UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One) þ
ANNUAL REPORT PURSUANT TO SECTION
  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
  fiscal year ended June 30, 2009oro
TRANSITION REPORT UNDER SECTION 13
  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the
  transition period from __________________ to ____________________Commission
  file number: 000-30311  GOLD
HORSE INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)  Florida

22-3719165(State or other jurisdiction of
  incorporation or organization)

(I.R.S. Employer Identification
  No.)  No. 31 Tongdao South Road, Hohhot, Inner Mongolia, China

n/a(Address of
  principal executive offices)

(Zip Code)Registrants
  telephone number, including area code:

86 (471) 339
7999Securities
  registered under Section 12(b) of the Act:  Title of each class

Name of each exchange on which registeredNone

Not applicableSecurities registered under Section 12(g) of the Act:  Common stock(Title of class) Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. o
Yes     þ No Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.o
Yes     þ No 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 þ     
No o   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 (or for such shorter period that the
registrant was required to submit and post such files). 
Yes o     No
o

Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company:

Large
  accelerated filer
o
Accelerated
  filer
oNon-accelerated
  filer
o
Smaller
  reporting company
þ(Do not
  check if smaller reporting company)Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act) 
Yes o     No
þ

State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of the
last business day of the registrants most recently completed second fiscal
quarter. $2,990,825 on December 31, 2008.

Indicate the
number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date. 58,073,603 shares of common stock are
issued and outstanding as of October 10, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder
the following documents if incorporated by reference and the Part of the Form
10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1)
Any annual report to security holders; (2) Any proxy or information statement;
and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly described for
identification purposes (e.g., annual report to security holders for fiscal
year ended December 24, 1980). None.

i

GOLD HORSE INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS

Page No.Part IItem 1.
Business.
1Item 1A.
Risk
  Factors.
16Item 1B.
Unresolved
  Staff Comments.
34Item 2.
Properties.
35Item 3.
Legal
  Proceedings.
35Item 4.
Submission
  of Matters to a Vote of Security Holders.
35Part IIItem 5.
Market for
  Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
  of Equity Securities.
35Item 6.
Selected
  Financial Data.
36Item 7.
Managements
  Discussion and Analysis of Financial Condition and Results of Operations.
36Item 7A.
Quantitative
  and Qualitative Disclosures About Market Risk.
54Item 8.
Financial
  Statements and Supplementary Data.
54Item 9.
Changes In
  and Disagreements With Accountants on Accounting and Financial Disclosure.
54Item 9A.(T)
Controls and
  Procedures.
55Item 9B.
Other
  Information.
56Part IIIItem 10.
Directors,
  Executive Officers and Corporate Governance.
57Item 11.
Executive
  Compensation.
60Item 12.
Security
  Ownership of Certain Beneficial Owners and Management and Related Stockholder
  Matters.
62Item 13.
Certain
  Relationships and Related Transactions, and Director Independence.
63Item 14.
Principal
  Accountant Fees and Services.
64Part IVItem 15.
Exhibits,
  Financial Statement Schedules.
65ii

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION

This
report contains forward-looking statements. These forward-looking statements
are subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking statements
were based on various factors and were derived utilizing numerous assumptions
and other factors that could cause our actual results to differ materially from
those in the forward-looking statements. These factors include, but are not
limited to, the risk of doing business in the Peoples Republic of China
(PRC), our ability to implement our strategic initiatives, our access to
sufficient capital, our ability to satisfy our obligations as they become due,
economic, political and market conditions and fluctuations, government and
industry regulation, Chinese and global competition, and other factors. Most of
these factors are difficult to predict accurately and are generally beyond our
control. You should consider the areas of risk described in connection with any
forward-looking statements that may be made herein. Readers are cautioned not
to place undue reliance on these forward-looking statements and readers should
carefully review this report in its entirety, including the risks described in
Item 1A. - Risk Factors. Except for our ongoing obligations to disclose
material information under the Federal securities laws, we undertake no
obligation to release publicly any revisions to any forward-looking statements,
to report events or to report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this report, and you
should not rely on these statements without also considering the risks and
uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Our
web site is www.goldhorseinternational.com. The information which appears on
our web site is not part of this report.

Our
business is conducted in China, using RMB, the currency of China, and our
financial statements are presented in United States dollars. In this annual
report, we refer to assets, obligations, commitments and liabilities in our
financial statements in United States dollars. These dollar references are
based on the exchange rate of RMB to United States dollars, determined as of a
specific date. Changes in the exchange rate will affect the amount of our
obligations and the value of our assets in terms of United States dollars which
may result in an increase or decrease in the amount of our obligations
(expressed in dollars) and the value of our assets, including accounts
receivable (expressed in dollars).

INDEX OF CERTAIN DEFINED TERMS USED IN THIS
REPORT

Unless
specifically set forth to the contrary, when used in this annual report the
terms:


Gold Horse International,
  the Company, we, us, ours, and similar terms refers to Gold Horse
  International, Inc., a Florida corporation,
Gold Horse Nevada refers
  to Gold Horse International, Inc., a Nevada corporation and wholly-owned
  subsidiary of Gold Horse International,
Global Rise refers to
  Global Rise International, Limited, a Cayman Islands corporation and
  wholly-owned subsidiary of Gold Horse Nevada,
IMTD refers to Inner
  Mongolia (Cayman) Technology & Development Ltd., a Chinese company and
  wholly-owned subsidiary of Global Rise,
Jin Ma Real Estate refers
  to Inner Mongolia Jin Ma Real Estate Development Co., Ltd., a Chinese
  company,
Jin Ma Construction
  refers to Inner Mongolia Jin Ma Construction Co., Ltd., a Chinese company,
Jin Ma Hotel refers to
  Inner Mongolia Jin Ma Hotel Co., Ltd., a Chinese company,
Jin Ma Companies
  collectively refers to Jin Ma Real Estate, Jin Ma Construction, and Jin Ma
  Hotel, which are variable interest entities under contractual arrangements with
  us and whose financial statements are consolidated with ours, unless the
  context specifically states or implies otherwise;
PRC or China refers to
  the Peoples Republic of China.iii

PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

We
operate, control and beneficially own the construction, hotel and real estate
development businesses in China of the Jin Ma Companies under a series of
Contractual Arrangements. Other than the Contractual Arrangements with the Jin
Ma Companies, we do not have any business or operations. Pursuant to the
Contractual Arrangements we provide business consulting and other general
business operation services to the Jin Ma Companies. Through these Contractual
Arrangements, we have the ability to control the daily operations and financial
affairs of the Jin Ma Companies, appoint each of their senior executives and
approve all matters requiring shareholder approval. As a result of these
Contractual Arrangements, which enable us to control the Jin Ma Companies, we
are considered the primary beneficiary of the Jin Ma Companies. Accordingly, we
consolidate the Jin Ma Companies results, assets and liabilities in our
financial statements. The creditors of the Jin Ma Companies do not have
recourse to any assets we may have.

The
relationship among the above companies as follows:

(FLOW CHART)

Notwithstanding
that Gold Horse International and the Jin Ma Companies are separate legal
entities and the legal obligations of the parties are governed by the
Contractual Arrangements, there is commonality of control between Gold Horse
International and the Jin Ma Companies as set forth in the following table:

Name


Executive
  Officer of Gold Horse


Director
  of Gold Horse


Principal
  Shareholder of Gold Horse


Stockholder
  of The Jin Ma Companies (1)Liankuan
  Yang


√


√


√


√Yang Yang





√


√


√Runlan Ma








√


√(1) Each of
Jin Ma Construction, Jin Ma Hotel, and Jin Ma Real Estate are owed 70% by
Liankuan Yang, 15% by Runlan Ma, the spouse of Liankuan Yang, and 15% by Yang
Yang, the daughter of Liankuan Yang.

PRC
law currently places certain limitations on foreign ownership of Chinese
companies. To comply with these foreign ownership restrictions, we operate our
business in China through the Contractual Arrangements with the Jin Ma
Companies, each of which is a limited liability company headquartered in
Hohhot, the capital city of the Autonomous Region of Inner Mongolia in China,
and organized under PRC laws. Each of the Jin Ma Companies has the relevant
licenses and approvals necessary to operate our businesses in China.

1

The
Contractual Arrangements are comprised of a series of agreements, including a
Consulting Services Agreement and an Operating Agreement, through which we have
the right to advise, consult, manage and operate each of the Jin Ma Companies,
and collect and own all of their respective net profits. Additionally, under a
Shareholders Voting Rights Proxy Agreement, the Jin Ma Companies shareholders
have vested their voting control over the Jin Ma Companies to us. In order to
further reinforce our rights to control and operate the Jin Ma Companies, these
companies and their shareholders have granted us, under an Option Agreement,
the exclusive right and option to acquire all of their equity interests in the
Jin Ma Companies or, alternatively, all of the assets of the Jin Ma Companies.
Further the Jin Ma Companies shareholders have pledged all of their rights,
titles and interests in the Jin Ma Companies to us under an Equity Pledge
Agreement.

Under
PRC laws, each of Gold Horse International, Gold Horse Nevada, Global Rise, Jin
Ma Real Estate, Jin Ma Construction and Jin Ma Hotel is an independent legal
person and none of them is exposed to liabilities incurred by the other party.
Other than pursuant to the Contractual Arrangements, the Jin Ma Companies do
not transfer any other funds generated from their respective operations to us.

We
have entered into the following Contractual Arrangements with each of the Jin
Ma Companies:

Consulting Services Agreements. Pursuant to
the exclusive Consulting
Services Agreements with each of the Jin Ma Companies, we exclusively provide
to the Jin Ma Companies general business operations services and consulting
services as well as general business operation advice and strategic planning.
Each of the Jin Ma Companies shall pay a quarterly consulting service fees in
Renminbi (RMB) to us that is equal to all of its net profit for such quarter.
However, as described in Item 1A. Risk Factors appearing later in this report,
the Jin Ma Companies are presently not remitting these fees to us and are
retaining the funds for operating capital.

Operating Agreements. Pursuant to the
Operating Agreements with
the Jin Ma Companies and their respective shareholders, we provide guidance and
instructions on the Jin Ma Companies daily operations, financial management
and employment issues. The Jin Ma Companies shareholders must designate the
candidates recommended by us as their representatives on each of the Jin Ma
Companies board of directors. We have the right to appoint senior executives
of the Jin Ma Companies. In addition, we agreed to guarantee the Jin Ma
Companies performance under any agreements or arrangements relating to the Jin
Ma Companies business arrangements with any third party, although we have
issued no such guarantees as of the date hereof. Each of the Jin Ma Companies,
in return, agrees to pledge its accounts receivable and all of its assets to
us. Moreover, each of the Jin Ma Companies agrees that without our prior
consent, it will not engage in any transactions that could materially affect
its assets, liabilities, rights or operations, including, without limitation,
incurrence or assumption of any indebtedness, sale or purchase of any assets or
rights, incurrence of any encumbrance on any of its assets or intellectual
property rights in favor of a third party or transfer of any agreements
relating to its business operation to any third party. The term of this
agreement is 10 years and may be extended only upon our written confirmation
prior to the expiration of this agreement, with the extended term to be
mutually agreed upon by the parties.

Equity Pledge Agreements. Under the Equity
Pledge Agreements, the
shareholders of the Jin Ma Companies pledged all of their equity interests in
the Jin Ma Companies to us to guarantee the Jin Ma Companies performance of
their obligations under the exclusive Consulting Services Agreements. If the
Jin Ma Companies or any of their shareholders breach their respective
contractual obligations, we, as pledgee, will be entitled to certain rights,
including the right to sell the pledged equity interests. The shareholders of
the Jin Ma Companies also agreed that upon occurrence of any event of default,
we shall be granted an exclusive, irrevocable power of attorney to take actions
in the place and stead of the shareholders of the Jin Ma Companies to carry out
the security provisions of the Equity Pledge Agreement and take any action and
execute any instrument that we may deem necessary or advisable to accomplish
the purposes of the Equity Pledge Agreement. The shareholders of the Jin Ma
Companies agreed not to dispose of the pledged equity interests or take any
actions that would prejudice our interest. The Equity Pledge Agreement will
expire two years after the Jin Ma Companies obligations under the Consulting
Services Agreements have been fulfilled.

2

Option Agreements. Under the Option
Agreements, the
shareholders of the Jin Ma Companies irrevocably granted us or our designee an
exclusive option to purchase, to the extent permitted under PRC law, all or
part of the equity interests in the Jin Ma Companies for the cost of the
initial contributions to the registered capital or the minimum amount of
consideration permitted by applicable PRC law. We, or our designee, have sole
discretion to decide when to exercise the option, whether in part or in full.
The term of this agreement is 10 years and may be extended prior to its
expiration by written agreement of the parties.

Proxy Agreements. Pursuant to the Proxy
Agreements, the
shareholders of the Jin Ma Companies agreed to irrevocably grant a person to be
designated by us with the right to exercise their voting rights and their other
rights, in accordance with applicable laws and their respective Articles of
Association, including but not limited to the rights to sell or transfer all or
any of their equity interests of the Jin Ma Companies, and appoint and vote for
the directors and chairman as the authorized representative of the shareholders
of the Jin Ma Companies.

THE JIN MA COMPANIES

As
discussed above, our business operations are conducted through Jin Ma
Construction, Jin Ma Hotel, and Jin Ma Real Estate, all three of which are
limited liability companies in China and organized under the laws of PRC.

Jin Ma Construction. Jin Ma Construction is
an engineering and
construction company that offers general contracting, construction management
and building design services primarily in Hohhot City, in the Autonomous Region
of Inner Mongolia in China. In operation since 1980, Jin Ma Construction was
formally registered as a limited liability company in Hohhot City in March
2002. Jin Ma Construction is a Level Two national construction company. To
qualify as a Level Two national construction company, Jin Ma Construction must
have:


at least 40
  million RMB in registered capital,
at least 150
  engineering, technical, accounting staff in the aggregate,
achieved,
  within a three year period, annual revenue in excess of 80 million RMB,
achieved
  satisfactory rating in construction quality, and
within a
  five year period, obtained a construction contract worth at least 30 million
  RMB and/or completed a construction project that is:
at least 12
  stories, and/or
at least 50
  meters in height, and/or
at least 21
  meters in width, and/or
at least
  10,000 square meters in gross floor area (GFA) for a single-building
  project or at least 50,000 square meters in GFA for a multiple-building
  project (Level Two Project).For
a description of Jin Ma Constructions recent and future construction projects,
including its Level Two Projects, please refer to the section titled
Construction Operation in the discussion below.

Jin Ma Hotel. Founded in 1999 and formally
registered in
April 2004 as a limited liability company in Hohhot City, Jin Ma Hotel owns,
operates and manages the Inner Mongolia Jin Ma Hotel. The hotel contains 22
rooms with extensive catering and entertaining facilities and offers guests the
option to participate in traditional Chinese ceremonies in its restaurant and
banquet facilities. In 2006, Jin Ma Hotel completed major renovations to
improve comfort and fresh décor. The hotel had a 95% occupancy rate in 2008 and
a 96% occupancy rate in 2009. Hohhot City is a popular tourist destination,
especially during the summer. In 2001, the Hohhot Tourism Bureau certified the
Hotel as a two-star hotel, pursuant to the PRC Standard and Star Rating for
Tourism and Foreign Use Hotels. The two-star hotel is conveniently located 15
kilometers from the Hohhot Baita Airport, three kilometers from the train
station, and is targeted toward price-sensitive travelers. For a description of
the Hotels premises and facilities, including recent renovations, please refer
to the section titled Hotel Management in the discussion of our business
operations below.

3

Jin Ma Real Estate. Jin Ma Real Estate,
established in 1999,
was formally registered as a limited liability company in Hohhot City in
February 2004. Jin Ma Real Estate is a Level Four real estate development company.
To meet the qualifications of Level Four real estate development company, the
company must


have
  registered capital of at least one million RMB,
be engaged
  in real estate development and be in operation for at least one year,
have
  finished gross floor area (GFA) 20,000 square meter construction area in
  near 3 years or 10,000 square meter construction area in the last year,
have
  finished the construction investment over 20 million RMB in near 3 years or
  10 million RMB in the last year,
have passed
  satisfied the quality standard examination for all of its finished projects,
employ at
  least five management personnel and two accounting staffs; and
have
  implemented a standardized system of Residential Quality Guarantee and
  Residential Instruction Manual to be issued in connection with the sales of
  residential units.For
a description of the development activities of Jin Ma Real Estate, please refer
to the section titled Real Estate Development in the discussion of our
business operations below.

ABOUT INNER MONGOLIA AND HOHHOT CITY

Inner
Mongolia is a Mongol-autonomous region in western China that is about the size
of Texas and California combined. Inner Mongolia borders, from east to west,
the provinces of Heilongjiang, Jilin, Liaoning, Hebei, Shanxi, Shaanxi, Ningxia
Hui Autonomous Region, and Gansu, while to the north it borders Mongolia and
Russia. The regional capital of Inner Mongolia is Hohhot City.

Due
to its abundance of natural resources, Inner Mongolia is a national production
base in iron, steel and coal, as well as animal husbandry. The Baiyunebo Mine
in Baotou, Inner Mongolia is the largest rare earth mine in the world,
including gold deposits, iron ore, granite, and graphite, and is also the
biggest open-air mine in the world. Inner Mongolia also ranks first in China
for wind power storage, averaging 270 million kilowatts per hour. The Hulunbuir
Grassland in Inner Mongolia is the largest area of natural grass in the world,
and the region is Chinas leading producer of animal feeds. The white goat
cashmere of Inner Mongolia is regarded as the best cashmere in the world for
its fineness, brightness and whiteness and is commonly referred to as Soft
Gold.

Inner
Mongolia also has the most inland ports - 18 - of all provinces in China. The
Manzhouli Railway Port and the Highway Port, which run across Russia to Eastern
Europe and Western Europe, are the bridgeheads of the Euro-Asia Land Bridge. By
railway, Hohhot City lies on the Jingbao Railway from Beijing to Baotou. Hohhot
Baita International Airport is about an hour from city center and only half an
hour drive from the Second Ring Road. It serves Hohhot City and surrounding
areas, and has direct flights to Beijing, Shanghai, Shenzhen, Chengdu, Wuhan,
Hong Kong, and Ulan Bator in Mongolia. The Hubao Expressway connects Hohhot
City to the more remote areas in Inner Mongolia.

Inner
Mongolia is also a popular tourism destination, renowned especially for its
natural springs. Hohhot City, located in the south-central part of Inner
Mongolia, is especially popular during the summer months as a place to escape
the heat. An in preparation for 2008 Beijing Olympics, Hohhot City
upgraded its transportation infrastructure and in 2007, the Baita International
Airport was expanded pursuant to a joint effort by the Inner Mongolia
Autonomous Government and China Civil Aviation Bureau, who invested in 1
billion RMB (approximately $146,000,000) for a new terminal covering 35,000
square meters.

Hohhot
City itself has an educated workforce, with 124 scientific research and
design institutions and nine universities and colleges all located in the city,
which collectively account for 80 percent of higher education schools in the
entire Inner Mongolia.

4

Since
2000, the Chinese central government has been actively encouraging economic
developments in Inner Mongolia. Under the auspices of the Western China
Development Policy, the Chinese central government has enacted and implemented
specific regulations and policies to boost investments in the region, including
the Regulations on Encouragement of Foreign Investment of Inner Mongolia
Autonomous Region (I) and the Regulations on Encouragement of Foreign
Investment of Inner Mongolia Autonomous Region (II), both issued in 1996, and
the Preferential Policies on Encouragement of Foreign Investment of the
Peoples Government of Inner Mongolia Autonomous Region, issued in 1999.
Additionally, in July 2000, the Hohhot Economic and Technological Development
Zone (the HETDZ) was approved as state-level development zone. Located on the
western outskirt of Hohhot City proper, the HETDZ now encompasses 9.1 square
kilometers, with established companies in such industries as high technology
manufacturing, biopharmaceutical, electronic information, chemical
manufacturing, textile, and dairy product processing.

The
nominal gross domestic product (GDP) of Inner Mongolia in calendar year of 2008
was 776.18 billion RMB (approximately $113.4 billion), a growth of 17.2% from
calendar year of 2007. The annual per capita GDP in calendar of 2008 was 32,214
RMB (approximately $4,706), a growth of 16.7% from calendar year of 2007
according to the Inner Mongolia Government website (www.nmg.gov.cn). For
Hohhot, in calendar year of 2008, the regional GDP was 131.637 billion RMB
(approximately $19.23 billion), an increase of 13.6% from calendar year of 2007
and per capita GDP was approximately 49,606 RMB (approximately $7,247), a
growth of 12.2% from calendar year of 2007, according to the Hohhot Government
website (www.huhhot.gov.cn).

OVERVIEW OF OUR INDUSTRY SEGMENTS

Chinas Real Estate Market

Chinas
growing real estate market is primarily the confluence of two factors:
the passage of laws protecting property ownership rights by the Chinese
central government to encourage homeownership, and rapid urbanization
caused by steady internal migrations from rural regions to cities.

Prior
to the 1990s, all land and housing was owned by the state. Then in 1998, the
Chinese central government created the basic building block of a market economy
in real estate - a transferable ownership interest. This interest, known as a
land use right, is not 100% ownership interest as we know it in the West.
Rather, the state grants a right for a fixed period - varying from 40 to 70
years - to use a land for the purpose specified in the land use rights
granting charter. Land use rights are transferable, mortgageable, leasable and
renewable, and can usually be subdivided. And although the long term
implications of land use right are still uncertain as the concept is still
relatively new, any such uncertainties have not discouraged real estate
investments and developments.

The rising
activity in the local and regional real estate market that has benefited
our construction and real estate development operations has also, on a national
level, caused grave concerns to the Chinese central government, which
fears that soaring housing prices could help overheat the countrys already
fast-growing economy, and possibly lead to social unrest.

Hohhot Real Estate Market Information (Based
on statistics from the Hohhot Real Estate Bureau)

In
the first half of fiscal 2009, Hohhot citys real estate investment amounted to
2.184 billion RMB (approximately $319 million), a decrease of 26.51% compare to
the same period last year and consisted of the following:


Investment
  in commercial and residential building amounted to 1.67 billion RMB
  (approximately $244 million), a decrease of 26.95% compared to the same
  period last year which represents 76.47% of all real estate invested;
Investment
  in affordable housing amounted to 219 million RMB (approximately $32 million),
  an increase of 30.36% compared to the same period last year, which represents
  10.03% of all real estate invested;
Other real
  estate investment amounted to 295 million RMB (approximately $43 million), a
  decrease of 43.02% compared to the same period last year, which represents
  13.50% of all real estate invested.5

Land
purchases amounted to 375,200 square meters, a decrease of 33.71% compared to
the same period of last year. The area of developed land was 271,700 square
meters, a decrease of 64.78% compared to the same period last year. The area of
will be developed land was 2,859,600 square meters, a decrease of 11.53%
compared with the same period last year.

Due
to global financial crisis and China relative weak real estate market, we
anticipate Hohhot real estate market will maintain at its current level with
nominal increase in the near future.

Chinas Hotel Industry

The hotel
industry is a growing segment within the hospitality industry, which is itself
a major component of the travel industry. Companies in the lodging industry
generally operate in one or more of the various lodging segments, including
luxury, upscale, middle and economy. Growth in demand in the lodging industry
is driven by two main factors: (i) the general health of the travel and
tourism industry and (ii) the propensity for corporate spending on
business travel.

Although
hotel industry is growing currently, in the calendar year of 2008 and first
half calendar year of 2009, the tourism is declining due to the worldwide
financial crisis. According to the China National Tourism Administration, China
is now ranked fourth in the world in terms of overseas tourist arrivals, and
the World Travel Organization predicts China will become the number one global
tourism destination by 2020. China received 24.3 million overseas visits in
calendar year of 2008, down 6.83% from calendar year of 2007, according to
the Chinese National Tourism Administration. Business tourists account for
23.34% of all foreign visitor arrivals in calendar year of 2008. China received
10.2 million foreign visitor arrivals in the first half calendar year of 2009,
down 19.26% from comparable period of calendar year of 2008. Business tourists
currently account for 24.01% of all overseas visits and this sector is
anticipated to grow to support the expanding economy and warming up worldwide
economy. The country is now competing head on with other global tourism
destinations.

Although
the national tourism is slowing down due to the global financial crisis in
fiscal 2009, the regional tourism in Inner Mongolia is prosperous. The growing
popularity of Inner Mongolia as a tourism destination, and the importance of
Hohhot City as the gateway to the region, is demonstrated by the number of
foreign hotel operators that are expanding their operations in the city. To
further elevate the level of Chinas tourist service, as well as promote the
protection, development, management and construction of tourist spots and
destinations, the central government has actively promoted the use of rating
systems throughout the hotel industry. China had 13,583 star-ranked
tourist hotels nationwide by the end of 2007, up 6.5% year to year. Our
Hotel was certified as a two-star facility in 2001 by the Hohhot Tourism
Bureau.

We
expect our hotel industry will keep in its current level in the near future.

THE JIN MA COMPANIES BUSINESS OPERATIONS

Through
the three Jin Ma Companies, we operate in three reportable segments:


construction,
hotel and
  banquet facility management, and
real estate
  development.The Construction
Business

The
construction business derives revenue primarily from services in general
contracting, pre-construction planning and comprehensive construction
management services in Hohhot City. Its duties as general contractor typically
include planning, preparing and organizing each phase of the construction,
applying and securing all governmental certificates required for the specific
project, coordinating and supervising construction crews and work progress,
inspecting and ensuring the quality of the construction, and accounting and
distributing construction funds for which it earns gross profit of
approximately 14%.

6

Jin
Ma Construction is presently dependent upon revenues from a limited number of
customers. For the year ended June 30, 2009, four construction projects
accounted for 89.5% of total consolidated revenues (13.0%, 20.6%, 33.1% and 22.8%,
respectively) and $11,076,151 of accounts receivable due from these customers.
For the year ended June 30, 2008, four construction projects accounted for 86%
of its revenues (10.3%, 38.2%, 24.1% and 9.4%, respectively) and $7,815,051 of
accounts receivable due from these customers.

Generally,
all construction projects are performed for third party customers and we
recognized revenues pursuant to our normal revenue recognition policy, except
as noted below. During the years ended June 30, 2009 and 2008, we have
performed general contracting, construction management and building design
services on the following residential apartment and retail/commercial
properties in the City of Hohhot in China:

Name

Location

Property
  Type

Number of
  Buildings and/or Units

Date of
  CompletionXiao Kang
  Xin CunResidential Apartments(Phase I )

Tabuban,
  Hohhot

Residential

15 buildings

October 2007Xiao Kang
  Xin CunResidential Apartments(Phase II)

Tabuban,
  Hohhot

Residential

15 buildings

December
  2007Police
  Station andPrison Barracks

Number Two
  Prison of Hohhot

Government
  building

One building

February
  2008Riverbank
  GardenCommunity (Phase 1)

In SaiHan
  district of Hohhot

Residential

One building

May 2008Riverbank
  GardenCommunity-He Ban Garden (Phase 2)

In Sai Han
  district of Hohhot

Residential

Nine
  buildings

November
  2008AiBo Garden(Phase 1)

Hui Min
  District, Hohhot

Residential
  Buildings

Multiple

November
  2008AiBo Garden
  (Phase II)

Hui Min
  District, Hohhot

Residential

Multiple

June 2009Tian Fu
  Garden(Phase I and II)

Xin Cheng
  District, Hohhot

Residential

Multiple

November
  2008Lanyu Garden
  (No. 3Residential Building)

Hohhot

Residential
  Buildings

One building

December
  2009 (estimated completion date)Fu Xing
  CommitteeBath Center Project

Xin Cheng
  District, Hohhot

Commercial
  Building

One building

December
  2009 (estimated completion date)7

Xiao Kang Xin Cun Residential Apartments
(Phase I and II). Xiao Kang Xin Cun Residential
Apartments are located in the Tabuban District in Hohhot City. This Level Two
Project was developed by the Village Committee for the Tabuban Village in the
Huimin District of Hohhot City. The project consisted of 15 buildings and 2,630
residential units. The project was completed in December 2007.

Police Station and Prison Barracks.
This project included one building in the Number Two Prison of Hohhot City.
Construction started on the project in August 2007 and was completed in
February 2008.

Riverbank Garden Community (Phase 1 and II).
Riverbank Garden Community (Phase 1) included four buildings. Riverbank Garden
Community (Phase II) included nine buildings. The project is located in the Sai
Han District of Hohhot City.

AiBo Gardens (Phase I).
This project included multiple buildings. It is located in the Hui Min District
of Hohhot City. Construction started in April 2008 and was completed in
November 2008.

AiBo Gardens (Phase II).
This project included multiple buildings. It is located in the Hui Min District
of Hohhot City. Construction started in April 2008 and was completed in June
2009.

Tian Fu Garden (Phase I and II).
The project included multiple buildings. It is located in the Xin Cheng District
of Hohhot City. Construction started in April 2008 and was completed in
November 2008.

Lanyu Garden (No.3 Residential Building).
When completed, this will consist of one 28,000 square meter buildings. It is
located in Hohhot City. Construction will commence in October 2008 and Jin Ma
Construction expects to complete the project in December 2009.

Fu Xing Committee Bath Center Project.
When completed, this will consist of one 46,054 square meter buildings. It is
located in Xin Cheng District, Hohhot City. Construction will commence in
November 2008 and Jin Ma Construction expects to complete the project in
December 2009.

Jin Ma
Constructions Services

Construction.
Jin Ma Construction acts as the general contractor in a real estate development
project. Our employees monitor the construction of each project, participate in
all material design and building decisions, coordinate the activities of
subcontractors and suppliers, subject their work to quality and cost controls
and monitor compliance with applicable zoning and building codes. The selection
of our subcontractors is conducted through a competitive process, and several
subcontractors are invited to participate. The main criteria for selecting
subcontractors are cost, qualifications, the quality of completed projects and
of work done, if any, on our existing or prior projects. Once the selection
process is completed, we will normally negotiate a fixed price contract with
the sub-contractors which include terms relating to time for completion of
construction, quality of materials used and warranty periods.

Project
Management. Jin Ma Constructions project management
is undertaken by a team of architects, engineers, project managers and other
support staff. The project management team is responsible for the overall
management of all of the development projects. For each project, there is a
team responsible for the day-to-day management. Project management covers all
major stages of a development project, as follows:


Feasibility
  Studies. Conducting a detailed geological study and
  market study, formulating a master timetable, and preparing preliminary
  proposals for the type and class of property to be constructed;
Design.
  Completing a preliminary design layout and obtaining approvals from relevant
  authorities, commencing site preparation, selecting construction materials,
  modifying the design layout, producing a construction blue-print and
  establishing a construction management team;8


Construction.
  Obtaining, evaluating and selecting sub-contractor bids, finalizing the
  design layout and construction blue-print, monitoring construction progress
  compared to our timetable and introducing and implementing quality and cost
  control procedures; and
Completion.
  Establishing a property management team, submitting a completion and
  inspection report to the governmental authorities, obtaining required
  government approvals and settling payments.Quality
Control. Jin Ma Construction places emphasis on the
quality of its development projects and implements quality control procedures
at different construction stages to ensure that the work done by its
sub-contractors meets its standards and requirements and those of the relevant
governmental authorities.

Jin
Ma Construction imposes quality control on its building materials. Its on-site
management team conducts regular quality inspections of the construction work.
When a particular section of construction work is completed, Jin Ma
Constructions on-site management team will inspect the work to ensure that the
work is in compliance with its quality standards and the relevant governmental
regulations. Jin Ma Construction requires its sub-contractors to promptly
remedy all defects, and it then makes a further inspection of their work.

Competitive
Strengths

Jin Ma
Construction is in competition with other construction companies in Hohhot City
and Inner Mongolia, some of which are larger and have greater financial
resources than ours. These include Inner Mongolia Third Construction Company
and Hohhot City Construction Company. Nevertheless, Jin Ma Construction
believes that it can effectively compete with these companies. Jin Ma
Construction is one of the first construction companies in the region, and it
has gained a solid reputation based on the quality of its work and an
established track record spanning a diverse array of projects. Through numerous
government projects that it has been complemented, Jin Ma Construction has
established an excellent working relationship with the local and regional
governments, and it will continue to act as general contractor in many ongoing
government projects. All of its engineering and technical staffs are certified
in their respective fields, and many, such as its construction manager and its
technical director, have involved in the industry and with Jin Ma Construction
for over 20 years. Since 2004, Jin Ma Construction had been independently
audited and certified as being in conformance with the ISO 9001:2000 standards
for quality management system, the ISO 140001:1996 standards for environmental
management system, and the GB/T28001:200 standards for occupational safety
management system. These certifications, while not mandated by law, provide Jin
Ma Construction with a competitive edge over many of its competitors that are
not similarly certified, in that they lend further assurance to its customers
in the quality of its work.

The Hotel and
Banquet Management Business

Jin
Ma Hotel derives revenue primarily from the sale of food and beverages at its
banquet facilities located in the Jin Ma Hotel. Additionally, Jin Ma Hotel
received revenues from the rental of its guest rooms. The 22-room hotel is a
full-service two-star facility, offering amenities such as restaurant and
banquet center. Its guests can also partake in traditional Chinese ceremonies
that are offered regularly in its restaurant and banquet facilities. The hotel
is located on an approximately 2.16 acre lot, owned by Jin Ma Hotel, and housed
in a single building with approximately 5,048 square meters that has been
configured for use as the hotel as well as offices on the upper floor of the
building for the Jin Ma Companies. The property includes a parking area for 36
cars. Jin Ma Hotel also owns all of the fixtures, improvements, furniture, and
the other contents currently used in the business of the hotel.

Competitive
Strengths

Locally,
Jin Ma Hotels competition includes the Inner Mongolia Hotel and the Inner
Mongolia Zhao Jun Hotel. Additionally, many well-known hotel operators have
established their presence in the area, including the Shangri-La Hotel and
Resort in late 2007 and the Sheraton Hohhot Hotel in July 2009. Because many of
these hotels are aimed towards the luxury segment of the industry, Jin Ma Hotel
believes that it have a competitive advantage in attracting those travelers to
the city who are more price-sensitive. Jin Ma Hotel offers many of the same
amenities available at its higher-price competitors, but without increasing the
costs to its guests.

9

Real Estate
Development Business

During
the years ended June 30, 2009 and 2008, Jin Ma Real Estate invested in the
following projects:

1) Inner Mongolia Electrical Vocational Technical
School

In
November 2007, Jin Ma Real Estate entered into an agreement to construct new
dormitories for the Inner Mongolia Electrical Vocational Technical School
(Vocational School). Pursuant to the terms of the agreement, Jin Ma Real
Estate constructed the buildings and, upon completion, pursuant to a sale-type
capital lease, leased the buildings to the Vocational School and it will
receive payments for a period of 26 years at an amount of 4,800,000 RMB or
approximately $700,000 per annum. Since Jin Ma Real Estate does not have any
construction licenses, Jin Ma Construction performed all of the construction
services on behalf of Jin Ma Real Estate. This project was completed in
November 2008 and received the first annual payment in December 2008. In accordance
with FAS 66, Accounting for Sales of Real Estate, the gain was deferred
because the minimum initial investment by the buyer was less than the required
20% initial investment expressed as a percentage of the sales value (FAS 66,
Accounting for Sales of Real Estate, paragraph 54). Therefore the gain will
be recognized into income as payments are received using the installment
method. The installment method apportions each cash receipt and principal
payment by the buyer between cost recovered and profit. The apportionment is in
the same ratio as total cost and total profit bear to the sales value.
Accordingly, revenue and cost of sales is recognized based on this
apportionment, and Jin Ma Construction recognized imputed interest income on
the accompanying statement of income.

2) Inner
Mongolia Chemistry College

Jin
Ma Real Estate and Jin Ma Construction have utilized current working capital in
the construction of student apartments for the Inner Mongolia Chemistry College
situated in Inner Mongolia University City, a compound where many higher
education institutions are located. Since Jin Ma Real Estate does not have any
construction licenses, Jin Ma Construction is performing all of the
construction services on behalf of Jin Ma Real Estate. Jin Ma Real Estate will
pay Jin Ma Construction all construction costs associated with this project.
Once completed, Jin Ma Real Estate will lease the buildings to the college for
a period of 20 years. The cost of construction is estimated to be RMB 50
million ($7.3 million), and Jin Ma Real Estate expects the annual investment
returns to be approximately RMB 10 million (approximately $1.5 million) for 5
years (from October 2009 to October 2013) and expects the annual investment
returns to be approximately RMB 7.5 million (approximately $1.1 million) for 15
years (from October 2014 to October 2028). Jin Ma Construction began developing
the 51,037 square-meter project in July 2008 and expects to complete the
project in October 2009.

The
costs associated with these projects are reflected on our balance sheet as
construction in process and we will not recognize any revenues on this project
until the project is complete and we begin receiving lease income, in
accordance with FAS No. 66, Accounting for
Sales of Real Estate and related interpretations. In accordance
with terms of the agreements, at the end of the lease terms, ownership of the
buildings will be transferred to Inner Mongolia Chemistry College. During the
term of lease, Jin Ma Real Estate will not have additional commitments to the
Inner Mongolia Chemistry College, other than the customary construction
warranties.

3) The Procuratorate Housing Estates (Jian
Guan)

When
completed, Procuratorate Housing will comprise of five buildings containing 600
residential apartment units sitting on 60 acres. This project is a joint effort
with Jin Ma Construction, which will be serving as the general contractor for
the construction of this project. In May 2008, improvements to the land began
and the construction was commenced in July 2009, as Jin Ma Real Estate have
completed the design and planning for this project, and its anticipated
completion date is December 2009. Procuratorate Housing is located in the Yu
Quan District of Hohhot City.

10

Jin Ma Real Estates
Business Strategy

Prior
to fiscal 2008, Jin Ma Real Estate designed, developed, marketed and sold
high-quality, affordable homes in apartment high-rises, which were targeted at
Chinese middle income families. It also designed, developed, marketed and sold
these homes in mixed-use development projects. Its development projects are all
in Hohhot City.

Its
apartments are targeted for different segments within the mass residential
property market, including young, white-collar employees, middle to senior
managers in enterprises, entrepreneurs and families with young children. These
upwardly mobile people represent the emerging middle class and are a growing
source of demand in the mass residential property market. Certain properties
developed by Jin Ma Construction are mixed-use properties that also include
retail and commercial floors on the lower levels of the buildings.

Although
Jin Ma Real Estate does not have any units available for sale nor does it have
any buildings in process for sale as individual units, it plans on designing,
developing, and marketing residential high-rise apartments in the later part of
fiscal 2010.

