UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549  FORM 10-Q  (Mark One)  x
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934  For the quarterly period ended March 31, 2011  or  o
    TRANSITION REPORT PURSUANT TO 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
    
    010030(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)  Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes x No o  Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 (or for such shorter period that the registrant
was required to submit and post such files). Yes oNo 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)   Yeso Nox  Indicate the number of shares outstanding
of each of the issuer's classes of common equity, as of the latestpracticable date: 1,989,459shares atMay 23, 2011.   GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED MARCH 31, 2011



TABLE OF CONTENTS





PagePART I - FINANCIAL INFORMATIONItem 1.
    Financial Statements.Condensed Consolidated Balance Sheets:As of March 31, 2011 and June 30, 2010
    4Condensed Consolidated Statements of Income and Comprehensive IncomeFor the Three and Nine Months Ended March 31, 2011 and 2010
    5Condensed Consolidated Statements of Cash FlowsFor the Nine Months Ended March 31, 2011 and 2010
    6Notes to Unaudited Condensed Consolidated Financial Statements
    7Item 2.
    Management's Discussion and Analysis of Financial Condition andResults of Operations
    30Item 3.
    Quantitative and Qualitative Disclosures About Market Risk
    40Item 4T.
    Controls and Procedures
    41PART II - OTHER INFORMATIONItem 1.
    Legal Proceedings
    42Item 1A.
    Risk Factors
    42Item 2.
    Unregistered Sales of Equity Securities and Use of Proceeds
    42Item 3.
    Defaults Upon Senior Securities
    42Item 4.
    (Removed and Reserved)
    42Item 5.
    Other Information
    42Item 6.
    Exhibits
    42







CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION



This report contains forward-looking
statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were
derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in
the forward-looking statements. These factors include, but are not limited to, the amount of funds owed us by the Jin Ma Companies,
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, PRC government
regulations and economic policies, industry regulation, 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, 2010, 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.



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



Our business is conducted
in China, using Renminbi (“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, which are variable interest entities under contractual arrangements with us and whose financial statements are consolidated with ours, unless the context specifically states or implies otherwise; and•
    “first quarter of 2011” refers to the three months ended September 30, 2010 and, “first quarter of 2010” refers to the three months ended September 30, 2009, unless the context otherwise defines.•
    “second quarter of 2011” refers to the three months ended December 31, 2010 and, “second quarter of 2010” refers to the three months ended December 31, 2009, unless the context otherwise defines.•
    “third quarter of 2011” refers to the three months ended March 31, 2011 and, “third quarter of 2010” refers to the three months ended March 31, 2010, unless the context otherwise defines.

3

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As ofMarch 31,
2011
    
    June 30, 
2010(Unaudited)ASSETSCash and cash equivalents
    
    $
    364,047
    
    $
    309,996Accounts receivable, net
    
    
    11,073,753
    
    
    7,912,119Notes receivable on sales type lease - current portion
    
    
    1,637,460
    
    
    1,150,333Inventories, net
    
    
    71,487
    
    
    64,007Prepaid expenses
    
    
    1,757
    
    
    210,000Other receivables, net
    
    
    112,556
    
    
    24,969Cost and estimated earnings in excess of billings
    
    
    91,201
    
    
    93,879Real estate held for sale
    
    
    153,259
    
    
    367,009Deferred tax assets
    
    
    227,338
    
    
    267,668Construction in progress - current portion
    
    
    19,771,345
    
    
    —Total Current Assets
    
    
    33,504,203
    
    
    10,399,980Property and equipment, net
    
    
    8,484,079
    
    
    8,727,796Construction in progress - non-current portion
    
    
    13,327,498
    
    
    12,860,646Notes receivable on sales type lease - non-current portion
    
    
    15,588,392
    
    
    15,853,319Total Assets
    
    $
    70,904,172
    
    $
    47,841,741LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:Loans payable - current portion
    
    $
    3,203,909
    
    $
    3,091,678Accounts payable
    
    
    22,300,216
    
    
    3,522,030Due to related parties
    
    
    719,675
    
    
    230,453Accrued expenses
    
    
    560,431
    
    
    832,597Taxes payable
    
    
    1,541,174
    
    
    2,374,059Advances from customers
    
    
    201,671
    
    
    144,670Derivative liability
    
    
    191,701
    
    
    653,630Billings in excess of costs and estimated earnings
    
    
    735
    
    
    90,205Total Current Liabilities
    
    
    28,719,512
    
    
    10,939,322Loans payable - net of current portion
    
    
    319,630
    
    
    345,152Total Liabilities
    
    
    29,039,142
    
    
    11,284,474Commitments (Note 17)
    
    
    —
    
    
    —Stockholders’ Equity:Preferred stock ($0.0001 par value; 20,000,000 shares authorized; none issued and outstanding)
    
