		Commercial										Total
		properties		Trading			Others			Elimination		segments
		leasing
External revenue	$	2,899,536	$	133,634,400		$	-		$	-	$	136,533,936
Gain on business Combination		7,116,499		-			-			-		7,116,499
Segment profit (loss)		2,395,588		(186,306	)		(1,134,369	)		-		1,074,913

Three months ended September 30, 2012 (Unaudited)

		Commercial										Total
		properties			Trading		Others			Elimination		segments
		leasing
External revenue	$	191,508		$	20,567,930	$	-		$	-	$	20,759,438
Segment profit (loss)		(4,155,032	)	$	20,567,930	$	(231,007	)		-		(3,804,317	)

Three months ended September 30, 2011 (Unaudited)

		Commercial
		properties											Total
		leasing			Trading			Others			Elimination		segments
External revenue	$	1,059,918		$	35,711,021		$	-		$	-	$	36,770,939
Segment profit (loss)		(976,107	)		(296,182	)		(199,158	)		-		(1,471,447	)

	*Revenue from other segment consist of small on-line sales of goods

12.

SUBSEQUENT EVENT

Management of the Group has evaluated subsequent events through the issuance of the consolidated financial statements and identified the following subsequent event:

In October 2012, the Group obtained a loan of RMB53 million (approximately $8 million) from Citi Bank for working capital, as well as a RMB24 million (approximately $4 million) non-interest bearing bank acceptance from Citi Bank which matures in April, 2013, and is secured by a RMB12 million (approximately $2 million) bank deposit and a pledge of commercial properties of the Group, guaranteed by the Company’s Chairman and controlling stockholder, Lianmo Wu, and his wife Chushing Cheung.

In October 2012, the Group obtained a RMB100 million (approximately $16 million) non-interest bearing bank acceptance from Dezhou Bank which matures in April, 2013, and is secured by a RMB100 million (approximately $16 million) bank deposit.

In November 2012, the Group obtained a RMB96 million (approximately $15 million) non-interest bearing bank acceptance from Shanghai Pudong Development Bank which matures in February, 2013, and is secured by a RMB48 million (approximately $7.5 million) bank deposit and a pledge of commercial properties of the Group, guaranteed by the Company’s Chairman and controlling stockholder, Lianmo Wu, and his wife Chushing Cheung.

In November 2012, the Group obtained a loan of RMB12.5 million (approximately $2 million) from Minsheng Bank for working capital, which is secured by a pledge of commercial properties of the Group, guaranteed by the Company’s Chairman and controlling stockholder, Lianmo Wu, his wife Chushing Cheung, the Fifth Season Hangzhou Department Store Investment Management Co., Ltd., and the Company’s Director, Xiaolei Xing.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described in the section captioned “Risk Factors” above. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this registration statement and the documents that we reference and filed as exhibits to the registration statement completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Use of Certain Defined Terms

Except where the context otherwise requires and for the purposes of this report only, references to:

“Binzhou TFS” are to The Fifth Season Binzhou Commerce Co., Ltd., a PRC company;
“Business Real Estates” are to Business Real Estates (China) Investment Holding Group Co., Ltd., a Hong Kong company;
the “Company,” “we,” “us,” and “our” are to the combined business of Fifth Season International, Inc., a Delaware corporation, and its consolidated subsidiaries: “Fifth Season HK”, “Business Real Estates”, “ TFS Technology”, “TFS Trade”, “TFS GM”, “Shandong Financial Leasing,” “Shandong TFS”, “Jiashan TFS”, “Wuxi TFS”, “Liyang TFS”, “TFS Tengzhou Enterprise”, “TFS Tengzhou Real Estate,” “Shanghai Jiadu”, “Shanghai Lomo”, “Zibo Jiadu”, “Zibo Lomo”, “Shandong Trade”, “Longyun” and “Binzhou TFS” ;
17
“Exchange Act” are to the Securities Exchange Act of 1934, as amended;
“Fifth Season HK” are to The Fifth Season (Hong Kong) International Group Limited, a Hong Kong company;
“Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;
“Jiashan TFS” are to The Fifth Season Jiashan Investment Management Co., Ltd., a PRC company;
“Longyun” are to Zibo Longyun Industrial and Trade Co., Ltd., a PRC company;
“PRC” and “China” are to the People’s Republic of China;
“Renminbi” and “RMB” are to the legal currency of China
“Securities Act” are to the Securities Act of 1933, as amended;
“Shandong Financial Leasing” are to the Fifth Season Shandong Financial Leasing Co., Ltd., a PRC company;
“Shandong TFS” are to The Fifth Season Shandong Commercial Investment Co., Ltd., a PRC company;
“Shandong Trade” are to The Fifth Season Shandong Trade Co., Ltd., a PRC company;
“Shanghai Jiadu” are to Shanghai Jiadu Commercial Management Co., Ltd., a PRC company;
“Shanghai Lomo” are to Shanghai Lomo Industrial Co., Ltd., a PRC company;
“Suqian TFS” are to The Fifth Season Suqian Investment Management Co., Ltd., a PRC company;
“TFS GM” are to The Fifth Season Hangzhou Department Store Investment Management Co., Ltd., a PRC company;
“TFS Technology” are to The Fifth Season (Zhejiang) Technology Co., Ltd., a PRC company;
“TFS Tengzhou Enterprise” are to The Fifth Season Tengzhou Enterprise Management Co., Ltd., a PRC company;
“TFS Tengzhou Real Estate” are to The Fifth Season Tengzhou Real Estate Development Co., Ltd., a PRC company;
“TFS Trade” are to The Fifth Season (Zhejiang) Trade Co., Ltd., a PRC company;
“U.S. dollars,” “USD,” “dollars,” and “$” are to the legal currency of the United States;
“Wuxi TFS” are to The Fifth Season Wuxi Commercial Investment Management Co., Ltd.; a PRC company;
“Zibo Jiadu” are to The Fifth Season Zibo Jiadu Commerce Co., Ltd., a PRC company; and
“Zibo Lomo” are to The Fifth Season Zibo Lomo Commerce Co., Ltd., a PRC company.

Overview of our Business

We are engaged in the investment, assignment, and leasing of commercial properties, in the operation of department stores, and in the wholesale of goods in China. In 2009, we expanded our business to include the wholesale of goods, such as copper, steel, energy saving lamps, clothing and zinc slabs, and in 2010, we began engaging in online sales of general consumer products manufactured by third-parties, we discontinued this business in November 2011 in order to comply with PRC government prohibitions of engagement in such activity by foreign invested companies. We operate our business in Hangzhou, Jiashan, Shanghai, Wuxi, Zibo, Tengzhou, ~~Binzhou~~ and ~~Suqian~~Binzhou.

18As at September 30, 2012, we had invested or leased seven commercial properties in Southeastern China, encompassing approximately 152,244 square meters, which includes three properties comprising 93,010 square meters, or approximately 61% of the properties, directly owned by us. Many of the properties are positioned as department stores with large commercial tenants, including but not limited to Bank of China, and Boshiwa International Holding Limited. We rely on the knowledge of our board of directors and management when making investment decisions. We intend to put additional investment policies in place as we expand our commercial real estate business in the coming years.

AsWe atwholesale ~~June~~our ~~30,~~commodities ~~2012,~~to wewholesale ~~invested~~and orretail ~~leased seven commercial~~customers ~~properties~~ in ~~Southeastern~~ China, encompassing approximately 152,244 square meters, which includes three properties comprising 93,010 square meters, or approximately 61% of the properties, directly owned by us. Many of the properties are positioned as department stores with large commercial tenants, including ~~but not limited~~ to ~~Trust-Mart,~~Shanghai ~~Bank~~Senhong ofMetal ~~China~~Co., ~~and Boshiwa International Holding Limited~~Ltd. Weand ~~rely~~Shanghai ~~on the knowledge of our board of~~Quanhao ~~directors~~Material ~~and management when making investment decisions~~Co., ~~We intend to put additional investment policies in place as we expand our commercial real estate business in the coming years~~Ltd.

We wholesale our commodities to wholesale and retail customers in China, including to Shanghai Senhong Metal Co., Ltd and Shanghai Quanhao Material Co., Ltd.

Recent Developments

OnIn ~~May~~November ~~14,~~ 2012, ~~our~~the ~~wholly-owned~~Board ~~subsidiary,~~of ~~Fifth~~Directors ~~Season~~of ~~HK,~~the Company ~~established~~expanded ~~Fifth~~itself ~~Season~~to ~~Shandong~~four ~~Financial~~members ~~Leasing~~and ~~Co.,~~appointed ~~Ltd~~each of Messrs., aIn ~~PRC~~November ~~company~~2012, or ~~Shandong~~the ~~Financial~~Board ~~Leasing.~~of ~~Shandong~~Directors ~~Financial~~of ~~Leasing~~the ~~engages~~Company inexpanded ~~financial leasing,~~itself ~~purchasing~~to ~~leased~~four ~~properties~~members ~~outside~~and elected each of ~~the~~Mr. ~~PRC,~~Lide ~~disposing~~Zhu and ~~repairing~~ ofMr. ~~the~~Lifang ~~residual~~Fu as directors of ~~leased~~the ~~properties~~Company, ~~and~~to fill ~~providing~~the ~~consultation services~~vacancies oncreated ~~leasing~~by ~~transactions~~the expansion of the Board.

~~Second~~Mr. ~~Quarter~~Lide ~~Financial~~Zhu, ~~Performance~~aged ~~Highlights~~48, was appointed as a Director of the Company on November 3, 2012. Mr. Zhu has also served since September 2007 as a Vice President of Vice President of Fifth Season (Hong Kong) International Group Co., Ltd. (“Fifth Season HK”), the Company’s subsidiary. Prior to joining Fifth Season HK, Mr. Zhu served from October 1994 as General Manager of Yinli Lighting Electrical Appliance Co., Ltd., a customer of the Company. Mr. Zhu has diploma from the Hangzhou Party Committee Special Training School and has served as Chairman of the Hangzhou Zhejiang Lighting Association, and as executive director of the Jianggan District Chamber of Commerce since March 1996.

~~The~~Mr. ~~following~~Lifang ~~are~~Fu, ~~some~~aged ~~financial~~35, ~~highlights~~was ~~for~~appointed ~~the~~as ~~interim~~a Director of the ~~period~~Company ~~ended~~on ~~June~~November 303, 2012:. Mr. Fu has also served since September 2007, as a Vice President of Fifth Season HK, the Company’s subsidiary. Mr. Fu has over 10 years’ corporate governance and marketing experience, and prior to joining Fifth Season HK, Mr. Fu was a Founder and operator of the Hangzhou Zhongce Electric (Stock) Co., Ltd., a business engaged in the sale of telecommunication cables. Mr. Fu holds a degree in Industry and Commerce from the Hangzhou University of Business Administration.

