UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-K (Mark One)  [√]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended June 30, 2011 or  [  ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from __________________ to ____________________  Commission file number: 000-30311  GOLD HORSE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter)  Florida22-3719165(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)  No. 31 Tongdao South Road, Hohhot, Inner Mongolia, China010030(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. oYesxNo  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. oYesxNo  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. xYesoNo  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). oYesoNo  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 fileroAccelerated fileroNon-accelerated fileroSmaller reporting companyx
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
oYesxNo

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, based upon the closing sale price of the registrants common stock on December 31, 2010 as reported on the OTC Bulletin Board was approximately $3.7 million.

The number of outstanding shares of the registrants common stock on September 26, 2011 was 2,165,275.

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.

2

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

Page No.Part IItem 1.Business.5Item 1A.Risk Factors.21Item 1B.Unresolved Staff Comments.31Item 2.Properties.32Item 3.Legal Proceedings.32Item 4.(Removed and Reserved)32Part IIItem 5.Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.32Item 6.Selected Financial Data.33Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.33Item 7A.Quantitative and Qualitative Disclosures About Market Risk.44Item 8.Financial Statements and Supplementary Data.44Item 9.Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.44Item 9A.Controls and Procedures.45Item 9B.Other Information.46Part IIIItem 10.Directors, Executive Officers and Corporate Governance.46Item 11.Executive Compensation.49Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.51Item 13.Certain Relationships and Related Transactions, and Director Independence.53Item 14.Principal Accounting Fees and Services.53Part IVItem 15.Exhibits, Financial Statement Schedules.54
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report contains forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:

·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,·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 $31.3 million,·the Jin Ma Companies dependence on a limited number of customers,·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,

3

·control of our company by our management, and·quotation of our common stock on the OTC Bulletin Board which can limit trading and liquidity.
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 RMB or Renminbi refers to the legal currency of China and $ or U.S. dollar or dollar refers to the legal currency of the United States;  and·fiscal 2010 refers to the fiscal year ended June 30, 2010 and fiscal 2011 refers to the fiscal year ended June 30, 2011, unless the context otherwise defines.

4

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 the Jin Ma Companies. 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 is as follows:



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:

NameExecutive Officer
of Gold HorseDirector
of Gold HorsePrincipal Shareholder
of Gold HorseStockholder 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.


5

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 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, 2011 we are owed $31.3 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 Agreements and take any action and execute any instrument that we may deem necessary or advisable to accomplish the purposes of the Equity Pledge Agreements. 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 Agreements 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.

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.


6

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 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.  Global Rise 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 the Jin Ma Companies.

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."

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 20 million RMB (approximately $3.1 million) 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 (approximately $12.4 million),·achieved satisfactory rating in construction quality, and·within a five year period, obtained a construction contract worth at least 30 million RMB (approximately $4.6 million) and/or completed a construction project that is:·at least 12 stories, and/or

7

·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 2011 and fiscal 2010, net revenues from Jin Ma Construction represented 53.6% and 73.6%, respectively, of our total consolidated 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 The Construction Business in the discussion of our business operations 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 (approximately $155,000),·be engaged in real estate development and be in operation for at least one 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.
For fiscal 2011 and fiscal 2010, net revenues from Jin Ma Real Estate represented 42.4% and 20.3%, respectively, of our total consolidated net revenues.  For a description of the recent and future development activities of Jin Ma Real Estate, please refer to the section titled The Real Estate Development Business 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 an 86% occupancy rate in fiscal 2011 and an 80% occupancy rate in fiscal 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 2011 and fiscal 2010, net revenues from the Jin Ma Hotel represented 4.0% and 6.1%, respectively, of our total consolidated net revenues.  For a description of the hotels premises and facilities, please refer to the section titled The Hotel and Banquet Management Business 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.

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 generation.  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.


8

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.

Hohhot is the capital of the Inner Mongolian Autonomous Region, located in Tumochuan Plain, the central part of Inner Mongolia. The name of the city in Mongolian means the Green City. Hohhot is encircled in Golden Triangle, which has the rich sources in the Inner Mongolian Autonomous Region, by the Yinshan Mountains to the north, and the Yellow River to the south with grass, water and rich soil.

Hohhot has a total land area of 17,224 square kilometers, and includes Yuquan District; Huimin District; Xincheng District; Saihan District and Tolmud left Banner; Tokto County; Horinger County; Qingshuihe County; Wuchuan County, a total 9 districts; counties; banner and 1 national level Economic and Technological Development Zone,  with a population of 2.87 million, according to the 2010 census, is inhabited by  36 ethnic groups including the Mongolians as the main body, the Han, Hui, Manchu, Korean, Daur and Oroqen ethnic groups. Due to its relatively diverse cultural make-up, and despite its characteristics as a mid-sized Chinese industrial city, the Hohhot street scene has no shortage of ethnic minority elements. Tongdao Road, the street that the Jin Ma Hotel is located, a major street in the old town area, is decorated with Islamic and Mongol exterior designs on all its buildings. A series of government initiatives in recent years have emphasized Hohhot's identity with ethnic minority groups, especially in increasing Mongolian-themed architecture around the city.

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.

OVERVIEW OF THE JIN MA COMPANIES INDUSTRY SEGMENTS

Chinas Real Estate Market

In early 2000, the Chinese real estate industry started to transition towards a market-oriented system. Although the Chinese government still owns all of the urban land in China, land use rights with terms of up to 70 years, can be granted to, and owned or leased by, private individuals and companies. 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.


9

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 for the periods indicated.



Source: China Statistic Year Book (all government data is based on calendar year)

Growth Drivers of China Real Estate

(I). Western China

We believe the residential real estate industry is well positioned to grow at comparable rates for the next few years due to social, economic, regulatory and government stimulus-related factors.  Key growth drivers include the following:

·“Go West” policy.The “Go West” policy encourages economic development and population movement to western China which includes: 6 provinces, 5 autonomous regions and 1 municipality; these areas comprise 56% of mainland Chinas land with only approximately 23% of its population. The policy was issued in 1999, and the whole plan is divided into 3 phases. Phase I includes the development of infrastructure (transport, hydropower plants, energy, and telecommunications), enticement of foreign investment, increased efforts on ecological protection (such as reforestation), promotion of education, and retention of talent flowing to richer provinces. As a result, significant foreign and domestic investments in Inner Mongolia and throughout western China are set to support the growth of middle class incomes. Also, the strong demand in residential properties is driven, in part, by increasing urbanization.


Source: China Statistic Year Book (all government data is based on calendar year)


10

·Increasing Urbanization in Western China. The urban population in China has grown significantly over the past 10 years, creating higher demand for housing in many cities. The following table sets forth China’s urban population, total population and urbanization rates for the periods indicated:


·China’s Rapidly Growing Middle-Class Population.  China’s current population stands at over 1.3 billion and is expected to reach 1.4 billion by 2026. The middle-class is the fastest growing segment of the population with 130 million people in 2006 and expected to grow to 500 million by 2026. The middle class is defined as house-holds with an annual income of between approximately $6,000 and approximately $25,000, with housing the number one spending category. The rapid urbanization, growth in consumer spending coupled with the significant growth of the urban disposable income per capita (more than doubled from 2003 to 2009) and low home ownership levels compared to Western countries make the middle class a massive driver of the future growth of the Chinese real estate market.


Source: PRC State Council Development Research Center, National Bureau of Statistics, and Monitor Group.

(II). Government Policies

Type of Cities in China

China has 167 cities with a population of over 1 million. These cities are divided into 3 categories/tiers.

There are significant differences distinguishing Tier I cities from Tier II and Tier III cities in China:

Tier I

A group of four cities, located near the East Coast of China, compose the group of Tier I cities: Beijing, Shanghai, Shenzhen, and Guangzhou. These cities are more urbanized and have higher GDPs per capita than Tier II and Tier III cities. The residential real estate prices in Tier I cities have been skyrocketing and these price fluctuations are the catalyst for many government policy changes.


11

Tier II and III

There are over 35 Tier II and III cities with an aggregate population of 215 million people. The demand for real estate properties in Tier II and Tier III cities is strong. Industrial expansion and improved infrastructure will support continued urbanization and fuel the growth of the real estate sector in these cities.

Typically, housing is affordable for consumers in Tier II and Tier III cities compared to Tier I cities. Disposable income in Tier II and Tier III cities increased faster than real estate prices and overall saving rates in Tier II ad Tier III cities have been higher than in Tier I cities.

(III). Economic Developments

Rapid economic growth in eastern China has made Tier I cities more mature, making Tier II and Tier III cities a viable alternative for companies looking to reduce their costs. This has subsequently caused a movement towards these Tier II and Tier III cities. Multinational corporations have been expanding out of mega cities along the East Coast of China, such as Beijing, Shanghai, and Shenzhen, into neighboring and inland cities. Intel, for example, recently opened a development center in Chengdu, while the Liberty Mutual Group, the U.S. insurance giant, has chosen Chongqing for its Chinese headquarters. Unilever relocated its Chinese headquarters from Shanghai to the neighboring province of Hefei due to the lower labor and land costs as well as the citys strategic location.

The Chinese government has also been instrumental in stimulating regional growth by designating certain second-tier and third-tier regions as priority zones. These actions are benefitting Hohhot, our primary market. Furthermore, beyond regional growth, local growth saw Hohhots urban disposable income grow by 12.4% in 2010, according to the Hohhot Government website (www.huhhot.gov.cn).

As the ripple effect of economic growth continues to permeate Tier II and Tier III cities and create a healthy environment for real estate development, leading indicators are signaling continuing moderate growth in local property markets.



Source: CEIC and E-House Company Reports.

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.

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.


12

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 2011,
three construction projects accounted for 53.6% of total consolidated net revenues (11.5%, 20.9% and 21.2%) and 98%
of total consolidated net accounts receivable are due from these customers as of June 30, 2011. 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 total consolidated net
accounts receivable are due from these customers as of June 30, 2010.

In fiscal 2011 and fiscal 2010, construction projects were 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 2011 and fiscal 2010, Jin Ma Construction performed and will perform general contracting, construction management and building design services on the following third-party residential apartment and commercial properties in Inner Mongolia:

NameLocationProperty
TypeNumber of Buildings and/
or UnitsDate of Commencement/
Date of CompletionLanyu Garden (No. 3 Residential Building)HohhotResidentialOne buildingOctober 2008 / December 2009Fu Xing Committee Bath Center ProjectXin Cheng District, HohhotCommercialOne buildingNovember 2008 / June 2010Tuzuoqi (Chasuqi) Low-Rent Housing
No. 1 to No. 3Tuzuoqi, HohhotResidentialThree buildingsNovember 2009 / June 2010Jianhe Garden No. 1 to No. 10Nanerhuan District, HohhotResidentialTen buildingsNovember 2009 / December 2010Fuhengyuan No. 1 to No. 10Xinghe County,
Inner MongoliaResidentialTen buildingsOctober 2010 / December 2011 (estimated date)Tiantixingyuan No. 1 to No. 7HohhotResidentialSeven buildingsOctober 2010 / December 2011 (estimated date)

13

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 9001:2008 standards for quality management system (expires October 19, 2013), the ISO 140001:2004 standards for environmental management system (expires October 19, 2013), and the GB/T28001:2001 standards for occupational safety management system (expires October 13, 2013). 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.

The 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 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 2.8 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 120,000, or approximately $19,000, 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 550,000, or approximately $85,000.

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. Jin Ma 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 itself 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.


14

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

For each development project, Jin Ma Real Estate 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.

Jin Ma Real Estate believes that it 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 30% of the purchase price less the booking fee upon the execution of a sales and purchase agreement. The remaining 70% must be paid over a staggered period between one to two months although, in most instances, it is paid by the bank providing the mortgage financing upon execution of the sales and purchase agreement. Jin Ma Real Estate 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 Industrial and Commercial Bank of China.


15

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.

Completed Projects

The following table summarized the real estate development projects which were completed during fiscal 2011 and fiscal 2010:

Project NameType of ProjectCompletion DateTotal Gross Floor Area (m2)Total Number of UnitsNumber of Units Sold by June 30, 2011Building 1 to 4 of Procuratorate Housing EstatesMulti-Family Residential & CommercialMarch 201027,422150150Building 5 of the Procuratorate Housing Estates (Jian Guan)Multi-Family Residential & CommercialJune 20105,8256969Shuian Renjia ProjectMulti-Family Residential & CommercialMay 201156,841364364
Projects under Construction

The following table summarized the real estate project under development currently:

Project NameType of ProjectEstimated Construction PeriodTotal Gross Floor Area (m2)Building 6 of Procuratorate Housing Estates (Jiari Residential Building)Multi-Family Residential & CommercialJuly 2010 - August 201338,000
Projects under Planning

The following table summarized the real estate projects currently under planning:

Project NameType of ProjectsEstimated Construction PeriodEstimated Total Gross Floor Area (m2)Beiyuan Residential Building (on Fu Xing Ying land)Multi-Family Residential & CommercialMay 2012 - August 201470,000Jinwu Residential Building (on Wusutu Village land)Multi-Family Residential & CommercialJuly 2013 - August 2015100,000East Wusutu Village land for future developmentMulti-Family Residential & CommercialNot yet determinedNot yet determined
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 RMB 4,800,000 or approximately $743,000 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 Chemistry School for a period of 20 years under an agreement which provides for annual lease payments of RMB 10.62 million (approximately $1.64 million) for five years (from fiscal 2010 to fiscal 2014), and RMB 5.42 million (approximately $0.84 million) for 15 years (from fiscal 2015 to fiscal 2029).