    
    —
    
    
    —Common stock ($0.0001 par value; 300,000,000 shares authorized; 1,989,459 and 1,934,878 shares issued and outstanding at March 31, 2011 and June 30, 2010)
    
    
    199
    
    
    193Non-controlling interest in variable interest entities
    
    
    6,095,314
    
    
    6,095,314Additional paid-in capital
    
    
    7,346,784
    
    
    7,127,577Statutory reserve
    
    
    2,496,724
    
    
    2,470,154Retained earnings
    
    
    21,868,424
    
    
    18,213,466Accumulated other comprehensive income
    
    
    4,057,585
    
    
    2,650,563Total Stockholders’ Equity
    
    
    41,865,030
    
    
    36,557,267Total Liabilities and Stockholders’ Equity
    
    $
    70,904,172
    
    $
    47,841,741

See accompanying notes to unaudited consolidated
financial statements



4

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME

For the Three Months Ended
March 31,
    
    For the Nine Months Ended
March 31,2011
    
    2010
    
    2011
    
    2010(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)NET REVENUESConstruction
    
    $
    7,994,860
    
    $
    11,143,476
    
    $
    32,986,009
    
    $
    20,739,488Hotel
    
    
    739,027
    
    
    749,749
    
    
    2,304,502
    
    
    2,262,578Real estate
    
    
    193,661
    
    
    227,917
    
    
    907,030
    
    
    386,898Total Revenues
    
    
    8,927,548
    
    
    12,121,142
    
    
    36,197,541
    
    
    23,388,964COST OF REVENUESConstruction
    
    
    6,851,787
    
    
    9,559,477
    
    
    28,289,607
    
    
    17,889,157Hotel
    
    
    414,640
    
    
    478,135
    
    
    1,323,695
    
    
    1,486,994Real estate
    
    
    130,334
    
    
    168,805
    
    
    670,548
    
    
    335,855Total Cost of Revenues
    
    
    7,396,761
    
    
    10,206,417
    
    
    30,283,850
    
    
    19,712,006GROSS PROFIT
    
    
    1,530,787
    
    
    1,914,725
    
    
    5,913,691
    
    
    3,676,958OPERATING EXPENSES:Other hotel operating expenses
    
    
    15,156
    
    
    (26,052
    )
    
    47,116
    
    
    77,307Bad debt recovery
    
    
    (1,291
    )
    
    (109,535
    )
    
    (196,903
    )
    
    (215,090
    )Salaries and employee benefits
    
    
    293,197
    
    
    290,845
    
    
    711,807
    
    
    683,280Depreciation
    
    
    200,224
    
    
    198,081
    
    
    592,661
    
    
    583,202Selling, general and administrative
    
    
    97,549
    
    
    113,126
    
    
    565,283
    
    
    365,689Total Operating Expenses
    
    
    604,835
    
    
    466,465
    
    
    1,719,964
    
    
    1,494,388INCOME FROM OPERATIONS
    
    
    925,952
    
    
    1,448,260
    
    
    4,193,727
    
    
    2,182,570OTHER INCOME (EXPENSES):Other income (expense)
    
    
    (38
    )
    
    —
    
    
    6,804
    
    
    —Gain on extinguishment of derivative liabilities
    
    
    —
    
    
    270,101
    
    
    —
    
    
    1,893,310Gain on change in fair value of derivative liabilities
    
    
    304,837
    
    
    (298,283
    )
    
    461,929
    
    
    1,704,654Gain on sale of land use rights and property
    
    
    —
    
    
    55
    
    
    —
    
    
    449,528Interest income
    
    
    54,462
    
    
    731,521
    
    
    705,322
    
    
    1,274,716Interest expense
    
    
    (125,722
    )
    
    (394,667
    )
    
    (377,728
    )
    
    (2,711,743
    )Total Other Income
    
    
    233,539
    
    
    308,727
    
    
    796,327
    
    
    2,610,465INCOME BEFORE PROVISION FOR INCOME TAX
    
    
    1,159,491
    
    
    1,756,987
    
    
    4,990,054
    
    
    4,793,035PROVISION FOR INCOME TAXES
    
    
    288,058
    
    
    550,772
    
    
    1,308,526
    
    
    865,550NET INCOME
    
    $
    871,433
    
    $
    1,206,215
    
    $
    3,681,528
    
    $
    3,927,485COMPREHENSIVE INCOME:Net income
    
    $
    871,433
    
    $
    1,206,215
    
    $
    3,681,528
    
    $
    3,927,485OTHER COMPREHENSIVE INCOME:Unrealized foreign currency translation gain
    
    
    252,349
    
    
    4,753
    
    
    1,407,022
    
    
    38,613COMPREHENSIVE INCOME
    
    $
    1,123,782
    
    $
    1,210,968
    
    $
    5,088,550
    
    $
    3,966,098NET INCOME PER COMMON SHARE:Basic
    
    $
    0.44
    
    $
    0.71
    
    $
    1.88
    
    $
    2.57Diluted
    
    $
    0.44
    
    $
    0.70
    
    $
    1.86
    
    $
    2.54WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    1,989,459
    
    
    1,702,336
    
    
    1,957,237
    
    
    1,531,055Diluted
    
    
    1,989,459
    
    
    1,711,679
    
    
    1,977,994
    
    
    1,548,957

See accompanying notes to unaudited consolidated
financial statements.