Recently,
Jin Ma Real Estate has entered in construction arrangements whereby Jin Ma
Construction will construct student dormitories for the respective university
and lease the buildings to the respective school for periods ranging for 20 to
26 years. The Company estimates that it will be able to recover its construction
costs within five to seven years and these projects will provide working
capital over the respective lease terms.

Jin
Ma Real Estate will continue to focus on Hohhot City for the development of
residential communities. Jin Ma Real Estate believes that the size and growth
potential of Hohhot City coupled with the ongoing liberalization of the real
estate markets offer it considerable growth opportunities. Although Jin Ma Real
Estate intends to develop additional residential communities and mixed-use
developments in Hohhot City proper and surrounding areas that are within
reasonable commuting distance to Hohhot City, recently the Chinese authorities
have introduced stricter rules for land-use rights, there are more stringent
capital requirements for banks. These new regulations have the potential to
negatively impact the growth of our real estate business. Jin Ma Real Estate
believes that the following features of Hohhot City represent continuing growth
opportunities for it in the city:


a population
  of more than 2.4 million with established economic development and
  infrastructure;
a
  significant level of unsatisfied demand for high quality, yet affordable
  homes;
a regulatory
  environment that encourages the development of our residential communities,
  in terms of enabling us to obtain necessary permits and approvals to engage
  in our business without undue difficulty or expense, and encourages
  individual home ownership through the use of subsidies or otherwise; and
available
  real estate development rights at attractive prices.Jin
Ma Real Estate targets the emerging Chinese middle-income class as home buyers.
Its target residential market is the growing Chinese middle income population.
Chinas home builders have traditionally targeted the upper and lower income
market, and largely ignored the middle-income class. Because of banking reforms
permitting wider availability of home mortgage loans and the positive effects
of Chinas economic reforms, Jin Ma Real Estate believes that the home building
market for the middle-income class represents substantial growth opportunities
for it.

Jin
Ma Real Estate can provide substantial benefits to home buyers.
Jin Ma Real Estate believes that its residential apartments provide the
following benefits to home buyers:


affordable
  living space to support large families, frequently include three generations
  - grandparents, parents and children;
living
  within close proximity to schools, shopping centers, retail shops, offices,
  medical facilities, city centers and public transportation; and
quality
  building management services including security, landscape and maintenance.11

Jin
Ma Real Estate aims to continue its commitment to quality.
It seeks to construct buildings having a high quality of construction and
workmanship.

Jin
Ma Real Estates strive to enter markets early. It
will continue to enter markets early where it can acquire land use rights at
reasonable prices and develop residential communities in potential growth
centers in and around Hohhot City. Jin Ma Real Estate has successfully
implemented this strategy, where it is one of the first home builders to
develop a residential community targeted at middle income families. Jin Ma Real
Estate believes that early entry into markets will continue to enable it to
establish ourselves in these markets before the onset of widespread
competition.

Jin
Ma Real Estate selects superior sites and carefully evaluates the feasibility
of each project. It believes that securing a good
location is a major factor in the success of a property development project. It
considers the following factors when it evaluates it property development
sites:


size of
  land;
geographic
  location;
potential
  financial return;
potential
  market demand for the development;
its existing
  property portfolio and available resources;
land cost,
  affordability and potential financial return;
overall
  market situation and opportunities;
access to
  city centers;
geological
  conditions;
demolition
  and resettlement costs; and
infrastructure
  support.During
the site selection process, it will evaluate and research the economic and
social situation of the area, the market demand for and potential returns from
a proposed project and the funding and manpower requirements. Once Jin Ma Real
Estate has selected a site, it formulates a comprehensive development plan.

Jin Ma Real Estates
Customers

Its
target market for residential customers is Chinese middle income families in
key urban markets who want to become home owners in a planned community. It
classifies a typical family income of RMB 36,000, or approximately $ 5,260, per
year as middle income earners. It believes that families earning this income
will be able to purchase its houses costing approximately RMB 200,000, or
approximately $29,000, through a down payment of 30% or approximately RMB
60,000, or approximately $8,800, with the balance financed by a bank mortgage
having a repayment period ranging from five to 10 years, resulting in a monthly
payment of between RMB 1,500 to RMB 2,000, or approximately $220 to $290.

For
each development project, Jin Ma Real Estate designates specific employees as a
team to handle the related sales and marketing activities. Subject to market
conditions and government approval by the relevant land administration bureau,
it seeks to pre-sell its development projects at an early stage. It will also
arrange with one or more banks to provide mortgage loan facilities to home
purchasers for up to 70% of the home purchase price, substantially all of which
is guaranteed by Jin Ma Real Estate until the homes are delivered to the buyers.
Its sales and marketing strategy involves the following key elements:


offering a
  financing package for home buyers which pre-qualifies home buyers for a 70%
  mortgage with only a small down payment, or booking fee, which is typically
  no more than RMB 60,000, or approximately $8,800, and the balance of the
  purchase price paid over a staggered period between one to two months;12


advertising
  through various media, including regional newspapers, magazines, posters,
  billboards and advertising pamphlets to reach potential purchasers;
using sales
  literature and brochures which describe its projects and its company; and
operating a
  sales center in a high-traffic downtown area where its office is located and
  on-site.Jin
Ma Real Estate has established a high level of visibility in Hohhot City. Its
also believes that local awareness of its project has been facilitated through
word of mouth. Sales of its homes are normally made at its sales centers
situated either in the city center or at its development site.

Pre-Sale of Jin Ma
Real Estate Apartment Units

Jin
Ma Real Estate will seek to pre-sell homes in the several phases in its
development as early as possible, subject to market conditions and regulatory
constraints. Pre-sales occur when units of a project are sold while the project
is still under construction. Under Chinese law, pre-sale is only permitted if a
pre-sale permit has been granted by the relevant land administration bureau to
the project which is still under construction. Pre-selling allows Jin Ma Real
Estate to begin marketing its development before it would otherwise be able to
do so, and shortens the time during which it has market exposure for the
construction and other expenses of its developments. Pre-sales also allow Jin
Ma Real Estate to improve its working capital management by accelerating its
cash inflow and to minimize market risks associated with its development
projects.

In
a pre-sale, the first step is that the home buyer pays an initial booking fee.
The home buyer then pays 30% of the purchase price less the booking fee upon
the execution of a sales and purchase agreement. The remaining 70% must be paid
over a staggered period between one to two months although, in most instances,
it is paid by the bank providing the mortgage financing upon execution of the
sales and purchase agreement. During fiscal 2009, there was no Jin Ma Real
Estates unit was presold. In fiscal 2008, only a small percentage of Jin Ma
Real Estates units were presold. It plans on using its best efforts to
increase the amount of presold units in the future.

Financing for Jin Ma
Real Estate Home Purchasers

As
part of its pre-sale activities, Jin Ma Real Estate may arrange for commercial
banks to provide purchaser financing in the sale of our developments. Unlike
mortgage financing in the United States, banks will typically look to the
developer and the planned development to determine whether to make a commitment
to provide purchaser mortgages. However, the banks retain the right to approve
or reject mortgages on an individual basis based upon the perceived
credit-worthiness of the home purchaser and other factors that it considers
appropriate. Jin Ma Real Estate guarantees a customers mortgage until the home
is handed over to the customer. Jin Ma Real Estates customers typically
arrange for mortgages through China Construction Bank, The Peoples Bank of
China, or Agricultural Bank of China.

Project Finance

Jin
Ma Real Estate has financed and plans to finance the development of its
development projects through bank borrowings, proceeds from the pre-sale of
portions of its development projects, credits provided by its contractors and
through its internally generated funds. Because each development project will
require a substantial amount of capital to finance its construction cost, it is
Jin Ma Real Estates policy to control the timing of the launch of each of its
development projects and the phases of these projects.

Competitive Strengths

The
development and sale of residential and commercial real estate markets in China
are subject to intense competition. Jin Ma Real Estate competes with numerous
small and large developers for sales on the basis of a number of interrelated
factors, including location, reputation, amenities, design, quality and price.
It also competes for sales with individual resale of existing homes and
condominiums and available rental housing. Jin Ma Real Estate believes that it
compares favorably to other developers in the Hohhot City area in which it
operates, due

13

primarily to
its experience within this geographic market, and its responsiveness to market
conditions enables it to capitalize on the opportunities for advantageous land
acquisitions in desirable locations. Its competitors include the Inner Mongolia
Ju Hua Real Estate Development Co., Ltd., Inner Mongolia Chi Cheng Real Estate
Development Co., Ltd., Hohhot Jia Di Real Estate Development Co., Ltd. and
Inner Mongolia Nai Lun Real Estate Development Co., Ltd., many of whom have
greater financial, managerial, marketing and other resources than these of Jin
Ma Real Estate. Residential and commercial property developers compete not only
for property buyers, but also for desirable properties, raw materials and
skilled subcontractors. Jin Ma Real Estate also expects that continued economic
development of China in general and in Hohhot City in particular will be
accompanied by further property development and expansion. It believes that its
principal competitive strengths are as follows:


Jin Ma Real
  Estates management has extensive experience and in-depth knowledge of the
  Hohhot City and Inner Mongolia real estate markets;
its strategy
  which emphasizes development high-quality residential properties for middle
  income families;
its access
  to construction capabilities through Jin Ma Construction;
its focus on
  Hohhot City and surrounding areas, in which Jin Ma Real Estate enjoys
  competitive advantages;
its
  experienced project management team, which effectively and actively controls
  every stage of the development of its projects; and
its close
  working relationships with both the local and regional governments.SUPPLIERS

Construction

Jin
Ma Construction does not maintain significant inventories of construction
materials except for work in process and a limited amount of other construction
materials. Generally, the construction materials used in its operations are
readily available from numerous sources. Jin Ma Construction owns, maintains
and operates approximately 80 vehicles and construction related equipment that
can, and are often deployed, on projects that it is serving as general
contractor. Jin Ma Construction uses five to seven subcontractors to perform
substantially all of its construction services and to develop its real estate
projects. Management is aware of similar subcontractors that are available to
perform construction services if required and management has plans to engage
their services if necessary.

Hotel Management

Jin
Ma Hotel acquires the supplies for the hotel operation from various local
sources. It has no long term agreements with its suppliers, and purchase
supplies on a purchase order basis. Management recognizes that this strategy
also carries with it the potential disadvantages and risks of shortages and
supply interruptions. Jin Ma Hotels suppliers generally are meeting its supply
requirements, and it believes its relationships with its suppliers are stable.

Real Estate
Development

The
supply of land is controlled by the Chinese government. All such purchases of
land are required to be reported to and authorized by the regional government
of Inner Mongolia and/or the municipal government of Hohhot City. In October
2007 new laws took effect governing a wide range of matters affecting real
property which impacted Jin Ma Real Estates acquisition of land use rights
during fiscal 2009 and 2008, and which may have the potential to negatively
impact the growth of its real estate business in future periods.

Jin
Ma Real Estate may use subcontractors for the development of its projects and
selects the lowest-cost provider through an open bidding process. Such service
providers are numerous in Hohhot City and it foresees no difficulties in
securing alternative sources of services as needed. Additionally, Jin Ma
Construction performs contractor services on behalf of Jim Ma Real Estate.

14

Government Approval and Regulation of the
Companys Principal Products or Services

The
Jin Ma Companies believe that each of the its companies has been compliant to
date with all registrations and requirements for the issuance and maintenance
of all licenses required by the applicable governing authorities in China and
that such laws, rules and regulations do not currently have a material impact
on its operations:

Construction. Chinas construction
industry is heavily
regulated by the national government. On November 1, 1997, the Central
Government of the PRC published the
Construction Law of the PRC, Presidential Order No. 91, which is the
basic construction law of China. This law outlines the basic requirements and
rules for all construction activity in China. Underneath the National
Government, the Ministry of Construction also writes laws. On March 14, 2001,
the Ministry of Construction published Rule
No. 87, which puts forth licensing requirements for all construction
companies operating in China. The Ministry of Construction also writes specific
standards for all different types of construction. These standards stipulate
the basic requirements for construction companies in China in such areas as
registered capital, tangible assets, liability insurance, employee regulations
and engineering certifications. The standards also have graded levels of
qualification. Jin Ma Construction has second class certification of its
constructions operation. In addition, provincial and municipal governments may
also enact regulations through their own construction bureaus.

Hotel Management. The hotel industry in
China is subject to
a number of laws and regulations, including laws and regulations relating
specifically to hotel operation and management, as well as those relating to
environmental and consumer protection. There are no regulatory ceilings on room
rates in China. The market-based pricing is permissible for the hotel industry
and room rates may be determined at the sole discretion of hotel management.
Relative to other industries in China, regulation of the hotel industry in
China is still developing and evolving. As a result, most legislative action
has consisted of general measures such as industry standards, rules or
circulars issued by different ministries rather than detailed legislation. Many
of these standards, rules and circulars date from the late 1990s, and it is
expected that they may be amended, revised or expanded in the coming years as
the hotel industry in China matures.

Real Estate Development. Jin Ma Real
Estates real estate development
projects are subject to various laws and governmental regulations, such as
zoning regulations, relating to its business operations and project
developments. Real estate developers may secure land from the city government
by obtaining exploitation and utilization rights over land through public
tendering. The maximum term for such land use right interest ranges from 40 to
70 years depending on the purpose of use.

Land
use rights obtained legally may be transferred, leased, and mortgaged during
the leasehold period. Jin Ma Real Estate must obtain and keep current various
licenses, permits and regulatory approvals for its development projects. Due to
the increasing levels of development in the areas of China where Jin Ma Real
Estate currently operates, it is possible that new laws, rules and/or
regulations may be adopted that could affect both its current and proposed
development projects. The enactment of such laws, rules or regulations in the
future could have a negative impact on its projected growth or profitability,
which could decrease its projected revenues or increase its costs of doing
business.

Recent Development - Wind Power Project

On
May 8, 2008 Jin Ma Construction signed an agreement to form a joint venture
with two development stage companies, Erlianhaote Hengyuan Wind Power Company,
Ltd. (Hengyuan) and Inner Mongolia Inner Mongolia Tianwei Wind Power
Equipment Company, Ltd. (Tianwei). Through various contractual arrangements
with Jin Ma Construction, Under the agreement, Jin Ma Construction is proposing
to invest approximately $100 million (RMB 700 million) which will be used to
construct a wind power plant and as capital to fund the construction of a
manufacturing facility to build wind power generator modules to be used at the
wind power plant. It is anticipated that Jin Ma Construction will own 60% of
these new entities. Additional capital investments are intended to be made by
all parties based upon a 60%/40% relationships.

15

Jin
Ma Constructions ability to proceed with the proposed joint venture is subject
to its raising the capital necessary to fund the projects and the receipt of
certain regulatory approvals. To date, it has not been successful in securing
the necessary capital, although management of the Jin Ma Companies continues
its efforts to obtain the funding necessary to proceed with this project. As
described elsewhere herein, the ability of the Jin Ma Companies to raise
capital is somewhat limited and the debentures contain certain contractual
restrictions on our ability to raise additional debt financing. We are,
accordingly, unable at this time to predict the likelihood of this project
being completed.

Employees

As
of September 30, 2009, the Jin Ma Companies collectively had a total of 487
full time employees. Jin Ma Construction accounted for 260 employees, including
33 management personnel; Jin Ma Hotel accounted for 180 employees, including 32
management personnel; Jin Ma Real Estate accounted for 37 employees, all of
which are management and sales personnel; and Inner Mongolia (Cayman)
Technology & Development Ltd has five administrative employees. Management
of the Jin Ma Companies believes that its relations with its employees are
good.

We
are required, as are the Jin Ma Companies, to contribute a portion of our
employees total salaries to the Chinese governments social insurance funds,
including medical insurance, unemployment insurance and job injuries insurance,
in accordance with relevant regulations. In the last two fiscal years, the Jin
Ma Companies contributed, in the aggregate, approximately $56,000 and $22,000
for the fiscal years ended June 30, 2009 and 2008, respectively. We expect the
amount of contribution to the governments social insurance funds to increase
in the future as we expand our workforce and operations.

ITEM 1.A RISK FACTORS

You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision with
regard to our securities. The statements contained in or incorporated into this
annual report that are not historic facts are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to
differ materially from those set forth in or implied by forward-looking
statements. If any of the following risks actually occurs, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part
of your investment.

Risks Relating to Our Overall Business
Operations

We do not have any
operations other than pursuant to the Contractual Arrangements with the Jin Ma
Companies. The term of those Contractual Arrangements is only for 10 years and
there are no assurances those agreements will be renewed.

Neither
Gold Horse International nor its subsidiaries Gold Horse Nevada or Global Rise
or IMTD are engaged in any business or operations other than pursuant to the
terms of the various Contractual Arrangements with the Jin Ma Companies as
described elsewhere in this report. As such, we are completely dependent on the
Contractual Arrangements. We do not generate any revenues and have no assets.
All of the Jin Ma Companies assets and operations are located in the PRC. As
described in the financial statements included elsewhere in this report,
substantially all of the assets and liabilities at each of June 30, 2009 and
June 30, 2008 and the results of operations for the fiscal years ended June 30,
2009 and 2008 are those of the Jin Ma Companies.

16

The
Contractual Arrangements are subject to enforcement under the laws of the PRC.
We cannot assure you, however, that we will be able to enforce these contracts.
If we are unable to enforce any legal rights we may have under these contracts
or otherwise, our ability to continue as a going concern is in jeopardy. In
addition, the terms of these contracts expire in August 2016 and there are no
assurances these agreements will be renewed. If the Contractual Arrangements
are not renewed or are significantly modified, unless we have expanded our
business and operations, of which there are no assurances, we will in all
likelihood be forced to cease our operations.

Our Contractual
Arrangements with the Jin Ma Companies and their respective shareholders may
not be as effective in providing control over these entities as direct
ownership.

We
have no equity ownership interest in the Jin Ma Companies and rely on the
Contractual Arrangements to control and operate such businesses. These
contractual arrangements may not be as effective in providing control over the
Jin Ma Companies as direct ownership. For example, any of the Jin Ma Companies
could fail to take actions required for our businesses despite its contractual
obligation to do so. If the Jin Ma Companies fail to perform under their
agreements with us, we may have to rely on legal remedies under PRC law, which
may not be effective. In addition, we cannot assure you that the Jin Ma
Companies shareholders would always act in our best interests.

We
have approximately $1,100,000 of convertible debentures and $4,770,026 of other
debt coming due within the next year and we do not have the funds available to
satisfy these obligations. The debentures are secured by all of our assets and
a controlling interest in our company.

On
December 31, 2009, $1,091,500 of principal and approximately $49,663 of accrued
but unpaid interest becomes due under our amended and restated 14% secured
convertible debentures. In addition, between July 2009 and June
2011approximately $4,800,140 of debt becomes due and payable. Currently, we do
not have sufficient funds to satisfy the current portion of the amended and
restated 14% secured convertible debentures or the other debt. As the
debentures have already been extended once it is unlikely the debenture holders
will consent to any further extension and, while we may seek to extend the due
dates of the other obligations, there are no assurances that we will be
successful in our efforts. As described elsewhere herein, the terms of the
amended and restated 14% secured convertible debentures make it difficult for
us to raise additional capital. While we are actively seeking to raise additional
capital, we cannot assure you that financing will be available in amounts or on
terms acceptable to us, if at all. If we were to fail to pay the current
installment of the amended and restated 14% secured convertible dentures when
due and were unable to restructure this obligation, the debenture holders may
seek to foreclose upon our assets and the shares of common stock owned by our
management which serve as additional collateral. While the ability of the
debenture holders to foreclose on any of the assets of the Jin Ma Companies is
doubtful, a change of control of our company would occur which could impact our
ability to continue our operations as presently conducted. In that event, you
could lose your entire investment in our company.

Our President and CEO
are also the CEO and founder of the Jin Ma Companies. We are not receiving the
benefit of certain terms of the Contractual Arrangements and there are no
assurances that the conflicts of interest between obligations to our company
and obligations to the Jin Ma Companies will be resolved by Mr. Yang in our favor.

Our
President and CEO are also the founder and CEO of the Jin Ma Companies.
Pursuant to the Contractual Arrangements we have the ability to control the
daily operations and financial affairs of the Jin Ma Companies, appoint each of
their senior executives and approve all matters requiring approval by their
respective members. While the Contractual Arrangements effectively grant us
operating control of the Jin Ma Companies, it is possible that conflicts of
interest related to these rights may occur between us and the Jin Ma Companies
which may not be resolved to our benefit.

17

In
addition, while the terms of the Contractual Arrangements provide that we are
to be paid quarterly service fees equal to the net profit of the Jin Ma
Companies, such payments have not been tendered to us and those funds are being
retained by the Jin Ma Companies to fund their operations. At June 30, 2009
approximately $14.4 million is due to us by the Jin Ma Companies which remains
unpaid as of the date hereof. Although we have no business and operations other
than pursuant to the terms of the Contractual Arrangements, we incur operating
expenses related to our public company reporting requirements including legal
and accounting fees and other professional fees. Additionally, we incur
interest expense on the amended and restated 14% secured convertible debentures
(at an annual rate of 10% before March 2009) according to the debenture and
warrant amendment agreement dated May 18, 2009 and it is possible that we will
be required to pay substantially all of this interest in cash. While the Jin Ma
Companies have represented to us that they intend to pay either all or a
portion of the accrued fees and/or repay all or a portion of the advances so
that we can meet our obligations under the amended and restated 14% secured
convertible debentures, it is possible that such amounts will not be paid, or
that any other conflicts of interest which may arise between our company and
the Jin Ma Companies related to their obligation to pay the amounts due us will
be resolved in their favor which could adversely impact our ability to pay our
obligations and operating expenses in future periods.

We have lent
substantially all of the net proceeds from our completed financing to the Jin
Ma Companies on an interest free, unsecured basis. If these amounts are not
repaid, or if the Jin Ma Companies do not begin paying their quarterly service
fees, it is possible that we will not have sufficient capital to pay our
operating expenses which could result in a removal of our common stock from
quotation on the OTC Bulletin Board.

We
received net proceeds, after offering expenses, of approximately $1,993,000
from the first closing of the sale of our secured convertible debentures. Upon
the receipt of the funds, we transferred $1,800,000 to the Jin Ma Companies in
the form of an unsecured, interest free advance for use by the Jin Ma Companies
in their operations and to fund their registered capital requirements under PRC
wholly-owned foreign enterprise rules. We retained the balance to fund our
operating costs which are primarily professional fees incurred in complying
with the audit and reporting requirements of the Securities and Exchange
Commission. We do not have an understanding with the Jin Ma Companies regarding
the repayment of the amounts advanced to that company. During fiscal 2009, the
Jin Ma Companies have repaid a portion of the balance amounting to $254,970 to
fund our operations and to pay interest due on our secured convertible
debentures. If the Jin Ma Companies does not continue to repay us, we may not
have sufficient capital to pay our operating expenses.

We
may require additional capital in the future, which may not be available on
favorable terms or at all.

Our
future capital requirements will depend on many factors, including industry and
market conditions, our ability to successfully implement the expansion of our
production capabilities. We anticipate that we will need to raise additional
funds in order to grow our business and implement our business strategy.
We anticipate that any such additional funds would be raised through equity or
debt financings. In addition, we may enter into a revolving credit facility
or a term loan facility with one or more syndicates of lenders. Any equity or
debt financing, if available at all, may be on terms that are not
favorable to us. Our ability to presently raise capital may be limited by the
terms of the amended and restated 14% secured convertible debentures. Even if
we are able to raise capital through equity or debt financings, as to which
there can be no assurance, the interest of existing shareholders in our
company may be diluted, and the securities we issue may have rights,
preferences, and privileges that are senior to those of our common
stock or may otherwise materially and adversely affect the holdings or
rights of our existing shareholders. If we cannot obtain adequate capital, we
may not be able to pay our obligations as they become due, fully implement
our business strategy, and our business, results of operations, and financial
condition would be adversely affected.

It is likely that we
will pay the interest on our amended and restated 14% secured convertible
debentures in shares of our common stock which will be dilutive to our
shareholders.

Under
the terms of the amended and restated 14% secured convertible debentures we are
permitted to pay a portion of interest due on those debentures in the form of
shares of our common stock instead of cash. On September 30, 2009, we elected
to pay a portion of interest due of $40,540 into approximately 405,400 shares
of our common stock. The issuance of shares of our common stock as interest
payment will be dilutive to our shareholders.

18

The Jin Ma Companies
have engaged in a number of related party transactions which could adversely
impact our company in future periods. Certain of these related party
transactions violate provisions of the Sarbanes-Oxley Act of 2002.

Prior
to fiscal 2008, from time to time the Jin Ma Companies had advanced the Jin Ma
Group, companies related through common ownership by their CEO, with funds for
working capital. Mr. Yang, who is the CEO of the Jin Ma Companies, is also
our CEO and a principal shareholder. At June 30, 2009, these related entities
owed the Jin Ma Companies approximately $33,000 which was repaid in the second
quarter of fiscal 2010. These advances are non-interest bearing, are unsecured
and payable on demand. These advances could be deemed to be in violation of
Section 402 of the Sarbanes-Oxley Act of 2002. If it was determined that these
advances violated the prohibitions of Section 402 from making loans to
executive officers or directors, we could be subject to investigation and/or
litigation that could involve significant time and costs and may not be
resolved favorably. The Jin Ma Companies have discontinued this practice of
providing advances to its related parties.

The Jin Ma Companies
may not be able to maintain and/or comply with all applicable government
regulation.

The
Jin Ma Companies are subject to extensive regulation by the central government
and by the regional and local authorities of Inner Mongolia and Hohhot City
where their business operations take place and their properties are located. We
believe that the Jin Ma Companies are currently in substantial compliance with
all material governmental laws and regulations and maintains all material
permits and licenses relating to its operations in construction, hotel
operation and real estate development. Nevertheless, there can be no assurance
that the Jin Ma Companies will continue to be in substantial compliance with
current laws and regulations, or whether they will be able to comply with any
future laws and regulations. To the extent that new regulations are adopted,
the Jin Ma Companies will be required to conform their activities in order to
comply with such regulations. Failure by them to comply with applicable laws
and regulations could subject one or more of those companies to civil remedies,
including fines, injunctions, recalls or seizures, as well as potential
criminal sanctions, which could have a material adverse effect on our business
and operations.

Compliance with environmental
regulations can be expensive, and noncompliance with these regulations may
result in adverse publicity and potentially significant monetary damages and
fines.

As
the business operations of the Jin Ma Companies generate noise, waste water,
gaseous and other industrial wastes, those companies are required to comply
with all national and local regulations regarding protection of the
environment. We believe that the Jin Ma Companies are in compliance with
present environmental protection requirements and to date it has not incurred
any costs associated with compliance with these environmental regulations.
However, if more stringent regulations are adopted in the future, the costs of
compliance with these new regulations could be substantial. If one or more of
these companies should fail to comply with present or future environmental
regulations, however, such company may be required to pay substantial fines,
suspend production or cease operations. Any failure by the Jin Ma Companies to
control the use of or to restrict adequately the discharge of, hazardous
substances could subject those companies to potentially significant monetary
damages and fines or suspensions in their business operations which could have
an adverse impact on their business and operations in future periods.

The Jin Ma Companies
lack of property and general liability insurance.

The
Jin Ma Companies are self-insured, and as such do not carry any property
insurance, general liability insurance, nor any other insurance that covers the
risks of their business operations. As a result, any material loss or damage to
its properties or other assets, or personal injuries arising from its business
operations would have a material adverse affect on its financial condition and
operations.

19

Because Jin Ma
Construction is dependent upon a few major customers for substantially all of
its current sales, the loss of any one of them would reduce our revenues,
liquidity and hinder our ability to be profitable.

Jin
Ma Construction is presently dependent upon revenues from a limited number of
customers. For the year ended June 30, 2009, four construction projects
accounted for 89.5% of total consolidated revenues (13.0%, 20.6%, 33.1% and
22.8%, respectively) and $11,076,151 of accounts receivable due from these
customers. For the year ended June 30, 2008, four construction projects
accounted for 86% of its revenues (10.3%, 38.2%, 24.1% and 9.4%, respectively)
and $7,603,725 of accounts receivable due from these customers.

The
nature of the Companys construction segment is that at any given time, the
Company will have a concentration of significant customer depending upon the
number and scope of construction projects. These significant customers may not
be the same from period to period depending upon the percentage of completion
of the specific projects. Four customers represented approximately 89.5% of our
consolidated revenues for fiscal 2009. These included the construction projects
Riverbank Garden Community (Building 5 to 8 and Phase II), the Tian Fu Garden
residential project (Phase I and II), the Ai Bo Garden residential apartment
project and Fu Xing Bath Center, provided approximately 13.0%, 20.6%, 33.1% and
22.8% of net revenues, respectively. Four customers represented approximately
86% of our revenues for fiscal 2008. These included the construction projects
Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known as Ta Bu
Ban), the Riverbank Garden Community, the Tian Fu Garden residential project
and the Ai Bo Garden residential apartment project, which provided
approximately 10.3%, 38.2%, 24.1% and 9.4% of net revenues, respectively.

Any
disruption in the relationships between Jin Ma Construction and one or more of
these customers, or any significant variance in the magnitude or the timing of
construction projects from any one of these customers, may result in decreases
in our results of operations, liquidity and cash flows. Any such adverse
operating results will likely decrease the market price of our common stock.

We
could experience a reduction in revenues or reduced cash flows if we are unable
to obtain reasonably priced financing to support our construction projects
and land development activities.

The
construction industry and real estate development industry are capital
intensive, and development requires significant up-front expenditures to
acquire land and begin development. Accordingly, we may incur substantial
indebtedness to finance our construction and land development activities.
Although we believe that internally generated funds and current borrowing
capacity will be sufficient to fund our capital and other expenditures
(including land acquisition, development, and construction activities), the
amounts available from such sources may not be adequate to meet our needs. If
such sources are not sufficient, we would seek additional capital in the
form of debt or equity financing from a variety of potential sources,
including bank financing and or securities offerings. The availability of
borrowed funds, to be used for land acquisition, development, and
construction, may be greatly reduced, and the lending community may require
increased amounts of equity to be invested in a project by borrowers in
connection with new loans. The failure to obtain sufficient capital to fund our
planned capital and other expenditures could have a material adverse
effect on our business.

Risks Relating to Construction Operations

If Jin Ma
Construction is unable to accurately estimate and control its contract costs
and timelines, then it may incur losses on contracts, which may result in
decreases in its operating margins and in a significant reduction or
elimination of profits.

Revenues
from Jin Ma Construction represent a significant portion of the total revenues
of the Jin Ma Companies. If Jin Ma Construction does not control its contract
costs, it may be unable to maintain positive operating margins or experience
operating losses. Jin Ma Construction typically enters into one of three
principal types of contracts with its clients: cost-plus-fee contracts,
fixed-price contracts, and fixed-price contracts modified by incentive and
penalty provisions. Under fixed-price contracts, it receives a fixed price
regardless of what its actual costs will be. Consequently, it realizes a profit
on fixed-price contracts only if it controls its costs and prevents cost
over-runs on the contracts. Under fixed-price contracts modified by incentive
and penalty provisions,

20

Jin Ma Construction
is paid a fixed price that may be increased or decreased based on incentive and
provisions in its contracts. Under cost-plus-fee contracts, which may be
subject to contract ceiling amounts, Jin Ma Construction is reimbursed for
allowable costs and fees, which may be fixed or performance-based. If its costs
exceed the contract ceiling or are not allowable under the provisions of the
contract or any applicable regulations, it may not be reimbursed for all of its
costs. Under each type of contract, if Jin Ma Construction is unable to
estimate and control costs and/or project timelines, it may incur losses on its
contracts, which may result in decreases in its operating margins and in a
significant reduction or elimination of its profits.

If Jin Ma Construction
fails to timely complete, miss a required performance standard or otherwise
fail to adequately perform on a project, then it may incur a loss on that
project, which may affect its overall profitability.

Jin
Ma Construction may commit to a client that it will complete a project by a
scheduled date. It may also commit that a project, when completed, will achieve
specified performance standards. If the project is not completed by the
scheduled date or subsequently fails to meet required performance standards,
Jin Ma Construction may either incur significant additional costs or be held
responsible for the costs incurred by the client to rectify damages due to late
completion or failure to achieve the required performance standards. The
uncertainty of the timing of a project can present difficulties in planning the
amount of personnel needed for the project. If the project is delayed or
canceled, Jin Ma Construction may bear the cost of an underutilized workforce
that was dedicated to fulfilling the project. In addition, performance of
projects can be affected by a number of factors beyond its control, including
unavoidable delays from weather conditions, unavailability of vendor materials,
changes in the project scope of services requested by clients or labor
disruptions. In some cases, should Jin Ma Construction fail to meet required
performance standards, it may also be subject to agreed-upon financial damages,
which are determined by the contract. To the extent that these events occur,
the total costs of the project could exceed our estimates and Jin Ma
Construction could experience reduced profits or, in some cases, incur a loss
on that project, which may affect its overall profitability.

Jin Ma
Constructions use of the percentage-of-completion method of accounting could
result in reduction or reversal of previously recorded revenues and profits.

A
substantial portion of Jin Ma Constructions revenues and profits are measured
and recognized using the percentage-of-completion method of accounting, which
is discussed further in Note 1, Organization and Summary of Significant
Accounting Policies to our financial statements appearing elsewhere in this
report. Jin Ma Constructions use of this method results in recognition of
revenues and profits ratably over the life of a contract, based generally on
the proportion of costs incurred to date to total costs expected to be incurred
for the entire project. The effect of revisions to revenues and estimated costs
is recorded when the amounts are known or can be reasonably estimated. Such
revisions could occur in any period and their effects could be material.
Although Jin Ma Construction has historically made reasonably reliable
estimates of the progress towards completion of long-term engineering, program
and construction management or construction contracts in process, the
uncertainties inherent in the estimating process make it possible for actual
costs to vary materially from estimates, including reductions or reversals of
previously recorded revenues and profits.

Jin Ma
Constructions future revenues depend on its ability to consistently bid and
win new contracts and renew existing contracts and, therefore, its failure to
effectively obtain future contracts could adversely affect its profitability.

Jin
Ma Constructions future revenues and overall results of operations require it
to successfully bid on new contracts and renew existing contracts. Contract
proposals and negotiations are complex and frequently involve a lengthy bidding
and selection process, which is affected by a number of factors, such as market
conditions, financing arrangements and required governmental approvals. If
negative market conditions arise, or if Jin Ma Construction fails to secure
adequate financial arrangements or the required governmental approval, it may
not be able to pursue particular projects, which could adversely affect our
profitability.

Jin Ma Construction
may be subject to significant potential liabilities as a result of construction
defect, product liability and warranty claims made against it.

21

Through
Jin Ma Construction, we may be subject to construction defect, product
liability and related warranty claims arising in the ordinary course of
business. These claims are common to the real estate development and the
construction industries and can be costly. With respect to certain general
liability exposures, including construction defect and product liability,
interpretation of underlying current and future trends, assessment of claims
and the related liability and reserve estimation process is highly judgmental
due to the complex nature of these exposures, with each exposure exhibiting
unique circumstances. Furthermore, once claims are asserted for construction
defects, it is difficult to determine the extent to which the assertion of
these claims will expand geographically. Jin Ma Construction may not have
sufficient funds available or adequate to cover any liability for damages, the
cost of repairs, and/or the expense of litigation surrounding such claims, and
future claims may arise out of uninsurable events or circumstances not covered
by insurance and not subject to effective indemnification agreements with its
subcontractors.

Reliance on
independent contractors in providing various services creates risks and Jin Ma
Construction is exposed to various risks in relation to contractors
performance.

Jin
Ma Construction engages independent third party contractors, through open
tenders, to provide various services including construction, piling and
foundation, building and fitting-out works, interior decoration and
installation of elevators. Although it is Jin Ma Constructions strategy and
policy to select reputable independent third party contractors with positive
track records in most cases and supervises the construction progress, there is
no assurance that the services rendered by any of these independent third party
contractors will always be satisfactory or match the targeted quality level
required by it and there may not be sufficient availability of and satisfactory
performance by these unaffiliated third-party subcontractors in the markets in
which it operates. Additionally, Jin Ma Construction is exposed to the risk
that a contractor may require additional capital in excess of the cost they
tendered to complete a contractual property development and Jin Ma Construction
may have to provide such additional capital. Furthermore, there is risk that
contractors may experience financial or other difficulties which may affect
their ability to carry out construction works, thus delaying the completion of
Jin Ma Constructions property developments or resulting in additional costs
for it. Any of these factors could adversely affect its revenues and
reputation.

Risks Relating to Hotel Operation

Jin Ma Hotel is
subject to all the operating risks common to the hotel industry.

Operating
risks common to the hotel industry which may affect the Jin Ma Hotel include:


changes in
  general economic conditions in China and specifically in the Inner Mongolia
  region;
impact of
  terrorist activity including threatened terrorist activity and heightened
  travel security measures instituted in response thereto;
domestic and
  international political and geopolitical conditions;
travelers
  fears of exposures to contagious diseases;
decreases in
  the demand for transient rooms and related lodging services, including a
  reduction in business travel as a result of general economic conditions;
restrictive
  changes in regulations or in health, safety and environmental laws, rules and
  regulations and other governmental and regulatory action;
changes in
  travel patterns;
changes in
  operating costs including energy, labor costs, food costs, workers
  compensation and health-care related costs, insurance and unanticipated costs
  such as acts of nature and their consequences;
the
  availability of capital to allow Jin Ma Hotel to fund renovations and
  investments;
foreign
  exchange fluctuations; and
the
  financial condition of the airline industry and the impact on air travel.22

As
these risks are outside the control of the Jin Ma Hotel, it may be unable to
take actions which might eliminate or mitigate the risk to it. The occurrences
of one or more of the foregoing could result in a significant decline in the
revenues from Jin Ma Hotel which would adversely impact our results of
operations in future periods.

Jin Ma Hotels costs
and expenses may remain constant or increase even if its revenues decline. If
the Jin Ma Hotel is unable to maintain its good condition and attractive
appearance, the hotel occupancy rates may decline.

A
significant portion of the operating costs of the Jin Ma Hotel are fixed.
Accordingly, a decrease in its revenues could result in a disproportionately
higher decrease in its earnings because its operating costs and expenses are
unlikely to decrease proportionately. The hotel industry is seasonal in nature.
Thus, during Jin Ma Hotels slow seasons, its expenses do not vary as
significantly as changes in occupancy and restaurant and banquet activities and
the corresponding revenues, since it is required to continue to pay salaries,
make regular repairs, maintenance and renovations and invest in other capital
improvements throughout the year to maintain the attractiveness of the hotel.
The property development and renovation costs may increase as a result of
increasing costs of materials. In addition, although during fiscal year 2006,
the Jin Ma Hotel completed a renovation in the future it will be required to
undertake ongoing renovations and other leasehold improvements, including
periodic replacement of furniture, fixtures and equipment, in order to maintain
the hotels good condition and attractive appearance. If it does not make
needed investments and improvements, it could lose its market share to its
competitors and the hotel occupancy rates may decline. However, the Jin Ma
Hotel has a limited ability to pass increased operating costs to customers
through room rate increases. This creates an ongoing need for cash to the
extent the Jin Ma Hotel cannot fund expenditures from cash generated by
operations, funds must be borrowed or otherwise obtained. Therefore, its costs
and expenses may remain constant or increase even if its revenues decline.
Accordingly, its financial results may be sensitive to the cost and
availability of funds.