16

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, as shown in Figure 1 below, derives revenue primarily from guest room rentals and food and beverage operations at the Inner Mongolia Jin Ma Hotel. The 22-room hotel is a full-service two-star facility, offering amenities such as restaurant, business center, and a lounge. 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 parking spaces 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.



Figure 1 - Jin Ma Hotel


17

Competitive Strengths

Locally, Jin Ma Hotels competitor includes the Inner Mongolia Hotel and the Maixiangcun Hotel. Additionally, many well-known hotel operators have established their presence in the area. 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.

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 106 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 purchases 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.

MARKETING

Construction and Real Estate Development

There is an integrated marketing system between Construction and Real Estate Development. The Jin Ma Companies believe they have a good reputation in Inner Mongolia and the companies maintain a good working relationship with local governments, enterprises and companies. The major customers of Jin Ma Construction and Jin Ma Real Estate are enterprises, companies and local schools.

Hotel Management

The Jin Ma Hotels core targeted customers consist of value-oriented individual small-and-medium-enterprise business travelers and leisure travelers seeking comfortable and convenient lodging at an affordable price. The Jin Ma Hotel reviews its hotel pricing frequently and adjusts room rates based on Hohhot city specific market condition.

The Jin Ma Hotel uses various channels to manage its banquet operation and enhance its hotel occupancy rate. Those channels include third-party travel agents, other travel intermediaries and corporate travel offices.

The hotel marketing and advertising programs are designed to enhance consumer awareness and preference for the Jin Ma brand as offering the greatest value, convenience and comfort in the economy hotel segment of the Chinese lodging industry. Marketing and advertising efforts include outdoor advertisements, distribution of flyers and other marketing materials on the center of Hohhot city, television, internet and radio advertising, print advertising in consumer media and promotional activities, such as distribution of discounts and coupons.


18

ENVIRONMENTAL MATTERS

Construction and Real Estate Development

As property developers in the PRC, Jin Ma Construction and Jin Ma Real Estate are subject to various environmental laws and regulations set by the PRC national, provincial and municipal governments. These include regulations on air pollution, noise emissions, as well as water and waste discharge. Jin Ma Construction and Jin Ma Real Estate in the past have never been required to pay any penalties associated with the breach of any such laws and regulations. Compliance with existing environmental laws and regulations has not had a material adverse effect on our financial condition and results of operations, and we do not believe it will have such an impact in the future.

Jin Ma Real Estates projects are normally required to undergo an environmental impact assessment by government-appointed third parties, and a report of such assessment needs to be submitted to the relevant environmental authorities in order to obtain their approval before commencing construction. Upon completion of each project, the relevant environmental authorities inspect the site to ensure the applicable environmental standards have been complied with, and the resulting report is presented together with other specified documents to the relevant construction administration authorities for their approval and record. Approval from the environmental authorities of such report is required before Jin Ma Real Estate can deliver its completed work to its customers. In the past, Jin Ma Real Estate has not experienced any difficulties in obtaining those approvals for commencement of construction and delivery of completed projects. Jin Ma Real Estate believes that it will not experience any difficulties in the future.

Hotel Management

The Law on Promoting Clean Productionregulates service enterprises such as restaurants, entertainment establishments and hotels and requires service enterprises to use technologies and equipment that conserve energy and water and serve other environmental protection purposes, and to reduce or stop the use of consumer goods that waste resources or pollute the environment. Jin Ma Hotel is subject to the law. Jin Ma Hotel in the past has never been required to pay any penalties associated with the breach of such law. Compliance with the existing environmental law has not had a material adverse effect on our financial condition and results of operations, and we do not believe it will have such an impact in the future.

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 construction operations.  In addition, provincial and municipal governments may also enact regulations through their own construction bureaus.

Real Estate Development. Jin Ma Real Estates real estate development projects are subject to various laws and governmental regulations, such as zoning regulations, regulations on the development of a real estate project,  construction and completion of a real estate project, regulations on environmental protection in construction projects, regulations on real estate financing, regulations on housing supply and improving the healthy development of the real estate market and other 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.


19

In connection with land use rights, theLaw of the PRC on Land Administration, promulgated on June 25, 1986 and amended on August 28, 2004 by the Standing Committee of National Peoples Congress, distinguishes between the ownership of land and the right to use land. All land in the PRC is either state-owned or collectively-owned, depending on location. Generally, land in urban areas within a city or town is state-owned, and all land in the rural areas of a city or town and all rural land, unless otherwise specified by law, are collectively-owned. Although all land in the PRC is owned by the governments or by the collectives, private individuals and businesses are permitted to hold, lease and develop land for a specified term without ever owning the land, the duration of which depends on the use purpose of the land. These rights to use land are termed land use rights.

Under theInterim Regulations of the PRC on Grant and Transfer of the Right to Use State-owned Land in Urban Areas, promulgated on and effective as of May 19, 1990 by the State Council, enterprises, companies and other organizations who intend to hold, lease and develop the land, or land users, pay a premium to the government as consideration for the grant of the land use rights on terms of use prescribed by the government, and a land user may transfer, lease and mortgage or otherwise commercially exploit the land use rights within such terms of use. The land administration authority enters into a contract with the land  user for grant of the land use rights. The land user pays the grant premium as stipulated in the grant contract. After paying the grant premium in full, the land user registers with the land administration authority and obtains a land use rights certificate. The certificate evidences the acquisition of the land use rights.

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. The following summarizes the principal PRC regulations currently relevant to Jin Ma Hotels business and operations.

(i)          Regulations on Hotel Operation

Under applicable PRC regulations, anyone who applies to operate a hotel is subject to examination and approval by the local public security authority and must obtain a special industry license. Hotel operators have certain security control obligations as well. For example, the hotel must examine the identification card of any guest to whom accommodation is provided and make an accurate registration. The hotel must also report to the local public security authority if it discovers anyone violating the law, behaving suspiciously or an offender wanted by the public security authority.

A hotel must obtain a public area hygiene license and pass a fire prevention safety inspection by the local public security fire-fighting department before opening for business and must obtain a food hygiene license to serve food. Hotels that provide entertainment facilities, such as discos or ballrooms, are required to obtain a license for entertainment business operations. Hotels are also subject to regulations concerning other standards relating to the operation of public facilities. The relevant administrative authorities may impose penalties and even shut down hotels that violate the provisions.

(ii)         Regulations on Consumer Protection

Under the Law on the Protection of the Rights and Interests of Consumers, a business operator providing a commodity or service to a consumer is subject to a number of requirements, including the following:

(1)  to ensure that commodities and services meet with certain safety requirements;

(2)  to disclose serious defects of a commodity or a service and adopt preventive measures against damage occurrence;

(3)  to provide consumers with true information and to refrain from conducting false advertising;

(4)  not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the legal rights and interests of consumers by means of standard contracts, circulars, announcements, shop notices or other means; and

(5)  not to insult or slander consumers or to search the person of, or articles carried by, a consumer or to infringe upon the personal freedom of a consumer.


20

Business operators may be subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include restoring the consumers reputation, eliminating the adverse effects suffered by the consumer, and offering an apology and compensation for any losses incurred. The following penalties may also be imposed upon business operators for the infraction of these obligations: issuance of a warning, confiscation of any illegal income, imposition of a fine, an order to cease business operation, revocation of its business license or imposition of criminal liabilities under circumstances that are specified in laws and statutory regulations.

The Interpretation of Some Issues concerning the Application of Law for the Trial of Cases on Compensation for Personal Injuryenacted by the Supreme Peoples Court further increases the liabilities of a business operator engaged in the operation of hotels, restaurants, or entertainment facilities and subjects such operators to compensatory liability for failing to fulfill their statutory obligation to a reasonable extent or to guarantee the personal safety of others.

(iii)        Regulations on Environmental Protection

The Law on Promoting Clean Productionregulates service enterprises such as restaurants, entertainment establishments and hotels and requires them to use technologies and equipment that conserve energy and water and serve other environmental protection purposes, and to reduce or stop the use of consumer goods that waste resources or pollute the environment.

EMPLOYEES

As of the filing date of this report, we do not have any employees and the Jin Ma Companies had a total of 136 full time employees.  Jin Ma Construction accounted for 27 employees, all of which are management personnel; Jin Ma Hotel accounted for 100 employees, including 18 management personnel and Jin Ma Real Estate accounted for 9 employees, all of which are management and sales personnel. Management of the Jin Ma Companies believes that its relations with its employees are good.

The Jin Ma Companies are required to contribute a portion of their employees total salaries to the Chinese governments social insurance funds, including medical insurance, retirement benefits, unemployment insurance and job injuries insurance, in accordance with relevant regulations. The Jin Ma Companies contributed, in the aggregate, approximately $66,000 and $51,000 for fiscal 2011 and fiscal 2010, 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. Jin Ma Hotel historically has rented apartments for certain of its employees from Inner Mongolia Jin Ma Group Ltd., a related party, and paid rent of $52,666 and $51,125 for fiscal 2011 and fiscal 2010.

ITEM 1.ARISK 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.


21

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

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

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, 2011 approximately $31.3 million is due to us by the Jin Ma Companies which remains unpaid as of the date hereof. As a result of the consolidation of our financial statements with those of the Jin Ma Companies, this amount does not appear on our balance sheet at June 30, 2011 as it is eliminated in consolidation.  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.  Currently, funds required for our operations are provided to us through working capital advances from the Jin Ma Companies. We are dependent upon the advances or are dependent upon the payment of the quarterly service fees to provide funds to meet our obligations.  Any other conflicts of interest which may arise between our company and the Jin Ma Companies related to these advances or their obligation to pay the amounts due us may 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 advance us working capital funds or 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.


22

As described elsewhere in this report, we do not generate any revenue and we completely rely on working capital advances from the Jin Ma Companies and may need to relay on the quarterly service fees from Jin Ma Companies in future periods to support our operations. The Jin Ma Companies have never paid our consulting fees on a regular basis and the failure of the Jin Ma Companies to advance us working capital funds or to pay our fees from time to time may adversely impact our ability to pay our obligations.  At June 30, 2011 the Jin Ma Companies owe us $31.3 million in consulting fees.  If the Jin Ma Companies do not advance us fund for working capital purposes or pay us, we may not have sufficient capital to pay our operating expenses and may adversely impact our ability to meet our reporting obligations under the rules and regulations of the SEC.  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 2011,
three construction projects accounted for 53.6% of total consolidated net revenues and 98%
of total consolidated net accounts receivable are due from these customers as of June 30, 2011. For fiscal 2010, four construction
projects accounted for 73.9% of total consolidated net revenues and 64% of total consolidated net accounts receivable are due from
these customers as of June 30, 2010. The nature of Jin Ma Construction’s business is that at any given time it will have
a concentration of significant customer depending upon the number and scope of construction projects. These significant customers
may not be the same from period to period depending upon the percentage of completion of the specific projects.

Any disruption in the relationships between Jin Ma Construction and one or more of these customers, or any significant variance in the magnitude or the timing of construction projects from any one of these customers, may result in decreases in its results of operations, liquidity and cash flows in future periods which would adversely impact our results of operations.

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.


23

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 54% and 74% of our total consolidated net revenues for fiscal 2011 and fiscal 2010, 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 incentives and provisions in its contracts. Under cost-plus-fee contracts, which may be subject to contract ceiling amounts, Jin Ma Construction is reimbursed for allowable costs and fees, which may be fixed or performance-based. If its costs exceed the contract ceiling or are not allowable under the provisions of the contract or any applicable regulations, it may not be reimbursed for all of its costs. Under each type of contract, if Jin Ma Construction is unable to estimate and control costs and/or project timelines, it may incur losses on its contracts, which may result in decreases in its operating margins and in a significant reduction or elimination of its profits.

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

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

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

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


24

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.

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. 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;·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;

25

·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.

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.


26

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 rate.

Market and economic conditions may significantly affect occupancy. Occupancy 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; and·competition from other available office and residential buildings.
Real estate development is subject to timing, budgeting and other risks.

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

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


27

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 its 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 2011 and fiscal 2010, 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 its results of operations in future periods. These guarantees are not disclosed/reflected in the financial statements.

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.


28

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.

Risks Relating 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 conditions 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.

All of our directors and a majority of our executive officers 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.


29

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

We have no business or operations other 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.

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.

As of the filing date of this report, our directors and executive officers control approximately 48.32% 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.


30

The exercise of outstanding warrants will be dilutive to our existing shareholders.

As of the filing of this report, we had 2,165,275 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.
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/dealermust 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.