5

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the Nine Months Ended
March 31,2011
    
    2010(Unaudited)
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    3,681,528
    
    $
    3,927,485Adjustments to reconcile net income to net cash used in operating activities:Depreciation
    
    
    592,661
    
    
    583,202Stock-based compensation and fees
    
    
    116,716
    
    
    232,500Common stock issued for interest
    
    
    —
    
    
    28,039Bad debt recovery
    
    
    (196,903
    )
    
    (215,091
    )Interest expense from amortization of debt discount
    
    
    —
    
    
    2,183,000Warrants issued for service
    
    
    31,188
    
    
    —Gain on sale of land use right
    
    
    —
    
    
    (449,528
    )Gain from debt extinguishment
    
    
    —
    
    
    (1,893,310
    )Gain on change in fair value of derivative liabilities
    
    
    (461,929
    )
    
    (1,704,654
    )Changes in assets and liabilities:Accounts receivable
    
    
    (2,638,012
    )
    
    (2,844,223
    )Notes receivable
    
    
    388,573
    
    
    313,995Inventories
    
    
    (5,072
    )
    
    (23,839
    )Other receivables
    
    
    (77,655
    )
    
    1,182,265Advance to suppliers
    
    
    —
    
    
    (123,167
    )Prepaid expenses
    
    
    208,882
    
    
    —Costs and estimated earnings in excess of billings
    
    
    5,986
    
    
    (35,228
    )Real estate held for sale
    
    
    223,351
    
    
    —Construction in progress
    
    
    (19,447,318
    )
    
    (2,724,368
    )Accounts payable and accrued expenses
    
    
    18,121,600
    
    
    (721,044
    )Taxes payable
    
    
    (854,777
    )
    
    (876,846
    )Advances from customers
    
    
    50,901
    
    
    2,601,870Billings in excess of costs and estimated earnings
    
    
    (91,225
    )
    
    27,901NET CASH USED IN OPERATING ACTIVITIES
    
    
    (351,505
    )
    
    (531,041
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sale of land use right
    
    
    —
    
    
    2,193,710Purchase of property and equipment
    
    
    (41,304
    )
    
    (188,324
    )NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
    
    
    (41,304
    )
    
    2,005,386CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of loans payable
    
    
    (37,428
    )
    
    (1,353,666
    )Proceeds from advances from related party
    
    
    472,976
    
    
    1,203,928Repayment of convertible debt
    
    
    —
    
    
    (983,550
    )NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    435,548
    
    
    (1,133,288
    )EFFECT OF EXCHANGE RATE ON CASH
    
    
    11,312
    
    
    (1,002
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    54,051
    
    
    340,055CASH AND CASH EQUIVALENTS - beginning of period
    
    
    309,996
    
    
    112,134CASH AND CASH EQUIVALENTS - end of period
    
    $
    364,047
    
    $
    452,189SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest
    
    $
    320,314
    
    $
    869,718Income taxes
    
    $
    1,682,059
    
    $
    1,391,109Non-cash activities:Common stock issued for prior and future service
    
    $
    71,309
    
    $
    548,000Common stock issued for conversion of convertible debt
    
    $
    —
    
    $
    789,784Common stock issued for accrued interest
    
    $
    —
    
    $
    21,830Reclassification of warrants and conversion options to derivative liabilities
    
    $
    —
    
    $
    4,680,179See accompanying notes to unaudited
consolidated financial statements.






6

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011



NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



Organization



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



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



Under the Share Exchange Agreement, on June
29, 2007, the Company issued 1,212,500 shares of its common stock to the Gold Horse Nevada Stockholders and their assignees in
exchange for 100% of the common stock of Gold Horse Nevada. Additionally, the Company’s prior President, CEO and sole director,
cancelled 241,376 of the Company’s common stock he owned immediately prior to the closing. After giving effect to the cancellation
of shares, the Company had a total of 37,500 shares of common stock outstanding immediately prior to Closing. After the Closing,
the Company had a total of 1,250,000 shares of common stock outstanding, with the Gold Horse Nevada Stockholders and their assignees
owning 97% of the total issued and outstanding shares of the Company’s common stock.