~~Revenue:~~The ~~Revenue~~Company ~~decreased~~has ~~$29million,~~not orentered ~~29.5%,~~into toseparate ~~$69~~agreements with ~~million~~either ~~for~~of ~~the~~Messrs. ~~six~~Zhu ~~months~~and ~~ended~~Fu ~~June~~in ~~30,~~connection ~~2012,~~with ~~from~~their ~~$98~~respective ~~million~~roles ~~for the same~~as ~~period in 2011~~director.

~~Gross~~Except ~~Profit~~as ~~and~~follows, ~~Margin:~~none ~~Gross~~of ~~profit~~Mr. ~~decreased~~Zhu $0and Mr.6 Fu is related to any ~~million,~~of the Company’s executive officers or ~~36%~~directors, tonor $1has ~~million~~any ~~for~~of ~~the~~them ~~six~~been ~~months~~a party ~~ended~~to ~~June~~any ~~30,~~transaction ~~2012,~~requiring ~~from~~disclosure pursuant to Item 404(a) of $1Regulation S-K.6 ~~million~~Mr. ~~for~~Zhu ~~the~~has ~~same~~provided ~~period~~a personal guarantee in ~~2011.~~connection with a loan agreement between the Company and Chouzhou Bank for loans totaling $4,731,000.

~~Net~~Third ~~income~~Quarter ~~(loss)~~Financial ~~from~~Performance continuing operation: Net loss from continuing operation was $13 million for the six months ended June 30, 2012, while net income from continuing operation was $2.6 million for the same period in 2011. Highlights

~~Fully~~The ~~diluted~~following ~~earnings~~are ~~(loss)~~some ~~per~~financial ~~share:~~highlights ~~Fully diluted loss per share was $(0.03)~~ for the ~~six~~interim period ~~months~~ ended ~~June~~September 30, 2012~~, as compared to fully diluted earnings per share of $0.01 for the same period in 2011.~~ :

19Revenue: Revenue decreased $43 million, or 31.8%, to $93 million for the nine months ended September 30, 2012, from $137 million for the same period in 2011.
Gross Profit and Margin: Gross profit decreased $2.3 million, or 96.1%, to $0.1 million for the nine months ended September 30, 2012, from $2.4 million for the same period in 2011.
Net income (loss) from continuing operation: Net loss from continuing operation was $17 million for the nine months ended September 30, 2012, while net income from continuing operation was $1.7 million for the same period in 2011.
Fully diluted earnings (loss) per share: Fully diluted loss per share was $(0.04) for the nine months ended September 30, 2012, as compared to fully diluted earnings per share of $0.01 for the same period in 2011.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of sales revenue and key components of our revenue for the periods indicated in dollars.

Comparison of Three Months Ended ~~June~~September 30, 2012 and ~~2011~~ 2011

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.

	Three Months ended June 30,
	Three Months ended September 30,
	2012			2011
			As a percentage			As a percentage
	In Dollars		of total revenue	In Dollars		of total revenue	Changes		Variance(%)
Sales from trading	3320,~~208~~567,~~556~~930		9599.51%	7135,~~934~~711,~~499~~021		9897.91%	(3815,~~725~~143,~~943~~091	)	-5342.84%
Rental and other revenues	1191,~~572,524~~508		40.59%	~~829~~1,~~165~~059,918		12.19%	~~743~~(868,~~359~~410	)	89-81.79%
Total Revenue	3420,~~781~~759,~~080~~438		100.0%	7236,~~763~~770,~~664~~939		100.0%	(3716,~~982~~011,~~584~~501	)	-5243.25%
Cost of tangible goods sold	3320,~~085~~534,~~874~~368		9598.19%	7135,~~321~~121,~~790~~235		9895.05%	(3814,~~235~~586,~~916~~867	)	-5341.65%
Expenses applicable to rental and other revenue	1,~~280~~169,~~940~~149		35.76%	~~343~~886,~~205~~764		02.54%	~~937~~282,~~735~~385		~~273~~31.28%
Costs and expenses applicable to sales and revenues	3421,~~366~~703,~~814~~517		98104.85%	7136,~~664~~007,~~995~~999		9897.59%	(3714,~~298~~304,~~181~~482	)	-5239.07%
Gross profit	~~414~~(944,~~266~~079	)	1-4.25%	1762,~~098,669~~940		12.51%	(~~684~~1,~~403~~707,019	)	-62223.37%
Selling expenses	~~170~~183,~~424~~415		0.59%	~~448~~473,~~378~~295		01.63%	(~~277~~289,~~954~~880	)	-6261.02%
General and administrative expenses	8457,~~255,322~~500		232.72%	1,~~162~~671,~~619~~966		14.65%	7(1,~~092~~214,~~703~~466	)	~~610~~-72.16%
Interest income	~~350~~225,~~443~~152		1.01%	13,~~773~~096,172		08.04%	~~348~~(2,~~670~~871,020	)	~~19665~~-92.57%
Interest expense	(2,~~873~~028,~~091~~074	)	-89.38%	(2,~~123~~691,~~941~~836	)	-27.93%	~~(749~~663,~~150~~762	)	35-24.37%
Gain on business combination	-		0.0%	-		0.0%			0.0%
Net non-operating income/expense	10(207,~~035~~358	)	0-1.0%	(135,~~683~~321	)	-0.24%	(~~125~~72,~~648~~037	)	~~-92~~53.62%
Income tax benefit	~~851~~(50,~~644~~759	)	2-0.42%	~~543~~179,~~995~~665		0.75%	~~307~~(230,~~649~~424	)	56-128.63%
Net loss from continuing operations	(93,~~672~~646,~~449~~033	)	-2717.86%	(1933,~~954,818~~641	)	-2.75%	(72,~~717~~712,~~631~~392	)	~~394~~290.85%
Net loss on discontinued operation	-(158,284	)	-0.8%	(35537,~~417~~806	)	0-1.05%	35379,~~417~~522		-~~100~~70.6%
Income (loss) before extraordinary items	(93,~~672~~804,~~449~~317	)	-2718.83%	(1,~~990~~471,~~235~~447	)	-24.70%	(72,~~682~~332,~~214~~870	)	~~386~~158.05%
Less: net loss attributable to the non-controlling interest	(~~851~~1,921	)	0.0%	(383,~~002~~855	)	-0.10%	371,~~151~~934		-9750.82%
Net income (loss)	(93,~~671~~802,~~598~~396	)	-2718.83%	(1,~~952~~467,~~233~~592	)	-24.70%	(72,~~719~~334,~~365~~804	)	~~395~~159.41%

Our real estate operations segment is comprised of investing activities, property management activities, property assignment activities and commercial leasing activities. Revenue from our real estate operations segment increased by 89.7%, to $1.6 million in the three months ended June 30, 2012, from $0.8million in the same period in 2011 due to our commercial leasing activities. We lease commercial properties, such as department stores, and karaoke lounges, to third party customers in China and earn revenues through the receipt of monthly lease payments from our tenants, most of which are department store tenants. We also earn revenue from occasionally providing consulting services to third party property owners who wish to sell or lease commercial properties. Revenue from commercial leasing increased by 89.7%, to $1.6 million in the three months ended June 30, 2012, from $0.8 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 did not generate any income or expenses from investing activities, property management activities or property assignment activities during the three months ended June 30, 2012 and 2011.

Revenue from our wholesale segment, decreased by 53.8% to $33 million in the three months ended June 30, 2012, from $72 million in the same period in 2011. Sales of copper and zinc accounted for 99.9% of our segment revenue for second quarter of 2012. Sales of copper, steel and lamps accounted for 99.9% of our segment revenue for the second quarter of 2011. The decrease in revenue from our wholesale segment was mainly due to a decrease in sales volume, primarily due to decreased sales orders from customers as affected by a slowdown in the Chinese economy during the 2012 period. We did obtain orders from new customers during the period which we expect will be a continuing trend for the remaining 2012 quarters due to 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 $34.4 million, or 98.8% of total revenue, for the three months ended June 30, 2012, as compared to $71.7 million, or 98.5% of total revenue, for the same period in 2011.

Rental property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy levels, such as common area maintenance and utilities, and expenses that do not vary based on occupancy, such as property taxes. Unless we buy, place in service or sell assets, depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year as we depreciate our properties and related building and tenant improvement assets on a straight-line basis over a useful life. The expenses incurred in our real estate operation segment were attributable to our investing activities and our commercial leasing activities in that segment. Expenses applicable to our real estate operation segment increased by 273.2% to $1.3 million in the three months ended June 30, 2012, from $0.3 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. On March 31, 2011, pursuant to the terms of an Equity Sale and Purchase Agreement, dated February 28, 2011, by and among Shandong TFS and two original individual stockholders of Longyun, the Company completed its acquisition of 100% of the equity interest of Longyun for a total consideration of RMB58 million (approximately $8,846,160) in cash, which was paid in 2011.There were no expenses related to our property management activities or property assignment activities for the three 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 53.6% to $33 million in second quarter of 2012, from $71 million in the same quarter of 2011. Such increase was generally in line with the decrease in sales from our wholesale segment.

Gross Profit and Gross Margin: Our gross profit decreased by 62.3% to $0.4 million in the three months ended June 30, 2012, from $1.1 million in the same period in 2011, due to decrease in gross profit from both our real estate operations and trading segment. Gross profit as a percentage of total revenue (gross margin) was 1.2% and 1.5% for the three months ended June 30, 2012 and 2011, respectively.

~~Our~~Total ~~real~~Revenue: ~~estate~~We ~~operations~~generate ~~segment~~revenue ~~had~~primarily afrom the ~~gross~~leasing ~~profit~~of commercial properties and the wholesale of ~~$0.3~~various goods, as well ~~million~~as infrom some online sales of consumer products. For the three months ended September ~~June~~ 30, 2012, aapproximately 400.9% ~~decrease~~and 99.1% of our revenues were derived from our real estate operation segment and wholesale segment, asrespectively, as compared to a ~~gross~~2.9% ~~profit~~and ~~of $0~~97.51%, ~~million~~respectively, infor the same period ofin 2011. ~~TFS~~Our ~~Wuxi generated a~~total ~~$0.4~~revenue ~~million~~decreased ~~profit~~from ~~due~~approximately to$37 ~~its~~million ~~lease~~in ~~terms rearrangements during~~ the three months ended September ~~June~~ 30, 2011, ~~while~~to itapproximately ~~generated less than~~ $~~0.1~~21 million ~~for~~in the ~~corresponding~~ same period in 2012., representing ~~This~~a ~~resulted~~growth inrate ~~the~~of ~~decrease~~approximately ~~in gross profit in our real estate operations segment~~-42%.