31

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).
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.

HighLowFiscal 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$2.80Fiscal 2011First quarter ended September 30, 2010$4.40$2.80Second quarter ended December 31, 2010$4.80$3.15Third quarter ended March 31, 2011$3.41$1.60Fourth quarter ended June 30, 2011$1.60$0.65
On September 23, 2011, the last sale price of our common stock as reported on the OTCBB was $0.85 per
share. As of the filing date of this report, there were approximately 190 recorded 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

On June 24, 2011, the Company issued an aggregate of 164,285 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 $0.70 per share based on the fair value on the date of grant.  In connection with the issuance of these shares, the Company recorded compensation expenses of $115,000.

On June 24, 2011, the Company issued 4,500 shares of its common stock to its six directors for services rendered by them. The shares were valued at $0.70 per share based on the fair value on the date of grant. In connection with the issuance of these shares, the Company recorded compensation expenses of $3,150.

These issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that Act.  Each person to whom the shares were issued was an accredited investor and acquired the shares for investment and not with a view to the sale or distribution and received information concerning us, our business and our financial condition, and the stock certificates bear an investment legend.  No brokerage fees were paid in connection with any of these stock issuances.


32

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 2011 and fiscal 2010 should be read in conjunction with the selected consolidated financial data, the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1A. Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Form 10-K. We use words such as anticipate, estimate, plan, project, continuing, ongoing, expect, believe, intend, may, will, should, could, and similar expressions to identify forward-looking statements.

Overview

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, 2011 and 2010 and the results of operations for fiscal 2011 and fiscal 2010 are substantially 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

The 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 consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements included in this Form 10-K. This section should be read together with the summary of significant accounting policies included as Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2011. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about the Company's operating results and financial condition.

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.


33

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 a pecuniary interest in the Jin Ma Companies that requires consolidation of the Jin Ma Companies financial statements with our financial statements.

Use of estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, net revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates in fiscal 2011 and fiscal 2010 include the allowance for doubtful accounts, the useful life of property and equipment, 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, and the fair values of warrants granted in connection with the issuance of the convertible debt and issued for services.

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.

We believe that our notes receivable are fully collectable.  Therefore, no allowance for doubtful accounts is deemed to be necessary at June 30, 2011 and 2010.

Other receivables are primarily related to advances made to various vendors, 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 such time as management exhausts all collection efforts, the other receivables balance will be netted against the allowance account.

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.


34

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 expense 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.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method 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.

We periodically review our long-lived assets or more often if circumstances dictate, to determine whether their carrying value has become impaired. We consider assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. We also re-evaluate the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives.

We examine 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. We recognize 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.

Advances from customers

Advances from customers 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 recognize the deposits as revenue upon transfer of title to the buyer, in compliance with our revenue recognition policy.

Income taxes

We account for income taxes in accordance with the accounting standard for income taxes. Deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.

The accounting standards clarify the accounting and disclosure for uncertain tax positions and prescribe a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. The accounting standards also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under this accounting standard, 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 percent likely 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. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred.  No significant penalties or interest relating to income taxes have been incurred during the years ended June 30, 2011 and 2010.


35

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.

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.

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.

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 2011 and fiscal 2010 were immaterial.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (ASU 2011-04). The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments in ASU 2011-04 to result in a change in the application of the requirements in Topic 820. ASU 2011-04 is effective prospectively for interim and annual reporting periods beginning after December 15, 2011. We do not expect the adoption of the provisions in ASU 2011 -04 will have a significant impact on our consolidated financial statements.


36

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05). In accordance with ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not expect the adoption of the provisions of this ASU will have a significant impact on our consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

RESULTS OF OPERATIONS

Comparison of Year Ended June 30, 2011 (fiscal 2011) and Year Ended June 30, 2010 (fiscal 2010)

2011% of Total Net Revenues2010% of Total Net RevenuesNET REVENUESConstruction$40,990,03453.6$37,496,00273.6Hotel3,046,9144.03,086,5536.1Real estate32,463,68742.410,331,00420.3Total Revenues76,500,635100.050,913,559100.0COST OF REVENUESConstruction35,222,20185.9*32,311,96086.2*Hotel1,794,73758.9*1,965,97363.7*Real estate25,761,63679.4*6,465,47262.6*Total Cost of Revenues62,778,57482.140,743,40580.0GROSS PROFITConstruction5,767,83314.1*5,184,04213.8*Hotel1,252,17741.1*1,120,58036.3*Real estate6,702,05120.6*3,865,53237.4*Total Gross Profit$13,722,06117.9$10,170,15420.0
*  Represents percentage of respective segments total net revenues

Net Revenues. For fiscal 2011, our overall net revenues increased 50.3% from fiscal 2010. The fluctuation in overall net revenues was mainly due to the fluctuation in activity in our construction and real estate operations caused by the timing of construction work performed as well as the timing of the sale of real estate units. We believe that the Hohhot real estate market, a Tier 3 city, remains strong and has not been effected by any real estate bubble or restriction that have been seen in Tier 1 cities. However, changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations and where prospective purchasers of our homes live, may result in more caution on the part of homebuyers and consequently fewer home purchases. For the fiscal years of 2011 and 2010, net revenues from our construction segment operations were summarized as follows:

Project Name2011% (*)2010% (*)Ai Bo Garden residential apartment project$$(117,467)(0.3)*Lanyu Garden project3,405,4059.1*Fu Xing Committee Bath Center project5,756,34515.4*Jianhe Garden residential project15,987,28739.0*14,289,73238.1*Tuzuoqi (Chasuqi) Low-rent House project(2,537)0.0*14,150,28537.7*Fuhengyuan residential project8,825,37621.5*Tiantixingyuan No. 1 - No. 7 project16,179,90839.5*Other11,7020.0*Total construction segment revenues$40,990,034100.0$37,496,002100.0
*  Represents percentage of construction segment net revenues.


37

At June 30, 2011, the percentage completed for each respective job is as follows:

% CompleteTuzuoqi (Chasuqi) Low-rent House project100.0%Jianhe Garden residential project100.0%Fuhengyuan residential project52.9%Tiantixingyuan No. 1  No. 7 project60.9%
As of June 30, 2011, Jin Ma Construction had two uncompleted third party construction projects in progress:

·the Fuhengyuan residential project, a project consisting of ten residential buildings with a total construction area of 110,129 square meters that began construction in October 2010 with an expected completion date of December 2011 was 52.9% complete at June 30, 2011, and·the Tiantixingyuan Housing Project, a project consisting of seven residential buildings with a total construction area of 90,607 square meters that began construction at the end of September 2010 with an expected completion date of December 2011 and was 60.9% complete at June 30, 2011.
The fluctuation in Jan Ma Constructions revenue for the fiscal year of 2011 as compared to the fiscal year of 2010 was attributable to a the timing of construction work performed.  As of June 30, 2011, we had two construction projects in process and compared to one as of June 30, 2010. At any given time Jin Ma Construction will have a concentration of significant customers depending upon the number and scope of construction projects.  These significant customers may not be the same from period to period depending upon the percentage of completion of the specific projects. Any disruption in the relationships between Jin Ma Construction and one or more of these customers, or any significant variance in the magnitude or the timing of construction projects from any one of these customers, may result in decreases in our results of operations, liquidity and cash flows. In addition, if Jin Ma Construction does not successfully manage its business so that it has new projects ready to start as current projects are completed its revenues will decline which will materially adversely impact our liquidity and operations in future periods. 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 and commercial real estate development projects as discussed below and 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 1.3% for fiscal 2011 from fiscal 2010 primarily due to the decrease in revenue from lodging and the decrease in sales at the hotels banquet and catering facility caused by normal market fluctuations. It attributes this decrease to an increase in competition as more hotels and restaurants open in the area. We continue to focus on our marketing efforts to increase traffic to the hotel, to target new tour groups and local traffic to the banquet facilities.

For the fiscal years of 2011 and 2010, net revenues from real estate development operations were summarized as follows:

Project Name20112010Building 1 to 4 of Procuratorate Housing Estates$728,983$7,741,165Building 5 of the Procuratorate Housing Estates (Jian Guan)2,202,881Inner Mongolia Electrical Vocational Technical School173,843159,025Inner Mongolia Chemistry College1,874,124227,933Shuian Renjia Project29,686,737Total real estate segment net revenues$32,463,687$10,331,004
In 2010 the focus of Jin Ma Construction was changed from acting as a general contractor for third party projects to building projects for Jin Ma Real Estate. Accordingly, Jin Ma Construction does not report revenues from work completed for Jin Ma Real Estate. During fiscal 2011, real estate segment net revenues increased by $22,132,683 or 214.2%. The increase was attributable to an increase in revenues recognized from the collections of funds from the Vocational School on the installment method of $14,818, an increase in revenues recognized from the collections of funds from the Chemistry School on the installment method of $1,646,191 due to timing of collections  and an increase in revenues from the sale of units at Shuian Renjia Project of $29,686,737, offset by a decrease of revenues from the sale of units at Building 1 to 4 of Procuratorate Housing Estates of $7,012,182 and a decrease of revenues from the sale of units at Building 5 of the Procuratorate Housing Estates (Jian Guan) of $2,202,881.


38

At June 30, 2011, we have acquired land use rights and/or began developing the following residential projects in cooperation with Jin Ma Construction that acts as the general contractor, an example of projects under the Jin Ma Companies new integrated business model.  The timing of any revenues from those projects is presently undeterminable and while we expect to fully sell out each project, there are no assurances these expectations are correct.  If we sell less than 100% of any project, our estimates of revenues from that project will decline from those set forth below.

Total construction in progress at
June 30, 2011Prepaid land use rights and construction costs for building 6 of the 
Procuratorate Housing Estates (Jiari Residential Building)$932,888(a)Prepaid land use rights for the Jinwu residential project2,557,675(b)Prepaid land use rights for the Beiyuan residential building project10,055,692(c)Prepaid land use rights for future development11,602,723(d)Total construction in progress$25,148,978
(a)Building 6 of the Procuratorate Housing Estates (Jiari Residential Building) is located in Yuquan District, Hohhot City, Inner Mongolia, has a construction area of 38,000 square meters and is expected to be completed in August 2013. The successful sell out of this project is expected to yield revenues of RMB 180 million or $27.8 million during fiscal 2014.(b)The Jinwu residential project will have a construction area of 100,000 square meters and is expected to be completed in August 2015. The successful sell out of this project is expected to yield revenues of RMB 237.5 million or $36.7 million during fiscal 2016.(c)The Beiyuan residential project will have a construction area of 70,000 square meters and is expected to be completed in August 2014. The successful sell out of this project is expected to yield revenues of RMB 250.0 million or $38.7 million during fiscal 2015.(d)The related project is not determined as of the filing date of this report.
Virtually all purchasers of our homes finance their acquisitions through lenders providing mortgage financing. A substantial increase in mortgage interest rates or unavailability of mortgage financing would adversely affect the ability of prospective homebuyers to obtain the financing they would need in order to purchase our homes, as well as adversely affect the ability of prospective move-up homebuyers to sell their current homes. For example, if mortgage financing became less available, demand for our homes could decline. A reduction in demand could also have an adverse effect on the pricing of our homes because we (and our competitors) may reduce prices in an effort to better compete for home buyers. A reduction in pricing could result in a decline in revenues and in our margins. We do not expect any substantial change of current mortgage policies or the prevailing mortgage rate in the near future.

Jin Ma Real Estate will continue to record revenues from the Vocational School and Chemistry School during the fiscal 2012 upon collection of the annual payment due.

Cost of Revenues. Overall, cost of revenues as a percentage of net revenues increased from 80.0% for fiscal 2010 to 82.1% for fiscal 2011. This overall change included the following segment changes:

·Cost of revenues as a percentage of net revenues for Jin Ma Constructions operation for fiscal 2011 decreased to 85.9% from 86.2% for fiscal 2010. The slight decrease was mainly attributable to normal business fluctuations. We expect our cost of revenues as a percentage of net revenues from Jin Ma Construction will remain at its current level with minimal increase in the near future.·Cost of revenues as a percentage of net revenues for Jin Ma Hotels operation for fiscal 2011 decreased to 58.9% from 63.7% for fiscal 2010. The decrease in cost of revenues as a percentage of net revenues was primarily attributable to the better management of raw material costs. We expect the cost of revenues as a percentage of net revenues for our hotel operation will remain at its current level in the near future.