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



Gold Horse Nevada owns 100% of Global Rise
International, Limited (“Global Rise”), a Cayman Islands corporation incorporated on May 9, 2007. Through Global Rise,
Gold Horse Nevada operates, controls and beneficially owns the construction, hotel and real estate development businesses in China
under a series of contractual arrangements (the “Contractual Arrangements”) with Inner Mongolia Jin Ma Real Estate
Development Co., Ltd. (“Jin Ma Real Estate”), Inner Mongolia Jin Ma Construction Co., Ltd. (“Jin Ma Construction”)
and Inner Mongolia Jin Ma Hotel Co., Ltd. (“Jin Ma Hotel”), (collectively referred to as the “Jin Ma Companies”).
Other than the Contractual Arrangements with the Jin Ma Companies, the Company, Gold Horse Nevada nor Global Rise are engaged in
any 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:











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.



7

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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



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 its business 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 subsidiary, and the Company on the one hand, and each of the Jin Ma Companies
and their respective shareholders on the other hand, pursuant to which the Company was made a party to the Contractual Arrangements.



Inner Mongolia Jin Ma Construction Company
Ltd.



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



Inner Mongolia Jin Ma Real Estate Development
Co. Ltd.



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



Inner Mongolia Jin Ma Hotel Co. Ltd.



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



Inner Mongolia (Cayman) Technology &
Development Ltd.



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



8

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Basis of preparation

These interim condensed
consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a
fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the
condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported
for the entire year. The (a) condensed consolidated balance sheet as of June 30, 2010, which was derived from audited financial
statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed
or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make
the information not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and accompanying footnotes of the Company for the year ended June 30, 2010.

Principle of consolidation

Pursuant to the Financial
Accounting Standards Board Accounting Codification (ASC) Topic 810, the Company is required to include in its consolidated financial
statements the financial statements of its variable interest entities (“VIEs”). ASC Topic 810 requires a VIE to be
consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a
majority of the VIE’s residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears
the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore the Company is the primary beneficiary
of the entity.



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



The accounts of the Jin Ma Companies are consolidated
in the accompanying financial statements pursuant to ASC Topic 810. As a VIE, the Jin Ma Companies net revenues are included in
the Company’s total net revenues, their income from operations is consolidated with the Company’s, and the Company’s
net income includes all of the Jin Ma Companies net income. There is no non-controlling interest in net income and accordingly,
no net income is subtracted in calculating the net income attributable to the Company. Because of the contractual arrangements,
the Company has pecuniary interest in the Jin Ma Companies that requires consolidation of the Jin Ma Companies financial statements
with its financial statements.



These condensed consolidated financial statements
include the financial statements of Gold Horse, its subsidiaries and variable interest entities.  All significant inter-company
balances or transactions have been eliminated on consolidation.



Financial instruments



The accounting standard governing financial
instruments adopted by the Company on July 1, 2009, defines financial instruments and requires fair value disclosures about those
instruments. It defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and
enhances disclosure requirements for fair value measures.Cash, investments, receivables, payables, short term loans and
convertible debt all qualify as financial instruments. Management concluded cash, receivables, payables and short term loans approximate
their fair values because of the short period of time between the origination of such instruments and their expected realization
and, if applicable, their stated rates of interest are equivalent to rates currently available.



The three levels of valuation hierarchy are
defined as follows:



•
    Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.•
    Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.•
    Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

9

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Financial instruments (Continued)



The Company analyzes all financial instruments
with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard,
financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the
fair value measurement. Depending on the product and the terms of the transaction, the fair value of notes payable and derivative
liabilities were modeled using a series of techniques, including closed-form analytic formula, such as the Black-Scholes option-pricing
model.



The following table presents a reconciliation
of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the
nine months ended March 31, 2011:



Warrant liabilityBalance at June 30, 2010
    $
    
    653,630Exercise of warrants
    
    
    -Change in fair value included in earnings
    
    
    (461,929
    )Balance at March 31, 2011
    $
    
    191,701

The Company did not identify any other non-recurring
assets and liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the
relevant accounting standards.

See Note 10 for more information on these
financial instruments.

Accounts receivable, notes
receivable and other receivables



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



At March 31, 2011 and June 30, 2010, the Company
has established, based on a review of its outstanding accounts receivable balances, an allowance for doubtful accounts in the amount
of $821,522 and $978,455, respectively, on its total accounts receivable. Management believes that the notes receivable are fully
collectable. Therefore, no allowance for doubtful accounts is deemed to be required at March 31, 2011 and June 30, 2010.



