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, 2010oro
 TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934For 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
 
 010030(Address of
 principal executive offices)
 
 (Zip Code)Registrants
 telephone number, including area code:
 
 86 (471) 339 7999 Securities
registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of
the Act: Common stock, par value $0.0001 per share(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.               
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
Yes o No x Indicate by
check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.                
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
Yes o No x Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.               
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
Yes x No 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 months (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
 xIndicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).           
             
     
Yes o No x

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. $4,608,576 on December 31, 2009.

Indicate the
number of shares outstanding of each of the registrants classes of common
stock, as of the latest practicable date. 1,934,878 shares of common stock are
issued and outstanding as of September 24, 2010.

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.

ii

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

Page No.Part IItem 1.
 Business.
 1Item 1A.
 Risk
 Factors.
 18Item 1B.
 Unresolved
 Staff Comments.
 29Item 2.
 Properties.
 29Item 3.
 Legal
 Proceedings.
 29Item 4.
 (Removed and
 Reserved)
 29Part IIItem 5.
 Market for
 Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
 of Equity Securities.
 30Item 6.
 Selected
 Financial Data.
 30Item 7.
 Managements
 Discussion and Analysis of Financial Condition and Results of Operations.
 30Item 7A.
 Quantitative
 and Qualitative Disclosures About Market Risk.
 45Item 8.
 Financial
 Statements and Supplementary Data.
 45Item 9.
 Changes In
 and Disagreements With Accountants on Accounting and Financial Disclosure.
 45Item 9A.
 Controls and
 Procedures.
 45Item 9B.
 Other
 Information.
 46Part IIIItem 10.
 Directors,
 Executive Officers and Corporate Governance.
 46Item 11.
 Executive
 Compensation.
 51Item 12.
 Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters.
 54Item 13.
 Certain
 Relationships and Related Transactions, and Director Independence.
 55Item 14.
 Principal
 Accounting Fees and Services.
 56Part IVItem 15.
 Exhibits,
 Financial Statement Schedules.
 56CAUTIONARY 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:


 risks associated
 with our lack of operations and dependence upon the Contractual Arrangements
 which may not be renewed,
 the
 possibility that the Contractual Arrangements may not provide us with
 effective control over the Jin Ma Companies,
 possible
 adverse effects of PRC regulations on the businesses of the Jin Ma Companies,
 our ability
 to satisfy or refinance $3.1 million of debt which becomes due in May 2011,
 conflicts of
 interest involving our management and Board,
 our
 dependence on the Jin Ma Companies to pay their fees to us which presently
 owe us total of $21.6 million,
 the Jin Ma
 Companies dependence on a limited number of customers and the recent change
 in business model of Jin Ma Construction,
 risks
 associated with the construction industry which could impact Jin Ma
 Construction,
 risks
 associated with the real estate industry which could impact Jin Ma Real
 Estate,
 risks
 associated with the hotel industry which could impact Jin Ma Hotel,
 risks
 associated with doing business in the PRC,
 control of
 our company by our management, and
 quotation of
 our common stock on the OTC Bulletin Board which can limit trading and
 liquidity.iii

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.

All
share and per share information in this report gives effect to the 40:1 reverse
stock split of our common stock which was effective on September 8, 2010.

Our
business is conducted in China, using the renminbi (the 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, and
 fiscal
 2009 refers to the fiscal year ended June 30, 2009, fiscal 2010 refers to
 the fiscal year ended June 30, 2010 and fiscal 2011 refers to the fiscal
 year ending June 30, 2011, unless the context otherwise defines.iv

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. Both our company and the Jin Ma Companies are
principally controlled by the same individuals. Other than the Contractual
Arrangements with the Jin Ma Companies, we do not have any business or
operations except for the performance of administrative services on a contract
basis to Jin Ma Real Estate. 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:

(MESSAGE)

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, our Chairman and
CEO, 15% by Runlan Ma, the spouse of Liankuan Yang and our corporate secretary,
and 15% by Yang Yang, the daughter of Liankuan Yang and a Vice President and
member of our Board of Directors.

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 agreed to
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 elsewhere in this
report, the Jin Ma Companies have never remitted these fees to us and are
retaining the funds for operating capital. At June 30, 2010 we are owed $21.6
million by the Jin Ma Companies.

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, pledged its
accounts receivable and all of its assets to us. Moreover, each of the Jin Ma
Companies agreed 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, are 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 will 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.

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.

2

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

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


 Construction,
 Real estate
 development, and
 Hotel and
 banquet facility management.Jin
Ma Construction, Jin Ma Real Estate, and Jin Ma Hotel, all 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 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
fiscal 2010 and fiscal 2009, net revenues from Jin Ma Construction represented
74% and 95%, respectively, of our net revenues. 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 Real Estate.Jin Ma Real Estate, established in 1999,
was formally registered as a limited liability company in Hohhot 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 GFA 20,000 square meter construction area in the most recent 3 years
 or 10,000 square meter construction area in the last year,
 have
 finished the construction investment over 20 million RMB within three years
 or 10 million RMB in the last year,
 have passed
 and satisfied the quality standard examination for all of its finished
 projects,
 employ at
 least five management personnel and two accounting staff; and
 have
 implemented a standardized system of Residential Quality Guarantee and
 Residential Instruction Manual to be issued in connection with the sale of
 residential units.3

For
fiscal 2010 and fiscal 2009, net revenues from Jin Ma Real Estate represented
20% and less than 1%, respectively, of our net revenues. 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.

Jin Ma Hotel.Founded in 1999 and formally registered in
April 2004 as a limited liability company in Hohhot, 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. The hotel had a 96% occupancy rate in 2009 and an 80%
occupancy rate in 2010. Hohhot 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 Hohhot main train
station, and is targeted toward price-sensitive travelers. For fiscal 2010 and
fiscal 2009, net revenues from the Jin Ma Hotel represented 6% and 4%,
respectively, of our net revenues. 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.

ABOUT INNER MONGOLIA AND HOHHOT

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, Ningxia Hui
Autonomous Region, and Gansu, while to the north it borders Mongolia and
Russia. The regional capital of Inner Mongolia is Hohhot.

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. According to an article on www.chinaknowledge.com dated
April 12, 2010, statistics released by the Inner Mongolia Electric Power Corp.
the installed capacity of wind power in Inner Mongolia Autonomous Region had
surged more than 40-fold to 7.3 gigawatts at the end of March 2010 from 170,000
kW in 2005. The Hulunbuir Grassland in Inner Mongolia is the largest area of
natural grass in the world, and the region is a 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 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 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 to the
more remote areas in Inner Mongolia.

Inner
Mongolia is also a popular tourism destination, renowned especially for its
natural springs. Hohhot, located in the south-central part of Inner Mongolia, is
especially popular during the summer months as a place to escape the heat.

Hohhot
itself has an educated workforce, with many scientific research and design
institutions and over ten universities and colleges all located in the city,
which collectively account for about 80% of higher education schools in the
entire Inner Mongolia.

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.

4

The
nominal gross domestic product (GDP) of Inner Mongolia in 2009 was 972.578
billion RMB (approximately $142.8 billion), a growth of 16.9% from 2008. The
annual per capita GDP in 2009 was 40,225 RMB (approximately $5,908), a growth
of 16.5% from 2008 according to the Inner Mongolia Government website (www.nmgtj.gov.cn).
For Hohhot, in 2009, the regional GDP was 164.4 billion RMB (approximately
$24.1 billion), an increase of 15.9% from 2008 and per capita GDP was
approximately 61,108 RMB (approximately $8,975), a growth of 14.3% from 2008,
according to the Hohhot Government website (www.huhhot.gov.cn).

OVERVIEW OF THE JIN MA COMPANIES 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 years 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. A large and active market in the private sector
has developed for sales and transfers of land use rights which were initially
granted by the Chinese government. All property units built on such land belong
to private developers for the term of period indicated. The recent transition
in the real estate industrys structure in China has fostered the development
of real estate-related businesses, such as property development, property
management and real estate agencies.

The
significant growth of the Chinese economy during the past decade has led to a
significant expansion of the real estate industry. This expansion has been
supported by other factors, including increasing urbanization, growing personal
affluence, as well as the emergence of the mortgage lending market. The
following table sets forth selected statistics for the overall real estate
industry in mainland China, which includes the autonomous region of Inner
Mongolia, for the periods indicated.

For the years ended December 31,2001
 
 2002
 
 2003
 
 2004
 
 2005
 
 2006
 
 2007
 
 2008
 
 2001-2008
 CAGRInvest
 in real estate development ($in billion)
 
 
 76.6
 
 
 94.2
 
 
 122.5
 
 
 158.9
 
 
 192.2
 
 
 290.4
 
 
 345.4
 
 
 417.7
 
 
 25.20
 %Total
 housing area (square feet in billion)
 
 
 24.5
 
 
 29.6
 
 
 96.4
 
 
 41.2
 
 
 59.7
 
 
 64.5
 
 
 72.2
 
 
 93.1
 
 
 21.90
 %Average
 price of properties sold ($/square feet)
 
 
 24.9
 
 
 25.2
 
 
 25.2
 
 
 26.4
 
 
 91.2
 
 
 95.6
 
 
 95.6
 
 
 109.3
 
 
 11.60
 %Source: China Statistic Year Book

Growth
of the Chinese Real Estate Industry

The
growth in Chinas real estate industry is reflected in the growth of investment
in real estate development, total GFA sold, and average home prices. According
to the National Bureau of Statistics of China, total investment on real estate
development in 2009 was RMB 3.623 trillion (approximately $530 billion), up
16.1% from 2008.

According
to the National Bureau of Statistics of China, the total GFA of residential and
commercial properties sold increased from 224.1 million square meters in 2001
to 937.1 million square meters in 2009, a compound annual growth rate of 19.6%.

5

(MESSAGE)

Based
upon information published by the Hohhot Real Estate Bureau, in the first half
calendar year of 2010, Hohhots real estate investment amounted to 4.002
billion RMB (approximately $587.8 million), an increase of 83.29% compare to
the same period of 2009 and consisted of the following:


 Investment
 in commercial and residential buildings amounted to 2.47 billion RMB
 (approximately $363 million), an increase of 48.06% compared to the same
 period of last year;
 Investment
 in office buildings amounted to 218.85 million RMB (approximately $32
 million), an increase of 115.76% compared to the same period of last year;
 Investment
 in buildings for commercial operation amount to 886.03 million RMB
 (approximately $130 million), an increase of 197.2% compared to the same
 period of last year; and
 Other real
 estate investment amounted to 424.87 million RMB (approximately $62 million),
 an increase of 272.43% compared to the same period of last year.In the first
half of 2010,


 Hohhot city
 land purchases amounted to 271,562 square meters, a decrease of 27.62%
 compared to the comparable period of 2009,
 the area of
 developed land in Hohhot was 403,348 square meters, an increase of 48.45%
 compared to the corresponding period of 2009, and
 the area of
 land which will be developed in Hohhot was 898,061 square meters, a decrease
 of 68.6% compared to the same period of 2009.Jin
Ma Real Estates goal is to become one of the most prominent real estate
development companies in Western China. Jin Ma Real Estates management
believes that real estate development in Hohhot, Inner Mongolia, as a
third-tier city, and its surrounding areas will remain strong and may not feel
the effects of the slower real estate markets occurring in tier-one cities such
as Beijing and Shanghai.

Chinas
real estate sector is in the early stage of a long-term growth cycle, supported
by growth in its gross domestic product, or GDP, rising demand for housing, and
substantial structural changes. China has experienced rapid economic growth in
the last 20 years. According to the Ministry of Commerce of China, Chinas GDP
achieved an annualized growth rate of 17.1% from 2004 to 2008. According to the
National Bureau of Statistics of China, Chinas GDP in 2009 was RMB 33.5
trillion, up 8.7% from 2008. The official per capita data for 2008 and 2009 is
not yet available as of the date of this report. The following information and
charts illustrates to the continued growth in the China economy, the increase
in urbanization and need for housing, as well as factors that continue to
encourage growth and investment.

6

(MESSAGE)

Source: National Bureau of Statistics of
China

Despite
the recent global economic recession, China is expected to achieve relatively
good economic growth in the next several years, compared to many other major
economies in the world as reflected in the following chart:

(MESSAGE)

Chinas
real estate bull market began more than six years ago. Despite the moderations
in growth caused by the global economic weakness in 2008 and 2009, we believe
the structural forces in China support continuing good demand for real estate
in China during the next 10 years. The two primary drivers for this long-term
real estate demand in China are urbanization, which includes both the expansion
and development of cities and the dramatic migration of people from rural to
urban areas, and the rising disposable income per capita in the cities.

At
the end of 2008, 607 million people were living in urban areas, accounting for
45.7% of total population of 1.33 billion, according to the National Bureau of
Statistics of China. The Ministry of Housing and Urban-Rural Development of
China estimated in 2007 that Chinas urban population in 2015 would exceed 800
million people, or approximately 55% of the total projected population of 1.45
billion.

7

Another
source, the United Nations State of World
Population 2007, reported that approximately 18 million people in
China are expected to migrate from rural to urban areas each year, and that the
urban population would reach about 877 million people in the next 10 years.

(MESSAGE)

The
rural to urban migration is likely to continue, both because of the potential
for higher income and greater wealth accumulation, and because of the evolution
of Chinas farming toward larger-scale and more efficient methods that require
fewer people to do the agricultural work. With the substantial housing demand
created by the structural shift of the migration, the urban real estate market
has been thriving. That long-term trend is expected to continue.

In
addition, according to the 2009 annual report of the National Bureau of
Statistics of China, disposable income per capita in urban areas between 2000
and 2008 has grown at a compound average annual growth rate of 12.2%, from RMB
6,280 (approximately $919) in 2000 to RMB 15,781 (approximately $2,311) in
2008. As disposable income per capital increases, urban residents have strong
motivation to improve their living conditions by purchasing new or larger
properties, demonstrated by urban living expenses per capita in the same years
that have steadily increased at a compound annual growth rate of 10.7%, from
RMB 4,998 (approximately $732) in 2000 to RMB 11,243 (approximately $1,646) in
2008, which is the most recent year available for this measurement.

Rural
dwellers are also drawn to cities primarily by the potential of higher incomes
and greater wealth, because urban jobs generally pay higher wages and salaries.
The latest data from the National Bureau of Statistics of China shows that both
disposable income and wealth accumulation are higher for urban dwellers and
confirms the economic attractiveness of the migration from rural to urban
areas.

8

(MESSAGE)
Source: The National Bureau of Statistics of
China

In
response to the global financial and economic crisis, the Chinese government
announced a RMB 4 trillion stimulus program on November 27, 2008. Subsequently,
on March 6, 2009, the National Development and Reform Commission Director
announced a reshaping of that economic stimulus package that retained the
investment total of RMB 4 trillion but adjusted its focus. Within the RMB 4
trillion package, about RMB 400 billion will go toward civil works, including
low-income housing and renovation, which we believe will benefit Inner
Mongolia,

(MESSAGE)

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.

According
to the World Tourism rankings compiled by the United Nations World Tourism
Organization as part of their World Tourism Barometer publication, in 2009,
China 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 50.9 million international tourist
arrivals in 2009, down 4.0% from 2008, according to the World Tourism Barometer
publication. Business tourists account for 23.87% of all foreign visitor
arrivals in 2009. The country is now competing head on with other global
tourism destinations.

9

Although
the national tourism is slowing down due to the global financial uncertainties
in fiscal 2010, the regional tourism in Inner Mongolia is prosperous. The
growing popularity of Inner Mongolia as a tourism destination, and the
importance of Hohhot 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. The Jin Ma Hotel was certified as
a two-star facility in 2001 by the Hohhot Tourism Bureau.

THE JIN MA COMPANIES BUSINESS OPERATIONS

The Construction Business

Jin
Ma Construction offers its customers a comprehensive range of services. Jin Ma
Construction acts as the general contractor in a real estate development
project. Its employees monitor the construction of each project, participate in
all material design and building decisions, coordinate the activities of
subcontractors and suppliers and subject their work to quality and cost
controls and monitor compliance with applicable zoning and building codes. The
selection of its 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, Jin Ma Construction 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.

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;
 
 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.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 also 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.

Jin
Ma Construction derives revenue primarily from services in general contracting,
pre-construction planning and comprehensive construction management services in
Hohhot. 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.

Jin
Ma Construction is presently dependent upon revenues from a limited number of
customers. For fiscal 2010, four construction projects accounted for 73.9% of
total consolidated net revenues (6.7%, 11.3%, 28.1% and 27.8%) and 64% of its
total accounts receivable are due from these customers. For fiscal 2009, four
construction projects accounted for 89.5% of total consolidated net revenues
(13.0%, 20.6%, 33.1% and 22.8%) and $11,076,151 of accounts receivable due from
these customers.

10

Generally,
in fiscal 2010 and fiscal 2009, construction projects were primarily performed
for third party customers and we recognized net revenues pursuant to our
revenue recognition policy. Additionally, Jin Ma Construction acts as the
general contractor for Jin Ma Real Estates residential real estate development
projects. During fiscal 2010 and fiscal 2009, Jin Ma Construction performed
general contracting, construction management and building design services on
the following third-party residential apartment and commercial properties in
Hohhot:

Name
 
 Location
 
 Property Type
 
 Number of
 Buildings
 and/or Units
 
 Date of Commencement/
 Date of CompletionRiverbank
 Garden Community-He Ban Garden (Buildings 5 to 8 and Phase II)
 
 In Sai Han
 district of Hohhot
 
 Residential
 
 Nine
 buildings
 
 April
 2008/November 2008AiBo Garden
 (Phase I)
 
 Hui Min
 District, Hohhot
 
 Residential
 Buildings
 
 Multiple
 
 April 2008/
 November 2008Tian Fu
 Garden (Phase I and II)
 
 Xin Cheng
 District, Hohhot
 
 Residential
 
 Multiple
 
 April
 2008/November 2008AiBo Garden
 (Phase II)
 
 Hui Min
 District, Hohhot
 
 Residential
 
 Multiple
 
 April
 2008/June 2009Lanyu Garden
 (No. 3 Residential Building)
 
 Hohhot
 
 Residential
 Buildings
 
 One building
 
 October
 2008/December 2009Fu Xing
 Committee Bath Center Project
 
 Xin Cheng
 District, Hohhot
 
 Commercial
 Building
 
 One building
 
 November
 2008/June2010Tuzuoqi
 (Chasuqi) Low- Rent Housing No. 1 to No. 3
 
 Tuzuoqi,
 Hohhot
 
 Residential
 
 Three
 buildings
 
 November
 2009/June2010Jianhe
 Garden No. 1 to No. 10
 
 Nanerhuan
 District, Hohhot
 
 Residential
 
 10 buildings
 
 November
 2009/ December 2010 (estimated date)Competitive
Strengths

Jin
Ma Construction is in competition with other construction companies in Hohhot
and other areas of Inner Mongolia, some of which are larger and have greater
financial resources than it. 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 based upon its
operating history, reputation, and expertise. Jin Ma Construction is one of the
first construction companies in the region, and it believes 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 believes that it
has established an excellent working relationship with the local and regional
governments, and it will seek to 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 been 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. Jin Ma Construction believes that
these certifications, while not mandated by law, provide it 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.

11

Real
Estate Development Business

Jin
Ma Real Estate designs, develops, markets and sells high-quality, affordable
homes in apartment high-rises, which are targeted at Chinese middle income
families. It also designs, develops, markets and sells these homes in mixed-use
development projects. All of its development projects are all in Hohhot. As Jin
Ma Real Estate does not have a construction license, Jin Ma Construction
performed all of the construction services on behalf of Jin Ma Real Estate.

Jin
Ma Real Estates focus is on the development of residential communities in
Hohhot and the surrounding areas that are within reasonable commuting distance.
Jin Ma Real Estate believes that the size and growth potential of Hohhot-area
market coupled with the ongoing liberalization of the real estate markets in
general offer it considerable growth opportunities. Jin Ma Real Estate believes
that the following features of Hohhot represent continuing growth opportunities
for it in the city:


 a population
 of more than 2.6 million with established economic development and
 infrastructure;
 a demand for
 high quality, yet affordable homes;
 a regulatory
 environment that encourages the development of residential communities, in
 terms of enabling Jin Ma Real Estate to obtain necessary permits and
 approvals to engage in its 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.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. 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 approximately RMB 75,000, or approximately $11,000, per year
as middle income earners. Jin Ma Real Estate believes that families earning
this income will be able to purchase its residential units which cost
approximately RMB 350,000, or approximately $51,000.

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 believes the emerging middle class will offer an
attractive opportunity for growth, since its purchasing power is growing and it
has a strong desire for ownership driven by the influence of Chinese culture
and values. JinMa Real Estate plans to leverage its brand name, experience and
design capabilities to meet the demand from the middle class.

Jin
Ma Real Estate seeks 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. It 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 has successfully
implemented this strategy, where it is one of the first home builders to
develop a residential community targeted at middle income families.

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.12

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.

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 60%
 mortgage with only a down payment, or booking fee, which is typically no more
 than RMB 140,000, or approximately $20,600, and the balance of the purchase
 price paid over a staggered period between one to two months;
 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. It also
believes that local awareness of its projects 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.

Jin
Ma Real Estate seeks 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 40% of the purchase price less the booking fee upon the
execution of a sales and purchase agreement. The remaining 60% 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. It plans on using its best efforts to increase
the amount of presold units in the future.

As
part of its pre-sale activities, Jin Ma Real Estate may arrange for commercial
banks to provide purchaser financing in the sale of its developments. Unlike
mortgage financing in the United States, Chinese 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.

Jin
Ma Real Estate finances the development of its projects through bank
borrowings, proceeds from the pre-sale of portions of its development projects,
credit 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.

13

Completed
Projects and Projects under Development with Jin Ma Construction

Building
 1 to 4 of
 Procuratorate
 Housing Estates
 Building
 5 of
 the
 Procuratorate
 Housing Estates
 (Jian Guan)
 Beiyuan
 Residential
 Building (on Fu
 Xing Ying land)
 Building
 6 of
 Procuratorate
 Housing Estates
 (Jiari Residential
 Building)
 Jinwu
 Residential
 Building (on
 Wusutu Village
 land)Area (sq. meters)
 
 46,054m
 5,825m
 70,000m
 38,000m
 53,000mProject type
 
 Multi
 Family Residential & Commercial
 Multi
 Family Residential & Commercial
 Multi
 Family Residential & Commercial
 Multi
 Family Residential & Commercial
 Multi
 Family Residential & CommercialCompletion/estimated
 completion date
 
 3/2010
 6/2010
 6/2011
 10/2011
 12/2012# of Units available for
 sale upon completion (Residential)
 
 150
 69
 *
 587
 *# of Units Sold (as of June
 30, 2010)
 
 137
 69
 0
 0
 0Estimated aggregate revenue
 ($ millions)
 
 $8.5
 $2.2
 $37.0
 $22.0
 $37.0Fiscal 2010 Revenue
 ($ millions)
 
 $7.7
 $2.2
 $0
 $0
 $0*          Not yet determined

In
July 2010, Jin Ma Construction began construction of building number 6 of
Procuratorate Housing Estates, which consists of a construction area of 38,000
square meters and is expected to be completed in October 2011. As of the date
of this report, Jin Ma Real Estates has not yet begun to pre-sell this project.

Other Real Estate Development Projects
Completed

In
November 2007, Jin Ma Real Estate entered into an agreement to construct new
dormitories for the Inner Mongolia Electrical Vocational Technical School (the
Vocational School) which is located in Hohhot. 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. The total cost of the project, which was completed in November 2008,
was approximately $9 million. It receives payments over a period of 26 years at
an amount of 4,800,000 RMB or approximately $700,000 per annum.

In
2008, Jin Ma Real Estate and Inner Mongolia Chemistry College entered an oral
agreement and on September 29, 2009, formalized a written agreement for the
construction of student apartments for the Inner Mongolia Chemistry College
(the Chemistry School) 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 completed the
construction in October 2009. The total cost of the project was approximately
$8.5 million. Jin Ma Real Estate leased the buildings to the Inner Mongolia
Chemistry College for a period of 20 years under an agreement which provides
for annual lease payments are RMB 10.62 million (approximately $1.55 million)
for five years (from fiscal 2010 to fiscal 2014), and the annual lease payment
is RMB 5.42 million (approximately $0.79 million) for 15 years (from fiscal
2015 to fiscal 2029).

14

In
accordance with terms of the agreements, at the end of the lease terms,
ownership of the buildings will be transferred to the respective university.
During the term of lease, Jin Ma Real Estate will not have additional
commitments to the universities, other than the customary construction
warranties.

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 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 Da Hua Real Estate Development Co.,
Ltd., Inner Mongolia Feng Hua Real Estate Development Co., 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 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 and Inner Mongolia real estate markets;
 its strategy
 which emphasizes development of high-quality residential properties for
 middle income families;
 its access
 to construction capabilities through Jin Ma Construction;
 its focus on
 Hohhot and surrounding areas in which Jin Ma Real Estate believes it 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.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 24
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 competitor 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 has 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.

