UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 FORM 10-Q (Mark One) x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE OF 1934 For the
quarterly period ended September 30, 2009 or o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE OF 1934 For the transition period from _______ to
_________ Commission file number: 000-30311 GOLD HORSE INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)  Florida

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

(I.R.S. Employer Identification No.)No. 31 Tongdao South Road, Hohhot, Inner
  Mongolia, China(Address of principal executive offices)

(Zip Code)  86 (471) 339 7999(Registrants telephone number, including area code)N/A(Former name, former address and former fiscal year, if changed since
  last report) Indicated by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  x No o Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company: Large
  accelerated filer
o
Accelerated
  filer
oNon-accelerated
  filer
o
Smaller
  reporting company
þ Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act) Yes  o No   x Indicate the
number of shares outstanding of each of the issuers classes of common equity,
as of the latest practicable date: 62,780,592 shares at November 16, 2009.   GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
FORM 10-Q 
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

INDEX

PagePART I - FINANCIAL
  INFORMATIONItem 1.
Financial Statements.Condensed Consolidated
  Balance SheetsAs of September 30, 2009
  (Unaudited) and June 30, 2009 (Audited)

3Condensed Consolidated
  Statements of Income and Comprehensive Income (Unaudited)For the Three months Ended
  September 30, 2009 and 2008

4Condensed Consolidated
  Statements of Cash Flows (Unaudited)For the Three months Ended
  September 30, 2009 and 2008

5Notes to Condensed
  Consolidated Financial Statements

6Item 2.
Managements Discussion
  and Analysis of Financial Condition andResults of Operations

38Item 3.
Quantitative and
  Qualitative Disclosures About Market Risk

52Item 4T. Controls and
  Procedures

52PART II - OTHER
  INFORMATIONItem 1.
Legal Proceedings

53Item 1A. Risk Factors

53Item 2.
Unregistered Sales of
  Equity Securities and Use of Proceeds

53Item 3.
Defaults Upon Senior
  Securities

53Item 4.
Submission of Matters to a
  Vote of Security Holders

53Item 5.
Other Information

53Item 6.
Exhibits

54CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION

This
report contains forward-looking statements. These forward-looking statements
are subject to known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These forward-looking statements
were based on various factors and were derived utilizing numerous assumptions
and other factors that could cause our actual results to differ materially from
those in the forward-looking statements. These factors include, but are not limited
to, the amount of funds owed us by the Jin Ma Companies, our ability to satisfy
our repayment obligations under our 14% secured convertible debentures, the
enforceability of our contractual arrangements with the Jin Ma Companies, the
risk of doing business in the Peoples Republic of China (PRC), our ability
to implement our strategic initiatives, our access to sufficient capital, our
ability to satisfy our obligations as they become due, economic, political and
market conditions and fluctuations, government and industry regulation, Chinese
and global competition, and other factors. Most of these factors are difficult
to predict accurately and are generally beyond our control.

You
should consider the areas of risk described in connection with any
forward-looking statements that may be made in our report as filed with the
SEC. Readers are cautioned not to place undue reliance on these forward-looking
statements and readers should carefully review this quarterly report and our
annual report on Form 10-K for the year ended June 30, 2009, including the
risks described in Item 1A. - Risk Factors, in their entirety. 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 quarterly report, and you should not rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business.

2

OTHER PERTINENT INFORMATION

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

Our
business is conducted in China, using RMB, the currency of China, and our
financial statements are presented in United States dollars. In this 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).

Unless
specifically set forth to the contrary, when used in this prospectus 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, and
PRC or
  China refers to the Peoples Republic of China.2(a)

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

As ofSeptember 30,
  2009

June 30,
  2009(Unaudited)

(Audited)ASSETSCash and cash equivalents

$
345,515

$
112,134Accounts receivable, net


10,959,186


11,943,996Note receivable on sales type lease - current
portion


158,090


157,923Inventories, net


27,069


27,838Advances to suppliers


909,141


200,570Other receivable, net


607,880


1,197,705Due from related parties





33,283Cost and estimated earnings in excess of
billings


18,064


16,539Construction in progress - current
portion


4,171,520


3,286,722Prepaid land use rights for resale


2,417,926


4,041,090Total Current Assets


19,614,391


21,017,800Property and equipment, net


9,083,379


9,383,982Construction in progress - non-current
portion


8,446,221


7,273,392Note receivable on sales type lease - non-current
portion


8,663,423


8,654,311Total Assets

$
45,807,414

$
46,329,485LIABILITIES
  AND STOCKHOLDERS' EQUITYCurrent Liabilities:Convertible debt, net

$
424,650

$
Loans payable - current portion


4,315,257


4,420,290Accounts payable


8,074,503


7,966,488Due to related parties


600,918


Accrued expenses


814,618


1,251,843Taxes payable


453,578


1,678,084Advances from customers


804,840


246,191Billings in excess of costs and estimated
earnings


14,309


37,498Total Current Liabilities


15,502,673


15,600,394Loans payable - net of current portion


343,688


379,850Total Liabilities


15,846,361


15,980,244Commitments (Note 18)





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





Common stock ($.0001 par value; 300,000,000 shares
authorized;
  57,579,002 and 52,668,603 shares issued and outstanding at September 30, 2009
  and June 30, 2009, respectively)


5,758


5,266Non-controlling interest in variable interest
entities


6,095,314


6,095,314Additional paid-in capital


7,368,714


6,878,166Statutory reserve


2,111,443


2,040,899Retained earnings


11,884,925


12,866,842Other comprehensive income


2,494,899


2,462,754Total Stockholders' Equity


29,961,053


30,349,241Total Liabilities and Stockholders'
Equity

$
45,807,414

$
46,329,485See accompanying notes to unaudited
consolidated financial statements

3

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

For the Three Months Ended
  September 30,2009

2008(Unaudited)

(Unaudited)NET
  REVENUESConstruction

$
5,190,120

$
28,378,442Hotel


778,020


829,086Real estate





232,700Total Revenues


5,968,140


29,440,228COST Of REVENUESConstruction


4,451,466


24,383,004Hotel


514,547


446,087Real estate





143,216Total Cost of Revenues


4,966,013


24,972,307GROSS PROFIT


1,002,127


4,467,921OPERATING EXPENSES:Hotel operating expenses


26,773


15,631Bad debt recovery


(7,991
)

(182,616
)Salaries and employee benefits


194,086


151,541Depreciation and amortization


193,589


228,603Gain on sale of land use rights


(449,306
)

Selling, general and administrative


149,952


207,328Total Operating Expenses


107,103


420,487INCOME FROM OPERATIONS


895,024


4,047,434OTHER INCOME (EXPENSES):Other income


73


292Interest income


57


945Interest expense


(1,571,381
)

(664,391
)Total Other Expenses


(1,571,251
)

(663,154
)(LOSS) INCOME BEFORE PROVISION FOR INCOME TAX


(676,227
)

3,384,280PROVISION FOR INCOME TAXES


235,146


1,000,506NET (LOSS) INCOME

$
(911,373
)
$
2,383,774COMPREHENSIVE (LOSS) INCOME:Net (loss) income

$
(911,373
)
$
2,383,774OTHER COMPREHENSIVE INCOME:Unrealized foreign currency translation
gain


32,145


54,594COMPREHENSIVE (LOSS) INCOME

$
(879,228
)
$
2,438,368NET (LOSS) INCOME PER COMMON SHARE:Basic

$
(0.02
)
$
0.05Diluted

$
(0.02
)
$
0.04WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic


54,021,977


52,544,603Diluted


54,021,977


58,890,533See accompanying notes to unaudited
consolidated financial statements.

4

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

For the
  Three Months Ended
  September 30,2009

2008(Unaudited)

(Unaudited)CASH FLOWS
  FROM OPERATING ACTIVITIES:Net income

$
(911,373
)
$
2,383,774Adjustments to reconcile net income to net cash
(used in) provided by
  operating activities:Depreciation


193,589


228,603Stock-based compensation


57,500


Common stock issued for interest


18,710


Rent expense associated with prepaid land use
rights





893Bad debt recovery


(7,991
)

(182,616
)Interest expense from amortization of debt
discount


1,333,700


409,313Amortization of debt issuance costs





38,370Gain on sale of land use right


(449,306
)

Changes in assets and liabilities:Accounts receivable


1,840,992


(2,762,312
)Inventories


797


5,642Other receivables


590,784


(123,728
)Advance to suppliers


(707,998
)

(579
)Costs and estimated earnings in excess of
billings


(1,507
)

215,400Real estate held for sale





125,415Construction in progress


(2,045,460
)

(3,205,099
)Accounts payable and accrued expenses


(68,434
)

1,113,716Taxes payable


(1,225,645
)

(737,276
)Advances from customers


558,104


579Billings in excess of costs and estimated
earnings


(23,216
)

(11,521
)NET CASH USED IN OPERATING ACTIVITIES


(846,754
)

(2,501,426
)CASH FLOWS FROM INVESTING ACTIVITIES:Repayment of amounts due to related party





922,550Proceeds from sale of land use right


1,356,507


Proceeds from return of deposit on prepaid land use
rights





787,985Purchase of property and equipment





(17,384
)NET CASH PROVIDED BY INVESTING ACTIVITIES


1,356,507


1,693,151CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of loans payable


(146,175
)

Proceeds from advances from related party


633,912


583,693Repayment of convertible debt


(764,050
)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES


(276,313
)

583,693EFFECT OF EXCHANGE RATE ON CASH


(58
)

4,057NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS


233,382


(220,525
)CASH & CASH EQUIVALENTS - beginning of period


112,134


1,637,986CASH & CASH EQUIVALENTS - end of the period

$
345,516

$
1,417,461SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest

$
293,813

$
95,447Income taxes

$
981,336

$
1,355,072Non-cash investing and financing
activities:Accounts receivable exchanged for prepaid land use
rights for resale

$
270,080

$
Common stock issued for accrued
compensation

$
248,000

$
Common stock issued for conversion of convertible
debt

$
145,000

$
Common stock issued for accrued interest

$
21,830

$
See accompanying notes to unaudited consolidated financial statements.

5

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 1  ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

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

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

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

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

The
relationship among the above companies as follows:

(FLOW CHART)

6

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

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

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

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

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

Inner Mongolia Jin Ma Construction Company Ltd.

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

Inner Mongolia Jin Ma Real Estate Development Co. Ltd.

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

7

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Inner Mongolia Jin Ma Hotel Co. Ltd.

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

Inner Mongolia (Cayman) Technology & Development Ltd.

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

Basis
of presentation

Management acknowledges its
responsibility for the preparation of the accompanying interim condensed
consolidated financial statements which reflect all adjustments, consisting of
normal recurring adjustments, considered necessary in its opinion for a fair
statement of its condensed consolidated financial position and the results of
its operations for the interim period presented. These condensed consolidated
financial statements should be read in conjunction with the summary of
significant accounting policies and notes to condensed consolidated financial
statements included in the Companys Form 10-K annual report for the year ended
June 30, 2009.

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

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

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

Operating Agreements.Pursuant to the
Operating Agreements with the
Jin Ma Companies and their respective shareholders, Global Rise provides
guidance and instructions on the Jin Ma Companies daily operations, financial
management and employment issues. The Jin Ma Companies Shareholders must
designate the candidates recommended by Global Rise as their representatives on
each of the Jin Ma Companies board of directors. Global Rise has the right to
appoint senior executives of the Jin Ma Companies. In addition, Global Rise
agreed to guarantee the Jin Ma Companies performance under any agreements or
arrangements relating to the Jin Ma Companies business arrangements with any
third party. Each of the Jin Ma Companies, in return, agrees to pledge its
accounts receivable and all of its assets to Global Rise. Moreover, each of the
Jin Ma Companies agrees that without Global Rises prior consent, it will not
engage in any transactions that could materially affect its assets,
liabilities, rights or operations, including, without limitation, incurrence or
assumption of any indebtedness, sale or purchase of any assets or rights,
incurrence of any encumbrance on any of its

8

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

assets or intellectual
property rights in favor of a third party or transfer of any agreements relating
to its business operation to any third party. The term of this agreement is ten
(10) years and may be extended only upon our written confirmation prior to the
expiration of this agreement, with the extended term to be mutually agreed upon
by the parties.

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

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

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 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 and accordingly, did not subtract any
net income in calculating the net income attributable to the Company. Because
of the contractual arrangements, the Company had a pecuniary interest in the
Jin Ma Companies that require consolidation of the Companys and the Jin Ma
Companies financial statements.

Use
of estimates

The preparation of financial
statements in conformity with 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 three months ended
September 30, 2009 and 2008 include the allowance for doubtful accounts, the
useful life of property and equipment and intangible assets, assumptions used
in assessing impairment of long-term assets and valuation of deferred tax
assets, costs and estimated earnings in excess of billings and billings in
excess of costs and estimated earnings, and the calculation of the value of any
beneficial conversion feature and warrants related to convertible debt.