39

·Cost of revenues as a percentage of net revenues for Jin Ma Real Estates operation for fiscal 2011 increased to 79.4% from 62.6% for fiscal 2010. For fiscal 2011, 0.5% of revenues from our real estate development operations were attributable to the Vocational School, 5.8% were attributable to the Chemistry School, and 93.7% were attributable to the real estate units sold. For fiscal 2010, 1.5% of revenues from our real estate development operations were attributable to the Vocational School, 2.2% were attributable to the Chemistry School, and 96.3% were attributable to the real estate units sold. The different revenue mix for fiscal 2011 had an effect of increasing cost of revenues as a percentage of net revenues as compared to fiscal 2010. We expect gross margins on Jin Ma Real Estate development projects to range from 20% to 30% in future periods.
Gross Profit. Gross profit increased 34.9% for fiscal 2011 from fiscal 2010. Gross profit margin decreased from 20.0% for fiscal 2010 to 17.9% for fiscal 2011. The decrease in the gross profit margin was primarily attributable to the sale of all of the units of the Shuian Renjia Project in the fourth quarter of fiscal 2011 at a gross profit margin lower than gross profit margins from the sale of units in fiscal 2010. In fiscal 2011, we sold all of the units of the Shuian Renjia Project in a bulk sale of units and accordingly, recognized a lower gross margin on the revenue generated.

Total Operating Expenses. For fiscal 2011, overall operating expenses increased 8.1% from fiscal 2010, which was mainly attributable to an increase in other hotel operating expenses and an increase in selling, general and administrative expenses, offset by an increase in bad debt recovery. We expect that operating expenses will maintain at their current level with minimal increases in the near future. We do not expect any substantial change in total operating expenses caused by inflation 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 150.9% for fiscal 2011 as compared to fiscal 2010. Other hotel operating expenses were 7.4% of hotel revenues for fiscal 2011 as compared to 2.9% for fiscal 2010. The increase in other hotel operating expenses for fiscal 2011 was primarily attributable to an increase in expenditures related to the purchase of various decorations on Hotel facilities that did not meet managements capitalization policy and due to an increase in repairs and maintenance of restaurant and hotel equipment.

Bad Debt Recovery. For fiscal 2011, bad debt recovery income amounted to $224,351 as compared to $102,704 for fiscal 2010, an increase of $121,647 or 118.4% and relates to the collection of aged 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 receivable 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 2011, salaries and employee benefits decreased 3.7% from fiscal 2010. This decrease is primarily related to the decrease in employee salaries. We expect that salaries and employee benefits will remain at the current level with minimal increase in the near future.

Depreciation. For fiscal 2011, depreciation increased 2.7% as compared to fiscal 2010. This slight increase was primarily due to our newly purchased fixed assets for which we began the depreciation in fiscal 2011.

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 34.2% for fiscal 2011 compared to fiscal 2010. The increase in selling, general and administrative expenses in fiscal 2011 as compared to fiscal 2010 was primarily attributable to the increase in the amortization of stock-based professional fees for business development and planning of approximately $60,000 and warrants issued for service of approximately $31,000, the increase in fees paid for auditors service of approximately $14,000, and the increase in other miscellaneous items of approximately $72,000.  We expect our selling, general and administrative expenses will maintain at its current level in the near future.

Total Other Income (Expenses). For fiscal 2011, we recorded total other income of $1,617,209 as compared to total other income of $2,629,664 in fiscal 2010. For fiscal 2011 and fiscal 2010, total other income (expenses) primarily consisted of the following:

·For fiscal 2011, we did not record any gain on extinguishment of derivative liabilities as compared to a gain of $2,111,506 related to the conversion and repayment of convertible debt during fiscal 2010. We do not expect to record any gains or losses on extinguishment of derivative liabilities in the future;

40

·For fiscal 2011, we recorded a gain on change in fair value of derivative liabilities of $568,917 related to the change in fair value of derivative liabilities associated with warrants as compared to $1,756,959 related to the change in fair value of derivative liabilities associated with warrants and the embedded conversion option on convertible debt during fiscal 2010. We will continue to record gains or losses on change in fair value of derivative liabilities  in the future until such time as the related warrants are exercised or expired;·For fiscal 2011, we recorded a gain on disposal of fixed assets of $1,929.   For fiscal 2010, Jin Ma Construction recognized a gain from the sale of land use rights and property of $350,885;·For fiscal 2011, we recorded interest income of $1,566,116 as compared to $1,274,999 for fiscal 2010, an increase of $291,117 or 22.8%, which was primarily attributable to the increase in the recording of interest income from the collection of the payments from the Chemistry School. We will continue to record interest income in the future as we continue to collect on payments due from the Vocational School and Chemistry School;·For fiscal 2011, we recorded interest expense of $522,743 as compared to $2,864,685 for fiscal 2010, a decrease of $2,341,942 or 81.8%, which was attributable to a decrease in interest expense from the amortization of debt discount of approximately $2,183,000, a decrease in interest of approximately $96,000 attributable to the repayment of convertible debt and a decrease in interest of approximately $63,000 from the repayment of loan payable. We do not expect to record any interest expense from the amortization of debt discount in the future.
Provision for Income Taxes. Total provision for income taxes increased 38.9% for fiscal 2011 (25.0% of income before income taxes) from fiscal 2010 (22.0% of income before income taxes). The change in the provision for income taxes was mainly attributable to a change in income before income taxes related to our Chinese subsidiaries and VIEs offset by the effect of our U.S. net (losses) gains. The change in the provision for income taxes as a percentage of income before income taxes was attributable to the effect of our U.S. net (losses) gains on our overall effective tax rate.

Net Income. Net income increased 17.6% for fiscal 2011 from fiscal 2010. For fiscal 2011, this increase in net income was attributable to an increase in revenues and related gross profits, offset by an increase in operating expenses, a decrease in other income and an increase in provision for income taxes. This translates to basic net income per common share of $4.94 and $5.14, and diluted net income per common share of $4.90 and $5.01, for fiscal 2011 and fiscal 2010, respectively.

Comprehensive Income. For fiscal 2011, we reported unrealized gain on foreign currency translation of $2,234,499 as compared to $187,809 for fiscal 2010 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. dollar using period end rates of exchange for assets and liabilities, and average rates of exchange for the period for net revenues, costs, and expenses. Net gains 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 $11,960,859 and $8,460,867 for fiscal 2011 and fiscal 2010, respectively.

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.  We do not have any external sources of liquidity.  The Jin Ma Companies have historically relied on bank loans and advances from related parties to supplement their working capital.

At June 30, 2011, we had a cash balance of $242,238, substantially all of which is located in financial institutions in China under the control of the Jin Ma Companies.

Our working capital increased by $6,016,763  to $5,477,421 at June 30, 2011 from a working capital deficit balance of $539,342 at June 30, 2010. This increase in working capital is primarily attributable to:

·An increase in other receivables, net of allowance for doubtful accounts, of $89,434,·A decrease in loans payable – current portion, of $2,542,482 due to the repayments made for outstanding bank loans in fiscal 2011,

41

·A decrease in accounts payable of $818,749 due to the repayments made in fiscal 2011,·A decrease in due to related parties of $216,935,·A decrease in accrued liabilities of $429,467 primarily due to the refunds for construction performance deposit,·A decrease in taxes payable of $2,259,284 due to the payments made to tax authorities in fiscal 2011,·A decrease in advances from customers of $144,670,·A decrease in derivative liability of $568,917 due to the fair value fluctuation of warrants, and·A decrease in billings in excess of costs and estimated earnings of $90,205,
Offset by:

·A decrease in notes receivable on sales type lease – current portion, of $578,294 mainly due to the collection of installments from Chemistry School,·A decrease in prepaid expenses of $181,573, and·A decrease in real estate held for sale of $367,009 due to the sales of real estate units made in fiscal 2011.
Our balance sheet at June 30, 2011 reflects loans payable to third parties of $5,159,345 due through June 2014 which were working capital loans made to the Jin Ma Companies by third parties. These loans bear annual interest rates ranging from 16.32% to 24.00% and are due between August 2011 and June 2014. Of this amount, approximately $4.6 million is secured by the assets of the Jin Ma Hotel which matures on various dates until June 2014 and the remaining balances are unsecured. These loans generally can be renewed with the respective parties when the loans mature.

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 collections of outstanding accounts receivable and notes receivable balances. We are confident that we will collect all outstanding accounts receivable and notes receivable on a timely basis. 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 also expect to fund projects through related party advances and from progress billings.

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 believe that the Jin Ma Companies will have sufficient cash flow from their operations to satisfy their working capital needs for the next 12 months.  Jin Ma Companies are dependent upon the continued growth of their operations and prompt payment of outstanding receivables by their customers to ensure that they have sufficient cash for their operations. However, any delay in the collection of the receivables or from collections from the sale of real estate units would have an adverse effect on their ability to fund their working capital requirements.

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, 2011, we were owed approximately $31.3 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 2011, 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.


42

Operating Activities

Net cash flow used in operating activities was $2,676,806 for fiscal 2011 as compared to net cash provided by operating activities of $297,028 for fiscal 2010, an increase in outflow of $2,973,834.

For fiscal 2011, net cash flow used in operating activities was primarily attributable to:

·changes in operating assets and liabilities consisting of an increase in accounts receivable, net of allowance for doubtful accounts, of $4,572,780, an increase in construction in progress of $6,162,748 mainly due to the payments made for land use rights for future real estate projects in fiscal 2011, a decrease in accounts payable and accrued liabilities of $1,364,483 primarily due to the payments made for accounts payable and refunds made for a construction performance deposit, a decrease in taxes payable of $2,268,828 due to the payments made to tax authorities in fiscal 2011, a decrease in advances from customers of $148,418, and the effect of non-cash items such as bad debt recovery of $224,351 due to the collections on aged receivable previously written off, a gain on change in fair value of derivative liabilities of $568,917 due to the fair value fluctuation of warrants;
Offset by:

·net income of $9,726,360 and adjustments to net income for the add back of non-cash items such as depreciation of $796,429, stock-based compensation and fees of $235,487, and·Changes in operating assets and liabilities consisting of a decrease in notes receivable of $1,454,967 mainly due to collections on installments of Chemistry School, a decrease in prepaid expenses of $183,412 and a decrease in real estate held for sale of $376,518.
For fiscal 2010, net cash flow provided by operating activities was primarily due to:

vnet income of $8,273,058 adjusted for the add-back of non-cash items such as depreciation of $775,715, stock-based compensation and fees 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 and property of $350,885, gain on extinguishment of derivative liabilities of $2,111,506, and a gain on change in fair value of derivative liabilities of $1,756,959 and;vthe receipt of cash from operations from changes in operating assets and liabilities such as:
Øa decrease in accounts receivable of $4,107,942 due to the collection of outstanding balances on completed construction projects;Øa decrease in note receivable of $314,044 due to the collections of annual payment due;Øa decrease in other receivables of $1,249,521due to the collection of funds due from the sale of land use rights;Øa decrease in prepaid land use rights held for sale of $2,418,255 due to the refund of this deposit;
voffset by the use of cash from changes in operating assets and liabilities such as:
Øan increase in construction in progress of $10,660,340 and;Øa decrease in accounts payable and accrued liabilities of $4,453,158
Investing Activities

Net cash flow used in investing activities was $166,937 for fiscal 2011 as compared to cash provided by investing activities of $2,004,704 for fiscal 2010. For fiscal 2011, we spent cash of $166,937 on purchase of property and equipment. 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.


43

Financing Activities

Net cash flow provided by financing activities was $2,782,777 for fiscal 2011 which was attributable to proceeds from loans payable of $7,533,921 and proceeds from contribution of registered capital of VIEs of $1,506,784 offset by repayment of loans payable of $6,034,671 and repayment to related party of $223,257. Net cash flow used in financing activities was $2,103,850 for fiscal 2010 which was 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.

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 2011 and fiscal 2010, the liability for guarantors obligation was not material and Jin Ma Real Estate has not suffered any losses.

The Jin Ma Companies have certain fixed contractual obligations and commitments that include future estimated payments. Changes in its 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 the 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 table summarizes the Jin Ma Companies contractual obligations as of June 30 2011, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

Payments Due By PeriodTotalLess than
1 year1 -3 years4 -5 years5 years+Contractual Obligations:Bank and other third-parties indebtedness$5,159,345$549,196$4,610,149$$Total Contractual Obligations:$5,159,345$549,196$4,610,149$$
Off-balance Sheet Arrangements

Neither we nor the Jin Ma Companies have 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 2011 and fiscal 2010, the liability for guarantors obligation was not material and Jin Ma Real Estate has 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 DISCLOSURE
None.


44

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, 2011, the end of the period 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.

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, 2011 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, 2011.

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, 2011. 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, 2011, management identified material weaknesses related to:

1.  Accounting and Finance Personnel Weaknesses - US GAAP expertise - All accounting functions for our company are performed by the accounting department at the Jin Ma Companies.  The staff in the accounting department does not have extensive experience with U.S. GAAP, and lacks the accounting skills and understanding necessary to fulfill the requirements of U.S. GAAP-based reporting, including the skills of subsidiary financial statements consolidation.  Although the accounting staff is experienced in accounting requirements and procedures generally accepted in the PRC, management determined that the lack of expertise in U.S. GAAP-based reporting constitutes a material weakness in internal control over financial reporting.

2.  Insufficient segregation of duties in the financial reporting process As a result of lack of accounting staff with adequate US GAAP expertise, the Company was unable to meet the segregation of duties requirements in the US GAAP reporting process to ensure proper review and approval 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, 2011. 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, 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, our chief financial officer has provided training to our internal accounting staff on US GAAP and financial reporting requirements.