~~Gross~~Our ~~profit~~real estate operations segment is comprised of investing activities, property management activities, property assignment activities and commercial leasing activities. We lease commercial properties, such as department stores, and karaoke lounges, to third party customers in China and earn revenues through the receipt of monthly lease payments from our ~~wholesale~~tenants, most ~~segment~~of ~~decreased~~which byare ~~80%~~department store tenants. We also earn revenue from occasionally providing consulting services to athird party property owners who ~~gross~~wish ~~profit~~to ofsell or lease commercial properties. Revenue from commercial leasing decreased by 81.9%, to $0.122 million in the three months ended ~~June~~September 30, 2012, from $01.6 1 million in the same period in 2011. The decrease ~~resulted~~was ~~from~~primarily due ~~our~~to ~~strategy~~the ~~to expand~~cancellation ~~our~~of ~~market~~two ~~share~~major lease agreements in Jiashan, Zibo and Shanghai beJiadu ~~more~~with ~~competitive~~total byannual ~~lowering~~rental ~~our~~fee ~~selling~~of ~~price~~$3.4 million at the beginning of the 2012 third quarter. We did not generate any income or expenses from investing activities, property management activities or property assignment activities during the three months ended September 30, 2012 and 2011.

~~Selling~~Revenue ~~Expenses:~~from ~~Our~~our ~~selling~~wholesale ~~expenses~~segment, ~~consist primarily~~decreased ofby ~~compensation~~42.4% ~~and~~to ~~benefits~~$21 million toin ~~our~~the ~~sales~~three ~~staff,~~months ~~advertising~~ended ~~expenses~~September 30, ~~business~~ ~~travel~~2012, ~~transportation~~from ~~costs~~$36 ~~and~~million ~~other~~in ~~sales~~the same ~~related~~period ~~costs~~in 2011. ~~Our~~Sales ~~selling~~ of copper and ~~marketing~~zinc ~~expenses~~accounted infor ~~the~~99.9% ~~three~~of ~~months~~our ~~ended~~segment revenue ~~June~~for ~~30,~~the 2012 ~~were~~third ~~$170~~quarter. Sales of copper,~~424,~~ steel and lamps accounted ~~from~~for ~~$448,378~~99.9% inof ~~the~~our ~~same~~segment ~~2011~~revenue ~~period,~~for ~~representing~~the athird ~~62%~~quarter ~~decrease~~of 2011. The decrease in revenue from our wholesale segment was mainly due to a decrease in ~~staff~~sales ~~costs~~volume, primarily ~~and~~due ~~advertising~~to ~~expense~~decreased ~~caused~~sales orders from customers as affected by a slowdown in the ~~shrinking~~Chinese ofeconomy during the 2012 period. We did obtain orders from new customers during the period which we expect will be a continuing trend for the remaining 2012 quarters due to management’s continuing efforts to develop new customers and strengthen our ~~wholesale~~management ~~business~~of suppliers to reduce purchasing costs and enhance our competitiveness.

~~General~~Total ~~and~~Cost ~~Administrative~~of ~~Expenses~~Revenue: ~~General~~Our ~~and~~cost of revenue ~~administrative~~includes expenses, ~~net~~applicable ofto ~~amounts~~our ~~capitalized,~~real ~~consist~~estate ~~primarily~~operation segment, cost of goods ~~management~~sold ~~and~~for ~~employee~~our ~~salaries~~wholesale segment and other ~~personnel~~expenses ~~costs~~relating ~~and~~to ~~corporate overhead.~~our online sales. Our ~~administrative~~total ~~expenses~~cost ~~increased~~of revenue was $21.7 million, or ~~610~~104.15%, toof ~~$8.3 million~~total inrevenue, ~~the~~for the three months ended ~~June~~September 30, 2012, ~~from~~as compared to $~~1.2~~36 million, inor ~~the~~97.9% ~~same~~of ~~period~~total inrevenue, ~~2011.~~for ~~The increase was mainly due to~~ the ~~increase~~same inperiod ~~further providing doubtful provision against long aged accounts receivable totaling $3.8 million~~ in ~~the second quarter of 2012~~2011.

~~Interest~~Rental ~~Income~~property expenses are expenses associated with our ownership and operation of rental properties and include expenses that vary somewhat proportionately to occupancy levels, such as common area maintenance and utilities, and expenses that do not vary based on occupancy, such as property taxes. ~~Interest~~Unless ~~income~~we ~~increased~~buy, place in service or sell assets, depreciation and amortization is a non-cash expense associated with the ownership of real property and generally remains relatively consistent each year as we depreciate our properties and related building and tenant improvement assets on a straight-line basis over a useful life. The expenses incurred in our real estate operation segment were attributable to our investing activities and our commercial leasing activities in that segment. Expenses applicable to our real estate operation segment increased by 31.8% to $01.32 million in the three months ended ~~June~~September 30, 2012, from $~~1,773~~0.9 million in the same period in 2011. WeThe increase ~~earned~~was ~~interest~~primarily ~~income~~due to the combined effect of the higher 2012 period depreciation expense resulting from the ~~deposits~~decrease ~~pledged~~in ~~with~~staff ~~banks~~costs and rental ~~for~~expense, ~~financing~~as ~~purposes.~~we ~~The~~liquidated ~~increase~~our business in ~~the~~Liyang ~~interest~~in ~~income~~late ~~was~~2011. ~~mainly~~On ~~due~~March 31, 2011, pursuant to the terms of an Equity Sale and Purchase Agreement, dated February 28, 2011, by and among Shandong TFS and two original individual stockholders of Longyun, the ~~increase~~Company incompleted its acquisition of 100% of the equity ~~average~~interest ~~balance~~of Longyun for a total consideration of ~~deposits~~RMB58 ~~pledged~~million (approximately $8,846,160) in cash, which was paid in 2011.There were no expenses related to our property management activities or property assignment activities for the three months ended September 30, 2012 and 2011.

~~Interest~~Cost ~~Expense:~~of ~~Interest~~goods ~~expense~~sold ~~increased~~for ~~$0.7~~our wholesale segment includes the cost ~~million,~~of orthe 35purchase of goods and freight costs.3 Cost of goods sold decreased by 41.5%, to $~~2.9~~21 million in the ~~three~~2012 ~~months~~third ~~ended June 30~~quarter, ~~2012,~~ from $~~2.1~~35 million in the same quarter ~~period~~of in 2011,. ~~primarily~~Such ~~due~~decrease towas ~~more~~generally ~~borrowings~~in ~~and loans~~line ~~during~~with the ~~second~~decrease ~~quarter~~in ofsales from ~~2012.~~our wholesale segment.

~~Net~~Gross ~~non-operating~~Profit ~~income/expense~~and Gross Margin: OnOur ~~January~~gross ~~28,~~profit ~~2011,~~decreased ~~Shandong~~by ~~TFS~~223.7% ~~entered~~to ~~into~~gross anloss ~~entrustment~~$0.9 ~~loan~~million ~~agreement~~in ~~with~~the ~~CITIC~~three ~~Bank~~months ended ~~(as~~September ~~trustee on behalf of Shandong Shenli Steel Pipe Co.~~30, ~~Ltd.)~~2012, anfrom ~~unrelated third~~gross ~~party,~~profit ~~for~~$0.8 amillion ~~loan~~ in the ~~principal~~same ~~amount~~period ofin ~~$47~~2011,~~433,000 with original~~ ~~maturity~~due ~~date~~to ofdecrease ~~January~~in ~~27,~~gross ~~2012.~~profit Infrom ~~January~~both ~~2012,~~our ~~Shandong~~real ~~TFS~~estate ~~applied~~operations ~~for~~and antrading ~~extension~~segment. ofGross ~~its~~profit ~~entrusted~~as ~~loan~~a ~~agreement~~percentage toof ~~July~~total ~~31,~~revenue ~~2012,~~(gross ~~which~~margin) was ~~finally~~-4.5% ~~agreed~~and ~~by Shandong Shengli in February 17, 2012~~2.1% ~~Since~~for the ~~agreement~~three ~~was~~months ~~reached 21~~ended ~~days~~September ~~after the original maturity date~~30, ~~CITIC~~2012 ~~Bank~~and ~~charged Shandong TFS an~~2011, ~~interest penalty of $0~~respectively.~~2 million.~~

Our real estate operations segment had a gross loss of $1 million in the three months ended September 30, 2012, a 664.6% decrease, as compared to a gross profit of $0.2 million in the same period of 2011. As mentioned above, there were two major lease agreements cancelled at the beginning of the 2012 third quarter, which resulted in the gross loss in our real estate operations segment.

~~Income~~Gross ~~Taxes:~~profit ~~Our~~from ~~income~~our ~~tax~~wholesale ~~benefit~~segment ~~increased~~decreased by ~~approximately~~ $094.3% ~~million,~~to ora gross ~~56.6%,~~profit toof $0.903 million in the three months ended ~~June~~ September 30, 2012, from $0.56 million in the same period ofin 2011. The ~~increase~~decrease ~~was due~~resulted tofrom ~~the~~our ~~combined~~strategy to ~~effect~~expand ofour ~~recognition~~market ofshare ~~deferred tax assets~~ and ~~liabilities,~~ ~~and~~be ~~due~~more tocompetitive ~~the~~by ~~provision~~lowering ofour ~~allowance against deferred tax assets.~~selling price.

~~Net~~Selling ~~income~~Expenses: ~~(Loss)~~Our ~~from~~selling ~~continuing~~expenses ~~operations: In~~consist ~~the~~primarily ~~three~~of ~~months~~compensation ~~ended~~and ~~June~~benefits ~~30,~~to ~~2012~~our sales staff, weadvertising ~~suffered~~expenses, business atravel, ~~net~~transportation ~~loss~~costs ~~from~~and ~~continuing operations~~other ofsales $9related costs.7 ~~million~~Our selling and marketing expenses in the three months ended ~~June~~September 30, 2012, ~~while~~were we$0.2 ~~recorded~~million, adecreasing ~~net loss~~ from ~~continuing operations of~~ $10.95 million in the same ~~period~~ ~~last~~2011 ~~year~~period, asrepresenting a 61.2% ~~result~~decrease. ofThe decrease was mainly due to a decrease in staff costs and advertising expense caused by the ~~factors~~shrinking ~~described~~of ~~above.~~our wholesale business.