Other receivables are primarily related to
advances made to various vendors and other parties in the normal course of business and an allowance was established when those
parties are deemed to be unlikely to repay the amounts. At March 31, 2011 and June 30, 2010, the Company has established, based
on a review of its outstanding other receivable balances, an allowance for doubtful accounts in the amount of $63,950 and $69,171,
respectively. At such time as management exhausts all collection efforts, the other receivable balance will be netted against the
allowance account. The activities in the allowance for doubtful accounts for accounts receivable and other receivables for the
nine months ended March 31, 2011 were as follows:



Allowance for doubtful accounts for accounts receivable
    
    Allowance for doubtful accounts for other receivable
    
    TotalBalance – June 30, 2010
    
    $
    978,455
    
    $
    69,171
    
    $
    1,047,626Reduction in allowance
    
    
    (189,298
    )
    
    (7,605
    )
    
    (196,903
    )Foreign currency translation adjustments
    
    
    32,365
    
    
    2,384
    
    
    34,749Balance – March 31, 2011 (Unaudited)
    
    $
    821,522
    
    $
    63,950
    
    $
    885,472




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.



10

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

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 March 31, 2011 and June 30, 2010, real estate held for sale amounted to $153,259 and $367,009, respectively.

Construction in progress

Properties currently under
development are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including
land use rights cost, development expenditure, professional fees and the interest expense capitalized during the course of construction
for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress
is to be transferred to an appropriate asset such as real estate held for sale. Construction in progress is valued at the lower
of cost or market. Management evaluates the market value of its properties on a periodic basis for impairment. Construction in
progress are classified in the balance sheets as current or non-current based on whether or not the sale of units of respective
projects are expected to take place within 12 months of the balance sheet date. As of March 31, 2011 and June 30, 2010, construction
in progress amounted to $33,098,843 and $12,860,646, respectively, of which $19,771,345 and $0, respectively, were included in
current portion.

Advances from customers

Advances from customers
at March 31, 2011 and June 30, 2010 of $201,671 and $144,670, respectively, consist of prepayments from third party customers to
us for construction and real estate transactions to ensure sufficient funds are available to complete the real estate and construction
projects. The Company recognizes the deposits as revenue upon transfer of title to the buyer, in compliance with the Company’s
revenue recognition policy.

Derivative financial instruments

The Company evaluates all
of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements
of income. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton option-pricing model to
value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2011 and
June 30, 2010, the Company had $191,701 and $653,630, respectively, of warrants liability on the balance sheet.

Revenue recognition



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



Real estate sales which primarily involve the
sale of multi-family units and community environments are reported in accordance with the provisions of ASC Topic 360. Generally,
profits from the sale of development properties, less 5% business tax, are recognized by the full accrual method when the sale
is consummated. A sale is not considered consummated until (1) the parties are bound by the terms of a contract, (2) all consideration
has been exchanged, (3) any permanent financing of which the seller is responsible has been arranged, (4) all conditions precedent
to closing have been performed, (5) the seller does not have substantial continuing involvement with the property, and (6) the
usual risks and rewards of ownership have been transferred to the buyer.



11

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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



Revenue recognition (Continued)



In 2007 and 2008, Jin Ma Real Estate entered
into agreements to construct new dormitories as follows:



a) In November 2007, Jin Ma Real Estate entered
into an agreement to construct new dormitories for the Inner Mongolia Electrical Vocational Technical School (the “Vocational
School”). Pursuant to the terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon completion, 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 $730,000 per annum. In November 2008, Jin Ma Real Estate completed the construction.
Since the agreement did not have a stated interest rate, the Company used an imputed interest rate of 6.12% and are reflecting
payments due under the agreement as a note receivable on the accompanying balance sheets. The property sold had an imputed sales
value of 61,691,138 RMB (approximately $9,000,000). The deferred gain on the sale of the property was approximately $52,000 of
which $993 and $914 was recognized in the nine months ended March 31, 2011 and 2010, respectively, pursuant to the installment
method and was reflected in the accompanying statements of income.



b) In 2008, Jin Ma Real Estate and Inner Mongolia
Chemistry School entered an oral agreement and on September 29, 2009, formalized a written agreement for the construction of student
apartments for the Inner Mongolia Chemistry College (the “Chemistry School”) situated in Inner Mongolia University
City, a compound where many higher education institutions are located. Jin Ma Construction began developing the 51,037 square-meter
project in July 2008 and completed the construction in October 2009. Jin Ma Real Estate leased the buildings to the Chemistry School
for a period of 20 years. The annual lease payments are RMB 10.62 million (approximately $1.55 million) for five years (from fiscal
2010 to fiscal 2014), and the annual lease payment is RMB 5.42 million (approximately $0.79 million) for 15 years (from fiscal
2015 to fiscal 2029). Since the agreement did not have a stated interest rate, the Company used an imputed interest rate of 5.94%
and are reflecting payments due under the agreement as a note receivable on the accompanying balance sheets. The property sold
had an imputed sales value of 84,196,104 RMB (approximately $12 million). The deferred gain on the sale of the property was approximately
$3,900,000 of which $100,122 and $71,989, respectively, was recognized in the nine months ended March 31, 2011 and 2010 pursuant
to the installment method and was reflected in the accompanying statements of income.