15

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 160 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.

Real Estate Development

To
date, Jin Ma Real Estate has been successful in acquiring land from many
sources including open market actions and co-development with local government.
It has achieved this through long term working relations with the central and
local governments. 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.
Jin Ma Real Estate used Jin Ma Construction to develop its projects and Jin Ma
Construction may use subcontractors to perform substantially all of its
construction services and for the development of its projects.

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.

GOVERNMENT APPROVAL AND REGULATION

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.

16

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 years 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 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.

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. and Inner Mongolia Inner Mongolia Tianwei Wind Power Equipment Company,
Ltd. Under the agreement, Jin Ma Construction was proposing to invest approximately
$100 million (RMB 700 million) which would 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. Jin Ma
Constructions ability to proceed with the proposed joint venture was subject
to its raising the capital necessary to fund the projects and the receipt of
certain regulatory approvals. Jin Ma Construction has determined not to proceed
with this proposed project at this time.

GEP CAPITAL GROUP, LTD.

In
January 2010, we engaged GEP Capital Group, Ltd. as a financial consultant to
assist us in our goal of obtaining a listing of our common stock on a U.S.
stock exchange as well as to raise additional capital. Under the terms of the
12 month agreement, GEP Capital will provide various services, including
assisting us in the revamping of a new corporate website with updated features
and information as well as the maintenance of the site, in our efforts to
obtain a listing of our common stock on a senior U.S. stock exchange, and once
this listing is complete, design and organize a road show for the purpose of
securing additional capital for our company. GEP will bear all costs associated
with these services, other than the commissions payable to a broker-dealer
related to the capital raise. As compensation for its services, we issued GEP
75,000 shares of our common stock valued at $360,000. If GEP assists us in
finding funding, we have agreed to issue the placement agent chosen by GEP at
the closing of the private placement warrants equal to 10% of the shares sold
by us in the offering.

In
September 2010, we effected a 40:1 reverse stock split of our common stock in
an effort to begin compliance with the listing qualification of a U.S. stock
exchange. We have not yet made any application to an exchange and there are no
assurances we will satisfy the initial listing qualifications of either The
Nasdaq Stock Market or the NYSE Amex.

EMPLOYEES

As
of September 24, 2010, we had 17 employees and together with the Jin Ma
Companies we had a total of 172 full time employees. All of our employees are
employees of IMTD which provide administrative services to Jin Ma Real Estate
on a full time contract basis under a management agreement. Jin Ma Construction
accounted for 36 employees, all of which are management personnel; Jin Ma Hotel
accounted for 108 employees, including 18 management personnel and Jin Ma Real
Estate accounted for 11 employees, all of which are management and sales
personnel. 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 $51,000 and $56,000
for fiscal 2010 and fiscal 2009, 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.

17

OUR HISTORY

Gold
Horse International was originally incorporated on March 21, 2000 in the State
of New Jersey under its former name Segway III Corp. On June 29, 2007, we
executed a Share Exchange Agreement to acquire Gold Horse Nevada. Under the
terms of the Share Exchange Agreement, at the closing we issued 1,212,500
shares of our common stock to the Gold Horse Nevada stockholders and their
assignees which included Genesis and its assignees in exchange for 100% of the
common stock of Gold Horse Nevada. Additionally, Mr. Andrew Norins, our then
President, CEO and sole director, cancelled 241,376 shares of our common stock
he owned immediately prior to the closing. After giving effect to the
cancellation of Mr. Norins shares, we had a total of 37,500 shares of common
stock outstanding immediately prior to closing. After the closing, we had a
total of 1,250,000 shares of common stock outstanding, with the Gold Horse
Nevada stockholders and their assignees owning 97% of the total of our issued
and outstanding shares of common stock. The balance was held by our shareholder
who held shares prior to the closing. In addition, immediately prior to the
closing, Mr. Norins paid our creditors the amounts satisfying all of our
obligations that were outstanding immediately prior to the closing. Following
the closing, Gold Horse Nevada became our wholly-owned subsidiary.

Global
Rise is a limited liability company incorporated under the laws of the Cayman
Islands on May 9, 2007, and is a wholly-owned subsidiary of Gold Horse Nevada.
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 Agreement
described above, the Contractual Arrangements were amended and restated by and
among Gold Horse Nevada, Global Rise and Gold Horse International on the one
hand, and each of the Jin Ma Companies and the Jin Ma Companies shareholders on
the other hand, under which, among other things, Global Rise was made a party
to the Contractual Arrangements.

On
October 10, 2007, we established IMTD, a wholly-foreign owned enterprise
incorporated in the PRC and wholly-owned subsidiary of Global Rise. IMTD
provides administrative services to Jin Ma Real Estate.

In
November 2007 we filed a Certificate of Domestication and Articles of
Incorporation with the Secretary of State of Florida which result in the
domestication of the company in Florida under the name Gold Horse
International, Inc.

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 are only for 10 years and
there are no assurances those agreements will be renewed.

We
are not engaged in any business or operations other than pursuant to the terms
of the various Contractual Arrangements with the Jin Ma Companies. While there
is commonality of management and ownership between our company and the Jin Ma
Companies, we are separate legal entities and the Jin Ma Companies are not our
legal subsidiaries. We are completely dependent on the Contractual Arrangements
and we do not generate any revenues and have no assets. All of the Jin Ma Companies
assets and operations are located in the PRC. 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 developed independent business and
operations to activities which are not associated with the Jin Ma Companies, of
which there is no present intent, 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.

18

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 management and shareholders would always act in our best interests.

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 abilities 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 the Jin Ma Companies may be
 subject to challenge. This may disrupt its business, or subject it 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 the businesses of the Jin Ma
Companies.

The Jin Ma Companies
have approximately $3,091,678 of debt coming due within the next year and it
may not have the funds available to satisfy these obligations.

By
May 2011, approximately $3,091,678 of debt of the Jin Ma Companies becomes due
and payable of which $2,908,087 at June 30, 2010 is secured by the assets of
the Jin Ma Hotel. Currently, the Jin Ma Companies do not have sufficient funds
to satisfy the debt. While they may seek to extend the due date of the
obligation, there are no assurances that they will be successful in their
efforts. If the Jin Ma Companies are unable to either satisfy this obligation
when it becomes due or restructure the obligation, it is possible that the
lender could foreclose on the collateral. In that event, the Jin Ma Companies
would be materially adversely impacted and the overall net revenues and
earnings would decline.

Our President and
CEO is 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.

Mr.
Liankuan Yang, our Chairman and 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. 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, 2010 approximately $21.6 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. Any other conflicts of interest which may arise between our
company and the Jin Ma Companies related

19

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.

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.

As
described elsewhere in this report, we do not generate any revenue and we
completely rely on the quarterly service fees from Jin Ma Companies to support
our operation. The Jin Ma Companies have never paid our consulting fees on a
regular basis and the failure of the Jin Ma Companies to pay our fees as from
time to time adversely impacted our ability to pay our obligations. At June 30,
2010 the Jin Ma Companies owe us $21.6 million in consulting fees. If the Jin
Ma Companies do not pay us, we may not have sufficient capital to pay our
operating expenses. If we fail to timely file our periodic and other reports
with the Securities and Exchange Commission, our stock could be removed from
quotation on the OTC Bulletin Board.

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 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 maintain 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 its business
and operations and our results of operations in future periods.

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 substantial 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 our results of 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. We do not carry any insurance on their
behalf. 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 our results of
operations in future periods.

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

Jin
Ma Construction is presently dependent upon revenues from a limited number of
customers. For fiscal 2010, four construction projects accounted for 73.9% of
total consolidated net revenues and 64% of its total accounts receivable are
due from these customers. For fiscal 2009, four construction projects accounted
for 89.5% of total consolidated net revenues and $11,076,151 of accounts
receivable due from these customers. 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.

20

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 its results of operations, liquidity and cash flows in future periods which
would adversely impact our results of operations.

The recent change in
the focus of Jin Ma Constructions operations will impact its revenues and Jin
Ma Real Estates gross profit in future periods.

Recently,
the Jin Ma Companies have made a decision to focus the construction activities
of Jin Ma Construction on building projects for Jin Ma Real Estate and away from
third party projects. The Jin Ma Companies have adopted this strategy in an
effort to maximize the gross profits from the sale of Jin Ma Real Estate
projects as management anticipates growth in residential real estate in Inner
Mongolia. The result of this change will be a reduction in revenues reported by
Jin Ma Construction in future periods. While the Jin Ma Companies anticipate
that the gross profit margin reported by Jin Ma Real Estate will substantially
increase, management anticipates that overall net revenues in fiscal 2011 may
be reduced from prior periods.

The Jin Ma Companies
could experience a reduction in revenues or reduced cash flows if it is unable
to obtain reasonably priced financing to support its 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, the Jin Ma Companies may incur
substantial indebtedness to finance its construction and land development
activities. Although we believe that internally generated funds and current
borrowing capacity will be sufficient to fund its capital and other
expenditures including land acquisition, development, and construction
activities, the amounts available from such sources may not be adequate to meet
its needs. If such sources are not sufficient, the Jin Ma Companies would seek
additional capital in the form of debt from a variety of potential sources,
including bank financing. 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 the Jin Ma Companies planned expenditures could have
a material adverse effect on it business and operations and our results of
operations in future periods.

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.

Net
revenues from Jin Ma Construction represent 74% and 95% of our total net
revenues for fiscal 2010 and fiscal 2009, respectively. 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, 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

21

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.

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

While
a major portion of Jin Ma Constructions efforts in fiscal 2011 will be
directed towards constructing projects for Jin Ma Real Estate, Jin Ma
Construction will continue to bid on third party projects. Jin Ma
Constructions future revenues and overall results of operations from third
party projects require it to successfully bid on new 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 its
profitability and our results of operations in future periods.

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

Jin
Ma Construction may be subject to construction defect, product liability and
related warranty claims arising in the ordinary course of its 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 is not insured against such
claims and it 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. In that event, its results
of operations in future periods could be adversely impacted if it is required
to pay substantial amounts associated with a claim and the attendant litigation
which would in turn adversely impact our results of operations.

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 to supervise 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.

22

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 and our results of operations in future
periods.

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.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 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 which could adversely impact our results of operations in future
periods.

23

Risks Relating to Real Estate Development
Operations

The PRC government
may adopt further measures to curtail the overheating of the property sector.

Along
with the economic growth in China, investments in the property sectors have
increased significantly in the past few years. In response to concerns over the
scale of the increase in property investments, the PRC government has
introduced policies to curtail property development. The PRC governments
restrictive regulations and measures to curtail the overheating of the property
sector could increase Jin Ma Real Estates operating costs in adapting to these
regulations and measures, limit its access to capital resources or even
restrict its business operations. We cannot be certain that the PRC government
will not issue additional and more stringent regulations or measures, which
could further slow down property development in China and adversely affect Jin
Ma Real Estates business and prospects and our results of operations in future
periods.

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.

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:

24


 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
unable to manage its growth effectively, its operating results could be
materially and adversely affected which would in turn adversely impact our
results of operations in future periods.

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 operating 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 business
and operations and our results of operations in future periods.

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. During fiscal
2010 and fiscal 2009, Jin Ma Real Estate did not pay any funds under guarantees
and it does not expect to pay such guarantees in the future. If there are
changes in laws, regulations, policies, and practices that would prohibit
property developers from providing guarantees to banks in respect of mortgages
offered to property purchasers and as a result, banks would not accept any
alternative guarantees by third parties, or if no third party is available or
willing in the market to provide such guarantees, it may become more difficult
for property purchasers to obtain mortgages from banks and other financial
institutions during sales and pre-sales of our properties. Such difficulties in
financing could result in a substantially lower rate of sale and pre-sale of
our properties, which would adversely affect its cash flow, financial
condition, and results of operations. 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. We are not aware of any pending
changes in laws, regulations, policies, or practices that will prohibit such
practice in China. However, there can be no assurance that such changes in
laws, regulations, policies, or practices will not occur in China in the
future. If Jin Ma Real Estate should be required to pay amounts under one or
more of these guarantees, it will reduce its capital which is available to
conduct its business and operations and adversely impact our results of
operations in future periods. These guarantees are not disclosed/reflected in
the financial statements.

25

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, currently, the costs of some construction
materials have increased. Further, the price of new materials due to the
implementation of environmental laws may increase. The effect of prices of land
and construction materials makes Jin Ma Real Estates operating results
unpredictable.

Jin Ma Real Estate
faces intense competition from other real estate developers.

The
property industry in the PRC is highly competitive. Local and regional property
developers are our major competitors, and an increasing number of large
state-owned and private national property developers have started entering
these markets. Many of Jin Ma Real Estates competitors, especially the
state-owned and private national property developers, are well capitalized and
have greater financial, marketing, and other resources than it has. Some also
have larger land banks, greater economies of scale, broader name recognition, a
longer track record, and may have more established relationships. In addition,
the PRC governments recent measures designed to reduce land supply further
increased competition for land among property developers. Competition among
property developers may result in increased costs for the acquisition of land
for development, increased costs for raw materials, shortages of skilled
contractors, oversupply of properties, decrease in property prices in certain
parts of the PRC, a slowdown in the rate at which new property developments
will be approved and or reviewed by the relevant government authorities, and an
increase in administrative costs for hiring or retaining qualified personnel,
any of which may adversely affect Jin Ma Real Estates business and financial
condition. Furthermore, property developers that are better capitalized than it
and may be more competitive in acquiring land through the auction process. If
Jin Ma Real Estate cannot respond to changes in market conditions as promptly
and effectively as its competitors, or effectively compete for land acquisition
through the auction systems and acquire other factors of production, its business
and financial condition and our results of operations will be adversely
affected. In addition, risk of property over-supply is increasing in parts of
China, where property investment, trading, and speculation have become overly
active. Jin Ma Real Estate is exposed to the risk that in the event of actual
or perceived over-supply, property prices may fall drastically, and its revenue
and profitability will be adversely affected.

26

Risks Related to Doing Business in China

Chinas economic
policies could affect the Jin Ma Companies business.

Our
results of operations and prospects are subject to the economic, political, and
legal developments in China. While Chinas economy has experienced significant
growth in the past 20 years, this growth has been uneven, both geographically
and among various sectors of the economy. The Chinese government has
implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall economy of
China, but they may also have a negative effect on the Jin Ma Companies. For
example, operating results and financial condition may be adversely affected by
the government control over capital investments or changes in tax regulations.
The economy of China has been changing from a planned economy to a more
market-oriented economy. In recent years the Chinese government has implemented
measures emphasizing the utilization of market forces for economic reform and
the reduction of state ownership of productive assets, and the establishment of
corporate governance in business enterprises; however, a substantial portion of
productive assets in China are still owned by the Chinese government. In
addition, the Chinese government continues to play a significant role in
regulating industry development by imposing industrial policies. It also
exercises significant control over Chinas economic growth through the
allocation of resources, the control of payment of foreign currency-
denominated obligations, the setting of monetary policy, and the provision of
preferential treatment to particular industries or companies. There are no
assurances that these economic policies will not adversely impact the Jin Ma
Companies business and operations in future periods which would in turn
adversely impact our results of operations.

Because the majority
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.

The
majority of our executive officers and directors reside in the PRC and all of
the Jin Ma Companies assets are located in the PRC. It therefore may be
extremely 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.

Because the Jin Ma
Companies may not be able to obtain business insurance in the PRC, it 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 the Jin Ma
Companies 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, it would incur significant expenses in both defending any action and
in paying any claims that result from a settlement or judgment.

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

We
have no business or operations under than under the Contractual Arrangements.
The businesses of Jin Ma Real Estate, Jin Ma Construction and Jin Ma Hotel 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.

27

Governmental control
of currency conversion may affect the ability of the Jin Ma Companies to pay
our fees.

The
PRC government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China.
Under the terms of the Contractual Agreements, we are to receive all of our net
income in RMB. The availability of foreign currency may restrict the ability of
the Jin Ma Companies to remit sufficient foreign currency to pay the consulting
fees due 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 and to pay the
consulting due us pursuant to the Contractual Arrangements. 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 the Jin Ma Companies from obtaining sufficient foreign currency to
satisfy its currency demands, at such time as it begins paying our accrued
consulting fees it may not be able to obtain sufficient foreign currencies to
pay us.

Fluctuation in the
value of RMB may have a material adverse effect on our operating results in
future periods.

The
Jin Ma Companies recognize net revenues in RMB which are translated to U.S.
dollars within our financial statements. The value of the RMB against the U.S.
dollar and other currencies may fluctuate and is affected by, among other
things, changes in the PRCs political and economic conditions. Any significant
revaluation of the RMB may materially and adversely affect results of
operations in future periods. There are no assurances that the RMB will not be
subject to devaluation. We undertake no hedging activities and have no control
over any currency fluctuations between the RMB and the U.S. dollar. If a
devaluation of the RMB should occur, our results of operations in future
periods would be adversely impacted which could in turn adversely impact the
market value of our common stock.

Risks Relating to Ownership of Our Securities

We do not anticipate
paying any cash dividends.

The
payment of dividends, if any, would be contingent upon capital requirements of
both our company and the Jin Ma Companies and general financial condition. The
payment of any dividends is within the discretion of our Board of Directors and
we do not anticipate the declaration of any dividends in the foreseeable
future, if ever. Investors should not purchase our common stock in anticipation
of the payment by us of any dividends.

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
September 24, 2010, our directors and executive officers control approximately
42.63% 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 will be dilutive to our existing shareholders.

At
September 24, 2010, we had 1,934,878 shares of our common stock issued and
outstanding and the following securities which are exercisable into shares of
our common stock were outstanding:


 183,503
 shares of our common stock issuable upon the exercise of common stock
 purchase warrants with an exercise price of $3.20 per share.
 12,692
 shares of our common stock issuable upon the exercise of common stock
 purchase warrants with an exercise price of $4.00 per share.
 8,750 shares
 of our common stock issuable upon the exercise of common stock purchase
 warrants with an exercise price of $6.00 per share.28

The
exercise of the warrants may materially adversely affect the market price of
our common stock and will have a dilutive effect on our existing shareholders.

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;
 market
 fluctuations associated with companies with operations in the PRC;
 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.

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, 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. (REMOVED AND RESERVED).

29

PART II

ITEM 5. MARKET FOR COMMON STOCK 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 2009First
 quarter ended September 30, 2008
 
 $
 20.40
 
 $
 4.40Second
 quarter ended December 31, 2008
 
 $
 6.00
 
 $
 3.20Third
 quarter ended March 31, 2009
 
 $
 3.60
 
 $
 1.60Fourth
 quarter ended June 30, 2009
 
 $
 10.40
 
 $
 2.40Fiscal 2010First
 quarter ended September 30, 2009
 
 $
 6.40
 
 $
 3.60Second
 quarter ended December 31, 2009
 
 $
 6.40
 
 $
 2.40Third
 quarter ended March 31, 2010
 
 $
 6.40
 
 $
 2.80Fourth
 quarter ended June 30, 2010
 
 $
 4.40
 
 $
 2.80On
September 24, 2010, the last sale price of our common stock as reported on the
OTCBB was $3.13 per share. As of September 24, 2010, there were approximately
191 record owners of our common stock.

Dividend Policy

We
have never paid cash dividends on our common stock. The payment of dividends,
if any, is at the discretion of the Board of Directors and is contingent on our
net revenues and earnings, capital requirements and financial conditions. We
currently intend to retain all earnings, if any, for use in business
operations. Accordingly, we do not anticipate declaring any dividends in the
foreseeable future.

Unregistered Sales of Equity Securities and
Use of Proceeds

None,
other than as previously reported.

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 2010
and fiscal 2009 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.

30

Overview

We
are not 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 ASC Topic 810, under generally accepted
accounting principles the Jin Ma Companies which are deemed to be variable
interest entities (VIEs) and 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, 2010 and 2009 and the results of operations for fiscal 2010 and fiscal
2009 are those of the Jin Ma 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 developed business and operations which are independent of the
Jin Ma Companies, of which there are no assurances, we will in all likelihood
be forced to cease our operations.

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, net revenues and expenses, and related disclosure of contingent
assets and liabilities. We continually evaluate our estimates, including 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, the calculation of costs and estimated
earnings in excess of billings and billings in excess of costs and estimated
earnings, provisions for estimated losses on uncompleted contracts, the fair
value of conversion options embedded in convertible debt, and the fair values
of warrants granted in connection with the issuance of the convertible debt. We
base our estimates on historical experience and on various other assumptions
that we believe 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 net 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 ASC Topic 810, we are required to include in our consolidated financial
statements the financial statements of variable interest entities. ASC Topic 810
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.

The
Jin Ma Companies are considered VIEs, and we are the primary beneficiary. On
June 29, 2007, we entered into the Contractual Arrangements with the Jin Ma
Companies pursuant to which we are to receive 100% of the Jin Ma Companies net
income. In accordance with these agreements, the Jin Ma Companies are to pay
consulting fees equal to 100% of their 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 ASC Topic 810. As a VIE, the Jin Ma Companies net
revenues are included in our total net revenues, their income from operations
is consolidated with ours, and our net income includes all of the Jin Ma
Companies net income. There is no non-controlling interest in net income and
accordingly, no net income is subtracted in calculating the net income
attributable to us. Because of the contractual arrangements, we have pecuniary
interest in the Jin Ma Companies that requires consolidation of the Jin Ma
Companies financial statements with our financial statements.

31

Accounts receivable, notes receivable 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 receivables.
We periodically review our 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
receivables as a historical basis by which the collectability could be
reasonably estimated did not exist. 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 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, 2010 and
2009, we have established, based on a review of our outstanding accounts
receivable balances, an allowance for doubtful accounts in the amount of
$978,455 and $1,002,621, respectively, on our total accounts receivable. We
believe that our note receivable is fully collectable. Therefore, no allowance
for doubtful accounts is deemed to be required at June 30, 2010 and 2009.

Other
receivables are primarily related to advances made to various vendor,
subcontractors, and other parties in the normal course of business and an
allowance was established when those parties were deemed to be unlikely to
repay the amounts. At June 30, 2010 and 2009, we have established, based on a
review of our outstanding other receivable balances, an allowance for doubtful
accounts in the amount of $69,171 and $143,974, respectively.

Inventories

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

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, 2010 and 2009,
real estate held for sale amounted to $367,009 and $0, respectively.

Advances from customers

Advances
from customers at June 30, 2010 and 2009 of $144,670 and $246,191,
respectively, consist of prepayments from third party customers to us for
construction and real estate transactions to ensure sufficient funds are
available to complete the real estate and construction projects. We will
recognize the deposits as revenue upon transfer of title to the buyer, in
compliance with our revenue recognition policy.

Construction in progress

Properties
currently under development are accounted for as construction-in-progress.
Construction-in-progress 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, 2010 and 2009,
construction in progress amounted to $12,860,646 and $10,560,114, respectively.

32

Derivative financial instruments

We
evaluate all of our financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives. For
derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then
re-valued at each reporting date, with changes in the fair value reported in
the consolidated statements of income. For stock-based derivative financial
instruments, we use the Black-Scholes-Merton option-pricing model to value the
derivative instruments at inception and on subsequent valuation dates. The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period. Derivative instrument liabilities are classified in the
balance sheets as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date. As of June 30, 2010 and 2009, we had $653,630 and $0,
respectively, of warrants liability on the balance sheet.

Revenue recognition

We
follow the guidance of ASC Topic 605 and Topic 360 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
revenue streams:

Real
estate sales which primarily involve the sale of multi-family units and
community environments are reported in accordance with the provisions of ASC
Topic 360. 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
2007 and 2008, Jin Ma Real Estate entered into agreements to construct new
dormitories as follows:

a)
In November 2007, Jin Ma Real Estate entered into an agreement to construct new
dormitories for the 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 Vocational 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. In December 2008 and October 2009, Jin Ma Real
Estate received the first and second payment of 4,800,000 RMB, respectively.
Since the agreement did not have a stated interest rate, we used an imputed
interest rate of 6.12% and are reflecting payments due under the agreement as a
note receivable on the accompanying balance sheets. The property sold had an
imputed 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 $914 and
$860 was recognized in fiscal 2010 and fiscal 2009, respectively, pursuant to
the installment method and is reflected in the accompanying statements of
income.

b)
In 2008, Jin Ma Real Estate and Inner Mongolia Chemistry School entered an oral
agreement and on September 29, 2009, formalized a written agreement for the
construction of student apartments for the Chemistry School 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 completed the construction in October 2009. Jin Ma
Real Estate leased the buildings to the Chemistry School for a period of 20
years. The annual lease payments are RMB 10.62 million (approximately $1.55
million) for 5 years (from fiscal 2010 to fiscal 2014), and the annual lease
payment is RMB 5.42 million (approximately $0.79 million) for 15 years (from
fiscal 2015 to fiscal 2029). As of June 30, 2010, Jin Ma Real Estate received a
partial initial annual installment from Inner Mongolia Chemistry School of
6,559,548 RMB (approximately $960,000). Since the agreement did not have a
stated interest rate, we used an imputed interest rate of 5.94% and are
reflecting payments due under the agreement as a note receivable on the
accompanying balance sheets. The property sold had an imputed sales value of
84,196,104 RMB (approximately $12 million). The deferred gain on the sale of
the property was approximately $3,900,000 of which $72,000 was recognized in
fiscal 2010 pursuant to the installment method and is reflected in the
accompanying statements of income.