45

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

We 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.

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

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our 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.
NameAgePositions held:Liankuan Yang55Chief Executive Officer, President, and Chairman of the Board of DirectorsAdam Wasserman47Chief Financial OfficerMingguo Wang51DirectorWen Biao Wang47DirectorGuohui Song72DirectorYang Yang29Vice President, Director
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 Bohai 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 other companies, all client companies of
CFO Oncall, Inc. From June 1991 to November 1999, he was Senior Audit Manager at American Express Tax and Business Services, in
Fort Lauderdale, Florida where his responsibilities included supervising, training and evaluating senior staff members, work paper
review, auditing, maintaining positive client relations, preparation of tax returns and preparation of financial statements and
the related footnotes. From September 1986 to May 1991, he was employed by Deloitte & Touche, LLP. During his employment, his
significant assignments included audits of public (SEC reporting) and private companies, tax preparation and planning, management
consulting, systems design, staff instruction, and recruiting. Mr. Wasserman holds a Bachelor of Science from the State University
of New York at Albany. He is a member of The American Institute of Certified Public Accountants and is the treasurer and an executive
board member of Gold Coast Venture Capital Association.



46

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.

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.

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.

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 Biao 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 two non-management directors, Messrs. Mingguo Wang and Guohui Song, each possess various skills and attributes which are complementary to the operational experience of the management directors.  Mr. Mingguo Wang has operational experience in a PRC company and Mr. Guohui Song has significant experience in accounting and corporate finance management in the PRC. 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.

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 2011 and fiscal 2010, 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.


47

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act during fiscal 2011 and Forms 5 and amendments thereto furnished to us with respect to fiscal 2011, as well as any written representation from a reporting person that no Form 5 is required, we are not aware that any officer, director or 10% or greater stockholder failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Securities Exchange Act during fiscal 2011, except as follows:

·Mr. Liankuan Yang did not timely file four Form 4s, each reporting one transaction,·Mr. Adam Wasserman did not timely file  four Form 4s, each reporting one transaction, and·Mr. Bud Robyn, a former member of our Board of Directors, did not timely file one Form 4 reporting one transaction.
These delinquent reports mentioned above have been filed before the filing date of this report.

In addition, certain or our executive officers and directors have also failed to timely file the following reports, which such reports remain outstanding as of the date hereof:

·Mr. Gregory Wolfson, a former member of our Board of Directors, did not timely file two Form 4s, each reporting one transaction,·Mr. Mingguo Wang did not timely file two Form 4s, each reporting one transaction,·Mr. Wenbiao Wang did not timely file two Form 4s, each reporting one transaction,·Ms Yang Yang did not timely file two Form 4s, each reporting one transaction, and·Mr. Guohui Song did not timely file one Form 4 reporting one transaction.
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

DirectorAudit
Committee
MemberCompensation
Committee
MemberNominations and Governance Committee MemberMingguo Wang√√Guohui Song√√

48

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.
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.
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.

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, 2011,·our two most highly compensated named executive officers at June 30, 2011 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, 2011.
The value attributable to any option awards, if any, is computed in accordance with FASB ASC Topic 718. In fiscal 2011 and fiscal 2010, we did not grant any option to executive officers or directors.


49

Summary Annual Compensation Table

Name and Principal PositionFiscal YearSalary
($)Bonus
($)Stock Awards
($)Option Awards ($)Non-Equity Incentive Plan Compensation ($)Nonqualified Deferred Compensation Earnings ($)All Other Compensation
($)Total ($)Liankuan Yang, (1)2011180,000052500026,218206,7432010180,00001,87500038,680220,555Adam Wasserman (2)201150,000050,0000000100,000201050,000050,0000000100,000
(1)    Mr. Yang has served as our Chief Executive Officer and President since July 10, 2007. Mr. Yangs fiscal 2011 compensation includes 750 shares of our common stock valued at $525 issued to him as compensation for his Board services.  Mr. Yangs other compensation includes $26,218 which represents salary paid by the Jin Ma Companies for service rendered. 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.  In fiscal 2010, Mr. Yangs other compensation includes $38,680 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, 2011.

Compensation of Directors

We do not have standard arrangements regarding the compensation paid to members of our Board of Directors.  The following table provides the amounts paid in fiscal 2011 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.

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)05250007,7848,309Mingguo Wang (3)05250006,7817,306Wen Biao Wang (4)052500013,35913,884Guohui Song05250000525Gregory Wolfson (5)05250000525Noel Robyn (6)02,58800002,588

50

(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, Song, Wolfson and Robyn 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.

(5)    Effective July 1, 2011, Mr. Wolfson resigned from his position.

(6)    Effective July 1, 2011, Mr. Robyn resigned from his position.

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 29, 2011, 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.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
At September 23, 2011, we had 2,165,275 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 23, 2011 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.


51

Name of Beneficial OwnerNumber of Shares of
Common Stock
Beneficially OwnedPercentage
of ClassLiankuan Yang (1)852,84439.39%Adam Wasserman (2)67,5693.12%Mingguo Wang3,000*Wenbiao Wang3,000*Guohui Song4,250*Yang Yang115,5005.33%All officers and directors as a group (six persons) (1)(2)1,046,16348.32%Runlan Ma (3)112,5005.20%Xinkuan Yang (4)93,7504.33%Zhanjun Yang (5)75,0003.46%Yongjun Yang (6)75,0003.46%Yonggang Zhao (7)75,0003.46%
* Represents less than one percentage (1%).

Applicable percentage ownership is based on 2,165,275 shares of common stock as of September 23, 2011.

(1)    Mr. Yangs holdings include 534,094 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 55,513shares 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.

(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, 2011.

Plan categoryNumber 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 Plan03,000,000

52

ITEM 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, 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, 2011, the Jin Ma Companies owed Inner Mongolia Jin Ma Group Ltd. $13,518.

During fiscal 2011 and fiscal 2010,the Jin Ma Companies paid rent of $52,666 and $51,125, respectively, to Inner Mongolia Jin Ma Group Ltd. for employee dormitory apartments.

Director Independence

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

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 2011 and 2010, respectively.

Years Ended June 30,Category20112010Audit Fees (1)$75,339$62,165Audit Related Fees (2)20,34219,746Tax Fees (3)00All Other Fees (4)00
(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 for the review of the financial statements included in our quarterly reports for fiscal years of 2011 and 2010.

(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 2011 were pre-approved by the entire Board of Directors.


53

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
No.Description2.1Stock Purchase Agreement and Share Exchange by and among Segway III Corp. and Speedhaul Incorporated effective October 15, 2004 (7)2.2Share Exchange Agreement dated June 29, 2007, among Speedhaul Holdings, Inc., Gold Horse International, Inc. and the shareholders of Gold Horse International, Inc.(4)3.1Certificate of Incorporation (2)3.2Bylaws (2)3.3Certificate of Amendment to the Certificate of Incorporation (2)3.4Text of Amendments to Bylaws (4)3.5Certificate of Domestication as filed with the Secretary of State of Florida (5)3.6Articles of Amendment to the Articles of Incorporation (16)3.7Translated amended Certificate of Business License for Jin Ma Real Estate dated June 20, 2011 **4.1Form of 10% secured convertible debenture (9)4.2Form of common stock purchase warrant (9)4.2Form of Amended and Restated 14% Secured Convertible Debenture due March 31, 2010 (9).10.1Consulting agreement with GEP Capital Group Ltd. (12)10.2Amended and Restated Operating Agreement dated June 29, 2007 by and among Speedhaul Holdings, Inc., Gold Horse International, Inc., Global Rise International Limited, Jin Ma Construction and shareholders of Jin Ma Construction (4)10.3Amended 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)10.4Amended 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)10.5Amended 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)10.6Amended 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)10.7Amended 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)10.8Amended 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)10.9Amended 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)10.10Amended 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)10.11Amended 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)10.12Amended 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)10.13Amended 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)10.14Amended 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)10.15Amended 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)10.16Stock Purchase Agreement dated July 24, 2007 (2)10.172007 Equity Compensation Plan (6)10.18Form of Securities Purchase Agreement (9)10.19Form of Registration Rights Agreement (9)10.20Form of Pledge and Security Agreement (9)

54

10.21Inner 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)10.22Investment 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)10.23Construction Contract dated November 28, 2007 between Jin Ma Real Estate and Jin Ma Construction (9)10.24Repayment agreements between Inner Mongolia Jin Ma Group and Jin Ma Construction and Jin Ma Hotel (10)  10.24 Form of Debenture and Warrant Amendment Agreement dated May 18, 2009 (11)10.25Form of Letter Agreement dated June 26, 2009 with the debenture holders (11)10.26Debenture and Warrant Amendment Agreement dated May 14, 2010 (13)10.27Directors Agreement with Noel Bud Robyn dated June 21, 2010 (14)10.28Translated loan agreement between Jin Ma Hotel and Hohhot Jingu Rural Cooperative Bank, Yuquan Branch dated June 2. 2011**14.1Code of Financial Ethics (3)14.2Audit Committee Charter dated July 14, 2010 (16)14.3Nomination and Governance Charter dated July 14, 2010 (16)16.1Letter from AGCA, Inc. dated July 28, 2010 (15)21.1Subsidiaries of the Registrant (2)31.1Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer **31.2Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer **32.1Section 1350 Certification of Chief Executive Officer **32.2Section 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.

55

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.September 28, 2011By:/s/ Liankuan YangLiankuan Yang, Chief Executive Officer

Pursuant 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.


SignatureTitleDate/s/ Liankuan YangChief Executive Officer and Director, principal executive officerSeptember 28, 2011Liankuan Yang/s/ Adam WassermanChief Financial Officer, principal financial and accounting officerSeptember 28, 2011Adam Wasserman/s/Mingguo WangDirectorSeptember 28, 2011Mingguo Wang/s/ Wen Biao WangDirectorSeptember 28, 2011Wen Biao Wang/s/ Yang YangVice President, DirectorSeptember 28, 2011Yang Yang/s/ Guohui SongDirectorSeptember 28, 2011Guohui Song

56

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended June 30, 2011 and 2010



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



CONTENTS





Report of Independent Registered Public Accounting Firm
    F-2Consolidated Financial Statements:Consolidated Balance Sheets as of June 30, 2011 and 2010
    F-3Consolidated Statements of Income and Comprehensive Income  For the years ended June 30, 2011 and 2010
    F-4Consolidated Statements of Changes in Stockholders’ Equity  For the years ended June 30, 2011 and 2010
    F-5Consolidated Statements of Cash Flows  For the years ended June 30, 2011 and 2010
    F-6Notes to Consolidated Financial Statements
    F-7 to F-34

F-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 sheets of
Gold Horse International, Inc. (the “Company”) as of June 30, 2011 and 2010 and the related consolidated statements
of income and comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period
ended June 30, 2011. These consolidated financial statements are the responsibility of the Company’s management. 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 consolidated 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 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 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 consolidated financial position of the Company as of June 30, 2011 and 2010,
and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2011, in conformity
with U.S. generally accepted accounting principles.



As discussed in Note 1, the consolidated financial statements were
prepared in accordance with Financial Accounting Standards Board Accounting Standard Codification (ASC) Topic 810 and related subtopics
related to the consolidation of variable interest entities.