In accordance with ASC Topic 360, the initial
gains from the sales of the Vocational School and Chemistry School were deferred because the minimum initial investment by the
buyer was less than the required 20% initial investment expressed as a percentage of the sales value (ASC Topic 360). Therefore
the gains are being recognized into income as payments are received using the installment method. The installment method apportions
each cash receipt and principal payment by the buyer between cost recovered and profit. The apportionment is in the same ratio
as total cost and total profit bear to the sales value. Accordingly, revenues and cost of sales are recognized based on the apportionments,
and the Company recognized imputed interest income on the accompanying consolidated statements of income as summarized below.



As of March 31, 2011, the remaining deferred
gains for Vocational School and Chemistry School leases of $51,107 and $3,871,325, respectively, is reflected as a discount of
notes receivable in the accompanying balance sheet. As of June 30, 2010, the remaining deferred gains for Vocational School and
Chemistry School leases of $50,291 and $3,833,940, respectively, is reflected as a discount of notes receivable in the accompanying
balance sheet. The recorded imputed interest discount will be realized as the balances due are collected. In the event of early
liquidation, interest is recognized on the simple interest method.



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



For the Three Months Ended
March 31,
    
    For the Nine Months Ended
March 31,2011
    
    2010
    
    2011
    
    2010Net revenues
    
    $
    102,210
    
    $
    227,955
    
    $
    489,688
    
    $
    386,936Cost of sales
    
    
    70,275
    
    
    155,966
    
    
    388,573
    
    
    314,033Gross profit recognized
    
    $
    31,935
    
    $
    71,989
    
    $
    101,115
    
    $
    72,903




Jin Ma Real Estate receives annual payments
of principal and the related imputed interest from the Vocational School and Chemistry School. During the nine months ended March
31, 2011 and 2010, the Company allocated the payments received as follows:



12

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Revenue recognition (Continued)



For the Three Months Ended 
March 31,
    
    For the Nine Months Ended 
March 31,2011
    
    2010
    
    2011
    
    2010Amount applied to principal balance of notes receivable
    
    $
    102,210
    
    $
    227,917
    
    $
    489,688
    
    $
    386,898Interest income recognized on consolidated statement of income
    
    
    54,354
    
    
    731,486
    
    
    705,102
    
    
    1,274,406Total payment received
    
    $
    156,564
    
    $
    959,403
    
    $
    1,194,790
    
    $
    1,661,304

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



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



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

Advertising



Advertising is expensed as incurred. Advertising
expenses for the nine months ended March 31, 2011 and 2010 were deemed not material.

Warranty policy



In accordance with
ASC Topic 450, the Company estimates liabilities for construction defect, product liability and related warranty claims based on
the possibleclaim amounts resulting from injury or damage caused by construction defects and expected
material and labor costs to provide warranty replacement products. The methodology used in determining
the liability is based upon historical information and experience. Based on historical experience, claims made for construction
defects and the warranty service calls and any related labor material costs have been minimal. As such, the warranty provision
amounts for the nine months ended March 31, 2011 and 2010 were immaterial.

Concentrations of credit
risk



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



13

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Concentrations of credit
risk (Continued)



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



At March 31, 2011 and June 30, 2010, the Company’s bank deposits
by geographic area were as follows:



March 31, 2011
    
    June 30, 2010(Unaudited)Country:United States
    
    $
    4,818
    
    1.3%
    
    $
    1,043
    
    0.3%China
    
    
    359,229
    
    98.7%
    
    
    308,953
    
    99.7%Total cash and cash equivalents
    
    $
    364,047
    
    100.0%
    
    $
    309,996
    
    100.0%

Net income per common share



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



Three Months Ended March 31,
    
    Nine Months Ended March 31,2011
    
    2010
    
    2011
    
    2010Net income used for basic and diluted net income per common share
    
    $
    871,433
    
    $
    1,206,215
    
    $
    3,681,528
    
    $
    3,927,485Weighted average common shares outstanding - basic
    
    
    1,989,459
    
    
    1,702,336
    
    
    1,957,237
    
    
    1,531,055Effect of dilutive securities:Unexercised warrants
    
    
    —
    
    
    9,343
    
    
    20,757
    
    
    17,902Weighted average common shares outstanding - diluted
    
    
    1,989,459
    
    
    1,711,679
    
    
    1,977,994
    
    
    1,548,957Net income per common share - basic
    
    $
    0.44
    
    $
    0.71
    
    $
    1.88
    
    $
    2.57Net income per common share - diluted
    
    $
    0.44
    
    $
    0.70
    
    $
    1.86
    
    $
    2.54






The diluted earnings per share calculation for the three and nine
months ended March 31, 2010 did not include the effect of convertible debentures because their effect was anti-dilutive.