Risks Relating to Real Estate Development
Operations

Future
Jin Ma Real Estate development projects are heavily dependent on the
performance of the residential property market in China, which is at a
relatively early development stage.

The
residential property industry in the PRC is still in a relatively early stage
of development. Although demand for residential property in the PRC has
been growing rapidly in recent years, such growth is often coupled with
volatility in market conditions and fluctuation in property prices. It is
extremely difficult to predict how much and when demand will develop, as
many social, political, economic, legal, and other factors, most of which are
beyond our control, may affect the development of the market. The level of
uncertainty is increased by the limited availability of accurate financial and
market information, as well as the overall low level of transparency in
the PRC, especially in tier two cities, which have lagged in progress in
these aspects when compared to tier one cities. The lack of a liquid
secondary market for residential property may discourage investors from acquiring
new properties. The limited amount of property mortgage
financing available to PRC individuals may further inhibit demand for
residential developments

Jin Ma Real Estates
results of operation and financial condition are greatly affected by the performance
of the real estate market.

Jin
Ma Real Estates development activities are subject to numerous factors beyond
its control, including local real estate market conditions, both where its
properties are located and in areas where its potential customers reside,
substantial existing and potential competition, general national, regional and
local economic conditions, fluctuations in interest rates and mortgage
availability and changes in demographic conditions. Real estate markets have
historically been subject to strong periodic cycles driven by numerous factors
beyond the control of market participants. Real estate investments often cannot
easily be converted into cash and market values may be adversely affected by
these economic circumstances, market fundamentals, competition and demographic
conditions. Because of the effect these factors have on real estate values, it
is difficult to predict with certainty the level of future sales or sales
prices that will be realized for individual assets. Jin Ma Real Estates
operations are also dependent upon the availability and cost of mortgage
financing for potential customers, to the extent they finance their purchases,
and for buyers of the potential customers existing residences.

23

Unfavorable changes
in market and economic conditions could hurt occupancy or rental rates.

Market
and economic conditions may significantly affect rental rates. Occupancy and
rental rates in Jin Ma Real Estates market, in turn, may significantly affect
its profitability and its ability to satisfy its financial obligations. The
risks that may affect conditions in Jin Ma Real Estates market include the
following:


the economic
  climate, which may be adversely impacted by industry slowdowns and other
  factors;
local
  conditions, such as oversupply of office and residential space and the demand
  for office and residential space;
the
  inability or unwillingness of tenants to pay their current rent or rent
  increases; and
competition
  from other available office and residential buildings and changes in market
  rental rates.Real estate
development is subject to timing, budgeting and other risks.

Jin
Ma Real Estate intends to expand its real estate development activities, as
suitable opportunities arise, taking into consideration the general economic
climate. New project development has a number of risks, including risks
associated with:


construction
  delays or cost overruns that may increase project costs;
receipt of
  required governmental permits and authorizations;
development
  costs incurred for projects that are not pursued to completion;
so-called
  acts of God such as earthquakes, hurricanes, floods or fires that could
  adversely impact a project;
defects in
  design or construction that may result in additional costs to remedy or
  require all or a portion of a property to be closed during the period
  required to rectify the situation;
ability to
  raise capital;
governmental
  restrictions on the nature or size of a project or timing of completion; and
shortages of
  materials or skilled labor.We
cannot assure you that any development project will be completed on time or
within budget or at all. Jin Ma Real Estates cost estimates and projected
completion dates for development and construction of new building projects may
change significantly as the projects progress. A delay in scheduled openings
will delay Jin Ma Real Estates receipt of increased sale revenues. If it does
not successfully address its increased management needs or it is otherwise are
unable to manage its growth effectively, its operating results could be
materially and adversely affected.

While Jin Ma Real
Estate attempts to anticipate consumer preferences and location-related
concerns, it is subject to the inherent uncertainty of market acceptance.

Jin
Ma Real Estate is currently selling its developed properties principally in
Hohhot. Achieving market acceptance for its properties, particularly in new
markets, will require substantial marketing efforts and the expenditure of
significant funds. There is substantial risk that any new markets may not
accept or be as receptive to its properties. Market acceptance of Jin Ma Real
Estates current and proposed properties will depend, in large part, upon its
ability to inform potential customers that the distinctive characteristics of
its properties make them superior to competitive properties and justify their
pricing. There can be no assurance that its current and proposed properties
will be accepted by consumers or that any of its current or proposed properties
will be able to compete effectively against other properties. Lack of market
acceptance of Jin Ma Real Estate properties would have a material adverse
effect on it.

24

Jin Ma Real Estate
is required by market practice to guarantee the mortgages of its customers.

In
accordance with market practice in China, Jin Ma Real Estate is required to
provide guarantees during the development phase to the banks in respect of
mortgages offered to the property buyers until submission of the relevant real
estate ownership certificates and certificates of other interests in the
property unit by the relevant property buyers to the mortgage bank. If a property
buyer defaults under the loan and Jin Ma Real Estate is required, during the
guarantee period, to repay all debt owed by the defaulting property buyer to
the mortgage bank, the mortgage bank will assign its rights under the loan and
the mortgage to Jin Ma Real Estate and, subject to registration, it will have
full recourse to the property. In line with industry practice, Jin Ma Real
Estate does not conduct independent credit checks on the property buyers but
relies instead on the credit checks conducted by the mortgage banks. For
financial reporting purposes, the sale of a property unit is not recognized
until title has passed and Jin Ma Real Estate is released from its loan
guarantee on the unit.

The practice of
pre-selling developments may expose Jin Ma Real Estate to substantial
liabilities.

The
existing common practices by property developers to pre-sale properties while
still under construction in China involve certain risks. For example, Jin Ma
Real Estate may fail to complete a property development which may have been
fully or partially pre-sold. In such circumstances, it could find itself liable
to purchasers of pre-sold units for losses suffered by them. There can be no
assurance that these losses would not exceed the purchase price paid in respect
of the pre-sold units. In addition, if a pre-sold property development is not
completed on time, the purchasers of pre-sold units may be entitled to
compensation for late delivery. If the delay extends beyond a certain period,
the purchasers may even be entitled to terminate the pre-sale agreement and
claim for damages.

If Jin Ma Real
Estate is unable to generate sufficient cash from operations or other sources,
it may find it necessary to curtail its development activities.

Significant
capital resources are required to fund Jin Ma Real Estates development
expenditures. We cannot guarantee that sufficient capital can be generated to
develop every one of Jin Ma Real Estates projects by way of only presale
revenue, and there can be no assurance that it will otherwise obtain sufficient
funds from other sources to meet the expected development plans for its
properties. We cannot guarantee Jin Ma Real Estates ability to obtain bank
loans and credit facilities and renewals of existing borrowings from financial
institutions on maturity under favorable terms and conditions. Changes in
interest rates on its borrowings will also affect its financing costs and
consequently its results of operations.

Dependence on
natural resources and construction materials in China.

The
major materials of the real estate industry are land and construction
materials. Land supply is strictly controlled by the Chinese government. The
continuing land consumption by the real estate industry in China will make it
continually difficult for real estate developers to obtain land which may lead
to substantial increases in land prices, which will in turn increase
development costs. In addition, although the costs of some construction
materials have declined in recent years, the price of new materials due to the
implementation of environmental laws may increase further. The effect of prices
of land and construction materials makes Jin Ma Real Estates operating results
unpredictable.

Risks Related to Doing Business in China

Failure
to comply with PRC regulations relating to the establishment of offshore
special purpose companies by PRC residents may subject our PRC resident
shareholders to personal liability, limit our ability to acquire PRC companies
or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries
ability to distribute profits to us or otherwise materially adversely affect
us.

In
October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
the Notice on Relevant Issues in the Foreign Exchange Control over Financing
and Return Investment Through Special Purpose Companies by Residents Inside
China, generally referred to as Circular 75, which required PRC residents to
register

25

with the
competent local SAFE branch before establishing or acquiring control over an
offshore special purpose company, or SPV, for the purpose of engaging in an
equity financing outside of China on the strength of domestic PRC assets
originally held by those residents. Internal implementing guidelines issued by
SAFE, which became public in June 2007 (known as Notice 106), expanded the
reach of Circular 75 by (i) purporting to cover the establishment or
acquisition of control by PRC residents of offshore entities which merely
acquire control over domestic companies or assets, even in the absence of
legal ownership; (ii) adding requirements relating to the source of the PRC
residents funds used to establish or acquire the offshore entity; (iii)
covering the use of existing offshore entities for offshore financings; (iv)
purporting to cover situations in which an offshore SPV establishes a new
subsidiary in China or acquires an unrelated company or unrelated assets in
China; and (v) making the domestic affiliate of the SPV responsible for the
accuracy of certain documents which must be filed in connection with any such
registration, notably, the business plan which describes the overseas financing
and the use of proceeds. Amendments to registrations made under Circular 75 are
required in connection with any increase or decrease of capital, transfer of
shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations, and
Notice 106 makes the offshore SPV jointly responsible for these filings. In the
case of an SPV which was established, and which acquired a related domestic
company or assets, before the implementation date of Circular 75, a retroactive
SAFE registration was required to have been completed before March 31, 2006;
this date was subsequently extended indefinitely by Notice 106, which also
required that the registrant establish that all foreign exchange transactions
undertaken by the SPV and its affiliates were in compliance with applicable laws
and regulations. Failure to comply with the requirements of Circular 75, as
applied by SAFE in accordance with Notice 106, may result in fines and other
penalties under PRC laws for evasion of applicable foreign exchange
restrictions. Any such failure could also result in the SPVs affiliates being
impeded or prevented from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the SPV, or from
engaging in other transfers of funds into or out of China.

We
believe our shareholders who are PRC residents, as defined in Circular 75, have
registered with the relevant branch of SAFE, as currently required, in
connection with their equity interests in us and our acquisitions of equity
interests in our PRC subsidiaries. However, we cannot provide any assurances
that their existing registrations have fully complied with, or that they have
made all necessary amendments to their registration to fully comply with, all
applicable registrations or approvals required by Circular 75. Moreover,
because of uncertainty over how Circular 75 will be interpreted and
implemented, and how or whether SAFE will apply it to us, we cannot predict how
it will affect our business operations or future strategies. For example, our
present and prospective PRC subsidiaries ability to conduct foreign exchange
activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with Circular 75
by our PRC resident beneficial holders. In addition, such PRC residents may not
always be able to complete the necessary registration procedures required by
Circular 75. We also have little control over either our present or prospective
direct or indirect shareholders or the outcome of such registration procedures.
A failure by our PRC resident beneficial holders or future PRC resident
shareholders to comply with Circular 75, if SAFE requires it, could subject
these PRC resident beneficial holders to fines or legal sanctions, restrict our
overseas or cross-border investment activities, limit our subsidiaries ability
to make distributions or pay dividends or affect our ownership structure, which
could adversely affect our business and prospects.

If
the PRC enacts regulations which forbid or restrict foreign investment, our
ability to grow may be severely impaired.

We
intend to expand our business in areas relating to our present business. We may
also expand by making acquisitions of companies in related industries. Many of
the rules and regulations that we would face are not explicitly communicated,
and we may be subject to rules that would affect our ability to grow, either
internally or through acquisition of other Chinese or foreign companies. There
are also substantial uncertainties regarding the proper interpretation of
current laws and regulations of the PRC. New laws or regulations that forbid
foreign investment could severely impair our businesses and prospects.
Additionally, if the relevant authorities find us in violation of PRC laws or
regulations, they would have broad discretion in dealing with such a violation,
including, without limitation:


levying
  fines;
revoking our
  business and other licenses; and
requiring
  that we restructure our ownership or operations.26

Any deterioration of
political relations between the United States and the PRC could impair our
operations and your investment in us.

The
relationship between the United States and the PRC is subject to sudden
fluctuation and periodic tension. Changes in political conditions in the PRC
and changes in the state of Sino-U.S. relations are difficult to predict and
could adversely affect our operations or cause potential acquisition candidates
or their goods and services to become less attractive. Such a change could lead
to a decline in our profitability. Any weakening of relations between the
United States and the PRC could have a material adverse effect on our
operations and your investment in us, particularly in our efforts to raise
capital to expand our other business activities.

Adverse changes in
economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely
affect our business.

Substantially
all of our business operations are conducted in China. Accordingly, our results
of operations, financial condition and prospects are subject to a significant
degree to economic, political and legal developments in China. Chinas economy
differs from the economies of most developed countries in many respects,
including with respect to:


the amount
  of government involvement;
level of
  development;
growth rate;
control of
  foreign exchange; and
allocation
  of resources.While the
PRC economy has experienced significant growth in the past 20 years, growth has
been uneven across different regions and among various economic sectors of
China. The PRC government has implemented various measures to encourage economic
development and guide the allocation of resources. Some of these measures
benefit the overall PRC economy, but may also have a negative effect on us. For
example, our financial condition and results of operations may be adversely
affected by government control over capital investments or changes in tax
regulations that are applicable to us. Since early 2004, the PRC government has
implemented certain measures to control the pace of economic growth. Such
measures may cause a decrease in the level of economic activity in China, which
in turn could adversely affect our results of operations and financial
condition.

Price controls may
affect both our revenues and net income.

The laws of
the PRC provide for the government to fix and adjust prices. Although we are
not presently subject to price controls in connection with the sale of our
products, it is possible that price controls may be imposed in the future. To
the extent that we are subject to price control, our revenue, gross profit,
gross margin and net income will be affected since the revenue we derive from
our sales will be limited and, unless there is also price control on the
products that we purchase from our suppliers, we may face no limitation on our
costs. Further, if price controls affect both our revenue and our costs, our
ability to be profitable and the extent of our profitability will be
effectively subject to determination by the applicable regulatory authorities
in the PRC.

Our operations may
not develop in the same way or at the same rate as might be expected if the PRC
economy were similar to the market-oriented economies of OECD member countries.

The economy
of the PRC has historically been a nationalistic, planned economy, meaning it
functions and produces according to governmental plans and pre-set targets or
quotas. In certain aspects, the PRCs economy has been making a transition to a
more market-oriented economy, although the government imposes price controls on
certain products and in certain industries. However, we cannot predict the
future direction of these economic reforms or the effects these measures may
have. The economy of the PRC also differs from the economies of most countries
belonging to the Organization for Economic Cooperation and Development (the
OECD), an international group of member countries sharing a commitment to
democratic government and market economy. For instance:

27


the level of
  state-owned enterprises in the PRC, as well as the level of governmental
  control over the allocation of resources is greater than in most of the
  countries belonging to the OECD;
the level of
  capital reinvestment is lower in the PRC than in other countries that are
  members of the OECD;
the
  government of the PRC has a greater involvement in general in the economy and
  the economic structure of industries within the PRC than other countries
  belonging to the OECD;
the
  government of the PRC imposes price controls on certain products and our
  products may become subject to additional price controls; and
the PRC has
  various impediments in place that make it difficult for foreign firms to
  obtain local currency, as opposed to other countries belonging to the OECD
  where exchange of currencies is generally free from restriction.As a result
of these differences, our business may not develop in the same way or at the
same rate as might be expected if the economy of the PRC were similar to those
of the OECD member countries.

Because some of our
officers and directors reside outside of the United States, it may be difficult
for you to enforce your rights against them or enforce United States court
judgments against them in the PRC.

Most of our
executive officers and directors reside in the PRC and a substantial portion of
our assets are located in the PRC. It may therefore be difficult for United
States investors to enforce their legal rights, to effect service of process
upon our directors or officers or to enforce judgments of United States courts
predicated upon civil liabilities and criminal penalties of our directors and
officers under federal securities laws. Further, it is unclear if extradition
treaties now in effect between the United States and the PRC would permit
effective enforcement of criminal penalties of the federal securities laws.

We may have limited
legal recourse under Chinese law if disputes arise under contracts with third
parties.

Almost all
of our agreements with our employees and third parties, including our supplier
and customers, are governed by the laws of the PRC. The legal system in the PRC
is a civil law system based on written statutes. Unlike common law systems,
such as we have in the United States, it is a system in which decided legal
cases have little precedential value. The government of the PRC has enacted
some laws and regulations dealing with matters such as corporate organization
and governance, foreign investment, commerce, taxation and trade. However,
their experience in implementing, interpreting and enforcing these laws and
regulations is limited, and our ability to enforce commercial claims or to
resolve commercial disputes is unpredictable. The resolution of these matters
may be subject to the exercise of considerable discretion by agencies of the
PRC, and forces unrelated to the legal merits of a particular matter or dispute
may influence their determination. Any rights we may have to specific
performance or to seek an injunction under Chinese law are severely limited,
and without a means of recourse by virtue of the Chinese legal system, we may
be unable to prevent these situations from occurring. The occurrence of any
such events could have a material adverse effect on our business, financial
condition and results of operations.

Because we may not
be able to obtain business insurance in the PRC, we may not be protected from
risks that are customarily covered by insurance in the United States.

Business
insurance is not readily available in the PRC. To the extent that we suffer a
loss of a type which would normally be covered by insurance in the United
States, such as product liability and general liability insurance, we would
incur significant expenses in both defending any action and in paying any
claims that result from a settlement or judgment.

A downturn in the
economy of the PRC may slow our growth and profitability.

The growth
of the Chinese economy has been uneven across geographic regions and economic
sectors. There can be no assurance that growth of the Chinese economy will be
steady or that any downturn will not have a negative effect on our business
especially if it results in either a decreased use of products such as ours or
in pressure on us to lower our prices. The Chinese economy has been
transitioning from a planned economy to a more market-oriented economy.
Although in recent years the Chinese government has implemented measures
emphasizing the utilization of market forces for economic reform, the reduction
of state ownership of productive assets and the

28

establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the
Chinese government. The continued control of these assets and other aspects of
the national economy by the Chinese government could materially and adversely
affect our business. The Chinese government also exercises significant
control over Chinese economic growth through the allocation of resources,
controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries
or companies. Efforts by the Chinese government to slow the pace of growth
of the Chinese economy could result in reduced demand for our products.

Uncertainties with
respect to the PRC legal system could adversely affect us.

We conduct
our business primarily through our affiliated Chinese entity, Jin Ma Real
Estate, Jin Ma Construction and Jin Ma Hotel. Our operations in China are
governed by PRC laws and regulations. We are generally subject to laws and
regulations applicable to foreign investments in China and, in particular, laws
applicable to wholly foreign-owned enterprises. The PRC legal system is based
on written statutes. Prior court decisions may be cited for reference but have
limited precedential value.

Since 1979,
PRC legislation and regulations have significantly enhanced the protections
afforded to various forms of foreign investments in China. However, China has
not developed a fully integrated legal system and recently enacted laws and
regulations may not sufficiently cover all aspects of economic activities in
China. In particular, because these laws and regulations are relatively new,
and because of the limited volume of published decisions and their nonbinding
nature, the interpretation and enforcement of these laws and regulations
involve uncertainties. In addition, the PRC legal system is based in part on
government policies and internal rules (some of which are not published on a
timely basis or at all) that may have a retroactive effect. As a result, we may
not be aware of our violation of these policies and rules until sometime after
the violation. In addition, any litigation in China may be protracted and
result in substantial costs and diversion of resources and management
attention.

You may experience
difficulties in effecting service of legal process, enforcing foreign judgments
or bringing original actions in China based on United States or other foreign
laws against us, our management or the experts named in the prospectus.

We conduct
substantially all of our operations in China and substantially all of our
assets are located in China. In addition, most of our senior executive officers
reside within China. As a result, it may not be possible to effect service of
process within the United States or elsewhere outside China upon our senior
executive officers, including with respect to matters arising under U.S.
federal securities laws or applicable state securities laws. Moreover, our PRC
counsel has advised us that the PRC does not have treaties with the United
States or many other countries providing for the reciprocal recognition and
enforcement of judgment of courts.

Governmental control
of currency conversion may affect the value of your investment.

The PRC
government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China. We
receive substantially all of our revenues in RMB. Under our current structure,
our income is primarily derived from payments from Jin Ma Real Estate, Jin Ma
Construction and Jin Ma Hotel. Shortages in the availability of foreign
currency may restrict the ability of our PRC subsidiaries and our affiliated
entity to remit sufficient foreign currency to pay dividends or other payments
to us, or otherwise satisfy their foreign currency denominated obligations.
Under existing PRC foreign exchange regulations, payments of current account
items, including profit distributions, interest payments and expenditures from
trade-related transactions, can be made in foreign currencies without prior
approval from the PRC State Administration of Foreign Exchange by complying
with certain procedural requirements. However, approval from appropriate
government authorities is required where RMB is to be converted into foreign
currency and remitted out of China to pay capital expenses such as the
repayment of bank loans denominated in foreign currencies. The PRC government
may also at its discretion restrict access in the future to foreign currencies
for current account transactions. If the foreign exchange control system
prevents us from obtaining sufficient foreign currency to satisfy our currency
demands, we may not be able to pay dividends in foreign currencies to our shareholders.

29

Fluctuation in the
value of RMB may have a material adverse effect on your investment.

The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Our revenues and costs are mostly denominated in RMB, while a significant
portion of our financial assets are denominated in U.S. dollars. We rely
entirely on fees paid to us by our affiliated entity in China. Any significant
fluctuation in value of RMB may materially and adversely affect our cash flows,
revenues, earnings and financial position, and the value of, and any dividends
payable on, our stock in U.S. dollars. For example, an appreciation of RMB
against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollars into RMB for such purposes. An appreciation of RMB against the U.S.
dollar would also result in foreign currency translation losses for financial
reporting purposes when we translate our U.S. dollar denominated financial
assets into RMB, as RMB is our reporting currency.

We rely on dividends paid by our subsidiaries
for our cash needs

We conduct
substantially all of our operations through our subsidiaries and affiliates. We
rely on dividends from our subsidiaries for our cash needs, including the funds
necessary to pay dividends and other cash distributions to our shareholders, to
service any debt we may incur and to pay our operating expenses. The payment of
dividends by entities organized in China is subject to limitations. Regulations
in China currently permit payment of dividends only out of accumulated profits
as determined in accordance with accounting standards and regulations in China.
We are also required to set aside at least 10.0% of its after-tax profit based
on Chinas accounting standards each year to its general reserves until the
accumulative amount of such reserves reach 50.0% of its registered capital.
These reserves are not distributable as cash dividends. Our subsidiaries are
also required to allocate a portion of its after-tax profits to its staff
welfare and bonus funds, which may not be distributed to equity owners except
in the event of liquidation. In addition, if our subsidiaries incur debt, the
instruments governing the debt may restrict their ability to pay dividends or
make other distributions to us.

We face risks
related to health epidemics and other outbreaks.

Our
business could be adversely affected by the effects of H1N1 virus or another
epidemic or outbreak. Since all of our operations are in China, H1N1 virus,
Asian Bird Flu or other epidemic in China in the future may disrupt our
business operations and have a material adverse effect on our financial
condition and results of operations. For instance, health or other government
regulations adopted in response may require temporary closure of our production
facilities or of our offices. Such closures would severely disrupt our business
operations and adversely affect our results of operations. We have not adopted
any written preventive measures or contingency plans to combat any future
outbreak of health epidemics or any other outbreaks.

Risks Related to Our Corporate Structure

PRC laws and regulations governing our
businesses and the validity of certain of our contractual arrangements are
uncertain. If we are found to be in violation, we could be subject to
sanctions. In addition, changes in such PRC laws and regulations may materially
and adversely affect our business.

There are
substantial uncertainties regarding the interpretation and application of PRC
laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our contractual
arrangements with our affiliated Chinese entities, Jin Ma Construction, Jin Ma
Hotel, Jin Ma Real Estate, and their respective shareholders. We are considered
a foreign person or foreign invested enterprise under PRC law. As a result, we
are subject to PRC law limitations on foreign ownership of Chinese companies.
These laws and regulations are relatively new and may be subject to change, and
their official interpretation and enforcement may involve substantial
uncertainty. The effectiveness of newly enacted laws, regulations or amendments
may be delayed, resulting in detrimental reliance by foreign investors. New
laws and regulations that affect existing and proposed future businesses may
also be applied retroactively.

30

The PRC
government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new PRC laws or regulations on our businesses. We
cannot assure you that our current ownership and operating structure would not
be found in violation of any current or future PRC laws or regulations. As a
result, we may be subject to sanctions, including fines, and could be required
to restructure our operations or cease to provide certain services. Any of
these or similar actions could significantly disrupt our business operations or
restrict us from conducting a substantial portion of our business operations,
which could materially and adversely affect our business, financial condition and
results of operations.

We may be adversely affected by complexity,
uncertainties and changes in PRC regulation of construction, lodging and real
estate development businesses and companies, including limitations on our
ability to own key assets.

The PRC
government regulates the construction, lodging and real estate development
industries, including foreign ownership of, and the licensing and permit
requirements pertaining to, companies in these industries. These laws and
regulations are relatively new and evolving, and their interpretation and
enforcement involve significant uncertainty. As a result, in certain
circumstances it may be difficult to determine what actions or omissions may be
deemed to be a violation of applicable laws and regulations. Issues, risks and
uncertainties relating to PRC government regulation of these industries include
the following:


We only have
  contractual control over the Jin Ma Companies. We do not own them due to the
  restriction of foreign investment in Chinese businesses; and
Uncertainties
  relating to the regulation of the construction, lodging and real estate
  development businesses in China, including evolving licensing practices,
  means that permits, licenses or operations at our company may be subject to
  challenge. This may disrupt our business, or subject us to sanctions,
  requirements to increase capital or other conditions or enforcement, or
  compromise enforceability of related contractual arrangements, or have other
  harmful effects on us.The
interpretation and application of existing PRC laws, regulations and policies
and possible new laws, regulations or policies have created substantial
uncertainties regarding the legality of existing and future foreign investments
in, and the businesses and activities of, real estate development, construction
and hotel businesses in China, including our business.

In order to comply with certain PRC laws, we
conduct our businesses through the Jin Ma Companies by means of contractual
arrangements. If the PRC government determines that these contractual
arrangements do not comply with applicable regulations, our business could be
adversely affected.

We operate
our business in China through the Jin Ma Companies. Each of the Jin Ma
Companies holds the licenses and approvals necessary to operate our businesses
in China. We have contractual arrangements with the Jin Ma Companies and their
respective shareholders that allow us to substantially control the Jin Ma
Companies. We cannot assure you, however, that we will be able to enforce these
contracts.

Although we
believe we comply with current PRC regulations, we cannot assure you that the
PRC government would agree that these operating arrangements comply with PRC
licensing, registration or other regulatory requirements, with existing
policies or with requirements or policies that may be adopted in the future. If
the PRC government determines that we do not comply with applicable law, it
could revoke our business and operating licenses, require us to discontinue or
restrict our operations, restrict our right to collect revenues, require us to
restructure our operations, impose additional conditions or requirements with
which we may not be able to comply, impose restrictions on our business operations
or on our customers, or take other regulatory or enforcement actions against us
that could be harmful to our business.

31

Our contractual arrangements with the Jin Ma
Companies and their respective shareholders may not be as effective in
providing control over these entities as direct ownership.

We have no
equity ownership interest in the Jin Ma Companies and rely on contractual
arrangements to control and operate such businesses. These contractual
arrangements may not be as effective in providing control over the Jin Ma
Companies as direct ownership. For example, any of the Jin Ma Companies could
fail to take actions required for our businesses despite its contractual
obligation to do so. If the Jin Ma Companies fail to perform under their agreements
with us, we may have to rely on legal remedies under PRC law, which may not be
effective. In addition, we cannot assure you that the Jin Ma Companies
shareholders would always act in our best interests.

The Chairman of the Board of Directors of the
Jin Ma Companies have potential conflicts of interest with us, which may
adversely affect our business.

Mr. Liankuan
Yang, our Chief Executive Officer, is also the Chairman of the Board of
Directors of the Jin Ma Companies. Conflicts of interests between his duties to
our company and the Jin Ma Companies may arise. As Mr. Yang is a director
and executive officer of our company, he has a duty of loyalty and care to us
under Florida law when there are any potential conflicts of interests between our
company and the Jin Ma Companies. We cannot assure you, however, that when
conflicts of interest arise, Mr. Yang will act completely in our interests
or that conflicts of interests will be resolved in our favor. If we cannot
resolve any conflicts of interest between us and Mr. Yang, we would have
to rely on legal proceedings, which could result in the disruption of our
business.

Risks Relating to Ownership of Our Securities

We do not anticipate
paying any cash dividends.

We
presently do not anticipate that we will pay any dividends on any of our
capital stock in the foreseeable future. The payment of dividends, if any,
would be contingent upon our revenues and earnings, if any, capital
requirements, and general financial condition. The payment of any dividends is
within the discretion of our Board of Directors. We presently intend to retain
all earnings, if any, to implement our business plan; accordingly, we do not
anticipate the declaration of any dividends in the foreseeable future.

Legislative actions
and potential new accounting pronouncements may impact our future financial
position and results of operations.

There have
been regulatory changes, including the Sarbanes-Oxley Act of 2002, and there
may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results
of operations. The Sarbanes-Oxley Act of 2002 and other rule changes are likely
to increase general and administrative costs and expenses. Further, there could
be changes in certain accounting rules. These and other potential changes could
materially increase the expenses we report under generally accepted accounting
principles, and adversely affect our operating results.

If we fail to maintain the adequacy of our
internal controls, our ability to provide accurate financial statements and
comply with the requirements of the Sarbanes-Oxley Act of 2002 could be
impaired, which could cause our stock price to decrease substantially.

We will be
subject to reporting obligations under the U.S. securities laws. The SEC, as
required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report on such companys
internal controls over financial reporting in its annual report, which contains
managements assessment of the effectiveness of our internal controls over
financial reporting. In addition, an independent registered public accounting
firm must attest to and report on managements assessment of the effectiveness
of our internal controls over financial reporting. Our management may conclude
that our internal controls over our financial reporting are not effective.
Moreover, even if our management concludes that our internal controls over
financial reporting are effective, our independent registered public accounting
firm may still decline to attest to our managements assessment or may issue a
report that is qualified if it is not satisfied with our controls or

32

the level at which our controls are documented, designed, operated or
reviewed, or if it interprets the relevant requirements differently from us.
Our reporting obligations as a public company will place a significant strain
on our management, operational and financial resources and systems for the
foreseeable future. Effective internal controls, particularly those related to
revenue recognition, are necessary for us to produce reliable financial reports
and are important to help prevent fraud. As a result, our failure to achieve
and maintain effective internal controls over financial reporting could result
in the loss of investor confidence in the reliability of our financial
statements, which in turn could harm our business and negatively impact the
trading price of our stock. Furthermore, we anticipate that we will incur
considerable costs and use significant management time and other resources in
an effort to comply with Section 404 and other requirements of the
Sarbanes-Oxley Act.

Certain of our officers and directors own a
substantial portion of our outstanding common stock, which enables them to
influence many significant corporate actions and in certain circumstances may
prevent a change in control that would otherwise be beneficial to our
shareholders.

At October
10, 2009, our directors and executive officers control approximately 37.91% of
our outstanding shares of common stock. These shareholders, acting together,
could have a substantial impact on matters requiring the vote of the
shareholders, including the election of our directors and most of our corporate
actions. This control could delay, defer or prevent others from initiating a
potential merger, takeover or other change in our control, even if these
actions would benefit our shareholders and us and this control could adversely
affect the voting and other rights of our other shareholders.

The exercise of outstanding warrants, the
issuance of shares of our common stock as interest on the outstanding notes and
the possible conversion of those outstanding notes will be dilutive to our
existing shareholders.

At October
10, 2009 we had 58,073,603 shares of our common stock issued and outstanding
and the following securities which are convertible or exercisable into shares
of our common stock were outstanding:


21,830,000 shares of our common stock issuable upon the possible conversion of
$2,183,000 principal amount amended and restated 14% secured convertible
debentures, based upon a conversion of $0.10 per share;

 up to an
approximately 800,000 shares of our common stock which we may issue the
debenture holders as interest payments; and


10,028,023 shares of our common stock issuable upon the exercise of common
stock purchase warrants with an exercise price of $0.10 per share. The issuance
of the shares as interest payment, the exercise of the warrants and/or the
conversion of the debentures may materially adversely affect the market price
of our common stock and will have a dilutive effect on our existing shareholders.

We have not voluntarily implemented various
corporate governance measures, in the absence of which, shareholders may have
more limited protections against interested director transactions, conflicts of
interest and similar matters.

Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or the NASDAQ Stock Market, on which their
securities are listed. Among the corporate governance measures that are
required under the rules of national securities exchanges are those that
address board of directors independence, audit committee oversight, and the
adoption of a code of ethics. Although we have adopted a Code of Financial
Ethics, we have not adopted any of these other corporate governance measures
and, since our securities are not listed on a national securities exchange, we
are not required to do so. We have not adopted corporate governance measures
such as an audit or other independent committees of our board of directors as
we presently do not have any independent directors. It is possible that if we
were to adopt some or all of these corporate governance measures,

33

shareholders would benefit from somewhat greater assurances that
internal corporate decisions were being made by disinterested directors and
that policies had been implemented to define responsible conduct. For example,
in the absence of audit, nominating and compensation committees comprised of at
least a majority of independent directors, decisions concerning matters such as
compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the
outcome of the matters being decided. Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their
investment decisions.

Because our stock currently trades below
$5.00 per share, and is quoted on the OTC Bulletin Board, our stock is considered
a penny stock which can adversely affect its liquidity.

As the
trading price of our common stock is less than $5.00 per share, our common
stock is considered a penny stock, and trading in our common stock is subject
to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934.
Under this rule, broker/dealers who recommend low-priced securities to persons
other than established customers and accredited investors must satisfy special
sales practice requirements. The broker/dealer must make an individualized
written suitability determination for the purchaser and receive the purchasers
written consent prior to the transaction.

SEC
regulations also require additional disclosure in connection with any trades
involving a penny stock, including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of securities
in the secondary market because few broker or dealers are likely to undertake
these compliance activities. In addition to the applicability of the penny
stock rules, other risks associated with trading in penny stocks could also be
price fluctuations and the lack of a liquid market.

The market price for
our stock may be volatile and the volatility in our common share price may
subject us to securities litigation.

The market
price for our stock may be volatile and subject to wide fluctuations in
response to factors including the following:


actual or
  anticipated fluctuations in our quarterly operating results;
changes in
  financial estimates by securities research analysts;
addition or
  departure of key personnel;
fluctuations
  of exchange rates between RMB and the U.S. dollar and
general
  economic or political conditions in China.In
addition, the securities market has from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our stock.

The market
for our common stock is characterized by significant price volatility when
compared to seasoned issuers, and we expect that our share price will continue
to be more volatile than a seasoned issuer for the indefinite future. In the
past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar litigation.
Securities litigation could result in substantial costs and liabilities and
could divert managements attention and resources.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not
applicable to a smaller reporting company.

34

ITEM 2. DESCRIPTION OF PROPERTY

We do not
maintain any offices apart from the Jin Ma Companies offices. The Jin Ma
Companies properties are located in Hohhot City, the capital city of the
Autonomous Region of Inner Mongolia in China. To house its staff, and as its
corporate headquarters, it maintains an office within the Jin Ma Hotel. The Jin
Ma Companies believes that this arrangement is adequate for its current and
immediately foreseeable operating needs.

ITEM 3. LEGAL PROCEEDINGS

We are not
a party to any pending or threatened litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

Market Price of and Dividends on Common
Equity and Related Stockholder Matters

Our common
stock is quoted on the OTCBB under the symbol GHII. The reported high and low
sales prices for the common stock as reported on the OTCBB are shown below for
the periods indicated. The quotations reflect inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions.

High

LowFiscal 2008First quarter ended September 30, 2007

$
0.00

$
0.00Second quarter ended December 31, 2007

$
2.34

$
1.36Third quarter ended March 31, 2008

$
2.50

$
0.52Fourth quarter ended June 30, 2008

$
1.16

$
0.27Fiscal 2009First quarter ended September 30, 2008

$
0.51

$
0.11Second quarter ended December 31, 2008

$
0.15

$
0.08Third quarter ended March 31, 2009

$
0.09

$
0.04Fourth quarter ended June 30, 2009

$
0.26

$
0.06Fiscal 2010First quarter ended September 30, 2009

$
0.16

$
0.09On October
10, 2009, the last sale price of our common stock as reported on the OTCBB was
$0.154. As of October 10, 2009, there were approximately 186 record owners of
our common stock.

Dividend Policy

We have never
paid cash dividends on our common stock. Subject to the terms of the amended
and restated 14% secured convertible debentures, payment of dividends is within
the sole discretion of our Board of Directors and will depend, among other
factors, upon our earnings, capital requirements and our operating and
financial

35

condition. Under Florida law, we may declare and pay dividends on our
capital stock either out of our surplus, as defined in the relevant Florida
statutes, or if there is no such surplus, out of our net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year. If,
however, the capital of our company, computed in accordance with the relevant
Florida statutes, has been diminished by depreciation in the value of our
property, or by losses, or otherwise, to an amount less than the aggregate
amount of the capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets, we are prohibited
from declaring and paying out of such net profits any dividends upon any shares
of our capital stock until the deficiency in the amount of capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets shall have been repaired. So long as the amended and
restated 14% secured convertible debentures are outstanding, however, we are
prohibited from paying dividends on our common stock.

Recent Sales of Unregistered Securities

During the period from July 1, 2009 to September 28, 2009, we issued 1,450,000
shares of our common stock in connection with the conversion of $145,000 of
convertible debt. The recipients were accredited investors and the issuances
were exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Section 3(a)(9) of that act.

On
September 10, 2009, we issued 3,055,000 shares of our common stock to pay
service fees of $305,500. These shares were valued at $0.10 per share to 6 of
our officers and directors as satisfaction for $248,000 of accrued expense and
$57,500 as additional compensation. The recipients were accredited investors
and the issuances were exempt from registration under the Securities Act of
1933 in reliance on exemptions provided by Section 4(2) of that act.

ITEM 6. SELECTED FINANCIAL DATA

Not
applicable to a smaller reporting company.