/s/ Crowe Horwath (HK) CPA Limited



Crowe Horwath (HK) CPA Limited

Hong Kong, China

September 28, 2011



F-2

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLAR)



As
    of June 30,2011
    2010ASSETSCurrent Assets:Cash and
    cash equivalents
    $242,238
    $290,640Restricted cash
    20,458
    19,356Accounts receivable,
    net
    7,938,821
    7,912,119Notes receivable on
    sales type lease - current portion
    572,039
    1,150,333Inventories
    73,201
    64,007Prepaid expenses
    28,427
    210,000Other receivables, net
    114,403
    24,969Cost and estimated earnings
    in excess of billings
    130,928
    93,879Real estate held for
    sale
    —
    367,009Deferred
    tax assets
    225,519
    267,668Total
    Current Assets
    9,346,034
    10,399,980Property and equipment,
    net
    8,542,010
    8,727,796Construction in progress
    25,148,978
    12,860,646Notes
    receivable on sales type lease - net of current portion
    15,844,259
    15,853,319Total
    Assets
    $58,881,281
    $47,841,741LIABILITIES
    AND STOCKHOLDERS' EQUITYCurrent
    Liabilities:Loans payable - current
    portion
    $549,196
    $3,091,678Accounts payable
    2,703,281
    3,522,030Due to related parties
    13,518
    230,453Accrued liabilities
    403,130
    832,597Taxes payable
    114,775
    2,374,059Advances from customers
    —
    144,670Derivative liability
    84,713
    653,630Billings
    in excess of costs and estimated earnings
    —
    90,205Total
    Current Liabilities
    3,868,613
    10,939,322Loans
    payable - net of current portion
    4,610,149
    345,152Total
    Liabilities
    8,478,762
    11,284,474Commitments
    (Note 17)
    —
    —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; 2,158,244 and 1,934,878 shares issued and outstanding at June 30, 2011 and 2010,
    respectively)
    216
    193Additional paid-in capital
    7,464,917
    7,127,577Non-controlling interest
    in variable interest entities
    7,642,344
    6,095,314Retained earnings
    27,343,397
    18,213,466Statutory reserve
    3,066,583
    2,470,154Accumulated
    other comprehensive income
    4,885,062
    2,650,563Total
    Stockholders' Equity
    50,402,519
    36,557,267Total
    Liabilities and Stockholders' Equity
    $58,881,281
    $47,841,741

See accompanying notes to consolidated financial statements



F-3

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(AMOUNTS EXPRESSED IN US DOLLAR)



For
    the Years Ended June 30,2011
    2010NET REVENUESConstruction
    $40,990,034
    $37,496,002Hotel
    3,046,914
    3,086,553Real estate
    32,463,687
    10,331,004Total
    Revenues
    76,500,635
    50,913,559COST OF REVENUESConstruction
    35,222,201
    32,311,960Hotel
    1,794,737
    1,965,973Real estate
    25,761,636
    6,465,472Total
    Cost of Revenues
    62,778,574
    40,743,405GROSS
    PROFIT
    13,722,061
    10,170,154OPERATING EXPENSES:Other hotel operating expenses
    224,063
    89,292Bad debt recovery
    (224,351)
    (102,704)Salaries and employee benefits
    875,084
    908,590Depreciation
    796,429
    775,715Selling, general
    and administrative
    692,750
    516,230Total
    Operating Expenses
    2,363,975
    2,187,123INCOME
    FROM OPERATIONS
    11,358,086
    7,983,031OTHER INCOME (EXPENSES):Other income
    6,848
    —Gain on extinguishment of derivative
    liabilities
    —
    2,111,506Gain on change in fair value of derivative
    liabilities
    568,917
    1,756,959(Loss) gain on sale of land use rights
    and property and equipment
    (1,929)
    350,885Interest income
    1,566,116
    1,274,999Interest expense
    (522,743)
    (2,864,685)Total
    Other Income
    1,617,209
    2,629,664INCOME BEFORE PROVISION
    FOR INCOME TAX
    12,975,295
    10,612,695PROVISION
    FOR INCOME TAXES
    3,248,935
    2,339,637NET
    INCOME
    $9,726,360
    $8,273,058COMPREHENSIVE INCOME:Net income
    $9,726,360
    $8,273,058OTHER COMPREHENSIVE INCOME:Unrealized foreign
    currency translation gain
    2,234,499
    187,809COMPREHENSIVE
    INCOME
    $11,960,859
    $8,460,867NET INCOME PER COMMON
    SHARE:Basic
    $4.94
    $5.14Diluted
    $4.90
    $5.01WEIGHTED AVERAGE COMMON
    SHARES OUTSTANDING:Basic
    1,968,507
    1,608,685Diluted
    1,984,075
    1,651,520

See 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, 2011 and 2010
(AMOUNTS EXPRESSED IN US DOLLAR)



Common Stock
    Additional
    Non-Controlling Interest in Variable
    
    Accumulated Other
    
      TotalNumber
    
    Paid-in
    Interest
    Retained
    Statutory
    Comprehensive
    Stockholders'of Shares
    Amount
    Capital
    Entities
    Earnings
    Reserve
    Income
    EquityBalance, 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
    36,557,267Shares issued for services
    223,285
    23
    306,152
    —
    —
    —
    —
    306,175Warrants issued for service
    —
    —
    31,188
    —
    —
    —
    —
    31,188Shares issued for adjustments for 1:40 reverse split
    81
    —
    —
    —
    —
    —
    —
    —Increase in registered capital
    —
    —
    —
    1,547,030
    —
    —
    —
    1,547,030Adjustment to statutory reserve
    —
    —
    —
    —
    (596,429)
    596,429
    —
    —Foreign currency translation adjustment
    —
    —
    —
    —
    —
    —
    2,234,499
    2,234,499Net income for the year
    —
    —
    —
    —
    9,726,360
    —
    —
    9,726,360Balance, June 30, 2011
    2,158,244
    $216
    $7,464,917
    $7,642,344
    $27,343,397
    $3,066,583
    $4,885,062
    $50,402,519

See accompanying notes to consolidated financial statements



F-5

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)



For the Years Ended June 30,2011
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    $9,726,360
    $8,273,058Adjustments to reconcile net income to net cash(used in) provided by operating activities:Depreciation
    796,429
    775,715Stock-based compensation and fees
    235,487
    322,500Common stock issued for interest
    —
    76,114Bad debt recovery
    (224,351)
    (104,052)Interest expense from amortization of debt discount
    —
    2,183,000Interest expense from warrant exercise reduction
    —
    23,027Warrants issued for service
    31,188
    —Loss (gain) on sale of land use rights and property
    1,929
    (350,885)Gain on extinguishment of derivative liabilities
    —
    (2,111,506)Gain on change in fair value of derivative liabilities
    (568,917)
    (1,756,959)Changes in assets and liabilities:Restricted cash
    (68)
    —Accounts receivable
    (4,572,780)
    4,107,942Notes receivable
    1,454,967
    314,044Inventories
    (5,631)
    (35,873)Other receivables
    (41,994)
    1,249,521Advance to suppliers
    (1,125)
    200,228Prepaid expenses
    183,412
    —Costs and estimated earnings in excess of billings
    (31,211)
    (76,935)Real estate held for sale
    376,518
    (365,502)Construction in progress
    (6,162,748)
    (10,660,340)Prepaid land use rights held for sale
    —
    2,418,255Accounts payable and accrued liabilities
    (1,364,483)
    (4,453,158)Taxes payable
    (2,268,828)
    318,950Advances from customers
    (148,418)
    (102,408)Billings in excess of costs and estimated earnings
    (92,542)
    52,292NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
    (2,676,806)
    297,028CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of land use right
    —
    2,194,051Purchase of property and equipment
    (166,937)
    (189,347)NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    (166,937)
    2,004,704CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of loans payable
    (6,034,671)
    (1,383,130)Proceeds from loans payable
    7,533,921
    —Proceeds from contribution of registered capital
    1,506,784
    —Repayment to related party
    (223,257)
    262,830Repayment of convertible debt
    —
    (983,550)NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES
    2,782,777
    (2,103,850)EFFECT OF EXCHANGE RATE ON CASH
    12,564
    (20)NET INCREASE IN CASH AND CASH EQUIVALENTS
    (48,402)
    197,862CASH AND CASH EQUIVALENTS - beginning of year
    290,640
    92,778CASH AND CASH EQUIVALENTS - end of year
    $242,238
    $290,640SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:Cash paid for:Interest
    $440,548
    $968,753Income taxes
    $3,853,700
    $3,117,110Non-cash activities:Note receivable exchanged for construction in progress
    $—
    $8,425,169Accounts receivable exchanged for construction in progress
    $5,138,134
    $—Common stock issued for prior and future service
    $70,688
    $458,000Common stock issued for conversion of convertible debt
    $—
    $1,199,450Common stock issued for accrued interest and penalties
    $—
    $190,163Reclassification 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, 2011 and 2010



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”. 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 is as follows:







F-7

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Organization (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, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Organization (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.



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 entitiesJin 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. However, the Jin Ma Companies have never remitted these fees to the Company and
are retaining the funds for operating capital. At June 30, 2011 the Company was owed $31.3 million by the Jin Ma Companies.



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, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)



Basis of presentation



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 the Company’s 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 the Company or its assignee 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 assignee, 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.



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, 2011 and 2010 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,and the
fair values of warrants granted in connection with the issuance of the convertible debt and issued for services.



F-10

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Financial instruments



The accounting standard governing financial
instruments adopted by the Company on July 1, 2009 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, 2011:



Conversion feature derivative liability
    Warrant liabilityBalance at July 1, 2009
    $—
    $—Recognition of derivative liability
    3,224,484
    1,455,695Exercise 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
    —
    653,630Change in fair value included in earnings
    —
    (568,917)Balance at June 30, 2011
    $—
    $84,713

The 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 10 for more information on these
financial instruments.



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.



F-11

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Restricted cash



Jin Ma Real Estate company is required
to maintain certain deposits with banks that provide mortgage loans to Jin Ma Real Estate’s customers in order to purchase
residential units from Jin Ma Real Estate. These balances are subject to withdrawal restrictions and totaled $20,458 and $19,356,
respectively, as of June 30, 2011 and 2010. These deposits are not covered by insurance. The Company has not experienced any losses
in such accounts and management believes it is not exposed to any risks on its cash in bank accounts.



Concentrations of credit risk



The Company’s operations through the
Jin Ma Companies 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 and notes 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 and
notes receivable 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, 2011 and 2010, the Company’s
bank deposits by geographic area were as follows:



Country:
    June 30, 2011
    June 30, 2010United States
    $1,886
    0.8%
    $1,043
    0.4%China
    240,352
    99.2%
    289,597
    99.6%Total cash and cash equivalents
    $242,238
    100.0%
    $290,640
    100.0%

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, 2011 and 2010, the Company has
established, based on a review of its outstanding accounts receivable balances, an allowance for doubtful accounts in the amount
of $845,261 and $978,455, respectively, on its total accounts receivable. Management believes that the notes receivable are fully
collectable. Therefore, no allowance for doubtful accounts is deemed to be required at June 30, 2011 and 2010.



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, 2011 and 2010, the Company has established, based on a review
of its outstanding other receivable balances, an allowance for doubtful accounts in the amount of $27,871 and $69,171, 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,
2011 and 2010 were as follows:



F-12

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Accounts receivable,
notes receivable and other receivables(continued)



Allowance for doubtful accounts for accounts receivable
    Allowance for doubtful accounts for other receivable
    TotalBalance – 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
    $1,047,626Reductions in allowance
    (180,534)
    (43,817)
    (224,351)Foreign currency translation adjustments
    47,340
    2,517
    49,857Balance – June 30, 2011
    $845,261
    $27,871
    $873,132

Inventories



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.



Real estate held for sale



The Company capitalizes as real
estate held for sale the direct construction and development costs, property taxes, interest incurred on costs related to land
under development and other related costs (i.e. engineering, surveying, landscaping, etc.) until the property reaches its intended
use. At June 30, 2011 and 2010, real estate held for sale amounted to $0 and $367,009, 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 expense 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. Construction in progress
are classified in the balance sheets as current or non-current based on whether or not the sale of units of respective projects
are expected to take place within 12 months of the balance sheet date. As of June 30, 2011 and 2010, construction in progress
amounted to $25,148,978 and $12,860,646, respectively, and was included in long-term assets.



Property and equipment



Property and equipment are stated at cost less
accumulated depreciation. Additions and improvements to property and equipment are recorded at cost. 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 the results of operations in the year of disposition. Maintenance, repairs, and minor renewals are charged directly to expense
as incurred. Major additions and betterments to property and equipment accounts are capitalized. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.



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 carryingamount 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, 2011 and 2010.



F-13

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Income taxes



The Company is governed by the Income Tax Law
of the People’s Republic of China and the United States. The Company 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%.



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, 2011 and 2010, 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, 2011
and 2010, and no provision for interest and penalties is deemed necessary as of June 30, 2011 and 2010.



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, 2011 and
2010 of $0 and $144,670, 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
recognizes the deposits as revenue upon transfer of title to the buyer, in compliance with the Company’s revenue recognition
policy.



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. As of June 30, 2011 and 2010, the Company had $84,713
and $653,630, respectively, of derivative liability related to warrants on the balance sheets.



F-14

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Revenue 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:



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 Inner Mongolia Electrical Vocational Technical School (the “Vocational School”). Pursuant to the terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon completion in November 2008, 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 RMB 4,800,000 or approximately $743,000 per annum. 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 RMB 61,691,138 (approximately $9,544,000). The deferred gain on the sale of the property was approximately $55,000 of which $999 and $914 was recognized in the years ended June 30, 2011 and 2010, respectively, pursuant to the installment method and was reflected in the accompanying consolidated 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 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. 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 $1.64 million) for 5 years (from fiscal 2010 to fiscal 2014), and RMB 5.42 million (approximately $0.84 million) for 15 years (from fiscal 2015 to fiscal 2029). 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 RMB 84,196,104 (approximately $13 million). The deferred gain on the sale of the property was approximately $4,114,000 of which $592,001 and $72,000, respectively, was recognized in the years ended June 30, 2011 and 2010 pursuant to the installment method and was reflected in the accompanying consolidated 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, 2011, the remaining deferred
gains for Vocational School and Chemistry School leases of $51,946 and $3,430,517, respectively, is reflected as a discount of
notes receivable in the accompanying balance sheet. 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 sheets. 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).