33

In
accordance with ASC Topic 360, the initial gains from the sales of the
Vocational School and Chemistry School were 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 (ASC Topic 360).
Therefore the gains are being 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, revenues and cost of sales are recognized based
on the apportionments, and we recognized imputed interest income on the
accompanying consolidated statements of income as summarized below.

As
of June 30, 2010, the remaining deferred gains for Vocational School and
Chemistry School leases of $50,291 and $3,833,940, respectively, is reflected
as a discount of notes receivable in the accompanying balance sheet. As of June
30, 2009, the remaining deferred gains for Vocational School and Chemistry
School leases of $50,938 and $0, respectively, 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.

The
deferred gains were recognized pursuant to the installment method and are
reflected in the accompanying consolidated statements of income follows:

Fiscal 2010
 
 Fiscal 2009Net revenues
 
 $
 386,958
 
 $
 149,602Cost of
 sales
 
 
 314,044
 
 
 148,742Gross profit
 recognized
 
 $
 72,914
 
 $
 860Jin
Ma Real Estate receives annual payments of principal and the related imputed
interest from the Vocational School and Chemistry School. During fiscal 2010
and fiscal 2009, we allocated the payments received as follows:

Fiscal 2010
 
 Fiscal 2009Amount
 applied to principal balance of note receivable
 
 $
 386,958
 
 $
 149,602Interest
 income recognized on consolidated statement of income
 
 
 1,274,604
 
 
 551,313Total
 payment received
 
 $
 1,661,562
 
 $
 700,915Revenue
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 ASC Topic 605. We recognize 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 us 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.

34

Foreign currency translation

Our
reporting currency is the U.S. dollar. Our functional currency is the U.S.
dollar and the functional currency of our China subsidiaries and the variable
interest entities is RMB. For the subsidiaries and variable interest entities
whose functional currencies are the RMB, results of operations and cash flows
are translated at average exchange rates during the year, assets and
liabilities are translated at the unified exchange rate at the end of the year,
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.
Transactions denominated in foreign currencies are translated into the
functional currency at the exchange rates prevailing on the transaction dates.
Assets and liabilities denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing at the balance sheet
date with any 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 Jin
Ma Companies revenue transactions are transacted in the functional currency. We
do 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 our results of operations.

Asset
and liability accounts at June 30, 2010 and 2009 were translated at 6.8086 RMB
to $1.00 and at 6.8448 RMB to $1.00, respectively. Equity accounts were stated
at their historical rate. The average translation rates applied to the
statements of income for fiscal 2010 and fiscal 2009 were 6.83667 RMB and
6.84819 RMB to $1.00, respectively. Cash flows from the Jin Ma Companies operations
are 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.

Warranty policy

In accordance
with ASC Topic 450, we estimate liabilities for construction defect, product
liability and related warranty claims based on the possible claim amounts
resulting from injury or damage caused by construction defects 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, claims 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
fiscal 2010 and fiscal 2009 were immaterial.

Recent Accounting Pronouncements

In
June 2009, the FASB issued ASC Topic 810-10, Amendments
to FASB Interpretation No. 46(R). This updated guidance requires a
qualitative approach to identifying a controlling financial interest in a
variable interest entity, and requires ongoing assessment of whether an entity
is a VIE and whether an interest in a VIE makes the holder the primary
beneficiary of the VIE. It is effective for annual reporting periods beginning
after November 15, 2009. The adoption of ASC Topic 810-10 is not expected to
have a material impact on our results of operations or financial condition.

In
October 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable Revenue Arrangements.
This ASU establishes the accounting and reporting guidance for arrangements including
multiple revenue-generating activities. This ASU provides amendments to the
criteria for separating deliverables, measuring and allocating arrangement
consideration to one or more units of accounting. The amendments in this ASU
also establish a selling price hierarchy for determining the selling price of a
deliverable. Significantly enhanced disclosures are also required to provide
information about a vendors multiple-deliverable revenue arrangements,
including information about the nature and terms, significant deliverables, and
its performance within arrangements. The amendments also require providing
information about the significant judgments made and changes to those judgments
and about how the application of the relative selling-price method affects the
timing or amount of revenue recognition. The amendments in this ASU are
effective prospectively for revenue arrangements entered into or materially
modified in the fiscal years beginning on or after June 15, 2010. Early
application is permitted. The adoption of this new ASU is not expected to have
a material impact on our results of operations or financial condition.

35

In
October 2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing.
This ASU requires that, at the date of issuance of the shares in a
share-lending arrangement entered into in contemplation of a convertible debt
offering or other financing, the shares issued shall be measured at fair value
and be recognized as an issuance cost, with an offset to additional paid-in
capital. Further, loaned shares are excluded from basic and diluted earnings
per share unless default of the share-lending arrangement occurs, at which time
the loaned shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The
adoption of this ASU is not expected to have a material impact on our results
of operations or financial condition.

In
December 2009, FASB issued ASU No. 2009-16, Accounting
for Transfers of Financial Assets. This ASU amends the FASB
Accounting Standards Codification for the issuance of FASB Statement No. 166, Accounting for Transfers of Financial Assetsan
amendment of FASB Statement No. 140.The amendments in this ASU
improve financial reporting by eliminating the exceptions for qualifying
special-purpose entities from the consolidation guidance and the exception that
permitted sale accounting for certain mortgage securitizations when a
transferor has not surrendered control over the transferred financial assets.
In addition, the amendments require enhanced disclosures about the risks that a
transferor continues to be exposed to because of its continuing involvement in
transferred financial assets. Comparability and consistency in accounting for
transferred financial assets will also be improved through clarifications of
the requirements for isolation and limitations on portions of financial assets
that are eligible for sale accounting. We do not expect the adoption of this
ASU to have a material impact on our consolidated financial statements.

In
December 2009, FASB issued ASU No. 2009-17, Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities.
This ASU amends the FASB Accounting Standards Codification for the issuance of
FASB Statement No. 167, Amendments to FASB
Interpretation No. 46(R). The amendments in this ASU replace the
quantitative-based risks and rewards calculation for determining which
reporting entity, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which reporting entity
has the power to direct the activities of a variable interest entity that most
significantly impact the entitys economic performance and (1) the obligation
to absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will be more
effective for identifying which reporting entity has a controlling financial
interest in a variable interest entity. The amendments in this ASU also require
additional disclosures about a reporting entitys involvement in variable
interest entities, which will enhance the information provided to users of
financial statements. This ASU is effective for the interim and annual
reporting periods beginning after November 30, 2009. Except for the expanded
disclosure requirements, the adoption of this ASU is not expected to have a
material impact on our consolidated financial statements.

In
January 2010, FASB issued ASU No. 2010-01, Accounting
for Distributions to Shareholders with Components of Stock and Cash.
The amendments in this ASU clarify that the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a potential
limitation on the total amount of cash that all shareholders can elect to
receive in the aggregate is considered a share issuance that is reflected in
earnings per share prospectively and is not a stock dividend for purposes of
applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in
this ASU are effective for interim and annual periods ending on or after
December 15, 2009, and should be applied on a retrospective basis. The adoption
of this ASU did not have a material impact on our consolidated financial
statements.

In
January 2010, FASB issued ASU No. 2010-02, regarding accounting and reporting
for decreases in ownership of a subsidiary. Under this guidance, an entity is
required to deconsolidate a subsidiary when the entity ceases to have a
controlling financial interest in the subsidiary. Upon deconsolidation of a
subsidiary, and entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. In contrast,
an entity is required to account for a decrease in its ownership interest of a
subsidiary that does not result in a change of control of the subsidiary as an
equity transaction. This ASU clarifies the scope of the decrease in ownership
provisions, and expands the disclosures about the deconsolidation of a
subsidiary or de-recognition of a group of assets. This ASU is effective
beginning in the first interim or annual reporting period ending on or after
December 15, 2009. The adoption of this ASU did not have a material impact on
our consolidated financial statements.

In
January 2010, FASB issued ASU No. 2010-06, Improving
Disclosures about Fair Value Measurements. This update provides
amendments to Subtopic 820-10 that requires new disclosure as follows:

1)
 Transfers in and out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers.36

2)
 Activity in
 Level 3 fair value measurements. In the reconciliation for fair value
 measurements using significant unobservable inputs (Level 3), a reporting
 entity should present separately information about purchases, sales,
 issuances, and settlements (that is, on a gross basis rather than as one net
 number).This update
 provides amendments to Subtopic 820-10 that clarifies existing disclosures as
 follows:1)
 Level of
 disaggregation. A reporting entity should provide fair value measurement
 disclosures for each class of assets and liabilities. A class is often a
 subset of assets or liabilities within a line item in the statement of
 financial position. A reporting entity needs to use judgment in determining
 the appropriate classes of assets and liabilities.2)
 Disclosures
 about inputs and valuation techniques. A reporting entity should provide
 disclosures about the valuation techniques and inputs used to measure fair
 value for both recurring and nonrecurring fair value measurements. Those
 disclosures are required for fair value measurements that fall in either
 Level 2 or Level 3.The
new disclosures and clarifications of existing disclosures are effective for
interim and annual reporting periods beginning after December 15, 2009, except
for the disclosures about purchases, sales, issuances, and settlements in the
roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. We adopted the provisions of the
standard on July 1, 2010, which will not have a material impact on our
financial statements.

In
February 2010, the FASB issued ASU 2010-09, Subsequent Events (Topic 855):
Amendments to Certain Recognition and Disclosure Requirements. This amendment
addresses both the interaction of the requirements of this Topic with the SECs
reporting requirements and the intended breadth of the reissuance disclosure
provision related to subsequent events (paragraph 855-10-50-4). All of the
amendments in this ASU are effective upon issuance of the final ASU, except for
the use of the issued date for conduit debt obligors. That amendment is
effective for interim or annual periods ending after June 15, 2010. The
adoption of this ASU did not have a material impact on our financial
statements.

In March 2010, the FASB issued ASU 2010-11,
Derivatives and Hedging (Topic 815): Scope
Exception Related to Embedded Credit Derivatives. The amendments in
this ASU are effective for each reporting entity at the beginning of its first
fiscal quarter beginning after June 15, 2010. Early adoption is permitted at
the beginning of each entitys first fiscal quarter beginning after issuance of
this ASU. We do not expect the provisions of ASU 2010-11 to have a material
effect on our financial position, results of operations or cash flows.

In April 2010, the FASB issued ASU 2010-13,
Compensation-Stock Compensation (Topic
718): Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades -
a consensus of the FASB Emerging Issues Task Force. The amendments
in this ASU are effective for fiscal years, and interim periods within those
fiscal years, beginning on or after December 15, 2010. Earlier application is
permitted. We do not expect the provisions of ASU 2010-13 to have a material
effect on our financial position, results of operations or cash flows.

In
May 2010, the FASB issued ASU 2010-19, Foreign
Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency
Exchange Rates. The amendments in this ASU are effective as of the
announcement date of March 18, 2010. The adoption of this ASU did not have a
material effect on our financial position, results of operations or cash flows.

In
July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses. This ASU amends Topic 310 to improve the disclosures that an entity
provides about the credit quality of its financing receivables and the related
allowance for credit losses. As a result of these amendments, an entity is
required to disaggregate by portfolio segment or class certain existing
disclosures and provide certain new disclosures about its financing receivables
and related allowance for credit losses. For public entities, the disclosures
as of the end of a reporting period are effective for interim and annual
reporting periods ending on or after December 15, 2010. The disclosures about
activity that occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15, 2010. Except for
the expanded disclosure requirements, the adoption of this ASU is not expected
to have a material impact on our consolidated financial statements.

37

RESULTS OF
OPERATIONS

Comparison of Year
Ended June 30, 2010 (fiscal 2010) and Year Ended June 30, 2009 (fiscal
2009)

Fiscal 2010
 
 % of Total
 Net
 Revenues
 
 Fiscal 2009
 
 % of Total
 Net
 RevenuesNET REVENUESConstruction
 
 $
 37,496,002
 
 
 73.6
 
 $
 77,041,208
 
 
 95.2Hotel
 
 
 3,086,553
 
 
 6.1
 
 
 3,515,821
 
 
 4.3Real estate
 
 
 10,331,004
 
 
 20.3
 
 
 382,463
 
 
 0.5Total Net Revenues
 
 
 50,913,559
 
 
 100.0
 
 
 80,939,492
 
 
 100.0COST OF SALESConstruction
 
 
 32,311,960
 
 
 86.2
 *
 
 66,277,041
 
 
 86.0
 *Hotel
 
 
 1,965,973
 
 
 63.7
 *
 
 1,945,299
 
 
 55.3
 *Real estate
 
 
 6,465,472
 
 
 62.6
 *
 
 300,510
 
 
 78.6
 *Total Cost of Sales
 
 
 40,743,405
 
 
 80.0
 
 
 68,522,850
 
 
 84.7GROSS PROFITConstruction
 
 
 5,184,042
 
 
 13.8
 *
 
 10,764,167
 
 
 14.0
 *Hotel
 
 
 1,120,580
 
 
 36.3
 *
 
 1,570,522
 
 
 44.7
 *Real estate
 
 
 3,865,532
 
 
 37.4
 *
 
 81,953
 
 
 21.4
 *Total Gross Profit
 
 
 10,170,154
 
 
 20.0
 
 
 12,416,642
 
 
 15.3* Represents
percentage of respective segments total net revenues

Net
Revenues.
For fiscal 2010, our overall net revenues decreased 37.1% from fiscal 2009. The
decrease in net revenues was mainly due to decreased activity in Jin Ma
Constructions operations caused by a softening of the real estate market in
Hohhot as discussed elsewhere.

Net
revenues related to Jin Ma Construction by construction project are summarized
as follows:

Project Name
 
 Fiscal 2010
 
 % (*)
 
 Fiscal 2009
 
 % (*)Riverbank Garden Community (Buildings 5 to
 8 and Phase II)
 
 $
 
 
 
 
 
 $
 10,557,604
 
 
 13.7
 *Tian Fu Garden residential project (Phase I
 and II)
 
 
 
 
 
 
 
 
 16,698,666
 
 
 21.7
 *Ai Bo Garden residential apartment project
 
 
 (117,467
 )
 
 (0.3
 )*
 
 26,828,713
 
 
 34.8
 *Lanyu Garden project
 
 
 3,405,405
 
 
 9.1
 *
 
 
 
 
 Fu Xing Committee Bath Center project
 
 
 5,756,345
 
 
 15.4
 *
 
 18,430,028
 
 
 23.9
 *Jianhe Garden residential project
 
 
 14,289,732
 
 
 38.1
 *
 
 
 
 
 Tuzuoqi (Chasuqi) Low-rent House project
 
 
 14,150,285
 
 
 37.7
 *
 
 
 
 
 Other
 
 
 11,702
 
 
 0.0
 *
 
 4,526,197
 
 
 5.9
 *Total construction segment net revenues
 
 $
 37,496,002
 
 
 100.0
 
 $
 77,041,208
 
 
 100.0*          Represents
 percentage of construction segment net revenues.

38

At
June 30, 2010, the percentage completed for each respective construction job is
as follows:

% CompleteAi Bo Garden
 residential apartment project (Phase I and Phase II)
 100.0%Lanyu Garden
 Number 3 residential building
 100.0%Fu Xing
 Committee Bath Center
 100.0%Jianhe
 Garden residential project
 47.8%Tuzuoqi
 (Chasuqi) Low-rent House project
 99.4%As
of June 30, 2010, Jin Ma Construction had primarily one uncompleted third party
construction project remaining, the Jianhe Garden residential project which was
47.8% complete. In addition to the third-party construction projects outlined
above, Jin Ma Construction has been acting as general contractor for Jin Ma
Real Estate to construct residential real estate development projects as
discussed below which has attributed to the reduction in construction revenues
as Jin Ma Construction is now focusing on acting as general contractor for Jin
Ma Real Estate in order to vertically integrate all development processes from
construction management to the sale of real estate units to customers.

Net
revenues for Jin Ma Hotels operations decreased approximately 12.2% for fiscal
2010 from fiscal 2009 primarily due to decreased sales at the hotels banquet
and catering facility. While the Chinese economy has been warming since the
first half of fiscal 2010, the Jin Ma Hotel has seen a decrease in visitors to
its banquet facility. It attributes this decrease to an increase in competition
as more restaurants open in the area. Jin Ma Hotel is refocusing its marketing
efforts to increase traffic to the hotel to target new tour groups and local
traffic to the banquet facilities.

Net
revenues for Jin Ma Real Estates operations increased approximately 2,601.2%
for fiscal 2010 compared to fiscal 2009. During fiscal 2010, Jin Ma Real
Estate, in cooperation with Jin Ma Construction who acted as general
contractor, developed Buildings 1 to 4 of Procuratorate Housing Estates and
Jian Guan Residential buildings (also known as building 5 of the Procuratorate
Housing Estates). In fiscal 2010, it sold substantially all of the units of
real estate held for sale and recognized revenue from the sale of these units.

Net
revenues from real estate development operations are summarized as follows:

Project Name
 
 Fiscal 2010
 
 Fiscal 2009Building 1
 to 4 of Procuratorate Housing Estates
 
 $
 7,741,165
 
 $
 Building 5
 of the Procuratorate Housing Estates (Jian Guan)
 
 
 2,202,881
 
 
 Inner
 Mongolia Electrical Vocational Technical School
 
 
 159,025
 
 
 149,602Inner
 Mongolia Chemistry College
 
 
 227,933
 
 
 Other real
 estate development projects
 
 
 
 
 
 232,861Total real estate segment net revenues
 
 $
 10,331,004
 
 $
 382,463As
a result of the change in the focus of Jin Ma Construction from acting as a
general contractor for third party projects to building projects for Jin Ma
Real Estate, we expect that both the Jin Ma Companies revenues and gross
profit will be impacted in fiscal 2011. Jin Ma Construction will not report revenues
from work completed for Jin Ma Real Estate, but Jin Ma Real Estates gross
profit in sales of its properties should increase significantly. Jin Ma
Construction expects that the Jianhe Garden residential project will be
completed during fiscal 2011 and Jin Ma Real Estate will continue to record
revenues from both the Vocational School and the Chemistry School during fiscal
2011. While Jin Ma Real Estate has additional projects in early development,
the timing of any revenues from those projects is presently undeterminable.

Cost
of Revenues.
Overall, cost of revenues decreased from 84.7% of net revenues for fiscal 2009
to 80.0% of net revenues for fiscal 2010. Cost of revenues as a percentage of
net revenues from Jin Ma Constructions operation for fiscal 2010 increased to 86.2% from
86.0% for fiscal 2009. The slight increase was mainly attributable to the
slight increase in construction materials and labor costs.

39

Cost of revenues as
a percentage of net revenues for Jin Ma Hotels operations for fiscal 2010
increased to 63.7% from 55.3% for fiscal 2009. The increase in cost of sales as
a percentage of net revenues was primarily attributable to the increase in food
costs. Beginning in fiscal 2010, Jin Ma Hotel increased the quantity of each dish
without a proportionate increase in the sales price in order to give an
incentive to its customers and prevent significant decreases in its sales
revenues. It expects the cost of revenues as a percentage of net revenues for
its hotel operation will remain at its current level in the near future. Cost
of revenues for Jin Ma Real Estates operation as a percentage of net real
estate revenues for fiscal 2010 decreased to 62.6% from 78.6% for fiscal 2009.
In the fiscal year of 2010, 6.7% of cost of revenues attributable to Jin Ma
Real Estate was attributable to the Vocational School and Chemistry School and
was recognized on the installment method which apportions each cash receipt and
principal payment by the buyer between cost recovered and profit and 93.3% was
attributable to the cost of units of real estate units sold. In fiscal 2009,
39% of cost of revenues for Jin Ma Real Estate related to the Vocational School
and 61% was attributable to the cost of remaining units of real estate sold.
The different revenue mix in fiscal 2010 and fiscal 2009 had an effect of
lowering cost of sales as a percentage of revenues as compared to fiscal 2009.

Gross
Profit. Gross profit increased from 15.3% of
overall net revenues for fiscal 2009 to 20.0% of overall net revenues for
fiscal 2010. The increase in gross profit was attributable to an increase in
revenues generated from Jin Ma Real Estate for which it recognized gross profit
of 37.4%.

Operating
Expenses. For fiscal 2010, overall operating expenses increased 33.9% from fiscal 2009. This increase was mainly due to a decrease in a gain from bad debt recovery related to the collection of accounts receivable which had previously been written off and offset by a decrease in depreciation and amortization and a decrease in loss on disposal of property and equipment. We expect that operating expenses will maintain at their current level with minimal increases in the near future.

Other hotel
Operating Expenses.
Other hotel operating expenses, 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. Other hotel operating expenses increased 49.9% for fiscal 2010 from fiscal 2009. Other hotel operating expenses were 2.9% of hotel revenues for fiscal 2010 as compared to 1.7% for fiscal 2009. The increase in other hotel operating expenses for fiscal 2010 is primarily attributable to an increase in expenditures related to the purchase of low cost items such as plates, glasses and napkins which were expensed in the fiscal 2010 period.

Bad
Debt (Recovery) Expenses. For fiscal 2010, bad debt recovery income amounted to
$102,704 as compared to bad debt recovery income of $993,338 for fiscal 2009, a
decrease of 89.7% and relates to the collection of old receivable balances
previously written off. We have a policy of reserving for uncollectible
accounts based on our best estimate of the amount of probable credit losses in
the Jin Ma Companies existing accounts and other receivables. We periodically
review the Jin Ma Companies 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.

Salaries
and Employee Benefits. For fiscal 2010, salaries
and employee benefits amounted to $908,590 as compared to $935,383 for fiscal
2009, a decrease of 2.9%. This decrease is primarily related to the slight
decrease in employee benefits. We expect that salaries and employee benefits
will remain at current level with minimal increase in the near future.

Depreciation
and Amortization. For fiscal 2010, depreciation
and amortization decreased 8.5% as compared to fiscal 2009. This decrease was
primarily due to the disposal of construction equipment in fiscal 2009, which
primarily included cranes and other heavy equipment.

Loss
on disposal of property and equipment.For fiscal 2010, we did not have any
disposal activity for property and equipment as compared to a loss on disposal
of property and equipment amounted to $302,776 in fiscal 2009.

Selling,
General and Administrative Expenses. Selling,
general and administrative expenses consist of selling, 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. Selling,
general and administrative expenses increased 7.4% for fiscal 2010 compared to
fiscal 2009. The increase was primarily attributable to an increase in
professional fees paid for business development and planning.
40

Total
Other Income (Expenses). In fiscal 2010, we
recorded other income of $2,629,664 as compared to other expenses of $1,798,885
in fiscal 2009. In fiscal 2010 and 2009, other income (expenses) consisted of
the following:


 in fiscal
 2010, we recorded a gain on extinguishment of derivative liabilities of
 $2,111,506 related to the conversion and repayment of convertible debt as
 compared to $0 in fiscal 2009;
 in
 fiscal 2010, we recorded a gain on change in fair value of derivative
 liabilities of $1,756,959 related to the change in fair value of derivative
 liabilities associated with warrants and the embedded conversion option on
 convertible debt;
 in fiscal 2010, gain on disposal of land use rights and certain property and equipment was $350,885.  On August 15, 2009, an agreement was entered into whereby Jin Ma Construction sold land use rights together with the building on the parcel for approximately $2.2 million (RMB 15 million).  The sale amount was fully received by Jin Ma Construction by the end of October 2009.  For fiscal 2010, Jin Ma Construction recognized a gain from the sale of land use rights and property of $350,885.  We did not generate any comparable income for fiscal 2009.
 in fiscal 2010, we recorded interest income of $1,274,999 as compared to interest income of $552,777 in fiscal 2009, an increase of $722,222 attributable to the recording of interest income from the collection of the annual payment from the Chemistry School;
 in
 fiscal 2010, we recorded interest expense of $2,864,685 as compared to
 $2,472,021 in fiscal 2009, an increase of $392,664 or 15.9% attributable to
 an increase in interest expense from the accretion of debt discount of
 $955,062 and an increase in interest of $99,141 from the issuance of our
 common stock for interest and the reduction of the warrants exercise price
 offset by a decrease interest expense of $661,539 related to our outstanding
 debt which was substantially reduced in fiscal 2010; and
 in
 fiscal 2009, we recognized a gain of $117,882 from the recovery of a
 registration rights penalty as compared to $0 in fiscal 2010.Provision
for Income Taxes. Total provision for income taxes
decreased 17.0% in fiscal 2010 (22.0% of income before income taxes) from
fiscal 2009 (31.4% of income before income taxes). The decrease in the
provision for income taxes was attributable to a decrease in income before
income taxes related to our Chinese subsidiaries and the variable interest
entities. The decrease in the provision for income taxes as a percentage of
income before income taxes was attributable to the recording of non-taxable
gains from derivative liabilities in fiscal 2010 and the effect of our U.S. net
losses on our overall effective tax rate.