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of
operation for the fiscal years ended June 30, 2009 and 2008 should be read in
conjunction with the selected consolidated financial data, the financial
statements and the notes to those statements that are included elsewhere in
this report). Our discussion includes forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Actual results and the timing of
events could differ materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking
Statements and Business sections in this Form 10-K. We use words such as
anticipate, estimate, plan, project, continuing, ongoing,
expect,
believe, intend, may, will, should, could, and similar
expressions
to identify forward-looking statements.

Overview

Neither
Gold Horse International nor its subsidiaries Gold Horse Nevada, Global Rise or
IMTD are engaged in any business or operations other than pursuant to the terms
of the various Contractual Arrangements with the Jin Ma Companies as described
elsewhere in this report. As such, we are completely dependent on the
Contractual Arrangements. We do not generate any revenues and have no assets.
Pursuant to the requirements of Financial Accounting Standards Board (FASB)
Interpretation No. 46R Consolidation
of Variable Interest Entities, under generally accepted accounting
principles the Jin Ma Companies which are deemed to be variable interest
entities (VIEs) we are required to consolidate the financial statements of
the Jin Ma Companies with our financial statements. Accordingly, and as
described elsewhere in this annual report, the assets and liabilities at June
30, 2009 and June 30, 2008 and the results of operations for the years ended
June 30, 2009 an 2008 are those of the Jin Ma

36

Companies. All of those assets and operations are located in the PRC
and the Contractual Arrangements are subject to enforcement under the laws of
the PRC. There are no assurances we will be able to enforce these agreements if
necessary. If we are unable to enforce any legal rights we may have under these
contracts or otherwise, our ability to continue as a going concern is in
jeopardy. In addition, the terms of these contracts expire in August 2016 and
there are no assurances these agreements will be renewed. If the Contractual
Arrangements are not renewed or are significantly modified, unless we have
expanded our business and operations, of which there are no assurances, we will
in all likelihood be forced to cease our operations.

Default of 10% secured convertible debentures

As
described later in this section and elsewhere in this report, in November 2007
we issued and sold $2,183,000 principal amount secured convertible debentures
which matured on March 31, 2009. The debentures, aggregating $2,183,000, which
prior to March 31, 2009 accrued interest at 10% per annum, were due on March
31, 2009. The Company failed to repay the debentures on the due date. During
May 2009, we entered into negotiations with the debenture holders to
restructure the payment terms and reached an understanding, subject to the
execution of definitive documents, to extend the due date of the debentures and
cure the default. On May 18, 2009, we and the debenture holders signed a
Debenture and Warrant Amendment Agreement (the Amendment Agreement) and an
Amended and Restated 14% Secured Convertible Debenture (the Exchanged
Debentures). The Jin Ma Companies, however, had been unable to consummate this
restructure due to delays caused by Chinas State Administration of Foreign
Exchange (SAFE), the agency that the Jin Ma Companies must get approval from
to wire the funds to the debenture holders. On June 30, 2009, we and the
debenture holders executed an Amendment to the Amendment Agreement effectively
consummating the Amendment Agreement and issuing the Exchanged Debentures
thereby ceasing any written or non-written declarations of an event of default
under its Securities Purchase Agreement and the related 10% secured convertible
debentures and any process to foreclose upon the pledged shares in accordance
with the terms of the pledge agreement executed in connection Securities
Purchase Agreement. See the discussion below for more details.

We advanced
$1,800,000 of the net proceeds of this offering to the Jin Ma Companies for
working capital. In conjunction with the transaction Messrs. Liankuan Yang and
Yang Yang and Ms. Runlan Ma, executive officers and directors of both our
company and the Jin Ma Companies, pledged an aggregate of 19,000,000 shares of
our common stock owned by them as additional security for our obligations under
the debentures.

Critical Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We continually evaluate our estimates, including those related
to bad debts, inventories, recovery of long-lived assets, costs and estimated
earnings in excess of billings, billings in excess of costs and estimated
earnings, income taxes, and the valuation of equity transactions. We base our
estimates on historical experience and on various other assumptions that we
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Any future
changes to these estimates and assumptions could cause a material change to our
reported amounts of revenues, expenses, assets and liabilities. Actual results
may differ from these estimates under different assumptions or conditions. We
believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of the financial statements

Principles of consolidation

Pursuant to
Financial Accounting Standards Board Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51
(FIN 46R), we are required to include in our consolidated financial
statements the financial statements of variable interest entities. FIN 46R
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss for the variable interest entity
or is entitled to receive a majority of the variable interest entitys residual
returns. Variable interest entities are those entities in which we, through
contractual arrangements, bear the risk of, and enjoy the rewards normally
associated with ownership of the entity, and therefore we are the primary
beneficiary of the entity.

37

The Jin Ma
Companies are considered variable interest entities (VIE), and we are the
primary beneficiary. On June 29, 2007, we entered into agreements with the Jin
Ma Companies pursuant to which we shall receive 100% of the Jin Ma Companies
net income. In accordance with these agreements, the Jin Ma Companies shall pay
consulting fees equal to 100% of its net income to our wholly-owned subsidiary,
Global Rise, and Global Rise shall supply the technology and administrative
services needed to service the Jin Ma Companies.

The
accounts of the Jin Ma Companies are consolidated in the accompanying financial
statements pursuant to FIN 46R. As a VIE, the Jin Ma Companies sales are
included in our total sales, its income from operations is consolidated with
our, and our net income includes all of the Jin Ma Companies net income. We do
not have any non-controlling interest and accordingly, did not subtract any net
income in calculating the net income attributable to us. Because of the
contractual arrangements, we have pecuniary interest in the Jin Ma Companies
that require consolidation of the Jin Ma Companies financial statements with
our financial statements.

Accounts and other receivables

We have a
policy of reserving for uncollectible accounts based on our best estimate of
the amount of probable credit losses in our existing accounts receivable. We
periodically review our accounts receivable and other receivables to determine
whether an allowance is necessary based on an analysis of past due accounts and
other factors that may indicate that the realization of an account may be in
doubt. Account balances deemed to be uncollectible are charged to the allowance
after all means of collection have been exhausted and the potential for
recovery is considered remote.

Prior to
the time when the Jin Ma Companies financial statements were prepared in
accordance with U.S. generally accepted accounting policies, the Jin Ma
Companies did not record reserves for uncollectable accounts. Following the
Contractual Arrangements, in accordance with U.S. generally accepted accounting
policies we initially estimated reserves based solely upon the age of the receivable
as a historical basis by which the collectability could be reasonably estimated
did not exist. Subsequently, a portion of those receivables have been
collected. As a basis for accurately estimating the likelihood of collection
has been established, the Jin Ma Companies consider a number of factors when
determining reserves for uncollectable accounts. We believe that we use a
reasonably reliable methodology to estimate the collectability of the Jin Ma
Companies accounts receivable and other receivables. We review our allowances
for doubtful accounts on at least a quarterly basis. We also consider whether
the historical economic conditions are comparable to current economic
conditions. If the financial condition of our customers or other parties that
we have business relations with were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowances may be required.
Should we become unable to reasonably estimate the collectability of our
receivables, our results of operations could be negatively impacted. At June
30, 2009 and 2008, we have established, based on a review of its outstanding
accounts receivable balances, an allowance for doubtful accounts in the amount
of $1,002,621 and $1,025,431, respectively, on its total accounts receivable.

Other
receivables amounts were primarily related to advances made to various vendor,
subcontractors, and other parties in the normal course of business and the
allowance was established when those parties deemed to be unlikely to repay the
amounts. At June 30, 2009 and 2008, we have established, based on a review of
its outstanding other receivable balances, an allowance for doubtful accounts
in the amount of $143,974 and $883,875, respectively. The significant allowance
for doubtful accounts for the Companys outstanding other receivables was
recorded in fiscal 2007 after the Company made several attempts to collect and
significant other receivable amounts were still outstanding for a extended
period of time. Management is still attempting to collect these other
receivables and has not yet netted the other receivable balance against the
specific allowance. At such time as management exhausts all collection efforts,
the other receivable balance will be netted against the allowance account.

Inventories

Inventories,
consisting of consumable goods related to our hotel operation are stated at the
lower of cost or market utilizing the first-in, first-out method.

38

Real estate held for sale

We
capitalize as real estate held for sale the direct construction and development
costs, property taxes, interest incurred on costs related to land under
development and other related costs (i.e. engineering, surveying, landscaping,
etc.) until the property reaches its intended use. At June 30, 2009 and 2008,
real estate held for sale amounted to $0 and $125,070, respectively.

Advances from customers

Advances
from customers at June 30, 2009 and 2008 of $246,191 and $192,356,
respectively, consist of prepayments from third party customers to the Company
for construction and real estate transactions to ensure sufficient funds are
available to complete the real estate and construction projects. The Company
will recognize the deposits as revenue upon transfer of title to the buyer, in
compliance with its revenue recognition policy.

Construction in process

Properties
currently under development are accounted for as construction-in-process.
Construction-in-process is recorded at acquisition cost, including land use
rights cost, development expenditure, professional fees and the interest
expenses capitalized during the course of construction for the purpose of
financing the project. Upon completion and readiness for use of the project,
the cost of construction-in-progress is to be transferred to an appropriate
asset such as real estate held for sale. Construction in progress is valued at
the lower of cost or market. Management evaluates the market value of its
properties on a periodic basis for impairment. As of June 30, 2009 and 2008,
construction in process amounted to $10,560,114 and $4,537,240, respectively.

Revenue recognition

We follow
the guidance of the Securities and Exchange Commissions Staff Accounting
Bulletin 104 for revenue recognition. In general, we record revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. The following policies
reflect specific criteria for the various revenues streams of the Company:

Real estate
sales which primarily involve the sale of multi-family units and community
environments are reported in accordance with the provisions of Statement of
Financial Accounting Standard No. 66, Accounting for Sales of Real Estate.
Generally, profits from the sale of development properties, less 5% business
tax, are recognized by the full accrual method when the sale is consummated. A
sale is not considered consummated until (1) the parties are bound by the terms
of a contract, (2) all consideration has been exchanged, (3) any permanent
financing of which the seller is responsible has been arranged, (4) all
conditions precedent to closing have been performed, (5) the seller does not
have substantial continuing involvement with the property, and (6) the usual
risks and rewards of ownership have been transferred to the buyer.

In November
2007, Jin Ma Real Estate entered into an agreement to construct new dormitories
for the Inner Mongolia Electrical Vocational Technical School (Vocational
School). Pursuant to the terms of the agreement, Jin Ma Real Estate
constructed the buildings and, upon completion, pursuant to a sale-type capital
lease, leased the buildings to the Inner Mongolia Electrical Vocational
Technical School and will receive payments for a period of 26 years at an
amount of 4,800,000 RMB or approximately $700,000 per annum. In November 2008,
Jin Ma Real Estate completed the construction and in December 2008, Jin Ma Real
Estate received the first payment of 4,800,000 RMB. Under U.S. generally
accepted accounting principles, for accounting purposes, we treat the
transaction as a sales type capital lease and record the amount which will be
paid to us over the next 26 years as a note receivable. As payments are made to
us under this note receivable we reduce the principal amount of note receivable
due us and we will recognize interest income using the effective interest
method. We allocated the first payment received in December 2008 as follows:

39

Amount applied to principal balance of note
  receivable

$
149,495Interest income recognized on statement of
  income


550,920Total payment received

$
700,415In accordance
with FAS 66, Accounting for Sales of Real Estate, any gain from sales-type
capital lease was deferred because the minimum initial investment by the buyer
was less than the required 20% initial investment expressed as a percentage of
the sales value (FAS 66, Accounting for Sales of Real Estate, paragraph 54).
Therefore the deferred gain will be recognized into income using the
installment method as payments are received. The installment method apportions
each cash receipt and principal payment by the buyer between cost recovered and
profit. The apportionment is in the same ratio as total cost and total profit
bear to the sales value. Accordingly, revenue and cost of sales is recognized
based on this apportionment and are presented on the income statement. Since
the agreement did not have a stated interest rate, we used an imputed interest
rate of interest of 6.12%. Principal and the related imputed interest are
receivable annually at approximately $700,000 per year. As June 30, 2009, the
remaining deferred gain of $50,939 is reflected as a reduction to the note
receivable in the accompanying balance sheet. The recorded imputed interest
discount will be realized as the balances due are collected. In the event of
early liquidation, interest is recognized on the simple interest method.

Revenue
from the performance of general contracting, construction management and
design-building services is recognized upon completion of the service.

Revenue
primarily derived from hotel operations, including the rental of rooms and food
and beverage sales, is recognized when rooms are occupied and services have
been rendered.

In
accounting for long-term engineering and construction-type contracts, we follow
the provisions of the AICPAs Statement of Position 81-1Accounting for Performance of Construction-Type and Certain
Production-Type Contracts.The Company recognizes revenues using the
percentage of completion method of accounting by relating contract costs
incurred to date to the total estimated costs at completion. Contract price and
cost estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract
revenues and gross profit in the reporting period when such estimates are
revised. This method of revenue recognition requires the Company to prepare
estimates of costs to complete contracts in progress. In making such estimates,
judgments are required to evaluate contingencies such as potential variances in
schedule, the cost of materials and labor, and productivity; and the impact of
change orders, liability claims, contract disputes, and achievement of
contractual performance standards which may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. The asset, costs and estimated earnings
in excess of billings, represents revenues recognized in excess of amounts
billed. The liability, billings in excess of costs and estimated earnings,
represents billings in excess of revenues recognized.

Warranty policy

In
accordance with SFAS 5, the Company estimates its liabilities for construction
defect, product liability and related warranty claims based on the possible
claim amounts resulting from injury or damage caused by its construction defect
and expected material and labor costs to provide warranty replacement products.
The methodology used in determining the liability is based upon historical
information and experience. Based on historical experience, there possible
clams made for construction defects and the warranty service calls and any
related labor material costs have been minimal. As such, the warranty provision
amounts for the years ended June 30, 2009 and 2008 were immaterial.

Recent Accounting Pronouncements

In May
2008, the FASB issued FSP APB 14-1,Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement).FSP APB 14-1
clarifies that convertible debt instruments that may be settled in cash upon
either mandatory or optional conversion (including partial cash settlement) are
not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase
Warrants.Additionally, FSP APB 14-1 specifies that issuers of such
instruments

40

should separately account for the liability and equity components in a
manner that will reflect the entitys non-convertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14-1 is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company has adopted
FSP APB 14-1 beginning July 1, 2009, and this standard must be applied on a
retroactive basis. The adoption of FSP APB 14-1 did not have a material impact
on our consolidated financial position and results of operations.

In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions
are Participating Securities, or FSP No. EITF 03-6-1. FSP No. EITF 03-6-1
states that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share, or EPS, pursuant to the two-class method. FSP EITF 03-6-1 is
effective for fiscal years beginnings after December 15, 2008. The
adoption of FSP EITF 03-6-1 did not have an impact on our consolidated
financial statements.

In June
2008, the FASB issued Emerging Issues Task Force Issue 07-5 (EITF 07-5),
Determining whether an Instrument (or Embedded Feature) is indexed to an
Entitys Own Stock. EITF No. 07-5 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS
No. 133 Accounting for Derivatives and Hedging Activities, specifies that a
contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Companys own stock and (b) classified in stockholders
equity in the statement of financial position would not be considered a
derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuers own stock and thus able to qualify for the SFAS No. 133
paragraph 11(a) scope exception. This standard triggers liability accounting on
all options and warrants exercisable at strike prices denominated in any
currency other than the functional currency of the operating entity in the PRC
(Renminbi). The adoption of EITF 07-5 did not have a material impact on our
consolidated financial statements.

On October
10, 2008, the FASB issued FSP 157-3, Determining the Fair Value of a Financial Asset When
the Market for That Asset Is Not Active,which clarifies the
application of SFAS 157 when the market for a financial asset is inactive.
Specifically, FSP 157-3 clarifies how (1) managements internal assumptions
should be considered in measuring fair value when observable data are not
present, (2) observable market information from an inactive market should be
taken into account, and (3) the use of broker quotes or pricing services should
be considered in assessing the relevance of observable and unobservable data to
measure fair value. The adoption of FSP 157-3 did not have a material impact on
our consolidated financial statements.

In
April 2009, the FASB issued FSP FAS 157-4, which provides guidance on how to
determine the fair value of assets and liabilities when the volume and level of
activity for the asset or liability has significantly decreased when compared
with normal market activity for the asset or liability as well as guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is
effective for interim and annual periods ending after June 15, 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our results of
operations or financial condition.

In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which amends the
requirements for the recognition and measurement of other-than-temporary
impairments for debt securities by modifying the current intent and ability
indicator. Under FSP FAS 115-2 and FAS 124-2, an other-than-temporary
impairment must be recognized if the Company has the intent to sell the debt
security or the Company is more likely than not will be required to sell the
debt security before its anticipated recovery. In addition, FSP FAS 115-2 and
FAS 124-2 requires impairments related to credit loss, which is the difference
between the present value of the cash flows expected to be collected and the
amortized cost basis for each security, to be recognized in earnings while
impairments related to all other factors to be recognized in other
comprehensive income. FSP FAS 115-2 and FAS 124-2 is effective for interim and
annual periods ending after June 15, 2009. The Company is currently evaluating
the financial impact that FSP FAS 115-2 and FAS 124-2 will have, but expects
that the financial impact, if any, will not be material on its consolidated
financial statements.

41

In
April 2009, the FASB issued FSP 107-1 and 28-1. This FSP amends SFAS 107, to require
disclosures about fair value of financial instruments not measured on the
balance sheet at fair value in interim financial statements as well as in
annual financial statements. Prior to this FSP, fair values for these assets
and liabilities were only disclosed annually. This FSP applies to all financial
instruments within the scope of SFAS 107 and requires all entities to disclose
the method(s) and significant assumptions used to estimate the fair value of
financial instruments. This FSP shall be effective for interim periods ending
after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. An entity may early adopt this FSP only if it also
elects to early adopt FSP 157-4 and 115-2 and 124-2. This FSP does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires comparative
disclosures only for periods ending after initial adoption. The Company is
currently evaluating the disclosure requirements of this new FSP.

In May
2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165).
SFAS 165 establishes general standards for accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are available to be issued (subsequent events). More specifically,
SFAS 165 sets forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that
may occur for potential recognition in the financial statements, identifies the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that should be made about events or transactions that occur after
the balance sheet date. SFAS 165 provides largely the same guidance on
subsequent events which previously existed only in auditing literature. The
statement was adopted by the Company in its fourth quarter and did not have an
impact on its consolidated financial statements.

In
June 2009, the FASB issued SFAS 167, Amendments to FASB Interpretation
No. 46(R), which improves financial reporting by enterprises involved with
variable interest entities. SFAS 167 addresses (1) the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, as a result of the elimination of
the qualifying special-purpose entity concept in SFAS 166 and (2) concerns
about the application of certain key provisions of FIN 46(R), including those
in which the accounting and disclosures under the Interpretation do not always
provide timely and useful information about an enterprises involvement in a
variable interest entity. SFAS 167 shall be effective as of the beginning of
each reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of SFAS 167 is not expected to have a
material impact on our results of operations or financial position.

RESULTS OF OPERATIONS

Comparison of Year Ended June 30, 2009
(fiscal 2009) and Year Ended June 30, 2008 (fiscal 2008)

For the Years Ended
  June 30,2009

% of Total 
  Revenues

2008

% of Total 
  RevenuesNET REVENUESConstruction

$
77,041,208


95.2

$
61,714,065


92.2Hotel


3,515,821


4.3


3,167,483


4.7Real estate


382,463


0.5


2,032,278


3.1Total Revenues


80,939,492


100.0


66,913,826


100.0COST OF SALESConstruction


66,277,041


86.0
*

52,527,085


85.1
*Hotel


1,945,299


55.3
*

1,763,968


55.7
*Real estate


300,510


78.6
*

1,244,007


61.2
*Total Cost of Sales


68,522,850


84.7


55,535,060


83.0GROSS PROFITConstruction


10,764,167


14.0
*

9,186,980


14.9
*Hotel


1,570,522


44.7
*

1,403,515


44.3
*Real estate


81,953


21.4
*

788,271


38.8
*Total Gross Profit


12,416,642


15.3


11,378,766


17.0* Represents percentage of
respective segments total revenues

42

Net Revenues. For the year ended June 30,
2009, our
overall net revenues increased $14,025,666 or 21.0% from $66,913,826 for fiscal
2008 to $80,939,492 for the year ended June 30, 2009. The increase in revenues
was mainly due to increased activity in our construction operations
which are summarized as follows:

Project Name

For the
  Year Ended
  June 30, 2009

%

For the
  Year Ended
  June 30, 2008

%Xiao Kang Xin Cun Residential Apartments
  (Phase I and II) (also known as Ta Bu Ban)

$




*
$
6,938,445


11.2
*Riverbank Garden Community (Buildings 5 to
  8 and Phase II)


10,557,604


13.7
*

25,597,072


41.5
*Tian Fu Garden residential project (Phase I
  and II)


16,698,666


21.7
*

16,131,665


26.1
*Ai Bo Garden residential apartment project


26,828,713


34.8
*

8,309,296


13.5
*Fu Xing Committee Bath Center


18,430,028


23.9
*




Other


4,526,197


5.9
*

4,737,587


7.7
*Total construction revenues

$
77,041,208


100.0

$
61,714,065


100.0*
Represents percentage of construction segment revenues.

At June 30, 2009, the percentage completed for each respective job is
as follows:

% CompleteRiverbank Garden Community (Buildings 5 to
  8 and Phase II)


100.0
%Tian Fu Garden residential project (Phase I
  and II)


100.0
%Ai Bo Garden residential apartment project
  (Phase I and II)


100.0
%Lanyu Garden Number 3 residential building


55.5
%Fu Xing Committee Bath Center


76.3
%Jin Ma Construction was recently awarded the Lanyu Garden Number 3 residential
building project, which covers a construction area of 28,000 square meters. It
began the Lanyu project in October 2008 and expects to complete it in December
2009. Jin Ma Construction was also awarded The Fu Xing Committee Bath Center
project, with estimated revenues amounting to RMB 165.8 million ($24.2 million)
and an estimated gross profit of approximately $4,500,000, contains one
building with a construction area of 46,054 square meters. It began the Fu Xing
project in November 2008 and completed the project in December 2009.

We expect
that revenues from the construction segment will continue to generate the
majority of revenue in fiscal 2010.

Revenues
for our hotel operations increased slightly from $3,167,483 in fiscal 2008 to
$3,515,821 in fiscal 2009, an increase of $348,338 or 11.0%, primarily due to
increased sales at the hotels banquet and catering facility. Excluding the
effect of the favorable foreign currency exchange rate, revenues from our hotel
operations increase approximately 3.7%. As China has also been impacted by the
current global economy downturn, potential visitors to the Jin Ma Hotel might
have less disposable income to spend on leisure activities which in turn will
limit its future growth and reduce its profitability.

Revenues
for our real estate development operation decreased from $2,032,278 for fiscal
2008 to $382,463 for fiscal 2009, a decrease of $1,649,815 or 81.2% due to a
lack of inventory of apartment units available for sale. For the fiscal 2009,
following the effect date of the PRC Property Right Law in October 2007 which
impacted the method by which Jin Ma Real Estate could obtain land use rights to
build additional residential projects coupled with a softening in the
residential real estate market, Jin Ma Real Estate put more of its focus on
completing the two school projects. Accordingly, it has sold all remaining
units available for sale in the first quarter of fiscal 2009 which impacted its
revenues. Accordingly, we do not presently anticipate that Jin Ma Real Estate
will generate any revenues from its historical real estate development
operations in the near future.

43

In November
2007, Jin Ma Real Estate entered into an agreement to construct new dormitories
for the Inner Mongolia Electrical Vocational Technical School. Pursuant to the
terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon
completion, pursuant to a sale-type capital lease, leased the buildings to the
Inner Mongolia Electrical Vocational Technical School and it will receive
payments for a period of 26 years at an amount of 4,800,000 RMB or
approximately $701,000 per annum. Since Jin Ma Real Estate does not have any
construction licenses, Jin Ma Construction performed all of the construction
services on behalf of Jin Ma Real Estate. This project was completed in November
2008 and received the first annual payment in December 2008. Additionally, Jin
Ma Real Estate and Jin Ma Construction are responsible for the cost of
construction of student apartments for the Inner Mongolia Chemistry College
situated in Inner Mongolia University City, a compound where many higher
education institutions are located. Jin Ma Construction is performing all of
the construction services on behalf of Jin Ma Real Estate for this project as
well. Once completed, Jin Ma Real Estate will lease the buildings to the
college for a period of 20 years pursuant to a sale-type capital lease. The
cost of construction is estimated to be RMB 50 million (approximately $7.3
million). Upon completion, Jin Ma Real Estate will receive an annual payment of
approximately RMB 10 million (approximately $1.5 million) for 5 years (from
October 15, 2009 to October 15, 2013) and receive an annual payment of
approximately RMB 7.5 million (approximately $1.1 million) for 15 years (from
October 15, 2014 to October 15, 2028). Jin Ma Construction began developing the
51,037 square-meter project in July 2008 and expects to complete the project in
October 2009. Through June 30, 2009, the Jin Ma Companies have invested
approximately $7 million in this project. Currently, the Jin Ma Companies have
no plans to continue this business model for its real estate segment due to its
capital intensive requirements and in future periods it will recognize
revenues, cost of sales and the related gross profit as payments are received
based on the installment method.

In
2008, in accordance with the overall arrangements of the Party Central
Committee and the State Council of China to tightening monetary policy, the
Peoples Bank of China (PBC) raised the reserve requirements for RMB deposits
of depository institutions and increased loan interest rates several times. The
higher reserve requirements and loan interest rates make it more difficult for
builders to obtain construction loans in China. This economic event will likely
impact both the Company and its customers. Although Jin Ma Constructions
operations were not impacted in 2008, as a result of the tightened monetary
policy in China, construction progress might be delayed on current projects and
new projects might be deferred as its customers might have problems receiving
funding. Accordingly, Jin Ma Constructions future revenues may decline,
although it is not able to quantify any anticipated amount of decline. In
addition, as a portion of its operating expenses are fixed, if Jin Ma
Constructions revenues do decrease, it does not expect to have significant
decrease in its operating costs which will adversely impact the profit of in
Jin Ma Construction in future periods. In September 2008, in an effort to solve
prominent problems in China economy, the PBC decided to cut the benchmark
lending rate by 0.27 percentage points and lowered the RMB reserve requirement
ratio by one percentage point for most depository financial institutions. The
rate cut in September 2008 was not significant enough to materially impact Jin
Ma Constructions operations as the rate cut has not increased the number of the local banks and credit
unions giving loans. We cannot predict if the PBC will continue to lower the
rates and reserve requirements which in turn will improve the overall
performance for the construction industry as it will be easier for construction
companies to obtain capital funding. If Jin Ma Construction cannot obtain
necessary bank loans, it will need to delay some of its future projects. Jin Ma
Constructions customers mainly consist of governmental agencies and third
party developers. It does not believe that governmental agencies have been
impacted by the tightening credit markets and will continue investing in
development projects. Jin Ma Construction is currently bidding on several
projects with governmental agencies and third-party developers. Although it is
confident that it will secure several new construction projects in the near
future, it cannot predict with certainty the outcome of securing these jobs.

44

Cost of Sales. Overall,
cost of sales increased from approximately 83% of net revenues for the year
ended June 30, 2008, to approximately 84.7% of net revenues for the year ended
June 30, 2009. Cost of sales as a percentage of net revenues from our
construction operation for fiscal 2009 increased to approximately 86.0% from
approximately 85.1% for fiscal 2008. The slight increase in cost of sales in
the construction segment was partly attributed to increases in costs for
building supplies and labor costs incurred on projects. Cost of sales as a
percentage of net revenues for our hotel operation in fiscal 2009 decreased to
approximately 55.3% from approximately 55.7% for fiscal 2008. The slightly
decrease in cost of sales from our hotel operation in the fiscal 2009 period
was primarily attributed to a slight decrease in food and beverage costs.
Cost of sales for our real estate development operation as a percentage of net
revenues in fiscal 2009 increased to approximately 78.6% from approximately
61.2% in fiscal 2008 due to a decrease in the sale price per unit to reflect
the sell-off of all remaining units available for sale as well as the slight
gross margin of approximately 1% the Jin Ma Companies recognized on the
Vocational School project.

Gross Profit. Gross profit increased
approximately 9.1%
from $11,378,766 (approximately 17.0% of overall net revenues) for fiscal 2008
to $12,416,642 (approximately 15.3% of overall net revenues) for fiscal 2009.

Operating
Expenses. For fiscal 2009, overall operating expenses
decreased approximately 45.7% from fiscal 2008. This decrease was mainly due to
the recording of a one-time gain from bad debt recovery related to the
collection of previously written off accounts receivable, a decrease in
depreciation and amortization expense, a decrease in salaries and employee
benefits, a decrease in hotel operating expenses and a slight decrease in
selling, general and administrative expense offset by the increase in loss on
disposal of property and equipment as discussed below.

Hotel
Operating Expenses. Hotel operating expense, represent
costs and expenses associated with operating Jin Ma Hotels restaurant and
banquet facilities and hotel operating expenses except for food and beverage
costs which have been included in cost of revenues. Hotel operating expenses
decreased approximately 55.0% for fiscal 2009 from fiscal 2008. Hotel operating
expenses were approximately 1.7% of hotel revenues the fiscal 2009 as compared
to approximately 4.2% for fiscal 2008. The decrease in the fiscal 2009 period
is primarily attributable to a reduction in operating costs from period to
period.

Bad Debt
Expense. For fiscal 2009, bad debt recovery amounted to
$993,338 as compared to bad debt expense of $294,837 for fiscal 2008, a
decrease of approximately 436.9%. We have a policy of reserving for
uncollectible accounts based on our best estimate of the amount of probable
credit losses in our existing accounts and other receivables. We periodically
review our accounts receivable and other receivables to determine whether an
allowance is necessary based on an analysis of past due accounts and other
factors that may indicate that the realization of an account may be in doubt.
Account balances deemed to be uncollectible are charged to the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. The Jin Ma Companies periodically review its credit policies
and are aggressively pursuing overdue accounts. Accordingly, the Jin Ma
Companies bad debt allowance decreased during fiscal 2009 compared to fiscal
2008 since we collected balances previously written off. We cannot guarantee
that the Jin Ma Companies bad debt expenses will continue to decrease as China
government tightened its monetary policy, some of its customers might begin
experiences difficulties in obtaining the necessary capital funding to repay
their outstanding receivables.

Salaries and Employee Benefits. For fiscal
2009,
salaries and employee benefits amounted to $935,383 as compared to $1,032,490
for fiscal 2008, a decrease of approximately 9.4%. The decrease in the fiscal
2009 period is primarily attributed to our restriction in employee benefits due
to current softening economy.

Depreciation
and Amortization. For fiscal 2009, depreciation
and amortization amounted to $847,941 as compared to $1,018,072 for fiscal
2008, a decrease of approximately 16.7%. This decrease was primarily due to the
completion of depreciation on certain property and equipment and the disposal
of some property and equipment.

Loss
on disposal of property and equipment. For fiscal
2009, loss on disposal of property and equipment amounted to $302,776. We did not
have any disposal activity in fiscal 2008.

45

Selling,
General and Administrative Expenses. Selling,
general and administrative expenses consist of commission paid to our sales
representative, office expenses and supplies, utilities, insurance, telephone
and communications, maintenance and automobile expense incurred by the Jin Ma
Companies as well as expenses incurred by us which primarily consist of
professional and other fees. General and administrative expenses decreased
approximately 9.2% for fiscal 2009 compared to fiscal 2008. The decrease was
primarily attributed to a decrease in professional fees and a decrease in other
selling, general and administrative expenses.

Total Other Expenses. Total other expenses
increased
approximately 18.1% for fiscal 2009 from fiscal 2008. The increase is primarily
attributable to a decrease in other income of $10,235, a nominal increase in
foreign currency loss of $20 and an increase in interest expense of $1,045,883
primarily attributable to an increase of interest incurred on additional
borrowings of approximately $411,960 and the increase of interest incurred on
our amended and restated 14% convertible secured convertible debentures of
approximately $117,168, the accrual of a 10% penalty of $218,300 related to
the default provision for non-payment of the convertible debt on the due date,
an increase in amortization of non-cash debt discount of approximately $272,875
and amortization of debt issuance costs of approximately $25,580 related to our
10% convertible secured convertible debentures. The increase in other expenses
were offset by the recording of a registration right penalty recovery of
$117,882 in fiscal 2009 as compared to a registration right penalty expense of
$117,882 in fiscal 2008 due to the reversal of the registration penalty
previously recorded, and an increase in interest income of approximately
$544,823 mainly attributable to the recording of imputed interest income on a
note receivable from the sale of the Vocational School project.

Provision for Income Taxes. Total provision
for income
taxes increased approximately 21.7% for fiscal 2009 (31.4% of income before
income taxes) from fiscal June 30, 2008 (33.8% of income before income taxes).
The increase is attributable to an increase in income before income taxes. The
decrease in income taxes as a percentage of income before income taxes was
attributable to the decrease in the statutory PRC income rate from 33% to 25%
on January 1, 2008.

Net Income. Net income increased
approximately 36.0%
from fiscal 2008 to fiscal 2009. The increase for fiscal 2009 as compared to
fiscal 2008 was due primarily to an increase in revenue and related gross
profits and the decrease in operating expenses offset by an increase in interest
expense and income taxes. This translates to basic per common share of $0.12
and $0.09, and diluted net income per common share of $0.08 and $0.08, for
fiscal 2009 and fiscal 2008, respectively.

Comprehensive Income. For fiscal 2009 we
reported
unrealized gain on foreign currency translation of $93,705 as compared to
$1,824,171 for fiscal 2008 which reflects the effect of the declining value of
the U.S. dollar. These gains are non-cash items. As described elsewhere herein,
our functional currency is the Chinese Renminbi; however the accompanying
consolidated financial statements have been translated and presented in U.S.
dollars using year-end rates of exchange for assets and liabilities, and
average rates of exchange for the year for revenues, costs, and expenses. Net
gains and losses resulting from foreign exchange transactions, if any, are
included in the consolidated statements of operations and do not have a
significant effect on our financial statements. As a result of this non-cash
foreign currency translation gain, we reported comprehensive income of
$6,259,010 for fiscal 2009 as compared to $6,356,305 for fiscal 2008.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate adequate amounts of cash to
meet its needs for cash.

At
June 30, 2009, we had a cash balance of $112,134, substantially all of which is
located in financial institutions in China under the control of the Jin Ma
Companies.

46

Our
working capital position decreased $6,780,998 to a working capital of
$2,130,684 at June 30, 2009 from $8,911,682 at June 30, 2008. This decrease in
working capital in the fiscal 2009 period is attributable to:


a decrease
  in cash and cash equivalents of $1,525,852
a decrease
  in inventories of $29,009
a decrease
  in due from related parties of $1,666,753
a decrease
  in deferred debt costs of $115,110
a decrease
  in real estate held for sale of $125,070
a decrease
  in cost and estimated earnings in excess of billings of $204,998
a decrease
  in deposit on prepaid land use rights of $2,524,877
a decrease
  in current portion of prepaid land use rights of $3,561
a decrease
  in refundable performance deposit of $145,522
an increase
  in current portion of loans payable of $4,274,768
an increase
  in accounts payable of $6,687,709
an increase
  in accrued expenses of $783,608
an increase
  in advances from customers of $53,835
an increase
  in billings in excess of costs and estimated earnings of $14,129Offset by:
an increase
  in accounts receivable of $4,415,388
an increase
  in current portion of note receivable on sales type lease of $157,923
an increase
  in advances to suppliers of $104,816
an increase
  in other receivable, net, of $1,162,227
an increase
  in prepaid land use rights for resale of $4,041,090
a decrease
  in convertible debt of $955,062
a decrease
  in taxes payable of $537,297Our balance sheet at June 30, 2009, reflects notes payable to third parties of
$4,800,140 due through September 2012 which were working capital loans made to
us by these third parties. These loans bear annual interest rates ranging from
9.45% to 18% and are due between August 2009 and September 2012. Of this
amount, approximately $2,900,000 is secured by the assets of the Jin Ma Hotel
and the remaining balances are unsecured.

Our
balance sheet at June 30, 2009 reflects a due from related parties of $33,283
which represents advances to a related party for working capital. These
advances could also be deemed to be in violation of Section 402 of the Sarbanes
Oxley Act of 2002 which prohibits a public company from extending or
maintaining credit or arranging for the extension of credit in the form of a
personal loan to an officer or director. If it is determined that these
working capital advances violated Section 402 of the Sarbanes Oxley Act of
2002, we could become subject to SEC investigations and/or litigation, which
may not be resolved favorably and will require significant management time and
attention, and we could incur costs, which could negatively affect our
business, results of operations and cash flows. We expect to receive repayment
of this remaining balance during the fiscal 2010.

47

As
disclosed elsewhere herein, during the year ended June 30, 2009, four
construction customers accounted for approximately 89.5% of Jin Ma
Constructions revenue. The nature of Jin Ma Constructions business is that at
any given time it will have a concentration of significant customer depending
upon the number and scope of construction projects. These significant customers
may not be the same from period to period depending upon the percentage of
completion of the specific projects. Any disruption in the relationships
between Jin Ma Construction and one or more of these customers, or any
significant variance in the magnitude or the timing of construction projects
from any one of these customers, may result in decreases in our results of
operations, liquidity and cash flows. In addition, if Jin Ma Construction does
not successfully manage its business so that it has new projects ready to start
as current projects are completed its revenues will decline which will
materially adversely impact our liquidity and operations in future periods

Operating Activities

Net
cash flow used in operating activities was $6,209,234 for the year ended June
30, 2009 as compared to net cash provided by operating activities of $2,916,092
for the year ended June 30, 2008, a decrease of $9,125,326. For the fiscal year
2009, net cash flow used in operating activities was primarily due to an
increase in accounts receivable of $8,226,314, an increase in construction in
progress of $13,276,624, a decrease in taxes payable of $545,766 and non-cash
item of bad debt recovery of $993,338 offset by net income of $6,165,305, the
add back of non-cash items such as depreciation expense of $847,941, interest
expense from amortization of debt discount of $1,227,938, amortization of debt
issuance costs of $115,110 and loss on disposal of property and equipment of
$302,776 and a decrease in inventories of $29,079, a decrease in other
receivable of $248,064, a decrease in advance to suppliers of $119,732, a
decrease in costs and estimated earnings in excess of billings of $205,770, a
decrease in real estate held for sale of $125,501, a decrease in refundable
performance deposit of $146,024, an increase in accounts payable and accrued
expenses of $7,232,489 and an increase in advances from customers of $53,050
and an increase in billings in excess of costs and estimated earning of
$14,029.