~~Net~~General ~~income~~and ~~(Loss)~~Administrative Expenses: InGeneral ~~the~~and administrative ~~three~~expenses, ~~months~~net ~~ended~~of ~~June 30,~~amounts ~~2012~~capitalized, weconsist ~~suffered~~primarily aof management ~~net~~and ~~loss~~employee ofsalaries and other personnel costs and corporate overhead. Our administrative expenses decreased $91.72 million, or 72.6%, to $0.5 million in the three months ended ~~June~~ September 30, 2012, ~~while~~from ~~we recorded a net loss of~~ $1.97 million in the same period ~~last year,~~in as2011. aThe ~~result~~decrease was mainly due to the reversal of approximately $2 million doubtful provision against long aged accounts receivable collected in the ~~factors~~third ~~described~~quarter ~~above~~of 2012.

~~Comparison~~Interest ofIncome. ~~Six~~Interest ~~Months~~income ~~Ended~~decreased $2.9 ~~June~~million in the three months ended September 30, 2012, ~~and~~from $3.1 million in the same period in 2011. We earned interest income from the deposits pledged with banks for financing purposes. The decrease in the interest income was mainly due to the decrease in the average balance of deposits pledged.

Interest Expense: Interest expense decreased $0.7 million, or 24.7%, to $2 million in the three months ended September 30, 2012, from $2.7 million in the same period in 2011, primarily due to less borrowings and loans during the third 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 $47,310,000 with original maturity date of January 27, 2012. In January 2012, Shandong TFS applied for an extension of its entrusted loan agreement to July 31, 2012, which was finally agreed by Shandong Shengli in February 17, 2012. According to provisions of the extension agreement, Shandong TFS should repay the loan by installment, but Shandong TFS defaulted on the installment payment in both the second and third quarters. During the period that the loan was in default, CITIC Bank charged Shandong TFS an interest penalty at 50% of the interest rate defined in the original loan agreement.

Income Taxes: Our income tax benefit decreased by approximately $0.23 million, or 128.3%, to tax expenses $0.1 million in the three months ended September 30, 2012, from tax benefit $0.18 million in the same period of 2011. The decrease was due to the combined effect of recognition of deferred tax assets and liabilities, and due to the provision of allowance against deferred tax assets.

Net income (Loss) from continuing operations: In the three months ended September 30, 2012, we suffered a net loss from continuing operations of $3.6 million in the three months ended September 30, 2012, while we recorded a net loss from continuing operations of $0.9 million in the same period last year, as a result of the factors described above.

Net income (Loss): In the three months ended September 30, 2012, we suffered a net loss of $3.8 million in the three months ended September 30, 2012, while we recorded a net loss of $1.5 million in the same period last year, as a result of the factors described above.

Comparison of Nine Months Ended September 30, 2012 and 2011

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales.

	Six Months Ended June 30,
	2012			2011
			As a percentage			As a percentage
	In Dollars		of total revenue	In Dollars		of total revenue	Changes		Variance(%)
Sales from trading	69,040,534		95.5%	97,923,379		98.2%	(28,882,845	)	-29.5%
Rental and other revenues	3,257,789		4.5%	1,839,618		1.8%	1,418,171		77.1%
Total Revenue	72,298,323		100.0%	99,762,997		100.0%	(27,464,674	)	-27.5%
Cost of tangible goods sold	68,763,147		95.1%	96,698,850		96.9%	(27,935,703	)	-28.9%
Expenses applicable to rental and other revenue	2,497,621		3.5%	1,444,214		1.5%	1,053,407		72.9%
Costs and expenses applicable to sales and revenues	71,260,768		98.6%	98,143,064		98.4%	(26,882,296	)	-27.4%
Gross profit	1,037,555		1.4%	1,619,933		1.6%	(582,378	)	-36.0%
Selling expenses	463,036		0.6%	667,490		0.7%	(204,454	)	-30.6%
General and administrative expenses	10,507,715		14.5%	2,489,937		2.5%	8,017,778		322.0%
Interest income	965,867		1.3%	3,319		0.0%	962,548		29001.1%
Interest expense	(5,528,088	)	-7.6%	(4,274,918	)	-4.3%	(1,253,170	)	29.3%
Gain on business combination	-			7,116,499		7.1%	(7,116,499	)	-100.0%
Net non-operating income/expense	(225,255	)	-0.3%	139,220		0.1%	(364,475	)	-261.8%
Income tax benefit	1,769,957		2.4%	1,167,459		1.2%	602,498		51.6%
Net loss from continuing operations	(12,950,715	)	-17.9%	2,614,085		2.6%	(15,564,800	)	-595.4%
Net loss on discontinued operation	-		-	(67,725	)	0.0%	67,725		-100.0%
Income (loss) before extraordinary items	(12,950,715	)	-17.9%	2,546,360		2.6%	(15,497,075	)	-608.6%
Less: net loss attributable to the non- controlling interest	(17,918	)	0.0%	(38,002	)	0.0%	20,084		-52.8%
Net income (loss)	(12,932,797	)	-17.9%	2,584,362		2.6%	(15,517,159	)	-600.4%

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% .

	Nine Months Ended September 30,
	2012			2011
			As a percentage			As a percentage
	In Dollars		of total revenue	In Dollars		of total revenue	Changes		Variance (%)
Sales from trading	89,608,464		96.3%	133,634,400		97.9%	(44,025,936	)	-32.9%
Rental and other revenues	3,449,297		3.7%	2,899,536		2.1%	549,761		19.0%
Total Revenue	93,057,761		100.0%	136,533,936		100.0%	(43,476,175	)	-31.8%
Cost of tangible goods sold	89,297,515		96.0%	131,820,085		96.5%	(42,522,570	)	-32.3%
Expenses applicable to rental and other revenue	3,666,770		3.9%	2,330,978		1.7%	1,335,792		57.3%


Costs and expenses applicable to sales and revenues	92,964,285		99.9%	134,151,063		98.3%	(41,186,778	)	-30.7%
Gross profit	93,476		0.1%	2,382,873		1.7%	(2,289,397	)	-96.1%

Selling expenses	646,451		0.7%	1,140,785		0.8%	(494,334	)	-43.3%
General and administrative expenses	10,965,215		11.8%	4,161,903		3.0%	6,803,312		163.5%
Interest income	1,191,019		1.3%	3,099,491		2.3%	(1,908,472	)	-61.6%
Interest expense	(7,556,162	)	-8.1%	(6,966,754	)	-5.1%	(589,408	)	8.5%
Gain on business combination	-		0.0%	7,116,499		5.2%	(7,116,499	)	-100.0%
Net non-operating income/expense	(432,613	)	-0.5%	3,899		0.0%	(436,512	)	-11195.5%
Income tax benefit	1,719,198		1.8%	1,347,124		1.0%	372,074		27.6%

Net loss from continuing operations	(16,596,748	)	-17.8%	1,680,444		1.2%	(18,277,192	)	-1087.6%

Net loss on discontinued operation	(158,284	)	-0.2%	(605,531	)	-0.4%	447,247		-73.9%

Income (loss) before extraordinary items	(16,755,032	)	-18%	1,074,913		0.8%	(17,829,945	)	-1658.7%

Less: net loss attributable to the non-controlling interest	(19,839	)	0.0%	(41,857	)	0.0%	22,018		-52.6%

Net income (loss)	(16,735,193	)	-18%	1,116,770		0.8%	(17,851,963	)	-1598.5%

Total Revenue: ~~from~~We ~~our~~generate ~~real~~revenue ~~estate~~primarily ~~operations segment increased by~~from ~~77.1%, to $3.3 million in~~ the ~~six~~leasing ~~months~~of ~~ended~~commercial ~~June~~properties ~~30,~~and ~~2012, from $1.8 million in~~ the ~~same~~wholesale ~~period~~of invarious ~~2011~~goods, ~~due~~as ~~to our commercial leasing activities during the~~well ~~2012~~as ~~period. Revenue~~ from ~~commercial~~some ~~leasing~~online ~~increased~~sales byof ~~77.1%,~~consumer ~~to $3~~products.3 ~~million in~~For the ~~six~~nine months ended September ~~June~~ 30, 2012, ~~from~~approximately $13.87% ~~million~~and ~~in the same period in 2011~~96.3% ~~The~~of ~~increase~~our ~~was primarily due to increase in~~ revenues ~~from~~were ~~the increased~~derived ~~occupancy rate of Jiashan TFS and Shandong TFS and due to contribution~~ from our ~~subsidiary,~~ ~~TFS~~real ~~Bingzhou,~~estate ~~which~~operation ~~commenced~~segment ~~operations~~and inwholesale ~~April 2011.We recorded $nil in our investing activities for the six months ended June 30~~segment, ~~2012~~respectively, as compared to ~~a $7~~2.1% ~~million~~and ~~gain~~97.9%, onrespectively, afor ~~business combination in~~ the same period in 2011.~~None~~ ofOur ~~our clients have taken advantage of our property management~~total ~~services~~revenue todecreased ~~date~~from ~~and~~approximately ~~so we recorded~~ $~~nil~~137 ~~management~~million ~~fees~~in ~~and related expenses for~~ the ~~six~~nine months ended September ~~June~~ 30, ~~2012 and~~ 2011~~.No~~, ~~revenue applicable~~ to ~~property~~approximately ~~assignment~~$93 ~~was~~million ~~recognized~~in ~~for~~ the ~~six~~same ~~months~~period ~~ended June~~in ~~30,~~ 2012 ~~and 2011~~, representing ~~because~~a nogrowth ~~commercial~~rate ~~property~~of ~~was~~approximately ~~sold during the period~~-31.8% .

Revenue from commercial leasing increased by 19.0%, to $3.4 million in the nine months ended September 30, 2012, from $2.9 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 nine months ended September 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 nine months ended September 30, 2012 and 2011. No revenue applicable to property assignment was recognized for the nine months ended September 30, 2012 and 2011, because no commercial property was sold during the period.

Revenue from our wholesale segment, decreased by 32.9% to $90 million in the nine months ended September 30, 2012, from $134 million in the same period in 2011. Sales of copper and zinc accounted for 99.9% of our segment revenue for first nine months of 2012. Sales of copper, steel and lamps accounted for 99.9% of our segment revenue for the first nine months 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 and third 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 the remaining 2012 quarter 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 $93 million, or 99.9% of total revenue, for the nine months ended September 30, 2012, as compared to $134 million, or 98.3% of total revenue, for the same period in 2011.