Net
Income. Net income increased 34.2% for fiscal 2010
from fiscal 2009. This increase was primarily attributable to an increase in
gains recognized related to derivative liabilities, an increase in interest
income, and a decrease in income tax expense offset by an increase in interest
expenses and decrease in income from operations as described above. This
translates to basic net income per common share of $5.14 and $4.69, and diluted
net income per common share of $5.01 and $3.17, for fiscal 2010 and 2009,
respectively.

Comprehensive
Income. For fiscal 2010, we reported unrealized
gain on foreign currency translation of $187,809 as compared to $93,705 for
fiscal 2009 which reflects the effect of the declining value of the U.S.
dollar. These gains are non-cash items. As described elsewhere herein, the
functional currency of our China subsidiaries and variable interest entities is
the Chinese Renminbi. 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 net
revenues, costs, and expenses. Net gains and losses resulting from foreign
exchange transactions, if any, are included in the consolidated statements of
income and do not have a significant effect on our consolidated financial
statements. As a result of this non-cash foreign currency translation gain, we
reported comprehensive income of $8,460,867 for fiscal 2010 as compared to
comprehensive income of $6,259,010 for fiscal 2009.

Liquidity and Capital Resources

Liquidity
is the ability of a company to generate adequate amounts of cash to meet its
needs for cash. Our principal liquidity demands are based on the capital needs
of the Jin Ma Companies related to the development of new properties, land use
right acquisitions, and our general corporate purposes.

At
June 30, 2010, we had a cash balance of $309,996, substantially all of which is
located in financial institutions in China under the control of the Jin Ma
Companies.

41

Our working capital decreased by $2,670,026 to a negative balance of $539,342 at June 30, 2010 from a positive balance of $2,130,684 at June 30, 2009. This decrease in working capital is primarily attributable to:


 a decrease
 in accounts receivable of $4,031,877,
 a
 decrease in advances to suppliers of $200,570,
 a
 decrease in other receivables of $1,172,736,
 a
 decrease in due from related parties of $33,283,
 a decrease
 in prepaid land use rights for resale of $4,041,090,
 an
 increase in due to related parties of $230,453,
 an increase
 in taxes payable of $695,975,
 an increase in derivative liability of $653,630, and
 an increase
 in billings in excess of costs and estimated earnings of $52,707,Offset by:


 an
 increase in cash and cash equivalents of $197,862,
 an
 increase in note receivable on sales type lease  current portion of
 $992,410,
 an
 increase in inventories of $36,169,
 an
 increase in prepaid expenses of $210,000,
 an
 increase in cost and estimated earnings in excess of billings of $77,340,
 an
 increase in real estate held for sale of $367,009,
 an
 increase in deferred tax assets of $267,668,
 a
 decrease in loans payable  current portion of $1,328,612,
 a
 decrease in accounts payable of $4,444,458,
 a
 decrease in accrued expenses of $419,246, and
 a
 decrease in advances from customers of $101,521.At
June 30, 2009 we had $2,183,000 of principal and $131,438 of accrued but unpaid
interest outstanding under our amended and restated 14% secured convertible
debentures. These amended and restated debentures related to debentures we sold
in 2007, the net proceeds of which we advanced the Jin Ma Companies. During
fiscal 2010 certain debenture holders converted the debt into shares of our
common stock in accordance with the terms of the debentures. On May 14, 2010,
we entered into a Debenture and Warrant Amendment Agreement with the remaining
holders of our amended and restated 14% secured convertible debenture, which,
among other provisions:


 reduced the
 conversion price of the outstanding 14% secured convertible debentures and
 the exercise price of the related warrants to $3.20 per share,
 converted
 all remaining principal amount of $409,667, all accrued interest due under
 the 14% secured convertible debentures of $48,074 together with the penalties
 owed the debenture holders of $168,333, into 195,648 shares of our common
 stock,
 contained an
 agreement by the debenture holder that individually they would not sell any
 shares of our common stock acquired upon the conversion of the 14% debentures
 or the exercise of the warrants in an amount which was more than 7% of the
 daily trading volume of our common stock on any given day for a one year
 period, and
 We agreed
 not to issue shares any of our common stock at a price, or options, warrants
 or convertible securities with an exercise or conversion price that is less
 than the conversion price of the then outstanding convertible debt or the
 exercise price of the then outstanding warrants, as the case may be, with the
 intent of eliminating the provisions for a reduction in the exercise price of
 the warrants in the event that we issue stock at a price which is less than
 the exercise price of the warrants.As
a result, during fiscal 2010, we satisfied all remaining amended and restated
14% secured convertible debentures by issuing 325,467 shares of our common
stock for the principal balance of $1,199,450 and repaying the remaining
principal balance of $983,550 using cash. The elimination of the debt will
reduce our interest expense in future periods.

42

Our
balance sheet at June 30, 2010, reflects loans payable to third parties of
$3,436,830 due through September 2012 which were working capital loans made to
the Jin Ma Companies by these third parties. These loans bear annual interest
rates ranging from 11.16% to 24% and are due between September 2010 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. These
loans generally can be renewed with the respective parties when the loans mature.
During fiscal 2010, the Jin Ma Companies repaid loans of $1,383,130 and we
repaid or converted into common shares all remaining convertible debt, interest
and penalties.

The
Jin Ma Companies intend to meet their liquidity requirements, including capital
expenditures related to the purchase of land for the development of future
projects, through cash flow provided by operations, and from the collection of
outstanding accounts and notes receivable balances. Upon acquiring land for
future developments, the Jin Ma Companies intend to raise funds to develop its
projects by the presale of units and by obtaining financing mainly from local
banking institutions with which it has done business in the past. We believe
that the relationships with these banks are in good standing and that the Jin
Ma Companies real estate will secure the loans needed. We estimate that the
Jin Ma Companies will have sufficient cash flow from operations to satisfy
their working capital needs and to fund their operations for the next 12 months
from the collection of their outstanding accounts and notes receivable.
However, any delay in the collection of the receivables would have an adverse
effect on their ability to fund their working capital requirements. There is,
however, $3 million of debt which becomes due by May 2011 the majority of which
is collateralized by the assets of the Jin Ma Hotel. The Jin Ma Companies do
not presently have sufficient capital to satisfy this obligation. While the Jin
Ma Companies believe they will be able to restructure this debt to extend the
due date, if they are unable to do so, or to otherwise refinance the amount, a
risk exists that this debt could be foreclosed upon which would deprive the Jin
Ma Companies of revenue associated with this company and would materially
adversely impact our results of operations in future periods.

We
require working capital to pay general and administrative expense, including
audit, legal and related fees, associated with our reporting obligations under
the Securities Exchange Act of 1934. Other than the management fees which are
due us by the Jin Ma Companies, we do not presently have any other source of
working capital. At June 30, 2010, we were owed approximately $21.6 million by
the Jin Ma Companies. 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 2010, 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.

Operating Activities

Net
cash flow provided by operating activities was $297,028 for fiscal 2010 as
compared to net cash used in operating activities of $6,209,234 for fiscal
2009, an increase of $6,506,263.

For
fiscal year 2010, net cash flow provided by operating activities was primarily
attributable to:


 net income
 of $8,273,058 adjusted for the add-back of non-cash items such as
 depreciation of $775,715, stock-based compensation of $322,500, common stock
 issued for interest of $76,114, and interest expense from amortization of
 debt discount of $2,183,000, and the reduction of net income for non-cash
 items such as bad debt recovery of $104,052, gain on sale of land use right
 of $350,885, gain on extinguishment of derivative liabilities of $2,111,506,
 and a gain on changes in fair value of derivative liabilities of $1,756,959
 and;
 the
 receipt of cash from operations from changes in operating assets and
 liabilities such as:
 a decrease in accounts receivable of
 $4,107,942 due to the collection of outstanding balances on completed
 construction projects;
 a decrease in note receivable of $314,044
 due to the collections of annual payments due;
 a decrease in other receivables of
 $1,249,521due to the collection funds due from the sale of land use rights;
 a decrease in prepaid land use rights held
 for sale of $2,418,255 due to the refund of this deposit;
 offset by the use of cash from changes in operating assets and
 liabilities such as:
 an increase in construction in progress of
 $10,660,340 and,
 a decrease in accounts payable and accrued
 expenses of $4,453,158.43

For
the fiscal year 2009, net cash flow used in operating activities was primarily
attributable to:


 the
 use of cash from changes in operating assets and liabilities such as
 an increase in accounts receivable of
 $8,226,314;
 an increase in construction in progress of
 $13,276,624 from the use of cash for development of real estate;
 a decrease in taxes payable of $545,766;
 offset by net income of $6,165,305 adjusted for 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 the reduction of net income for non-cash items such as bad debt
 recovery of $993,338;
 offset by the receipt of cash from operations from changes in operating assets and liabilities including an increase in accounts payable and accrued expenses of $7,232,489.Investing Activities

Net
cash flow provided by investing activities was $2,004,703 for fiscal 2010 as
compared to cash provided by investing activities of $4,407,853 for fiscal
2009. For fiscal 2010, cash provided by investing activities consisted of
proceeds from sale of land use right of $2,194,051 offset by $189,347 cash used
for purchase of property and equipment. For fiscal 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.

Financing Activities

Net
cash flow used in financing activities was $2,103,850 for fiscal 2010 which was
primarily attributable to repayment of loans payable of $1,383,130 and
repayment of convertible debt of $983,550 offset by proceeds from advances from
related party of $262,830. Net cash flow provided by financing activities was
$270,024 for fiscal 2009 which was primarily attributable to proceeds from the sale
of our common stock of $124,000 and proceeds from loans of $146,024.

Contractual Obligations and Off-Balance Sheet
Arrangements

Contractual Obligations

Jin
Ma Real Estate guarantees 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 fiscal 2010 and
fiscal 2009, 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.

The
following tables summarize the Jin Ma Companies contractual obligations as of
June 30, 2010, 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:Bank and other third-partyIndebtedness
 
 $
 3,436,830
 
 $
 3,091,678
 
 $
 345,152
 
 
 
 
 
 Total Contractual Obligations:
 
 $
 3,436,830
 
 $
 3,091,678
 
 $
 345,152
 
 
 
 
 
 44

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 other than the guarantee of mortgages for Jin Ma Real Estates customers in
the normal course of business. For fiscal 2010 and fiscal 2009, the liability for guarantors
obligation was not material and we have not incurred any losses related to the guarantee of mortgages.
We have not entered into any derivative contracts that are indexed to our shares and classified as
shareholders equity or that are not reflected in our 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
RISK

Not
applicable to smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See
our Financial Statements beginning on page F-1 of this annual report.

ITEM 9.
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSUREOn
July 26, 2010, we dismissed AGCA, Inc. (formerly Yu and Associates CPA
Corporation) as our independent registered public accounting firm and engaged
Crowe Horwath (HK) CPA Limited as our independent registered public accounting
firm. The dismissal of AGCA, Inc. was approved and ratified by our Board of
Directors. AGCA, Inc. had served as our independent registered public
accounting firm since August 2008. AGCA, Inc. did not resign or decline to
stand for reelection.

AGCA
Inc.s report dated October 19, 2009 on our balance sheets as of June 30, 2009
and 2008 and the related statements of income and comprehensive income,
stockholders equity, and cash flows for the years ended June 30, 2009 and 2008
did not contain an adverse opinion or a disclaimer of opinion, nor was
qualified or modified as to uncertainty, audit scope, or accounting principles.

During
our two most recent fiscal years and the subsequent interim period preceding
our decision to dismiss AGCA, Inc., we had no disagreements with them on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope of procedure, which disagreement if not resolved to the
satisfaction of AGCA, Inc., would have caused it to make reference to the
subject matter of the disagreement in connection with its report.

During
our two most recent fiscal years and the subsequent interim period prior to
retaining Crowe Horwath (HK) CPA Limited neither we nor anyone on our behalf
consulted Crowe Horwath (HK) CPA Limited regarding either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements or any matter that was the subject of a disagreement or a
reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of
Regulation S-K and Crowe Horwath (HK) CPA Limited did not provide us with a
written report or oral advice that they concluded was an important factor
considered by us in reaching a decision as to accounting, auditing or financial
reporting issue.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls
and Procedures

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of June
30, 2010, 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, to allow timely decisions regarding
required disclosure.

45

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 at June 30, 2010
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, 2010.

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 of 1934. 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.
Management assessed the effectiveness of our internal control over financial
reporting as of June 30, 2010. 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 the
assessment of the effectiveness of internal control over financial reporting as
of June 30, 2010, management identified material weaknesses related to:


 our failure
 to properly record certain common stock purchase warrants and conversion
 options related to convertible debt as derivative liabilities and our failure
 to properly record the subsequent accounting for the changes in the fair
 value of the associated liabilities at September 30, 2009, December 31, 2009
 and March 31, 2010,
 the lack of
 U.S. GAAP expertise of the Jin Ma Companies internal accounting staff,
 the lack of
 our internal audit functions,
 the absence
 of an Audit Committee as of June 30, 2010, and
 a lack of
 segregation of duties within accounting functions.As
a result of these material weaknesses, our Chief Executive Officer and Chief
Financial Officer concluded that our internal control over financial reporting
was not effective as of June 30, 2010. A material weakness 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, however, 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.

In
order to correct the foregoing material weaknesses, we have committed to the
establishment of effective internal audit functions and the addition of accounting
staff at the Jin Ma Companies with the proper expertise. We will also implement
changes to our internal controls to ensure that derivative liabilities are
properly recorded in future periods. We began our search for additional
accounting staff during fiscal 2010, however, due to the scarcity of qualified
candidates with extensive experience in U.S. GAAP reporting and accounting in
the region in which the Jin Ma Companies conduct operations, we were not able
to hire sufficient internal audit resources before the end of fiscal 2010.
However, during fiscal 2011 we will increase our search for qualified
candidates with assistance from recruiters and through referrals.

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.

46

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. Until we are
able to hire the proper accounting staff it is unlikely we will be able to
remediate these material weaknesses in our internal control over financial
reporting.

Changes in Internal
Control over Financial Reporting

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

ITEM 9B. Other Information.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.

Name
 
 Age
 
 Positions held:Liankuan
 Yang
 
 54
 
 Chief
 Executive Officer, President, and Chairman of the Board of DirectorsAdam
 Wasserman
 
 46
 
 Chief
 Financial OfficerMingguo Wang
 (2)(3)
 
 50
 
 DirectorWen Biao
 Wang
 
 46
 
 DirectorGregory T.
 Wolfson (1)(2)
 
 34
 
 DirectorGuohui Song (1)(3)
 
 71
 
 DirectorNoel Robyn (1)(3)
 
 65
 
 DirectorYang Yang
 
 28
 
 Vice
 President, Director(1)
 Member of
 Audit Committee.(2)
 Member of Nominations
 and Governance Committee.(3)
 Member of
 Compensation Committee.Biographical 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 an 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. Mr. Yang is 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
served as the chief financial officer of Transax International Limited since
May 2005, chief financial officer of Oriental Dragon Corp, (formerly Emerald
Acquisition Corp) since June 2010, and as the vice president of financial
reporting of China Wind Systems, Inc., both clients of CFO Oncall, Inc. Mr.
Wasserman currently serves as a member of the boards of directors for China
Direct Industries, Inc. (NasdaqGM: CDII) and Bohia Pharmaceuticals Group, Inc.
(OTCBB: BOPH) since January 2010 and July 2010, respectively. Mr. Wasserman has
also served as the chief financial officer of Relationserve, Inc. (August 2005
to June 2006), Lotus Pharmaceuticals Inc. (October 2006 until April 2009), Explorations
Group Inc. (January 2002 until December 2005), and Jiangbao Pharmaceuticals,
Inc. (formerly 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

47

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.

Mingguo
Wang. Mr. Wang has been a member of our Board of
Directors since July 9, 2007. From July 1984 to present, Mr. Wang is employed
as a sales representative for Beijing Yongan Fuxing Pharmaceutical Co., Ltd
where he also held positions such as deputy manager and department manager.
From 2005 to July 2007, Mr. Wang also worked at Jin Ma Real Estate as a
consultant overseeing its business operations. Mr. Wang is a graduate of the
Beijing University of Chinese Medicine.

Wen
Biao 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. Since January 2010, Mr. Wolfson has
served as Managing Director of Genesis Equity Partners Ltd. where he is
responsible for business development. From July 2008 to December 2009, Mr.
Wolfson studied Business Administration at the National University of Singapore
and Fudan University in Shanghai. Between 2007 and August 2008, Mr. Wolfson
planned and completed an overland journey through a major section of the
ancient Silk Road, spanning the region from China to Turkey. 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 is a graduate of
Tufts University and holds an MBA from the National University of Singapore. He
speaks Mandarin Chinese.

Guohui
Song:Mr.
Song has been a member of our Board of Directors since July 14, 2010. Mr. Song
brings over 50 years of accounting and corporate financial management to the
company. For 20 years, he served as the Deputy Director of the Hohhot Finance
Agency and Director of Hohhot Accounting Agency. Mr. Song currently serves as a
consultant to an Inner Mongolia Tianjin accounting firm.

Noel
Bud Robyn: Mr. Robyn has been a member of our
Board of Directors since July 1, 2010. Currently, Mr. Robyn is retired and
provides business consulting services to various businesses. From 1999 to 2002,
Mr. Robyn was Senior Vice President of Thunderbird School of Global Management,
where he managed all executive degree and certificate education activities in
the US and multiple international locations and where he built a
best-in-industry global presence. Prior to Thunderbird, from 1997 to 1999,
Mr. Robyn was the director of the University of Miamis Executive Education
Center where he established the new center, developed its mission, objectives,
strategies and programs, and created relationships with industry and community
leaders. In 1995 and 1996, he was the managing director of the global business
of a pharmaceutical/biological products division of Rhone Poulenc, now Merial,
a subsidiary of Sanofi Aventis. During 1989 to 1994, he was the president and
managing director of the Latin American division of ConAgra Foods and from 1985
to 1989, he was president and managing director of the South American division
of Ralston Purina, with full P&L responsibilities for 27 plants, 2400
employees, and $300 million in sales.

Yang
Yang:
Ms. Yang has been a member of our Board of Directors and a Vice President of
our company 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 Jin Ma Companies after
completing her university studies in business management and accounting in
Australia. Ms. Yang is the daughter of Mr. Liankuan Yang.

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.

48

Director Qualification

The
composition of our Board of Directors is a combination of members of the Jin Ma
Companies management and non-management directors. The Nominations and
Governance Committee believes a board of directors composed of individuals with
operational responsibilities and non-management directors whose various
professional experiences are complimentary to the management directors provides
balance and objectivity. The management directors include Chairman Yang, Mr.
Wen Bio Wang and Ms. Yang. Chairman Yang, as the founder of the Jin Ma
Companies, has a comprehensive understanding of the operations of each of the
Jin Ma Companies and their inter-company integration. Our Board believes that
his perspective assists the Board in achieving a greater understanding of the
overall company operations, risks and opportunities. Ms. Yang and Mr. Wen Biao
Wang provide more specific insights into the operations and opportunities of
those entities which are each crucial segments of the Jin Ma Companies. The
four non-management directors, Messrs. Wolfson, Mingguo Wang, Song and Robyn,
each possess various skills and attributes which are complementary to the
operational experience of the management directors. Mr. Wolfson has experience
in advising PRC-based businesses who wish to operate in a more Western
manner. Mr. Mingguo Wang has operational experience in a PRC company, Mr. Song
has significant experience in accounting and corporate finance management in
the PRC and Mr. Robyn has extensive executive experience in large U.S.
companies which have global operations. In addition to the each of the
individual skills and backgrounds, the Nominations and Governance Committee and
our Board also concluded that each of these individuals will continue to
provide knowledgeable advice to our other directors and to senior management on
numerous issues facing our company and on the development and execution of our
strategy.

Pending Changes to the Board of Directors

In
July 2010, our Board of Directors adopted amendments to our bylaws, subject to
approval by our shareholders, which will create a staggered Board consisting of
three classes of directors. The Class One directors will be elected for one
year terms, the Class Two directors will be elected for two year terms and the
Class Three directors will be elected for three year terms. Under Florida law,
our shareholders are required to approve the amendments to our bylaws before
they are effective. We anticipate that we will submit the amended bylaws for a
vote at the next annual meeting of our shareholders. At that time, we
anticipate that Messrs. Robyn and Wolfson will be nominated as Class One
directors, Messrs. Mingguo Wang and Song will be nominated as Class Two
directors and Messrs. Yang and Wen Biao Wang and Ms. Yang will be nominated as
Class Three directors.

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 each of fiscal 2010 and fiscal 2009, we paid CFO
Oncall, Inc. $100,000 as compensation for its services.

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% shareholders 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, 2010, none of our
executive officers, directors and persons holding greater than 10% of our
issued and outstanding stock has failed to file the required reports in a
timely manner except:


 Mr. Yang who
 failed to timely file two reports, each reporting one transaction, and
 Mr.
 Wasserman who failed to timely file two reports, one reporting two
 transactions and the second reporting one transaction.49

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

On
July 14, 2010 our Board of Directors established an Audit Committee, a
Nominations and Governance Committee and a Compensation Committee. Prior to the
establishment of these committees, our Board did not have any committee and the
functions of those committees were being undertaken by the entire Board as a
whole. Both the Audit Committee and Nominations and Governance Committee have
written charters which are available on our website at www.goldhorseinternational.com.
Information concerning the current membership and function of each committee is
as follows:

Board of Directors Committee Membership

Director
 
 
 Audit Committee
 Member
 
 
 Compensation
 Committee
 Member
 
 
 Nominations and
 Governance
 Committee
 MemberMingguo Wang
 
 
 
 
 
 √
 
 
 √1Gregory T.
 Wolfson
 
 
 √
 
 
 
 
 
 √Noel Bud
 Robyn
 
 
 √
 
 
 √1
 
 
 √Guohui Song
 
 
 √1
 
 
 √1
 Denotes
 Chairperson.Audit
Committee

The
Audit Committee assists the Board in fulfilling its oversight responsibility
relating to the quality and integrity of our financial reporting practices. The
primary purposes of the Audit Committee are to oversee on behalf of the Board:




 our
 accounting and financial reporting processes and the integrity of our
 financial statements;
 the audits
 of our financial statements and the appointment, compensation,
 qualifications, independence and performance of our independent auditors;
 our
 compliance with legal and regulatory requirements;
 the
 qualitative aspects of financial reports to our shareholders; and
 the
 performance of our internal audit function and internal control over
 financial reporting.The
Audit Committee is composed of three directors, two of whom have been
determined by the Board of Directors to be independent, as defined by the
NYSE Amex Company Guide. The Audit Committee Charter requires that all members
of the Audit Committee must be financially literate and at least one member
must be an audit committee financial expert as defined in the SECs rules.
The Board has determined that Mr. Song qualifies as an audit
committee financial expert as defined by the SEC.

50

Nominations
and Governance Committee

The
Nominations and Governance Committee assists the Board in:


 identifying
 individuals qualified to become board members and recommending to the Board
 the nominees for election as directors at the next annual meeting of
 shareholders,
 overseeing,
 reviewing and making periodic recommendations concerning our corporate
 governance policies, and
 advising on
 matters of organization, management succession plans, major changes in
 organizational structure and conduct of Board activities.The
Nominations and Governance Committee is comprised of three members, two of
whom, Messrs. Robyn and Mingguo Wang, have been determined by the Board of
Directors to be independent, as defined by the NYSE Amex Company Guide.

We
do not have a policy regarding the consideration of any director candidates
which may be recommended by our shareholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. The
Nominations and Governance Committee has not established specific criteria or
minimum qualifications that must be met by committee-nominated or
shareholder-nominated nominees for director. Regardless of the source of a
given nominees nomination, the Nominations and Governance Committee will
evaluate each nominee based upon his or her educational attainments, relevant
experience and professional stature. The Nominations and Governance Committee
will primarily seek nominations for directors from institutional security
holders, members of the investment banking community and current directors. The
Nominations and Governance Committee will include diversity among the factors
to be considered when identifying and evaluating a nominee for director, but
otherwise the Nominations and Governance Committee has no separate policy with
regard to the consideration of diversity in identifying and evaluating
nominees.

Compensation
Committee

The
Compensation Committee is responsible for overseeing our compensation programs
and practices, including our executive compensation plans and incentive
compensation plans. The Chief Executive Officer provides input to the
Compensation Committee with respect to the individual performance and
compensation recommendations for the other executive officers. The Compensation
Committee is composed of three directors, all of whom have been determined by
the Board of Directors to be independent, as defined by the NYSE Amex Company
Guide.

ITEM 11. EXECUTIVE COMPENSATION

The
following table summarizes all compensation recorded by us in each of the last
two completed fiscal years for:


 all
 individuals serving as our principal executive officer or acting in a similar
 capacity during the year ended June 30, 2010,
 our two most
 highly compensated named executive officers at June 30, 2010 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 a named executive
 officer of our company at June 30, 2010.The
value attributable to any option awards, if any, is computed in accordance with
FASB ASC Topic 718. In fiscal 2010 and 2009, we did not grant any option to
executive officers or directors.