F-15

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Revenue recognition (continued)



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



For the Years Ended June 30,2011
    2010Revenues
    $2,047,967
    $386,958Cost of revenues
    (1,454,967)
    (314,044)Gross profit recognized
    $593,000
    $72,914

Jin Ma Real Estate receives annual payments
of principal and the related imputed interest from the Vocational School and Chemistry School. During the years ended June 30,
2011 and 2010, the Company allocated the payments received as follows:



2011
    2010Amount applied to principal balance of notes receivable
    $2,047,967
    $386,958Interest income recognized on consolidated statement of income
    1,565,405
    1,274,604Total payments received
    $3,613,372
    $1,661,562

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



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



In accounting for long-term engineering and
construction-type contracts, 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 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.



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 statements 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, 2011 and 2010. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50.



F-16

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Advertising



Advertising is expensed as incurred. Advertising
expenses for the years ended June 30, 2011 and 2010 were deemed not material.



Warranty policy



In accordance with
ASC Topic 450, the Company estimates liabilities for construction defect, product liability and related warranty claims based on
the possibleclaim 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 the years ended June 30, 2011 and 2010 were immaterial.



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 exercise of 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.



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



Years Ended June 30,2011
    2010Net income used for basic and diluted net income per common share
    $9,726,360
    $8,273,058Weighted average common shares outstanding – basic
    1,968,507
    1,608,685Effect of dilutive securities:Unexercised warrants
    15,568
    42,835Weighted average common shares outstanding – diluted
    1,984,075
    1,651,520Net income per common share – basic
    $4.94
    $5.14Net income per common share – diluted
    $4.90
    $5.01

The Company's aggregate common stock equivalents at June 30, 2011
and 2010 included the following:



2011
    
    2010Warrants
    
    204,945
    
    196,195

F-17

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



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. dollar are included in determining comprehensive income. The cumulative translation adjustment and
effect of exchange rate changes on cash for the years ended June 30, 2011 and 2010 amounted to $12,564 and $(20), 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 transactions 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, 2011
and 2010 were translated at RMB 6.4640 to USD 1 and at RMB 6.8086 to USD 1, respectively. Equity accounts were stated at their
historical rate. The average translation rates applied to income statements for the years ended June 30, 2011 and 2010 were RMB
6.63665 and RMB 6.83667 to USD 1, 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.



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, 2011 and 2010 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, 2011 and 2010, the Company operated in three reportable business segments - (1) the Construction
segment (2) Hotel segment and (3) Real estate development segment (See Note 13).



In May 2011, the FASB issued ASU 2011-04, “Amendments
to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”).
The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently,
ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing
information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments in ASU 2011-04
to result in a change in the application of the requirements in Topic 820. ASU 2011-04 is effective prospectively for interim and
annual reporting periods beginning after December 15, 2011. The Company does not expect the adoption of the provisions in
ASU 2011-04 will have a significant impact on its consolidated financial statements.



F-18

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Recent accounting pronouncements



In June 2011, the FASB issued ASU 2011-05,
“Presentation of Comprehensive Income” (“ASU 2011-05”). In accordance with ASU 2011-05, an entity
has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices,
an entity is required to present each component of net income along with total net income, each component of other comprehensive
income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU 2011-05 eliminates the
option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.
ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive
income must be reclassified to net income. ASU 2011-05 is effective retrospectively for fiscal years, and interim periods within
those years, beginning after December 15, 2011. The Company does not expect the adoption of the provisions of this ASU will
have a significant impact on its consolidated financial statements.



Other accounting standards that have been issued
or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to
have a material impact on the Company’s consolidated financial statements upon adoption.



NOTE 2 – NOTES RECEIVABLE, NET



Notes receivable, which are attributable to
the leasing of the Vocational School and Chemistry School pursuant to a sales-type capital lease, are 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. Management believes that the notes
receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required. At June 30, 2011 and
2010, notes receivable, net consisted of the following:



June 30, 2011
    June 30, 2010Due in fiscal years ending June 30,2011
    $—
    $2,861,1532012
    1,689,320
    2,264,7832013
    2,385,520
    2,264,7832014
    2,385,520
    2,264,7832015
    1,581,064
    1,501,0432016
    1,581,064
    1,501,043Thereafter
    24,266,708
    23,038,510Notes receivable - gross
    $33,889,196
    $35,696,098Less: discount on notes receivable
    (13,990,435)
    (14,808,215)Less: deferred gain on sale
    (3,482,463)
    (3,884,231)16,416,298
    17,003,652Notes receivable - current portion, net
    (572,039)
    (1,150,333)Notes receivable - long-term, net
    $15,844,259
    $15,853,319

F-19

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 3 – INVENTORIES



At June 30, 2011 and 2010, inventories consisted of the following:



June 30,2011
    2010Consumable goods
    $73,201
    $64,007

NOTE 4 – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS



Costs and estimated earnings in excess of billings at June 30, 2011
and 2010 consisted of:



June 30,2011
    2010Costs incurred on uncompleted contracts
    $20,857,673
    $23,231,942Estimated earnings
    4,815,489
    5,325,32625,673,162
    28,557,268Less: billings to date
    (25,542,234)
    (28,553,594)$130,928
    $3,674

Amounts are included in the accompanying consolidated balance sheets
under thefollowing captions:



June 30,2011
    2010Costs and estimated earnings in excess of billings
    $130,928
    $93,879Billings in excess of costs and estimated earnings
    —
    (90,205)$130,928
    $3,674

NOTE 5 – PROPERTY AND EQUIPMENT



At June 30, 2011 and 2010, property and equipment
consisted of the following:





June 30,Useful life
    
    2011
    
    2010Office equipment
    
    
    5 - 8 Years
    
    $
    614,001
    
    $
    580,827Machinery and equipment
    
    
    5 - 15 Years
    
    
    7,636,033
    
    
    7,181,316Vehicles
    
    
    10 Years
    
    
    550,778
    
    
    480,057Buildings and building improvements
    
    
    20 - 50 Years
    
    
    4,160,806
    
    
    3,906,15512,961,618
    
    
    12,148,355Less: accumulated depreciation
    
    
    
    
    
    (4,419,608
    )
    
    (3,420,559
    )$
    8,542,010
    
    $
    8,727,796





Depreciation of
property andequipment is provided using the straight-line method. For the years ended June 30, 2011 and 2010, depreciation
expense amounted to $796,429 and $775,715, respectively.



F-20

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 6 – CONSTRUCTION IN PROGRESS



At June
30, 2011 and 2010, construction in progress consisted of the following:



June 30, 2011
    June 30, 2010Prepaid land use rights and buildings built for Procuratorate Housing Estates (located in Yuquan District, Hohhot City, Inner Mongolia)
    $932,888
    $885,672Prepaid land use rights for Wusutu Village land – JinWu project
    2,557,675
    2,428,224Prepaid land use rights for Fu Xing Ying land – Beiyuan project
    10,055,692
    9,546,750Prepaid land use rights for East Wusutu Village land for future development (a)
    11,602,723
    —Total construction in progress (long term)
    $25,148,978
    $12,860,646

Construction in progress are classified in
the balance sheets as current or non-current based on whether or not the sale of units of respective projects are expected to take
place within 12 months of the balance sheet date.



(a)During the year ended June 30, 2011, the Company acquired from a local authority a piece of land in East Wusutu Village
for a total cash consideration of $11,602,723, which was fully paid before June 30, 2011. As of June 30, 2011, the relevant formalities
had not been completed and no land use right certificate had been issued. Management estimated that the relevant formalities can
be completed and the land use right certificate can be issued by December 2011.



NOTE 7 – ACCRUED LIABILITIES



At June 30, 2011 and 2010, accrued liabilities
consisted of the following:



June 30, 2011
    June 30, 2010Accrued interest payable
    $331,090
    $234,214Accrued payroll and employees benefit
    62,395
    152,332Refundable construction performance deposit
    —
    440,619Other
    9,645
    5,432$403,130
    $832,597

NOTE 8 – LOANS PAYABLE



Loans payable consisted of the following at June 30, 2011 and 2010:



June 30, 2011
    June 30, 2010Loans from various credit unions, due on May 10, 2011 with annual interest of 11.16% and secured by the assets of Jin Ma Hotel and repaid in June 2011
    $—
    $2,908,087Loans from various unrelated parties, due in September 2010 with annual interest of 18% and unsecured and repaid in October 2010
    —
    36,718Loans from various unrelated parties, due in April 2012 with annual  interest of 18% and unsecured
    201,114
    190,936Loans from various unrelated parties, due in August 2011 with annual  interest of 18% and unsecured and repaid on due date
    38,676
    36,718Loans from various unrelated parties, due in September 2012 with  annual interest of 18% and unsecured
    123,762
    117,498Loan from one unrelated individual, due in March 2012 with annual  interest of 24% and unsecured
    154,703
    146,873Loan from Bank of Jingu, due on various dates until June 1, 2014 with annual interest of 16.32%  and secured by the assets of Jin Ma Hotel
    4,641,090
    —Total loans payable
    5,159,345
    3,436,830Less: current portion
    (549,196)
    (3,091,678)Long term liability
    $4,610,149
    $345,152

F-21

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 8 – LOANS PAYABLE (continued)



For the years ended June 30, 2011 and 2010,
interest expense related to these loans amounted to $522,743 and $585,736, respectively.



At June 30, 2011, future maturities of debt
were as follows:



Fiscal years ending
    June 30:2012 (current liability)
    $549,1962013
    433,1682014
    4,176,981$5,159,345

NOTE 9 – RELATED PARTY TRANSACTIONS



Due 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, 2011 and 2010, due to related parties consisted of the following:



June 30,Name
    
    
    Relationship
    
    2011
    
    2010Inner Mongolia Jin Ma Group Ltd and its subsidiaries
    
    
    Owned by Yang Liankuan
    
    $
    13,518
    
    $
    230,453





Other



During the years ended June 30, 2011 and 2010,
the Company paid rent of $52,666 and $51,125 to Inner Mongolia Jin Ma Group Ltd., respectively.



NOTE 10 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES



Under the terms of a 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.



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 exercise price per share of common stock for the original 250,701 warrants
issued pursuant to the Securities Purchase Agreement was lowered from $20.00 to $4.00.



F-22

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 10 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES (CONTINUED)



On May 14, 2010, the Company entered into a
further Debenture and Warrant 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 238,009 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 the Company’s 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 the Company’s common stock on any given day for a one year period,•
    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.



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 warrants
as of June 30, 2011 and 2010 using a probability-weighted Black-Scholes-Merton option-pricing model using the following assumptions:



June 30, 2011
    June 30, 2010Warrants:Risk-free interest rate
    0.19%
    1.00%Expected volatility
    147.73%
    179.74%Expected life (in years)
    1.42 years
    2.42 yearsExpected dividend yield
    —
    —Fair Value:
    $84,713
    $653,630

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.



As of June 30, 2011 and 2010, the outstanding
numbers of warrants related to the convertible debentures were 196,195. At June 30, 2011 and 2010, the Company recorded a derivative
liability of $84,713 and $653,630, respectively, related to the warrants. For the years ended June 30, 2011 and 2010, gains from
the change in fair value of derivative liabilities were $568,917 and $1,756,959, respectively. For the years ended June 30, 2011
and 2010, gains from the extinguishment of derivative liabilities were $0 and $2,111,506, respectively.



F-23

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 11 – TAXES



Income taxes



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 the PRC 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 $2,649,000 and $2,073,000 as of June 30, 2011 and
2010, respectively, subject to the Internal Revenue Code Section 382, which places a limitation on the amount of taxable income
that can be offset by net operating losses after a change in ownership. The net operating loss carries forward for United States
income taxes, which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized,
through 2031. 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,
2011 and 2010:



June 30, 2011
    June 30, 2010Income before provision for income taxes
    $12,975,295
    $10,612,695Income tax at U.S statutory rate of 34%
    4,411,600
    3,608,316Non-taxable gain related to derivative liabilities
    (193,432)
    (1,315,278)Non-deductible non-cash interest expense
    —
    750,049U.S. effective rate in excess of China effective tax rate
    (1,165,237)
    (854,894)Other
    —
    (35,067)3,052,931
    2,153,126Increase in valuation allowance
    196,004
    186,511Total current income tax provision
    $3,248,935
    $2,339,637

The tax effects of temporary
differences that give rise to significant portions of deferred tax assets and liabilities at June 30, 2011 and 2010 were as follows:



June 30, 2011
    
    June 30, 2010Deferred tax assets:Allowance for doubtful accounts
    
    $
    225,519
    
    $
    267,668Net operating loss carry forward
    
    
    900,682
    
    
    704,678Total gross deferred tax assets
    
    
    1,126,201
    
    
    972,346Less: valuation allowance
    
    
    (900,682
    )
    
    (704,678
    )Net deferred tax assets
    
    $
    225,519
    
    $
    267,668

The valuation allowance at June 30, 2011 and
2010 was $900,682 and $704,678, respectively. The increase in valuation allowance during the years ended June 30, 2011 and 2010
was $196,004 and $186,511, respectively. Income tax expense for the years ended June 30, 2011 and 2010 amounted to $3,248,935 and
$2,339,637, respectively.