Net
cash flow provided by operating activities was $2,916,092 for the fiscal 2008.
This was primarily due to our net income of $4,532,134, the add-back of
non-cash items such as depreciation of $1,018,072, bad debt expense of
$294,837, stock-based compensation of $156,680, interest expense from
amortization of debt discount of $955,062, amortization of debt issuance costs
of $89,530, loss on disposal and sale of property and equipment of $39,536, a
decrease in other receivables of $302,306, a decrease in advance to suppliers
of $116,941, a decrease in real estate held for sale of $1,084,727, and an
increase in taxes payable of $1,531,459, offset by an increase in accounts
receivable of $2,036,507, an increase in inventories of $32,166, an increase in
costs and estimated earnings in excess of billings of $192,874, an increase in
cash used to fund construction in process of $4,276,586, a decrease in accounts
payable and accrued expenses of $124,344, a decrease in advances from customers
of $456,208, and a decrease in billings in excess of costs and estimated
earnings of $107,679.

Investing Activities

Net
cash flow provided by investing activities was $4,407,853 for the year ended
June 30, 2009 as compared to cash used in investing activities of $8,602,948
for the year ended June 30, 2008. For the year ended June 30, 2009, cash
provided by investing activities consisted of cash provided by repayment of
amounts due from related party of $1,672,630 and cash received from the return
of deposit on prepaid land use rights of $2,752,619 offset by $17,396 cash used
for purchase of property and equipment. For the year ended June 30, 2008, cash
used in investing activities consisted of cash used for the purchase of
property and equipment of $6,000,595, increase in due from related party of
$506,512, and the payments of a deposit on land use rights of $2,112,300,
offset by proceeds from the sale of property and equipment of $16,459.

Financing Activities

Net
cash flow provided by financing activities was $270,024 for the year ended June
30, 2009 which was primarily attributable to proceeds from the sale of our
common stock of $124,000 and proceeds from loans of $146,024. For the year
ended June 30, 2008, net cash flow provided by financing activities was
$6,944,204 which was primarily attributable to proceeds received from the sale
of our common stock of $2,219,252, net proceeds from convertible debt of
$2,183,000, capital contributions received of $140,507 and proceeds from loans
payable of $2,606,085 offset by a payment of placement fees of $204,640.

48

Other
than our existing cash we presently have no other alternative source of working
capital. We have no operations other than the Contractual Arrangements with the
Jin Ma Companies and, accordingly, we are dependent upon the quarterly service
fees due us to or for the receipt of working capital from the Jin Ma Companies
to provide cash to pay our operating expenses. To date, no quarterly service
fees have been tendered to us and those funds are being retained by the Jin Ma
Companies to fund their operations. At June 30, 2009 we were owed approximately
$14,400,000 in service fees, which such amount remains outstanding as of the
date of this report. In addition, we transferred $1,800,000 of the net proceeds
from the November 2007 sale of the 10% secured convertible debentures to the
Jin Ma Companies in the form of an unsecured, interest free advance for use by
the Jin Ma Companies in their operations and to fund their registered capital
requirements under PRC wholly-owned foreign enterprise rules. Jin Ma Companies
repaid us approximately $921,000 of the amounts advanced to that company in
July 2009 and September 2009. The rest of that amount remains outstanding and
we do not have an understanding with the Jin Ma Companies regarding the
repayment of the remainder.

Convertible debt

On
November 30, 2007, we entered into a Securities Purchase Agreement pursuant to
which the Company agreed to sell an aggregate of $3,275,000 principal amount
10% Secured Convertible Debentures to seven accredited investors and to issue
those investors common stock purchase warrants to purchase an aggregate of
9,520,349 shares of the Companys common stock in a private transaction exempt
from registration under the Securities Act of 1933 in reliance on the
exemptions provided by Section 4(2) and Rule 506 of Regulation D of that act.
Under the terms of the Securities Purchase Agreement, we issued $2,183,000
principal amount 10% Secured Convertible Debentures to the purchasers together
with the common stock purchase warrants to purchase an aggregate of 9,520,349
shares of our common stock.

The
debentures, aggregating $2,183,000, which prior to March 31, 2009 accrued
interest at 10% per annum, were due on March 31, 2009. We failed to repay the
debentures on the due date. During May 2009, we entered into negotiations with
the debenture holders to restructure the payment terms and reached an
understanding, subject to the execution of definitive documents, to extend the
due date of the debentures and cure the default. On May 18, 2009, we and the debenture
holders signed a Debenture and Warrant Amendment Agreement (the Amendment
Agreement) and an Amended and Restated 14% Secured Convertible Debenture (the
Exchanged Debentures). The Jin Ma Companies, however, had been unable to
consummate this restructure due to delays caused by Chinas State
Administration of Foreign Exchange (SAFE), the agency that the Jin Ma
Companies must get approval from to wire the funds to the debenture holders. On
June 30, 2009, we and the debenture holders executed an Amendment to the
Amendment Agreement effectively consummating the Amendment Agreement and
issuing the Exchanged Debentures thereby ceasing any written or non-written
declarations of an event of default under its Securities Purchase Agreement and
the related 10% secured convertible debentures and any process to foreclose
upon the pledged shares in accordance with the terms of the pledge agreement
executed in connection Securities Purchase Agreement.

The
rights and obligations of the debenture holders and us with respect to the
Amended Agreement and Amended Exchanged Debentures and any securities
underlying such securities are identical in all respects to the rights and
obligations of the debenture holders and of us with respect to the debentures and
the underlying shares issued and issuable pursuant to the original Securities
Purchase Agreements executed on November 30, 2007, except for the following
amended terms:


The
  Exchanged Debenture was revised and the debenture principal repayment schedule
  is as follows:Repayment
Date

Principal Amount DueJuly 24, 2009 (1)

$
327,450September 30, 2009 (2)


436,600December 31, 2009


1,091,500March 31, 2010


327,450Total

$
2,183,000(1)
Amount was
  paid on July 23, 2009 along with required interest payment of $55,030.(2)
The
  principal amount was paid on September 30, 2009 along with required cash
  portion interest payment of $101,350.49


Pursuant to
  the repayment schedule, unless the Exchanged Debenture is paid in full on or
  before December 31, 2009, the March 31, 2010 Monthly Redemption Amount will
  include a premium equal to 10% of the principal amount of the Exchanged
  Debenture outstanding immediately prior to the consummation of the Amendment
  Agreement amounting to $218,300. At June 30, 2009, we have accrued this
  penalty which has been included in accrued expenses on the accompanying
  balance sheet and for the year ended June 30, 2009, has been reflected in
  interest expense on the accompanying statement of income.
The
  conversion price in effect on any outstanding principal balance was lowered
  from a conversion rate of $0.344 per share to $0.10 per share.
The exercise
  price per share of common stock for the original 10,028,023 warrants issued
  pursuant to the Securities Purchase Agreement dated November 30, 2007 and to
  the placement agent was lowered from $0.50 to $0.10.
Subject to
  certain terms and conditions therein, as a result of the changes made to Rule
  144 promulgated under the Securities Act of 1933, as amended which were
  effective February 15, 2008, our obligations, pursuant to the Registration
  Rights Agreement, by and among the Company and each of the debenture
  holders, to maintain a registration statement register the shares of common
  stock issuable upon conversion and/or cashless exercise of the Exchanged
  Debentures and the warrants (collectively, the 144 Eligible Securities),
  were waived, so long as (a) the Company is in compliance with the current
  public information requirement under Rule 144 and (b) the debenture holder
  may sell the 144 Eligible Securities without any restriction or limitation
  under Rule 144 or other applicable exemption as of that date.
the warrants
  may also be exercised at such time by means of a cashless exercise in which
  the holder shall be entitled to receive a certificate for the number of
  warrant shares equal to the quotient obtained by dividing [(A-B) (X)] by (A),
  where:(A) = the VWAP on the Trading Day
  immediately preceding the date of such election;(B) = the Exercise Price of the warrant, as
  adjusted; and(X) = the number of Warrant Shares issuable
  upon exercise of the warrant in accordance with the terms of the warrant by
  means of a cash exercise rather than a cashless exercise.
We will pay
  interest to the debenture holders on the aggregate unconverted and then
  outstanding principal amount of the Exchanged Debenture at the rate of 14%
  per annum, payable on each amount then being converted), and on the Maturity
  Date (each such date, in cash or, as to 28.6% of the applicable interest
  amount on such Interest Payment Date only (i.e., 4% per annum), at our
  option, in shares of common stock at the Interest Conversion Rate provided,
  however, that payment in shares of common stock may only occur if (i) all of
  the Equity Conditions, as defined, have been met (unless waived by the holder
  in writing) during the 20 Trading Days immediately prior to the applicable
  Interest Payment Date (the Interest Notice Period) and through and
  including the date such shares of common stock are actually issued to the
  holder, (ii) we shall have given the holder notice in accordance with the
  notice requirements and (iii) as to such Interest Payment Date, prior to such
  Interest Notice Period (but not more than 5 Trading Days prior to the
  commencement of such Interest Notice Period), we shall have delivered to the
  debenture holders account with The Depository Trust Company a number of
  shares of common stock to be applied against such Interest Share Amount equal
  to the quotient of (x) the applicable Interest Share Amount divided by (y)
  the then Conversion Price.
The
  debenture holders waived any liquidated damages that were due pursuant to
  Securities Purchase Agreements dated November 30, 2007.The
rights and obligations of the debenture holders and of the Company with respect
to the debentures and the underlying shares issued and issuable pursuant to the
original Securities Purchase Agreements executed on November 30, 2007 are as
follows:

50


The
  conversion price of the debentures and the exercise price of the warrants are
  subject to the proportional adjustment in the event of a stock splits, stock
  dividends, recapitalizations or similar corporate events. Both the conversion
  price of the debentures and the number of shares issuable upon conversion of
  the debentures as well as the exercise price of the warrants and the number
  of shares issuable upon the exercise of the warrants is subject to adjustment
  if the Company should issue shares of common stock or other securities
  convertible or exercisable into shares of common stock or otherwise reprice
  any existing conversion or exercise prices to a price less than the then
  current conversion and/or exercise prices.
The
  debentures are not convertible and the warrants are not exercisable to the
  extent that (i) the number of shares of our common stock beneficially owned
  by the holder and (ii) the number of shares of our common stock issuable upon
  the conversion of the debentures and/or the exercise of the warrants would
  result in the beneficial ownership by holder of more than 4.99% of our then
  outstanding common stock. This ownership limitation can be increased to 9.99%
  by the holder upon 61 days notice to the Company.
We agreed
  that so long as the debentures remain outstanding, unless we receive the
  prior written consent of the holders of at least 85% of the outstanding
  principal amount of the debentures, we agreed that we will not:
incur
  additional indebtedness, subject to certain exceptions,
incur any
  liens on any of our property or assets,
repurchase
  any of its common stock, subject to certain exceptions,
amend its
  charter documents in a manner that would be adverse to the debenture holders,
So long as
  the debentures are outstanding, should we issue any common stock or common
  stock equivalent, we granted the purchasers a right of first refusal whereby
  each purchaser in this offering has the right to participate in such subsequent
  financing up to an amount equal to 100% of such subsequent financing upon the
  same terms and conditions of that financing. If we undertake such a financing
  while the debentures remain outstanding, other than an underwritten offering,
  the holders are entitled to exchange the debentures on a dollar for dollar
  basis for any securities which we may issue in the subsequent financing. We
  also agreed that so long as the purchasers own any of the securities sold or
  to be issued in the transaction, we will not enter into any agreement which
  would involve a variable rate transaction, which includes floating conversion
  prices, conversion prices with reset mechanisms or equity lines of credit
  among others.
Pursuant to
  the Securities Purchase Agreement, we should default on the debentures, the
  holders have the right to immediately accelerate the maturity date of the
  principal amount of the debentures as well as any accrued but unpaid interest
  and if such amount is not satisfied within five days the interest rate on the
  debentures increases to 18%. Events of default include customary clauses such
  as failure to make payments when required, failure to observe any covenant
  contained in the debentures, a default under any other document executed in
  connection with the transaction, bankruptcy or default under any other
  obligation greater than $150,000. In addition, an event of default would
  occur if our common stock should no longer be quoted on the OTC Bulletin
  Board, if the Company were a party to a change of control transaction
  involving in excess of 33% of its assets or if the registration statement
  described below is not declared effective within 180 days after the first
  closing date, among other provisions.
In
  conjunction with the transaction, Mr. Liankuan Yang and Yang Yang and
  Ms. Runlan Ma, officers and directors of the Company, pledged an
  aggregate of 19,000,000 shares of the Companys common stock owned by them as
  additional security for the Companys obligations under the transaction. Mr. Liankuan
  Yang, Ms. Yang Yang and Ms. Runlan Ma have also entered into lock-up
  agreements whereby they are agreed not to offer or sell any shares of the
  Companys common stock owned by them until the 180th trading day after the
  effective date of the registration statement described elsewhere herein.
The
  9,520,349 common stock purchase warrants issued pursuant to the Securities
  Purchase Agreement are exercisable for five years from the date of issuance
  at an initial exercise price of $0.50 per share, subject to adjustment. The
  warrants are exercisable on a cashless basis at any time when there is not an
  effective registration statement covering the underlying shares. The Company
  is permitted to call the warrants on 30 trading days prior notice at $0.001
  per warrant at any time after the effective date of the registration
  statement covering the shares underlying the warrants when, (i) the VWAP (as
  defined in the warrant) for each of 20 consecutive trading days beginning
  with the effective date of the registration statement exceeds $1.50, (ii) the
  average daily volume for during this period exceeds 500,000 shares of common
  stock per trading day and (iii) the holder is not in possession of any
  information that constitutes, or might constitute, material non-public information
  which was provided by us to the holder.51

On
June 30, 2009, pursuant to a Debenture and Warrant Amendment Agreement as
described above, the debenture holders waived the liquidated damages that were
due pursuant to Securities Purchase Agreement dated November 30, 2007, and
accordingly, during the year ended June 30, 2009, we recorded a gain from the
forgiveness of the registration rights penalty of $117,882.

As
discussed above, we have made our installment payments on July 23, 2009 and
September 30, 2009 on a timely basis. Our next principal installment of
$1,091,500 is due on December 31, 2009. We plan on funding this installment
payment using funds to be repaid to us by the Jin Ma Companies as discussed
elsewhere herein. However, any failure by the Jin Ma Companies to repay the amounts
to us on a timely basis will have an adverse effect on our ability to repay our
debt obligation and fund our working capital requirements.

The
Jin Ma Companies plan on funding this installment payment through working
capital. Specifically, on August 15, 2009, an agreement was entered into by Jin
Ma Construction for the sale of certain land use rights whereby Jin Ma
Construction sold the land use rights for approximately $2,191,000 (RMB
15,000,000). Approximately $1,794,000 (RMB 12,280,000) of the sale amount has
been received by Jin Ma Construction prior to October 13, 2009 and Jin Ma
Construction expects to receive the remaining balance in the near future.
Additionally, Jin Ma Construction is expecting to sell additional land use
rights with a cost of approximately $2,415,000 for a profit in the near future.
Also, on September 17, 2009, Jin Ma Construction collected approximately
$584,000 from Nanyingzi Village Committee related to the refund of deposits on
land use rights. The Jin Ma Companies are actively pursuing collection on its
accounts receivable balances and expect to receive the second annual
installment of its note receivable of approximately $700,000 in December 2009.
We estimate that the Jin Ma Companies will have sufficient cash flow from
operation to satisfy its working capital needs and to funds us in order for us
to satisfy the debt repayment schedule for the next 12 months. However, any
delay in the sale of our land use rights held for sale or the collection of our
receivables would have an adverse effect on our ability to repay our debt
obligation and fund our working capital requirements.

During
the period from July 1, 2009 to October 12, 2009, we issued 2,350,000 shares of
our common stock in connection with the conversion of $235,000 of convertible
debt. We expect that investors will continue to convert the convertible debt
into common stock which will dilute shareholders.

We
continue to be reliant on the Jin Ma Companies to pay the service fees due us
and/or to repay all or a portion of the funds advanced to the Jin Ma Companies.
Even if the Jin Ma Companies pay all the past due amounts to us, it is possible
that the Jin Ma Companies will continue to fail to timely pay our management
fees. Although we have received funds from the Jin Ma Companies to fund our
operation during fiscal 2009, if the quarterly service fees due us under the
Contractual Arrangement are not paid to us on a timely basis, it is possible
that we will not have sufficient funds to pay our operating expenses in future
periods, our ability to continue as a going concern is in jeopardy and
investors could lose their entire investment in our company.

The
Jin Ma Companies have historically funded their capital expenditures and ongoing
development projects from their working capital. The Jin Ma Companies intend to
meet their liquidity requirements, including capital expenditures related to
the purchase of land for the development of our future projects, through cash
flow provided by operations and additional funds raised by future financings.
Upon acquiring land for future development, the Jin Ma Companies may need to
raise funds to develop their projects by obtaining mortgage financing from
local banking institutions with which it has done business in the past. As the
PRC raised the reserve requirements for RMB deposits of depository institutions
and increased loan interest rates several times in 2008, which will result in
stricter bank loan qualification and longer approval time, Jin Ma Companies
expect some of its customers might have problems obtaining necessary capital to
make payments and/or start new projects with Jin Ma Companies in 2009. As a
result, Jin Ma Companies ability to generate sufficient cash flow to meet
their obligations and fund operations could be negatively impacted.
Additionally, Jin Ma Companies might also face increased scrutiny when securing
loans for working capital purposes. The Jin Ma Companies believe that adequate
cash flow will be available to fund its historic operations.

52

Loans Payable

The
Jin Ma Companies have loan payable agreements with several individual and
credit unions which are substantially due in fiscal 2010. Management is
confident that, if needed, the due date of these obligations can be extended to
a future date.

Wind farm project

On
May 8, 2008Jin Ma Construction
signed an agreement to form a joint venture with two development stage
companies, Erlianhaote Hengyuan Wind Power Company, Ltd. and Inner Mongolia Inner
Mongolia Tianwei Wind Power Equipment Company, Ltd.. Under the agreement, Jin
Ma Construction is proposing to invest approximately $100 million (RMB 700
million) which will be used to construct a wind power plant and as capital to
fund the construction of a manufacturing facility to build wind power generator
modules to be used at the wind power plant. It is anticipated that Jin Ma
Construction will own 60% of these new entities. Additional capital investments
are intended to be made by all parties based upon a 60%/40% relationships. As
of the date of this report, the Jin Ma Companies have not made any capital
investments into the wind power project. According to the signed wind power
project agreement, the Jin Ma Companies will only be obligated to make capital
investments after the government has approved the two wind power companies to
change their business licenses, patent certificate, registered trademark
certificate with property rights, and other related documents to include the
Jin Ma Companies as a 60% owner of the two wind power companies. The two wind
power companies have not met the criteria to transfer the related certificates
and documents mentioned above to include the Jin Ma Companies as required. As a
result, the Jin Ma Companies are not presently obligated to make any of the
investment.

In
addition to the satisfaction of these contractual commitments, Jin Ma
Constructions ability to proceed with the proposed joint venture is subject to
its raising the capital necessary to fund the project. As described elsewhere
herein, the ability of the Jin Ma Companies to raise capital is somewhat
limited and the debentures contain certain contractual restrictions on our
ability to raise additional debt financing. As a result, the Jin Ma Companies
have not been successful in its efforts to raise the necessary capital to
proceed with this project once the contractual commitments have been satisfied.
There are no assurances the Jin Ma Companies will be able to raise the
necessary capital and, if necessary capital cannot be raised in the future, it
is likely that it will terminate this project.

No
assurances can be given that we will be successful in obtaining additional
capital, or that such capital will be available in terms acceptable to our
company. Even if we are successful in raising additional capital, it is likely
that the terms of such capital will be dilutive to our existing shareholders.
If we are not able to assist the Jin Ma Companies in their capital needs, it is
unlikely that our revenues will grow beyond current levels.

Contractual Obligations and Off-Balance Sheet
Arrangements

Contractual Obligations

In
the past, Jin Ma Real Estate guaranteed a customers mortgage until the home
and the title of ownership are delivered to the customer. If a property buyer
defaults under the loan, Jin Ma Real Estate is required, during the guarantee
period, to repay all debt owed by the defaulting property buyer to the mortgage
bank. Jin Ma Real Estates liability for guarantors obligation is valued based
on the actual outstanding mortgage amount at each reporting period. For the
years ended June 30, 2009 and 2008, the liability for guarantors obligation
was not material and Jin Ma Real Estate has not suffered any losses.

We
have certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash flows.

53

The
following tables summarize our contractual obligations as of June 30, 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.

Payments Due by PeriodTotal

Less than 1 year

1-3 Years

4-5 Years

5 Years +Contractual Obligations:Other Indebtedness *

$
4,800,140

$
4,420,290

$
379,850





Convertible debt


2,183,000


2,183,000








Accrued default penalties on convertible
  debt


218,300


218,300Interest payments on convertible debt


131,436


131,436








Total Contractual Obligations:

$
7,332,876

$
6,953,026

$
379,850






Other
  indebtedness includes long-time loans borrowed from individuals and credit
  unions.We
currently have no material commitments for capital expenditures. Other than
working capital and loans, we presently have no other alternative source of
working capital. We need working capital to fund our construction and real
estate projects. We may not have sufficient working capital to fund new
construction projects line as well as providing working capital necessary for
our ongoing operations and obligations. We may need to raise additional working
capital to complete these projects. We may seek to raise additional capital through
the sale of equity securities. No assurances can be given that we will be
successful in obtaining additional capital, or that such capital will be
available in terms acceptable to our company.

Off-balance Sheet Arrangements

We
have not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered
into any derivative contracts that are indexed to our shares and classified as
stockholders equity or that are not reflected in our condensed consolidated
financial statements. Furthermore, we do not have any retained or contingent
interest in assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity. We do not have any
variable interest in any unconsolidated entity that provides financing,
liquidity, market risk or credit support to us or engages in leasing or hedging
services with us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKNot
applicable to smaller reporting companies

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATASee
our Financial Statements beginning on page F-1 of this annual report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSUREOur auditors, Yu and Associates CPA
Corporation, changed its name to AGCA, Inc. during the year on being accepted as member of the Alloitt Group and signed it report
under the new name.

54

ITEM 9A. CONTROLS AND PROCEDURESDisclosure Controls
and Procedures

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of June
30, 2009, the end of the year covered by this report, our management concluded
its evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures.

Disclosure
controls and procedures refer to controls and other procedures designed to
ensure that information required to be disclosed in the reports we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and
forms of the SEC and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating and implementing possible controls and procedures.

Our
management does not expect that our disclosure controls and procedures will
prevent all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control systems objectives will be met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions.

Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our chief executive officer and our chief financial officer.
Based on that evaluation, Messrs. Yang and Wasserman concluded that because of
the material weaknesses in internal control over financial reporting described
below, our disclosure controls and procedures were not effective as of June 30,
2009.

Managements Report
on Internal Control over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act. Our management is also required to assess
and report on the effectiveness of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(Section 404). Management assessed the effectiveness of our internal control
over financial reporting as of June 30, 2009. In making this assessment, we
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control - Integrated Framework. During
our assessment of the effectiveness of internal control over financial
reporting as of June 30, 2009, management identified material weaknesses
related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii)
our internal audit functions and (iii) the absence of an Audit Committee as of
June 30, 2009, and (iv) a lack of segregation of duties within accounting
functions.
Therefore, our internal controls over financial reporting were not effective as
of June 30, 2009.

We
began preparing to be in compliance with the internal control obligations,
including Section 404, for our fiscal year ended June 30, 2009. Our internal
accounting staff was primarily engaged in ensuring compliance with PRC
accounting and reporting requirements for our operating affiliates and their
U.S. GAAP knowledge was limited. As a result, majority of our internal
accounting staff, on a consolidated basis, is relatively inexperienced with
U.S. GAAP and the related internal control procedures required of U.S. public
companies. Although our accounting staff is professional and experienced in
accounting requirements and procedures generally accepted in the PRC,
management has determined that they require additional training and assistance
in U.S. GAAP matters.

55

Management
has determined that our internal audit function is also significantly deficient
due to insufficient qualified resources to perform internal audit functions.
Finally, management determined that the lack of an Audit Committee of our Board
of Directors also contributed to insufficient oversight of our accounting and
audit functions.

In
order to correct the foregoing weaknesses, we have taken the following
remediation measures:


We have
  committed to the establishment of effective internal audit functions,
  however, due to the scarcity of qualified candidates with extensive
  experience in U.S. GAAP reporting and accounting in the region, we were not
  able to hire sufficient internal audit resources before the end of 2009.
  However, we will increase our search for qualified candidates with assistance
  from recruiters and through referrals.
We have
  started searching for an independent director qualified to serve on an audit
  committee to be established by our Board of Directors and we anticipate that
  our Board of Directors will also establish a compensation committee to be
  headed by one of an independent director.Due
to our size and nature, segregation of all conflicting duties may not always be
possible and may not be economically feasible. However, to the extent possible,
we will implement procedures to assure that the initiation of transactions, the
custody of assets and the recording of transactions will be performed by
separate individuals.

We
believe that the foregoing steps will remediate the material weaknesses
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate. Due to the
nature of these material weaknesses in our internal control over financial
reporting, there is more than a remote likelihood that misstatements which
could be material to our annual or interim financial statements could occur
that would not be prevented or detected.

A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis. A significant deficiency is a
deficiency, or a combination of deficiencies, in internal control over
financial reporting that is less severe than a material weakness, yet important
enough to merit attention by those responsible for oversight of the companys
financial reporting.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.

Auditor Attestation

This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only managements report in this annual
report.

Changes in
Internal Control over Financial Reporting

There
have been no changes in our internal control over financial reporting during
our fiscal year 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

ITEM 9B. Other Information.None.

56

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEName

Age

Positions held:Liankuan
  Yang

53

Chief
  Executive Officer, President, and Chairman of the Board of DirectorsAdam
  Wasserman

45

Chief
  Financial OfficerRunlan Ma

49

SecretaryJonathan
  Blum

52

DirectorMingguo Wang

49

DirectorWenbiao Wang

45

DirectorGregory T.
  Wolfson

33

DirectorYang Yang

27

DirectorBiographical Information

Liankuan
Yang. Mr. Yang has served as our Chief
Executive Officer, President, and Chairman of the Board of Directors since July
9, 2007. Mr. Yang founded Jin Ma Construction, Jin Ma Hotel and Jin Ma
Real Estate, and is the Chairman and President of all three companies.
Mr. Yang, a graduate of the China Agriculture University, has engineering
background and has extensive experience in business management. Mr. Yang
has been recognized repeatedly as an Excellent Entrepreneur by the National
Ministry of Construction, the National Ministry of Agriculture and the Regional
Government of Inner Mongolia Autonomous Region. In recognition of his business
achievements, Mr. Yang is also the recipient of the Special Prize from the
Mayor of Hohhot City. Mr. Yang is the husband of Ms. Runlan Ma and
the father of Ms. Yang Yang.

Adam
Wasserman. Mr. Wasserman has served as our
Chief Financial Officer since July 9, 2007. Since November 1999,
Mr. Wasserman has been CEO of CFO Oncall, Inc., a Weston, Florida based
provider of consultant accounting services specializing in financial reporting,
budgeting and planning, mergers and acquisitions, audit preparation services,
accounting, automated systems, banking relations and internal controls.
Mr. Wasserman has also served as the chief financial officer of Transax
International Limited since May 2005. Currently, Mr. Wasserman serves as the
vice president of financial reporting of China Wind Systems, Inc.
Mr. Wasserman has also served as the chief financial officer of Lotus
Pharmaceuticals Inc. (October 2006 until April 2009), Explorations Group Inc.
(January 2002 until December 2005) Colmena Corp. (May 2003 until June 2004) and
Genesis Pharmaceuticals Enterprises, Inc. (October 2001 until October 2007),
all client companies of CFO Oncall, Inc. From June 1991 to November 1999 he was
Senior Audit Manager at American Express Tax and Business Services, in Fort
Lauderdale, Florida where his responsibilities included supervising, training
and evaluating senior staff members, work paper review, auditing, maintaining
positive client relations, preparation of tax returns and preparation of
financial statements and the related footnotes. From September 1986 to May
1991, he was employed by Deloitte & Touche, LLP. During his employment, his
significant assignments included audits of public (SEC reporting) and private
companies, tax preparation and planning, management consulting, systems design,
staff instruction, and recruiting. Mr. Wasserman holds a Bachelor of
Science from the State University of New York at Albany. He is a CPA (New York)
and a member of The American Institute of Certified Public Accountants and is
the treasurer and an executive board member of Gold Coast Venture Capital
Association.

Runlan
Ma. Ms. Ma has served as Secretary since July
9, 2007. Ms. Ma, a graduate of the Inner Mongolia Institute of Finance and
Economy, joined Jin Ma Hotel in 2002 and has since then been in charge of its
business operation. Ms. Ma is also presently a supervisor of business
operation at Jin Ma Construction and Jin Ma Real Estate. Ms. Ma previously
worked as a department manager the Inner Mongolia National Tax Bureau.
Ms. Ma is the wife of Mr. Liankuan Yang and the mother of
Ms. Yang Yang.

57

Jonathan
Blum. Mr. Blum has been a member of our Board
of Directors since July 9, 2007. Jonathan Blum has 20 years of client advisory
experience on Wall Street and as a consultant. From 2002 to 2006, Mr. Blum
was a Partner and Head of the Investment Banking practice at Jesup & Lamont
Securities, a New York based boutique banking firm. Prior to Jesup &
Lamont, Mr. Blum was a Managing Director at Prudential Securities
Incorporated responsible for the firms Real Estate, Energy and Consumer
M&A practices. Before joining Prudential Securities, Mr. Blum was a
Director of M&A at Salomon Smith Barney and a Managing Director in the
M&A practice of Chase Securities, Inc. Mr. Blum graduated summa
cum laude with a B.S. in finance from Boston University and received an
M.B.A. with distinction from the Harvard Business School. Mr. Blum
is a Director of Cornerstone Pharmaceuticals, Inc., an oncology-focused
bio-technology company based in New Jersey.

Mingguo
Wang. Mr. Wang has been a member of our Board
of Directors since July 9, 2007. Mr. Wang is a graduate of the Beijing
University of Chinese Medicine and joined Jin Ma Real Estate in 2005 as a
director overseeing its business operations. From 1984 to 2004, Mr. Wang
was employed Beijing Yongan Fuxing Pharmaceutical Co., Ltd., initially as a
sales representative, then as a deputy manager and finally as a department
manager before leaving that company.

Wenbiao
Wang. Mr. Wang has been a member of our Board
of Directors since July 9, 2007. Since March 1995, Mr. Wang has been
the senior engineer at Jin Ma Construction. Mr. Wang has over 20 years of
experience in engineering and construction. Mr. Wang attended the Inner
Mongolia University of Technology, and joined Jin Ma Construction after his
graduation.

Gregory
T. Wolfson. Mr. Wolfson has been a member of
our Board of Directors since July 9, 2007. Mr. Wolfson has been a director
of Gold Horse since September 2006. Mr. Wolfson was a financial advisor
with Austen Morris Associates in Shanghai, China from September 2005 to July
2006. From June 2004 to September 2005, Mr. Wolfson was the chief
representative and general manager of Genesis Technology Group in Shanghai,
China, overseeing its day-to-day operations. From March 2002 to June 2004,
Mr. Wolfson consulted on website development and systems engineering for
clients in both California and Massachusetts. Mr. Wolfson was a systems
engineer with Worldcare International in Cambridge, Massachusetts from June
2001 to March 2002, and a website and application developer with NSK &
Associates in Boston, Massachusetts from October 2000 to June 2001. During
2000, Mr. Wolfson was a website developer and business consultant for
Leapfrog Smart Products in Orlando, Florida. From July 1999 to May 2000,
Mr. Wolfson was a website developer for Think Tank Consulting in Munich,
Germany. Mr. Wolfson is a graduate of Tufts University and is conversant
in both Mandarin Chinese and German.

Yang
Yang.
Ms. Yang has been a member of our Board of Directors since July 9,
2007. Ms. Yang joined Jin Ma Real Estate in September 2004 after
completing her studies at AIT University Ms. Yang is the manager at Jin Ma
Hotel and Jin Ma Real Estate. Ms. Yang joined the Company after completing
her university studies in business management and accounting in Australia.
Ms. Yang is the daughter of Mr. Liankuan Yang and Ms. Runlan Ma.

There
are no family relationships between any of the executive officers and
directors, except as set forth above. Each director is elected at our annual
meeting of shareholders and holds office until the next annual meeting of
shareholders, or until his successor is elected and qualified.

Consulting Arrangement with CFO Oncall, Inc.

In
July 2007 we engaged CFO Oncall, Inc., a U.S. based firm that provides
outsourced chief financial officer/controller services to public companies, to
assist us assembling our annual and quarterly financial statements, as well as
to assist our management in the preparation of our financial statements. Under
the terms of the engagement Mr. Adam Wasserman, a principal of CFO Oncall,
Inc., serves as our Chief Financial Officer. We pay this firm on an hourly
basis as billed monthly. In fiscal 2009 and fiscal 2008, we paid CFO Oncall,
Inc. $100,000 and $124,192 as compensation for its services, respectively.

58

Section 16(a) Beneficial Ownership Reporting
Compliance

Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who beneficially own more than
10% of a registered class of our equity securities to file with the Securities
and Exchange Commission initial statements of beneficial ownership, reports of
changes in ownership and annual reports concerning their ownership of our
common shares and other equity securities, on Forms 3, 4 and 5 respectively.
Executive officers, directors and greater than 10% stockholders are required by
the Securities and Exchange Commission regulations to furnish us with copies of
all Section 16(a) reports they file. Based solely on our review of the copies
of such forms furnished to us during the year ended June 30, 2009, none of our
executive officers, directors and persons holding greater than 10% of our
issued and outstanding stock have failed to file the required reports in a
timely manner.

Financial Code of Ethics

On
February 1, 2006 our Board of Directors adopted a Financial Code of Ethics
which applies to our Chief Executive Officer, Chief Financial Officer and
members of our financial department. We will provide a copy, without charge, to
any person desiring a copy of the Financial Code of Ethics, by written request
to, No. 31 Tongdao Road South, Hohhot, Inner Mongolia, China, Attention:
Corporate Secretary. In addition, we have filed a copy of the Financial Code of
Ethics with the Securities and Exchange Commission as an exhibit to this
report.

Committees of our Board of Directors

Our
Board of Directors has not established any committees, including an Audit
Committee, a Compensation Committee or a Nominating Committee, any committee
performing a similar function. The functions of those committees are being
undertaken by the entire board as a whole.

We
do not have a policy regarding the consideration of any director candidates
which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we
have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size and lack of directors
and officers insurance coverage, we do not anticipate that any of our
stockholders will make such a recommendation in the near future. While there
have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the
consideration of director nominees.

None
of our directors is an audit committee financial expert within the meaning of
Item 401(e) of Regulation S-B. In general, an audit committee financial
expert is an individual member of the audit committee or Board of Directors
who:


understands
  generally accepted accounting principles and financial statements,
is able to
  assess the general application of such principles in connection with
  accounting for estimates, accruals and reserves,
has
  experience preparing, auditing, analyzing or evaluating financial statements
  comparable to the breadth and complexity to our financial statements,
understands
  internal controls over financial reporting, and
understands
  audit committee functions.59

Since
the closing of the share exchange with Gold Horse Nevada, we have relied upon
the personal relationships of our CEO to attract individuals to our Board of
Directors. While we would prefer that one or more of our directors be an audit
committee financial expert, the individuals whom we have been able to attract
to our Board do not have the requisite professional backgrounds. It is our
desire to expand our Board of Directors during 2010 to include additional
independent directors as well as one or more directors who are considered audit
committee financial experts. At that time, we intent to establish an Audit
Committee of our Board of Directors. Our securities are not quoted on an
exchange, however, that has requirements that a majority of our Board members
be independent and we are not currently otherwise subject to any law, rule or
regulation requiring that all or any portion of our Board of Directors include
independent directors, nor are we required to establish or maintain an Audit
Committee or other committee of our Board of Directors. We are uncertain,
however, as to our ability to attract qualified independent director candidates
to serve on our Board of Directors given that all of our operations are located
in the PRC and we do not maintain directors and officers liability insurance.

ITEM 11. EXECUTIVE COMPENSATIONThe
following table summarizes all compensation recorded by us in the last
completed fiscal year for our principal executive officer, each other executive
officer serving as such whose annual compensation exceeded $100,000, and up to
two additional individuals for whom disclosure would have been made in this
table but for the fact that the individual was not serving as an executive
officer of our company at June 30, 2009. The value attributable to any option
awards is computed in accordance with FAS 123R.

Summary Annual Compensation Table

Name and Principal Position

Fiscal
  Year

Salary
  ($)

Bonus
  ($)

Stock
  Awards
  ($)

Option
  Awards ($)

Non-Equity
  Incentive Plan Compensation ($)

Nonqualified
  Deferred Compensation Earnings ($)

All
  Other Compensation
  ($)

Total
  ($)Liankuan Yang, current CEO President and Director (1)


2009


180,000


0


4,500


0


0


0

$
43,800

$
228,3002008


7,500


0


15,600


0


0


0

$
20,000

$
43,100Adam Wasserman Chief Financial Officer (2)


2009


50,000


0


50,000


0


0


0


0


100,0002008


48,611


0


75,581


0


0


0


0


124,192(1)
Mr. Yang
  has served as our Chief Executive Officer and President since July 10, 2007.
  Mr. Yangs fiscal 2009 compensation includes 30,000 shares of our common
  stock valued at $4,500 to him as compensation for his Board services and
  $180,000 as compensation for his chief executive officer service and $43,800
  which represents car allowances and personal expenses paid on his behalf by
  the Jin Ma Companies. The value of compensation paid to Mr. Yang does
  not reflect the value of a vehicle purchased by the Jin Ma Companies for use.
  Mr. Yangs fiscal 2008 compensation includes 30,000 shares of our common
  stock valued at $15,600 issued to him as compensation for his Board services
  and $20,000 which represents car allowances and personal expenses paid on his
  behalf by the Jin Ma Companies. The value of compensation paid to
  Mr. Yang does not reflect the value of a vehicle purchased by the Jin Ma
  Companies for use. See Item 13. Certain Relationships and Related Parties,
  and Director Independence below.(2)
Compensation
  for Adam Wasserman was paid to CFO Oncall, Inc., a company where
  Mr. Wasserman serves as chief executive officer.60

How Mr. Yangs Compensation is Determined

Mr. Yang
is not a party to an employment agreement with either our company or the Jin Ma
Companies. His compensation is determined from time to time by the Boards of
Directors of the Jin Ma Companies, of which he is a member. In determining the
amount of compensation to be paid, such Board of Directors arbitrarily settles
upon an amount representing a salary and a benefit package. The amount of
compensation is not tied to any performance goals or other traditional
measurements and may be increased from time to time at the sole discretion of
such Board.