51

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 ($)LiankuanYang,(1)
 
 
 2010
 
 
 180,000
 
 
 0
 
 
 1,875
 
 
 0
 
 
 0
 
 
 0
 
 $
 38,680
 
 $
 220,5552009
 
 
 180,000
 
 
 0
 
 
 4,500
 
 
 0
 
 
 0
 
 
 0
 
 $
 43,800
 
 $
 228,300AdamWasserman(2)
 
 
 2010
 
 
 50,000
 
 
 0
 
 
 50,000
 
 
 0
 
 
 0
 
 
 0
 
 
 0
 
 
 100,0002009
 
 
 50,000
 
 
 0
 
 
 50,000
 
 
 0
 
 
 0
 
 
 0
 
 
 0
 
 
 100,000(1)
 Mr. Yang has
 served as our Chief Executive Officer and President since July 10, 2007. Mr.
 Yangs fiscal 2010 compensation includes 750 shares of our common stock
 valued at $1,875 issued to him as compensation for his Board services. Mr.
 Yangs other compensation includes $38,680 which represents car allowances
 and personal expenses paid on his behalf by the Jin Ma Companies. Mr. Yangs
 fiscal 2009 compensation includes 750 shares of our common stock valued at
 $4,500 to him as compensation for his Board services. In fiscal 2009 Mr.
 Yangs other compensation includes $43,800 which represents car allowances
 and personal expenses paid on his behalf by the Jin Ma Companies.(2)
 Mr.
 Wasserman has served as our Chief Financial Officer since July 9, 2007.
 Compensation for Mr. Wasserman was paid to CFO Oncall, Inc., a company where
 Mr. Wasserman serves as chief executive officer, under the terms of our
 agreement with CFO Oncall, Inc. See Item 10. Directors, Executive Officer and
 Corporate Governance - Consulting Arrangement with CFO Oncall, Inc. appearing
 earlier in this report.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 Boards of Directors
arbitrarily settle 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 the Jin Ma Companies.

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, 2010.

Compensation of Directors

We
do not have standard arrangements regarding the compensation paid to members of
our Board of Directors, other than our agreement with Mr. Robyn who joined our
Board in fiscal 2011. The following table provides the amounts paid in fiscal
2010 to our Board members for their services, other than the compensation paid
to Mr. Yang which is included earlier in this report under Summary Annual
Compensation Table.

52

Name (a)
 
 Fees
 earned
 or paid
 in cash
 ($)
 (b)
 
 Stock
 awards
 ($) (c)(1)
 
 Option
 awards
 ($)
 (d)
 
 Non-equity
 incentive plan
 compensation
 ($)
 (e)
 
 Nonqualified
 deferred
 compensation
 earnings ($) (f)
 
 All other
 compensation
 ($)
 (g)
 
 Total
 ($)
 (h)Yang Yang (2)
 
 
 0
 
 
 1,875
 
 
 0
 
 
 0
 
 
 0
 
 
 17,287
 
 
 19,162Mingguo Wang (3)
 
 
 0
 
 
 1,875
 
 
 0
 
 
 0
 
 
 0
 
 
 8,791
 
 
 10,666Wen Biao Wang (4)
 
 
 0
 
 
 1,875
 
 
 0
 
 
 0
 
 
 0
 
 
 16,116
 
 
 17,991Gregory Wolfson
 
 
 0
 
 
 1,875
 
 
 0
 
 
 0
 
 
 0
 
 
 0
 
 
 1,875(1)The
amounts included in the Stock Awards column represent the fair market value
of 750 shares of our common stock issued to each of Ms. Yang and Messrs. Wang,
Wang and Wolfson as compensation for their services on our Board of Directors.



(2)All
other compensation for Ms. Yang includes salary paid by the Jin Ma Companies
for services rendered.



(3)All
other compensation for Mr. Wang includes consulting fees paid by Jin Ma
Companies for services rendered.



(4)All
other compensation for Mr. Wang includes salary paid by Jin Ma Companies for
services rendered.

When
Mr. Robyn joined the Board in fiscal 2011, we agreed to pay him a directors
fee of 750 shares of our common stock for his first year of service which were
valued at approximately $2,700. We granted Mr. Robyn piggyback registration
rights over those shares. Our agreement with Mr. Robyn provides that
compensation for subsequent years of service as a member of our Board of
Directors will be determined by the Compensation Committee, but the amount will
not be less than the first years compensation.

2007 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. As of September 24, 2010, we have not made any grants under the 2007 Equity
Compensation Plan.

Plan
options may be 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 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.

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.

53

ITEM 12.
 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERSAt
September 24, 2010, we had 1,934,878 shares of our common stock issued and
outstanding. The following table sets forth information regarding the
beneficial ownership of our common stock as of September 24, 2010 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, 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 (1)
 
 
 683,643
 
 
 35.3
 %Adam
 Wasserman (2)
 
 
 20,985
 
 
 1.08
 %Mingguo Wang
 
 
 1,500
 
 
 n/aWenbiao Wang
 
 
 1,500
 
 
 n/aGregory T.
 Wolfson
 
 
 750
 
 
 n/aNoel Robyn
 
 
 2,500
 
 
 n/aGuohui Song
 
 
 0
 
 
 n/aYang Yang
 
 
 114,000
 
 
 5.89
 %All officers and directors as a group
 (eight persons) (1) (2)
 
 
 824,878
 
 
 42.63
 %Runlan Ma
 (3)
 
 
 112,500
 
 
 5.81
 %Xinkuan Yang
 (4)
 
 
 93,750
 
 
 4.85
 %Zhanjun Yang
 (5)
 
 
 75,000
 
 
 3.88
 %Yongjun Yang
 (6)
 
 
 75,000
 
 
 3.88
 %Yonggang
 Zhao (7)
 
 
 75,000
 
 
 3.88
 %(1)          Mr.
Yangs holdings include 364,893 shares beneficially owned by him and an
aggregate of 318,750 shares held by Messrs. Xinkuan Yang, his brother, and
Messrs. Zhanjun Yang, Yongjun Yang and Yonggang 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.



(2)          Mr.
Wassermans address is 1643 Royal Grove Way, Weston, Florida 33327. Mr.
Wassermans holdings include 12,056 shares beneficially owned by him and 8,929
shares held by CFO Oncall Asia, Inc., over which he has significant influence
and may direct the voting.



(3)          Ms.
Ma is Mr. Liankuan Yangs wife. Ms. Mas holdings exclude the holdings of Mr.
Yang over which she disclaims beneficial ownership.



(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, 3rdFloor, Unit 1, Building 5, No. 3
Xinghe New Estate, Huimin District, Hohhot, Inner Mongolia, China.

54

(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.

Securities Authorized for Issuance under
Equity Compensation Plans

The
following table sets forth securities authorized for issuance under any equity
compensation plans approved by our shareholders as well as any equity
compensation plans not approved by our shareholders as of June 30, 2010.

Plan category
 
 Number of
 securities to
 be issued
 upon exercise
 of
 outstanding
 options,
 warrants and
 rights (a)
 
 Weighted average
 exercise price of
 outstanding
 options, warrants
 and rights (b)
 
 Number of securities
 remaining available for
 future issuance under
 equity compensation
 plans (excluding
 securities reflected in
 column (a)) (c)Plans
 approved by our shareholder:nonePlans not
 approved by shareholders:2007 Equity
 Compensation Plan
 
 
 0
 
 
 
 
 
 3,000,000ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

PRC
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 the Jin Ma Companies, including Mr. Yang, Mr.
Wen Biao Wang and Ms. Yang.

From
time to time, Inner Mongolia Jin Ma Group Ltd. (also known as Inner Mongolia
Gold Horse Industry Group) and its subsidiaries, companies owed by our CEO,
advanced funds to the Jin Ma Companies for working capital purposes. These
advances are non-interest bearing, unsecured and payable on demand. At June 30,
2010, the Jin Ma Companies owed Inner Mongolia Jin Ma Group Ltd. $230,453.

During
fiscal 2010 and fiscal 2009,the Jin Ma Companies paid rent of $51,125 and
$51,039, respectively, to Inner Mongolia Jin Ma Group Ltd. for employee
dormitory apartments.

In
January 2010, we engaged GEP Capital Group, Ltd. has a financial consultant to
assist us in our goal of obtaining a listing of our common stock on a U.S.
stock exchange as well as to raise additional capital. Under the terms of the
agreement we paid GEP Capital Group, Ltd. 75,000 shares of our common stock,
valued at $360,000, as compensation for their services. The control person of
GEP Capital Group, Ltd. is the father of Mr. Gregory T. Wolfson, a member of
our Board of Directors.

Director Independence

Our
board of directors has determined that it has three members, Messrs. Song,
Robyn and Mingguo Wang that are independent as the term is used in NYSE Amex
Company Guide.



55

ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.

The
following table shows the fees that we paid or accrued for audit and other
services provided by Crowe Horwath (HK) CPA Limited and AGCA, Inc. for fiscal
years 2010 and 2009, respectively.

Years Ended June 30,Category
 
 2010
 
 2009Audit Fees (1)
 
 $
 62,165
 
 $
 72,060Audit
 Related Fees (2)
 
 
 19,746
 
 
 26,759Tax Fees (3)
 
 
 0
 
 
 0All Other
 Fees (4)
 
 
 0
 
 
 0(1)
 Consists of
 fees billed or accrued for the audits of our annual financial statements,
 review of our Form 10-K 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 by AGCA, Inc. for the review of the financial statements included
 in our quarterly reports for fiscal years 2010 and 2009.(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 accountants. 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 review fees
paid to the auditors with respect to fiscal year 2010 were pre-approved by the
entire Board of Directors.

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)3.6
 Articles of
 Amendment to the Articles of Incorporation (16)4.1
 Form of 10%
 secured convertible debenture (9)4.2
 Form of
 common stock purchase warrant (9)4.2
 Form of
 Amended and Restated 14% Secured Convertible Debenture due March 31, 2010
 (9).10.1
 Consulting
 agreement with GEP Capital Group Ltd. (12)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)56

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)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)57

10.25
 Form of
 Letter Agreement dated June 26, 2009 with the debenture holders (11)10.26
 Debenture
 and Warrant Amendment Agreement dated May 14, 2010 (13)10.27
 Directors
 Agreement with Noel Bud Robyn dated June 21, 2010 (14)14.1
 Code of
 Financial Ethics (3)14.2
 Audit
 Committee Charter dated July 14, 2010 (16)14.3
 Nomination
 and Governance Charter dated July 14, 2010 (16)16.1
 Letter from
 AGCA, Inc. dated July 28, 2010 (15)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
 herewith(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.(12)
 Incorporated
 by reference to the Quarterly Report on Form 10-Q for the period ended
 December 31, 2009.(13)
 Incorporated
 by reference to the Quarterly Report on Form 10-Q for the period ended March
 31, 2010.(14)
 Incorporated
 by reference to the Current Report on Form 8-K as filed on June 24, 2010.(15)
 Incorporated
 by reference to the Current Report on Form 8-K as filed on July 30, 2010.(16)
 Incorporated
 by reference to the Current Report on Form 8-K as filed on September 10,
 2010.58

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 1, 2010
 By:
 /s/ Liankuan
 YangLiankuan
 Yang, Chief Executive OfficerPursuant
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, principal executive officer
 
 October 1, 2010Liankuan
 Yang/s/ Adam
 Wasserman
 
 Chief
 Financial Officer, principal financial and accounting officer
 
 October 1, 2010Adam
 Wasserman/s/Mingguo
 Wang
 
 Director
 
 October 1, 2010Mingguo Wang/s/ Wen Biao
 Wang
 
 Director
 
 October 1, 2010Wen Biao
 Wang/s/ Gregory
 T. Wolfson
 
 Director
 
 October 1, 2010Gregory T.
 Wolfson/s/ Yang
 Yang
 
 Vice
 President, Director
 
 October 1, 2010Yang Yang/s/ Guohui
 Song
 
 Director
 
 October 1, 2010Guohui Song/s/ Noel
 Robyn
 
 Director
 
 October 1, 2010Noel Robyn59

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Report of Independent
 Registered Public Accounting Firm - Crowe Horwath (HK) CPA Limited
 F-2(a)Report of Independent
 Registered Public Accounting Firm - AGCA, Inc.
 F-2(b)Consolidated Financial
 Statements:Consolidated Balance Sheets as of June 30,
 2010 and 2009
 F-3Consolidated Statements of Income and Comprehensive Income For the
 years ended June 30, 2010 and 2009
 F-4Consolidated Statements of Changes in Stockholders Equity For the
 years ended June 30, 2010 and 2009
 F-5Consolidated Statements of Cash Flows For the years ended June 30,
 2010 and 2009
 F-6Notes to Consolidated
 Financial Statements
 F-7
 to F-48F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM

To the Board of Directors
and Stockholders of 
Gold Horse International, Inc.

We have audited the
accompanying consolidated balance sheet of Gold Horse International, Inc.
(Company) and subsidiaries as of June 30, 2010 and the related consolidated
statements of income and comprehensive income, stockholders equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an 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 the Companys 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 includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit 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 the Company and subsidiaries as of
June 30, 2010 and the results of their operations and cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 11,
effective July 1, 2009, the Company adopted new accounting guidance relating to
determining whether an instrument (or embedded feature) is indexed to an
entitys own stock.

/s/ Crowe Horwath (HK) CPA
 LimitedHong Kong, ChinaOctober 1, 2010F-2(a)

REPORT 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 
October 19, 2009 (except to Note 1 related to the reverse stock split which is
dated September 8, 2010)

Member:Registered:American Institute of Certified Public AccountantsPublic Company Accounting Oversight BoardCalifornia Society of Certified Public AccountantsF-2(b)

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

As of June 30,2010
 
 2009ASSETSCash and cash equivalents
 
 $
 309,996
 
 $
 112,134Accounts receivable, net
 
 
 7,912,119
 
 
 11,943,996Note receivable on sales type lease - current portion
 
 
 1,150,333
 
 
 157,923Inventories, net
 
 
 64,007
 
 
 27,838Advances to suppliers
 
 
 
 
 
 200,570Prepaid expenses
 
 
 210,000
 
 
 Other receivables, net
 
 
 24,969
 
 
 1,197,705Due from related parties
 
 
 
 
 
 33,283Cost and estimated earnings in excess of billings
 
 
 93,879
 
 
 16,539Real estate held for sale
 
 
 367,009
 
 
 Deferred tax assets
 
 
 267,668
 
 
 Prepaid land use rights for resale
 
 
 
 
 
 4,041,090Total Current Assets
 
 
 10,399,980
 
 
 17,731,078Property and equipment, net
 
 
 8,727,796
 
 
 9,383,982Construction in progress
 
 
 12,860,646
 
 
 10,560,114Note receivable on sales type lease - non-current portion
 
 
 15,853,319
 
 
 8,654,311Total Assets
 
 $
 47,841,741
 
 $
 46,329,485LIABILITIES
 AND STOCKHOLDERS' EQUITYCurrent Liabilities:Loans payable - current portion
 
 $
 3,091,678
 
 $
 4,420,290Accounts payable
 
 
 3,522,030
 
 
 7,966,488Due to related parties
 
 
 230,453
 
 
 Accrued expenses
 
 
 832,597
 
 
 1,251,843Taxes payable
 
 
 2,374,059
 
 
 1,678,084Advances from customers
 
 
 144,670
 
 
 246,191Derivative liability
 
 
 653,630
 
 
 Billings in excess of costs and estimated earnings
 
 
 90,205
 
 
 37,498Total Current Liabilities
 
 
 10,939,322
 
 
 15,600,394Loans payable - net of current portion
 
 
 345,152
 
 
 379,850Total Liabilities
 
 
 11,284,474
 
 
 15,980,244Commitments (Note 18)
 
 
 
 
 
 Stockholders' Equity:Preferred stock ($0.0001 par value; 20,000,000 shares authorized; none
 issued and outstanding)
 
 
 
 
 
 Common stock ($0.0001 par value; 300,000,000 shares authorized;
 1,934,878 and 1,316,715 shares issued and outstanding at June 30, 2010 and
 2009, respectively)
 
 
 193
 
 
 132Non-controlling interest in variable interest entities
 
 
 6,095,314
 
 
 6,095,314Additional paid-in capital
 
 
 7,127,577
 
 
 6,883,300Statutory reserve
 
 
 2,470,154
 
 
 2,040,899Retained earnings
 
 
 18,213,466
 
 
 12,866,842Accumulated other comprehensive income
 
 
 2,650,563
 
 
 2,462,754Total Stockholders' Equity
 
 
 36,557,267
 
 
 30,349,241Total Liabilities and Stockholders' Equity
 
 $
 47,841,741
 
 $
 46,329,485See 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 30,2010
 
 2009NET REVENUESConstruction
 
 $
 37,496,002
 
 $
 77,041,208Hotel
 
 
 3,086,553
 
 
 3,515,821Real estate
 
 
 10,331,004
 
 
 382,463Total Revenues
 
 
 50,913,559
 
 
 80,939,492COST OF REVENUESConstruction
 
 
 32,311,960
 
 
 66,277,041Hotel
 
 
 1,965,973
 
 
 1,945,299Real estate
 
 
 6,465,472
 
 
 300,510Total Cost of Revenues
 
 
 40,743,405
 
 
 68,522,850GROSS PROFIT
 
 
 10,170,154
 
 
 12,416,642OPERATING EXPENSES:Salaries and employee benefits
 
 
 908,590
 
 
 935,383Depreciation and amortization
 
 
 775,715
 
 
 847,941Selling, general and administrative
 
 
 516,230
 
 
 480,637Other hotel operating expenses
 
 
 89,292
 
 
 59,575Bad debt recovery
 
 
 (102,704
 )
 
 (993,338
 )Loss on disposal of property and equipment
 
 
 
 
 
 302,776Total Operating Expenses
 
 
 2,187,123
 
 
 1,632,974INCOME FROM OPERATIONS
 
 
 7,983,031
 
 
 10,783,668OTHER INCOME (EXPENSES):Other income
 
 
 
 
 
 2,497Registration rights penalty recovery
 
 
 
 
 
 117,882Foreign currency loss
 
 
 
 
 
 (20
 )Gain on extinguishment of derivative liabilities
 
 
 2,111,506
 
 
 Gain on change in fair value of derivative liabilities
 
 
 1,756,959
 
 
 Gain on sale of land use rights and property
 
 
 350,885
 
 
 Interest income
 
 
 1,274,999
 
 
 552,777Interest expense
 
 
 (2,864,685
 )
 
 (2,472,021
 )Total Other Income (Expenses)
 
 
 2,629,664
 
 
 (1,798,885
 )INCOME BEFORE PROVISION FOR INCOME TAX
 
 
 10,612,695
 
 
 8,984,783PROVISION FOR INCOME TAXES
 
 
 2,339,637
 
 
 2,819,478NET INCOME
 
 $
 8,273,058
 
 $
 6,165,305COMPREHENSIVE INCOME:Net income
 
 $
 8,273,058
 
 $
 6,165,305OTHER COMPREHENSIVE INCOME:Unrealized foreign currency translation gain
 
 
 187,809
 
 
 93,705COMPREHENSIVE INCOME
 
 $
 8,460,867
 
 $
 6,259,010NET INCOME PER COMMON SHARE:Basic
 
 $
 5.14
 
 $
 4.69Diluted
 
 $
 5.01
 
 $
 3.17WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
 
 
 1,608,685
 
 
 1,315,662Diluted
 
 
 1,651,520
 
 
 1,943,857See accompanying notes to consolidated
financial statements.

F-4

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended June 30, 2010 and 2009

Common
 Stock
 
 
 
 Non-Controlling
 Interest in
 
 
 
 
 
 Accumulated
 Other
 
 TotalNumber
 of Shares
 
 Amount
 
 Additional Paid-in
 Capital
 
 Variable Interest
 Entities
 
 Retained
 Earnings
 
 Statutory
 Reserve
 
 Comprehensive Income
 
 Stockholders'
 EquityBalance, June 30, 2008
 
 
 1,313,615
 
 $
 131
 
 $
 4,576,301
 
 $
 6,095,314
 
 $
 7,526,144
 
 $
 1,216,292
 
 $
 2,369,049
 
 $
 21,783,231Sale of common stock for cash
 
 
 3,100
 
 
 1
 
 
 123,999
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 124,000Common stock warrants 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
 
 
 1,316,715
 
 
 132
 
 
 6,883,300
 
 
 6,095,314
 
 
 12,866,842
 
 
 2,040,899
 
 
 2,462,754
 
 
 30,349,241Reclassification of warrants and conversion options to derivative liabilities
 
 
 
 
 
 
 
 
 (2,183,000
 )
 
 
 
 
 (2,497,179
 )
 
 
 
 
 
 
 
 (4,680,179
 )Shares issued for convertible debt
 
 
 325,467
 
 
 32
 
 
 1,199,418
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1,199,450Shares issued for current and future
 services
 
 
 192,446
 
 
 19
 
 
 780,481
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 780,500Shares issued for payments of interest and
 penalty
 
 
 81,556
 
 
 8
 
 
 266,269
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 266,277Shares issued for warrants exercise
 
 
 18,694
 
 
 2
 
 
 (2
 )
 
 
 
 
 
 
 
 
 
 
 
 
 
 Interest expense from reduction of warrants
 exercise price
 
 
 
 
 
 
 
 
 23,027
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 23,027Adjustment to statutory reserve
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (429,255
 )
 
 429,255
 
 
 
 
 
 Reclassification of derivative liability
 upon warrant exercise
 
 
 
 
 
 
 
 
 158,084
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 158,084Foreign currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 187,809
 
 
 187,809Net income for the year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 8,273,058
 
 
 
 
 
 
 
 
 8,273,058Balance, June 30, 2010
 
 
 1,934,878
 
 $
 193
 
 $
 7,127,577
 
 $
 6,095,314
 
 $
 18,213,466
 
 $
 2,470,154
 
 $
 2,650,563
 
 $
 36,557,267See accompanying notes to consolidated
financial statements

F-5

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

For the Years Ended June 30,2010
 
 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
 
 $
 8,273,058
 
 $
 6,165,305Adjustments to reconcile net income to net cash provided by (used in)
 operating activities:Depreciation
 
 
 775,715
 
 
 847,941Stock-based compensation and fees
 
 
 322,500
 
 
 Common stock issued for interest
 
 
 76,114
 
 
 Bad debt recovery
 
 
 (104,052
 )
 
 (993,338
 )Interest expense from amortization of debt discount
 
 
 2,183,000
 
 
 1,227,938Interest expense from warrant exercise reduction
 
 
 23,027
 
 
 Amortization of debt issuance costs
 
 
 
 
 
 115,110Gain on sale of land use right
 
 
 (350,885
 )
 
 Gain on extinguishment of derivative liabilities
 
 
 (2,111,506
 )
 
 Gain on change in fair value of derivative liabilities
 
 
 (1,756,959
 )
 
 Loss on disposal of property and equipment
 
 
 
 
 
 302,776Changes in assets and liabilities:Accounts receivable
 
 
 4,107,942
 
 
 (8,226,314
 )Note receivable
 
 
 314,044
 
 
 Inventories
 
 
 (35,873
 )
 
 29,079Other receivables
 
 
 1,249,521
 
 
 248,064Advance to suppliers
 
 
 200,228
 
 
 119,732Costs and estimated earnings in excess of billings
 
 
 (76,935
 )
 
 205,770Real estate held for sale
 
 
 (365,502
 )
 
 125,501Construction in progress
 
 
 (10,660,340
 )
 
 (13,276,624
 )Refundable performance deposit
 
 
 
 
 
 146,024Prepaid land use rights held for sale
 
 
 2,418,255
 
 
 Accounts payable and accrued expenses
 
 
 (4,453,158
 )
 
 7,232,489Taxes payable
 
 
 318,950
 
 
 (545,766
 )Advances from customers
 
 
 (102,408
 )
 
 53,050Billings in excess of costs and estimated earnings
 
 
 52,292
 
 
 14,029NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
 297,028
 
 
 (6,209,234
 )CASH FLOWS FROM INVESTING ACTIVITIES:Repayment of amounts due from related party
 
 
 
 
 
 1,672,630Proceeds from sale of land use right
 
 
 2,194,051
 
 
 Proceeds from return of deposit on prepaid land use rights
 
 
 
 
 
 2,752,619Purchase of property and equipment
 
 
 (189,347
 )
 
 (17,396
 )NET CASH PROVIDED BY INVESTING ACTIVITIES
 
 
 2,004,704
 
 
 4,407,853CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of loans payable
 
 
 (1,383,130
 )
 
 Proceeds from advances from related party
 
 
 262,830
 
 
 Proceeds from loan
 
 
 
 
 
 146,024Proceeds from sale of common stock
 
 
 
 
 
 124,000Repayment of convertible debt
 
 
 (983,550
 )
 
 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
 
 
 (2,103,850
 )
 
 270,024EFFECT OF EXCHANGE RATE ON CASH
 
 
 (20
 )
 
 5,505NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS
 
 
 197,862
 
 
 (1,525,852
 )CASH & CASH EQUIVALENTS - beginning of year
 
 
 112,134
 
 
 1,637,986CASH & CASH EQUIVALENTS - end of year
 
 $
 309,996
 
 $
 112,134SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest
 
 $
 968,753
 
 $
 498,578Income taxes
 
 $
 3,117,110
 
 $
 3,068,891Non-cash activities:Note receivable exchanged for construction in progress
 
 $
 8,425,169
 
 $
 Accounts receivable exchanged for prepaid land use rights for resale
 
 $
 
 
 $
 3,869,636Deposit on prepaid land use rights reclassified to other receivables
 
 $
 
 
 $
 1,168,192Common stock issued for future services compensation
 
 $
 458,000
 
 $
 Common stock issued for conversion of convertible debt
 
 $
 1,199,450
 
 $
 Common stock issued for accrued interest and penalties
 
 $
 190,163
 
 $
 Reclassification of warrants and conversion options to derivative
 liabilities
 
 $
 4,680,179
 
 $
 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, 2010 and 2009

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 from its stockholders in exchange for newly-issued stock of the Company.
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 1,212,500 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 Nevada. Additionally, the Companys
prior President, CEO and sole director, cancelled 241,376 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 37,500 shares of common
stock outstanding immediately prior to Closing. After the Closing, the Company
had a total of 1,250,000 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,

The relationship among the
above companies as follows:



F-7

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

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.