9

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Fair
value of financial instruments

The Company adopted ASC
Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 clarifies the
definition of fair value, prescribes methods for measuring fair value, and
establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:

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

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

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

The carrying amounts
reported in the balance sheets for cash, accounts receivable, loans payable,
accounts payable and accrued expenses, customer advances, and amounts due from
related parties approximate their fair market value based on the short-term
maturity of these instruments. The Company did not identify any assets or
liabilities that are required to be presented on the consolidated balance
sheets at fair value in accordance with ASC Topic 820.

Cash
and cash equivalents

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

Concentrations
of credit risk

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

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

10

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Concentrations
of credit risk (continued)

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

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Country:United States

$
5,586


1.6
%
$
39,956


35.6
%China


339,929


98.4
%

72,178


64.4
%Total cash and cash equivalents

$
345,515


100.0
%
$
112,134


100.0
%Accounts
and other receivables

The Company has a policy of
reserving for uncollectible accounts based on its best estimate of the amount
of probable credit losses in its existing accounts receivable. The Company
periodically reviews its accounts receivable and other receivables to determine
whether an allowance is necessary based on an analysis of past due accounts and
other factors that may indicate that the realization of an account may be in
doubt. Account balances deemed to be uncollectible are charged to the allowance
after all means of collection have been exhausted and the potential for
recovery is considered remote. At September 30, 2009 and June 30, 2009, the
Company has established, based on a review of its outstanding accounts
receivable balances, an allowance for doubtful accounts in the amount of
$995,681 and $1,002,621, respectively, on its total accounts receivable.

Other receivables amounts
were primarily related to advances made to various vendors and other parties in
the normal course of business and the allowance was established when those
parties deemed to be unlikely to repay the amounts. At September 30, 2009 and
June 30, 2009, the Company has established, based on a review of its
outstanding other receivable balances, an allowance for doubtful accounts in
the amount of $144,126 and $143,974, respectively. At such time as management
exhausts all collection efforts, the other receivable balance will be netted
against the allowance account. The activities in the allowance for doubtful
accounts for accounts receivable and other receivables for the three months
ended September 30, 2009 are as follows:

Allowance for doubtful accounts for accounts receivable

Allowance for doubtful accounts for other
  receivable

TotalBalance  June 30, 2009 (Audited)

$
1,002,621

$
143,974

$
1,146,595Reduction in allowance


(7,995
)




(7,995
)Foreign currency translation adjustments


1,055


152


1,207Balance  September 30, 2009 (Unaudited)

$
995,681

$
144,126

$
1,139,80711

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

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.

Prepaid
land use rights for resale

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

Advances
to suppliers

The Company advances to
certain vendors for purchase of construction materials and services. The
advances to suppliers are interest free and unsecured. The advances to
suppliers amounted to $909,141 and $200,570 at September 30, 2009 and June 30,
2009, respectively.

Property
and equipment

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

Real
estate held for sale

The Company capitalizes as
real estate held for sale the direct construction and development costs,
property taxes, interest incurred on costs related to land under development
and other related costs (i.e. engineering, surveying, landscaping, etc.) until
the property reaches its intended use. At September 30, 2009 and June 30, 2009,
the Company did not have any real estate held for sale.

Construction
in process

Properties currently under
development are accounted for as construction-in-process.
Construction-in-process is recorded at acquisition cost, including land use
rights cost, development expenditure, professional fees and the interest
expenses capitalized during the course of construction for the purpose of
financing the project. Upon completion and readiness for use of the project,
the cost of construction-in-progress is to be transferred to an appropriate
asset. Construction in progress is valued at the lower of cost or market.
Management evaluates the market value of its properties on a periodic basis for
impairment. As of September 30, 2009 and June 30, 2009, construction in process
amounted to $ 12,617,741 and $10,560,114, respectively.

12

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Impairment
of long-lived assets

In accordance with ASC Topic
360, the Company periodically reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable. The Company recognizes an
impairment loss when the sum of expected undiscounted future cash flows is less
than the carrying amount of the asset. The amount of impairment is measured as
the difference between the assets estimated fair value and its book value. The
Company did not consider it necessary to record any impairment charges during
the three months ended September 30, 2009 and 2008.

Income
taxes

The Company is governed by
the Income Tax Law of the Peoples Republic of China and the United States. The
Company utilizes ASC Topic 740, Accounting for Income Taxes, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. At September 30, 2009 and June 30, 2009, there were no
significant book and tax basis differences.

Pursuant to the PRC Income
Tax Laws, the Company is subject to income tax at a statutory rate of 25%.

Under ASC Topic 740, the
evaluation of a tax position is a two-step process. The first step is to
determine whether it is more likely than not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is
to measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likelihood of being realized upon ultimate settlement. Tax positions that
previously failed to meet the more-likely-than-not recognition threshold should
be recognized in the first subsequent period in which the threshold is met.
Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer met. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosures, and transition. The adoption had no
effect on the Companys consolidated financial statements.

Advances
from customers

Advances from customers at
September 30, 2009 and June 30, 2009 of $804,840 and $246,191, respectively,
consist of prepayments from third party customers to the Company for
construction and real estate transactions to ensure sufficient funds are
available to complete the real estate and construction projects. The Company
will recognize the advances as revenue upon transfer of title to the buyer, in
compliance with its revenue recognition policy.

13

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Net
income (loss) per common share

Net income (loss) per common
share is calculated in accordance with the ASC Topic 260. Basic net income
(loss) per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
period. Diluted net income per common share is computed by dividing net income
by the weighted average number of shares of common stock, common stock
equivalents and potentially dilutive securities outstanding during each period.
Potentially dilutive common shares consist of the common shares issuable upon the
conversion of convertible debt (using the if-converted method) and common stock
warrants. For the three months ended September 30, 2009, common stock
equivalents were excluded from the computation of diluted shares outstanding as
they would have had an anti-dilutive impact. In periods where the Company has a
net loss, all dilutive securities are excluded.

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

Three Months Ended September 30,2009

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

$
(911,373
)
$
2,383,774Weighted average common shares outstanding  basic


54,021,977


52,544,603Effect of dilutive securities:Unexercised warrants





Convertible debentures





6,345,930Weighted average common shares outstanding diluted


54,021,977


58,890,533Net (loss) income per common share  basic

$
(0.02
)
$
0.05Net (loss) income per common share  diluted

$
(0.02
)
$
0.04The Companys aggregate
common stock equivalents at September 30, 2009 and 2008 include the following:

September 30, 2009

September 30, 2008Warrants


10,028,023


10,028,023Convertible debentures


12,739,500


6,345,930Total


22,767,523


16,373,953Revenue
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
revenues streams of the Company:

14

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Revenue
recognition (continued)

Real estate sales which
primarily involve the sale of multi-family units and community environments are
reported in accordance with 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 November 2007, Jin Ma
Real Estate entered into an agreement to construct new dormitories for the
Inner Mongolia Electrical Vocational Technical School (Vocational School).
Pursuant to the terms of the agreement, Jin Ma Real Estate constructed the
buildings and, upon completion, pursuant to a sales-type capital lease, leased
the buildings to the Vocational School and will receive payments for a period
of 26 years at an amount of 4,800,000 RMB or approximately $700,000 per annum.

In November 2008, Jin Ma
Real Estate completed the construction and in December 2008, Jin Ma Real Estate
received the first payment of 4,800,000 RMB. In accordance with ASC Topic 360,
the gain was deferred because the minimum initial investment by the buyer was
less than the required 20% initial investment expressed as a percentage of the
sales value (ASC Topic 360). Therefore the gain will be recognized into income
as payments are received using the installment method. The installment method
apportions each cash receipt and principal payment by the buyer between cost
recovered and profit. The apportionment is in the same ratio as total cost and
total profit bear to the sales value. Accordingly, revenue and cost of sales is
recognized based on this apportionment, and the Company recognized imputed
interest income on the accompanying consolidated statements of income as
summarized below. Since the agreement did not have a stated interest rate, the
Company used an imputed interest rate of interest of 6.12% and is reflecting
payments due under the agreement as a note receivable on the accompanying
balance sheets. The property sold had a sales value of 61,691,138 RMB
(approximately $9,000,000).

As of September 30, 2009,
the remaining deferred gain of $50,991 is reflected as a discount of notes
receivable in the accompanying balance sheet. The recorded imputed interest
discount will be realized as the balances due are collected. In the event of
early liquidation, interest is recognized on the simple interest method.
Principal and the related imputed interest are receivable annually at
approximately $700,000 per year.

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

In accounting for long-term
engineering and construction-type contracts, the Company follows the provisions
of ASC Topic 605. The Company recognizes revenues using the percentage of
completion method of accounting by relating contract costs incurred to date to
the total estimated costs at completion. Contract price and cost estimates are
reviewed periodically as work progresses and adjustments proportionate to the
percentage of completion are reflected in contract revenues and gross profit in
the reporting period when such estimates are revised. This method of revenue
recognition requires the Company to prepare estimates of costs to complete
contracts in progress. In making such estimates, judgments are required to
evaluate contingencies such as potential variances in schedule, the cost of
materials and labor, and productivity; and the impact of change orders,
liability claims, contract disputes, and achievement of contractual performance
standards which may result in revisions to costs and income and are recognized
in the period in which the revisions are determined. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.

15

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Revenue
recognition (continued)

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

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

Foreign
currency translation and comprehensive income

The reporting currency of
the Company is the U.S. dollar. The functional currency of the Company is the
local currency, the RMB. The financial statements of the Company are translated
into United States dollars in accordance with ASC Topic 830. Results of
operations and cash flows are translated at average exchange rates during the
period, assets and liabilities are translated at the unified exchange rate at
the end of the period, and equity is translated at historical exchange rates.
Translation adjustments resulting from the process of translating the local
currency financial statements into U.S. dollars are included in determining
comprehensive income. The cumulative translation adjustment and effect of
exchange rate changes on cash for the three months ended September 30, 2009 and
2008 amounted to $(58) and $4,057, respectively. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a
currency other than the functional currency are included in the results of
operations as incurred. All of the Companys revenue transactions are
transacted in the functional currency. The Company does not enter any material
transaction in foreign currencies and accordingly, transaction gains or losses
have not had, and are not expected to have, a material effect on the results of
operations of the Company.

Asset and liability accounts
at September 30, 2009 and June 30, 2009 were translated at 6.8376 RMB to $1.00
USD and at 6.8448 RMB to $1.00 USD, respectively. Equity accounts were stated
at their historical rate. The average translation rates applied to income statements
for the three months ended September, 2009 and 2008 were 6.8411 RMB and 6.85292
RMB to $1.00 USD, respectively. In accordance with ASC Topic 230, cash flows
from the Companys operations are calculated based upon the local currencies
using the average translation rate. As a result, amounts related to assets and
liabilities reported on the statement of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.

Stock-based
compensation

The Company accounts for
stock options issued to employees in accordance with ASC Topic 718. ASC Topic
718 requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity based compensation
issued to employees. There were no options outstanding as of September 30, 2009
and 2008. The Company accounts for non-employee share-based awards in
accordance with ASC Topic 505-50.

Advertising

Advertising is expensed as
incurred. Advertising expenses for the three months ended September 30, 2009
and 2008 were not material.

16

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Accumulated
other comprehensive income

The Company follows ASC
Topic 220 to recognize the elements of comprehensive income. Comprehensive
income is comprised of net income and all changes to the statements of
stockholders equity, except those due to investments by stockholders, changes
in paid-in capital and distributions to stockholders. For the Company,
comprehensive income for the three months ended September 30, 2009 and 2008
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 three months ended September 30, 2009 and
2008, the Company operated in three reportable business segments - (1) the
Construction segment (2) Hotel segment and (3) Real estate development segment
(Refer to Note 14).

Recent
accounting pronouncements

The Company adopted FASB ASC
815-10-65 (formerly SFAS 161, Disclosures about Derivative Instruments and
Hedging Activities), which amends and expands previously existing guidance on
derivative instruments to require tabular disclosure of the fair value of
derivative instruments and their gains and losses., This ASC also requires
disclosure regarding the credit-risk related contingent features in derivative
agreements, counterparty credit risk, and strategies and objectives for using
derivative instruments. The adoption of this ASC did not have a material impact
on the Companys Condensed Consolidated Financial Statements.

During 2008, the Company
adopted FASB ASC 820-10 (formerly FSP FAS 157-2, Effective Date of FASB
Statement 157), which deferred the provisions of previously issued fair value
guidance for nonfinancial assets and liabilities to the first fiscal period
beginning after November 15, 2008. Deferred nonfinancial assets and liabilities
include items such as goodwill and other nonamortizable intangibles. Effective
January 1, 2009, the Company adopted the fair value guidance for nonfinancial
assets and liabilities. The adoption of FASB ASC 820-10 did not have a material
impact on the Companys Condensed Consolidated Financial Statements.

The Company adopted FASB ASC
810-10-65 (formerly SFAS 160, Noncontrolling Interests in Consolidated
Financial Statements  an amendment of ARB No. 51), which amends previously
issued guidance to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which
is sometimes referred to as minority interest, is an ownership interest in the
consolidated entity that should be reported as equity. Among other
requirements, this Statement requires that the consolidated net income
attributable to the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income statement. The
adoption of the provisions in this ASC did not have a material impact on the Companys
Condensed Consolidated Financial Statements.