Outstanding Equity Awards at Fiscal Year-End

There
are no unexercised options; stock that has not vested; or equity incentive plan
awards held by any named executive officer outstanding as of June 30, 2009.

Compensation of Directors

The
following table provides information concerning the compensation of members of
our Board of Directors for each of their services as a director for fiscal
2009. The value attributable to any option awards is computed in accordance
with FAS 123R.

Directors Compensation

Name (a)

Fees
  earned or paid in cash ($)
  (b)

Stock
  awards ($) (c)

Option
  awards ($)
  (d)

Non-equity
  incentive plan compensation (4)
  (e)

Nonqualified
  deferred compensation earnings ($) (f)

All
  other compensation ($)
  (g)

Total
  ($)
  (h)Liankuan Yang

0

4,500

0

0

0

0

4,500Yang Yang

0

4,500

0

0

0

0

4,500Jonathan Blum

0

4,500

0

0

0

0

4,500Mingguo Wang

0

4,500

0

0

0

0

4,500Wenbiao Wang

0

4,500

0

0

0

0

4,500Gregory T. Wolfson

0

4,500

0

0

0

0

4,5002007 Equity Compensation Plan

On
October 25, 2007 our Board of Directors adopted our 2007 Equity Compensation
Plan. The purpose of the 2007 Equity Compensation Plan is to offer to our
employees, officers, directors and consultants whose past, present and/or
potential contributions to our company have been or are or will be important to
our success, an opportunity to acquire a proprietary interest in our company.
The issuance of grants under the 2007 Equity Compensation Plan will be made to
persons who are closely related to us and who provide bona fide services to us
in connection with our business. Under Federal securities laws, these services
cannot be in connection with the offer of sale of our securities in a capital
raising transaction nor directly or indirectly promote or maintain a market for
our securities. We have currently reserved 3,000,000 of our authorized but
unissued shares of common stock for issuance under the 2007 Equity Compensation
Plan.

Plan
options may either be options qualifying as incentive stock options under
Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified
options. In addition, the 2007 Equity Compensation Plan allows for the
inclusion of a reload option provision, which permits an eligible person to pay
the exercise price of the option with shares of common stock owned by the
eligible person and receive a new option to purchase shares of common stock
equal in number to the tendered shares. Any incentive option granted under the
2007 Equity Compensation Plan must provide for an exercise price of not less
than 100% of the fair market value of the underlying shares on the date of
grant, but the exercise price of any incentive option granted to an eligible
employee owning more than 10% of our outstanding common stock must not be less
than 110% of fair market value on the date of the grant. Any non-qualified
option granted under the 2007 Equity Compensation Plan must provide for an
exercise price of not less than the par value of our common stock. The term of
each plan option and the manner in

61

which it may
be exercised is determined by the Board of Directors or the compensation
committee, provided that no option may be exercisable more than 10 years after
the date of its grant and, in the case of an incentive option granted to an
eligible employee owning more than 10% of the common stock, no more than five
years after the date of the grant. Unless the 2007 Equity Compensation Plan is
approved by our shareholders by October 25, 2008, no incentive stock options
may be granted and all incentive stock options that may have been previously
granted shall automatically be converted into non-qualified stock options.

Subject
to the limitation on the aggregate number of shares issuable under the 2007
Equity Compensation Plan, there is no maximum or minimum number of shares as to
which a stock grant or plan option may be granted to any person. Shares used
for stock grants and plan options may be authorized and unissued shares or
shares reacquired by us, including shares purchased in the open market. Shares
covered by plan options which terminate unexercised will again become available
for grant as additional options, without decreasing the maximum number of
shares issuable under the 2007 Equity Compensation Plan, although such shares
may also be used by us for other purposes. As of September 30, 2009, we have
not made any grants under the 2007 Equity Compensation Plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED STOCKHOLDER MATTERSAt
October 10, 2009, we had 58,073,603 shares of our common stock issued and
outstanding. The following table sets forth information regarding the
beneficial ownership of our common stock as of October 10, 2009 by:


each person
  known by us to be the beneficial owner of more than 5% of our common stock;
each of our
  directors;
each of our
  named executive officers; and
our named
  executive officers, directors and director nominees as a group.Unless
otherwise indicated, the business address of each person listed is in care of
No. 31 Tongdao South Road, Hohhot City, Inner Mongolia, China. The percentages
in the table have been calculated on the basis of treating as outstanding for a
particular person, all shares of our common stock outstanding on that date and
all shares of our common stock issuable to that holder in the event of exercise
of outstanding options, warrants, rights or conversion privileges owned by that
person at that date which are exercisable within 60 days of that date. Except
as otherwise indicated, the persons listed below have sole voting and
investment power with respect to all shares of our common stock owned by them,
except to the extent that power may be shared with a spouse.

Name of Beneficial Owner


Amount and Nature of Beneficial
  Ownership


%of ClassLiankuan
  Yang CEO, President and Chairman (1)


13,310,000


22.9
%Adam
  Wasserman CFO (8)


482,209


0.01
%Runlan Ma
  (2)


4,500,000


7.75
%Jonathan
  Blum


60,000


n/aMinguo Wang


60,000


n/aWenbiao Wang


60,000


n/aGregory T.
  Wolfson


30,000


n/aYang Yang
  (3)


4,560,000


7.85
%All officers
  and directors as a group (eight persons) (1), (2), (3)


23,062,209


39.7
%Xinkuan Yang
  (4)


3,750,000


6.46
%Zhanjun Yang
  (5)


3,000,000


5.17
%Yongjun Yang
  (6)


3,000,000


5.17
%Yonggang
  Zhao (7)


3,000,000


5.17
%Jiangbo
  Pharmaceuticals, Inc. (9)


6,356,500


10.95
%62

(1)
Mr. Yangs holdings include 13,310,000 shares beneficially owned by him
and an aggregate of 12,750,000 shares held by Messrs. Xinkuan Yang, his
brother, and Messrs. Zhanjun Yang, Yongjun Yang and Zonggang Zhao, his
nephews over which he has significant influence and may direct the voting.
Mr. Yangs holdings exclude the holdings of his wife, Ms. Ma, over
which he disclaims beneficial ownership. Under the terms of the Pledge and
Security Agreement executed in connection with the sale of our amended and
restated 14% secured convertible debentures, Mr. Yang has pledged the
10,000,000 shares of our common stock owned of record by him as additional
security for our obligations under the transaction.

(2)
Ms. Ma is Mr. Yangs wife. Ms. Mas holdings exclude the
holdings of Mr. Yang over which she disclaims beneficial ownership. Under
the terms of the Pledge and Security Agreement executed in connection with the
sale of our amended and restated 14% secured convertible debentures,
Ms. Ma has pledged the 4,500,000 shares of our common stock owned of
record by her as additional security for our obligations under the transaction.

(3)
Ms. Yang is the adult daughter of Mr. Yang and Ms. Ma. Under the
terms of the Pledge and Security Agreement executed in connection with the sale
of our amended and restated 14% secured convertible debentures, Ms. Ma has
pledged the 4,500,000 shares of our common stock owned of record by her as
additional security for our obligations under the transaction and she has
entered into a lock-up agreement whereby she agreed not to offer or sell any
shares of our common stock owned by her until the 180th trading day after
August 11, 2008, the effective date of our registration statement.

(4)
Mr. Yangs address is No. 9, Unit 3, Building 2, Jinfu New Estate, Hou
Shatan, Huimin District, Hohhot, Inner Mongolia, China.

(5)
Mr. Yangs address is East Room, 3rd Floor, Unit 1, Building 5, No. 3
Xianghe New Estate, Huimin District, Hohhot, Inner Mongolia, China.

(6)
Mr. Yangs address is No. 1 (continuation), Building 15, South Sihexing,
Dormitory Building, Fertilization Factory, Gangtie Road, Huimin District,
Hohhot, Inner Mongolia, China.

(7) Mr. Zhaos address is No. 13, Bayan
Wusu Community, Edros Road, Yuquan District, Hohhot, Inner Mongolia, China.

(8) Mr. Wassermans address is 1643
Royal Grove Way, Weston, Florida 33327.

(9) Jiangbo
Pharmaceuticals, Inc.s address is Middle Section, Longmao Street, Area A,
Laiyang Waixiangxing Industrial Park Laiyang City, Yantai, Shandong Province,
Peoples Republic of China 265200. Mr. Wubo Cao is CEO of Jiangbo
Pharmaceuticals Enterprises, Inc., formerly known as Genesis Pharmaceuticals
Enterprise, Inc., and he has sole voting and dispositive control over the
securities owned by Jiangbo Pharmaceuticals, Inc in his capacity as an officer
of that company. Mr. Cao disclaims beneficial ownership over such
securities.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
  INDEPENDENCEPRC
law currently limits foreign equity ownership of Chinese companies. To comply
with these foreign ownership restrictions, we operate our business in China
through the Contractual Arrangements with each of the Jin Ma Companies and
their respective shareholders that were executed on August 31, 2006. Certain of
our principal shareholders, executive officers and directors are also principal
owners, officers and directors of various of the Jin Ma Companies, including
Mr. Yang, Ms. Ma, Mr. Wenbiao Wang and Ms. Yang.

From
time to time, the Jin Ma Companies have advanced funds to companies related
through common ownership for working capital purposes. These advances are non-interest
bearing, unsecured and payable on demand. At June 30, 2009, we had a receivable
from Inner Mongolia Jin Ma Group Ltd. (also known as Inner Mongolia Gold Horse
Industry Group) and its subsidiaries of $33,283.

63

In
connection with our Inner Mongolia Electrical Vocational Technical School to
construct new dormitories for the Inner Mongolia Electrical Vocational
Technical School and Inner Mongolia Chemistry School, Jin Ma Construction
performs general contracting services for Jin Ma Real Estate. In November 2007, Jin Ma Real Estate entered
into an agreement to construct new dormitories for the Inner Mongolia
Electrical Vocational Technical School (Vocational School). Pursuant to the
terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon
completion, pursuant to a sale-type capital lease, leased the buildings to the
Inner Mongolia Electrical Vocational Technical School and will receive payments
for a period of 26 years at an amount of 4,800,000 RMB or approximately $701,000
per annum. In November 2008, Jin Ma Real Estate completed the
construction and in December 2008, Jin Ma Real Estate received the first
payment of 4,800,000 RMB. Jin Ma Construction began developing the Chemistry
College project in July 2008 and expects to complete the project in October
2009. Once completed, Jin Ma Real Estate will lease the buildings to the
college for a period of 20 years. The costs associated with the Chemistry
College project are reflected on our balance sheet as construction in process
and we will not recognize any revenues on this project until the project is
complete and we begin receiving lease income, in accordance with FAS No. 66, Accounting for Sales of Real Estate
and
related interpretations. In accordance with terms of the Agreement, at the end
of the 26 and 20 years period, ownership of the buildings will be transferred
to these Technical Schools, respectively. During the term of the lease, Jin Ma
Real Estate will not have additional commitments or obligations to the Inner
Mongolia Electrical Vocational Technical School and Inner Mongolia Chemistry
School.

Director Independence

Our
board of directors has determined that it does not have a member that is
independent as the term is used in Item 7(d)(3)(iv) of Schedule 14A under the
Securities Exchange Act of 1934, as amended.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.The
following table sets forth the fees billed by our principal independent
accountants for each of our last two fiscal years for the categories of
services indicated.

Year Ended June 30,Category

2009

2008Audit Fees
  (1)

$
72,060

$
62,000Audit
  Related Fees (2)


26,759


30,000Tax Fees (3)


0


0All Other
  Fees (4)


0


17,500(1)
Consists of
  fees billed for the audit of our annual financial statements, review of our
  Form 10-K/10-KSB and services that are normally provided by the accountant in
  connection with year end statutory and regulatory filings or engagements.(2)
Consists of
  fees billed for the review of our quarterly financial statements, review of
  our forms 10-Q/10-QSB and 8-K and services that are normally provided by the
  accountant in connection with non year end statutory and regulatory filings
  on engagements.(3)
Consists of
  professional services rendered by a company aligned with our principal
  accountant for tax compliance, tax advice and tax planning.(4)
The services
  provided by our accountants within this category consisted of advice and
  other services relating to SEC matters, registration statement review,
  accounting issues and client conferences.Our
Board of Directors has adopted a procedure for pre-approval of all fees charged
by our independent auditors. Under the procedure, the Board approves the
engagement letter with respect to audit, tax and review services. Other fees
are subject to pre-approval by the Board, or, in the period between meetings,
by a designated member of Board. Any such approval by the designated member is
disclosed to the entire Board at the next meeting. The audit and tax fees paid
to the auditors with respect to fiscal year 2009 were pre-approved by the
entire Board of Directors.

64

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.No.
Description2.1
Stock
  Purchase Agreement and Share Exchange by and among Segway III Corp. and
  Speedhaul Incorporated effective October 15, 2004 (7)2.2
Share
  Exchange Agreement dated June 29, 2007, among Speedhaul Holdings, Inc., Gold
  Horse International, Inc. and the shareholders of Gold Horse International,
  Inc.(4)3.1
Certificate
  of Incorporation (2)3.2
Bylaws (2)3.3
Certificate
  of Amendment to the Certificate of Incorporation (2)3.4
Text of
  Amendments to Bylaws (4)3.5
Certificate
  of Domestication as filed with the Secretary of State of Florida (5)4.1
Form of 10%
  secured convertible debenture *4.2
Form of
  common stock purchase warrant *4.2
Form of
  Amended and Restated 14% Secured Convertible Debenture due March 31, 20105.1
Opinion of
  Schneider Weinberger & Beilly, LLP *10.1
Amended and
  Restated Consulting Services Agreement dated June 29, 2007 by and among
  Speedhaul Holdings, Inc., Gold Horse International, Inc., Global Rise
  International, Limited and Inner Mongolia Jin Ma Construction Co., Ltd. (Jin
  Ma Construction) and shareholders of Jin Ma Construction (4)10.2
Amended and
  Restated Operating Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Construction and shareholders of Jin Ma Construction (4)10.3
Amended and
  Restated Equity Pledge Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Construction and shareholders of Jin Ma Construction (4)10.4
Amended and
  Restated Option Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Construction and shareholders of Jin Ma Construction (4)10.5
Amended and
  Restated Shareholders Voting Rights Proxy Agreement dated June 29, 2007 by
  and among Speedhaul Holdings, Inc., Gold Horse International, Inc., Global
  Rise International Limited and the shareholders of Jin Ma Construction (4)10.6
Amended and
  Restated Consulting Services Agreement dated June 29, 2007 by and between
  Speedhaul Holdings, Inc., Gold Horse International, Inc., Global Rise
  International Limited and Inner Mongolia Jin Ma Hotel Co., Ltd. (Jin Ma
  Hotel) (4)10.7
Amended and
  Restated Operating Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Hotel and shareholders of Jin Ma Hotel (4)10.8
Amended and
  Restated Equity Pledge Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Hotel and shareholders of Jin Ma Hotel (4)10.9
Amended and
  Restated Option Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Hotel and shareholders of Jin Ma Hotel (4)65

10.10
Amended and
  Restated Shareholders Voting Rights Proxy Agreement dated June 29, 2007 by
  and among Speedhaul Holdings, Inc., Gold Horse International, Inc., Global
  Rise International Limited and the shareholders of Jin Ma Hotel (4)10.11
Amended and
  Restated Consulting Services Agreement dated June 29, 2007 by and between
  Speedhaul Holdings, Inc., Gold Horse International, Inc., Global Rise
  International Limited and Inner Mongolia Jin Ma Real Estate Development Co.,
  Ltd. (Jin Ma Real Estate) (4)10.12
Amended and
  Restated Operating Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Real Estate and shareholders of Jin Ma Real Estate (4)10.13
Amended and
  Restated Equity Pledge Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Real Estate and shareholders of Jin Ma Real Estate (4)10.14
Amended and
  Restated Option Agreement dated June 29, 2007 by and among Speedhaul
  Holdings, Inc., Gold Horse International, Inc., Global Rise International
  Limited, Jin Ma Real Estate and shareholders of Jin Ma Real Estate (4)10.15
Amended and
  Restated Shareholders Voting Rights Proxy Agreement dated June 29, 2007 by
  and among Speedhaul Holdings, Inc., Gold Horse International, Inc., Global
  Rise International Limited and the shareholders of Jin Ma Real Estate (4)10.16
Stock
  Purchase Agreement dated July 24, 2007 (2)10.17
2007 Equity
  Compensation Plan (6)10.18
Form of
  Securities Purchase Agreement (9)10.19
Form of
  Registration Rights Agreement (9)10.20
Form of
  Pledge and Security Agreement (9)10.21
Inner
  Mongolia Mechanics and Electrics Professional Technology University New
  Campus Students Dorm Construction Engineering Projection Cooperation
  Agreement by and between Inner Mongolia Mechancis and Electrics Professional
  Technology University and Inner Mongolia Jin Ma Real Estate Development Co.,
  Ltd. (9)10.22
Investment
  Agreement between Inner Mongolia Jin Ma Construction Co., Ltd., Erlianhot
  HengYuan Wind Power Co., Ltd. and Inner Mongolia TianWei Wind Energy
  Equipment Co., Ltd. (8)10.23
Construction
  Contract dated November 28, 2007 between Jin Ma Real Estate and Jin Ma
  Construction (9)10.24
Repayment
  agreements between Inner Mongolia Jin Ma Group and Jin Ma Construction and
  Jin Ma Hotel (10)10.24
Form of
  Debenture and Warrant Amendment Agreement dated May 18, 2009 (11)10.25
Form of
  Letter Agreement dated June 26, 2009 with the debenture holders (11)14.1
Code of
  Financial Ethics (3)21.1
Subsidiaries
  of the Registrant (2)31.1
Rule
  13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer **31.2
Rule
  13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer **32.1
Section 1350
  Certification of Chief Executive Officer **32.2
Section 1350
  Certification of Chief Financial Officer **** filed
  herewith66

(1)
Incorporated
  by reference to the exhibit filed to the Registration Statement on Form SB-2,
  as amended, SEC File No. 333-131534.(2)
Incorporated
  by reference to the exhibit filed to the Annual Report on Form 10-KSB for the
  fiscal year ended June 30, 2007.(3)
Incorporated
  by reference to the exhibit filed to the Annual Report on Form 10-KSB for the
  fiscal year ended December 31, 2006.(4)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on July 9, 2007.(5)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on November 13, 2007.(6)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on October 31, 2007.(7)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on December 23, 2004.(8)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on June 9, 2008.(9)
Incorporated
  by reference to the registration statement on Form S-1, SEC File No. 148827,
  as amended, as declared effective on August 11, 2008.(10)
Incorporated
  by reference to the exhibit filed to the Annual Report on Form 10-KSB for the
  fiscal year ended December 31, 2006 as filed on October 6, 2008..(11)
Incorporated
  by reference to the exhibit filed to the Current Report on Form 8-K as filed
  on July 6, 2009.67

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

GOLD HORSE INTERNATIONAL, INC.October 19,
  2009
By:
/s/ Liankuan
  YangLiankuan
  Yang, Chief Executive Officer and DirectorPursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.

Signature

Title

Date/s/ Liankuan
  Yang

Chief
  Executive Officer and Director

October 19, 2009Liankuan
  Yang/s/ Adam
  Wasserman

Chief
  Financial Officer, principal

October 19, 2009Adam
  Wasserman

accounting
  officerDirectorJonathan
  Blum/s/
  Mr. Mingguo Wang

Director

October 19, 2009Mr. Mingguo
  Wang/s/
  Mr. Wenbiao Wang

Director

October 19, 2009Mr. Wenbiao
  WangDirectorGregory
  Wolfson/s/
  Ms. Yang Yang

Director

October 19, 2009Ms. Yang
  Yang68

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Report of Independent Registered Public
  Accounting Firm

F-2Consolidated Financial Statements:Consolidated Balance Sheets as of June 30,
  2009 and 2008

F-3Consolidated Statements of Income and
  Comprehensive Income For the years ended June 30, 2009 and 2008

F-4Consolidated Statements of Stockholders Equity
  For the years ended June 30, 2009 and 2008

F-5Consolidated Statements of Cash Flows For
  the years ended June 30, 2009 and 2008

F-6Notes to Consolidated Financial Statements

F-7 to F-44F-1

(LOGO)

AGCA, Inc. Certified Public AccountantsMember
  of Alliott Group, a worldwide alliance of independent firms411
  E. Huntington Drive, Suite 308, Arcadia, CA 91006

     Website: www.agcacpa.com   Phone: (626) 446-4000
     
     Fax: (626) 446-4002

     E-mail: info@agcacpa.comREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Stockholders of 
Gold Horse International, Inc.
Hohhot, Inner Mongolia, China

We have audited the
accompanying consolidated balance sheets of Gold Horse International, Inc. and
subsidiaries as of June 30, 2009 and 2008 and the related consolidated
statements of income and comprehensive income, stockholders equity, and cash
flows for the years then ended. Gold Horse International, Inc.s management is
responsible for these consolidated financial statements. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material
respects, the financial position of Gold Horse International, Inc. and
subsidiaries as of June 30, 2009 and 2008 and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1, the
consolidated financial statements were prepared in accordance with FASB
Interpretation 46(R)  Consolidation of Variable Interest Entities  An
Interpretation of ARB No. 51.

(Signed) AGCA, Inc.

Arcadia, California
xxxxxxxxxxxxxxxxxxxx

Member:
Registered:American
  Institute of Certified Public Accountants
Public
  Company AccountingOversight
  BoardCalifornia
  Society of Certified Public AccountantsF-2

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

As of June 30,2009

2008ASSETSCash and cash equivalents

$
112,134

$
1,637,986Accounts receivable, net


11,943,996


7,528,608Note receivable on sales type lease - current portion


157,923


Inventories, net


27,838


56,847Advances to suppliers, net


200,570


95,754Other receivable, net


1,197,705


35,478Due from related parties


33,283


1,700,036Deferred debt costs





115,110Real estate held for sale





125,070Cost and estimated earnings in excess of billings


16,539


221,537Deposit on prepaid land use rights - current portion





2,524,877Prepaid land use rights for resale


4,041,090


Prepaid land use rights - current portion





3,561Refundable performance deposit





145,522Total
  Current Assets


17,731,078


14,190,386Property and equipment, net


9,383,982


10,476,397Construction in progress


10,560,114


4,537,240Note receivable on sales type lease - non-current portion


8,654,311


Deposit on prepaid land use rights - non-current portion





2,182,835Prepaid land use rights-non-current portion





165,312Total
  Assets

$
46,329,485

$
31,552,170LIABILITIES AND STOCKHOLDERS
EQUITYCurrent
  Liabilities:Convertible debt, net

$


$
955,062Loans payable - current portion


4,420,290


145,522Accounts payable


7,966,488


1,278,779Accrued expenses


1,251,843


468,235Taxes payable


1,678,084


2,215,381Advances from customers


246,191


192,356Billings in excess of costs and estimated
earnings


37,498


23,369Total
  Current Liabilities


15,600,394


5,278,704Loans payable - net of current portion


379,850


4,490,235Total
  Liabilities


15,980,244


9,768,939Commitments
  (Note 19)





Stockholders
  Equity:Preferred stock ($.0001 par value; 20,000,000
shares authorized; none
  issued and outstanding)





Common stock ($.0001 par value; 300,000,000 shares
authorized;
  52,668,603 and 52,544,603 shares issued and outstanding at June 30, 2009 and
  2008)


5,266


5,254Non-controlling interest in variable interest
entities


6,095,314


6,095,314Additional paid-in capital


6,878,166


4,571,178Statutory reserve


2,040,899


1,216,292Retained earnings


12,866,842


7,526,144Other comprehensive income


2,462,754


2,369,049Total
  Stockholders Equity


30,349,241


21,783,231Total
  Liabilities and Stockholders Equity

$
46,329,485

$
31,552,170See accompanying notes to consolidated
financial statements

F-3

GOLD
HORSE INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME

For the
  Years Ended
  June 30,2009

2008NET
  REVENUESConstruction

$
77,041,208

$
61,714,065Hotel


3,515,821


3,167,483Real estate


382,463


2,032,278Total
  Revenues


80,939,492


66,913,826COST Of
  REVENUESConstruction


66,277,041


52,527,085Hotel


1,945,299


1,763,968Real estate


300,510


1,244,007Total
  Cost of Revenues


68,522,850


55,535,060GROSS
  PROFIT


12,416,642


11,378,766OPERATING
  EXPENSES:Hotel operating expenses


59,575


132,435Bad debt expense (recovery)


(993,338
)

294,837Salaries and employee benefits


935,383


1,032,490Depreciation and amortization


847,941


1,018,072Loss on disposal of property and
equipment


302,776


Selling, general and administrative


480,637


529,175Total
  Operating Expenses


1,632,974


3,007,009INCOME
  FROM OPERATIONS


10,783,668


8,371,757OTHER
  INCOME (EXPENSES):Other income


2,497


12,732Registration rights penalty recovery
(expense)


117,882


(117,882
)Foreign currency loss


(20
)

Interest income


552,777


7,954Interest expense


(2,472,021
)

(1,426,138
)Total
  Other Expenses


(1,798,885
)

(1,523,334
)INCOME
  BEFORE PROVISION FOR INCOME TAX


8,984,783


6,848,423PROVISION
  FOR INCOME TAXES


2,819,478


2,316,289NET
  INCOME

$
6,165,305

$
4,532,134COMPREHENSIVE
  INCOME:Net income

$
6,165,305

$
4,532,134OTHER COMPREHENSIVE INCOME:Unrealized foreign currency translation
gain


93,705


1,824,171COMPREHENSIVE INCOME

$
6,259,010

$
6,356,305NET
  INCOME PER COMMON SHARE:Basic

$
0.12

$
0.09Diluted

$
0.08

$
0.08WEIGHTED
  AVERAGE COMMON SHARES OUTSTANDING:Basic


52,626,477


51,542,284Diluted


77,754,285


58,732,637See accompanying notes to consolidated
financial statements.

F-4

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended June 30, 2009 and 2008

Non-ConrollingCommon
Stock

Additional

Interest
in





Other

TotalNumber
of



Paid-in

Variable
Interest

Retained

Statutory

Comprehensive

StockholdersShares

Amount

Capital

Entities

Earnings

Reserve

Income

EquityBalance, June 30, 2007


50,000,002


5,000





5,954,807


3,616,296


594,006


544,878


10,714,987Sale of common stock for cash


2,219,252


222


2,219,030














2,219,252Common stock issued for services


325,349


32


169,148














169,180Capital contribution











140,507











140,507Common stock warrtants granted and beneficial conversion
feature








2,183,000














2,183,000Adjustment to statutory reserve














(622,286
)

622,286





Foreign currency translation adjustment




















1,824,171


1,824,171Net income for the year














4,532,134








4,532,134Balance, June 30, 2008


52,544,603


5,254


4,571,178


6,095,314


7,526,144


1,216,292


2,369,049


21,783,231Sale of common stock for cash


124,000


12


123,988














124,000Common stock warrtants granted and beneficial conversion
  feature








2,183,000














2,183,000Adjustment to statutory reserve














(824,607
)

824,607





Foreign currency translation adjustment




















93,705


93,705Net income for the year














6,165,305








6,165,305Balance, June 30, 2009


52,668,603

$
5,266

$
6,878,166

$
6,095,314

$
12,866,842

$
2,040,899

$
2,462,754

$
30,349,241See accompanying notes to financial statements

F-5

GOLD
HORSE INTERNATIONAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

For the
  Years Ended
  June 30,2009

2008CASH
  FLOWS FROM OPERATING ACTIVITIES:Net income

$
6,165,305

$
4,532,134Adjustments to reconcile net income to net cash
(used in) provided by
  operating activities:Depreciation


847,941


1,018,072Rent expense associated with prepaid land use
rights





8,672Bad debt expense (recovery)


(993,338
)

294,837Common stock issued for services





156,680Interest expense from amortization of debt
discount


1,227,938


955,062Amortization of debt issuance costs


115,110


89,530Loss on disposal and sale of property and
equipment


302,776


39,536Changes in assets and liabilities:Accounts receivable


(8,226,314
)

(2,036,507
)Inventories


29,079


(32,166
)Other receivables


248,064


302,306Advance to suppliers


119,732


116,941Prepaid expenses





12,500Costs and estimated earnings in excess of
billings


205,770


(192,874
)Real estate held for sale


125,501


1,084,727Construction in progress


(13,276,624
)

(4,276,586
)Refundable performance deposit


146,024


Accounts payable and accrued expenses


7,232,489


(124,344
)Taxes payable


(545,766
)

1,531,459Advances from customers


53,050


(456,208
)Billings in excess of costs and estimated
earnings


14,029


(107,679
)NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES


(6,209,234
)

2,916,092CASH
  FLOWS FROM INVESTING ACTIVITIES:Payment to related party





(3,294,408
)Repayment of amounts due from related
party


1,672,630


2,787,896Proceeds from sale of property and
equipment





16,459Proceeds from return of deposit on prepaid land use
rights


2,752,619


Payment of deposits for prepaid land use
rights





(2,112,300
)Purchase of property and equipment


(17,396
)

(6,000,595
)NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES


4,407,853


(8,602,948
)CASH
  FLOWS FROM FINANCING ACTIVITIES:Proceeds from convertible debt





2,183,000Payment of placement fees





(204,640
)Capital contributions





140,507Proceeds from loans payable


146,024


2,606,085Proceeds from sale of common stock


124,000


2,219,252NET CASH PROVIDED BY FINANCING ACTIVITIES


270,024


6,944,204EFFECT OF EXCHANGE RATE ON CASH


5,505


129,594NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS


(1,525,852
)

1,386,942CASH & CASH EQUIVALENTS - beginning of year


1,637,986


251,044CASH & CASH EQUIVALENTS - end of the year

$
112,134

$
1,637,986SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest

$
498,578

$
921,508Income taxes

$
3,068,891

$
1,417,616Non-cash investing and financing
activities:Accounts receivable exchanged for prepaid land use
rights for resale

$
3,869,636

$
Deposit on prepaid land use rights reclassified to
other receivables

$
1,168,192

$
See
accompanying notes to consolidated financial statements.

F-6

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Gold Horse International,
Inc. (the Company, we, us, our) was incorporated on March 21, 2000 under
the laws of the State of New Jersey under its former name Segway III. Prior
to June 29, 2007, the Company was a development stage company attempting to
implement its business plan to become a fully integrated online provider that
links the supply and demand sides of the ground trucking industry. In November
2007, the Company filed a Certificate of Domestication in the State of Florida
whereby the Company domesticated as a Florida corporation under the name Gold
Horse International, Inc.

On June 29, 2007, the
Company executed a Share Exchange Agreement (Share Exchange Agreement) with
Gold Horse International, Inc. (Gold Horse Nevada), a Nevada corporation,
whereby the Company acquired all of the outstanding common stock of Gold Horse
Nevada in exchange for newly-issued stock of the Company to Gold Horse Nevada
shareholders. Gold Horse Nevada was incorporated on August 14, 2006 in the
State of Nevada.

Under the Share Exchange
Agreement, on June 29, 2007, the Company issued 48,500,000 shares of its common
stock to the Gold Horse Nevada Stockholders and their assignees in exchange for
100% of the common stock of Gold Horse International. Additionally, the
Companys prior President, CEO and sole director, cancelled 9,655,050 of
the Companys common stock he owned immediately prior to the closing. After
giving effect to the cancellation of shares, the Company had a total of
1,500,002 shares of common stock outstanding immediately prior to Closing.
After the Closing, the Company had a total of 50,000,002 shares of common stock
outstanding, with the Gold Horse Nevada Stockholders and their assignees owning
97% of the total issued and outstanding shares of the Companys common stock.

Gold Horse Nevada became a
wholly-owned subsidiary of the Company and Gold Horse Nevadas former
shareholders own the majority of the Companys voting stock.

Gold Horse Nevada owns 100%
of Global Rise International, Limited (Global Rise), a Cayman Islands
corporation incorporated on May 9, 2007. Through Global Rise, Gold Horse Nevada
operates, controls and beneficially owns the construction, hotel and real
estate development businesses in China under a series of contractual
arrangements (the Contractual Arrangements) with Inner Mongolia Jin Ma Real
Estate Development Co., Ltd. (Jin Ma Real Estate), Inner Mongolia Jin Ma
Construction Co., Ltd. (Jin Ma Construction) and Inner Mongolia Jin Ma Hotel
Co., Ltd. (Jin Ma Hotel), (collectively referred to as the Jin Ma
Companies). Other than the Contractual Arrangements with the Jin Ma Companies,
the Company, Gold Horse Nevada or Global Rise has no business or operations.
The Contractual Arrangements are discussed below.

On October 10, 2007, the
Company established Inner Mongolia (Cayman) Technology & Development Ltd.
(IMTD), a wholly-foreign owned enterprise incorporated in the PRC and
wholly-owned subsidiary of Global Rise,

F-7

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The
relationship among the above companies as follows:

(FLOW CHART)

As a result of these
Contractual Arrangements, the acquisition of Gold Horse Nevada and the Jin Ma
Companies by the Company was accounted for as a reverse merger because on a
post-merger basis, the former shareholders of Gold Horse Nevada held a majority
of the outstanding common stock of the Company on a voting and fully-diluted
basis. As a result, Gold Horse Nevada is deemed to be the acquirer for
accounting purposes. Accordingly, the consolidated financial statement data
presented are those of the Jin Ma Companies for all periods prior to the
Companys acquisition of Gold Horse Nevada on June 29, 2007, and the financial
statements of the consolidated companies from the acquisition date forward.



PRC law currently places
certain limitations on foreign ownership of Chinese companies. To comply with
these foreign ownership restrictions, the Company, through its wholly-owned
subsidiary, Global Rise, operates its business in China through the Jin Ma
Companies, each of which is a limited liability company headquartered in
Hohhot, the capital city of the Autonomous Region of Inner Mongolia in China,
and organized under PRC laws. Each of the Jin Ma Companies has the relevant
licenses and approvals necessary to operate the Companys businesses in China
and none of them is exposed to liabilities incurred by the other party. Global
Rise has Contractual Arrangements with each of the Jin Ma Companies and their
shareholders (collectively the Jin Ma Companies Shareholders) pursuant to
which Global Rise provides business consulting and other general business
operation services to the Jin Ma Companies. Through these Contractual
Arrangements, Global Rise also has the ability to control the daily operations
and financial affairs of the Jin Ma Companies, appoint each of their senior
executives and approve all matters requiring shareholder approval. As a result
of these Contractual Arrangements, which enable Global Rise to control the Jin
Ma Companies, the Company is considered the primary beneficiary of the Jin Ma
Companies. Accordingly, the Company consolidates the Jin Ma Companies results,
assets and liabilities in its financial statements

The Contractual
Arrangements are comprised of a series of agreements, including a Consulting
Services Agreement and an Operating Agreement, through which Global Rise has
the right to advise, consult, manage and operate each of the Jin Ma Companies,
and collect and own all of their respective net profits. Additionally, under a
Shareholders Voting Rights Proxy Agreement, the Jin Ma Companies Shareholders
have vested their voting control over the Jin Ma Companies to Global Rise. In
order to further reinforce the Companys rights to control and operate the Jin
Ma Companies, these companies and their shareholders have granted Global Rise,
under an Option Agreement, the exclusive right and option to acquire all of
their equity interests in the Jin Ma Companies or, alternatively, all of the
assets of the Jin Ma Companies. Further the Jin Ma Companies Shareholders have
pledged all of their rights, titles and interests in the Jin Ma Companies to
Global Rise under an Equity Pledge Agreement.

F-8

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Gold Horse Nevada entered
into the Contractual Arrangements with each of the Jin Ma Companies and their
respective shareholders on August 31, 2006. On June 29, 2007, concurrently with
the closing of the Share Exchange Transaction, the Contractual Arrangements
were amended and restated by and among Gold Horse Nevada and Global Rise, the
Companys wholly-owned subsidiaries, and the Company on the one hand, and each
of the Jin Ma Companies and their respective shareholders on the other
hand, pursuant to which the Company was made a party to the
Contractual Arrangements.

Inner Mongolia Jin Ma Construction Company Ltd.

Jin Ma Construction is an
engineering and construction company that offers general contracting,
construction management and building design services primarily in Hohhot City,
the Autonomous Region of Inner Mongolia in China. In operation since 1980,
Jin Ma Construction was formally registered as a limited liability company in
Hohhot City in March 2002.

Inner Mongolia Jin Ma Real
Estate Development Co. Ltd.

Jin Ma Real Estate,
established in 1999, was formally registered as a limited liability company in
Hohhot City in February 2004.Jin Ma Real Estate develops residential and
commercial properties in the competitive and growing real estate market in
Hohhot.

Inner Mongolia Jin Ma Hotel Co. Ltd.

Jin Ma Hotel was founded in
1999 and formally registered in April 2004 as a limited liability company in
Hohhot City. Jin Ma Hotel presently owns, operates and manages the Inner
Mongolia Jin Ma Hotel (the Hotel), a 22-room full service hotel with a
restaurant and banquet facilities situated in Hohhot City approximately 15
kilometers from the Hohhot Baita Airport.

Inner Mongolia (Cayman) Technology & Development
Ltd.

IMTD, a wholly foreign owned
enterprise incorporated in PRC, provides administrative support services to the
Jin Ma Companies.

Basis of presentation

The
accompanying consolidated financial statements include the accounts of Gold
Horse International, Inc. and its wholly owned subsidiaries, Gold Horse Nevada,
Global Rise and Inner Mongolia (Cayman) Technology and Development, Ltd., and its variable interest entities Jin Ma
Construction, Jin Ma Hotel and Jin Ma Real Estate. All significant
inter-company accounts and transactions have been eliminated in consolidation.

The Jin Ma Companies are considered variable interest entities (VIE),
and the Company is the primary beneficiary. The Companys relationships
with the Jin Ma Companies and their shareholders are governed by a series of
contractual arrangements between Gold Horse Nevada, Global Rise, and each of
the Jin Ma Companies, which are the operating companies of the Company in the
PRC. Under PRC laws, each of IMTD, Jin Ma Construction, Jin Ma Real Estate and
Jin Ma Hotel is an independent legal person and none of them is exposed to
liabilities incurred by the other parties. On June 29, 2007, as amended, the
Company entered into the following contractual arrangements with each of the
Jin Ma Companies:

F-9

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Consulting
Services Agreements.
Pursuant to the exclusive Consulting Services Agreements with each of the Jin
Ma Companies, the Company, through its subsidiary, Global Rise, exclusively
provides to the Jin Ma Companies general business operations services and
consulting services as well as general business operation advice and strategic
planning (the Services). Each of the Jin Ma Companies shall pay a quarterly
consulting service fees in Renminbi (RMB) to Global Rise that is equal to all
of its net profit for such quarter.