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.

F-8

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

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:

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 agreed to 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, pledged their accounts
receivable and all of their assets to Global Rise. Moreover, each of the Jin Ma
Companies agreed that without Global Rises prior consent, they will not engage
in any transactions that could materially affect their 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 their assets or intellectual property rights in favor
of a third party or transfer of any agreements relating to their business
operations to any third party. The term of this agreement is ten (10) years and
may be extended only upon written confirmation prior to the expiration of this
agreement, with the extended term to be mutually agreed upon by the parties.

F-9

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

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, is 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 will 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.

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
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Topic 810 and related subtopics related to the consolidation of variable
interest entities. 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 in net income 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.

The Company filed an
Articles of Amendment to the Articles of Incorporation (the Articles of
Amendment) with the Florida Department of State, which became effective on
September 8, 2010 to, among other things, effect a reverse stock split in a
ratio of 1 to 40. A detailed description of the Articles of Amendment is
contained in the Companys Form 8-K dated September 10, 2010. Accordingly, all
references to number of shares, except shares authorized, and to per share
information in the consolidated financial statements have been adjusted to
reflect the reverse stock split on a retroactive basis.

F-10

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Use
of estimates

The preparation of financial
statements in conformity with U.S. generally accepted accounting principles
(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 years ended June 30,
2010 and 2009 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, the
calculation of costs and estimated earnings in excess of billings and billings
in excess of costs and estimated earnings, provisions for estimated losses on
uncompleted contracts, the fair value of conversion options embedded in convertible
debt, and the fair values of warrants granted in connection with the issuance
of the convertible debt.

Financial
instruments

The accounting standard
governing financial instruments adopted by the Company on July 1, 2008, defines
financial instruments and requires fair value disclosures about those
instruments. It defines fair value, establishes a three-level valuation
hierarchy for disclosures of fair value measurement and enhances disclosure
requirements for fair value measures.Cash,
investments, receivables, payables, short term loans and convertible debt all
qualify as financial instruments. Management concluded cash, receivables,
payables and short term loans approximate their fair values because of the
short period of time between the origination of such instruments and their
expected realization and, if applicable, their stated rates of interest are
equivalent to rates currently available.

The three levels of
valuation hierarchy are defined as follows:


 Level 1 inputs to the
 valuation methodology are quoted prices (unadjusted) for identical assets or
 liabilities in active markets.
 Level 2 inputs to the
 valuation methodology include quoted prices for similar assets and
 liabilities in active markets, and inputs that are observable for the asset
 or liability, either directly or indirectly, for substantially the full term
 of the financial instrument.
 Level 3 inputs to the
 valuation methodology are unobservable and significant to the fair value
 measurement.The Company analyzes all
financial instruments with features of both liabilities and equity under the
FASBs accounting standard for such instruments. Under this standard, financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. Depending on
the product and the terms of the transaction, the fair value of notes payable
and derivative liabilities were modeled using a series of techniques, including
closed-form analytic formula, such as the Black-Scholes option-pricing model.

The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from July 1, 2009 to June 30, 2010:


Conversion feature
derivative liabilityWarrant liabilityBalance at July 1, 2009$$Recognition of derivative liability3,224,4841,455,695Exercise of warrants(158,084)Extinguishment of derivative liability upon conversion of debt to equity(2,111,506)Change in fair value included in earnings(1,112,978)(643,981)Balance at June 30, 2010$$653,630The Company did not identify
any other non-recurring assets and liabilities that are required to be
presented on the consolidated balance sheets at fair value in accordance with
the relevant accounting standards.

See Note 11(c) for more
information on these financial instruments.

F-11

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Derivative
financial instruments

The Company evaluates all of
its financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each reporting
date, with changes in the fair value reported in the consolidated statements of
income. For stock-based derivative financial instruments, the Company uses the
Black-Scholes-Merton option-pricing model to value the derivative instruments
at inception and on subsequent valuation dates. The classification of
derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheets as
current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the balance sheet
date.

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 PRC, and 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.

At June 30, 2010 and 2009,
the Companys bank deposits by geographic area were as follows:

June 30, 2010
 
 June 30, 2009Country:United States
 
 $
 1,043
 
 
 0.3
 %
 $
 39,956
 
 
 35.6
 %China
 
 
 308,953
 
 
 99.7
 %
 
 72,178
 
 
 64.4
 %Total cash and cash
 equivalents
 
 $
 309,996
 
 
 100.0
 %
 $
 112,134
 
 
 100.0
 %F-12

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Accounts
receivable, notes receivable 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 receivables. The Company periodically
reviews its 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,
2010 and 2009, the Company has established, based on a review of its outstanding
accounts receivable balances, an allowance for doubtful accounts in the amount
of $978,455 and $1,002,621, respectively, on its total accounts receivable.
Management believes that the note receivable is fully collectable. Therefore,
no allowance for doubtful accounts is deemed to be required at June 30, 2010
and 2009.

Other receivables are
primarily related to advances made to various vendors and other parties in the
normal course of business and an allowance was established when those parties
are deemed to be unlikely to repay the amounts. At June 30, 2010 and 2009, the
Company has established, based on a review of its outstanding other receivable
balances, an allowance for doubtful accounts in the amount of $69,171 and
$143,974, respectively. At such time as management exhausts all collection
efforts, the other receivable balance will be netted against the allowance
account. The activities in the allowance for doubtful accounts for accounts
receivable and other receivables for the years ended June 30, 2010 and 2009 are
as follows:

Allowance
 for 
 doubtful 
 accounts for 
 accounts 
 receivable
 
 Allowance
 for 
 doubtful 
 accounts for 
 other 
 receivable
 
 TotalBalance  June 30, 2008
 
 $
 1,025,431
 
 $
 883,875
 
 $
 1,909,306Reductions
 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
 
 
 1,146,595Reductions in allowance
 
 
 (29,496
 )
 
 (75,569
 )
 
 (105,065
 )Foreign currency
 translation adjustments
 
 
 5,330
 
 
 766
 
 
 6,096Balance  June 30, 2010
 
 $
 978,455
 
 $
 69,171
 
 $
 1,047,626Inventories

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.

Advances
to suppliers

The Company makes 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 $0 and $200,570 at June 30, 2010 and 2009, respectively.

F-13

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

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. The real estate held for sale amounted
to $367,009 and $0 at June 30, 2010 and 2009, respectively.

Construction
in progress

Properties currently under
development are accounted for as construction in progress. Construction in
progress 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.
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.

Impairment
of long-lived assets

In accordance with ASC Topic
360, 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 record any impairment charges during the years ended June 30,
2010 and 2009.

Income
taxes

The Company is governed by
the Income Tax Law of the Peoples Republic of China and the United States. The
Company accounts for income taxes using the liability method prescribed by ASC
740 Income Taxes. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect in the year in which
the differences are expected to reverse. The Company records a valuation
allowance to offset deferred tax assets if based on the weight of available
evidence, it is more-likely-than-not that some portion, or all, of the deferred
tax assets will not be realized. The effect on deferred taxes of a change in
tax rates is recognized as income or loss in the period that includes the
enactment date. Pursuant to the PRC Income Tax Laws, Jin Ma Companies and IMTD
are subject to income tax at a statutory rate of 25%.

F-14

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Income
taxes (continued)

Pursuant to accounting
standards related to the accounting for uncertainty in income taxes, 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. The accounting standard also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition.

As of June 30, 2010 and
2009, the Company has no material unrecognized tax benefits which would
favorably affect the effective income tax rate in future periods and does not
believe that there will be any significant increases or decreases of
unrecognized tax benefits within the next twelve months. No interest or
penalties relating to income tax matters have been imposed on the Company
during the fiscal years ended June 30, 2010 and 2009, and no provision for
interest and penalties is deemed necessary as of June 30, 2010 and 2009.

According to the PRC Tax
Administration and Collection Law, the statute of limitations is three years if
the underpayment of taxes is due to computational errors made by the taxpayer
or its withholding agent. The statute of limitations extends to five years
under special circumstances, which are not clearly defined. In the case of a
related party transaction, the statute of limitation is ten years. There is no
statute of limitation in the case of tax evasion.

Advances
from customers

Advances from customers at
June 30, 2010 and 2009 of $144,670 and $246,191, 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.

Net
income per common share

Net income per common share
is calculated in accordance with the ASC Topic 260. 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 (using the treasury
stock method).

As discussed in Note 1, on September 8, 2010, the Company effected a reverse stock split in a
ratio of 40 to 1. The weighted average number of shares for the purpose of
calculating the net income per ordinary share has been retroactively adjusted
as if the reverse stock split took effect as of the beginning of the earliest
period presented.

F-15

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Net
income per common share (continued)

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

Years
 Ended June 30,2010
 
 2009Net income used for basic and diluted net income per common share
 
 $
 8,273,058
 
 $
 6,165,305Weighted average common shares outstanding  basic
 
 
 1,608,685
 
 
 1,315,662Effect of dilutive securities:Unexercised warrants
 
 
 42,835
 
 
 82,445Convertible debentures
 
 
 
 
 
 545,750Weighted average common shares outstanding diluted
 
 
 1,651,520
 
 
 1,943,857Net income per common share  basic
 
 $
 5.14
 
 $
 4.69Net income per common share  diluted
 
 $
 5.01
 
 $
 3.17The Companys aggregate
common stock equivalents at June 30, 2010 and 2009 include the following:

2010
 
 2009Warrants
 
 
 196,195
 
 
 250,701Convertible debentures
 
 
 
 
 
 545,750Total
 
 
 196,195
 
 
 796,451Revenue
recognition

The Company follows the
guidance of ASC Topic 605 and Topic 360 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
revenue streams of the Company:

Real estate sales which
primarily involve the sale of multi-family units and community environments are
reported in accordance with ASC Topic 360. 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 2007 and 2008, Jin Ma
Real Estate entered into agreements to construct new dormitories as follows:

a)
 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 Vocational 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.
 In December 2008 and October 2009, Jin Ma Real Estate received the first and
 second payment of 4,800,000 RMB, respectively. Since the agreement did not
 have a stated interest rate, the Company used an imputed interest rate of
 6.12% and is reflecting payments due under the agreement as a note receivable
 on the accompanying balance sheets. The property sold had an imputed sales
 value of 61,691,138 RMB (approximately $9,000,000).F-16

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Revenue
recognition (continued)

The deferred gain on the
 sale of the property was approximately $52,000 of which for the years ended
 June 30, 2010 and 2009, $914 and $860 was recognized pursuant to the
 installment method and is reflected in the accompanying statements of income.b)
 In 2008, Jin Ma Real
 Estate and Inner Mongolia Chemistry School entered an oral agreement and on
 September 29, 2009, formalized a written agreement for the construction of
 student apartments for the Inner Mongolia Chemistry School (Chemistry
 School) 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 completed the
 construction in October 2009. Jin Ma Real Estate leased the buildings to the
 Chemistry School for a period of 20 years. The annual lease payments are RMB
 10.62 million (approximately $1.55 million) for 5 years (from fiscal 2010 to
 fiscal 2014), and the annual lease payment is RMB 5.42 million (approximately
 $0.79 million) for 15 years (from fiscal 2015 to fiscal 2029). As of June 30,
 2010, Jin Ma Real Estate received a partial initial annual installment from
 Inner Mongolia Chemistry School of 6,559,548 RMB (approximately $960,000).
 Since the agreement did not have a stated interest rate, the Company used an
 imputed interest rate of 5.94% and is reflecting payments due under the
 agreement as a note receivable on the accompanying balance sheets. The
 property sold had an imputed sales value of 84,196,104 RMB (approximately $12
 million). The deferred gain on the sale of the property was approximately
 $3,900,000 of which for the year ended June 30, 2010, $72,000 was recognized
 pursuant to the installment method and is reflected in the accompanying
 statements of income.In accordance with ASC Topic
360, the initial gains from the sales of the Vocational School and Chemistry
School were 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 (ASC Topic 360). Therefore the gains are being 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, revenues and cost of
sales are recognized based on the apportionments, and the Company recognized
imputed interest income on the accompanying consolidated statements of income
as summarized below.

As of June 30, 2010, the
remaining deferred gains for Vocational School and Chemistry School leases of
$50,291 and $3,833,940, respectively, is reflected as a discount of notes
receivable in the accompanying balance sheet. As of June 30, 2009, the
remaining deferred gains for Vocational School and Chemistry School leases of
$50,938 and $0, respectively, 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 (See Note 2).

The deferred gains were
recognized pursuant to the installment method and are reflected in the
accompanying consolidated statements of income as follows:

For
 the year 
 ended 
 June 30, 2010
 
 For
 the year 
 ended 
 June 30, 2009Revenues
 
 $
 386,958
 
 $
 149,602Cost of sales
 
 
 314,044
 
 
 148,742Gross profit recognized
 
 $
 72,914
 
 $
 860Jin Ma Real Estate receives
annual payments of principal and the related imputed interest from the
Vocational School and Chemistry School.

F-17

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Revenue
recognition (continued)

During the years ended June
30, 2010 and 2009, the Company allocated the payments received as follows:

2010
 
 2009Amount applied to
 principal balance of note receivable
 
 $
 386,958
 
 $
 149,602Interest income recognized
 on consolidated statement of income
 
 
 1,274,604
 
 
 551,313Total payment received
 
 $
 1,661,562
 
 $
 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 ASC Topic 605. 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 parent company
is the U.S. dollar and the functional currency of the Companys operating subsidiaries
and variable interest entities is the Chinese Renminbi (RMB). For the
subsidiaries and variable interest entities whose functional currencies are the
RMB, 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, 2010 and 2009 amounted to $(20) and $5,505, 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.

Asset and liability accounts
at June 30, 2010 and 2009 were translated at 6.8086 RMB to $1.00 USD and at
6.8448 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, 2010 and 2009 were 6.83667 RMB and 6.84819 RMB to
$1.00 USD, respectively. In accordance with ASC Topic 230, cash flows from the
Companys operations are 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.

F-18

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Stock-based
compensation

The Company accounts for
stock options issued to employees in accordance with ASC Topic 718. ASC Topic
718 requires companies to recognize in the statement of income 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, 2010 and 2009. The
Company accounts for non-employee share-based awards in accordance with ASC
Topic 505-50.

Advertising

Advertising is expensed as
incurred. Advertising expenses for the years ended June 30, 2010 and 2009 were
deemed not material.

Accumulated
other comprehensive income

The Company follows ASC
Topic 220 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 years ended June 30, 2010 and 2009 included net
income and foreign currency translation adjustments.

Segment
reporting

ASC Topic 280 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, 2010 and 2009, the
Company operated in three reportable business segments - (1) the Construction
segment (2) Hotel segment and (3) Real estate development segment (Refer to
Note 14).

Recent
accounting pronouncements

In June 2009, the FASB
issued ASC Topic 810-10, Amendments to FASB Interpretation No. 46(R). This
updated guidance requires a qualitative approach to identifying a controlling
financial interest in a variable interest entity, and requires ongoing
assessment of whether an entity is a VIE and whether an interest in a VIE makes
the holder the primary beneficiary of the VIE. It is effective for annual
reporting periods beginning after November 15, 2009. The adoption of ASC Topic
810-10 is not expected to have a material impact on the Companys results of
operations or financial condition.

In October 2009, the FASB
issued Accounting Standards Update (ASU) No. 2009-13, Multiple-Deliverable
Revenue Arrangements. This ASU establishes the accounting and reporting
guidance for arrangements including multiple revenue-generating activities.
This ASU provides amendments to the criteria for separating deliverables,
measuring and allocating arrangement consideration to one or more units of
accounting. The amendments in this ASU also establish a selling price hierarchy
for determining the selling price of a deliverable. Significantly enhanced
disclosures are also required to provide information about a vendors
multiple-deliverable revenue arrangements, including information about the
nature and terms, significant deliverables, and its performance within
arrangements. The amendments also require providing information about the
significant judgments made and changes to those judgments and about how the
application of the relative selling-price method affects the timing or amount
of revenue recognition. The amendments in this ASU are effective prospectively
for revenue arrangements entered into or materially modified in the fiscal
years beginning on or after June 15, 2010. Early application is permitted.
The adoption of ASC 2009-13 is not expected to have a material impact on the Companys
results of operations or financial condition.

F-19

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Recent
accounting pronouncements (continued)

In October 2009, the FASB
issued an ASU regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing. This ASU
requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the
loaned shares would be included in the basic and diluted earnings-per-share calculation.
This ASU is effective for fiscal years beginning on or after December 15, 2009,
and interim periods within those fiscal years for arrangements outstanding as
of the beginning of those fiscal years. The adoption of this ASC is not
expected to have a material impact on the Companys results of operations or
financial condition.

In December 2009, FASB
issued ASU No. 2009-16, Accounting for Transfers of Financial Assets. This
ASU amends the FASB Accounting Standards Codification for the issuance of FASB
Statement No. 166, Accounting for Transfers
of Financial Assetsan amendment of FASB Statement No. 140.The
amendments in this ASU improve financial reporting by eliminating the
exceptions for qualifying special-purpose entities from the consolidation guidance
and the exception that permitted sale accounting for certain mortgage
securitizations when a transferor has not surrendered control over the
transferred financial assets. In addition, the amendments require enhanced
disclosures about the risks that a transferor continues to be exposed to
because of its continuing involvement in transferred financial assets.
Comparability and consistency in accounting for transferred financial assets
will also be improved through clarifications of the requirements for isolation
and limitations on portions of financial assets that are eligible for sale
accounting. The Company does not expect the adoption of this ASU to have a
material impact on its consolidated financial statements.

In December 2009, FASB
issued ASU No. 2009-17, Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This ASU amends the FASB Accounting
Standards Codification for the issuance of FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R).
The amendments in this ASU replace the quantitative-based risks and rewards
calculation for determining which reporting entity, if any, has a controlling
financial interest in a variable interest entity with an approach focused on
identifying which reporting entity has the power to direct the activities of a
variable interest entity that most significantly impact the entitys economic
performance and (1) the obligation to absorb losses of the entity or (2) the
right to receive benefits from the entity. An approach that is expected to be
primarily qualitative will be more effective for identifying which reporting
entity has a controlling financial interest in a variable interest entity. The
amendments in this ASU also require additional disclosures about a reporting
entitys involvement in variable interest entities, which will enhance the
information provided to users of financial statements. This ASU is effective
for the interim and annual reporting periods beginning after November 30, 2009,
Except for the expanded disclosure requirements, the adoption of this ASU is
not expected to have a material impact on the Companys consolidated financial
statements.

In January 2010, FASB issued
ASU No. 2010-01, Accounting for Distributions to Shareholders with Components
of Stock and Cash. The amendments in this ASU clarify that the stock portion
of a distribution to shareholders that allows them to elect to receive cash or
stock with a potential limitation on the total amount of cash that all
shareholders can elect to receive in the aggregate is considered a share
issuance that is reflected in earnings per share prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this ASU are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this ASU 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, 2010 and 2009

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

Recent
accounting pronouncements (continued)

In January 2010, FASB issued
ASU No. 2010-02 regarding accounting and reporting for decreases in ownership
of a subsidiary. Under this guidance, an entity is required to deconsolidate a
subsidiary when the entity ceases to have a controlling financial interest in
the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a
gain or loss on the transaction and measures any retained investment in the
subsidiary at fair value. In contrast, an entity is required to account for a
decrease in its ownership interest of a subsidiary that does not result in a
change of control of the subsidiary as an equity transaction. This ASU
clarifies the scope of the decrease in ownership provisions, and expands the
disclosures about the deconsolidation of a subsidiary or de-recognition of a
group of assets. This ASU is effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The adoption of this ASU
did not have a material impact on the Companys consolidated financial statements.

In January 2010, FASB issued
ASU No. 2010-06, Improving Disclosures about Fair Value Measurements. This
update provides amendments to Subtopic 820-10 that requires new disclosure as
follows: 1) Transfers in and out of Levels 1 and 2. A reporting entity should
disclose separately the amounts of significant transfers in and out of Level 1
and Level 2 fair value measurements and describe the reasons for the transfers.
2) Activity in Level 3 fair value measurements. In the reconciliation for fair
value measurements using significant unobservable inputs (Level 3), a reporting
entity should present separately information about purchases, sales, issuances,
and settlements (that is, on a gross basis rather than as one net number). This
update provides amendments to Subtopic 820-10 that clarifies existing
disclosures as follows: 1) Level of disaggregation. A reporting entity should
provide fair value measurement disclosures for each class of assets and
liabilities. A class is often a subset of assets or liabilities within a line
item in the statement of financial position. A reporting entity needs to use
judgment in determining the appropriate classes of assets and liabilities. 2)
Disclosures about inputs and valuation techniques. A reporting entity should
provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements. Those
disclosures are required for fair value measurements that fall in either Level
2 or Level 3. The new disclosures and clarifications of existing disclosures
are effective for interim and annual reporting periods beginning after December
15, 2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. The Company adopted
the provisions of the standard on July 1, 2010, which will not have a material
impact on the Companys financial statements.

In February 2010, the FASB
issued ASU 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. This amendment addresses both the
interaction of the requirements of this Topic with the SECs reporting
requirements and the intended breadth of the reissuance disclosure provision
related to subsequent events (paragraph 855-10-50-4). All of the amendments in
this ASU are effective upon issuance of the final ASU, except for the use of
the issued date for conduit debt obligors. That amendment is effective for
interim or annual periods ending after June 15, 2010. The adoption of this ASU
did not have a material impact on the Companys financial statements.

In March 2010, the FASB issued ASU 2010-11, Derivatives and
Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.
The amendments in this ASU are effective for each reporting entity at the
beginning of its first fiscal quarter beginning after June 15, 2010. Early
adoption is permitted at the beginning of each entitys first fiscal quarter
beginning after issuance of this ASU. The Company does not expect the
provisions of ASU 2010-11 to have a material effect on the financial position,
results of operations or cash flows of the Company.

F-21

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

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

Recent
accounting pronouncements (continued)

In April 2010, the FASB issued ASU 2010-13,
Compensation-Stock Compensation (Topic 718): Effect of Denominating the
Exercise Price of a Share-Based Payment Award in the Currency of the Market in
Which the Underlying Equity Security Trades - a consensus of the FASB Emerging
Issues Task Force. The amendments in this ASU are effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2010. Earlier application is permitted. The Company does not expect the
provisions of ASU 2010-13 to have a material effect on the financial position,
results of operations or cash flows of the Company.

In May 2010, the FASB issued
ASU 2010-19, Foreign Currency (Topic 830): Foreign Currency Issues: Multiple
Foreign Currency Exchange Rates. The amendments in this ASU are effective as
of the announcement date of March 18, 2010. The adoption of this update did not
have a material effect on the financial position, results of operations or cash
flows of the Company.

In July 2010, the FASB
issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit
Quality of Financing Receivables and the Allowance for Credit Losses. This ASU
amends Topic 310 to improve the disclosures that an entity provides about the
credit quality of its financing receivables and the related allowance for
credit losses. As a result of these amendments, an entity is required to
disaggregate by portfolio segment or class certain existing disclosures and
provide certain new disclosures about its financing receivables and related
allowance for credit losses. For public entities, the disclosures as of the end
of a reporting period are effective for interim and annual reporting periods
ending on or after December 15, 2010. The disclosures about activity that
occurs during a reporting period are effective for interim and annual reporting
periods beginning on or after December 15, 2010. Except for the expanded
disclosure requirements, the adoption of this ASU is not expected to have a
material impact on the Companys consolidated financial statements.