~~Revenue~~Expenses ~~from~~applicable to our ~~wholesale~~real ~~segment,~~estate ~~decreased~~operation segment increased by 2957.53% to $69 3.7 million in the ~~six~~nine months ended ~~June~~September 30, 2012, from $982.3 million in the same period in 2011. ~~Sales~~The ofincrease ~~copper~~was ~~and~~primarily ~~zinc~~due ~~accounted~~to the ~~for~~combined ~~99.9%~~effect of ~~our~~the ~~segment revenue~~higher ~~for first half of~~ 2012. ~~Sales~~period ofdepreciation ~~copper,~~expense ~~steel and lamps accounted for~~resulting ~~99.9%~~from ofnewly ~~our~~acquired ~~segment~~property ~~revenue~~in ~~for~~February ~~the~~and ~~first~~April ~~half of~~ 2011., ~~The~~and the decrease in ~~revenue~~ ~~from~~staff ~~our~~costs ~~wholesale~~and ~~segment~~rental ~~was~~expense, aas ~~combined~~we ~~effect~~liquidated ofour ~~:(1)~~business ~~increase~~ in ~~sales volume~~Liyang in ~~first~~late 2011. ~~quarter~~None of ~~2012~~our ~~resulting~~clients ~~from~~have ~~increased~~taken ~~sales~~advantage ~~orders~~of ~~from Shanghai~~our ~~Senhong~~property ~~who~~management services ~~made~~to usdate ~~their major supplier in 2011;~~ and ~~(2)~~so ~~decrease~~we ~~in sales~~recorded ~~volume~~$nil inexpenses ~~second~~for ~~quarter of 2012 as compared with~~ the ~~corresponding~~nine ~~period~~months ended ofSeptember ~~2011~~30, as2012 ~~affected~~and ~~by the slowdown of Chinese economy~~2011. InThere ~~addition,~~are ~~we achieved~~no ~~orders~~expenses ~~from~~related ~~new customers. We expect this trend~~ to ~~continue~~our ~~during for~~investing ~~the~~activities ~~remaining~~or ~~2012~~property ~~quarters~~assignment asactivities afor ~~result~~the ofnine ~~management’s~~months ~~continuing~~ended ~~efforts to~~September ~~develop~~30, ~~new~~2012 ~~customers~~ and ~~strengthen our management of suppliers to reduce purchasing costs and enhance our competitiveness~~2011.

~~Total~~ Cost of ~~Revenue:~~goods ~~Our~~sold ~~cost~~for ~~of revenue includes expenses applicable to~~ our ~~real~~wholesale ~~estate~~segment ~~operation~~includes ~~segment,~~the cost of ~~goods sold~~the ~~for~~purchase ~~our~~of ~~wholesale~~goods ~~segment~~ and ~~other~~freight ~~expenses relating to our online sales~~costs. ~~Our~~ ~~total~~Cost ~~cost~~ of ~~revenue~~goods ~~was~~sold ~~$71.3~~decreased ~~million, or 98~~by 32.63% ofto ~~total~~$89 ~~revenue,~~million for the ~~six~~ ~~months~~first ~~ended~~nine ~~June~~months ~~30,~~of 2012, asfrom ~~compared to~~ $98132 million, orfor the ~~98.4%~~first nine months of ~~total revenue,~~2011. ~~for~~Such ~~the~~decrease ~~same~~was ~~period~~generally in ~~2011~~line with the decrease in sales from our wholesale segment.

~~Expenses~~Gross ~~applicable~~Profit toand ~~our~~Gross ~~real~~Margin: ~~estate~~Our ~~operation~~gross ~~segment~~profit ~~increased~~decreased by 7296.91% to $20.51 million in the ~~six~~nine months ended ~~June~~September 30, 2012, ~~from~~ from $12.4 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~~effect ~~months~~of: ~~ended~~decreases ~~June 30, 2012, from $1.4 million~~ in ~~the same period in 2011. The increase was primarily due to the~~ ~~combined~~gross ~~effect~~profits ~~of the higher 2012 period depreciation expense resulting~~ from ~~newly~~ ~~acquired~~both ~~property~~our inwholesale ~~February~~segment and ~~April 2011, and the decrease in staff costs and rental expense, as we liquidated~~ our ~~business~~real inestate ~~Liyang in late~~operations ~~2011~~segment.~~None~~ ofGross ~~our~~profit ~~clients~~as ~~have~~a ~~taken~~percentage ~~advantage~~ of ~~our~~total ~~property~~revenue ~~management services~~(gross tomargin) ~~date~~was ~~and so we recorded $nil expenses for the six months ended June~~0.1% ~~30, 2012~~ and ~~2011~~1.~~There~~7% ~~are no expenses related to our investing activities or property assignment activities~~ for the ~~six~~nine months ended ~~June~~September 30, 2012 and 2011., respectively.

~~Cost~~In ofour ~~goods~~real ~~sold~~estate ~~for~~operations ~~our~~segment ~~wholesale~~we ~~segment~~suffered ~~includes~~a ~~the~~gross ~~cost~~loss of ~~the~~$0.2 ~~purchase~~million ofin ~~goods~~the ~~and~~nine ~~freight~~months ~~costs.~~ended ~~Cost~~September of30, ~~goods~~2012, ~~sold~~a ~~decreased by 28~~138.92% todecrease, as ~~$69millionfor~~compared ~~the~~to ~~first~~a ~~half~~gross profit of ~~2012, from~~ $970.6 million ~~for~~in the ~~first half~~same period of 2011. Such change ~~decrease~~ was ~~generally~~primarily indue ~~line~~to ~~with~~ the ~~decrease~~cancellation inof ~~sales~~two major lease agreements at ~~from~~the ~~our~~beginning ~~wholesale~~of ~~segment~~the 2012 third quarter.

Gross ~~Profit~~profit ~~and~~from ~~Gross~~our ~~Margin:~~wholesale ~~Our~~segment ~~gross profit~~ decreased by 3682.9% to $1a gross ~~million~~profit of $0.3million in the ~~six~~nine months ended ~~June~~September 30, 2012, from $1.6 8 million in the same period in 2011,. ~~due~~The ~~to the combined effect of: (1)a~~ decrease in ~~gross~~resulted ~~profit~~ from our ~~wholesale segment, and (2)an increase in gross profit~~strategy ~~from~~to expand our ~~real~~market ~~estate~~share ~~operations segment. Gross profit as a percentage of total revenue (gross margin) was 1.4%~~ and ~~1.6% for~~be ~~the~~more ~~six~~competitive ~~months~~by ~~ended~~lowering ~~June~~our ~~30, 2012 and 2011, respectively~~selling price.

26Selling 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 nine months ended September 30, 2012 were $0.6 million, from $1.1 million in the same 2011 period, representing a 43.3% decrease. The decrease was mainly due to a decrease in staff costs and advertising expense caused by the shrinking of our wholesale business.

InGeneral ~~our~~and ~~real~~Administrative ~~estate~~Expenses: ~~operations~~General ~~segment~~and administrative weexpenses, ~~enjoyed~~net aof ~~gross~~amounts ~~profit~~ capitalized, consist primarily of management and employee salaries and other personnel costs and corporate overhead. Our administrative expenses increased $07 million, or 163.85%, to $11 million in the ~~six~~nine months ended ~~June~~September 30, 2012, afrom 92$4 million in the same period in 2011.3% The increase, ~~as compared~~was mainly due to athe ~~gross~~increase ~~profit~~in the further doubtful provision against long aged accounts receivable with amount of $02.4 8 million in ~~the~~2012. ~~same~~In ~~period~~addition, ofthe ~~2011.~~increase ~~Such change~~ was ~~primarily~~ due to the ~~establishment~~increase ofduring ~~new~~the 2012 ~~subsidiaries~~period ~~such~~in asprofessional ~~TFS Binzhou~~expense, ~~and~~staff ~~effective~~costs, ~~market~~office ~~strategies~~building torental ~~boost~~expense and ~~leasing~~other ~~income~~administrative ~~and~~expenses ~~cut~~as ~~our costs~~a inresult of the ~~undeveloped~~establishment ~~market~~ of ~~Liyang~~subsidiary companies in late 2011.

~~Gross~~Interest ~~profit~~income. Interest income decreased $2 million in the nine months ended September 30, 2012, from ~~our~~$3 ~~wholesale~~million ~~segment~~in ~~decreased~~the same byperiod 77in 2011.3% We have been engaged in providing exclusive agency services to assist a property development company to sell its properties, with the ~~gross~~condition ~~profit~~that ofwe prepay approximately $033 million as a deposit towards the proceeds of such sales.~~3million~~ We recognized approximately $3 million in interest income generated by the ~~six~~deposit in nine months ended ~~June~~September 30, ~~2012~~2011, ~~from~~and approximately $10.2 4 million in ~~the~~2012. ~~same~~We ~~period~~also inrecognized ~~2011.~~nil ~~The~~interest ~~decrease~~income generated ~~resulted~~by ~~from~~restricted ~~our~~cash ~~strategy~~in ~~to expand~~nine ~~our~~months ~~market~~ended ~~share~~September ~~and~~30, be2011, ~~more~~and approximately ~~competitive~~$0.7 bymillion ~~lowering~~in ~~our selling price~~2012.

~~Selling~~Interest ~~Expenses~~Expense: ~~Our~~Interest ~~selling~~expense ~~expenses~~increased ~~consist~~$0.6 ~~primarily of compensation and benefits to our sales staff~~million, ~~advertising~~or ~~expenses~~8.5%, ~~business~~ ~~travel,~~to ~~transportation costs and other sales related costs~~$7.6 ~~Our~~million ~~selling and marketing expenses~~ in the ~~six~~nine months ended ~~June~~September 30, 2012 ~~were $463~~,~~036, from~~ from $~~667,490~~7 million in the same ~~2011~~ period, ~~representing~~in a2011, ~~30.6%~~primarily ~~decrease. The decrease was mainly~~ due to amore ~~decrease~~borrowings ~~in staff costs~~ and loans ~~advertising~~during ~~expense~~the ~~caused~~first ~~by the~~nine ~~shrinking~~months of ~~our wholesale business~~2012.