Operating Agreements. Pursuant to the
Operating Agreements with the
Jin Ma Companies and their respective shareholders, Global Rise provides
guidance and instructions on the Jin Ma Companies daily operations, financial
management and employment issues. The Jin Ma Companies Shareholders must
designate the candidates recommended by Global Rise as their representatives on
each of the Jin Ma Companies board of directors. Global Rise has the right to
appoint senior executives of the Jin Ma Companies. In addition, Global Rise
agreed to guarantee the Jin Ma Companies performance under any agreements or
arrangements relating to the Jin Ma Companies business arrangements with any
third party. Each of the Jin Ma Companies, in return, agrees to pledge its
accounts receivable and all of its assets to Global Rise. Moreover, each of the
Jin Ma Companies agrees that without Global Rises prior consent, it will not
engage in any transactions that could materially affect its assets,
liabilities, rights or operations, including, without limitation, incurrence or
assumption of any indebtedness, sale or purchase of any assets or rights, incurrence
of any encumbrance on any of its assets or intellectual property rights in
favor of a third party or transfer of any agreements relating to its business
operation to any third party. The term of this agreement is ten (10) years and
may be extended only upon our written confirmation prior to the expiration of
this agreement, with the extended term to be mutually agreed upon by the
parties.

Equity Pledge
Agreements. Under the Equity Pledge Agreements, the
shareholders of the Jin Ma Companies pledged all of their equity interests in
the Jin Ma Companies to Global Rise to guarantee the Jin Ma Companies
performance of their obligations under the exclusive consulting services
agreements. If the Jin Ma Companies or its shareholders breach their respective
contractual obligations, Global Rise, as pledgee, will be entitled to certain
rights, including the right to sell the pledged equity interests. The
shareholders of the Jin Ma Companies also agreed that upon occurrence of any
event of default, Global Rise shall be granted an exclusive, irrevocable power
of attorney to take actions in the place and stead of the shareholders of
the Jin Ma Companies to carry out the security provisions of the
equity pledge agreement and take any action and execute any instrument that
Global Rise may deem necessary or advisable to accomplish the purposes of the
equity pledge agreement. The shareholders of the Jin Ma Companies agreed not to
dispose of the pledged equity interests or take any actions that would
prejudice our interest. The equity pledge agreement will expire two (2) years
after the Jin Ma Companies obligations under the exclusive consulting services
agreements have been fulfilled.

Option Agreements. Under
the Option Agreements, the shareholders
of the Jin Ma Companies irrevocably granted us or our designee an exclusive
option to purchase, to the extent permitted under PRC law, all or part of the
equity interests in the Jin Ma Companies for the cost of the initial
contributions to the registered capital or the minimum amount of consideration
permitted by applicable PRC law. Global Rise, or its designee, has sole
discretion to decide when to exercise the option, whether in part or in full.
The term of this agreement is ten (10) years and may be extended prior to its
expiration by written agreement of the parties.

F-10

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Proxy Agreements.  Pursuant to the
Proxy Agreements, the
shareholders of the Jin Ma Companies agreed to irrevocably grant a person to be
designated by Global Rise with the right to exercise their voting rights and
their other rights, in accordance with applicable laws and their respective
Article of Association, including but not limited to the rights to sell or
transfer all or any of their equity interests of the Jin Ma Companies, and
appoint and vote for the directors and chairman as the authorized
representative of the shareholders of the Jin Ma Companies.

The
accounts of the Jin Ma Companies are consolidated in the accompanying financial
statements pursuant to Financial Accounting Standards Board Interpretation No. 46
(Revised), Consolidation of Variable Interest Entities - an Interpretation of
ARB No. 51. As a VIE, the Jin Ma Companies sales are included in the Companys
total revenues, its income from operations is consolidated with the Companys,
and the Companys net income includes all of the Jin Ma Companies net income.
The Company does not have any non-controlling interests and accordingly, did
not subtract any net income in calculating the net income attributable to the
Company. Because of the contractual arrangements, the Company had a pecuniary
interest in the Jin Ma Companies that require consolidation of the Companys
and the Jin Ma Companies financial statements.

Use
of estimates

The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates. Significant estimates for the fiscal years ended June 30, 2009 and
2008 include the allowance for doubtful accounts, the useful life of property
and equipment and intangible assets, assumptions used in assessing impairment
of long-term assets and valuation of deferred tax assets, costs and estimated
earnings in excess of billings and billings in excess of costs and estimated
earnings, and the calculation of the value of any beneficial conversion feature
and warrants related to convertible debt.

Fair value of financial instruments

The Company adopted SFAS
157, Fair Value Measurements (SFAS 157). SFAS 157 clarifies the definition of
fair value, prescribes methods for measuring fair value, and establishes a fair
value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Inputs
are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.

Level 2-Inputs
are unadjusted quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other than quoted prices that are
observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs
are unobservable inputs which reflect the reporting entitys own assumptions on
what assumptions the market participants would use in pricing the asset or
liability based on the best available information.

The carrying
amounts reported in the balance sheets for cash, accounts receivable, loans
payable, accounts payable and accrued expenses, customer advances, and amounts
due from related parties approximate their fair market value based on the
short-term maturity of these instruments. The Company did not identify any
assets or liabilities that are required to be presented on the consolidated
balance sheets at fair value in accordance with SFAS 157.

F-11

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Cash and cash equivalents

For purposes of the
consolidated statements of cash flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less and money market
accounts to be cash equivalents. The Company maintains cash and cash
equivalents with various financial institutions mainly in the PRC and the
United States. Balances in the United States are insured up to $250,000 at each
bank. Balances in banks in the PRC are uninsured.

Concentrations
of credit risk

The Companys operations are
carried out in the PRC. Accordingly, the Companys business, financial
condition and results of operations may be influenced by the political,
economic and legal environment in the PRC, and by the general state of the
PRCs economy. The Companys operations in the PRC are subject to specific
considerations and significant risks not typically associated with companies in
North America. The Companys results may be adversely affected by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.

Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of cash and trade accounts receivable. Substantially all of the
Companys cash is maintained with state-owned banks within the Peoples
Republic of China of which no deposits are covered by insurance. The Company
has not experienced any losses in such accounts and believes it is not exposed
to any risks on its cash in bank accounts. A significant portion of the
Companys sales are credit sales which are primarily to customers whose ability
to pay is dependent upon the industry economics prevailing in these areas;
however, concentrations of credit risk with respect to trade accounts
receivables is limited due to generally short payment terms. The Company also
performs ongoing credit evaluations of its customers to help further reduce
credit risk.

Concentrations
of credit risk (continued)

At June 30, 2009 and 2008,
the Companys bank deposits by geographic area were as follows:

June 30,
  2009

June 30,
  2008Country:United
  States

$
39,956


35.6
%
$
19,826


1.3
%China


72,178


64.4
%

1,618,160


98.7
%Total cash
  and cash equivalents

$
112,134


100.0
%
$
1,637,986


100.0
%Accounts and other receivables

The Company
has a policy of reserving for uncollectible accounts based on its best estimate
of the amount of probable credit losses in its existing accounts receivable.
The Company periodically reviews its accounts receivable and other receivables
to determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential for
recovery is considered remote. At June 30, 2009 and 2008, the Company has
established, based on a review of its outstanding accounts receivable balances,
an allowance for doubtful accounts in the amount of $1,002,621 and $1,025,431, respectively, on its total accounts
receivable.

F-12

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other
receivables amounts were primarily related to advances made to various vendors,
subcontractors and other parties in the normal course of business and the
allowance was established when those parties deemed to be unlikely to repay the
amounts. Additionally, at June 30, 2009, the Company has included in the other receivable balance related to a
repayment agreement for the deposit on prepaid land use rights amounting to
approximately $1,169,000 (see Note 7). At June 30, 2009 and 2008, the Company has
established, based on a review of its outstanding other receivable balances, an
allowance for doubtful accounts in the amount of $143,974 and $883,875, respectively.
The significant portion of the allowance for doubtful accounts for the
Companys outstanding other receivables was recorded in fiscal 2007 after the
Company made several attempts to collect. Management is still attempting to
collect these other receivables and has not yet netted the other receivable
balance against the specific allowance. At such time as management exhausts all
collection efforts, the other receivable balance will be netted against the
allowance account. The activity in the allowance for doubtful accounts for
accounts receivable and other receivables for the years ended June 30, 2009 and
2008 is as follows:

Allowance for doubtful accounts for accounts
receivable

Allowance for doubtful accounts for other
receivable

TotalBalance  June 30, 2007

$
740,338

$
923,803

$
1,664,141Additions (reductions) in allowance


192,251


(8,450
)

183,801Foreign currency translation adjustments


92,842


(31,478
)

61,364Balance  June 30, 2008


1,025,431


883,875


1,909,306Reduction in allowance


(26,842
)

(743,019
)

(769,861
)Foreign currency translation adjustments


4,032


3,118


7,150Balance  June 30, 2009

$
1,002,621

$
143,974

$
1,146,595Inventories

Inventories, consisting of
consumable goods related to the Companys hotel operations are stated at the
lower of cost or market utilizing the first-in, first-out method.

Prepaid
land use rights for resale

Prepaid land use rights for
resale are accounted for at the lower of cost or market. These are considered
as current assets and free of amortization as management considers these can be
sold within a year from the date of balance sheet.

F-13

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advances
to suppliers

The Company advances to
certain vendors for purchase of construction materials and services. The
advances to suppliers are interest free and unsecured. The advances to
suppliers amounted to $200,570and $95,754at June 30, 2009 and
2008, respectively.

Property
and equipment

Property and equipment are
carried at cost and are depreciated on a straight-line basis over the estimated
useful lives of the assets. The cost of repairs and maintenance is expensed as
incurred; major replacements and improvements are capitalized. When assets are
retired or disposed of, the cost and accumulated depreciation are removed from
the accounts, and any resulting gains or losses are included in income in the
year of disposition. The Company examines the possibility of decreases in the
value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable.

Real
estate held for sale

The Company capitalizes as
real estate held for sale the direct construction and development costs,
property taxes, interest incurred on costs related to land under development
and other related costs (i.e. engineering, surveying, landscaping, etc.) until
the property reaches its intended use. At June 30, 2009 and 2008, real estate held for sale amounted to
$0
and $125,070, respectively.

Construction in process

Properties
currently under development are accounted for as construction-in-process. Construction-in-process
is recorded at acquisition cost, including prepaid land use rights cost,
development expenditure, professional fees and the interest expenses
capitalized during the course of construction for the purpose of financing the
project. Upon completion and readiness for use of the project, the cost of
construction-in-progress is to be transferred to an appropriate asset.
Construction in progress is valued at the lower of cost or market. Management
evaluates the market value of its properties on a periodic basis for
impairment. As of June 30, 2009 and 2008, construction in process amounted to
$10,560,114 and $4,537,240, respectively, and is included in long-term assets
due to the long-term nature of the projects.

Impairment
of long-lived assets

In accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company periodically reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be fully recoverable. The Company
recognizes an impairment loss when the sum of expected undiscounted future cash
flows is less than the carrying amount of the asset. The amount of impairment
is measured as the difference between the assets estimated fair value and its
book value. The Company did not consider it necessary to record any impairment
charges during the years ended June 30, 2009and 2008.

F-14

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income
taxes

The Company is governed by
the Income Tax Law of the Peoples Republic of China and the United States. The
Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires
the recognition of 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. At June 30, 2009 and 2008, there were no significant book and tax basis differences.

Pursuant to the PRC Income
Tax Laws, prior to January 1, 2008, the Company is subject to Enterprise Income
Taxes (EIT) at a statutory rate of 33%, which comprises 30% national income
tax and 3% local income tax. Beginning January 1, 2008, the new Enterprise
Income Tax (EIT) law replaced the existing laws for Domestic Enterprises
(DES) and Foreign Invested Enterprises (FIEs). The key changes include the
new standard EIT rate of 25% which replaced the 33% rate previously applicable
to both DES and FIEs, except for High Tech companies who pay a reduced rate of
15%

The Company
adopted FIN 48, Accounting for Uncertainty
in Income Taxes-an interpretation of FASB Statements No. 109. Under
FIN 48, the evaluation of a tax position is a two-step process. The first step
is to determine whether it is more likely than not that a tax position will be
sustained upon examination, including the resolution of any related appeals or litigation
based on the technical merits of that position. The second step is to measure a
tax position that meets the more-likely-than-not threshold to determine the
amount of benefit to be recognized in the financial statements.

A tax position
is measured at the largest amount of benefit that is greater than 50%
likelihood of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer met. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. The adoption had no
effect on the Companys consolidated financial statements.

Advances
from customers

Advances from customers
at June 30, 2009 and 2008
of $246,191 and $192,356, respectively, consist of prepayments from third party
customers to the Company for construction and real estate transactions to
ensure sufficient funds are available to complete the real estate and construction
projects. The Company will recognize the advances as revenue upon transfer of
title to the buyer, in compliance with its revenue recognition policy.

F-15

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net
income per common share

Net income per common share
is calculated in accordance with the Statement of Financial Accounting Standards
No. 128 (SFAS No. 128), Earnings per share. Basic net income per common share
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period. Diluted net income per common share
is computed by dividing net income by the weighted average number of shares of
common stock, common stock equivalents and potentially dilutive securities
outstanding during each period. Potentially dilutive common shares consist of
the common shares issuable upon the conversion of convertible debt (using the
if-converted method) and common stock warrants.

Net
income per common share (continued)

The following
table presents a reconciliation of basic and diluted net income per common
share:

Years
Ended June 30,2009

2008Net income used for basic and diluted net income per common
share

$
6,165,305

$
4,532,134Weighted average common shares outstanding  basic


52,626,477


51,542,284Effect of dilutive securities:Unexercised warrants


3,297,808


3,479,891Convertible debentures


21,830,000


3,710,462Weighted average common shares outstanding  diluted


77,754,285


58,732,637Net income per common share  basic

$
0.12

$
0.09Net income per common share  diluted

$
0.08

$
0.08The Companys aggregate
common stock equivalents at June 30, 2009 and 2008 include the following:

2009

2008Warrants


10,028,023


10,028,023Convertible debentures


21,830,000


6,345,930Total


31,858,023


16,373,953Revenue recognition

The Company follows the
guidance of the Securities and Exchange Commissions Staff Accounting Bulletin
104 for revenue recognition. In general, the Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. The following policies
reflect specific criteria for the various revenues streams of the Company:

F-16

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

Real estate sales which
primarily involve the sale of multi-family units and community environments are
reported in accordance with the provisions of Statement of Financial Accounting
Standard No. 66, Accounting for Sales of Real Estate. Generally, profits from
the sale of development properties, less 5% business tax, are recognized by the
full accrual method when the sale is consummated. A sale is not considered
consummated until (1) the parties are bound by the terms of a contract, (2) all
consideration has been exchanged, (3) any permanent financing of which the
seller is responsible has been arranged, (4) all conditions precedent to
closing have been performed, (5) the seller does not have substantial
continuing involvement with the property, and (6) the usual risks and rewards
of ownership have been transferred to the buyer. In November 2007, Jin Ma Real Estate entered into an agreement to construct
new dormitories for the Inner Mongolia Electrical Vocational Technical School
(Vocational School). Pursuant to the terms of the agreement, Jin Ma Real
Estate constructed the buildings and, upon completion, pursuant to a sales-type
capital lease, leased the buildings to the Inner Mongolia Electrical Vocational
Technical School and will receive payments for a period of 26 years at an
amount of 4,800,000 RMB or approximately $700,000 per annum.

In November 2008, Jin Ma
Real Estate completed the construction and in December 2008, Jin Ma Real Estate
received the first payment of 4,800,000 RMB. In accordance with FAS 66,
Accounting for Sales of Real Estate, the gain was deferred because the
minimum initial investment by the buyer was less than the required 20% initial
investment expressed as a percentage of the sales value (FAS 66, Accounting
for Sales of Real Estate, paragraph 54). Therefore the gain will be recognized
into income as payments are received using the installment method. The
installment method apportions each cash receipt and principal payment by the
buyer between cost recovered and profit. The apportionment is in the same ratio
as total cost and total profit bear to the sales value. Accordingly, revenue
and cost of sales is recognized based on this apportionment, and the Company
recognized imputed interest income on the accompanying consolidated statements
of income as summarized below. Since the agreement did not have a stated
interest rate, the Company used an imputed interest rate of interest of 6.12%
and is reflecting payments due under the agreement as a note receivable on the
accompanying balance sheets. The property sold had a sales value of 61,691,138
RMB (approximately $9,000,000). The deferred gain on the sale of the property
was approximately $52,000 of which $860 was recognized pursuant to the
installment method and is reflected in the accompanying consolidated statements
of income follows:

For
the Year ended
June 30, 2009

For
the Year ended
June 30, 2008Revenues

$
149,602

$
Cost of sales


148,742


Gross profit recognized

$
860

$
As of June 30, 2009, the
remaining deferred gain of $50,938 is reflected as a discount of notes
receivable in the accompanying balance sheet. The recorded imputed interest
discount will be realized as the balances due are collected. In the event of
early liquidation, interest is recognized on the simple interest method.

F-17

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition (continued)

Principal and the related
imputed interest are receivable annually at approximately $700,000 per year.
The Company allocated the first payment received in December 2008 as follows:

Amount applied to
  principal balance of note receivable

$
149,602Interest income recognized
  on consolidated statement of income


551,313Total payment received

$
700,915Revenue
from the performance of general
contracting, construction management and design-building services is recognized upon completion of the
service.

In accounting for long-term
engineering and construction-type contracts, the Company follows the provisions
of the AICPAs Statement of Position 81-1Accounting
for Performance of Construction-Type and Certain Production-Type Contracts.
The Company recognizes revenues using the percentage of completion method of
accounting by relating contract costs incurred to date to the total estimated
costs at completion. Contract price and cost estimates are reviewed
periodically as work progresses and adjustments proportionate to the percentage
of completion are reflected in contract revenues and gross profit in the
reporting period when such estimates are revised. This method of revenue
recognition requires the Company to prepare estimates of costs to complete
contracts in progress. In making such estimates, judgments are required to
evaluate contingencies such as potential variances in schedule, the cost of
materials and labor, and productivity; and the impact of change orders,
liability claims, contract disputes, and achievement of contractual performance
standards which may result in revisions to costs and income and are recognized
in the period in which the revisions are determined. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.

The asset, costs and
estimated earnings in excess of billings, represents revenues recognized in
excess of amounts billed. The liability, billings in excess of costs and
estimated earnings, represents billings in excess of revenues recognized.

Revenue primarily derived
from hotel operations, including the rental of rooms and food and beverage
sales, is recognized when rooms are occupied and services have been rendered.

Foreign
currency translation and comprehensive income

The reporting currency of the Company is the U.S. dollar. The
functional currency of the Company is the local currency, the Chinese Renminbi
(RMB). The financial statements of the Company are translated
into United States dollars in accordance with Statement of Financial Accounts
Standards (SFAS) No. 52, Foreign Currency Translation. Results of operations and cash flows are
translated at average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the period, and
equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining
comprehensive income. The cumulative translation adjustment and effect of
exchange rate changes on cash for the years ended June 30, 2009 and 2008
amounted to $5,505 and $129,594, respectively. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred. All of the Companys
revenue transactions are transacted in the functional currency. The Company
does not enter any material transaction in foreign currencies and accordingly,
transaction gains or losses have not had, and are not expected to have, a
material effect on the results of operations of the Company.

F-18

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Asset
and liability accounts at June 30, 2009 and 2008 were translated at 6.8448 RMB
to $1.00 USD and at 6.8718 RMB to $1.00 USD, respectively. Equity accounts were
stated at their historical rate. The average translation rates applied to
income statements for the years ended June 30, 2009 and 2008 were 6.84819 RMB
and 7.29063 RMB to $1.00 USD, respectively. In accordance with Statement of
Financial Accounting Standards No. 95, Statement of Cash Flows, cash flows
from the Companys operations is calculated based upon the local currencies
using the average translation rate. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.

Stock-based
compensation

The Company accounts for
stock options issued to employees in accordance with SFAS 123R, Share-Based Payment, an Amendment of FASB
Statement No. 123
(SFAS 123R). SFAS 123R requires companies to recognize in the statement of
operations the grant-date fair value of stock options and other equity based
compensation issued to employees. There were no options outstanding as of June
30, 2009 and 2008.The
Company accounts for non-employee share-based awards in accordance with EITF
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquisition, or in Conjunction with Selling, Goods or Services.

Advertising

Advertising is expensed as
incurred. Advertising expenses for the years ended June 30, 2009 and 2008 were
not material.

Accumulated other
comprehensive income

The Company follows
Statement of Financial Accounting Standards No. 130 (SFAS 130) Reporting Comprehensive Income to
recognize the elements of comprehensive income. Comprehensive income is
comprised of net income and all changes to the statements of stockholders
equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. For the Company, comprehensive
income for the year ended June 30, 2009 and 2008 included net income and
foreign currency translation adjustments.

Segment
reporting

Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosure About Segments of an
Enterprise and Related Information requires use of the management approach
model for segment reporting. The management approach model is based on the way
a companys management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure, or any
other manner in which management disaggregates a company. During the years ended
June 30, 2009 and 2008, the Company operated in three reportable business
segments - (1) the Construction segment (2) Hotel segment and (3) Real estate
development segment (Refer to Note 15).

F-19

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent
accounting pronouncements

In May 2008, the FASB issued
FSP APB 14-1, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement). FSP APB 14-1 clarifies that convertible debt
instruments that may be settled in cash upon either mandatory or optional
conversion (including partial cash settlement) are not addressed by paragraph
12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt issued with Stock Purchase Warrants.
Additionally, FSP APB 14-1 specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that
will reflect the entitys non-convertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company has adopted FSP APB
14-1 beginning July 1, 2009, and this standard must be applied on a retroactive
basis. The adoption of FSP APB 14-1 did not have a material impact on our consolidated
financial position and results of operations.

In June 2008, the FASB
issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities, or
FSP No. EITF 03-6-1. FSP No. EITF 03-6-1 states that unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be
included in the computation of earnings per share, or EPS, pursuant to the
two-class method. FSP EITF 03-6-1 is effective for fiscal years beginnings
after December 15, 2008. The adoption of FSP EITF 03-6-1 did not have an
impact on our consolidated financial statements.

In June 2008, the FASB
issued Emerging Issues Task Force Issue 07-5 (EITF 07-5), Determining
whether an Instrument (or Embedded Feature) is indexed to an Entitys Own
Stock. EITF No. 07-5 is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those
fiscal years. Early application is not permitted. Paragraph 11(a) of SFAS No.
133 Accounting for Derivatives and Hedging Activities, specifies that a
contract that would otherwise meet the definition of a derivative but is both
(a) indexed to the Companys own stock and (b) classified in stockholders
equity in the statement of financial position would not be considered a
derivative financial instrument. EITF 07-5 provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuers own stock and thus able to qualify for the SFAS No. 133
paragraph 11(a) scope exception. This standard triggers liability accounting on
all options and warrants exercisable at strike prices denominated in any
currency other than the functional currency of the operating entity in the PRC
(Renminbi). The adoption of EITF 07-5 did not have a material impact on our
consolidated financial statements.

On October 10, 2008, the
FASB issued FSP 157-3, Determining the Fair
Value of a Financial Asset When the Market for That Asset Is Not Active,
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) managements
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The adoption of FSP
157-3 did not have a material impact on the Companys consolidated financial
statements.

F-20

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent
accounting pronouncements (continued)

In April 2009, the FASB
issued FSP FAS 157-4, which provides guidance on how to determine the fair
value of assets and liabilities when the volume and level of activity for the
asset or liability has significantly decreased when compared with normal market
activity for the asset or liability as well as guidance on identifying
circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is
effective for interim and annual periods ending after June 15, 2009. The
adoption of FSP FAS 157-4 did not have a material impact on our results of
operations or financial condition.

In April 2009, the FASB
issued FSP FAS 115-2 and FAS 124-2, which amends the requirements for the
recognition and measurement of other-than-temporary impairments for debt
securities by modifying the current intent and ability indicator. Under FSP
FAS 115-2 and FAS 124-2, an other-than-temporary impairment must be recognized
if the Company has the intent to sell the debt security or the Company is more
likely than not will be required to sell the debt security before its
anticipated recovery. In addition, FSP FAS 115-2 and FAS 124-2 requires
impairments related to credit loss, which is the difference between the present
value of the cash flows expected to be collected and the amortized cost basis
for each security, to be recognized in earnings while impairments related to
all other factors to be recognized in other comprehensive income. FSP FAS 115-2
and FAS 124-2 is effective for interim and annual periods ending after June 15,
2009. The Company is currently evaluating the financial impact that FSP FAS
115-2 and FAS 124-2 will have, but expects that the financial impact, if any,
will not be material on its consolidated financial statements.

In April 2009, the FASB
issued FSP 107-1 and 28-1. This FSP amends SFAS 107, to require disclosures
about fair value of financial instruments not measured on the balance sheet at
fair value in interim financial statements as well as in annual financial
statements. Prior to this FSP, fair values for these assets and liabilities
were only disclosed annually. This FSP applies to all financial instruments
within the scope of SFAS 107 and requires all entities to disclose the
method(s) and significant assumptions used to estimate the fair value of
financial instruments. This FSP shall be effective for interim periods ending
after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. An entity may early adopt this FSP only if it also
elects to early adopt FSP 157-4 and 115-2 and 124-2. This FSP does not require
disclosures for earlier periods presented for comparative purposes at initial
adoption. In periods after initial adoption, this FSP requires comparative
disclosures only for periods ending after initial adoption. The Company is
currently evaluating the disclosure requirements of this new FSP.

In May 2009, the FASB issued
SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes
general standards for accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are available to be
issued (subsequent events). More specifically, SFAS 165 sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition in the financial statements, identifies the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and the disclosures that should
be made about events or transactions that occur after the balance sheet date.
SFAS 165 provides largely the same guidance on subsequent events which
previously existed only in auditing literature. The statement was adopted by
the Company in its fourth quarter and did not have an impact on its
consolidated financial statements.

F-21

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent
accounting pronouncements (continued)

In June 2009, the FASB
issued SFAS 167, Amendments to FASB Interpretation No. 46(R), which
improves financial reporting by enterprises involved with variable interest
entities. SFAS 167 addresses (1) the effects on certain provisions of FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities, as a result of the elimination of the qualifying
special-purpose entity concept in SFAS 166 and (2) concerns about the
application of certain key provisions of FIN 46(R), including those in which
the accounting and disclosures under the Interpretation do not always provide
timely and useful information about an enterprises involvement in a variable
interest entity. SFAS 167 shall be effective as of the beginning of each
reporting entitys first annual reporting period that begins after
November 15, 2009, for interim periods within the first annual reporting
period, and for interim and annual reporting periods thereafter. Earlier
application is prohibited. Adoption of SFAS 167 is not expected to have a
material impact on the Companys results of operations or financial position.

In June 2009, the FASB
issued SFAS No. 168, The FASB Accounting Standards Codification and
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162 (SFAS 168). SFAS 168 establishes the FASB
Standards Accounting Codification (Codification) as the source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by the
FASB to be applied to nongovernmental entities and rules and interpretive
releases of the SEC as authoritative GAAP for SEC registrants. The Codification
will supersede all the existing non-SEC accounting and reporting standards upon
its effective date and subsequently, the FASB will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. SFAS 168 also replaces FASB Statement No. 162, The
Hierarchy of Generally Accepted Accounting Principles, given that once in
effect, the Codification will carry the same level of authority. SFAS 168 will
be effective for financial statements issued for reporting periods that end
after September 15, 2009. The Company is currently evaluating its impact
on its consolidated financial statements.

Subsequent Events

For purposes of determining
whether a post-balance sheet event should be evaluated to determine whether it
has an effect on the financial statements for the period ending June 30, 2009,
subsequent events were evaluated by the Company as of October 19, 2009, the
date on which the consolidated financial statements at and for the year ended
June 30, 2009, were available to be issued.

NOTE 2  NOTE
RECEIVABLE, net

Note
receivable, which was attributable to the leasing of the Vocational School
pursuant to a sales-type capital lease (see Note 1), is accounted for using the
installment method of accounting as well as original note value. In accordance
with FAS 66, Accounting for Sales of Real Estate, a gain was deferred on
notes not meeting the minimum initial 20% investment by the buyer expressed as
a percentage of the sales value (See Note 1). Management believes that the note
receivable is fully collectable. Therefore, no allowance for doubtful accounts
is deemed to be required. At June 30, 2009 and 2008, note receivable,
net consisted of the following:

F-22

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 2  NOTE
RECEIVABLE, net(continued)

June
30, 2009

June
30, 2008Note
  receivable  gross

$
17,531,557

$
Less:
  discount on note receivable


(8,668,385
)

Less:
  deferred gain on sale


(50,938
)

8,812,234Note
  receivable  current portion, net


(157,923
)

Note
  receivable  long-term, net

$
8,654,311

$
NOTE 3 - INVENTORIES

At June 30,
2009 and 2008, inventories consisted of the following:

June 30,2009

2008Construction
  materials

$


$
371Consumable goods


27,838


56,476$
27,838

$
56,847Note 4  PREPAID LAND USE
RIGHTS FOR RESALE

As of June 30, 2009, the
following prepaid land use rights are for resale:

Lower of cost or marketParcel
  A

$
1,625,708Parcel
  B


2,415,382Total

$
4,041,090On August 15, 2009, an
agreement has been entered whereby the Company sold parcel A for
approximately $2,191,000 (RMB 15,000,000). Approximately $1,794,000 (RMB
12,280,000) of the sale amount has been received by the Company prior to
October 13, 2009.

The Company has not received land use right
certificates or county government approval on both parcels of land. These delays
are common in China. However, if ever the approval and land use right
certificates cannot be obtained in the future, the Companys
legal title on use rights on these parcels of land would be doubtful.

F-23

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 5  COSTS AND
ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Costs and estimated earnings
in excess of billings at June 30, 2009 and 2008 consisted of:

June 30,2009

2008Costs
  incurred on uncompleted contracts

$
18,495,062

$
36,203,033Estimated
  earnings


4,265,507


6,415,22622,760,569


42,618,259Less:
  billings to date


(22,781,528
)

(42,420,091
)$
(20,959
)
$
198,168Amounts
are included in the accompanying consolidated balance sheets under the
following captions:

June 30,2009

2008Costs
  and estimated earnings in excess of billings

$
16,539

$
221,537Billings
  in excess of costs and estimated earnings


(37,498
)

(23,369
)$
(20,959
)
$
198,168NOTE 6 - PROPERTY AND
EQUIPMENT

At June 30, 2009 and 2008, property and equipment consist of the
following:

June 30,2009

2008Useful
  LifeOffice equipment

5-8
  Years

$
576,543

$
148,319Machinery equipment

5-15
  Years


7,038,804


8,067,942Vehicles

10
  Years


418,977


466,038Building and building
  improvements

20
   40 Years


4,348,872


4,589,27512,383,196


13,271,574Less: accumulated
  depreciation




(2,999,214
)

(2,795,177
)$
9,383,982

$
10,476,397In fiscal 2009, in
connection with the disposal of property and equipment, the Company recorded a
loss from disposal of property and equipment of $302,776.

Depreciation of property and
equipment is provided using the straight-line method. For the years ended June 30, 2009 and 2008,
depreciation expense amounted to $847,941 and $1,018,072, respectively.

F-24

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 7  DEPOSITS ON
PREPAID LAND USE RIGHTS

For the development of a new
commercial real estate projects, the Company must first obtain granted land use
rights. Land use rights can be granted through bidding, auction and listing.
The Company then will enter into a land use right grant contract with the
relevant government authority. At June 30, 2009 and 2008, the Company made
deposits with various governmental agencies to acquire a long-term interests
to utilize certain land to construct real property for sale or development. In
order to obtain the provincial governments permission to build on top of the
land, the Company will need to make additional payments to the respective
governmental agency. Since the Company has not received the final land use
rights contract or the license to build on these lands, the Company has
reflected these deposits as deposits on prepaid land use rights on the
accompanying balance sheets. Upon obtaining the land use contracts, the
deposit on land use rights is to be transferred to construction in process. At
June 30, 2009 and 2008, deposits on prepaid land use rights were as follows:

June 30,2009

2008Nan Yuan Estates (residence buildings) (b)

$


$
2,524,877Inner Mongolia Electrical Vocational
  Technical School (old location) (a)





1,382,462Procuratorate (Yu Quan) Housing Estates (c)





800,373


4,707,712Less: current portion





(2,524,877
)Long-term deposits of prepaid land use
  rights

$


$
2,182,835(a)
As approved by the Hohhot
  municipal government, the Inner Mongolia Vocational School is being
  relocated. This amount represented a deposit on the right to acquire the land
  use right at this location. During fiscal 2009, the Company received a refund
  of this deposit.(b)
On September 12, 2008, the
  Company signed a repayment agreement with Nanyingzi Village Committee
  pursuant to which the Nanyingzi Village Committee agreed to return the deposit
  on prepaid land use rights to Jin Ma Real Estate pursuant to a repayment
  plan. The repayment plan requires the Nanyingzi Village Committee to pay
  2,000,000 RMB each month (approximately $291,000) from October 1, 2008 to
  April 30, 2009. This deposit on land use rights is being returned to the
  Company since the Company was unable to receive the prepaid land use rights
  certificate and will not continue with this project. The Company has not
  received all required monthly payments under this repayment agreement;
  however the Company expects to be paid in full. As of June 30, 2009, the
  Company reclassified the deposits on prepaid land use rights to other
  receivables. At June 30, 2009, the other receivable balance related to this
  repayment agreement amounted to 8 million RMB (approximately $1,169,000) and
  is included in other receivables on the accompanying balance sheet. The
  Company is continuing to collect this balance and believes the balance is
  fully collectible. On September 17, 2009, the Company collected approximately
  $584,000 (RMB 4,000,000) from Nanyingzi Village Committee.(c)
During fiscal 2009, the
  Company got government permission to build on top of the land. Therefore, the deposit on
  land use rights is to be transferred to construction in process.F-25

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 8  CONSTRUCTION IN
PROGRESS

At June 30, 2009, construction
in progress represents prepaid land use right and building built specifically
for the Inner Mongolia Chemistry College of $7,273,392 and the Procuratorate
Housing Estates (located in Yuquan District, Hohhot city, Inner Mongolia) of
$3,286,722. On September 29, 2009, the Company entered into a sales-type
capital lease agreement for a term of 20 years with Inner Mongolia Chemistry
College (see Note 20).

NOTE 9  ACCRUED EXPENSES

At June 30, 2009 and 2008, accrued expenses consist of the
following:

June 30,2009

2008Accrued interest payable

$
809,078

$
177,854Accrued payroll and
  employees benefit


363,843


147,816Accrued registration
  rights penalty





117,983Other


78,922


24,582$
1,251,843

$
468,235NOTE 10  RELATED PARTY
TRANSACTIONS

Due from related parties

From time to time, the
Company advanced funds to companies related through common ownership for
working capital purposes. These advances are non interest bearing, unsecured
and payable on demand. At June 30, 2009 and 2008, due from related parties was
due from the following:

June 30,Name

Relationship

2009

2008Inner
  Mongolia Jin Ma Group Ltd and its subsidiaries

Owned by Yang Liankuan

$
33,283

$
1,700,036The outstanding amount of
$33,283 was repaid by related parties in the first quarter of fiscal 2010.

F-26

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 11  LOANS PAYABLE

Loans payable consisted of
the following at June 30, 2009 and 2008:

June 30,2009

2008Loans from various credit unions, payable in four installments
  beginning in November 2009 and due on June 5, 2010 with variable annual
  interest adjustable every 12 months, at The Peoples Bank of China base loan
  rate + 75% of base loan rate (5.4% at June 30, 2009) and secured by the
  assets of Jin Ma Hotel.

$
2,921,927

$
2,910,446Loans from various unrelated parties, due in January 2010 with annual
  interest of 14.4% and unsecured.


1,033,777


1,029,716Loans from various unrelated parties, due in December 2009 with
  annual interest of 14.4% and unsecured.


113,955


113,507Loans from various unrelated parties, due in August 2009 with annual
  interest of 14.4% and unsecured and repaid in September 2009.


146,096


145,522Loans from various unrelated parties, due in January 2010 with annual
  interest of 18% and unsecured.


58,439


58,209Loans from various unrelated parties, due in September 2010 with
  annual interest of 18% and unsecured


36,524


36,380Loans from various unrelated parties, due in April 2012 with annual
  interest of 18% and unsecured


189,925


189,179Loans from various unrelated parties, due in August 2011 with annual
  interest of 18% and unsecured


36,524


36,380Loans from various unrelated parties, due in September 2012 with
  annual interest of 18% and unsecured


116,877


116,418Loan from one unrelated individual, due in March 2010 with annual
  interest of 24% and unsecured


146,096


Total loans payable


4,800,140


4,635,757Less: current portion


(4,420,290
)

(145,522
)Long term liability

$
379,850

$
4,490,235F-27

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 11  LOANS PAYABLE (continued)

For the years ended June 30,
2009 and 2008, interest expense related to these loans amounted to $669,176 and
$257,218, respectively. At June 30, 2009, future maturities of long-term debt
are as follows:

Fiscal year ended June 30:2010 (current liability)

$
4,420,2902011

$
36,5242012

$
226,4492013

$
116,877NOTE 12  CONVERTIBLE
DEBT

On
November 30, 2007, the Company entered into a Securities Purchase Agreement
pursuant to which the Company agreed to sell an aggregate of $3,275,000
principal amount 10% Secured Convertible Debentures to seven accredited
investors and to issue those investors common stock purchase warrants to
purchase an aggregate of 9,520,349 shares of the Companys common stock in a
private transaction exempt from registration under the Securities Act of 1933
in reliance on the exemptions provided by Section 4(2) and Rule 506 of
Regulation D of that act.

Under
the terms of the Securities Purchase Agreement, on the first closing which
occurred on November 30, 2007, the Company issued $2,183,000 principal amount
10% Secured Convertible Debentures to the purchasers together with the common
stock purchase warrants to purchase an aggregate of 9,520,349shares of the Companys common stock. The Company
paid Next Generation Equity Research, LLC (Next), a broker dealer and member
of FINRA, a commission of $174,640 and issued Next common stock purchase
warrants to purchase an aggregate of 507,674 shares of the Companys common
stock at $0.50 per share. Additionally, the Company reimbursed one of the
investors $30,000 to defer its legal fees in connection with the financing. The
Company used the balance of the proceeds for general working capital.