NOTE 2  NOTE RECEIVABLE,
NET

Note receivable, which was
attributable to the leasing of the Vocational School and Chemistry 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 ASC Topic 360, 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, 2010 and 2009, note receivable, net consisted of the
following:

June
 30, 2010
 
 June
 30, 2009Due in fiscal year ending
 June 30,2010
 
 $
 
 
 $
 701,2622011
 
 
 2,861,153
 
 
 701,2622012
 
 
 2,264,783
 
 
 701,2622013
 
 
 2,264,783
 
 
 701,2622014
 
 
 2,264,783
 
 
 701,2622015
 
 
 1,501,043
 
 
 701,262Thereafter
 
 
 24,539,553
 
 
 13,323,985Note receivable  gross
 
 $
 35,696,098
 
 $
 17,531,557Less: discount on note
 receivable
 
 
 (14,808,215
 )
 
 (8,668,385
 )Less: deferred gain on
 sale
 
 
 (3,884,231
 )
 
 (50,938
 )17,003,652
 
 
 8,812,234Note receivable  current
 portion, net
 
 
 (1,150,333
 )
 
 (157,923
 )Note receivable 
 long-term, net
 
 $
 15,853,319
 
 $
 8,654,311F-22


GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 3 - INVENTORIES

At June 30,
2010 and 2009, inventories consisted of the following:

June 30,2010
 
 2009Consumable
 goods
 
 $
 64,007
 
 $
 27,838$
 64,007
 
 $
 27,838NOTE 4  PREPAID
LAND USE RIGHTS FOR RESALE

As of June 30,
2010 and 2009, prepaid land use rights for resale were as follows:

Lower of cost or marketJune 30, 2010
 
 June 30, 2009Parcel A (a)
 
 $
 
 
 $
 1,625,708Wusutu
 Village land (b)
 
 
 
 
 
 2,415,382Total
 
 $
 
 
 $
 4,041,090(a)
 On August
 15, 2009, an agreement was entered into whereby the Company sold parcel A
 together with the building on the parcel for approximately $2.2 million (RMB
 15 million). The sale amount has been fully received by the Company by the
 end of October 2009. For the year ended June 30, 2010, the Company recognized
 a gain from the sale of land use rights and property of $350,885 and the
 Company did not have any corresponding activity in the comparable period of
 2009. The purchaser of parcel A does not have any rescission rights to the
 Company.(b)
 In fiscal
 2010, the Company decided that the Wusutu Village land use rights would be
 used for a real estate development project and accordingly, the Company
 transferred $2,415,382 from prepaid land use rights for resale to construction
 in process.NOTE 5  COSTS
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Costs and
estimated earnings in excess of billings at June 30, 2010 and 2009 consisted
of:

June 30,2010
 
 2009Costs
 incurred on uncompleted contracts
 
 $
 23,231,942
 
 $
 18,495,062Estimated
 earnings
 
 
 5,325,326
 
 
 4,265,50728,557,268
 
 
 22,760,569Less:
 billings to date
 
 
 (28,553,594
 )
 
 (22,781,528
 )$
 3,674
 
 $
 (20,959
 )Amounts are
included in the accompanying consolidated balance sheets under the following
captions:

June 30,2010
 
 2009Costs and
 estimated earnings in excess of billings
 
 $
 93,879
 
 $
 16,539Billings in
 excess of costs and estimated earnings
 
 
 (90,205
 )
 
 (37,498
 )$
 3,674
 
 $
 (20,959
 )F-23

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 6 - PROPERTY
AND EQUIPMENT

At June 30,
2010 and 2009, property and equipment consist of the following:

June 30,Useful life
 
 2010
 
 2009Office
 equipment
 
 
 5-8 Years
 
 $
 580,827
 
 $
 576,543Machinery
 and equipment
 
 
 5-15 Years
 
 
 7,181,316
 
 
 7,038,804Vehicles
 
 
 10 Years
 
 
 480,057
 
 
 418,977Building and
 building improvements
 
 
 20  40 Years
 
 
 3,906,155
 
 
 4,348,87212,148,355
 
 
 12,383,196Less:
 accumulated depreciation
 
 
 
 
 
 (3,420,559
 )
 
 (2,999,214
 )$
 8,727,796
 
 $
 9,383,982Depreciation
of property and equipment is provided using the straight-line method. For the
years ended June 30, 2010 and 2009, depreciation expense amounted to $775,715
and $847,941, respectively.

NOTE 7  CONSTRUCTION
IN PROGRESS

At June 30,
2010 and 2009, construction in progress consists of the following:

June 30, 2010
 
 June 30, 2009Prepaid land
 use rights and buildings built for Procuratorate Housing Estates (located in
 Yuquan District, Hohhot City, Inner Mongolia)
 
 $
 885,672
 
 $
 Prepaid land
 use rights and buildings built for Inner Mongolia Chemistry College
 
 
 
 
 
 7,273,392Prepaid land
 use rights and buildings built for Procuratorate Housing Estates (located in
 Yuquan District, Hohhot City, Inner Mongolia)
 
 
 
 
 
 3,286,722Prepaid land
 use rights for Wusutu Village land
 
 
 2,428,224
 
 
 Prepaid land
 use rights for Fu Xing Ying land
 
 
 9,546,750
 
 
 Total
 construction in progress
 
 $
 12,860,646
 
 $
 10,560,114NOTE 8 
ACCRUED EXPENSES

At June 30,
2010 and 2009, accrued expenses consist of the following:

June 30, 2010
 
 June 30, 2009Accrued
 interest and penalties payable
 
 $
 234,214
 
 $
 809,078Accrued
 payroll and employees benefit
 
 
 152,332
 
 
 363,843Refundable
 construction performance deposit
 
 
 440,619
 
 
 Other
 
 
 5,432
 
 
 78,922$
 832,597
 
 $
 1,251,843F-24

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2010 and 2009

NOTE 9  LOANS
PAYABLE

Loans payable consisted of the following at June 30, 2010 and 2009:

June 30, 2010
 
 
 June 30, 2009Loans from various credit unions, due on
 May 10, 2011 with annual Interest of 11.16% and secured by the assets of Jin
 Ma Hotel.
 
 $
 2,908,087
 
 $
 2,921,927Loans from various unrelated parties, due
 in January 2010 with annual interest of 14.4% and unsecured and repaid in
 January 2010.
 
 
 
 
 
 1,033,777Loans from various unrelated parties, due
 in December 2009 with annual interest of 14.4% and unsecured and repaid in
 January 2010.
 
 
 
 
 
 113,955Loans from various unrelated parties, due
 in August 2009 with annual interest of 14.4% and unsecured and repaid in
 September 2009.
 
 
 
 
 
 146,096Loans from various unrelated parties, due
 in January 2010 with annual interest of 18% and unsecured and repaid in
 January 2010.
 
 
 
 
 
 58,439Loans from various unrelated parties, due
 in September 2010 with annual interest of 18% and unsecured
 
 
 36,718
 
 
 36,524Loans from various unrelated parties, due
 in April 2012 with annual interest of 18% and unsecured
 
 
 190,936
 
 
 189,925Loans from various unrelated parties, due
 in August 2011 with annual interest of 18% and unsecured
 
 
 36,718
 
 
 36,524Loans from various unrelated parties, due
 in September 2012 with annual interest of 18% and unsecured
 
 
 117,498
 
 
 116,877Loan from one unrelated individual, due in
 March 2010 with annual interest of 24% and unsecured. The loan was renewed
 until March 2011
 
 
 146,873
 
 
 146,096Total loans payable
 
 
 3,436,830
 
 
 4,800,140Less: current portion
 
 
 (3,091,678
 )
 
 (4,420,290
 )Long term liability
 
 $
 345,152
 
 $
 379,850For the years
ended June 30, 2010 and 2009, interest expense related to these loans amounted
to $585,736 and $669,176, respectively. At June 30, 2010, future maturities of
long-term debt are as follows:

Fiscal years
 ended June 30:2011
 (current liability)
 
 $
 3,091,6782012
 
 $
 227,6542013
 
 $
 117,498F-25

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 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, 2010 and 2009, due from related
parties was due from the following:

June 30,Name
 
 Relationship
 
 
 2010
 
 
 2009Inner Mongolia Jin Ma Group Ltd and its
 subsidiaries
 
 Owned by
 Yang Liankuan
 
 $
 
 
 $
 33,283Due to related parties

From time to
time, companies related through common ownership advanced funds to the Company
for working capital purposes. These advances are non interest bearing,
unsecured and payable on demand. At June 30, 2010 and 2009, due to related
parties consisted of the following:

June 30,Name
 
 Relationship
 
 
 2010
 
 
 2009Inner
 Mongolia Jin Ma Group Ltd and its subsidiaries
 
 Owned by
 Yang Liankuan
 
 $
 230,453
 
 $
 Other

During the
years ended June 30, 2010 and 2009, the Company paid rent of $51,125 and
$51,039 to Inner Mongolia Jin Ma Group Ltd., respectively.

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES

a)
 Initial
 convertible debt and related warrants dated November 30, 2007On 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
238,009 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 closing date 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 238,009 shares 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 12,692 shares of the
Companys common stock at $20.00 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.

F-26

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

The
debentures, aggregating $2,183,000, which prior to March 31, 2009 accrued
interest at 10% per annum, were originally 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.

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 were 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 certain of the following amended terms:


 The
 conversion price in effect on any outstanding principal balance was lowered
 from a conversion rate of $13.76 per share to $4.00 per share.
 The exercise
 price per share of common stock for the original 250,701 warrants issued
 pursuant to the Securities Purchase Agreement dated November 30, 2007 and to
 the placement agent was lowered from $20.00 to $4.00.
 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.
 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 be
 under certain condition as defined in the Exchanged Debenture.
 The
 debenture holders waived any liquidated damages that were due pursuant to
 Securities Purchase Agreements dated November 30, 2007.F-27

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

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 were 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.
 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.
 In conjunction
 with the transaction, Mr. Liankuan Yang and Yang Yang and Ms. Runlan Ma,
 officers and directors of the Company, had pledged an aggregate of 475,000
 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 238,009
 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 $20.00 per share, subject to adjustment and
 adjusted to $4.00 per share as discussed above. The Company is permitted to
 call the warrants on 30 trading days prior notice at $0.04 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 $60.00, (ii) the average daily volume for during
 this period exceeds 12,500 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.F-28

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

In fiscal
2008, the Company evaluated whether or not the convertible debt contained
embedded conversion options, which meet the definition of a derivatives under
ASC Topic 815. The Company concluded that since the 14% secured convertible
debenture had a fixed redemption price of $13.76, the convertible debenture was
not a derivative instrument. The Company analyzed this provision under ASC
Topic 815 and therefore it qualified as equity under ASC Topic 815. 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. The 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 original 16-months note term. The warrants were also treated
as a discount on the secured notes and were valued at $887,768 and were amortized
over the 16-month note term through March 31, 2009.

b) Amended
convertible debt and related warrants dated June 30, 2009

In connection
with the amendment of the Securities Purchase Agreements and related
agreements, management considered ASC Topic 470 and related interpretations.

Under ASC
Topic 470, 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 ASC Topic 470 which is for modifications of debt instruments
other than a troubled debt restructure. Under ASC Topic 470, 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 ASC Topic 860. 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. Pursuant to ASC Topic 470, 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. 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 ASC Topic 470, at June 30, 2009, 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 was
amortized over the 9-months amended note term.

F-29

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

Pursuant to
the terms of the amended warrants, the Purchasers are entitled to purchase
238,009 shares of common stock of the Company at an amended exercise price of
$4.00 per share. The amended warrants have a term of 5 years from the original
issue date of November 30, 2007. At June 30, 2009, these warrants were treated
as a discount on the convertible notes and were valued at $880,053 and were
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-Merton
option-pricing model in accordance with ASC Topic 718 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.

c) Change
in accounting method effective July 1, 2009

In June 2008,
the FASB issued authoritative guidance on determining whether an instrument (or
embedded feature) is indexed to an entitys own stock. Under the authoritative
guidance, which became effective for the Company on July 1, 2009, instruments
which do not have fixed settlement provisions are deemed to be derivative
instruments. The conversion feature of the Companys debentures (described
above), and the related warrants, do not have fixed settlement provisions
because their conversion and exercise prices, respectively, may be lowered if
the Company issues securities at lower prices in the future. The Company was
required to include the reset provisions in order to protect the holders of the
debentures from the potential dilution associated with any future financings.

In accordance
with the FASB authoritative guidance, the conversion feature of the convertible
debt was separated from the host contract and recognized as a derivative
instrument. Both the conversion feature of the debt and the related warrants
have been characterized as derivative liabilities to be re-measured at the end
of every reporting period with the change in value reported in the consolidated
statement of income.

The common
stock purchase warrants do not trade in an active securities market, and as
such, the Company estimates the fair value of the conversion features on the
convertible notes and warrants using a probability-weighted
Black-Scholes-Merton option-pricing model using the following assumptions:

June 30, 2010
 
 July 1, 2009Conversion
 feature:Risk-free
 interest rate
 
 
 
 
 
 1.11
 %Expected
 volatility
 
 
 
 
 
 212.33
 %Expected
 life (in years)
 
 
 
 
 
 0.75 yearExpected
 dividend yield
 
 
 
 
 
 0Warrants:Risk-free
 interest rate
 
 
 1.00
 %
 
 1.64
 %Expected
 volatility
 
 
 179.74
 %
 
 212.33
 %Expected
 life (in years)
 
 
 2.42 years
 
 
 3.42 yearsExpected
 dividend yield
 
 
 0
 
 
 0Fair Value:Conversion
 feature
 
 $
 
 
 $
 3,224,484Warrants
 
 
 653,630
 
 
 1,455,695$
 653,630
 
 $
 4,680,179F-30

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using weekly pricing observations for recent periods that
correspond to the term of the warrants. The Companys management believes this
method produces an estimate that is representative of the expectations of
future volatility over the expected term of these warrants. The Company has no
reason to believe future volatility over the expected remaining life of these
warrants will likely differ materially from historical volatility. The expected
life is based on the remaining term of the warrants. The risk-free interest
rate is based on U.S. Treasury securities according to the remaining term of
the financial instruments.

The FASB
authoritative guidance was implemented in the first quarter of fiscal 2010 and
is reported as a cumulative change in accounting principles. The cumulative
effect on the accounting for the conversion feature of the debentures and the
related warrants at July 1, 2009 is as follows:

Additional 
 Paid-in 
 Capital
 
 Retained 
 Earnings
 
 Derivative 
 LiabilityDerivative Instrument:Conversion
 feature
 
 $
 1,302,946
 
 $
 1,921,538
 
 $
 3,224,484Warrants
 
 
 880,054
 
 
 565,641
 
 
 1,455,695$
 2,183,000
 
 $
 2,497,179
 
 $
 4,680,179As of June 30,
2010, the Company has $0 convertible debt and 196,195 warrants related to the
convertible debentures outstanding. At June 30, 2010, the Company recorded a
derivative liability of $653,630 related to the warrants. When the debentures
converted or repaid, the derivative liability was extinguished and a gain on
extinguishment of the derivative was recorded. For the year ended June 30,
2010, gain from the change in fair value of derivative liabilities was
$1,756,959. For the year ended June 30, 2010, gain from the extinguishment of
debt was $2,111,506.

d) Amended
convertible debt and related warrants dated May 14, 2010

On May 14,
2010, the Company entered into a further Debenture and Warrant Amendment
Agreement (the May 2010 Amendment Agreement) with the remaining debenture
holders which:


 waived all
 existing defaults under the June 2009 Amendment and the debentures,
 reduced the
 conversion price of the 14% secured convertible debentures and the exercise
 price of the warrants to $3.20 per share,
 converted
 all remaining principal amount of $409,667, all accrued interest due under
 the 14% secured convertible debentures of $48,074 together with the penalties
 owed the debenture holders of $168,333 into 195,648 shares of our common
 stock,
 contained an
 agreement by the debenture holder that individually they would not sell any
 shares of our common stock acquired upon the conversion of the 14% debentures
 or the exercise of the warrants in an amount which was more than 7% of the
 daily trading volume of our common stock on any given day for a one year
 period, and
 The Company
 agreed not to issue shares of Common Stock at a price, or options, warrants
 or convertible securities with an exercise or conversion price that is less
 than the conversion price of the then outstanding convertible debt or the
 exercise price of the then outstanding warrants, as the case may be, with the
 intent of eliminating the provisions for a reduction in the exercise price of
 the warrants in the event that the Company issues stock at a price which is
 less than the exercise price of the warrants.During the
year ended June 30, 2010, Company repaid all of its convertible debt by issuing
325,467 shares of its common stock for the principal balance of $1,199,450 and
repaid the remaining principal balance of $983,550 using cash.

F-31

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 11  CONVERTIBLE
DEBT AND DERIVATIVE LIABILITIES (continued)

The accretion
of debt for the year ended June 30, 2010 and amortization of debt discounts for
the year ended March 31, 2009 was $2,183,000 and $1,227,938, respectively,
which has been included in interest expense on the accompanying consolidated
statements of income.

The
convertible debenture liability is as follows at June 30, 2010 and 2009:



June 30, 2010
 
 June 30, 2009Convertible
 debentures payable
 
 $
 
 
 $
 2,183,000Less:
 unamortized discount on debentures
 
 
 
 
 
 (2,183,000
 )Convertible
 debentures, net
 
 $
 
 
 $
 NOTE 12  INCOME
TAXES

The Company
accounts for income taxes under ASC Topic 740. ASC Topic 740 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. ASC Topic 740 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). The Company is subject to income tax at a rate of 25%.

Gold Horse
International, Inc. was incorporated in the United States and has incurred an
aggregate U.S. net operating loss of $2,073,000, 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 2030. Management believes that the
realization of the benefits from these losses appears to be remote due to the
Companys 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 related to the U.S. net operating loss carry
forward 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,
2010 and 2009:

June 30, 2010
 
 June 30, 2009Income before provision for income taxes
 
 $
 10,612,695
 
 $
 8,984,783Income tax at U.S statutory rate of 34%
 
 
 3,608,316
 
 
 3,054,826Non-taxable gain related to derivative
 liabilities
 
 
 (1,315,278
 )
 
 Non-deductible non-cash interest expense
 
 
 750,049
 
 
 417,499U.S. effective rate in excess of China
 effective tax rate
 
 
 (854,894
 )
 
 (936,203
 )Other
 
 
 (35,067
 )
 
 2,153,126
 
 
 2,536,122Increase in valuation allowance
 
 
 186,511
 
 
 283,356Total current income tax provision
 
 $
 2,339,637
 
 $
 2,819,478F-32

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 12  INCOME
TAXES (continued)

The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and liabilities at June 30, 2010 and 2009 are as follows:

June 30, 2010
 
 June 30, 2009Deferred tax
 assets:Allowance for doubtful accounts
 
 $
 267,668
 
 $
 Net operating loss carry forward
 
 
 704,678
 
 
 518,167Total gross deferred tax assets
 
 
 972,346
 
 
 518,167Less: valuation allowance
 
 
 (704,678
 )
 
 (518,167
 )Net deferred
 tax assets
 
 $
 267,668
 
 $
 The valuation
allowance at June 30, 2010 was $704,678. The increase during 2010 was $186,511.
Income tax expenses for the years ended June 30, 2010 and 2009 are $2,339,637
and $2,819,478, respectively.

NOTE 13  STOCKHOLDERS
EQUITY

Common stock

In November
2008, the Company sold 3,100 shares of common stock to six individuals residing
in China for net proceeds of $124,000.

On September
10, 2009, the Company issued 76,375 shares of its common stock to officers and
directors of the Company for services rendered by them. The shares were valued
at $4.00 per share based on the fair value on the date of grant. In connection
with the issuance of these shares, the Company reduced accrued expenses by
$248,000 that was outstanding at June 30, 2009 and in fiscal 2010, recorded
stock-based compensation of $57,500.

During the
period from July 1, 2009 to March 31, 2010, the Company issued 197,446 shares
of its common stock in connection with the conversion of $789,784 of convertible
debt.

On September
30, 2009 and October 13, 2009, the Company issued 10,229 shares of its common
stock to various debenture holders to pay off outstanding fiscal 2009 accrued
interest payable of $21,830 and for interest expense of $19,085. The shares
were valued at $4.00 per share based on the fair value on the grant date. In
connection with the issuance of these shares, the Company reduced interest
payable by $21,830 and recorded interest expense of $19,085.

On January 5,
2010, the Company issued 41,071 shares of its common stock to its chief
executive officer and its chief financial officer for services rendered by
them. The shares were valued at $2.80 per share based on the fair value on the
date of grant. In connection with the issuance of these shares, the Company
recorded stock-based compensation of $115,000.

On January 25,
2010, the Company issued 3,700 shares of its common stock to a debenture holder
to pay off accrued interest of $8,954. The shares were valued at $2.42 per
share based on the fair value on the grant date. In connection with the
issuance of these shares, the Company reduced interest payable of $8,954.

On January 25,
2010, the Company issued 18,694 shares of its common stock to three debenture
holders upon the cashless exercise of 54,506 warrants.

On January 28,
2010, the Company entered into a 12-month consulting agreement and issued
75,000 shares of common stock to consultants for business development services.
The shares were valued at $4.80 per share based on the fair value on the date
of grant. In connection with the issuance of these shares, the Company recorded
stock-based consulting expense of $150,000 and $210,000 in prepaid expenses to
be amortized over the remaining contract period.

F-33

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 13  STOCKHOLDERS
EQUITY (continued)

Common stock (continued)

On May 14,
2010, in connection with the May 2010 Amendment Agreement with the remaining
debenture holders, the remaining debenture holders converted all remaining
principal amount of $409,667 into 128,021 shares of the Companys common stock,
and all accrued interest due under the 14% secured convertible debentures of
$48,074 together with the penalties owed the debenture holders of $168,333 into
67,627 shares of the Companys common stock.

On May 14,
2010, the Company entered into the May 2010 Amendment Agreement with the
remaining debenture holders which reduced the exercise price of the warrants to
$3.20 per share. In connection with the reduction of the warrants exercise
price, the Company recorded interest expense of $23,027 with a corresponding
credit to additional paid-in capital.

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 75,000 of its 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 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, 2010, the Company has not made
any grants under the 2007 Equity Compensation Plan.

F-34

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 13  STOCKHOLDERS
EQUITY (continued)

Warrants

Warrant
activities for the years ended June 30. 2010 and 2009 are summarized as
follows:

Year Ended June 30, 2010
 
 Year Ended June 30, 2009Number of 
 Warrants
 
 Weighted 
 Average 
 Exercise Price
 
 Number of 
 Warrants
 
 Weighted 
 Average 
 Exercise PriceBalance at beginning of year
 
 
 250,701
 
 $
 4.00
 
 
 250,701
 
 $
 20.00Granted
 
 
 183,503
 
 
 3.20
 
 
 250,701
 
 
 4.00Exercised
 
 
 (54,506
 )
 
 (4.00
 )
 
 
 
 
 Forfeited
 
 
 (183,503
 )
 
 (4.00
 )
 
 (250,701
 )
 
 (20.00
 )Balance at end of year
 
 
 196,195
 
 $
 3.20
 
 
 250,701
 
 $
 4.00Warrants exercisable at end of year
 
 
 196,195
 
 $
 3.20
 
 
 250,701
 
 $
 4.00The following
table summarizes the Companys stock warrants outstanding at June 30, 2010:

Warrants Outstanding
 
 Warrants ExercisableRange 
 of 
 Exercise 
 Price
 
 Number 
 Outstanding at 
 June 30, 2010
 
 Weighted 
 Average 
 Exercise Price
 
 Aggregate 
 Intrinsic 
 Value(1)
 
 Weighted 
 Average 
 Remaining 
 Contractual 
 Life
 
 Number 
 Exercisable at 
 June 30, 2010
 
 Weighted 
 Average 
 Exercise Price$3.20
 
 
 183,503
 
 $
 3.20
 
 $
 110,102
 
 
 2.42 Years
 
 
 183,503
 
 $
 3.20$4.00
 
 
 12,692
 
 $
 4.00
 
 $
 
 
 
 2.42 Years
 
 
 12,692
 
 $
 4.00Total
 
 
 196,195
 
 $
 3.20
 
 $
 110,102
 
 
 2.42 Years
 
 
 196,195
 
 $
 3.20(1)
 The intrinsic
 value of warrants at June 30, 2010 is the amount by which the market value of
 the Companys common stock of $3.80 as of June 30, 2010 exceeds the exercise
 price of the warrants.NOTE 14 SEGMENT
INFORMATION

ASC Topic 280
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, 2010 and 2009, 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.