F-24

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 11 – TAXES (CONTINUED)



Income taxes (continued)



As of June 30, 2011 and 2010, 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 years ended June 30, 2011 and
2010, and no provision for interest and penalties is deemed necessary as of June 30, 2011 and 2010.



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.



Taxes payable



At June 30, 2011 and 2010, taxes payable (prepaid) were as follows:



June 30, 2011
    June 30, 2010Income taxes
    $(34,636)
    $610,173Land appreciation taxes
    111,085
    1,273,698Business taxes
    9,755
    395,426Other
    28,571
    94,762Total
    $114,775
    $2,374,059

NOTE 12 – STOCKHOLDERS’ EQUITY



Common stock



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 liabilities 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.



F-25

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 12 – STOCKHOLDERS’ EQUITY (CONTINUED)



Common stock (continued)



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 $360,000.



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.



On December 10, 2010, the Company issued an
aggregate of 50,000 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 $3.45 per share based on the fair value on the date of grant.  In connection with
the issuance of these shares, the Company recorded compensation expenses of $115,000 and reduced accrued liabilities by $57,500.



On December 10, 2010, the Company issued 3,750
shares of its common stock to its five directors for services rendered by them. The shares were valued at $3.45 per share based
on the fair value on the date of grant. In connection with the issuance of these shares, the Company reduced accrued liabilities
by $12,938.



On December 10,
2010, the Company issued 750 shares of its common stock to a director for services rendered and to be rendered by him. The shares
were valued at $3.45 per share based on the fairvalue on the date of grant. In connection with the issuance of these shares,
the Company recorded compensation expenses of $2,337 and reduced accrued liabilities by $250.



On June 24, 2011, the Company issued an aggregate
of 164,285 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 $0.70 per share based on the fair value on the date of grant.  In connection with the issuance
of these shares, the Company recorded compensation expenses of $115,000.



On June 24, 2011, the Company issued 4,500
shares of its common stock to its six directors for services rendered by them. The shares were valued at $0.70 per share based
on the fair value on the date of grant. In connection with the issuance of these shares, the Company recorded compensation expenses
of $3,150.



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.



F-26

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 12 –STOCKHOLDERS’ EQUITY (CONTINUED)



2007 Equity Compensation Plan (continued)



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



Subject to the limitation on the aggregate
number of shares issuable under the 2007 Equity Compensation Plan, there is no maximum or minimum number of shares as to which
a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and
unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which
terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares
issuable under the 2007 Equity Compensation Plan, although such shares may also be used by us for other purposes. As of June 30,
2011, the Company has not made any grants under the 2007 Equity Compensation Plan.



Warrants



On August 18, 2010, the Company entered into
a six-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 using
the following assumptions at approximately $3.56 per warrant or $31,188 in total and recorded as stock-based professional fees.



Warrants:
    At grant dateRisk-free interest rate
    0.18%Expected volatility
    175.4%Expected life (in years)
    5 yearsExpected dividend yield
    —Fair Value:
    $31,188

F-27

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 12 – STOCKHOLDERS’ EQUITY (CONTINUED)



Warrants (continued)



Warrant activities for the years ended June 30, 2011 and 2010 were
summarized as follows:



Year Ended June 30, 2011
    Year Ended June 30, 2010Number of Warrants
    Weighted Average Exercise Price
    Number of Warrants
    Weighted Average Exercise PriceBalance at beginning of year
    196,195
    $3.25
    250,701
    $4.00Granted
    8,750
    6.00
    183,503
    3.20Exercised
    —
    —
    (54,506)
    (4.00)Forfeited
    —
    —
    (183,503)
    (4.00)Balance at end of year
    204,945
    $3.37
    196,195
    $3.25Warrants exercisable at end of year
    196,195
    $3.25
    196,195
    $3.25

The following table summarized the Company's stock warrants outstanding
at June 30, 2011:



Warrants Outstanding
    
    Warrants ExercisableRange of Exercise Price
    
    Number Outstanding at June 30, 2011
    
    Weighted Average Exercise Price
    
    Aggregate Intrinsic Value
    (1)
    Weighted Average Remaining Contractual Life
    
    Number Exercisable at June 30, 2011
    
    Weighted Average Exercise Price$
    3.20
    
    
    183,503
    
    $
    3.20
    
    $
    —
    
    
    1.42 Years
    
    
    183,503
    
    $
    3.20$
    4.00
    
    
    12,692
    
    $
    4.00
    
    $
    —
    
    
    1.42 Years
    
    
    12,692
    
    $
    4.00$
    6.00
    
    
    8,750
    
    $
    6.00
    
    $
    —
    
    
    4.14 Years
    
    
    —
    
    $
    —Total
    
    
    204,945
    
    $
    3.37
    
    $
    —
    
    
    1.54 Years
    
    
    196,195
    
    $
    3.25

(1)
    The intrinsic value of warrants at June 30, 2011 is zero since the market value of the Company’s common stock of $0.95 as of June 30, 2011 is lower than the exercise price of the warrants.

F-28

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 13 – 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, 2011 and 2010, the Company operated in three reportable business segments - (1) the Construction
segment (2) Hotel segment and (3) Real Estate development segment. The Company's reportable segments are strategic business units
that offer different products.The Company's reportable segments,
although integral to the success of the others, offer distinctly different products and services and require different types of
management focus. As such, these segments are managed separately.



Condensed information with respect to these reportable business
segments for the years ended June 30, 2011 and 2010 was as follows:



For the Years Ended June 30,2011
    2010Revenues:Construction
    $40,990,034
    $37,496,002Real Estate
    32,463,687
    10,331,004Hotel
    3,046,914
    3,086,55376,500,635
    50,913,559Depreciation:Construction
    468,048
    454,029Real Estate
    44,673
    41,638Hotel
    283,708
    280,048796,429
    775,715Interest expense:Construction
    499,518
    585,736Hotel
    23,225
    —Other
    —
    2,278,949522,743
    2,864,685Net income (loss):Construction
    3,769,635
    3,141,401Real Estate
    5,749,898
    3,620,823Hotel
    214,393
    396,957Other (a)
    (7,566)
    1,113,877$9,726,360
    $8,273,058

June 30, 2011
    June 30, 2010Identifiable long-lived tangible assets at June 30, 2011 and 2010:Construction
    $6,184,382
    $6,283,804Real Estate
    321,241
    346,430Hotel
    2,036,387
    2,097,562$8,542,010
    $8,727,796

(a)    The Company does not allocate its general and administrative expenses of its US activities and the fair value changes of its derivative liabilities to its reportable
segments, because these activities are managed at a corporate level.



F-29

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 14 – STATUTORY RESERVES



The Company is required
to make appropriations to reserve funds, comprising the statutory 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.As of June 30, 2010, the Company appropriated the required maximum
50% of its registered capital to statutory reserves for Construction.



For the years ended June 30, 2011 and 2010,
statutory reserve activity was as follows:



Balance – June 30, 2009
    $2,040,899Addition to statutory reserves
    429,255Balance – June 30, 2010
    2,470,154Addition to statutory reserves
    596,429Balance – June 30, 2011
    $3,066,583

NOTE 15 – MAJOR CUSTOMERS AND VENDORS



The nature of the
Company’s construction segment is that at any given time, theCompany will have a concentration of significant customers
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, 2011, three construction projects
accounted for 53.6% of the Company’s total consolidated revenues. For the year ended June 30, 2010, four construction projects
accounted for 73.9% of the Company’s total consolidated revenues. Major customers were summarized as follows:



Project Name
    For the Year Ended June 30, 2011
    %
    For the Year Ended June 30, 2010
    %Lanyu Garden No. 3 residential apartment project
    $—
    0.0
    $3,405,405
    6.7Fu Xing Bath Center project
    —
    0.0
    5,756,345
    11.3Jianhe Garden residential project
    15,987,287
    20.9
    14,289,732
    28.1Tuzuoqi (Chasuqi) Low-rent House project
    (2,537)
    0.0
    14,150,285
    27.8Fuhengyuan residential project
    8,825,376
    11.5
    —
    0.0Tiantixingyuan No. 1 – No. 7 project
    16,179,908
    21.2
    —
    0.0

At June 30, 2011, the Company had $7,812,687
of accounts receivable due from its major customers. At June 30, 2010, the Company had $5,073,030 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.



NOTE 16 – 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.).



F-30

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



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 SHEETSAs of June 30,2011
    2010ASSETSCash and cash equivalents
    $1,886
    $1,043Prepaid expenses
    1,000
    210,000Total Current Assets
    2,886
    211,043Investments in subsidiaries at equity
    49,776,712
    36,261,257Due from subsidiaries
    749,638
    849,638Total Assets
    $50,529,236
    $37,321,938LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable
    $21,171
    $48,916Accrued liabilities
    20,833
    62,125Derivative liabilities
    84,713
    653,630Total Current Liabilities
    126,717
    764,671Stockholders' equity:Common stock ($0.0001 par value; 300,000,000 shares    authorized; 2,158,244 and 1,934,878 shares issuedand outstanding at June 30, 2011 and 2010, respectively)
    216
    193Additional paid-in capital
    7,464,917
    7,127,577Non-controlling interest in variable interest entities
    7,642,344
    6,095,314Retained earnings
    27,343,397
    18,213,466Statutory reserve
    3,066,583
    2,470,154Accumulated other comprehensive income
    4,885,062
    2,650,563Total Stockholders' Equity
    50,402,519
    36,557,267Total Liabilities and Stockholders' Equity
    $50,529,236
    $37,321,938

F-31

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



GOLD HORSE INTERNATIONAL, INC.CONDENSED PARENT COMPANY STATEMENTS OF OPERATIONSFor the Years Ended June 30,2011
    2010REVENUES
    $—
    $—OPERATING EXPENSES:Salaries and employee benefits
    281,550
    288,125General and administrative
    294,933
    187,514Total Operating Expenses
    576,483
    475,639LOSS FROM OPERATIONS
    (576,483)
    (475,639)OTHER INCOME (EXPENSES):Gain on extinguishment of derivative liabilities
    —
    2,111,506Gain on change in fair value of derivative liabilities
    568,917
    1,756,959Interest expense
    —
    (2,278,949)Total Other Income
    568,917
    1,589,516(LOSS) INCOME ATTRIBUTABLE TO PARENT ONLY
    (7,566)
    1,113,877EQUITY INCOME EARNINGS OF SUBSIDIARIES
    9,733,926
    7,159,181NET INCOME
    $9,726,360
    $8,273,058

F-32

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



GOLD HORSE INTERNATIONAL, INC.

CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS



For the Years Ended June 30,2011
    
    2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    9,726,360
    
    $
    8,273,058Adjustments to reconcile net income to net cash used inoperating activities:Equity in earnings of subsidiary
    
    
    (9,733,926
    )
    
    (7,159,181
    )Common stock issued for services
    
    
    235,487
    
    
    322,500Common stock issued for interest
    
    
    —
    
    
    76,114Warrants issued for service
    
    
    31,188
    
    
    —Interest expense from amortization of debt discount
    
    
    —
    
    
    2,183,000Interest expense from warrant exercise reduction
    
    
    —
    
    
    23,027Gain on extinguishment of derivative liabilities
    
    
    —
    
    
    (2,111,506
    )Gain on change in fair value of derivative liabilities
    
    
    (568,917
    )
    
    (1,756,959
    )Changes in assets and liabilities:Prepaid expense
    
    
    209,000
    
    
    —Accounts payable
    
    
    (27,745
    )
    
    (3,972
    )Accrued liabilities
    
    
    29,396
    
    
    (93,948
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (99,157
    )
    
    (247,867
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from subsidiaries
    
    
    100,000
    
    
    1,192,504NET CASH PROVIDED BY INVESTING ACTIVITIES
    
    
    100,000
    
    
    1,192,504CASH FLOWS FROM FINANCING ACTIVITIES:Repayment for convertible debt
    
    
    —
    
    
    (983,550
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    —
    
    
    (983,550
    )NET INCREASE (DECREASE) IN CASH
    
    
    843
    
    
    (38,913
    )CASH - beginning of year
    
    
    1,043
    
    
    39,956CASH - end of year
    
    $
    1,886
    
    $
    1,043

F-33

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
For the Years Ended June 30, 2011 and 2010



NOTE 17 – COMMITMENTS



Other than in the normal course of business,
the Company did not have significant capital and other commitments, or significant guarantees as of June 30, 2011.



NOTE 18 – BENEFIT PLAN



The Jin Ma Companies are required to contribute
a portion of their employees’ total salaries to the Chinese government’s social insurance funds, including medical
insurance, retirement benefits, unemployment insurance and job injuries insurance, in accordance with relevant regulations. The
Jin Ma Companies contributed, in the aggregate, approximately $66,000 and $51,000 for fiscal 2011 and fiscal 2010, respectively.



NOTE 19 – SUBSEQUENT EVENTS



On July 1, 2011, the Company issued 7,031 shares
of its common stock to a consultant for accounting services rendered by him. The shares were valued at $0.80 per share based on
the fair value on the date of grant. In connection with the issuance of these shares, the Company recorded compensation expenses
of $5,625.



F-34