Within
five days following the effectiveness of the registration statement described
below, a second closing was suppose to occur and the Company was to issue the
remaining $1,092,000 principal amount 10% Secured Convertible Debentures to the
purchasers. Although the registration statement was declared effective on
August 12, 2008, the Company has not received and does not expect to receive
any funds from the second closing.

The
debentures, aggregating $2,183,000, which prior to March 31, 2009 accrued
interest at 10% per annum, were due on March 31, 2009. The Company failed to
repay the debentures on the due date. During May 2009, the Company entered into negotiations with the
debenture holders to restructure the payment terms and reached an
understanding, subject to the execution of definitive documents, to extend the
due date of the debentures and cure the default. On May 18, 2009, the Company
and the debenture holders signed a Debenture and Warrant Amendment Agreement
(the Amendment Agreement) and an Amended and Restated 14% Secured Convertible
Debenture (the Exchanged Debentures). The Jin Ma Companies, however, had been
unable to consummate this restructure due to delays caused by Chinas State
Administration of Foreign Exchange (SAFE), the agency that the Jin Ma
Companies must get approval from to wire the funds to the debenture holders. On
June 30, 2009, the Company and the debenture holders executed an Amendment to
the Amendment Agreement effectively consummating the Amendment Agreement and
issuing the Exchanged Debentures thereby ceasing any written or non-written
declarations of an event of default under its Securities Purchase Agreement and
the related 10% secured convertible debentures and any process to foreclose
upon the pledged shares in accordance with the terms of the pledge agreement
executed in connection Securities Purchase Agreement.

F-28

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)

The rights and obligations
of the debenture holders and of the Company with respect to the Amended
Agreement and Amended Exchanged Debentures and any securities underlying such
securities are identical in all respects to the rights and obligations of the
debenture holders and of the Company with respect to the debentures and the
underlying shares issued and issuable pursuant to the original Securities
Purchase Agreements executed on November 30, 2007, except for the following
amended terms:


The Exchanged Debenture
  was revised and the debenture principal repayment schedule is as follows:Repayment Date

Principal
Amount DueJuly 24, 2009 (1)

$
327,450September 30, 2009 (2)


436,600December 31, 2009


1,091,500March 31, 2010


327,450Total

$
2,183,000(1)
Amount was paid on July
  23, 2009 along with required interest payment of $55,030.(2)
The principal amount was
  paid on September 30, 2009 along with required cash portion interest payment
  of $101,350.
Pursuant
  to the repayment schedule, unless the Exchanged Debenture is paid in full on
  or before December 31, 2009, the March 31, 2010 Monthly Redemption Amount
  will include a premium equal to 10% of the principal amount of the Exchanged
  Debenture outstanding immediately prior to the consummation of the Amendment
  Agreement amounting to $218,300. At June 30, 2009, the Company has accrued
  this penalty which has been included in accrued expenses on the accompanying
  balance sheet and for the year ended June 30, 2009, has been reflected in
  interest expense on the accompanying statement of income.
The conversion price in
  effect on any outstanding principal balance was lowered from a conversion rate
  of $0.344 per share to $0.10
  per share.
The exercise price per
  share of common stock for the original 10,028,023 warrants issued pursuant to
  the Securities Purchase Agreement dated November 30, 2007 and to the
  placement agent was lowered from $0.50 to $0.10.
Subject to certain terms
  and conditions therein, as a result of the changes made to Rule 144
  promulgated under the Securities Act of 1933, as amended which were effective
  February 15, 2008, the Companys obligations, pursuant to the Registration
  Rights Agreement, by and among the Company and each of the debenture
  holders, to maintain a registration statement register the shares of common
  stock issuable upon conversion and/or cashless exercise of the Exchanged
  Debentures and the warrants (collectively, the 144 Eligible Securities),
  were waived, so long as (a) the Company is in compliance with the current
  public information requirement under Rule 144 and (b) the debenture holder
  may sell the 144 Eligible Securities without any restriction or limitation under
  Rule 144 or other applicable exemption as of that date.
the warrants may also be
  exercised at such time by means of a cashless exercise in which the holder
  shall be entitled to receive a certificate for the number of warrant shares
  equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:F-29

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)

(A) = the VWAP on the
Trading Day immediately preceding the date of such election;

(B) = the Exercise Price of
the warrant, as adjusted; and

(X) = the number of Warrant
Shares issuable upon exercise of the warrant in accordance with the terms of
the warrant by means of a cash exercise rather than a cashless exercise.


The Company will pay
  interest to the debenture holders on the aggregate unconverted and then
  outstanding principal amount of the Exchanged Debenture at the rate of 14%
  per annum, payable on each amount then being converted), and on the Maturity
  Date (each such date, in cash or, as to 28.6% of the applicable interest
  amount on such Interest Payment Date only (i.e., 4% per annum), at the
  Companys option, in shares of common stock at the Interest Conversion Rate
  provided, however, that payment in shares of common stock may only occur if
  (i) all of the Equity Conditions, as defined, have been met (unless waived by
  the holder in writing) during the 20 Trading Days immediately prior to the
  applicable Interest Payment Date (the Interest Notice Period) and through
  and including the date such shares of common stock are actually issued to the
  holder, (ii) the Company shall have given the holder notice in accordance
  with the notice requirements and (iii) as to such Interest Payment Date,
  prior to such Interest Notice Period (but not more than 5 Trading Days prior
  to the commencement of such Interest Notice Period), the Company shall have
  delivered to the debenture holders account with The Depository Trust Company
  a number of shares of common stock to be applied against such Interest Share
  Amount equal to the quotient of (x) the applicable Interest Share Amount
  divided by (y) the then Conversion Price.
The debenture holders
  waived any liquidated damages that were due pursuant to Securities Purchase
  Agreements dated November 30, 2007.The rights and obligations
of the debenture holders and of the Company with respect to the debentures and
the underlying shares issued and issuable pursuant to the original Securities
Purchase Agreements executed on November 30, 2007 are as follows:


The
  conversion price of the debentures and the exercise price of the warrants are
  subject to the proportional adjustment in the event of a stock splits, stock
  dividends, recapitalizations or similar corporate events. Both the conversion
  price of the debentures and the number of shares issuable upon conversion of
  the debentures as well as the exercise price of the warrants and the number
  of shares issuable upon the exercise of the warrants is subject to adjustment
  if the Company should issue shares of common stock or other securities
  convertible or exercisable into shares of common stock or otherwise reprice
  any existing conversion or exercise prices to a price less than the then
  current conversion and/or exercise prices.
The
  debentures are not convertible and the warrants are not exercisable to the
  extent that (i) the number of shares of our common stock beneficially owned
  by the holder and (ii) the number of shares of our common stock issuable upon
  the conversion of the debentures and/or the exercise of the warrants would
  result in the beneficial ownership by holder of more than 4.99% of our then
  outstanding common stock. This ownership limitation can be increased to 9.99%
  by the holder upon 61 days notice to the Company.F-30

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)


The
  Company agreed that so long as the debentures remain outstanding, unless the
  Company receives the prior written consent of the holders of at least 85% of
  the outstanding principal amount of the debentures, the Company agreed that
  it will not:
incur
  additional indebtedness, subject to certain exceptions,
incur
  any liens on any of our property or assets,
repurchase
  any of its common stock, subject to certain exceptions,
amend
  its charter documents in a manner that would be adverse to the debenture
  holders,
So
  long as the debentures are outstanding, should the Company issue any common
  stock or common stock equivalent, the Company granted the purchasers a right
  of first refusal whereby each purchaser in this offering has the right to
  participate in such subsequent financing up to an amount equal to 100% of
  such subsequent financing upon the same terms and conditions of that
  financing. If the Company undertakes such a financing while the debentures
  remain outstanding, other than an underwritten offering, the holders are
  entitled to exchange the debentures on a dollar for dollar basis for any
  securities which the Company may issue in the subsequent financing. The
  Company also agreed that so long as the purchasers own any of the securities
  sold or to be issued in the transaction, the Company will not enter into any
  agreement which would involve a variable rate transaction, which includes
  floating conversion prices, conversion prices with reset mechanisms or equity
  lines of credit among others.
Pursuant to the Securities
  Purchase Agreement, if the Company should default on the debentures,
  the holders have the right to immediately accelerate the maturity date of the
  principal amount of the debentures as well as any accrued but unpaid interest
  and if such amount is not satisfied within five days the interest rate on the
  debentures increases to 18%. Events of default include customary clauses such
  as failure to make payments when required, failure to observe any covenant
  contained in the debentures, a default under any other document executed in
  connection with the transaction, bankruptcy or default under any other
  obligation greater than $150,000. In addition, an event of default would
  occur if the Companys common stock should no longer be quoted on the OTC
  Bulletin Board, if the Company were a party to a change of control
  transaction involving in excess of 33% of its assets or if the registration
  statement described below is not declared effective within 180 days after the
  first closing date, among other provisions.
In
  conjunction with the transaction, Mr. Liankuan Yang and Yang Yang and
  Ms. Runlan Ma, officers and directors of the Company, pledged an
  aggregate of 19,000,000 shares of the Companys common stock owned by them as
  additional security for the Companys obligations under the transaction.
  Mr. Liankuan Yang, Ms. Yang Yang and Ms. Runlan Ma have also
  entered into lock-up agreements whereby they are agreed not to offer or sell
  any shares of the Companys common stock owned by them until the 180th
  trading day after the effective date of the registration statement described
  elsewhere herein.F-31

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)


The
  9,520,349 common stock purchase warrants issued pursuant to the Securities
  Purchase Agreement are exercisable for five years from the date of issuance
  at an initial exercise price of $0.50 per share, subject to adjustment and
  adjusted to $0.10 per share as discussed above. The Company is permitted to
  call the warrants on 30 trading days prior notice at $0.001 per warrant at
  any time after the effective date of the registration statement covering the
  shares underlying the warrants when, (i) the VWAP (as defined in the warrant)
  for each of 20 consecutive trading days beginning with the effective date of
  the registration statement exceeds $1.50, (ii) the average daily volume for
  during this period exceeds 500,000 shares of common stock per trading day and
  (iii) the holder is not in possession of any information that constitutes, or
  might constitute, material non-public information which was provided by the
  Company to the holder.The
Company granted the purchasers certain piggy-back registration rights. In
addition, the Company had agreed to file a registration statement with the
Securities and Exchange Commission registering the shares of common stock
underlying the $3,275,000 principal amount debentures and the warrants so as to
permit the public resale thereof within 45 days from the first closing date.
The Company was subject to the payment to the holders liquidated damages if it
fails to file the registration statement within 45 days from the date of the
Securities Purchase Agreement, or if the registration statement is not declared
effective within 120 days from the date of the Securities Purchase Agreement
(or 150 days if the staff of the SEC reviews the filing), or if all the
securities are not registered by April 30, 2008 as well as certain other
events. The liquidated damages, which are payable in cash, were calculated at
1.5% of the aggregate purchase price paid by each holder for every 30 day
period, with a maximum of 18% of the aggregate purchase price. If the Company
fails to pay all or any portion of these liquidated damages, they accrue
interest at 18% per annum. The
Company filed its registration on January 23, 2008. The registration statement
was declared effective on August 11, 2008. Pursuant to FASB Staff Position, or FSP, EITF 00-19-2, Accounting for Registration
Payment Arrangements, during the year
ended June 30, 2008, the Company recorded a registration penalty of $117,882.

On
June 30, 2009, pursuant to a Debenture and Warrant Amendment Agreement as described above, the debenture
holders waived the liquidated damages that were due pursuant to Securities
Purchase Agreement dated November 30, 2007, and accordingly, during the year ended June 30, 2009, the
Company recorded a gain from the forgiveness of the registration
rights penalty of $117,882.

Accounting treatment
related to convertible debt and related warrants

a)
Initial convertible debt and related warrants

In fiscal 2008, the Company
evaluated whether or not the convertible debt contained embedded conversion
options, which meet the definition of a derivatives under SFAS 133 Accounting
for Derivative Instruments and Hedging Activities and related interpretations.
The Company concluded that since the series A convertible debenture had a fixed
redemption price of $0.344, the convertible debenture was not a derivative
instrument. The Company analyzed this provision under EITF 05-04 and therefore
it qualified as equity under EITF 00-19. In accordance with Emerging Issues
Task Force (EITF) 98-5 and EITF 00-27, the convertible notes were
considered to have an embedded beneficial conversion feature (BCF) because the
effective conversion price was less than the fair value of the Companys common
stock. This convertible notes were fully convertible at the issuance date,
therefore the portion of proceeds allocated to the convertible notes of
$1,295,233 was determined to be the value of the beneficial conversion feature
and was recorded as a debt discount and was amortized over the 16-months note
term.

F-32

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)

Pursuant to the terms of the
Warrants, the Purchasers are entitled to purchase up to 9,520,349 shares of
common stock of the Company at an initial exercise price of $0.50 per share.
The Warrants have a term of 5 years after the issue date of November 30, 2007.
These warrants were treated as a discount on the secured notes and were valued
at $887,768 and were amortized over the 16-month note term. The fair market
value of each stock warrant was estimated on the date of grant using the
Black-Scholes option-pricing model in accordance with SFAS No. 123R using the
following weighted-average assumptions: expected dividend yield 0%; risk-free
interest rate of 3.41%; volatility of 25% and an expected term of five years.

The Company evaluated
whether or not the secured convertible debentures contain embedded conversion
options, which meet the definition of derivatives under SFAS 133 Accounting
for Derivative Instruments and Hedging Activities and related interpretations.
The Company concluded that since the secured convertible debentures had a fixed
conversion rate of $0.344, the secured convertible debt was not a derivative
instrument. The Company analyzed this provision under EITF 05-04 and, although
the debt is unconventional, the reset provision was deemed within the Companys
control and therefore it qualified as equity under EITF 00-19.

b)
Amended convertible debt and related warrants

In connection with the
amendment of the Securities Purchase Agreements and related agreements,
management considered Statement of Financial Accounting Standards 5, Accounting
by Debtors and Creditors for Troubled Debt Restructurings, (SFAS 15) and
related interpretations including EITF 02-4, Determining Whether a Debtors
Modification or Exchange of Debt Instruments Is within the Scope of FASB
Statement No. 15, EITF 96-19, Debtors Accounting for a Modification or Exchange of
Debt Instruments, EITF 05-7, Accounting for Modifications to Conversion Options
Embedded in Debt Instruments and Related Issues, and EITF 06-6, Debtors
Accounting for a Modification (or Exchange) of Convertible Debt.

Under SFAS 15 and EITF 02-4,
the Company concluded that the Amended Agreements were not a troubled debt
restructure since there are no concessions by the note holders because they
have in effect received new notes with new or better conversion terms, an increased
interest rate, and a reduction of the warrant exercise price. The effective
interest rate has increased due to the various changes discussed above.

Therefore, the Company
reviewed EITF 96-19 which is for modifications of debt instruments other than a
troubled debt restructure. Under EITF 96-19, the changes in cash flows were
measured as follows:

Change in present value (PV) of principal

$
0Change in PV of interest

$
0Change in fair value of
  embedded conversion option

$
2,204,480If the change in cash flows
are greater than 10% or if change in embedded conversion option is greater than
10% of the debt ($2,183,000 *10% = $218,300) then it is treated as a
substantial modification of terms and a debt extinguishment under paragraph 16
of SFAS 140. The change in the embedded conversion option result in a greater
than 10% change in the PV of the notes and as such management believes this
restructuring should be accounted for as an extinguishment of debt, plus a
re-issuance of new debt with new warrants and a new beneficial conversion
feature. Under the 3 issues of EITF 05-7, the debtor should recognize a debt
discount and additional paid-in capital for the change in fair value of the
embedded conversion options and not consider a BCF only if it is determined
that this is not a debt extinguishment

F-33

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 12  CONVERTIBLE
DEBT (continued)

(See paragraph 5-which is an
intrinsic value method). Accordingly, the Company determined that this was a
debt extinguishment and accounted for the transaction as though the old debt
was extinguished (amortize all discounts and issue costs) and then account for
the Amended Agreements as though new debt was issued (record new discounts for
warrants and the BCF).

In accordance with EITF 98-5
and EITF 00-27, the amended convertible notes were considered to have a BCF
because the effective conversion price was less than the fair value of the
Companys common stock. This convertible notes were fully convertible at the
issuance date, therefore the portion of proceeds allocated to the convertible
notes of $1,302,947 was determined to be the value of the beneficial conversion
feature and was recorded as a debt discount and will be amortized over the
9-months amended note term.

Pursuant to the terms of the
amended warrants, the Purchasers are entitled to purchase up to 9,520,349
shares of common stock of the Company at an amended exercise price of $0.10 per
share. The amended warrants have a term of 5 years after the issue date of
November 30, 2007. These warrants were treated as a discount on the convertible
notes and were valued at $880,053 and will be amortized over the 9-month amended
note term. The fair market value of each stock warrant was estimated on the
date of grant using the Black-Scholes option-pricing model in accordance with
SFAS No. 123R using the following weighted-average assumptions: expected
dividend yield 0%; risk-free interest rate of 1.2%; volatility of 328% and an
expected term of four years.

The amortization of debt
discounts for the year ended June 30, 2009 and 2008 was $1,227,938 and
$955,062, respectively, which has been included in interest expense on the
accompanying consolidated statement of income. The balance of the debt discount
is $2,183,000 and $1,227,938, respectively, at June 30, 2009 and 2008 which
will be amortized over the remaining term of the debenture.

Cash on deposit in China is
subject to the regulations of the PRC which restricts the transfer of cash from
that country, except under certain specific circumstances. The Company has been
advised by Mr. Yang that these currency laws have served to hinder the Jin Ma
Companies. The source of the funds for these repayments will be the repayment
to the Company by the Jin Ma Companies of a portion of the amounts owed the
Company.

If the Company is not able
to makes its installment payments pursuant to the amended agreements, the
Company may need to accrue an aggregate default penalty liability of $654,900
and will begin to accrue interest at 18% per annum. In addition to potential
other damages, as a result of the pledge of shares of the Companys common
stock by the Companys principals to the debenture holders, should the
debenture holders continue their efforts to foreclose upon this collateral, a
controlling interest in the Company will be obtained by the debenture holders.

The convertible debenture
liability is as follows at June 30, 2009 and 2008:

June 30,2009

2008Convertible
  debentures payable

$
2,183,000

$
2,183,000Less:
  unamortized discount on debentures


2,183,000


(1,227,938
)Convertible
  debentures, net

$


$
955,062F-34

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 13  INCOME TAXES

The Company accounts for
income taxes under Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). SFAS 109 requires the
recognition of deferred tax assets and liabilities for both the expected impact
of differences between the financial statements and the tax basis of assets and
liabilities, and for the expected future tax benefit to be derived from tax
losses and tax credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets. Realization of deferred tax assets, including those
related to the U.S. net operating loss carryforwards, are dependent upon future
earnings, if any, of which the timing and amount are uncertain. Accordingly,
the net deferred tax asset related to the U.S. net operating loss carryforward
has been fully offset by a valuation allowance. The Company is governed by the
Income Tax Law of the Peoples Republic of China and the United States.

The operations of the
Company are in China and are governed by the Income Tax Law of the Peoples
Republic of China and local income tax laws (the PRC Income Tax Law).
Pursuant to the PRC Income Tax Laws, prior to January 1, 2008, the Company is
subject to Enterprise Income Taxes (EIT) at a statutory rate of 33%, which
comprises 30% national income tax and 3% local income tax. Beginning January
1, 2008, the new Enterprise Income Tax (EIT) law replaced the existing laws
for Domestic Enterprises (DES) and Foreign Invested Enterprises (FIEs). The
new standard EIT rate of 25% replaced the 33% rate currently applicable to both
DES and FIEs, except for High Tech companies who pay a reduced rate of 15%.

Gold Horse International,
Inc. was incorporated in the United States and has incurred an aggregate net
operating losses of $1,524,000, consisting of approximately $833,000 and
$691,000 of net operating losses for income tax purposes for the year ended
June 30, 2009 and 2008, respectively, subject to the Internal Revenue Code Section 382, which places a
limitation on the amount of taxable income that can be offset by net operating
losses after a change in ownership. The net operating loss carries forward for
United States income taxes, which may be available to reduce future years
taxable income. These carry forwards will expire, if not utilized, through
2029. Management believes that the realization of the benefits from these
losses appears not more than likely due to the Companys limited operating
history and continuing losses for United States income tax purposes.
Accordingly, the Company has provided a 100% valuation allowance on the
deferred tax asset benefit to reduce the asset to zero. Management will review
this valuation allowance periodically and make adjustments as warranted. Because the Companys operations are
conducted wholly outside of the United States and the Company does not plan to
invest earnings in the United States, the Company has not recognized any United
States taxes or income taxes in the Cayman Islands.

The table
below reconciles the differences between the U.S. statutory federal rate of 34%
and the Companys effective tax rate and as follows for years ended June 30,
2009 and 2008:

2009

2008Income before provision for income taxes

$
8,984,783

$
6,848,423Income tax at U.S statutory
  rate of 34%


3,054,826


2,328,464Non-deductible non-cash
  interest expense


417,499


324,721U.S. effective rate in excess
  of China effective tax rate


(936,203
)

(571,707
)2,536,122


2,081,478Valuation allowance


283,356


234,811Total current income tax
  provision

$
2,819,478

$
2,316,289F-35

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 13  INCOME TAXES
(continued)

The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at June 30, 2009 and 2008 are as follows:

2009

2008Deferred tax
  assets:Net operating loss carry forward

$
518,167

$
234,811Total gross deferred tax assets


518,167


234,811Less valuation allowance


(518,167
)

(234,811
)Net deferred
  tax assets

$


$
The valuation allowance at
June 30, 2009 was $518,167. The increase during 2009 was $283,356. Income tax
expenses for the years ended June 30, 2009 and 2008 are $2,819,478 and
$2,316,289, respectively.

NOTE 14  STOCKHOLDERS
EQUITY

Common
stock

During the six months ended
December 31, 2007, the Company sold 2,219,252 shares of common stock to 36 individuals residing in China for net
proceeds of $2,219,252.

On January 17, 2008, the
Company issued 145,349 shares of common stock to its chief financial officer or
his assignee for services rendered. The shares were fair value on the date of
grant based on recent trading price of $0.52. In connection with the issuance
of these shares, for the years ended June 30, 2009 and 2008, the Company
recorded stock-based compensation of $63,080 and $12,500, respectively.

On January 17, 2008, the
Company issued 180,000 shares of common stock to its directors for services
rendered. The shares were fair value on the date of grant based on recent
trading price of $0.52. In connection with the issuance of these shares, the
Company recorded compensation of $93,600.

In November 2008, the
Company sold 124,000 shares of common stock to six individuals residing in
China for net proceeds of $124,000.

2007 Equity Compensation Plan

On October 25, 2007 the
Companys board of directors adopted its 2007 Equity Compensation Plan. The
purpose of the 2007 Equity Compensation Plan is to offer to the Companys
employees, officers, directors and consultants whose past, present and/or
potential contributions to the Company have been or are or will be important to
our success, an opportunity to acquire a proprietary interest in the Company.
The issuance of grants under the 2007 Equity Compensation Plan will be made to
persons who are closely related to the Company and who provide bona fide
services to the Company in connection with its business. Under Federal
securities laws, these services cannot be in connection with the offer of sale
of the Companys securities in a capital raising transaction nor directly or
indirectly promote or maintain a market for the Companys securities. The
Company has currently reserved 3,000,000 of its authorized but unissued shares
of common stock for issuance under the 2007 Equity Compensation Plan.

F-36

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 14  STOCKHOLDERS
EQUITY (continued)

Plan options may either be
options qualifying as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended, or non-qualified options. In addition, the
2007 Equity Compensation Plan allows for the inclusion of a reload option
provision, which permits an eligible person to pay the exercise price of the
option with shares of common stock owned by the eligible person and receive a
new option to purchase shares of common stock equal in number to the tendered
shares. Any incentive option granted under the 2007 Equity Compensation Plan
must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of grant, but the exercise price of
any incentive option granted to an eligible employee owning more than 10% of
our outstanding common stock must not be less than 110% of fair market value on
the date of the grant. Any non-qualified option granted under the 2007 Equity
Compensation Plan must provide for an exercise price of not less than the par
value of our common stock. The term of each plan option and the manner in which
it may be exercised is determined by the Board of Directors or the compensation
committee, provided that no option may be exercisable more than 10 years after
the date of its grant and, in the case of an incentive option granted to an
eligible employee owning more than 10% of the common stock, no more than five
years after the date of the grant. Since the 2007 Equity Compensation Plan was
not approved by our stockholders by October 25, 2008, no incentive stock
options may be granted and all stock options granted shall automatically be
non-qualified stock options.

Subject to the limitation on
the aggregate number of shares issuable under the 2007 Equity Compensation
Plan, there is no maximum or minimum number of shares as to which a stock grant
or plan option may be granted to any person. Shares used for stock grants and
plan options may be authorized and unissued shares or shares reacquired by us,
including shares purchased in the open market. Shares covered by plan options
which terminate unexercised will again become available for grant as additional
options, without decreasing the maximum number of shares issuable under the
2007 Equity Compensation Plan, although such shares may also be used by us for
other purposes. As of June 30, 2009, the Company has not made any grants under
the 2007 Equity Compensation Plan.

Warrants

Warrant activities for the
years ended June 30, 2009 and 2008 are summarized as follows:

Year
Ended June 30, 2009

Year
Ended June 30, 2008Number
of Warrants

Weighted
Average Exercise Price

Number
of Warrants

Weighted
Average Exercise PriceBalance at beginning of year


10,028,023

$
0.50




$
Granted


10,028,023


0.10


10,028,023


0.50Exercised











Forfeited


(10,028,023
)

(0.50
)




Balance at end of year


10,028,023

$
0.10


10,028,023

$
0.50Warrants exercisable at end of year


10,028,023

$
0.10


10,028,023

$
0.50F-37

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 14  STOCKHOLDERS
EQUITY (continued)

The following table
summarizes the Companys stock warrants outstanding at June 30, 2009:

Warrants
Outstanding

Warrants
ExercisableRange
of Exercise Price

Number
Outstanding at June 30, 2009

Weighted
Average Remaining Contractual Life

Weighted
Average Exercise Price

Number
Exercisable at June 30, 2009

Weighted
Average Exercise Price$
0.10


10,028,023


3.42 Years

$
0.10


10,028,023

$
0.10NOTE 15  SEGMENT
INFORMATION

Statement of Financial
Accounting Standards No. 131 (SFAS 131), Disclosure About Segments of an
Enterprise and Related Information requires use of the management approach
model for segment reporting. The management approach model is based on the way
a companys management organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other
manner in which management disaggregates a company.

During the years ended June
30, 2009 and 2008, the Company operated in three reportable business segments -
(1) the Construction segment (2) Hotel segment and (3) Real estate development
segment. The Companys reportable segments are strategic business units that
offer different products. The
Companys reportable segments, although integral to the success of the others,
offer distinctly different products and services and require different types of
management focus. As such, these segments are managed separately.

Condensed information with
respect to these reportable business segments for the years ended June 30, 2009
and 2008 is as follows:

For
the Year Ended June 30,2009

2008Revenues:Construction

$
77,041,208

$
61,714,065Real Estate


382,463


2,032,278Hotel


3,515,821


3,167,48380,939,492


66,913,826Depreciation
  and amortization:Construction


481,899


521,429Real Estate


50,667


32,470Hotel


315,375


464,173847,941


1,018,072Interest
  expense:Construction


669,174


257,216Other


1,802,847


1,168,9222,472,021


1,426,138Net income
  (loss):Construction


7,425,065


5,452,652Real Estate


197,512


427,725Hotel


604,066


297,439Other (a)


(2,061,338
)

(1,645,682
)6,165,305


4,532,134F-38

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 15  SEGMENT
INFORMATION (continued)

June
30,2009

2008Identifiable long-lived
  tangible assets at June 30, 2009 and 2008:Construction

$
6,819,609

$
7,462,210Real Estate


353,825


493,001Hotel


2,210,548


2,521,186Other (a)





$
9,383,982

$
10,476,397(a)
The
  Company does not allocate its general and administrative expenses of its US
  activities to its reportable segments, because these activities are managed
  at a corporate level.NOTE 16 - STATUTORY
RESERVES

The Company is required to
make appropriations to reserve funds, comprising the statutory surplus reserve,
statutory public welfare fund and discretionary surplus reserve, based on
after-tax net income determined in accordance with generally accepted
accounting principles of the PRC (the PRC GAAP). Appropriation to the
statutory surplus reserve should be at least 10% of the after tax net income
determined in accordance with the PRC GAAP until the reserve is equal to 50% of
the entities registered capital or members equity. Appropriations to the
statutory public welfare fund are at a minimum of 5% of the after tax net
income determined in accordance with PRC GAAP. Commencing on January 1, 2006,
the new PRC regulations waived the requirement for appropriating retained earnings
to a welfare fund. In accordance with the Chinese Company Law, the Company
allocated 10% of income after taxes to the statutory surplus reserve for the
years ended June 30, 2009 and 2008.

For the years ended June 30,
2009 and 2008, statutory reserve activity is as follows:

TotalBalance  June 30, 2007

$
594,006Additional to statutory
  reserves


622,286Balance  June 30, 2008


1,216,292Additional to statutory
  reserves


824,607Balance  June 30, 2009

$
2,040,899NOTE 17  MAJOR CUSTOMERS
& VENDORS

The nature of the Companys
construction segment is that at any given time, the Company will have a
concentration of significant customer depending upon the number and scope of
construction projects. These significant customers may not be the same from
period to period depending upon the percentage of completion of the specific
projects. For the year ended June 30, 2009, four construction projects
accounted for 94.1% of the Companys revenues as follows:

F-39

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 17  MAJOR CUSTOMERS
& VENDORS (continued)

Project
Name

For
the Year Ended June 30, 2009

%

For
the Year Ended June 30, 2008

%Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known
  as Ta Bu Ban)

$



0.0

$
6,938,445


11.2Riverbank Garden Community (Buildings 5 to 8 and Phase II)


10,557,604


13.7


25,597,072


38.2Tian Fu Garden residential project (Phase I and II)


16,698,666


21.7


16,131,665


26.1Ai Bo Garden residential apartment project


26,828,713


34.8


8,309,296


9.4Fu Xing Bath Center


18,430,028


23.9





0.0At June 30, 2009, the
Company had $11,076,151 of accounts receivable due from these customers. At
June 30, 2008, the Company had $7,603,725 of accounts receivable due from these
customers. Any disruption in the relationships between the Companys
construction segment and one or more of these customers, or any significant
variance in the magnitude or the timing of construction projects from any one
of these customers, may result in decreases in our results of operations,
liquidity and cash flows.

The Company uses five to
seven subcontractors to perform its construction services and to develop its
real estate projects. Management is aware of similar subcontractors that are
available to perform construction services if required and management has plans
to engage their services if necessary.

NOTE 18  RESTRICTED NET
ASSETS

Schedule
I of Article 5-04 of Regulation S-X requires the condensed financial
information of registrant shall
be filed when the restricted net assets of consolidated subsidiaries exceed 25
percent of consolidated net assets as of the end of the most recently completed
fiscal year. For purposes of the above test, restricted net assets of
consolidated subsidiaries shall mean that amount of the registrants
proportionate share of net assets of consolidated subsidiaries (after
intercompany eliminations) which as of the end of the most recent fiscal year
may not be transferred to the parent company by subsidiaries in the form of
loans, advances or cash dividends without the consent of a third party (i.e., lender, regulatory agency, foreign
government, etc.).

The condensed parent company
financial statements have been prepared in accordance with Rule 12-04, Schedule
I of Regulation S-X as the restricted net assets of the subsidiaries of Gold
Horse International, Inc. exceed 25% of the consolidated net assets of Gold
Horse International, Inc. The ability of our Chinese operating affiliates to
pay dividends may be restricted due to the foreign exchange control policies
and availability of cash balances of the Chinese operating subsidiaries.
Because a significant portion of our operations and revenues are conducted and
generated in China, all of our revenues being earned and currency received are
denominated in Renminbi (RMB). RMB is subject to the exchange control
regulation in China, and, as a result, we may be unable to distribute any
dividends outside of China due to PRC exchange control regulations that
restrict our ability to convert RMB into US Dollars.

F-40

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 18  RESTRICTED NET
ASSETS (continued)

The condensed parent company
financial statements have been prepared using the same accounting principles
and policies described in the notes to the consolidated financial statements,
with the only exception being that the parent company accounts for its
subsidiaries using the equity method. Refer to the consolidated financial
statements and notes presented above for additional information and disclosures
with respect to these financial statements.

GOLD HORSE
INTERNATIONAL, INC.
CONSOLIDATED PARENT COMPANY BALANCE SHEETS

As of June
  30,

As of June
  30,2009

2008ASSETSCash and cash equivalents

$
39,956

$
19,826Deferred debt costs





115,110Total Current Assets


39,956


134,936Investments in subsidiaries at equity


28,914,268


20,593,620Due from subsidiaries


2,042,142


2,173,412Total Assets

$
30,996,366

$
22,901,968LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Convertible debt, net

$


$
955,062Accounts payable


221,825


45,692Accrued expenses


425,300


117,983Total Current Liabilities


647,125


1,118,737Stockholders equity:Common stock ($.0001 par value; 300,000,000 shares
authorized;
  52,668,603 and 52,544,603 shares issued and outstanding at June 30, 2009 and
  2008, respectively)


5,266


5,254Non-controlling interest in variable interest
entities


6,095,314


6,095,314Additional paid-in capital


6,878,166


4,571,178Statutory reserve


2,040,899


1,216,292Retained earnings


12,866,842


7,526,144Other comprehensive income


2,462,754


2,369,049Total Stockholders Equity


30,349,241


21,783,231Total Liabilities and Stockholders
Equity

$
30,996,366

$
22,901,968F-41

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 18  RESTRICTED NET
ASSETS (continued)

GOLD HORSE
INTERNATIONAL, INC.
CONDENSED PARENT COMPANY STATEMENTS OF OPERATIONS

For the Year Ended June 30,2009

2008REVENUES

$


$
OPERATING EXPENSES:Salaries and employee benefits


307,000


217,792General and administrative


69,374


141,085Total Operating Expenses


376,374


358,877LOSS FROM OPERATIONS


(376,374
)

(358,877
)OTHER EXPENSES:Registration rights penalty recovery
  (rexpense)


117,882


(117,882
)Interest expense


(1,802,846
)

(1,168,923
)Total Other Expenses


(1,684,964
)

(1,286,805
)LOSS ATTRIBUTABLE TO PARENT ONLY


(2,061,338
)

(1,645,682
)EQUITY INCOME EARNINGS OF SUBSIDIARIES


8,226,643


6,177,816NET INCOME

$
6,165,305

$
4,532,134F-42

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 18  RESTRICTED NET
ASSETS (continued)

GOLD HORSE
INTERNATIONAL, INC.
CONSOLIDATED PARENT COMPANY STATEMENTS OF CASH FLOWS

For the
  Year Ended June 30,2009

2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
6,165,305

$
4,532,134Adjustments to reconcile net income to net
  cash used in operating activities:Equity in earnings of subsidiary


(8,226,643
)

(6,177,816
)Common stock issued for services





169,181Interest expense from amortization of debt
  discount


1,227,938


955,063Amortization of debt issuance costs


115,110


89,530Changes in assets and liabilities:Accounts payable


176,132


45,692Accrued expenses


307,318


117,982NET CASH USED IN OPERATING ACTIVITIES


(234,840
)

(268,234
)CASH FLOWS FROM INVESTING ACTIVITIES:Investment payments to subsidiaries





(1,800,000
)Proceeds from subsidiaries


130,970


110,000Payment to subsidiaries





(2,219,552
)NET CASH PROVIDED BY (USED IN) INVESTING
  ACTIVITIES


130,970


(3,909,552
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from convertible debt





2,183,000Payment of placement fees





(204,640
)Proceeds from sale of common stock


124,000


2,219,252NET CASH PROVIDED BY FINANCING ACTIVITIES


124,000


4,197,612NET INCREASE IN CASH


20,130


19,826CASH - beginning of year


19,826


CASH - end of year

$
39,956

$
19,826NOTE 19  COMMITMENTS

The Company did not have
significant capital and other commitments, or significant guarantees as of June
30, 2009.

F-43

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2009 and 2008

NOTE 20  SUBSEQUENT
EVENT

According to the term of an
amendment dated June 30, 2009 to the amendment agreement with debenture holders
(see note 12), the Company effected the following repayments to debenture
holders:

Date

AmountJuly
  23, 2009

$
382,480
(i)September
  30, 2009


537,950
(ii)Total

$
920,430(i)
The repayment included
  principal amount of $327,450 and interest of $55,030.(ii)
The repayment included
  principal amount of $436,600 and interest of $101,350On August 15, 2009, the
Company signed an agreement with Hohhot Xiehe Real Estate Development Company
to sell certain land use rights. The total sale price was 15,000,000 RMB
(approximately $2.19 million). The total original cost of the land use rights
was 11,161,840 RMB (approximately $1.63 million) and the total residual book
value of the land use rights sold to Hohhot Xiehe Real Estate Development
Company was approximately 11,128,000 RMB (approximately $1,626,000) on June 30,
2009.

During the period from July
1, 2009 to October 12, 2009, the Company issued 2,350,000 shares of its common
stock in connection with the conversion of $235,000 of convertible debt.

On September 10, 2009, the
Company issued 3,055,000 shares of its common stock to officers and directors
of the Company for services rendered and for accrued compensation. The shares
were fair value on the date of grant based on recent trading price of $0.10. In
connection with the issuance of these shares, the Company reduced accrued
expenses by $248,000 and recorded stock-based compensation of $57,500.

On September 29, 2009, Jin Ma
Real Estate and Inner Mongolia Chemistry College entered an agreement for the
construction of student apartments for the Inner Mongolia Chemistry College
situated in Inner Mongolia University City, a compound where many higher
education institutions are located. Jin Ma Construction began developing the
51,037 square-meter project in July 2008 and expects to complete the project in
October 2009. Once completed, Jin Ma Real Estate will lease the buildings to
the college for a period of 20 years. The annual lease payment will be
approximately RMB 10 million (approximately $1.5 million) for 5 years (from
October 2009 to October 2013) and the annual lease payment will be
approximately RMB 7.5 million (approximately $1.1 million) for 15 years (from
October 2014 to October, 2028).

F-44