F-35

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 14
 SEGMENT INFORMATION (continued)

Condensed
information with respect to these reportable business segments for the years
ended June 30, 2010 and 2009 is as follows:

For the Years Ended June 30,2010
 
 2009Revenues:Construction
 
 $
 37,496,002
 
 $
 77,041,208Real Estate
 
 
 10,331,004
 
 
 382,463Hotel
 
 
 3,086,553
 
 
 3,515,82150,913,559
 
 
 80,939,492Depreciation:Construction
 
 
 454,029
 
 
 481,899Real Estate
 
 
 41,638
 
 
 50,667Hotel
 
 
 280,048
 
 
 315,375775,715
 
 
 847,941Interest expense:Construction
 
 
 585,736
 
 
 669,174Other
 
 
 2,278,949
 
 
 1,802,8472,864,685
 
 
 2,472,021Net income (loss):Construction
 
 
 3,141,401
 
 
 7,425,065Real Estate
 
 
 3,620,823
 
 
 197,512Hotel
 
 
 396,957
 
 
 604,066Other (a)
 
 
 1,113,877
 
 
 (2,061,338
 )$
 8,273,058
 
 $
 6,165,305

June 30, 2010
 
 June 30, 2009Identifiable long-lived tangible assets at
 June 30, 2010 and 2009:Construction
 
 $
 6,283,804
 
 $
 6,819,609Real Estate
 
 
 346,430
 
 
 353,825Hotel
 
 
 2,097,562
 
 
 2,210,548$
 8,727,796
 
 $
 9,383,982(a)
 The Company
 does not allocate its general and administrative expenses of its US
 activities and the fair value changes of  derivative liabilities to its
 reportable segments, because these activities are managed at a corporate
 level.F-36

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 15 - 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, 2010 and 2009. For the years ended June 30, 2010 and 2009,
statutory reserve activity is as follows:

Balance 
 June 30, 2008
 
 $
 1,216,292Addition to
 statutory reserves
 
 
 824,607Balance 
 June 30, 2009
 
 
 2,040,899Addition to
 statutory reserves
 
 
 429,255Balance 
 June 30, 2010
 
 $
 2,470,154NOTE 16  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, 2010, four construction projects
accounted for 73.9% of the Companys total revenues. For the year ended June
30, 2009, four construction projects accounted for 89.5% of the Companys total
revenues. Major customers are summarized as follows:

Project Name
 
 For the Year Ended 
 June 30, 2010
 
 %
 
 For the Year Ended
 June 30, 2009
 
 %Riverbank Garden Community (Buildings 5 to
 8 and Phase II)
 
 $
 
 
 
 0.0
 
 $
 10,557,604
 
 
 13.0Tian Fu Garden residential project (Phase I
 and II)
 
 
 
 
 
 0.0
 
 
 16,698,666
 
 
 20.6Ai Bo Garden residential apartment project
 
 
 
 
 
 0.0
 
 
 26,828,713
 
 
 33.1Lanyu Garden No. 3 residential apartment
 project
 
 
 3,405,405
 
 
 6.7
 
 
 
 
 
 0.0Fu Xing Bath Center project
 
 
 5,756,345
 
 
 11.3
 
 
 18,430,028
 
 
 22.8Jianhe Garden residential project
 
 
 14,289,732
 
 
 28.1
 
 
 
 
 
 0.0Tuzuoqi (Chasuqi) Low-rent House project
 
 $
 14,150,285
 
 
 27.8
 
 $
 
 
 
 0.0At June 30,
2010, the Company had $5,073,030 of accounts receivable due from its major
customers. At June 30, 2009, the Company had $11,076,151 of accounts receivable
due from its major 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.

F-37

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 17  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 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.

The following
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.
CONDENSED PARENT COMPANY BALANCE SHEETS

As of June 30,
 
 As of June 30,2010
 
 2009ASSETSCash and cash equivalents
 
 $
 1,043
 
 $
 39,956Prepaid expenses
 
 
 210,000
 
 
 Total Current Assets
 
 
 211,043
 
 
 39,956Investments in subsidiaries
 at equity
 
 
 36,261,257
 
 
 28,914,268Due from subsidiaries
 
 
 849,638
 
 
 2,042,142Total Assets
 
 $
 37,321,938
 
 $
 30,996,366LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
 
 $
 48,916
 
 $
 221,825Derivative liabilities
 
 
 653,630
 
 
 Accrued expenses
 
 
 62,125
 
 
 425,300Total Current Liabilities
 
 
 764,671
 
 
 647,125Stockholders equity:Common stock ($0.0001 par value;
 300,000,000 shares authorized; 1,934,878 and 1,316,715 shares issued and
 outstanding at June 30, 2010 and 2009, respectively)
 
 
 193
 
 
 132Non-controlling interest in variable
 interest entities
 
 
 6,095,314
 
 
 6,095,314Additional paid-in capital
 
 
 7,127,577
 
 
 6,883,300Statutory reserve
 
 
 2,470,154
 
 
 2,040,899Retained earnings
 
 
 18,213,466
 
 
 12,866,842Other comprehensive income
 
 
 2,650,563
 
 
 2,462,754Total Stockholders Equity
 
 
 36,557,267
 
 
 30,349,241Total Liabilities and Stockholders Equity
 
 $
 37,321,938
 
 $
 30,996,366F-38

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 17  RESTRICTED
NET ASSETS (continued)

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

For the Years Ended June 30,2010
 
 2009REVENUES
 
 $
 
 
 $
 OPERATING EXPENSES:Salaries and employee benefits
 
 
 288,125
 
 
 307,000General and administrative
 
 
 187,514
 
 
 69,374Total Operating Expenses
 
 
 475,639
 
 
 376,374LOSS FROM OPERATIONS
 
 
 (475,639
 )
 
 (376,374
 )OTHER EXPENSES:Registration rights penalty recovery
 
 
 
 
 
 117,882Gain on extinguishment of derivative
 liabilities
 
 
 2,111,506
 
 
 Gain on change in fair value of derivative
 liabilities
 
 
 1,756,959
 
 
 Interest expense
 
 
 (2,278,949
 )
 
 (1,802,846
 )Total Other Income (Expenses)
 
 
 1,589,516
 
 
 (1,684,964
 )GAIN (LOSS) ATTRIBUTABLE TO PARENT ONLY
 
 
 1,113,877
 
 
 (2,061,338
 )EQUITY INCOME EARNINGS OF SUBSIDIARIES
 
 
 7,159,181
 
 
 8,226,643NET INCOME
 
 $
 8,273,058
 
 $
 6,165,305F-39

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 17  RESTRICTED
NET ASSETS (continued)

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

For the Years Ended June 30,2010
 
 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
 
 $
 8,273,058
 
 $
 6,165,305Adjustments to reconcile net income to net
 cash used in operating activities:Equity in earnings of subsidiary
 
 
 (7,159,181
 )
 
 (8,226,643
 )Common stock issued for services
 
 
 322,500
 
 
 Common stock issued for interest
 
 
 76,114Interest expense from amortization of debt
 discount
 
 
 2,183,000
 
 
 1,227,938Interest expense from warrant exercise
 reduction
 
 
 23,027
 
 
 Gain on extinguishment of derivative
 liabilities
 
 
 (2,111,506
 )
 
 Gain on change in fair value of derivative
 liabilities
 
 
 (1,756,959
 )
 
 Amortization of debt issuance costs
 
 
 
 
 
 115,110Changes in assets and liabilities:Accounts payable
 
 
 (3,972
 )
 
 176,132Accrued expenses
 
 
 (93,948
 )
 
 307,318NET CASH USED IN OPERATING ACTIVITIES
 
 
 (247,867
 )
 
 (234,840
 )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from subsidiaries
 
 
 1,192,504
 
 
 130,970NET CASH PROVIDED BY INVESTING ACTIVITIES
 
 
 1,192,504
 
 
 130,970CASH FLOWS FROM FINANCING ACTIVITIES:Repayment for convertible debt
 
 
 (983,550
 )
 
 Proceeds from sale of common stock
 
 
 
 
 
 124,000NET CASH (USED IN) PROVIDED BY FINANCING
 ACTIVITIES
 
 
 (983,550
 )
 
 124,000NET (DECREASE) INCREASE IN CASH
 
 
 (38,913
 )
 
 20,130CASH - beginning of year
 
 
 39,956
 
 
 19,826CASH - end of year
 
 $
 1,043
 
 $
 39,956F-40

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 18  COMMITMENTS

The Company
did not have significant capital and other commitments, or significant
guarantees as of June 30, 2010.

NOTE 19  SUBSEQUENT
EVENTS

On August 18,
2010, the Company entered into a 6-month consulting agreement with Rodman &
Renshaw, LLC (Rodman) for financial advisor services. In connection with the
consulting agreement, the Company issued to Rodman warrants to purchase 8,750
shares on the Companys common stock at a price per share of $6.00. The
warrants are exercisable at any time in whole or in part during the four year
period commencing one year from the date of this agreement. The Company valued
these warrants utilizing the Black-Scholes options pricing model at
approximately $3.56 per warrant or $31,188 in total and recorded as stock-based
professional fees.

The Board of
Directors and shareholders of the Company have authorized and approved as of
July 14, 2010, and July 29, 2010, respectively, a 1 for 40 reverse stock split
whereby each 40 shares of common stock of the Company issued shall, without
action on part of any shareholder, represent one share of common stock of the
Company which occurred on the effective date of September 8, 2010. The par
value of $0.0001 per share of common stock or the number of authorized shares
of the Company did not be changed.

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED)

The Companys
consolidated financial statements have been restated for the first, second and
third quarters of the fiscal year ended June 30, 2010 to properly record
certain common stock purchase warrants and conversion options related to
convertible debt as derivative liabilities in accordance with Derivative and
Hedging Topic of the FASB Accounting Standards Codification Topic 815 (ASC
815), which has been effective for the Company since July 1, 2009, and to
record the subsequent accounting for the changes in the fair value of the
associated liabilities at September 30, 2009, December 31, 2009 and March 31,
2010. Accordingly, the Companys unaudited interim consolidated balance sheets,
statements of income, and statements of cash flows at September 30, 2009,
December 31, 2009 and March 31, 2010 will be restated in subsequent respective
interim filings on Form 10-Q. All the respective restatement adjustments are
non-cash in nature and not related to the operations of the Jin Ma Companies.
The Companys independent registered public accounting firm, Crowe Horwath
(HK) CPA Limited, has reviewed the restatement adjustments in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
The effect of correcting these errors in the Companys (a) unaudited consolidated balance sheets at
September 30, 2009, December 31, 2009 and March 31, 2010; (b) unaudited consolidated statements of income
for the three months ended September 30, 2009, three months and six months ended December 31, 2009, and
three months and nine months ended March 31, 2010; and (c) unaudited consolidated statements of cash
flows for the three months ended September 30, 2009, six months ended December 31, 2009, and nine months
ended March 31, 2010, are shown in the tables as follows:

F-41

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Balance Sheet data
 
 September 30, 2009 (Unaudited)As Filed
 
 Adjustments to 
 Restate
 
 RestatedTotal Assets
 
 $
 45,807,414
 
 $
 
 
 $
 45,807,414Derivative liabilities
 
 
 
 
 
 2,930,017
 
 (a)
 2,930,017Total Current Liabilities
 
 
 15,502,673
 
 
 2,930,017
 
 
 18,432,690Total Liabilities
 
 
 15,846,361
 
 
 2,930,017
 
 
 18,776,378Stockholders EquityPreferred stock ($0.0001 par value;
 20,000,000 shares authorized; none issued and outstanding)
 
 
 
 
 
 
 
 
 Common stock ($0.0001 par value;
 300,000,000 shares authorized; 1,439,475 shares issued and outstanding)
 
 
 144
 
 
 
 
 
 144Non-controlling interest in variable
 interest entities
 
 
 6,095,314
 
 
 
 
 
 6,095,314Additional paid-in capital
 
 
 7,374,328
 
 
 (2,183,000
 )
 (b)
 5,191,328Statutory reserve
 
 
 2,111,443
 
 
 
 
 
 2,111,443Retained earnings
 
 
 11,884,925
 
 
 (747,017
 )
 (c)
 11,137,908Accumulated other comprehensive income
 
 
 2,494,899
 
 
 
 
 
 2,494,899Total Stockholders Equity
 
 
 29,961,053
 
 
 (2,930,017
 )
 
 27,031,036Total Liabilities and Stockholders Equity
 
 $
 45,807,414
 
 $
 
 
 $
 45,807,414(a)
 To record
 conversion feature and warrant derivative liability(b)
 To reverse
 effect on additional paid-in capital as a result of the reclassification of
 warrants as derivative liability(c)
 To adjust
 retained earnings for the adoption of ASC 815 accounting in (a) and (b)F-42

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Balance Sheet data
 
 December 31, 2009 (Unaudited)As Filed
 
 Adjustments to
 Restate
 
 RestatedTotal Assets
 
 $
 46,623,117
 
 $
 
 
 $
 46,623,117Derivative liabilities
 
 
 
 
 
 1,054,034
 
 (a)
 1,054,034Total Current Liabilities
 
 
 15,789,984
 
 
 1,054,034
 
 
 16,844,018Total Liabilities
 
 
 16,133,692
 
 
 1,054,034
 
 
 17,187,726Stockholders EquityPreferred stock ($0.0001 par value;
 20,000,000 shares authorized; none issued and outstanding)
 
 
 
 
 
 
 
 
 Common stock ($0.0001 par value;
 300,000,000 shares authorized; 1,569,515 shares issued and outstanding)
 
 
 157
 
 
 
 
 
 157Non-controlling interest in variable
 interest entities
 
 
 6,095,314
 
 
 
 
 
 6,095,314Additional paid-in capital
 
 
 7,894,474
 
 
 (2,183,000
 )
 (b)
 5,711,474Statutory reserve
 
 
 2,165,210
 
 
 
 
 
 2,165,210Retained earnings
 
 
 11,837,655
 
 
 1,128,966
 
 (c)
 12,966,621Accumulated other comprehensive income
 
 
 2,496,615
 
 
 
 
 
 2,496,615Total Stockholders Equity
 
 
 30,489,425
 
 
 (1,054,034
 )
 
 29,435,391Total Liabilities and Stockholders Equity
 
 $
 46,623,117
 
 $
 
 
 $
 46,623,117F-43

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Balance Sheet data
 
 March 31, 2010 (Unaudited)As Filed
 
 Adjustments to
 Restate
 
 RestatedTotal Assets
 
 $
 49,326,183
 
 $
 
 
 $
 49,326,183Derivative liabilities
 
 
 
 
 
 924,132
 
 
 924,132Total Current Liabilities
 
 
 16,644,892
 
 
 924,132
 
 
 17,569,024Total Liabilities
 
 
 16,988,655
 
 
 924,132
 
 
 17,912,787Stockholders EquityPreferred stock ($0.0001 par value;
 20,000,000 shares authorized; none issued and outstanding)
 
 
 
 
 
 
 
 
 Common stock ($0.0001 par value;
 300,000,000 shares authorized; 1,739,230 shares issued and outstanding)
 
 
 174
 
 
 
 
 
 174Non-controlling interest in variable
 interest entities
 
 
 6,095,314
 
 
 
 
 
 6,095,314Additional paid-in capital
 
 
 8,503,411
 
 
 (2,183,000
 )
 (b)
 6,478,495158,084
 
 (d)Statutory reserve
 
 
 2,330,446
 
 
 
 
 
 2,330,446Retained earnings
 
 
 12,906,816
 
 
 1,100,784
 
 
 14,007,600Accumulated other comprehensive income
 
 
 2,501,367
 
 
 
 
 
 2,501,367Total Stockholders Equity
 
 
 32,337,528
 
 
 (924,132
 )
 
 31,413,396Total Liabilities and Stockholders Equity
 
 $
 49,326,183
 
 $
 
 
 $
 49,326,183(d)
 To
 reclassify warrant derivative liabilities upon exercise of warrantsF-44

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Statement of Income Data
 
 For the Three Months Ended
 September 30, 2009 (Unaudited)As Filed
 
 Adjustments to 
 Restate
 
 RestatedIncome from Operations
 
 $
 895,024
 
 $
 
 
 $
 895,024Other Income (Expenses):Change in fair value of derivative
 liabilities
 
 
 
 
 
 688,556
 
 (e)
 688,556Gain from debt extinguishment
 
 
 
 
 
 1,061,607
 
 (f)
 1,061,607Other income
 
 
 73
 
 
 
 
 
 73Interest income
 
 
 57
 
 
 
 
 
 57Interest expense
 
 
 (1,571,381
 )
 
 
 
 
 (1,571,381
 )Total Other Income (Expenses)
 
 
 (1,571,251
 )
 
 1,750,163
 
 
 178,912Income (Loss) before Provision for Income
 Taxes
 
 
 (676,227
 )
 
 1,750,163
 
 
 1,073,936Provision for Income Taxes
 
 
 235,146
 
 
 
 
 
 235,146Net Income (Loss)
 
 $
 (911,373
 )
 $
 1,750,163
 
 $
 838,790Comprehensive Income (Loss)
 
 $
 (879,228
 )
 $
 1,750,163
 
 $
 870,935Net Income (Loss) per Common Share:Basic
 
 $
 (0.67
 )
 $
 1.29
 
 $
 0.62Diluted
 
 $
 (0.67
 )
 $
 1.10
 
 $
 0.43Weighted Average Common Shares Outstanding:Basic
 
 
 1,350,549
 
 
 
 
 
 1,350,549Diluted
 
 
 1,350,549
 
 
 
 
 
 1,939,810(e)
 To reflect
 change in fair value of derivative liabilities(f)
 To reflect
 extinguishment of conversion feature derivative liability upon conversion of
 debt to equityF-45

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Statement of Income Data
 
 For the Three Months Ended
 December 31, 2009 (Unaudited)
 
 For the Six Months Ended 
 December 31, 2009 (Unaudited)As Filed
 
 Adjustments 
 to Restate
 
 Restated
 
 As Filed
 
 Adjustments
 to Restate
 
 RestatedIncome from Operations
 
 $
 288,759
 
 
 
 
 $
 288,759
 
 $
 1,183,783
 
 
 
 
 $
 1,183,783Other Income (Expenses):Change in fair value of derivative
 liabilities
 
 
 
 
 
 1,314,381
 
 
 1,314,381
 
 (e)
 
 
 
 2,002,937
 
 
 2,002,937Gain from debt extinguishment
 
 
 
 
 
 561,602
 
 
 561,602
 
 (f)
 
 
 
 1,623,209
 
 
 1,623,209Other income
 
 
 (27
 )
 
 
 
 
 (27
 )
 
 46
 
 
 
 
 
 46Interest income
 
 
 543,092
 
 
 
 
 
 543,092
 
 
 543,149
 
 
 
 
 
 543,149Interest expense
 
 
 (745,695
 )
 
 
 
 
 (745,695
 )
 
 (2,317,076
 )
 
 
 
 
 (2,317,076
 )Total Other Income (Expenses)
 
 
 (202,630
 )
 
 1,875,983
 
 
 1,673,353
 
 
 (1,773,881
 )
 
 3,626,146
 
 
 1,852,265Income (Loss) before Provision for Income
 Taxes
 
 
 86,129
 
 
 1,875,983
 
 
 1,962,112
 
 
 (590,098
 )
 
 3,626,146
 
 
 3,036,048Provision for Income Taxes
 
 
 79,632
 
 
 
 
 
 79,632
 
 
 314,778
 
 
 
 
 
 314,778Net Income (Loss)
 
 $
 6,497
 
 $
 1,875,983
 
 $
 1,882,480
 
 $
 (904,876
 )
 $
 3,626,146
 
 $
 2,721,270Comprehensive Income (Loss)
 
 $
 8,212
 
 $
 1,875,983
 
 $
 1,884,196
 
 $
 (871,016
 )
 $
 3,626,146
 
 $
 2,755,131Net Income (Loss) per Common Share:Basic
 
 $
 0.00
 
 $
 1.22
 
 $
 1.22
 
 $
 (0.63
 )
 $
 2.51
 
 $
 1.88Diluted
 
 $
 0.00
 
 $
 1.09
 
 $
 1.09
 
 $
 (0.63
 )
 $
 2.27
 
 $
 1.64Weighted Average Common Shares Outstanding:Basic
 
 
 1,544,003
 
 
 
 
 
 1,544,003
 
 
 1,447,276
 
 
 
 
 
 1,447,276Diluted
 
 
 1,732,544
 
 
 
 
 
 1,732,544
 
 
 1,447,276
 
 
 
 
 
 1,658,609F-46

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Statement of Income Data
 
 For the Three Months Ended
 March 31, 2010 (Unaudited)
 
 For the Nine Months Ended
 March 31, 2010 (Unaudited)As Filed
 
 Adjustments
 to Restate
 
 Restated
 
 As Filed
 
 Adjustments
 to Restate
 
 RestatedIncome from Operations
 
 $
 1,448,315
 
 
 
 
 $
 1,448,315
 
 $
 2,632,098
 
 
 
 
 $
 2,632,098Other Income (Expenses):Change in fair value of derivative
 liabilities
 
 
 
 
 
 (298,283
 )
 
 (298,283
 )
 (e)
 
 
 
 1,704,654
 
 
 1,704,654Gain from debt extinguishment
 
 
 
 
 
 270,101
 
 
 270,101
 
 (f)
 
 
 
 1,893,310
 
 
 1,893,310Interest income
 
 
 731,521
 
 
 
 
 
 731,521
 
 
 1,274,716
 
 
 
 
 
 1,274,716Interest expense
 
 
 (394,667
 )
 
 
 
 
 (394,667
 )
 
 (2,711,743
 )
 
 
 
 
 (2,711,743
 )Total Other Income (Expenses)
 
 
 336,854
 
 
 (28,183
 )
 
 308,672
 
 
 (1,437,027
 )
 
 3,597,964
 
 
 2,160,937Income (Loss) before Provision for Income
 Taxes
 
 
 1,785,169
 
 
 (28,183
 )
 
 1,756,987
 
 
 1,195,071
 
 
 3,597,964
 
 
 4,793,035Provision for Income Taxes
 
 
 550,772
 
 
 
 
 
 550,772
 
 
 865,550
 
 
 
 
 
 865,550Net Income (Loss)
 
 $
 1,234,397
 
 $
 (28,183
 )
 $
 1,206,215
 
 $
 329,521
 
 $
 3,597,964
 
 $
 3,927,485Comprehensive Income (Loss)
 
 $
 1,239,150
 
 $
 (28,183
 )
 $
 1,210,968
 
 $
 368,134
 
 $
 3,597,964
 
 $
 3,966,098Net Income (Loss) per Common Share:Basic
 
 $
 0.73
 
 $
 (0.02
 )
 $
 0.71
 
 $
 0.22
 
 $
 2.35
 
 $
 2.57Diluted
 
 $
 0.68
 
 $
 (0.02
 )
 $
 0.66
 
 $
 0.20
 
 $
 2.18
 
 $
 2.38Weighted Average Common Shares Outstanding:Basic
 
 
 1,702,336
 
 
 
 
 
 1,702,336
 
 
 1,531,055
 
 
 
 
 
 1,531,055Diluted
 
 
 1,814,095
 
 
 
 
 
 1,814,095
 
 
 1,648,004
 
 
 
 
 
 1,648,004F-47

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2010 and 2009

NOTE 20  RESTATEMENT
OF INTERIM 2010 FINANCIAL RESULTS (UNAUDITED) (continued)

Consolidated Statement of Cash Flows
 
 For the Three Months Ended
 September 30, 2009 (Unaudited)As Filed
 
 Adjustments to
 Restate
 
 RestatedNet Income (Loss)
 
 $
 (911,373
 )
 $
 1,750,163
 
 $
 838,790Adjustments to reconcile net income (loss)
 to net cash used in operating activities:Gain on change in fair value of derivative
 liabilities
 
 
 
 
 
 (688,556
 )
 (e)
 (688,556
 )Gain from debt extinguishment
 
 
 
 
 
 (1,061,607
 )
 (f)
 (1,061,607
 )Cash Used in Operating Activities
 
 
 (846,755
 )
 
 
 
 
 (846,755
 )Consolidated Statement of Cash Flows
 
 For the Six Months Ended 
 December 31, 2009 (Unaudited)As Filed
 
 Adjustments to Restate
 
 RestatedNet Income (Loss)
 
 $
 (904,876
 )
 $
 3,626,146
 
 $
 2,721,270Adjustments to reconcile net income (loss)
 to net cash used in operating activities:Gain on change in fair value of derivative
 liabilities
 
 
 
 
 
 (2,002,937
 )
 (e)
 (2,002,937
 )Gain from debt extinguishment
 
 
 
 
 
 (1,623,209
 )
 (f)
 (1,623,209
 )Cash Used in Operating Activities
 
 
 (2,125,742
 )
 
 
 
 
 (2,125,742
 )Consolidated Statement of Cash Flows
 
 For the Nine Months Ended 
 March 31, 2010 (Unaudited)As Filed
 
 Adjustments to
 Restate
 
 RestatedNet Income
 
 $
 329,521
 
 $
 3,597,964
 
 $
 3,927,485Adjustments to reconcile net income to net
 cash used in operating activities:Gain on change in fair value of derivative
 liabilities
 
 
 
 
 
 (1,704,654
 )
 (e)
 (1,704,654
 )Gain from debt extinguishment
 
 
 
 
 
 (1,893,310
 )
 (f)
 (1,893,310
 )Cash Used in Operating Activities
 
 
 (531,042
 )
 
 
 
 
 (531,042
 )F-48