The Company adopted FASB ASC
805-10, (formerly SFAS 141R, Business Combinations), which establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in an acquiree and the goodwill acquired. In
addition, the provisions in this ASC require that any additional reversal of
deferred tax asset valuation allowance established in connection with fresh
start reporting on January 7, 1998 be recorded as a component of income tax
expense rather than as a reduction to the goodwill established in connection
with the fresh start reporting. The Company will apply ASC 805-10 to any business
combinations subsequent to adoption.

17

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Recent
accounting pronouncements (continued)

The Company adopted FASB ASC
805-20 (formerly FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies),
which amends ASC 805-10 to require that an acquirer recognize at fair value, at
the acquisition date, an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value
of that asset or liability can be determined during the measurement period. If
the acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of ASC Topic
450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC 805-20 did not have a material impact on the
Companys Condensed Consolidated Financial Statements.

The Company adopted FASB ASC
825-10-65 (formerly FASB Staff Position (FSP) No. FAS 107-1 and Accounting
Principles Board 28-1, Interim Disclosures about Fair Value of Financial
Instruments), which amends previous guidance to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. The adoption of FASB ASC
825-10-65 did not have a material impact on the Companys Condensed
Consolidated Financial Statements.

In June 2009, FASB
established Accounting Standards Codification (Codification) as the single
source of authoritative accounting principles recognized by the FASB in the
preparation of financial statements in conformity with the GAAP. The
Codification will supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification will become non-authoritative. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. Adoption of the Codification is not expected to have
a material impact on the Companys results of operations or financial position.

In June 2009, FASB updated
the accounting standards related to the consolidation of variable interest
entities (VIEs). The standard amends current consolidation guidance and
requires additional disclosures about an enterprises involvement in VIEs. The
standard shall be effective as of the beginning of each reporting entitys
first annual reporting period that begins after November 15, 2009, for interim
periods within the first annual reporting period, and for interim and annual
reporting periods thereafter. Earlier application is prohibited. The Company
does not expect the adoption to have a material impact on the Companys results
of operations or financial position.

In May 2009, FASB issued FAS
No. 165, Subsequent Events, which was subsequently codified within ASC 855,
Subsequent Events. The standard establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. An entity should
apply the requirements of ASC 855 to interim or annual financial periods ending
after June 15, 2009. Adoption of this standard does not have a material impact
on the Companys results of operations or financial position.

In April 2009, the FASB
updated the accounting standards to provide guidance on estimating the fair
value of a financial asset or liability when the trade volume and level of
activity for the asset or liability have significantly decreased relative to
historical levels. The standard requires entities to disclose the inputs and
valuation techniques used to measure fair value and any changes in valuation
inputs or techniques. In addition, debt and equity securities as defined by
GAAP shall be disclosed by major category. This standard is effective for
interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009, and is to be
applied prospectively. The adoption did not have a material effect on the
Companys results of operations and financial condition.

18

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

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

Recent
accounting pronouncements (continued)

In April 2009, the FASB
updated the accounting standards for the recognition and presentation of other-than-temporary
impairments. The standard amends existing guidance on other-than-temporary
impairments for debt securities and requires that the credit portion of
other-than-temporary impairments be recorded in earnings and the noncredit
portion of losses be recorded in other comprehensive income. The standard
requires separate presentation of both the credit and noncredit portions of
other-than-temporary impairments on the financial statements and additional
disclosures. This standard is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. At the date of adoption, the portion of previously
recognized other-than-temporary impairments that represent the noncredit
related loss component shall be recognized as a cumulative effect of adoption
with an adjustment to the opening balance of retained earnings with a
corresponding adjustment to accumulated other comprehensive income (loss). The
adaption of this standard did not have a material effect on the preparation of
the Companys consolidated financial statements.

In August 2009, the FASB
updated the accounting standards to provide additional guidance on estimating
the fair value of a liability in a hypothetical transaction where the liability
is transferred to a market participant. The standard is effective for the first
reporting period, including interim periods, beginning after issuance. The
Company does not expect the adoption to have a material effect on its consolidated
results of operations and financial condition.

In October 2009, the FASB
concurrently issued the following ASC Updates:

1.          ASU No. 2009-14 - Software (Topic 985): Certain
Revenue Arrangements That Include
Software Elements (formerly EITF Issue No.
09-3). This standard removes
tangible products from the scope of software revenue recognition guidance and
also provides guidance on determining whether software deliverables in an
arrangement that includes a tangible product, such as embedded software, are
within the scope of the software revenue guidance.

2.          ASU No. 2009-13 - Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue
Arrangements(formerly EITF Issue No. 08-1). This standard modifies
the revenue recognition guidance for arrangements that involve the delivery of
multiple elements, such as product, software, services or support, to a
customer at different times as part of a single revenue generating transaction.
This standard provides principles and application guidance to determine whether
multiple deliverables exist, how the individual deliverables should be
separated and how to allocate the revenue in the arrangement among those
separate deliverables. The standard also expands the disclosure requirements
for multiple deliverable revenue arrangements.

These Accounting Standards
Updates should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010, with earlier application permitted. Alternatively, an entity can
elect to adopt these standards on a retrospective basis, but both these
standards must be adopted in the same period using the same transition method.
The Company expects to apply this standard on a prospective basis for revenue
arrangements entered into or materially modified beginning July 1, 2011. The
Company is currently evaluating the potential impact these standards may have
on its financial position and results of operations.

Subsequent
Events

For purposes of determining
whether a post-balance sheet event should be evaluated to determine whether it
has an effect on the financial statements for the period ending September 30,
2009, subsequent events were evaluated by the Company as of November 16, 2009,
the date on which the consolidated financial statements at and for the three
months ended September 30, 2009, were available to be issued.

19

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 2  NOTE RECEIVABLE,
net

Reclassifications

Certain prior period amounts
have been reclassified to conform to the current period presentation. These
reclassifications have no impact on previously reported financial position,
results of operations or cash flows.

Note receivable, which was
attributable to the leasing of the Vocational School pursuant to a sales-type
capital lease (see Note 1), is accounted for using the installment method of
accounting as well as original note value. In accordance with ASC Topic 360, a
gain was deferred on notes not meeting the minimum initial 20% investment by
the buyer expressed as a percentage of the sales value (See Note 1). Management
believes that the note receivable is fully collectable. Therefore, no allowance
for doubtful accounts is deemed to be required. At September 30, 2009 and June
30, 2009, note receivable, net consisted of the following:

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Note receivable  gross

$
17,550,017

$
17,531,557Less: discount on note receivable


(8,677,513
)

(8,668,385
)Less: deferred gain on sale


(50,991
)

(50,938
)8,821,513


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


(158,090
)

(157,923
)Note receivable  long-term, net

$
8,663,423

$
8,654,311NOTE 3  INVENTORIES

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

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Consumable goods

$
27,069

$
27,838$
27,069

$
27,838NOTE 4  PREPAID LAND USE
RIGHTS FOR RESALE

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

Lower of cost or marketSeptember 30, 2009

June 30, 2009(Unaudited)

(Audited)Parcel A

$


$
1,625,708Parcel B


2,417,926


2,415,382Total

$
2,417,926

$
4,041,090On August 15, 2009, an
agreement has been entered whereby the Company sold parcel A for approximately
$2.2 million (RMB 15 million). The sale amount has been received by the Company
by the end of October 2009. For the three months ended September 30, 2008 and
2008, the Company recognized a gain from the sale of land use rights of
$449,306 and $0, respectively.

20

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 4  PREPAID LAND USE
RIGHTS FOR RESALE (continued)

The Company has not received
land use right certificate or county government approval on the parcel of land
for Parcel B. This delay is common in China. However, if ever the approval and
land use right certificate cannot be obtained in the future, the Companys
legal title on use rights on the parcel of land would be doubtful. The
purchaser of parcel A does not have any recession rights.

NOTE 5  COSTS AND
ESTIMATED EARNINGS IN EXCESS OF BILLINGS

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

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Costs incurred on uncompleted contracts

$
22,738,242

$
18,495,062Estimated earnings


5,239,071


4,265,50727,977,313


22,760,569Less: billings to date


(27,973,558
)

(22,781,528
)$
3,755

$
(20,959
)Amounts are included in the
accompanying consolidated balance sheets under the following captions:

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Costs and estimated earnings in excess of billings

$
18,064

$
16,539Billings in excess of costs and estimated earnings


(14,309
)

(37,498
)$
3,755

$
(20,959
)NOTE 6  PROPERTY AND
EQUIPMENT

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

September 30, 2009

June 30, 2009Useful Life

(Unaudited)

(Audited)Office equipment


5-8
  Years

$
577,150

$
576,543Machinery equipment


5-15
  Years


7,019,013


7,038,804Vehicles


10
  Years


446,620


418,977Building and building improvements


20
   40 Years


4,074,119


4,348,87212,116,902


12,383,196Less: accumulated depreciation





(3,033,523
)

(2,999,214
)$
9,083,379

$
9,383,982Depreciation of property and
equipment is provided using the straight-line method. For the three months
ended September 30, 2009 and 2008, depreciation expense amounted to $193,589
and $228,603, respectively.

21

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 7  CONSTRUCTION IN
PROGRESS

At September 30, 2009 and
June 30, 2009, construction in progress represents prepaid land use right and
building built specifically for the Inner Mongolia Chemistry College of
$8,446,221 and $7,273,392, respectively, and the Procuratorate Housing Estates
(located in Yuquan District, Hohhot city, Inner Mongolia) of $4,171,520 and
$3,286,722, respectively.

On September 29, 2009, Jin
Ma Real Estate and Inner Mongolia Chemistry College entered an agreement for
the construction of student apartments for the Inner Mongolia Chemistry College
situated in Inner Mongolia University City, a compound where many higher
education institutions are located. Jin Ma Construction began developing the
51,037 square-meter project in July 2008 and the project was completed in
October 2009. Once completed, Jin Ma Real Estate will lease the buildings to
the college for a period of 20 years. The annual lease payment will be
approximately RMB 10 million (approximately $1.5 million) for 5 years (from
October 2009 to October 2013) and the annual lease payment will be
approximately RMB 7.5 million (approximately $1.1 million) for 15 years (from
October 2014 to October, 2028). As of September 30, 2009, the Company has
received an advance of the first annual lease payment of $262,532, which has
been included in advances from customers on the accompany balance sheet.

NOTE 8  ACCRUED EXPENSES

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

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Accrued interest payable

$
712,907

$
809,078Accrued payroll and employees benefit


99,909


363,843Other


1,802


78,922$
814,618

$
1,251,843NOTE 9  INCOME TAXES

The Company accounts for
income taxes under ASC Topic 740. ASC Topic 740 requires the recognition of
deferred tax assets and liabilities for both the expected impact of differences
between the financial statements and the tax basis of assets and liabilities,
and for the expected future tax benefit to be derived from tax losses and tax
credit carryforwards. ASC Topic 740 additionally requires the establishment of
a valuation allowance to reflect the likelihood of realization of deferred tax
assets. Realization of deferred tax assets, including those related to the U.S.
net operating loss carryforwards, are dependent upon future earnings, if any,
of which the timing and amount are uncertain. Accordingly, the net deferred tax
asset related to the U.S. net operating loss carryforward has been fully offset
by a valuation allowance. The Company is governed by the Income Tax Law of the
Peoples Republic of China and the United States.

The operations of the
Company are in China and are governed by the Income Tax Law of the Peoples
Republic of China and local income tax laws (the PRC Income Tax Law). The
Company is subject to income tax at a rate of 25%.

On September 30, 2009 and
June 30, 2009, taxes payable are as follows:

September 30, 2009

June 30, 2009(Unaudited)

(Audited)Income taxes payable

$
371,848

$
1,117,244Other taxes payable


81,730


560,840Total

$
453,578

$
1,678,08422

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 10  LOANS PAYABLE

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

September 30, 2009

June 30, 2009(Unaudited)

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

$
2,925,003

$
2,921,927Loans from various unrelated parties, due in January 2010 with annual
  interest of 14.4% and unsecured.


1,034,866


1,033,777Loans from various unrelated parties, due in December 2009 with
  annual interest of 14.4% and unsecured.


114,075


113,955Loans from various unrelated parties, due in August 2009 with annual
  interest of 14.4% and unsecured and repaid in September 2009.





146,096Loans from various unrelated parties, due in January 2010 with annual
  interest of 18% and unsecured.