The Company's aggregate common stock equivalents at March 31, 2011
and June 30, 2010 include the following:



March 31, 2011
        (Unaudited)
    
    June 30, 2010Warrants
    
    204,945
    
    196,195Total
    
    204,945
    
    196,195

14

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Foreign currency translation
and comprehensive income



The reporting currency of the Company is the
U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s
operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional
currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets
and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange
rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars
are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the
Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transactions
in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect
on the results of operations of the Company. Asset and liability accounts at March 31, 2011 and June 30, 2010 were translated at
6.5701 RMB to $1.00 USD and at 6.8086 RMB to $1.00 USD, respectively. Equity accounts were stated at their historical rate. The
average translation rates applied to income statements for the nine months ended March 31, 2011 and 2010 were 6.67957 RMB and 6.83773
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.

Recent accounting pronouncements

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



In December 2010, FASB issued ASU No. 2010-28,
Intangibles - Goodwill and Other(ASC Topic 350). Under Topic 350 on goodwill and other intangible assets, testing for goodwill
impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must
assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional
test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). The amendments in
this update modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those
reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill
impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider
whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors require that
goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would
more likely than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective
for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. As
the Company does not have any significant intangible assets, the impact of adopting this update will not be material on the Company’s
consolidated results of operations and financial position.



In December 2010, FASB issued Accounting
Standards Update (ASU) No. 2010-29, Business Combinations(ASC Topic 805). The amendments in this update specify that
if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity
as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable
prior annual reporting period only. The amendments also improve the usefulness of the pro forma revenue and earnings disclosures
by requiring a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly attributable
to the business combination(s). The amendments in this update are effective for fiscal years, and interim periods within those
years, beginning after December 15, 2010. Early adoption is permitted. As the Company has not entered into any business combinations
since July 1, 2010, the adoption of this update will not have any material impact on the Company’s financial statement disclosures.
However, if the Company enters into material business combinations in the future, the adoption of this update may have significant
impact on the Company’s financial statement disclosures.



15

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




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

Recent accounting pronouncements
(Continued)



In January 2011, the FASB issued ASU No. 2011-01-
Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.
The amendments in this update temporarily delay the effective date of the disclosures about troubled debt restructurings in ASU
No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses, for public entities. The delay is intended to allow the FASB time to complete its deliberations on what constitutes a troubled
debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance
for determining what constitutes a troubled debt restructuring will then be coordinated. This deferral will have no material impact
on the Company’s consolidated financial statements.



In January 2011, the FASB issued ASU No. 2011-02-
Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments
in this update provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the
criteria to be considered a troubled debt restructuring. For public companies, the new guidance is effective for interim and annual
periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning
of the fiscal year of adoption within those annual periods. Early application is permitted. The adoption of the provisions in ASU
2011-02 will have no material impact on the Company’s consolidated financial statements.



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



NOTE 2 – NOTES RECEIVABLE, NET



Notes receivable, which are attributable to the leasing of the Vocational
School and Chemistry School pursuant to a sales-type capital lease, are accounted for using the installment method of accounting
as well as original note value. In accordance with ASC Topic 360, a gain was deferred on notes not meeting the minimum initial
20% investment by the buyer expressed as a percentage of the sales value. Management believes that the notes receivable are fully
collectable. Therefore, no allowance for doubtful accounts is deemed to be required. At March 31, 2011 and June 30, 2010, notes
receivable, net consisted of the following:



March 31, 2011
    
    June 30, 2010(Unaudited)Due in 12-month periods ending March 31 and June 30, respectively, 2011 ($1,750,318 and $596,371 overdue as of March 31, 2011 and June 30, 2010, respectively)
    
    $
    1,750,318
    
    $
    2,861,1532012
    
    
    2,346,996
    
    
    2,264,7832013
    
    
    2,346,996
    
    
    2,264,7832014
    
    
    2,346,996
    
    
    2,264,7832015
    
    
    1,555,532
    
    
    1,501,043Thereafter
    
    
    25,430,360
    
    
    24,539,553Notes receivable – gross
    
    
    35,777,198
    
    
    35,696,098Less: discount on notes receivable
    
    
    (14,628,914
    )
    
    (14,808,215
    )Less: deferred gain on sale
    
    
    (3,922,432
    )
    
    (3,884,231
    )17,225,852
    
    
    17,003,652Less: Allowance for doubtful accounts
    
    
    —
    
    
    —17,225,852
    
    
    17,003,652Notes receivable – current portion, net
    
    
    (1,637,460
    )
    
    (1,150,333
    )Notes receivable – long-term, net
    
    $
    15,588,392
    
    $
    15,853,319





Based on the Company’s assessment of collectability, there
has been no allowance for doubtful accounts for notes receivable provided as of March 31, 2011 and June 30, 2010.