~~General~~Net ~~and~~non-operating ~~Administrative Expenses~~income/expense: ~~General~~On ~~and administrative~~January ~~expenses~~28, 2011, ~~net~~Shandong ofTFS ~~amounts~~entered ~~capitalized,~~into ~~consist~~an ~~primarily~~entrustment ofloan agreement with CITIC Bank ~~management~~(as ~~and~~trustee ~~employee~~on ~~salaries~~behalf ~~and~~of ~~other~~Shandong ~~personnel~~Shenli ~~costs~~Steel ~~and~~Pipe ~~corporate overhead~~Co., ~~Our~~Ltd.), ~~administrative~~an ~~expenses~~unrelated third ~~increased~~party, for a loan in the principal amount of $847,310,000 ~~million~~with an original maturity date of January 27, or2012. ~~322%~~In January 2012, toShandong ~~$10.5~~TFS applied for an ~~million~~extension inof the ~~six~~loan ~~months~~agreement ~~ended~~to ~~June~~July 3031, 2012, ~~from~~which ~~$2.5~~was ~~million~~finally inagreed ~~the same~~by ~~period~~Shandong Shenli in ~~2011.~~February ~~The~~17, ~~increase~~2012. ~~was~~Since ~~mainly~~the ~~due~~agreement towas ~~the~~21 ~~increase~~days inafter the ~~further~~ ~~doubtful~~original ~~provision~~maturity ~~against~~date, ~~long~~CITIC ~~aged~~Bank ~~accounts~~charged ~~receivable~~Shandong ~~with~~TFS ~~amount~~a of $30.8 2 million ininterest penalty. ~~the~~Furthermore, ~~second~~according ~~quarter~~to provisions of ~~2012.~~the Inextension ~~addition~~agreement, Shandong TFS should repay the ~~increase~~loan ~~was~~by ~~due~~installment, tobut ~~the increase~~Shandong ~~during~~TFS defaulted on the ~~2012~~installment ~~period~~payment in ~~professional~~both ~~expense,~~second ~~staff~~and ~~costs,~~third ~~office~~quarters. During the period ~~building~~that ~~rental~~the ~~expense~~loan ~~and~~was ~~other~~in ~~administrative~~default, ~~expenses~~CITIC asBank acharged ~~result~~Shandong ofTFS ~~the~~an interest ~~establishment~~penalty at 50% of ~~subsidiary~~the ~~companies~~interest rate defined in ~~late~~the ~~2011.~~original loan agreement.

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.

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. 26

~~Net~~Income ~~income~~Taxes: ~~(Loss)~~Our ~~from~~income ~~continuing~~tax ~~operations:~~benefit Inincreased by ~~the~~approximately ~~six~~$0.4 ~~months~~million, ~~ended~~or ~~June 30~~27.6%, ~~2012,~~to we$1.7 ~~suffered~~million ain ~~net~~the ~~loss~~nine ~~from~~months ~~continuing~~ended ~~operations~~September of30, 2012, from $131.3 million in the ~~six~~same ~~months~~period ~~ended~~of ~~June~~2011. ~~30,~~The ~~2012, while we~~increase ~~recorded~~was adue ~~net~~to ~~income~~the ~~from~~combined ~~continuing~~effect ~~operations~~ of ~~$2.6~~recognition ~~million~~of indeferred ~~the~~tax ~~same~~assets and ~~period~~liabilities, ~~last~~and ~~year,~~impacted asby athe ~~result~~provision of ~~the~~allowance ~~factors~~against ~~described~~deferred ~~above~~tax assets.

Net income (Loss) from continuing operations: In the ~~six~~nine months ended ~~June~~ September 30, 2012, we suffered a net loss from continuing operations of $1317 million in the ~~six~~nine months ended ~~June~~September 30, 2012, while we recorded a net income from continuing operations of $21.67 million in the same period last year, as a result of the factors described above.

Net income (Loss): In the nine months ended September 30, 2012, we suffered a net loss of $17 million in the nine months ended September 30, 2012, while we recorded a net income of $1.1 million in the same period last year, as a result of the factors described above.

Liquidity and Capital Resources

As of ~~June~~September 30, 2012, we had cash and cash equivalents of $20.9 16 million and we had a working capital deficit of approximately $4952 million. We We provided approximately $2610.7 million in cash for our operating activities in ~~the~~ ~~six~~the nine months ended ~~June~~September 30, 2012. We believe that these factors raise ~~substantial~~ 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~~ including commercial property leasing and providing agent service to properties sales, sales of commercial properties, and our anticipated ability to obtain ~~continued~~ continued financing or loans from related parties to finance the Company’s ~~continuing~~ continuing operations, we have prepared the consolidated financial statements on a going concern basis.

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.

WeThough ~~expect~~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 ~~more~~the ~~cash~~approval ~~flow~~of SAFE and other relevant PRC governmental authorities. Our ability to pay dividends is primarily dependent on our receiving distributions of funds from our ~~operating~~subsidiaries, ~~activities~~which is restricted by certain regulatory requirements. ~~with~~Relevant ~~the~~PRC ~~increasing~~statutory ~~occupancy~~laws ~~rate~~and regulations permit payments of dividends by our PRC ~~commercial~~Operating ~~properties~~Subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and ~~the~~regulations. Our PRC ~~expiration~~subsidiaries are also required under PRC laws and regulations to allocate at least 10% of ~~contractual~~their ~~grace~~annual ~~periods~~after-tax orprofits ~~holidays~~determined onin accordance with PRC GAAP to a statutory reserve fund until the ~~commencement~~amounts in said fund reaches 50% of their ~~lease~~registered capital. The reserve that each of our PRC subsidiaries provided ~~payments~~is to make provision for loss or transfer to capital. InAs ~~addition~~of September 30, we2012, the ~~expect~~accumulated statutory reserve fund of these subsidiaries was $3,992. Our PRC subsidiaries will be required to ~~enjoy~~allocate ~~commission~~10% of our future net income, ofafter deducting upaccumulated deficit, to ~~RMB76~~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 $1267 million) as ~~within~~of ~~the~~September ~~next~~30, 122012. ~~months~~Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in ~~connection~~the form of ~~without~~loans, ~~exclusive~~advances, ~~agent~~or ~~services~~cash ~~provided~~dividends, onwhich affects the ~~Mintai~~nature ~~Project.~~of Weretained earnings: ~~expect~~the part of retained earnings allocated to statutory reserve funds is ~~complete~~treated as appropriated retained earnings, and the ~~sales~~remaining ~~within~~part ~~one~~is unappropriated ~~year~~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 ~~will~~Business ~~collect~~Real ~~the~~Estates, ~~remaining~~do ~~prepaid~~not have material cash obligations to ~~deposit~~third ofparties. ~~RMB178~~Therefore, ~~million~~the ~~(approximately~~restriction ~~$28~~does ~~million)~~not ~~upon~~impact ~~completion~~the liquidity of ~~such~~the ~~sales~~companies.

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.27

29We 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 September 30, 2012, our operating lease commitment and capital commitment, which will be paid during 2013, were $9.2 million and $10.7 million, respectively. We have also budgeted approximately $10 million for our future business acquisitions.

We ~~believe~~historically ~~that~~financed our ~~available~~operations ~~cash~~principally ~~and~~from cash ~~equivalents and~~ ~~cash~~flows ~~provided~~generating byin operating activities ~~will~~and ~~meet~~from ~~part~~external offinancing ~~our~~raised ~~present cash needs,~~from ~~but~~banks ~~we will require additional cash resources, including loans, to meet our expected capital expenditure~~ and ~~working~~other ~~capital~~lenders. ~~for~~We ~~the next 12 months, which we~~ expect to ~~amount~~generate tomore ~~approximately~~cash ~~$22~~flow ~~million.~~from ~~We expect that our future~~operation ~~capital~~activities ~~expenditures~~with ~~will~~increasing beoccupancy ~~the~~rates ~~continued~~in ~~addition~~its ofcommercial ~~more~~ properties and the ~~upgrade~~expiration of ~~our~~lease ~~existing properties to enhance our competiveness in the rental market~~holidays. AsIn ~~of June 30~~addition, ~~2012,~~we ~~our~~expect ~~operating~~to ~~lease~~enjoy ~~commitment~~a ~~and capital~~commission ~~commitment,~~income ~~which~~of ~~will~~up beto ~~paid~~RMB76 ~~during 2013, were $1.4~~ million ~~and~~(approximately $~~10.3~~12 million), ~~respectively.~~ Wefrom ~~have~~exclusive ~~also~~agent services ~~budgeted~~provided ~~approximately~~on ~~$10~~the ~~million~~Mintai ~~for our future business acquisitions~~Project.

ToWe ~~satisfy~~have ~~our~~also ~~capital~~undertaken ~~requirements,~~a weplan ~~may seek~~ to sell ~~additional~~ ~~equity~~commercial orbuildings ~~debt securities or obtain additional credit facilities. The sale of additional equity securities could result~~ in ~~dilution to our~~ ~~stockholders.~~Shanghai ~~The incurrence of indebtedness would result in increased debt service obligations and could require us~~ to ~~agree~~Shandong toShengli ~~operating~~Steel ~~and~~Pipe ~~financial covenants that would restrict our operations~~Co. ~~Financing may not be available in amounts or on terms acceptable to us~~, ifLtd. at ~~all.~~a ~~Any~~price ~~failure~~of bynot usless ~~to raise~~than ~~additional~~RMB380 ~~funds~~million on(approximately ~~terms~~$60 ~~favorable to us~~million), orand ata ~~all,~~letter ~~could~~of ~~limit~~intent ~~our~~with ~~ability to~~Shandong ~~expand~~Shengli ~~our~~Steel ~~business~~Pipe ~~operations and could harm our overall business prospects~~Co. ~~Furthermore~~, weLtd. ~~may~~for ~~not~~the besale ~~able~~of tocommercial ~~repay,~~properties ~~refinance~~in ~~or extend any or all of our~~Shanghai ~~debt~~was atsigned ~~maturity~~in orAugust ~~upon any acceleration~~2012. IfThe ~~any~~selling ~~refinancing~~of ~~is done at higher interest rates,~~ the ~~increased~~commercial ~~interest~~buildings ~~expense~~is ~~could adversely affect our cash~~still ~~flow.~~currently ~~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~~progress.

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 $3746.7 million ~~in 2012~~, and expect no difficulties to revolve credit facilities or borrowings when necessary based on the ~~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~~lenders. 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).

30We believe that available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings, should enable us to meet presently anticipated cash needs for at least the next 12 months and we have prepared the consolidated financial statements on a going concern basis. However, we continue to have ongoing obligations and expect that we will require additional capital in order to execute our longer-term business plan. If we are unable to raise additional capital or encounters unforeseen circumstances that place constraints on our capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing our business development activities, suspending the pursuit of our business plan, controlling overhead expenses and seeking to sell commercial properties. We cannot provide any assurance that we will raise additional capital if needed. We have not received any commitments for new financing and cannot provide any assurance a new financing will be available to us on acceptable terms, if at all.