58,500


58,439Loans from various unrelated parties, due in September 2010 with
  annual interest of 18% and unsecured


36,563


36,524Loans from various unrelated parties, due in April 2012 with annual
  interest of 18% and unsecured


190,125


189,925Loans from various unrelated parties, due in August 2011 with annual
  interest of 18% and unsecured


36,563


36,524Loans from various unrelated parties, due in September 2012 with
  annual interest of 18% and unsecured


117,000


116,877Loan from one unrelated individual, due in March 2010 with annual
  interest of 24% and unsecured


146,250


146,096Total loans payable


4,658,945


4,800,140Less: current portion


(4,315,257
)

(4,420,290
)Long term liability

$
343,688

$
379,850For the three months ended
September 30, 2009 and 2008, interest expense related to these loans amounted
to $172,197 and $161,678, respectively. At September 30, 2009, future
maturities of long-term debt are as follows:

Period ended September 30:2010 (current liability)

$
4,315,2572011

$
36,5632012

$
307,12523

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 11  RELATED PARTY
TRANSACTIONS

Due from related parties

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

September 
  30, 2009

June 30,
  2009Name

Relationship

(Unaudited)

(Audited)Inner Mongolia Jin Ma
  Group Ltd and its subsidiaries

Owned by Yang Liankuan

$
-

$
33,283Due to related parties

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

September 
  30, 2009

June 30,
  2009Name

Relationship

(Unaudited)

(Audited)Inner Mongolia Jin Ma
  Group Ltd and its subsidiaries

Owned
  by Yang Liankuan

$
600,918

$
-NOTE 12  CONVERTIBLE
DEBT

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

Under the terms of the
Securities Purchase Agreement, on the first closing which occurred on November
30, 2007, the Company issued $2,183,000 principal amount 10% Secured
Convertible Debentures to the purchasers together with the common stock
purchase warrants to purchase an aggregate of 9,520,349 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 507,674 shares of
the Companys common stock at $0.50 per share. Additionally, the Company
reimbursed one of the investors $30,000 to defer its legal fees in connection
with the financing. The Company used the balance of the proceeds for general
working capital.

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

24

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)

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

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

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

Principal Amount DueJuly 24, 2009 (1)

$
327,450September 30, 2009 (2)


436,600December 31, 2009


1,091,500March 31, 2010


327,450Total

$
2,183,000(1) Amount was paid on July
23, 2009 along with required interest payment of $55,030. 
(2) The principal amount was paid on September 30, 2009 along with required
cash portion interest payment of $101,350.


Pursuant to the repayment
  schedule, unless the Exchanged Debenture is paid in full on or before
  December 31, 2009, the March 31, 2010 Monthly Redemption Amount will include
  a premium equal to 10% of the principal amount of the Exchanged Debenture
  outstanding immediately prior to the consummation of the Amendment Agreement
  amounting to $218,300. The Company has accrued this penalty which has been
  included in accrued expenses on the accompanying balance sheet.
The conversion price in
  effect on any outstanding principal balance was lowered from a conversion
  rate of $0.344 per share to $0.10 per share.
The exercise price per share
  of common stock for the original 10,028,023 warrants issued pursuant to the
  Securities Purchase Agreement dated November 30, 2007 and to the placement
  agent was lowered from $0.50 to $0.10.25

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)


Subject to certain terms
  and conditions therein, as a result of the changes made to Rule 144
  promulgated under the Securities Act of 1933, as amended which were effective
  February 15, 2008, the Companys obligations, pursuant to the Registration
  Rights Agreement, by and among the Company and each of the debenture
  holders, to maintain a registration statement register the shares of common
  stock issuable upon conversion and/or cashless exercise of the Exchanged
  Debentures and the warrants (collectively, the 144 Eligible Securities),
  were waived, so long as (a) the Company is in compliance with the current
  public information requirement under Rule 144 and (b) the debenture holder
  may sell the 144 Eligible Securities without any restriction or limitation
  under Rule 144 or other applicable exemption as of that date.
the warrants may also be
  exercised at such time by means of a cashless exercise in which the holder
  shall be entitled to receive a certificate for the number of warrant shares
  equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:(A) = the VWAP on the
Trading Day immediately preceding the date of such election;(B) = the Exercise
Price of the warrant, as adjusted; and

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

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


The conversion price of
  the debentures and the exercise price of the warrants are subject to the
  proportional adjustment in the event of a stock splits, stock dividends,
  recapitalizations or similar corporate events. Both the conversion price of
  the debentures and the number of shares issuable upon conversion of the
  debentures as well as the exercise price of the warrants and the number of
  shares issuable upon the exercise of the warrants is subject to adjustment if
  the Company should issue shares of common stock or other securities
  convertible or exercisable into shares of common stock or otherwise reprice
  any existing conversion or exercise prices to a price less than the then
  current conversion and/or exercise prices.26

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)


The debentures are not
  convertible and the warrants are not exercisable to the extent that (i) the
  number of shares of our common stock beneficially owned by the holder and
  (ii) the number of shares of our common stock issuable upon the conversion of
  the debentures and/or the exercise of the warrants would result in the
  beneficial ownership by holder of more than 4.99% of our then outstanding
  common stock. This ownership limitation can be increased to 9.99% by the
  holder upon 61 days notice to the Company.
The Company agreed that so
  long as the debentures remain outstanding, unless the Company receives the
  prior written consent of the holders of at least 85% of the outstanding
  principal amount of the debentures, the Company agreed that it will not:
incur additional
  indebtedness, subject to certain exceptions,
incur any liens on any of
  our property or assets,
repurchase any of its
  common stock, subject to certain exceptions,
amend its charter
  documents in a manner that would be adverse to the debenture holders,
So long as the debentures
  are outstanding, should the Company issue any common stock or common stock
  equivalent, the Company granted the purchasers a right of first refusal
  whereby each purchaser in this offering has the right to participate in such
  subsequent financing up to an amount equal to 100% of such subsequent
  financing upon the same terms and conditions of that financing. If the
  Company undertakes such a financing while the debentures remain outstanding,
  other than an underwritten offering, the holders are entitled to exchange the
  debentures on a dollar for dollar basis for any securities which the Company
  may issue in the subsequent financing. The Company also agreed that so long
  as the purchasers own any of the securities sold or to be issued in the
  transaction, the Company will not enter into any agreement which would
  involve a variable rate transaction, which includes floating conversion
  prices, conversion prices with reset mechanisms or equity lines of credit
  among others.
Pursuant to the Securities
  Purchase Agreement, if the Company should default on the debentures, the
  holders have the right to immediately accelerate the maturity date of the
  principal amount of the debentures as well as any accrued but unpaid interest
  and if such amount is not satisfied within five days the interest rate on the
  debentures increases to 18%. Events of default include customary clauses such
  as failure to make payments when required, failure to observe any covenant
  contained in the debentures, a default under any other document executed in
  connection with the transaction, bankruptcy or default under any other
  obligation greater than $150,000. In addition, an event of default would
  occur if the Companys common stock should no longer be quoted on the OTC
  Bulletin Board, if the Company were a party to a change of control
  transaction involving in excess of 33% of its assets or if the registration
  statement described below is not declared effective within 180 days after the
  first closing date, among other provisions.
In conjunction with the
  transaction, Mr. Liankuan Yang and Yang Yang and Ms. Runlan Ma, officers and
  directors of the Company, pledged an aggregate of 19,000,000 shares of the
  Companys common stock owned by them as additional security for the Companys
  obligations under the transaction. Mr. Liankuan Yang, Ms. Yang Yang and Ms.
  Runlan Ma have also entered into lock-up agreements whereby they are agreed
  not to offer or sell any shares of the Companys common stock owned by them
  until the 180th trading day after the effective date of the registration
  statement described elsewhere herein.27

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)

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

Accounting treatment related to convertible debt and related
warrants

a) Initial convertible
debt and related warrants

In fiscal 2008, the Company
evaluated whether or not the convertible debt contained embedded conversion
options, which meet the definition of a derivatives under ASC Topic 815. The
Company concluded that since the 14% secured convertible debenture had a fixed
redemption price of $0.344, the convertible debenture was not a derivative
instrument. The Company analyzed this provision under ASC Topic 815 and therefore
it qualified as equity under ASC Topic 815. Derivative financial instruments,
as defined in ASC Topic 815 consist of financial instruments or other contracts
that contain all three of the following characteristics: i) the financial
instrument has a notional amount and one or more underlying, e.g. interest
rate, security price or other variable, ii) require no initial net investment
and iii) permits net settlement. Derivative financial instruments may be
free-standing or embedded in other financial instruments. ASC Topic 815 defines
net settlement. In order for the net settlement requirement to be met, the
contract must meet one of the three tests listed in ASC Topic 815.

Since there is no net
settlement provision in the contract and no market mechanism that facilitates
net settlement that would cause the contract to meet the certain criteria in
ASC Topic 815, the Company analyzed ASC Topic 815 which provides that a
contract that requires delivery of the assets associated with the underlying
has the characteristic of net settlement if those assets are readily convertible to cash.

An asset (whether financial
or nonfinancial) can be considered to be readily
convertible to cash, as that phrase is used in paragraph 9(c), only
if the net amount of cash that would be received from a sale of the asset in an
active market is either equal to or not significantly less than the amount an
entity would typically have received under a net settlement provision

At the time of the November
2007 private placement, there was no market for the Companys common stock.

28

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)

On November 30, 2007,
pursuant to the Securities Purchase Agreement, the Company issued to the
investors warrants to purchase 9,520,349 shares of common stock of the Company.
On that date there were approximately 52,544,000 shares of common stock
outstanding. Thus, the warrants, at the time of issuance, represented more than
18% of the outstanding common stock.

Since (i) the number of
shares issuable upon exercise of the warrants, (ii) the relationship between
the number of warrants and the outstanding common stock, (iii) the lack of an
active market in the stock, (iii) the fact that the common stock is not listed
on an exchange, (iv) the fact that the underlying common stock was not
registered with the Securities and Exchange Commission, and (v) the fact that
relatively modest sales would have a depressing effect on the market price of
the common stock demonstrate that the net settlement test is not met and the
warrants are not considered a derivative instrument..

The Warrants have a term of
5 years after the issue date of November 30, 2007. The warrants were treated as
a discount on the secured notes and were valued at $887,768 and were amortized
over the original 16-month note term. Additionally, the convertible notes were
considered to have an embedded beneficial conversion feature (BCF) because the
effective conversion price was less than the fair value of the Companys common
stock. The convertible notes were fully convertible at the issuance date,
therefore the portion of proceeds allocated to the convertible notes of
$1,295,233 was determined to be the value of the beneficial conversion feature
and was recorded as a debt discount and was amortized over the original
16-months note term.

b) Amended convertible
debt and related warrants

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

Under ASC Topic 470, the
Company concluded that the Amended Agreements were not a troubled debt
restructure since there are no concessions by the note holders because they
have in effect received new notes with new or better conversion terms, an
increased interest rate, and a reduction of the warrant exercise price. The
effective interest rate has increased due to the various changes discussed
above.

Therefore, the Company
reviewed ASC Topic 470 which is for modifications of debt instruments other
than a troubled debt restructure. Under ASC Topic 470, the changes in cash
flows were measured as follows:

Change in present value (PV) of principal

$
0Change in PV of interest

$
0Change in fair value of embedded conversion option

$
2,204,480If the change in cash flows
are greater than 10% or if change in embedded conversion option is greater than
10% of the debt ($2,183,000 *10% = $218,300) then it is treated as a
substantial modification of terms and a debt extinguishment under paragraph ASC
Topic 860. The change in the embedded conversion option result in a greater
than 10% change in the PV of the notes and as such management believes this restructuring
should be accounted for as an extinguishment of debt, plus a re-issuance of new
debt with new warrants and a new beneficial conversion feature. Pursuant to ASC
Topic 470, the debtor should recognize a debt discount and additional paid-in
capital for the change in fair value of the embedded conversion options and not
consider a BCF only if it is determined that this is not a debt extinguishment.
Accordingly, the Company determined that this was a debt extinguishment and
accounted for the transaction as though the old debt was extinguished (amortize
all discounts and issue costs) and then account for the Amended Agreements as
though new debt was issued (record new discounts for warrants and the BCF).

29

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 12  CONVERTIBLE
DEBT (continued)

In accordance
with ASC Topic 470, the amended convertible notes were considered to have a BCF
because the effective conversion price was less than the fair value of the
Companys common stock. This convertible notes were fully convertible at the
issuance date, therefore the portion of proceeds allocated to the convertible
notes of $1,302,947 was determined to be the value of the beneficial conversion
feature and was recorded as a debt discount and will be amortized over the
9-months amended note term.

Pursuant to
the terms of the amended warrants, the Purchasers are entitled to purchase up
to 9,520,349 shares of common stock of the Company at an amended exercise price
of $0.10 per share. The amended warrants have a term of 5 years after the issue
date of November 30, 2007. These warrants were treated as a discount on the
convertible notes and were valued at $880,053 and will be amortized over the
9-month amended note term. The fair market value of each stock warrant was
estimated on the date of grant using the Black-Scholes option-pricing model in
accordance with ASC Topic 718 using the following weighted-average assumptions:
expected dividend yield 0%; risk-free interest rate of 1.2%; volatility of 328%
and an expected term of four years.

The
amortization of debt discounts for the three months ended September 30, 2009
and 2008 was $1,333,700 and $409,313, respectively, which has been included in
interest expense on the accompanying consolidated statement of income. The
balance of the debt discount is $849,300 and $818,625, respectively, at
September 30, 2009 and 2008 which will be amortized over the remaining term of
the debenture.

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

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

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

September 30, 2009
  (Unaudited)

June 30, 2009
  (Audited)Convertible debentures payable

$
1,273,950

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


(849,300
)

(2,183,000
)Convertible debentures, net

$
424,650

$
NOTE 13  STOCKHOLDERS
EQUITY

Common stock

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

30

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 13  STOCKHOLDERS
EQUITY (continued)

During the
period from July 1, 2009 to September 30, 2009, the Company issued 1,450,000
shares of its common stock in connection with the conversion of $145,000 of
convertible debt.

On September
30, 2009, the Company issued 405,399 shares of its common stock to various
convertible debenture holders to pay off outstanding share portion interest
payable due by September 30, 2009. The shares were valued at $0.10 per share
based on the fair value on the grant date. In connection with the issuance of
these shares, for the three months ended September 30, 2009, the Company
recorded interest of $18,710 and reduced interest payable by $21,830.

Warrants

Stock warrants
activities for the three months ended September 30, 2009 are summarized as
follows:

Number of Warrants

Weighted Average Exercise PriceBalance at June 30, 2009 (Audited)


10,028,023

$
0.10Granted





Exercised





Forfeited





Balance at September 30, 2009 (Unaudited)


10,028,023

$
0.10Warrants exercisable at September 30, 2009


10,028,023

$
0.10The following
table summarizes the Companys stock warrants outstanding at September 30,
2009:

Warrants Outstanding

Warrants ExercisableRange of Exercise Price

Number Outstanding at September 30, 2009

Weighted Average Remaining Contractual Life

Weighted Average Exercise Price

Number Exercisable at September 30, 2009

Weighted Average Exercise Price$
0.10


10,028,023


3.17 Years

$
0.10


10,028,023

$
0.10NOTE 14  SEGMENT
INFORMATION

ASC Topic 280
requires use of the management approach model for segment reporting. The
management approach model is based on the way a companys management organizes
segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography,
legal structure, management structure, or any other manner in which management
disaggregates a company.

31

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 14  SEGMENT
INFORMATION (continued)

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

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

For the Three Months Ended September 30,2009
  (Unaudited)

2008
  (Unaudited)Revenues:Construction

$
5,190,120

$
28,378,442Real Estate





232,700Hotel


778,020


829,0865,968,140


29,440,228Depreciation:Construction


115,053


133,737Real Estate


10,022


82,259Hotel


68,514


12,607193,589


228,603Interest expense:Construction


172,197


161,678Other


1,399,184


502,7131,571,381


664,391Net (loss) income:Construction


602,830


2,850,414Real Estate


(103,790
)

(51,043
)Hotel


66,996


141,295Other (a)


(1,477,409
)

(556,892
)(911,373
)

2,383,774September 30,
  2009

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

$
6,594,883

$
6,819,609Real Estate


344,170


353,825Hotel


2,144,326


2,210,548$
9,083,379

$
9,383,982(a)
The Company does not allocate its general and administrative expenses
  of its US activities to its reportable segments, because these activities are
  managed at a corporate level.32

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 15  STATUTORY
RESERVES

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

Statutory Surplus ReserveBalance  June 30, 2009 (Audited)

$
2,040,899Addition to statutory reserves


70,544Balance  September 30, 2009 (Unaudited)

$
2,111,443NOTE 16  MAJOR
CUSTOMERS & VENDORS

The nature of
the Companys construction segment is that at any given time, the Company will
have a concentration of significant customer depending upon the number and
scope of construction projects. These significant customers may not be the same
from period to period depending upon the percentage of completion of the
specific projects. For the three months ended September 30, 2009, two
construction projects accounted for 87.0% of the Companys total revenues. For the
three months ended September 30, 2008, three construction projects accounted
for 96.4% of the Companys total revenues. Major customers are summarized as
follows:

Project
  Name

For the ThreeMonths EndedSeptember 30, 2009

%

For the ThreeMonths EndedSeptember 30, 2008

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





0.0


7,906,170


26.9Tian Fu Garden residential project (Phase I
  and II)





0.0


14,284,218


48.5Ai Bo Garden residential apartment project





0.0


6,188,054


21.0Lanyu Garden No. 3 residential apartment
  project


2,136,690


35.8
%




0.0Fu Xing Bath Center Project


3,053,430


51.2
%




0.033

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 16  MAJOR
CUSTOMERS & VENDORS (continued)

At September
30, 2009, the Company had $5,950,917 of accounts receivable due from its major
customers. At June 30, 2009, the Company had $11,076,151 of accounts receivable
due from the same 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 17  RESTRICTED
NET ASSETS

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

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

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

34

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 17  RESTRICTED
NET ASSETS (continued)

GOLD HORSE INTERNATIONAL, INC.
CONSOLIDATED PARENT COMPANY BALANCE SHEETS

As of 
  September 30, 2009

As of 
  June 30, 2009(Unaudited)

(Audited)ASSETSCash and cash equivalents

$
5,586

$
39,956Total Current Assets


5,586


39,956Investments in subsidiaries at equity


29,512,449


28,914,268Due from subsidiaries


1,121,142


2,042,142Total Assets

$
30,639,177

$
30,996,366LIABILITIES AND STOCKHOLDERS
  EQUITYCurrent liabilities:Convertible debt, net

$
424,650

$
Accounts payable


28,423


221,825Accrued expenses


225,050


425,300Total Current Liabilities


678,123


647,125Stockholders equity:Common stock ($.0001 par value; 300,000,000
  shares authorized; 57,579,002 and 52,668,603 shares issued and outstanding at
  September 30, 2009 and June 30, 2009, respectively)


5,758


5,266Non-controlling interest in variable
  interest entities


6,095,314


6,095,314Additional paid-in capital


7,368,715


6,878,166Statutory reserve


2,111,443


2,040,899Retained earnings


11,884,925


12,866,842Other comprehensive income


2,494,899


2,462,754Total Stockholders Equity


29,961,054


30,349,241Total Liabilities and
  Stockholders Equity

$
30,639,177

$
30,996,36635

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 17  RESTRICTED
NET ASSETS (continued)

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

For the Three Months Ended September 30,2009

2008(Unaudited)

(Unaudited)REVENUES

$


$
OPERATING EXPENSES:Salaries and employee benefits


67,750


25,000General and administrative


10,475


29,178Total Operating Expenses


78,225


54,178LOSS FROM OPERATIONS


(78,225
)

(54,178
)OTHER EXPENSES:Interest expense


(1,399,184
)

(502,714
)Total Other Expenses


(1,399,184
)

(502,714
)LOSS ATTRIBUTABLE TO PARENT ONLY


(1,477,409
)

(556,892
)EQUITY INCOME EARNINGS OF SUBSIDIARIES


566,036


2,940,666NET INCOME

$
(911,373
)
$
2,383,77436

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009

NOTE 17  RESTRICTED
NET ASSETS (continued)

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

For the Three Months Ended September 30,2009

2008(Unaudited)

(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
(911,373
)
$
2,383,774Adjustments to reconcile net income to net
  cash used in operating activities:Equity in earnings of subsidiary


(566,036
)

(2,940,666
)Common stock issued for services


57,500


Common stock issued for interest


18,710


Interest expense from amortization of debt
  discount


1,333,700


409,313Amortization of debt issuance costs





38,370Changes in assets and liabilities:Accounts payable


(7,799
)

44,930Accrued expenses


(115,522
)

NET CASH USED IN OPERATING ACTIVITIES


(190,820
)

(64,279
)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from subsidiaries


920,500


50,000NET CASH PROVIDED BY INVESTING ACTIVITIES


920,500


50,000CASH FLOWS FROM FINANCING ACTIVITIES:Payment of convertible debt


(764,050
)

NET CASH USED IN FINANCING ACTIVITIES


(764,050
)

NET DECREASE IN CASH


(34,370
)

(14,279
)CASH - beginning of year


39,956


19,826CASH - end of period

$
5,586

$
5,547NOTE 18  COMMITMENTS

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

NOTE 19  SUBSEQUENT
EVENT

During the
period from October 1, 2009 to November 16, 2009, the Company issued 5,201,590
shares of its common stock in connection with the conversion of $519,784 of
convertible debt and interest expense of $375.

37

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

The
following discussion of our financial condition and results of operation should
be read in conjunction with 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, We use words such as anticipate, estimate, plan, project,
continuing, ongoing, expect, believe, intend, may,
will,
should, could, and similar expressions to identify forward-looking
statements.

Overview

Neither
Gold Horse International nor its subsidiaries Gold Horse Nevada, Global Rise or
IMTD are engaged in any business or operations other than pursuant to the terms
of the various Contractual Arrangements with the Jin Ma Companies as described
elsewhere in this report. As such, we are completely dependent on the
Contractual Arrangements. We do not generate any revenues and have no assets.
Pursuant to the requirements of ASC Topic 810, under generally accepted
accounting principles the Jin Ma Companies which are deemed to be variable
interest entities (VIEs) we are required to consolidate the financial
statements of the Jin Ma Companies with our financial statements. Accordingly,
and as described elsewhere in this quarterly report, the assets and liabilities
at September 30, 2009 and June 30, 2009 and the results of operations for the
three months ended September 30, 2009 an 2008 are those of the Jin Ma
Companies. All of those assets and operations are located in the PRC and the
Contractual Arrangements are subject to enforcement under the laws of the PRC.
There are no assurances we will be able to enforce these agreements if
necessary. If we are unable to enforce any legal rights we may have under these
contracts or otherwise, our ability to continue as a going concern is in
jeopardy. In addition, the terms of these contracts expire in August 2016 and
there are no assurances these agreements will be renewed. If the Contractual
Arrangements are not renewed or are significantly modified, unless we have
expanded our business and operations, of which there are no assurances, we will
in all likelihood be forced to cease our operations.

For
the three months ended September 30, 2009, our overall net revenues decreased
79.7% from the three months ended September 30, 2008 as summarized below:

2009

2008

$ Change
  (Decrease)

% ChangeNET REVENUESConstruction

$
5,190,120

$
28,378,442

$
(23,188,322
)

81.7
%Hotel


778,020


829,086


(51,066
)

6.6
%Real estate





232,700


(232,700
)

100.0
%Total Revenues

$
5,968,140

$
29,440,228

$
(23,472,088
)

79.7
%At
September 30, 2009, Jin Ma Construction had only 2 construction projects in
process; 1) the Lanyu Garden No. 3 residential apartment project,
which is approximately 83% compete and
2) the Fu Xing Bath Center Project which is approximately 89% complete. The nature of Jin Ma
Constructions business is that at any given time it will have a concentration
of significant customer depending upon the number and scope of construction
projects. These significant customers may not be the same from period to period
depending upon the percentage of completion of the specific projects. Any
disruption in the relationships between Jin Ma Construction and one or more of
these customers, or any significant variance in the magnitude or the timing of
construction projects from any one of these customers, may result in decreases
in our results of operations, liquidity and cash flows. In addition, if Jin Ma
Construction does not successfully manage its business so that it has new
projects ready to start as current projects are completed its revenues will
decline which will materially adversely impact our liquidity and operations in
future periods.

Currently,
other than the two uncompleted projects discussed above, Jin Ma Construction is
building the Inner Mongolia Chemistry College and the The Procuratorate Housing Estates (Jian Guan) on behalf of Jin Ma Real
Estate.

38

1)
Inner Mongolia Chemistry College -

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

The costs associated with
these projects are reflected on our balance sheet as construction in process
and we will not recognize any revenues on this project until the project is
complete and we begin receiving lease income, in accordance with ASC Topic 360
and related interpretations. In accordance with terms of the agreements, at the
end of the lease terms, ownership of the buildings will be transferred to Inner
Mongolia Chemistry College. During the term of lease, Jin Ma Real Estate will
not have additional commitments to the Inner Mongolia Chemistry College, other
than the customary construction warranties.

2)
The Procuratorate Housing Estates (Jian Guan)

When completed,
Procuratorate Housing will comprise of five buildings containing 600
residential apartment units sitting on 60 acres. This project is a joint effort
with Jin Ma Construction, which will be serving as the general contractor for
the construction of this project. In May 2008, improvements to the land began
and the construction was commenced in July 2009, as Jin Ma Real Estate have
completed the design and planning for this project, and its anticipated
completion date is May 2010. Procuratorate Housing is located in the Yu Quan
District of Hohhot City.

As
of the date of this report, Jin Ma Construction has not entered into any new
contracts to begin additional construction projects. Although the Company is to
bidding on several projects to perform construction services, there is no
assurance that Jin Ma Construction will secure these contracts. Accordingly, we
expect revenues from the Jin Ma Construction segment to be significantly less
than in prior periods until such time as Jin Ma Construction can enter and
begin new construction projects.