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

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

		Six Months Ended June 30,
		Nine Months Ended September 30,
		2012			2011
Net cash provided by(used in) operating activities	$	2510,~~996~~744,~~718~~171		$	(5068,~~963~~679,~~678~~864	)
Net cash used in investing activities		(148,~~125~~384,~~006~~488	)		(2024,~~333~~916,~~047~~026	)
Net cash provided by(used in) financing activities		(92,~~253~~511,~~209~~279	)		7193,~~797~~735,~~826~~696
Effects of exchange rate change in cash		(81,~~263~~375	)		111,~~143~~664
Net increase in cash and cash equivalents		2(152,~~610,240~~971	)		~~502~~151,~~244~~470
Cash and cash equivalents, beginning of the year		308,661			~~228~~227,~~763~~664
Cash and cash equivalent, End of the period	$	2155,~~918,901~~690		$	~~731~~379,~~007~~134

Operating activities

Net cash provided by operating activities was $2610.7 million for the ~~six~~nine months ended ~~June~~September 30, 2012, as compared to $5168.7 million net cash used in operating activities for the same period in 2011, primarily due to our ~~enhanced~~ enhanced trade receivables collection in 2012. The balance of trade receivables ~~decreased~~ decreased by $~~40million~~44.8 million as at ~~June~~September 30, 2012, compared to the balances at December 31, 2011.

Investing activities

Net cash used in investing activities for the ~~six~~nine months ended ~~June~~September 30, 2012 was $148.14 million, as compared to $2024.39 million net cash used in in investing activities for the same period in 2011. The decrease was primarily ~~due~~ due to less expenditure on the purchase of real estate and related assets in ~~2012~~ 2012 period as compared to such expenditure during the 2011 period.

Financing activities

Net cash used in financing activities for the ~~six~~nine months ended ~~June~~September 30, 2012 was $92.35 million, as compared to $~~72million~~93.7 million net cash provided by financing activities for the same period in 2011. Such decrease was ~~primarily~~ 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

31As of September 30, 2012, the amount, maturity date and term of each of our loans were as follows:

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)
	Interest rate	Maturity date		Balance
Lender
Xichen Song	14.40%	December 15, 2012		29,036,539
Sungeng Ye	28.80%	September 28, 2013		2,365,500
Shaoping Lu	12%	March 1, 2013		4,250,000
Short-term bank loans
China CITIC Bank	7.87%	October 5, 2012		3,942,500
China CITIC Bank	7.87%	October 17, 2012		3,154,000
Minfu Small-scale Credit Co, ltd.	18.0%	February 23, 2013		4,731,000
Minfu Small-scale Credit Co, ltd.	18.0%	February 26, 2013		788,500
China Minsheng Bank	6.44%	October 23, 2012		3,154,000
Chouzhou Bank	7.80%	June 21, 2013		4,731,000
Total			$	56,153,039

____________________
* Calculated based on the exchange rate of $1 = RMB 6.3412

~~(All~~As ~~amounts~~at September 30, 2012, we were in ~~U.S.~~material ~~Dollars)~~compliance with all our outstanding loans as disclosed in more detail as follows:

	Interest rate	Maturity date	Balance
Entrusted bank loans
China CITIC Bank	258% of interest rate of PBOC	July 31, 2012	$ 28,459,800
Ningbo Bank	24%	June 30, 2012	7,589,280
Short-term bank loans
	115% of basis interest
China Construction Bank	rate of PBOC	April 18, 2012	1,549,478
China CITIC Bank	7.87%	October 5, 2012	3,952,750
China CITIC Bank	7.87%	October 17, 2012	3,162,200
Minfu Small-scale Credit Co, ltd.	14.4%	July 24, 2012	3,162,200
Minfu Small-scale Credit Co, ltd.	14.4%	July 27, 2012	1,581,100
Minfu Small-scale Credit Co, ltd.	14.4%	August 27, 2012	790,550
Minfu Small-scale Credit Co, ltd.	14.4%	August 28, 2012	3,636,530
Minfu Small-scale Credit Co, ltd.	14.4%	August 29, 2012	316,220
Minfu Small-scale Credit Co, ltd.	14.4%	August 29, 2012	474,330
Minfu Small-scale Credit Co, ltd.	14.4%	August 30, 2012	2,371,650
Minfu Small-scale Credit Co, ltd.	14.4%	August 31, 2012	3,478,420
China Minsheng Bank	120% of interest rate of PBOC	August 1, 2012	3,162,200
Subtotal			$ 63,686,708
Current portion of long-term borrowings, related party
Shaoping Lu	12%	March 1, 2013	$ 4,250,000
Subtotal			4,250,000
Total			$ 67,936,708

On May 25, 2012, Longyun borrowed $15,770,000 in total 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 sought an extension of the repayment date for this loan before it became due. The roll-over contract renewed the term of interest rate at 18.00% per annum. In the third quarter, Longyun repaid $10,250,500 and as of September 30, 2012, the balance of the loan was $5,519,500 in total.
*We ~~Calculated~~entered ~~based~~into a loan agreement with China Minsheng Bank on July 23, 2012, to borrow a sum of $3,154,000 for the ~~exchange~~purpose of purchasing goods for our wholesale business. The loan was repayable in 3 months at an interest rate of 15% 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 $15,160,712 =and ~~RMB~~was 6guaranteed by Mr.~~3249~~ Wu and his wife, Ms. Cheung. The loan was fully repaid subsequently to the maturity date. During the period that the loan was in default, the Group was required to pay an additional interest penalty charged at 50% of the interest rate defined in the original loan agreement.
AsWe atentered ~~June~~into 30a loan agreement with China CITIC Bank on April 5, 2012, to ~~except~~borrow a sum of $3,942,500 for ~~the~~working capital. The loan ~~agreement~~has ~~entered~~a term of 6 ~~between~~ months ~~Longyun~~at ~~and~~an interest rate of 177.2 BPs above the base rate published by the People’s Bank of China. ~~Construction~~The outstanding short-term loan from China CITIC Bank, was wepledged ~~were~~by incommercial ~~material~~properties ~~compliance~~valued ~~with~~at $3,883,436 and was guaranteed ~~all~~ by ~~our~~Mr. ~~outstanding~~Wu ~~loans~~and ashis ~~disclosed~~wife, inMs. ~~more~~Cheung. ~~detail~~The asloan ~~follows:~~was fully repaid in October 2012.
OnWe ~~January 28, 2011, Shandong TFS~~ entered into ana ~~entrustment~~ loan agreement with China CITIC Bank ~~(as~~on ~~trustee~~April on17, ~~behalf~~2012, to ofborrow ~~Shandong~~a ~~Shengli~~sum ~~Steel~~of ~~Pipe Co.~~$3, ~~Ltd.~~154,000 orfor ~~Shengli~~the ~~Steel,~~purpose anof ~~unrelated~~purchasing ~~third~~goods ~~party),~~ for ~~a loan in the~~our ~~principal~~wholesale ~~amount of $47,661,000~~business. The loan ~~was~~had ~~unsecured~~a ~~and~~term ~~repayable~~of in3 12 months at an ~~annual~~ interest rate of ~~258~~20% above of the base rate published by the People’s Bank of China~~, payable each month by Shandong TFS~~. AnThe ~~Entrusted Loan~~outstanding isshort-term aloan ~~form~~from ~~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~~pledged ~~repaid~~by ~~upon~~commercial ~~maturity of the loan. The loan was~~properties ~~due~~valued ~~and~~at ~~payable on January 27~~$3, ~~2012~~957,614 and was guaranteed by ~~Longyun, the Company’s subsidiary~~Mr. InWu ~~January~~and ~~2012,~~his ~~Shandong TFS applied for an extension of the maturity date to July 31~~wife, ~~2012, which was finally granted by Shandong Shengli on February 17, 2012~~Ms. ~~However, since the agreement was 21 days after the original maturity date, CITIC Bank charged Shandong TFS a $0~~Cheung.~~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~~in ~~16,~~October 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.~~
32We entered into a loan agreement with Chouzhou Bank on July 20, 2012, to borrow a sum of $4,731,000. The loan has a term of 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 Chouzhou Bank was pledged by commercial properties valued at $10,406,643 and was guaranteed by Hangzhou Hengding Plastic Wood Tools Co., Ltd, Hangzhou Yinli Decorative Lighting Co., Ltd, the Fifth Season Hangzhou Department Store Investment Management Co., Ltd, Lianmo Wu, Chushing Cheung, Weidong Zhong, Xiaolan Yuan, Lide Zhu and Wenwei Shan.