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


Investment in commercial
  and residential building amounted to 1.67 billion RMB (approximately $244
  million), a decrease of 26.95% compared to the same period last year which
  represents 76.47% of all real estate invested;
Investment in affordable
  housing amounted to 219 million RMB (approximately $32 million), an increase
  of 30.36% compared to the same period last year, which represents 10.03% of
  all real estate invested;
Other real estate
  investment amounted to 295 million RMB (approximately $43 million), a
  decrease of 43.02% compared to the same period last year, which represents
  13.50% of all real estate invested.Although
our revenues have decreased and there has been a decrease in investment in real
estate investment in Hohhot, Jin Ma Construction management believes that they
will be able to obtain new profitable project in the third quarter of fiscal 2
010.

39

Critical Accounting Policies and Estimates

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

Principles
of consolidation

Pursuant
to ASC Topic 810, we are required to include in our consolidated financial
statements the financial statements of variable interest entities. FIN 46R
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss for the variable interest
entity or is entitled to receive a majority of the variable interest entitys
residual returns. Variable interest entities are those entities in which we,
through contractual arrangements, bear the risk of, and enjoy the rewards
normally associated with ownership of the entity, and therefore we are the
primary beneficiary of the entity.

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

The
accounts of the Jin Ma Companies are consolidated in the accompanying financial
statements pursuant to ASC Topic 810. As a VIE, the Jin Ma Companies sales are
included in our total sales, its income from operations is consolidated with
our, and our net income includes all of the Jin Ma Companies net income. We do
not have any non-controlling interest and accordingly, did not subtract any net
income in calculating the net income attributable to us. Because of the
contractual arrangements, we have pecuniary interest in the Jin Ma Companies
that require consolidation of the Jin Ma Companies financial statements with
our financial statements.

The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect certain reported amounts
and disclosures. Management bases its estimates 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 materially from these estimates
under different assumptions and conditions. If actual results significantly
differ from managements estimates, our results of operations and financial
condition could be materially, adversely impacted. Accordingly, actual results
could differ from those estimates. Significant estimates in 2010 and 2009
include the allowance for doubtful accounts and the useful life of property and
equipment, costs and estimated earnings in excess of billings, and billings in
excess of costs and estimated earnings.

Accounts and other receivables

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

40

Prior
to the time when the Jin Ma Companies financial statements were prepared in
accordance with U.S. generally accepted accounting policies, the Jin Ma
Companies did not record reserves for uncollectable accounts. Following the
Contractual Arrangements, in accordance with U.S. generally accepted accounting
policies we initially estimated reserves based solely upon the age of the
receivable as a historical basis by which the collectability could be
reasonably estimated did not exist. As a basis for accurately estimating the
likelihood of collection has been established, the Jin Ma Companies consider a
number of factors when determining reserves for uncollectable accounts. We
believe that we use a reasonably reliable methodology to estimate the
collectability of the Jin Ma Companies accounts receivable and other
receivables. We review our allowances for doubtful accounts on at least a
quarterly basis. We also consider whether the historical economic conditions
are comparable to current economic conditions. If the financial condition of
our customers or other parties that we have business relations with were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. We should become unable to reasonably estimate
the collectability of our receivables, our results of operations could be
negatively impacted. At September 30, 2009 and June 30, 2009, the Company has
established, based on a review of its outstanding accounts receivable balances,
an allowance for doubtful accounts in the amount of $995,681 and $1,002,621,
respectively, on its total accounts receivable.

Other
receivables amounts were primarily related to advances made to various vendor,
subcontractors, and other parties in the normal course of business and the
allowance was established when those parties deemed to be unlikely to repay the
amounts. At September 30, 2009 and June 30, 2009, the Company has established,
based on a review of its outstanding other receivable balances, an allowance
for doubtful accounts in the amount of $144,126 and $143,974, respectively.

Inventories

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

Real estate held for sale

We
capitalize as real estate held for sale the direct construction and development
costs, property taxes, interest incurred on costs related to land under
development and other related costs (i.e. engineering, surveying, landscaping,
etc.) until the property reaches its intended use. At September 30, 2009 and June
30, 2009, we did not have any real estate held for sale.

Advances from customers

Advances
from customers at September 30, 2009 and June 30, 2009 of $804,840 and
$246,191, respectively, consist of prepayments from third party customers to
the Company for construction and real estate transactions to ensure
sufficient funds are available to complete the real estate and construction
projects. The Company will recognize the deposits as revenue upon transfer of
title to the buyer, in compliance with its revenue recognition policy.

Construction in process

Properties
currently under development are accounted for as construction-in-process.
Construction-in-process is recorded at acquisition cost, including land use
rights cost, development expenditure, professional fees and the interest
expenses capitalized during the course of construction for the purpose of
financing the project. Upon completion and readiness for use of the project,
the cost of construction-in-progress is to be transferred to an appropriate
asset such as real estate held for sale. Construction in progress is valued at
the lower of cost or market. Management evaluates the market value of its
properties on a periodic basis for impairment. As of September 30, 2009 and
June 30, 2009, construction in process amounted to $12,617,741 and $10,560,114,
respectively.

Revenue recognition

We
follow the guidance of ASC Topic 605 and Topic 360 for revenue recognition. In
general, we record revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price
to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:

41

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

In
accordance with ASC Topic 360, any gain from sales-type capital lease was
deferred because the minimum initial investment by the buyer was less than the
required 20% initial investment expressed as a percentage of the sales value
(ASC Topic 360). Therefore the deferred gain will be recognized into income
using the installment method as payments are received. The installment method apportions each cash
receipt and principal payment by the buyer between cost recovered and profit.
The apportionment is in the same ratio as total cost and total profit bear to
the sales value. Accordingly, revenue and cost of sales is recognized based on
this apportionment and are presented on the income statement. Since the
agreement did not have a stated interest rate, the Company used an imputed
interest rate of interest of 6.12%. Principal and the related imputed interest
are receivable annually at approximately $700,000 per year. As September 30,
2009, the remaining deferred gain of $50,991 is reflected as a reduction to the
note receivable in the accompanying balance sheet. The recorded imputed
interest discount will be realized as the balances due are collected. In the
event of early liquidation, interest is recognized on the simple interest
method.

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

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

In
accounting for long-term engineering and construction-type contracts, we follow
the provisions of ASC Topic 605. The Company recognizes revenues using the
percentage of completion method of accounting by relating contract costs incurred
to date to the total estimated costs at completion. Contract price and cost
estimates are reviewed periodically as work progresses and adjustments
proportionate to the percentage of completion are reflected in contract
revenues and gross profit in the reporting period when such estimates are
revised. This method of revenue recognition requires the Company to prepare
estimates of costs to complete contracts in progress. In making such estimates,
judgments are required to evaluate contingencies such as potential variances in
schedule, the cost of materials and labor, and productivity; and the impact of
change orders, liability claims, contract disputes, and achievement of
contractual performance standards which may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. The asset, costs and estimated earnings in
excess of billings, represents revenues recognized in excess of amounts
billed. The liability, billings in excess of costs and estimated earnings,
represents billings in excess of revenues recognized.

Warranty policy

In
accordance with ASC Topic 450, the Company estimates its liabilities for construction defect, product liability and
related warranty claims based on the possible claim amounts resulting from injury or
damage caused by its construction defect and expected material and labor
costs to provide warranty replacement products. The methodology used in
determining the liability is based upon historical information and experience.
Based on historical experience, there possible clams made for construction
defects and the warranty service calls and any related labor material costs
have been minimal. As such, the warranty provision amounts for the three months
ended September 30, 2009 and 2008 were immaterial.

42

Recent Accounting Pronouncements

We adopted
FASB ASC 815-10-65 (formerly SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities), which amends and expands previously
existing guidance on derivative instruments to require tabular disclosure of
the fair value of derivative instruments and their gains and losses., This ASC
also requires disclosure regarding the credit-risk related contingent features
in derivative agreements, counterparty credit risk, and strategies and
objectives for using derivative instruments. The adoption of this ASC did not
have a material impact on our Condensed Consolidated Financial
Statements.

During 2008,
we adopted FASB ASC 820-10 (formerly FSP FAS 157-2, Effective Date
of FASB Statement 157), which deferred the provisions of previously issued
fair value guidance for nonfinancial assets and liabilities to the first
fiscal period beginning after November 15, 2008. Deferred nonfinancial assets
and liabilities include items such as goodwill and other nonamortizable
intangibles. Effective January 1, 2009, we adopted the fair value guidance for
nonfinancial assets and liabilities. The adoption of FASB ASC 820-10 did not
have a material impact on our Condensed Consolidated Financial Statements.

We adopted
FASB ASC 810-10-65 (formerly SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51), which amends
previously issued guidance to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which
is sometimes referred to as minority interest, is an ownership interest in the
consolidated entity that should be reported as equity. Among other
requirements, this Statement requires that the consolidated net income
attributable to the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income statement. The
adoption of the provisions in this ASC did not have a material impact on our
Condensed Consolidated Financial Statements.

We adopted FASB
ASC 805-10, (formerly SFAS 141R, Business Combinations), which establishes
principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in an acquiree and the goodwill acquired. In
addition, the provisions in this ASC require that any additional reversal
of deferred tax asset valuation allowance established in connection
with fresh start reporting on January 7, 1998 be recorded as a component
of income tax expense rather than as a reduction to the goodwill
established in connection with the fresh start reporting. We will apply
ASC 805-10 to any business combinations subsequent to adoption.

We adopted
FASB ASC 805-20 (formerly FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies),
which amends ASC 805-10 to require that an acquirer recognize at fair value, at
the acquisition date, an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value
of that asset or liability can be determined during the measurement period. If
the acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of ASC Topic
450, Contingences,
to determine whether the contingency should be recognized at the acquisition
date or after such date. The adoption of ASC 805-20 did not have a material
impact on our Condensed Consolidated Financial Statements.

Effective July
1, 2009, we adopted FASB ASC 825-10-65 (formerly FASB Staff Position (FSP)
No. FAS 107-1 and Accounting Principles Board 28-1, Interim Disclosures about
Fair Value of Financial Instruments), which amends previous guidance to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. The adoption of FASB ASC 825-10-65 did not have a material impact
on our Condensed Consolidated Financial Statements.

In
June 2009, FASB established Accounting Standards Codification
(Codification) as the single source of authoritative accounting principles
recognized by the FASB in the preparation of financial statements in conformity
with the GAAP. The Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification will become non-authoritative.
The Codification is effective for financial statements issued for interim and
annual periods ending after September 15, 2009. Adoption of the
Codification is not expected to have a material impact on the Companys results
of operations or financial position.

In
June 2009, FASB updated the accounting standards related to the
consolidation of variable interest entities (VIEs). The standard amends
current consolidation guidance and requires additional disclosures about an
enterprises involvement in VIEs. The standard shall be effective as of the
beginning of each reporting entitys first annual reporting period that begins
after November 15, 2009, for interim periods within the first annual
reporting period, and for interim and annual reporting periods thereafter.
Earlier application is prohibited. The Company does not expect the adoption to
have a material impact on the Companys results of operations or financial
position.

43

In
May 2009, FASB issued FAS No. 165, Subsequent Events, which was
subsequently codified within ASC 855, Subsequent Events. The standard
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued
or are available to be issued. An entity should apply the requirements of ASC
855 to interim or annual financial periods ending after June 15, 2009.
Adoption of this standard does not have a material impact on the Companys
results of operations or financial position.

In April 2009,
the FASB updated the accounting standards to provide guidance on estimating the
fair value of a financial asset or liability when the trade volume and level of
activity for the asset or liability have significantly decreased relative to
historical levels. The standard requires entities to disclose the inputs and
valuation techniques used to measure fair value and any changes in valuation
inputs or techniques. In addition, debt and equity securities as defined by
GAAP shall be disclosed by major category. This standard is effective for
interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009, and is to be
applied prospectively. The adoption did not have a material effect on the
Companys results of operations and financial condition.

In
April 2009, the FASB updated the accounting standards for the recognition
and presentation of other-than-temporary impairments. The standard amends
existing guidance on other-than-temporary impairments for debt securities and
requires that the credit portion of other-than-temporary impairments be
recorded in earnings and the noncredit portion of losses be recorded in other
comprehensive income. The standard requires separate presentation of both the
credit and noncredit portions of other-than-temporary impairments on the
financial statements and additional disclosures. This standard is effective for
interim and annual reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. At the
date of adoption, the portion of previously recognized other-than-temporary
impairments that represent the noncredit related loss component shall be
recognized as a cumulative effect of adoption with an adjustment to the opening
balance of retained earnings with a corresponding adjustment to accumulated
other comprehensive income (loss). The adaption of this standard did not have a
material effect on the preparation of the Companys consolidated financial statements.

In August
2009, the FASB updated the accounting standards to provide additional guidance
on estimating the fair value of a liability in a hypothetical transaction where
the liability is transferred to a market participant. The standard is effective
for the first reporting period, including interim periods, beginning after
issuance. The Company does not expect the adoption to have a material effect on
its consolidated results of operations and financial condition.

In October
2009, the FASB concurrently issued the following ASC Updates:

          ASU
No. 2009-14 - Software (Topic 985): Certain
Revenue Arrangements That Include Software Elements(formerly EITF
Issue No. 09-3).This standard
removes tangible products from the scope of software revenue recognition
guidance and also provides guidance on determining whether software
deliverables in an arrangement that includes a tangible product, such as
embedded software, are within the scope of the software revenue guidance.

          ASU
No. 2009-13 - Revenue Recognition (Topic
605): Multiple-Deliverable Revenue Arrangements(formerly EITF Issue
No. 08-1). This standard modifies the revenue recognition guidance for
arrangements that involve the delivery of multiple elements, such as product,
software, services or support, to a customer at different times as part of a
single revenue generating transaction. This standard provides principles and
application guidance to determine whether multiple deliverables exist, how the
individual deliverables should be separated and how to allocate the revenue in
the arrangement among those separate deliverables. The standard also expands
the disclosure requirements for multiple deliverable revenue arrangements.

These
Accounting Standards Updates should be applied on a prospective basis for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010, with earlier application permitted.
Alternatively, an entity can elect to adopt these standards on a retrospective
basis, but both these standards must be adopted in the same period using the
same transition method. The Company expects to apply this standard on a
prospective basis for revenue arrangements entered into or materially modified
beginning January 1, 2011. The Company is currently evaluating the potential
impact these standards may have on its financial position and results of
operations.

44

RESULTS OF
OPERATIONS

Comparison of three
months Ended September 30, 2009 and 2008.

For the Three Months Ended September 30,2009

% of Total Revenues

2008

% of Total RevenuesNET REVENUESConstruction

$
5,190,120


87.0


28,378,442


96.4Hotel


778,020


13.0


829,086


2.8Real estate





0.0


232,700


0.8Total Revenues


5,968,140


100.0


29,440,228


100.0COST OF SALESConstruction


4,451,466


85.8
*

24,383,004


85.9
*Hotel


514,547


66.1
*

446,087


53.8
*Real estate








143,216


61.5
*Total Cost of Sales


4,966,013


83.2


24,972,307


84.8GROSS PROFITConstruction


738,654


14.2
*

3,995,438


14.1
*Hotel


263,473


33.9
*

382,999


46.2
*Real estate








89,484


38.5
*Total Gross Profit


1,002,127


16.8


4,467,921


15.2*
Represents percentage of
respective segments total revenues

Net
Revenues.
For the three months ended September 30, 2009, our overall net revenues
decreased 79.7% from the three months ended September 30, 2008. The decrease in
revenues was mainly due to decreased activity in construction operations
which are summarized as follows:

Project Name

For the Three
  Months EndedSeptember 30, 2009

%

For the Three
  Months EndedSeptember 30, 2008

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





0.0


7,906,170


27.8Tian Fu Garden residential project (Phase I
  and II)





0.0


14,284,218


50.3Fu Xing Bath Center


2,136,690


41.2





Lanyu Garden Number 3 residential building


3,053,430


58.8





Ai Bo Garden residential apartment project





0.0


6,188,054


21.9Total construction revenues

$
5,190,120


100
%
$
28,378,442


100
%*
Represents percentage of construction segment revenues.

45

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

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


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


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


100.0
%Lanyu Garden Number 3 residential building


83.2
%Fu Xing Committee Bath Center


88.7
%As
discussed elsewhere in this filing, at September 30, 2009, Jin Ma Construction
had only 2 construction projects in process; 1) the Lanyu Garden
No. 3 residential apartment project, which
is approximately 83% compete and 2) the Fu Xing Bath Center Project which is approximately 89% complete. As
of the date of this report, Jin Ma Construction has not entered into any new
contracts to begin additional construction projects. Although the Company is to
bidding on several projects to perform construction services, there is no
assurance that Jin Ma Construction will be secure these contracts. Accordingly,
we expect revenues from the Jin Ma Construction segment to be significantly
less than in prior periods until such time as Jin Ma Construction can enter and
begin new construction projects.

Revenues
for Jin Ma Hotels operations decreased approximately 6.2% for the three months
ended September 30, 2009 from the three months ended September 30, 2008
primarily due to decreased sales at the hotels banquet and catering. As China
has also been impacted by the current global economy downturn, potential
visitors to the Jin Ma Hotel might have less disposable income to spend on
leisure activities which in turn limits revenues from the Jin Ma Hotel.

Jin
Ma Real Estates development operation did not generate any revenue during the
three months ended September 30, 2009 due to a lack of inventory of apartment
units available for sale. For the three
months ended September 30, 2009, following the effect date of the PRC Property
Right Law in October 2007 which impacted the method by which Jin Ma Real Estate
could obtain land use rights to build additional residential projects coupled
with a softening in the residential real estate market, Jin Ma Real Estate put
more of its focus on completing the two school projects. Jin Ma Real Estate is
currently developing a government residential building and completed the Inner
Mongolia Chemistry College. We presently anticipate that Jin Ma Real Estate
will generate revenues in near future period in accordance with Jin Ma Real
Estates revenue recognition policies.

Additionally,
in November 2007, Jin Ma Real Estate entered into an agreement to construct new
dormitories for the Inner Mongolia Electrical Vocational Technical College.
Pursuant to the terms of the agreement, Jin Ma Real Estate constructed the
buildings and, upon completion, pursuant to a sales-type capital lease, leased
the buildings to the Inner Mongolia Electrical Vocational Technical College and
it will receive payments for a period of 26 years at an amount of 4,800,000 RMB
or approximately $700,000 per annum. Since Jin Ma Real Estate does not have any
construction licenses, Jin Ma Construction performed all of the construction
services on behalf of Jin Ma Real Estate. This project was completed in
November 2008 and received the first annual payment in December 2008. We expect
to receive the second installment in December 2009.

Additionally,
in September 2009, Jin Ma Real Estate entered into an agreement to construct
new dormitories for the Inner Mongolia Chemistry College. Pursuant to the terms
of the agreement, Jin Ma Real Estate constructs the buildings and, upon
completion, pursuant to a sales-type lease, leases the buildings to the Inner
Mongolia Chemistry College and it will receive payments for a period of 20
years. The cost of construction is estimated to be RMB 50 million
(approximately $7.3 million). Jin Ma Real Estate will receive an annual payment
of approximately RMB 10 million (approximately $1.5 million) for 5 years (from
October 15, 2009 to October 15, 2013) and receive an annual payment of
approximately RMB 7.5 million (approximately $1.1 million) for 15 years (from
October 15, 2014 to October 15, 2028). Jin Ma Construction is performing all of
the construction services on behalf of Jin Ma Real Estate for this project as
well. Jin Ma Construction began developing the 51,037 square-meter project in
July 2008 and completed the project in October 2009. Currently, the Jin Ma
Companies have no plans to continue this business model for its real estate
segment due to its capital intensive requirements and in future periods it will
recognize revenues, cost of sales and the related gross profit as payments are
received based on the installment method.

46

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

Cost
of Sales.
Overall, cost of sales decreased from approximately 84.8% of net revenues for
the three months ended September, 2008, to approximately 83.2% of net revenues
for the three months ended September 30, 2009. Cost of sales as a percentage of
net revenues from Jin Ma Construction for the three months ended September 30,
2009 decreased to approximately 85.8% from approximately 85.9% for the three
months ended September 30, 2008, a slight decrease due to normal operation
activities. While material and labor costs worldwide are on the rise, Jin Ma
Construction anticipates minimal direct impact on its business because of its
ability to factor in rising material costs into its budgets when selecting subcontractors.
Cost of sales as a percentage of net revenues for Jin Ma Hotels operations for
the three months ended September 30, 2009 increased to approximately 66.1% from
approximately 53.8% for the three months ended September 30, 2008. This
increase in cost of sales was primarily attributable to the increase in
food costs. In order to give an incentive to its customers, Jin Ma Hotel
increased the quantity of each dish without a proportionate increase in the
price.

Gross
Profit. Gross profit decreased approximately 77.6%
to $1,002,127 (16.8% of overall net revenues) for the three months ended
September 30, 2009 from $4,467,921 (15.2% of overall net revenues) for the
three months ended September 30, 2008.

Operating
Expenses. For the three months ended September 30,
2009, overall operating expenses decreased approximately 74.5% from the three
months ended September 30, 2008. This decrease was mainly due to a decrease in
a gain from bad bad debt recovery related to the collection of previously
written off accounts receivable as discussed below which was offset by a
one-time gain from the sale of land use rights.

Hotel
Operating Expenses.
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. Hotel operating expenses increased approximately 71.3% for the three
months ended September 30, 2009 from the three months ended September 30, 2008.
Hotel operating expenses were approximately 3.4% of hotel revenues for the
three months ended September 30, 2009 as compared to approximately 1.9% for the
three months ended September 30, 2008. The increase for the three months ended
September 30, 2009 period is primarily attributable to one-time increased
expenditure in utilities fees and increased consumption of low priced and
easily worn articles.

Bad
Debt Expense.
For the three months ended September 30, 2009, bad debt recovery income
amounted to $7,991 as compared to bad debt recovery income of $182,616 for the
three months ended September 30, 2008, a decrease of approximately 95.6%. We
have a policy of reserving for uncollectible accounts based on our best
estimate of the amount of probable credit losses in our existing accounts and
other receivables. We periodically review our accounts receivable, other
receivable and prepayments 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. Bad debt
recovery represents the collection of amounts which had previously been written
off.

47

Salaries
and Employee Benefits. For the three months ended
September 30, 2009, salaries and employee benefits amounted to $194,086 as
compared to $151,541 for the three months ended September 30, 2008, an increase
of approximately 28.1% and primarily related to an increase in bonuses given
out to encourage employee loyalty during Chinese Mid-Autumn Festival. Executive
officers did not receive any bonus.

Depreciation
and Amortization. For the three months ended
September 30, 2009, depreciation and amortization decreased approximately 15.3%
for the three months ended September 30, 2009 as compared to the same period
2008. This decrease was primarily due to the disposal of construction equipment
in fiscal 2009, which primarily included cranes and other heavy equipment.

Gain
on disposal of land use right. For the three
months ended September 30, 2009, gain on disposal of land use rights and
certain property and equipment was $449,306 as described in greater detail in
Note 4 to the financial statements included elsewhere in this report. We did
not generate any comparable income for the three months ended September 30,
2008.

Selling,
General and Administrative Expenses. Selling,
general and administrative expenses consist of office expenses and supplies,
utilities, insurance, telephone and communications, maintenance and automobile
expense incurred by the Jin Ma Companies as well as expenses incurred by us
which primarily consist of professional and other fees. General and
administrative expenses decreased by $57,376 or approximately 27.7% for the
three months ended September 30, 2009 compared to the three months ended
September 30, 2008. The slight decrease was primarily attributable to a
decrease in professional fees paid for investor relations service.

Total
Other Expenses. Total other expenses increased
approximately 136.9% for the three months ended September 30, 2009 from the
three months ended September 30, 2008. The increase is primarily attributable
to an increase in interest expense related to the amortization of non-cash debt
discount of $1,333,700 and increased interest incurred on our amended and
restated 14% convertible secured debenture offset by a slight decrease in
amortization of debt issuance costs. In connection with the amendment of the
Securities Purchase Agreements and related agreements, we recorded a discount
on the convertible notes which we must amortize over a 9-month period from July
1, 2009 to March 31, 2010. Upon repayment or conversion of the convertible
notes, we expense any remaining unamortized discount.

Provision
for Income Taxes. Total provision for income taxes
decreased approximately 76.5% for the three months ended September 30, 2009
(34.8% of loss before income taxes) from the three months ended September 30,
2008 (29.6% of income before income taxes). The decrease is attributable to a
decrease in income before income taxes.

Net
Income. Net income decreased approximately 138.2%
from the three months ended September 30, 2008 to the three months ended
September 30, 2009. The decrease for the three months ended September 30, 2009 as
compared to the three months ended September 30, 2008 was due primarily to a
decrease in revenue and related gross profits and the increase in interest
expense offset by a decrease in operating expenses and income taxes. This
translates to basic earnings per common share of $(0.02) and $0.05, and diluted
earnings per common share of $(0.02) and $0.04, for the three months ended
September, 2009 and 2008, respectively.

Comprehensive
Income. For the three months ended September 30,
2009 we reported unrealized gain on foreign currency translation of $32,146 as
compared to $54,594 for the three months ended September 30, 2008 which
reflects the effect of the declining value of the U.S. dollar. These gains are
non-cash items. As described elsewhere herein, our functional currency is the
Chinese Renminbi; however the accompanying condensed consolidated financial
statements have been translated and presented in U.S. dollars using period-end
rates of exchange for assets and liabilities, and average rates of exchange for
the period for revenues, costs, and expenses. Net gains and losses resulting
from foreign exchange transactions, if any, are included in the consolidated
statements of income and do not have a significant effect on our financial
statements. As a result of this non-cash foreign currency translation gain, we
reported comprehensive loss of $879,227 for the three months ended September
30, 2009 as compared to comprehensive income of $2,438,368 for the three months
ended September 30, 2008.

48

Liquidity and Capital Resources

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

At
September 30, 2009, we had a cash balance of $345,515, substantially all of
which is located in financial institutions in China under the control of the
Jin Ma Companies.