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. 29

On ~~March~~February 3023, ~~2012~~2011, ~~TFS~~Fifth ~~Trade~~Season HK entered into ana ~~entrustment~~ loan agreement with ~~with~~Mr. ~~Ningbo~~Shaoping ~~Bank~~Lu, ~~(as~~our ~~trustee~~Chief onExecutive ~~behalf~~Officer ofand ~~Junling~~Director, ~~Property~~for ~~Consulting~~a loan in the ~~(Shanghai)~~principal ~~Co.,~~amount ~~Ltd~~of $4,250,000. orThe ~~Junling,~~loan anfrom ~~unrelated~~Mr. ~~third~~Lu ~~party),~~was ~~pursuant~~guaranteed toby ~~which,~~Mr. Wu ~~TFS~~and ~~Trade~~his ~~borrowed~~wife, ~~funds~~Ms. inCheung. ~~the~~The ~~principal~~loan ~~amount~~has a term of ~~$7,625,760~~2 ~~for~~years ~~the~~at ~~purpose~~an annual interest rate of ~~funding~~12%. ~~working~~The ~~capital~~purpose of the loan is for purchasing properties in Zibo, Shandong. The loan ~~was~~is ~~repayable~~secured onby ~~June~~the ~~30,~~entire ~~2012~~assets of Fifth Season HK, atMr. anWu ~~interest~~and ~~rate~~Ms. ofCheung. ~~24%~~The ~~and~~repayment ~~was~~must ~~secured~~be bymade ~~commercial~~in ~~properties~~Renminbi ~~valued~~ at the official foreign ~~$10~~exchange rate of the PRC on the day of the repayment,~~552,819.~~ Ifand ~~TFS~~must ~~Trade~~be ~~failed~~used to first ~~repay~~settle ~~the~~penalty ~~loan~~interest, ~~when~~handling ~~due~~charge and ~~payable~~overdue fines (if any), and ~~Junlin~~then ~~was~~to settle the interest and the principal. Mr. Lu is entitled to ~~receive~~rescind the anloan ~~additional~~agreement ~~penalty~~if ~~interest~~any of ~~50%~~the following circumstances occurs: (1) Fifth Season HK provides untrue information, (2) the repayment of the loan is ~~current~~overdue ~~interest~~for ~~rate~~more than 5 days, (3) the loan is used outside of the ~~unpaid~~permitted purpose, ~~amount~~(4) Fifth Season HK fails to inform Mr. ~~The~~Lu ~~loan~~of ~~was~~a ~~fully~~material ~~repaid~~change ~~three~~in ~~days~~the ~~after~~business of the ~~due~~Company, ~~date~~(5) ~~but~~Fifth noSeason ~~interest~~HK ~~penalty~~provides ~~was~~a ~~charged~~third-party guarantee aswithout ~~the~~informing ~~maturity~~Mr. Lu in writing 30 days in advance, (6) Mr. Wu ~~date~~and ~~fell~~Ms. onCheung acommence ~~weekend~~divorce ~~day~~proceedings or (7) Fifth Season HK breaches the loan agreement.
~~Longyun~~On ~~entered~~August ~~into~~15, a2012, ~~loan~~the ~~agreement~~Company ~~with~~obtained ~~China~~a ~~Construction~~short-term ~~Bank~~loan onfrom Xichen ~~April 18~~Song, ~~2011~~an tounaffiliated ~~borrow~~third ~~a sum of $1~~party,~~906,440~~ ~~for~~in the ~~purpose~~principal amount of ~~maintaining cash flow~~$29,036,539. The ~~loan was secured by commercial properties valued at~~ ~~approximately $9 million. The~~ loan ~~was~~is repayable in 12on ~~months~~December 15, 2012 at an interest ~~rate~~ ~~of 15% above the base~~ rate ~~published by the People’s Bank~~ of ~~China~~14. ~~The maturity date of the loan was April 18~~4%, ~~2012, but as at June 30, 2012, Longyun~~which ~~had~~increases ~~only~~to ~~repaid~~21.6% ~~$347,842~~if ~~(RMB2,200,000) of~~ the ~~loan~~Company ~~and~~defaults ~~was~~on inits ~~default~~obligation ~~on repayment~~to ofrepay the ~~$1,549,478 balance~~ loan. The ~~balance~~purpose of the loan was ~~repaid~~for ~~in full at~~ the ~~beginning~~repayment of ~~July, but during~~ the ~~period~~entrusted ~~that the~~ loan ~~is in~~from ~~default,~~China ~~the~~CITIC ~~Company~~Bank. ~~had~~The toloan ~~pay~~was anguaranteed ~~interest~~by ~~penalty~~Zibo ofMintai anProperty ~~additional50% of the~~Development ~~interest rate defined in the original loan agreement~~Co., Ltd.
33On September 29, 2012, the Company obtained a short-term loan from Sungeng Ye, an unaffiliated third party, in the principal amount of $2,365,500. The loan is repayable in on September 28, 2013, at an interest rate of 28.8%. The loan was pledged by commercial properties amounting to $1,100,647 and guaranteed by Lianmo Wu, the Company’s Chairman, President and controlling stockholder.

~~TFS~~Since GMSeptember ~~entered into a loan agreement with China CITIC Bank on April 13~~30, ~~2011~~ ~~to borrow a sum of $5~~2012,~~560,450~~ ~~for working capital. The loan was repayable in 12 months at an interest rate of 20% above~~ the ~~base~~Company ~~rate~~has ~~published~~incurred by the ~~People’s~~following ~~Bank~~additional ~~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. commitments:

WeIn ~~entered~~October ~~into~~2012, the Company obtained a loan ~~agreement~~of ~~with~~RMB53 ~~China~~million (approximately ~~Minsheng~~$8 million) from Citi Bank onfor ~~August~~working 1capital, ~~2011,~~ toas ~~borrow~~well as a RMB24 ~~sum~~million of(approximately $~~3,177,400~~4 ~~for~~million) ~~the~~non-interest ~~purpose~~bearing ofbank ~~purchasing goods for~~acceptance ~~our~~from ~~wholesale~~Citi ~~business.~~Bank ~~The~~which ~~loan~~matures ~~was repayable~~ in 12April, ~~months~~2013. atThe anloan accrues interest at a rate of 207.2%, ~~above~~which ~~the~~increases ~~base~~to ~~rate~~10.8% ~~published~~if by the ~~People’s~~Company ~~Bank~~defaults ofon ~~China. The~~its ~~outstanding~~obligation ~~short-term~~to ~~loan~~repay ~~from~~the ~~China~~loan. ~~Minsheng~~The ~~Bank~~loan ~~was~~is ~~pledged~~secured by a pledge of commercial properties ~~valued~~of atthe $5Company and its affiliates,~~217,133~~ and ~~was~~a ~~guaranteed~~guarantee by ~~Mr.~~the WuCompany’s chairman and ~~his~~controlling ~~wife~~stockholder, ~~Ms. Cheung.~~Lianmo ~~The~~Wu, ~~loan~~and ~~was~~his ~~fully~~wife ~~repaid~~Chushing ~~in July 2012~~Cheung.
OnIn ~~February~~October 232012, ~~2011,~~the ~~Fifth~~Group ~~Season~~obtained ~~HK entered into~~ a ~~loan~~RMB100 ~~agreement~~million ~~with Mr.~~(approximately ~~Shaoping Lu, our Chief Executive Officer and Director, for a loan in the~~$16 ~~principal~~million) ~~amount~~non-interest ofbearing ~~$4,250,000.~~bank ~~The~~acceptance ~~loan~~ from ~~Mr.~~Dezhou LuBank ~~was~~which ~~guaranteed by Mr. Wu~~matures ~~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~~April, ~~Shandong~~2013. 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~~secured ~~to rescind~~by ~~the~~a ~~loan~~RMB100 ~~agreement if any of the following circumstances occurs: (1)~~million ~~Fifth Season HK provides untrue information,~~ (2)approximately ~~the~~$16 ~~repayment of the loan is overdue for more than 5 days, (3~~million) ~~the~~bank ~~loan~~deposit ~~is used outside~~ of the ~~permitted purpose, (4) Fifth Season HK fails to inform Mr~~Group. ~~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.
In November 2012, the Company obtained a RMB96 million (approximately $15 million) non-interest bearing bank acceptance from Shanghai Pudong Development Bank which matures in February, 2013. The bank acceptance is secured by a RMB48 million (approximately $7.5 million) bank deposit, a pledge of commercial properties of the Company and its subsidiaries, and a guarantee by Mr. Wu and Ms. Cheung.
In November 2012, the Company obtained a loan of RMB12.5 million (approximately $2 million) from Minsheng Bank for working capital. The loan accrues interest at a rate of 7.28%, which increases to 10.92% if the Company defaults on its obligation to repay the loan. The loan is secured by a pledge of commercial properties of the Company and its subsidiaries, and a guarantee by Mr. Wu, Ms. Cheung, the Fifth Season Hangzhou Department Store Investment Management Co., Ltd., and Xiaolei Xing.

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.

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.

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.

3631

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.

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~~GuoQiying, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June~~September 30, 2012. Based on that evaluation, our management concluded that, as of ~~June~~ September 30, 2012, and as of the date that the evaluation of the effectiveness of our ~~disclosure~~ disclosure controls and procedures was completed, because of the material weakness in our internal control over financial reporting described below, our ~~disclosure~~ 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~~September 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 ("SOX"). ~~Management~~The ~~believes~~Company ~~that~~has ~~this~~made ~~weakness~~loans isand ~~primarily~~prepayments ~~attributable~~ to ~~the~~related ~~Company’s~~parties, ~~status~~which, asdespite antheir ~~emerging~~potential ~~company~~indirect ~~with~~benefit ~~limited~~to the ~~personnel~~Company, ~~with~~are ~~insufficient~~in ~~knowledge~~contravention ~~and~~of ~~experience~~Section 402 of ~~SEC~~SOX, ~~rules~~which ~~and regulations.~~prohibits ~~Management~~a isUS ~~currently~~public company ~~seeking~~from ~~for~~granting ~~and~~personal ~~plans~~loans to ~~establish~~its anofficers, ~~audit committee~~directors and ~~appoint~~other control ~~qualified~~persons, ~~personnel~~either asdirectly ~~soon~~or asindirectly. ~~possible~~The toCompany ~~remediate~~has ~~this~~taken steps to ~~material~~settle ~~weakness~~all but $1.79 ~~Management~~million ~~also~~of ~~plans~~these toloan ~~allocate~~receivables ~~additional~~by ~~human~~the ~~and financial~~end ~~resources~~of tothe ~~ensure~~third quarter, ~~compliance~~but ~~with~~due ~~SOX,~~to ~~including~~the ~~review~~weak financial position of the remaining debtor, it is ~~Company’s~~doubtful ~~recently~~whether ~~adopted~~this ~~related~~outstanding ~~party~~amount ~~transaction~~will ~~policies~~be ~~and~~repaid. ~~procedures~~Full doubtful provision ~~with~~has been made for the balance. The Company’s ~~management~~has ~~and~~not made ~~accounting~~any ~~personnel~~additional loans or prepayments to related parties.

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.32

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 has allocated additional human and financial resources to curing this deficiency, including review of the Company’s recently adopted related party transaction policies and procedures with the Company’s management and accounting personnel to ensure that all future transactions are in compliance with the requirements of SOX and the Company’s related transactions policies and procedures.

Notwithstanding management’s determination that our internal control over financial reporting was ineffective as of September 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~~Except with respect to the review of our related party transaction policies and procedures with our management and accounting personnel, there were no changes in our internal controls over financial reporting during the quarter ended ~~June~~September 30, 2012 that have materially affected, or are reasonably likely to materially affect our internal control ~~over~~ over financial reporting.

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.

3933

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:

Exhibit No.	Description
Exhibit		Description
31.1	Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
No.
31.2	Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		Interactive data files pursuant to Rule 405 of Regulation S-T.

40* Filed with this Form 10-Q for Fifth Season International, Inc. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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.

Date: August 20, 2012	FIFTH SEASON INTERNATIONAL, INC.
Date: December 3, 2012	FIFTH SEASON INTERNATIONAL, INC.
	By: /s/ Shaoping Lu
	Shaoping Lu
	Chief Executive Officer
	(Principal Executive Officer)
	By: /s/ Chen Dongdong
	Chen Dongdong
	Principal Accountant
	(Principal Financial Officer and Principal
	(Principal Financial Officer and Principal Accounting Officer)
	Accounting Officer)

41EXHIBIT INDEX

Exhibit		Description
No.
31.1		Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certifications of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		Interactive data files pursuant to Rule 405 of Regulation S-T.

____________________
* Filed with this Form 10-Q for Fifth Season International, Inc. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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