Our
working capital decreased $ 1,305,688 to $4,111,718 at September 30, 2009 from
$ 5,417,406 at June 30, 2009. This decrease in working capital is primarily
attributable to:


a decrease in accounts
  receivable, net of allowance for doubtful accounts, of $984,810,
a decrease in other
  receivable, net of allowance for bad debt, $589,825,
a decrease in due from
  related parties of $33,283
a decrease in prepaid land
  use rights for resale of $1,623,164
an increase in convertible
  debt of $424,650
an increase in accounts
  payable of $108,015
an increase in due to
  related parties of $600,918
an increase in advances
  from customers of $558,649Offset by:
an increase in cash and
  cash equivalents of $233,381,
an increase in advance to
  suppliers of $708,571
an increase in
  construction in progress, current portion, $884,798
a decrease in loans
  payable, current portion, of $105,033
a decrease in accrued
  expenses of $437,225
a decrease in taxes
  payable of $1,224,506
a decrease in billing in
  excess of costs and estimated earnings of $23,189Our
balance sheet at September 30, 2009, reflects notes payable to third parties of
$4,658,945 due through September 2012 which were working capital loans made to
us by these third parties. These
loans bear annual interest rates ranging from 9.45% to 24% and are due between
December 2009 and September 2012. Of this amount, approximately $2,900,000 is
secured by the assets of the Jin Ma Hotel and the remaining balances are
unsecured. As discussed elsewhere in this report, we have 14% convertible debt
approximately $800,000 due on December 31, 2009. It is our third and last
installment payment for our outstanding convertible debt. The Jin Ma Companies
plan on funding this installment payment through working capital and additional
advances from related parties. Specifically, on August 15, 2009, an agreement
was entered into by Jin Ma Construction for the sale of certain land use rights
whereby Jin Ma Construction sold the land use rights for approximately
$2,191,000 (RMB 15,000,000). The sale amount has been received in full by Jin
Ma Construction. Additionally, Jin Ma Construction is expecting to sell
additional land use rights with a cost of approximately $2,415,000 for a profit
in the near future. Also, on September 17, 2009, Jin Ma Construction collected
approximately $584,000 from Nanyingzi Village Committee related to the refund
of deposits on land use rights. The Jin Ma Companies are actively pursuing
collection on its accounts receivable balances and expect to receive the second
annual installment of its note receivable of approximately $700,000 in December
2009. In addition, The Jin Ma Companies completed the Inner Mongolia Chemistry
College project and expect to receive the first annual installment of
approximately $1 million in December 2009. We estimate that the Jin Ma
Companies will have sufficient cash flow from operation to satisfy its working
capital needs and to funds us in order for us to satisfy the debt repayment
schedule for the next 12 months. However, any delay in the sale of our land use
rights held for sale or the collection of our receivables would have an adverse
effect on our ability to repay our debt obligation and fund our working capital
requirements.

49

At
September 30, 2009, we have advances to suppliers of approximately $909,000 as
compared to approximately $201,000 at June 30, 2009, an increase of
approximately $708,000. The increase was primarily attributed to the payments
we made to our suppliers for the Inner Mongolia Chemistry College project.

At
September 30, 2009, we have advances from customers of approximately $805,000
as compared to approximately $246,000 at June 30, 2009, an increase of
approximately $ 559,000. The increase was primarily attributed to deposits
received from the Procuratorate Housing government committee and various employees
of the government as a deposit towards future purchases of the building and
specific units of the Procuratorate housing project of approximately $559,000
as well as an advance of the first annual lease payment of $262,532 from the
Inner Mongolia Chemistry College.

Operating Activities

Net
cash flow used in operating activities was $846,755 for the three months ended
September 30, 2009 as compared to net cash used in operating activities of
$2,501,426 for the three months ended September 30, 2008, a decrease of
$1,654,671. For the three months ended September 30, 2009, net cash flow used
in operating activities was primarily due to net loss of $911,373, a one-time
gain on disposal of land use right of $449,306, an increase in advance to suppliers
of $707,998, a decrease in account payable and accrued expenses of $68,434, a
decrease in taxes payable of $1,225,645 and a decrease in billings in excess of
costs and estimated earnings of $23,216 offset by a decrease in accounts
receivable of $1,840,992, a decrease in other receivable of $590,784, an
increase in advances from customers of $558,104 and the add back of non-cash
items such as depreciation of $193,589, stock based compensation of $57,500,
and interest expense from amortization of debt discount of $1,333,700.

Net
cash flow used in operating activities was $2,501,426 for the three months
ended September 30, 2008. This was primarily due to our net income of
$2,383,774, the add-back of non-cash items such as depreciation of $228,603,
interest expense from amortization of debt discount of $409,313, amortization
of debt issuance costs of $38,370, a decrease in costs and estimated earnings
in excess of billings of $215,400, a decrease in real estate held for sale of
$125,415, and an increase in accounts payable and accrued expenses of
$1,113,716, offset by bad debt recovery of $182,616, an increase in accounts
receivable of $2,762,312, an increase in other receivables of $123,728, an
increase in construction in progress of $3,205,099, a decrease in income tax
payable of $737,276 and a decrease in billings in excess of costs and estimated
earnings of $11,521.

Investing Activities

Net
cash flow provided by investing activities was $1,356,507 for the three months
ended September 30, 2009 as compared to net cash provided by investing
activities of $1,693,151 for the three months ended September 30, 2008. For the
three months ended September 30, 2009, cash provided by investing activities
consisted of proceeds from sale of land use right of $1,356,507. For the three
months ended September 30, 2008, net cash provided by investing activities
consisted of cash provided by repayment from related party of $922,550 and cash
proceeds from return of deposit on prepaid land use rights of $787,985 offset
by $17,384 cash used for purchase of property and equipment.

Financing Activities

Net
cash flow used in financing activities was $276,313 for the three months ended
September 30, 2009 which was attributable to repayment of loan payable of
$146,175 and repayment of convertible debt of $764,050 offset by proceeds from
advances from related party of $633,912. Net cash flow provided by
financing activities was $583,693 for the three months ended September 30, 2008
which was attributable to cash advances from related party of $583,693.

Other
than our existing cash we presently have no other alternative source of working
capital. We have no operations other than the Contractual Arrangements with the
Jin Ma Companies and, accordingly, we are dependent upon the quarterly service
fees due us to or for the receipt of working capital from the Jin Ma Companies
to provide cash to pay our operating expenses. To date, no quarterly service
fees have been tendered to us and those funds are being retained by the Jin Ma
Companies to fund their operations. At September 30, 2009 we were owed
approximately $15.1 million in service fees, which such amount remains
outstanding as of the date of this report. In addition, we transferred
$1,800,000 of the net proceeds from the November 2007 sale of the 10% secured
convertible debentures to the Jin Ma Companies in the form of an unsecured,
interest free advance for use by the Jin Ma Companies in their operations and
to fund their registered capital requirements under PRC wholly-owned foreign
enterprise rules. Jin Ma Companies repaid us approximately $921,000 of the
amounts advanced to that company from July 2009 to September 2009. The rest of
that amount remains outstanding and we do not have an understanding with the
Jin Ma Companies regarding the repayment of the remainder.

50

In
May 2009 we restructured the payment terms of our 10% secured convertible
debentures through the issuance of 14% secured convertible debenture, the
payment schedule of which is as follows:

Repayment
  Date

Principal Amount DueJuly 24, 2009 (1)

$
327,450September 30, 2009 (2)


436,600December 31, 2009


1,091,500March 31, 2010


327,450Total

$
2,183,000We
have made our installment payments on July 23, 2009 and September 30, 2009 on a
timely basis. Our next principal installment of $1,091,500 is due on December
31, 2009. During the period from October 1, 2009 to November 16, 2009, we
issued 5,201,590 shares of our common stock in connection with the conversion
of $519,784 of convertible debt and interest of $375. We expect that investors
will continue to convert the convertible debt into common stock, although there
are no assurances that our expectations are correct. We plan on funding this
installment payment using funds to be repaid to us by the Jin Ma Companies.

The
Jin Ma Companies, in turn, plan on paying amounts due us which we will use to
fund this installment payment through working capital. The Jin Ma Companies are
actively pursuing collection on its accounts receivable balances and expect to
receive the second annual installment of its note receivable of approximately
$700,000 in December 2009. Additionally, Jin Ma Construction is expecting to
sell additional land use rights with a cost of approximately $2,415,000 for a
profit in the near future. Further, Jin Ma Real Estate expects to receive the
first annual installment of Chemistry College project approximately $1,700,000
in December 2009.

We
currently have no material commitments for capital expenditures. Other than
working capital and loans, the Jin Ma Companies presently have no other
alternative source of working capital. We have been advised by the Jin Ma
Companies that they have sufficient cash flow from operations to satisfy its
working capital needs and to provide funds us in order for us to satisfy the
debt repayment schedule for the next 12 months. However, any delay in the sale
of its land use rights held for sale or the collection of its receivables would
have an adverse effect on its ability to repay our debt obligation and fund our
working capital requirements.

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 the three months ended September 30, 2009, if the quarterly
service fees due us under the Contractual Arrangement are not paid to us on a
timely basis, it is possible that we will not have sufficient funds to satisfy
our obligations as they become due and 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. In addition, if we
were to fail to pay the 14% secured convertible debentures in accordance with
the repayment schedule and the debenture holders were to declare a default
which we were unable to remedy, it is possible that we could be forced to cease
operations in which event shareholders would lose their entire investment in
our company.

Contractual Obligations and Off-Balance Sheet
Arrangements

Contractual Obligations

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

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

51

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

Payments Due by PeriodTotal

Less than
  1 year

1-3 Years

4-5 Years

5 Years +Contractual Obligations:Other Indebtedness *

$
4,658,945

$
4,315,257

$
343,688





Convertible debt


1,273,950


1,273,950








Accrued default penalties on convertible
debt


218,300


218,300Interest payments on convertible debt


89,177


89,177








Total Contractual Obligations:

$
6,240,372

$
5,896,684

$
343,688





*
Other indebtedness
  includes loans borrowed from individuals and credit unions.Off-balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not
applicable to a smaller reporting company.

ITEM 4.
CONTROLS AND PROCEDURES

Disclosure
Controls and Procedures

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
September 30, 2009, 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, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is required to apply
its judgment in evaluating and implementing possible controls and procedures.

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

52

Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our chief executive officer and our chief financial officer.
Based on that evaluation, Messrs. Yang and Wasserman concluded that because of
the continuing material weaknesses in internal control over financial
reporting, our disclosure controls and procedures were not effective as of
September 30, 2009. In our annual report on Form 10-K for the year ended June
30, 2009 we reported that we had a number of material weaknesses in internal
control over financial reporting, including (i) the lack of U.S. GAAP expertise
of our internal accounting staff, (ii) our internal audit functions and (iii)
the absence of an Audit Committee, and (iv) a lack of segregation of duties
within accounting functions. These material weaknesses in internal controls
over financial reporting have not been remediated as of September 30, 2009. Due
to the nature of these material weaknesses in our internal control over
financial reporting, there is more than a remote likelihood that misstatements
which could be material to our annual or interim financial statements could
occur that would not be prevented or detected.

Changes in
Internal Control over Financial Reporting

There
have been no changes in our internal control over financial reporting during
our first fiscal quarter of 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

Item
1.     Legal Proceedings.

None.

Item
1A.     Risk Factors.

Not
applicable to a smaller reporting company.

Item
2.     Unregistered Sales of Equity Securities and Use
of Proceeds.

On
September 30, 2009, the Company issued 405,399 shares of its common stock to
various convertible debenture holders to pay off outstanding share portion
interest payable due by September 30, 2009. The shares were valued at $0.10 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 $40,540. The
recipients were accredited investors and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 3(a)(9) of that act.

During
the period from October 1, 2009 to November 16, 2009, we issued 5,201,590
shares of our common stock to entities who were accredited investors in
connection with the conversion of $519,784 of principal of our 14% secured
convertible debentures and interest of $375 due on those debentures. The
issuance was exempt from registration under the Securities Act of 1933 in reliance
on an exemption provided by Section 3(a)(9) of that act.

Item
3.     Defaults Upon Senior Securities.

None.

Item
4.     Submissions of Matters to a Vote of Security
Holders.

None.

Item
5.     Other Information.

None.

53

Item
6.     Exhibits

31.1
Rule
  13a-14(a)/15d-14(a) certification of Chief Executive Officer31.2
Rule
  13a-14(a)/15d-14(a) certificate of Chief Financial Officer32.1
Section 1350
  certification of Chief Executive Officer32.2
Section 1350
  certification of Chief Financial OfficerSIGNATURES

Pursuant to
the requirements 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.Date:
  November 16, 2009
By:
/s/ Liankuan
  YangLiankuan
  YangChief
  Executive Officer, principal executive officerDate:
  November 16, 2009
By:
/s/ Adam
  WassermanAdam
  WassermanChief
  Financial Officer, principal financial and accounting officer54