16

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 3 - INVENTORIES



At March 31, 2011 and June 30, 2010, inventories consisted of the
following:

March 31, 2011
    
    June 30, 2010(Unaudited)Consumable goods
    $
    71,487
    
    $
    64,007$
    71,487
    
    $
    64,007

NOTE 4 – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS



Costs and estimated earnings in excess of billings at March 31,
2011 and June 30, 2010 consisted of:



March 31, 2011
    
    
    June 30, 2010(Unaudited)Costs incurred on uncompleted contracts
    $
    39,376,570
    
    $
    23,231,942Estimated earnings
    
    9,031,122
    
    
    5,325,32648,407,692
    
    
    28,557,268Less: billings to date
    
    (48,317,226)
    
    
    (28,553,594)$
    90,466
    
    $
    3,674

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



March 31, 2011
    
    June 30, 2010(Unaudited )Costs and estimated earnings in excess of billings
    
    $
    91,201
    
    $
    93,879Billings in excess of costs and estimated earnings
    
    
    (735
    )
    
    (90,205
    )$
    90,466
    
    $
    3,674




NOTE 5 - PROPERTY AND EQUIPMENT



At March 31, 2011 and June 30, 2010, property
and equipment consist of the following:



March 31, 2011
    
    June 30, 2010Useful Life
    
    (Unaudited )Office equipment
    
    5-8 Years
    
    $
    602,122
    
    $
    580,827Machinery and equipment
    
    5-15 Years
    
    
    7,442,003
    
    
    7,181,316Vehicles
    
    10 Years
    
    
    539,266
    
    
    480,057Building and building improvements
    
    20 – 40 Years
    
    
    4,047,952
    
    
    3,906,15512,631,343
    
    
    12,148,355Less: accumulated depreciation
    
    
    
    
    
    (4,147,264
    )
    
    (3,420,559
    )$
    8,484,079
    
    $
    8,727,796




Depreciation of property and equipment is provided
using the straight-line method. For the nine months ended March 31, 2011 and 2010, depreciation expense amounted to $592,661 and
$583,202, respectively.



17

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 6 – CONSTRUCTION IN PROGRESS



At March 31, 2011 and June 30, 2010, construction
in progress consists of the following:



March 31, 2011
    
    June 30, 2010(Unaudited)Prepaid land use rights and buildings built for Procuratorate Housing Estates (located in Yuquan District, Hohhot City, Inner Mongolia)
    
    $
    917,823
    
    $
    885,672Prepaid land use rights and buildings built for Shuian Renjia project
    
    
    19,771,345
    
    
    —Prepaid land use rights for Wusutu Village land – JinWu project
    
    
    2,516,371
    
    
    2,428,224Prepaid land use rights for Fu Xing Ying land – Beiyuan project
    
    
    9,893,304
    
    
    9,546,750Total construction in progress
    
    
    33,098,843
    
    
    12,860,646Less: current portion
    
    
    (19,771,345
    )
    
    —Long term construction in progress
    
    $
    13,327,498
    
    $
    12,860,646




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



NOTE 7 – ACCRUED EXPENSES



At March 31, 2011 and June 30, 2010, accrued
expenses consist of the following:



March 31, 2011
    
    June 30, 2010(Unaudited)Accrued interest payable
    
    $
    301,086
    
    $
    234,214Accrued payroll and employees benefit
    
    
    53,021
    
    
    152,332Refundable construction performance deposit
    
    
    149,161
    
    
    440,619Other
    
    
    57,163
    
    
    5,432$
    560,431
    
    $
    832,597




NOTE 8 – LOANS PAYABLE



Loans payable consisted of the following at March 31, 2011 and June
30, 2010:



March 31, 2011
    
    June 30, 2010(Unaudited)Loans from various credit unions, due on May 10, 2011 with annual interest of 13.92% and secured by the assets of Jin Ma Hotel (1)
    
    $
    3,013,653
    
    $
    2,908,087Loans from various unrelated parties, due in September 2010 with annual interest of 18% and unsecured and repaid in October 2010
    
    
    —
    
    
    36,718Loans from various unrelated parties, due in April 2012 with annual interest of 18% and unsecured
    
    
    197,866
    
    
    190,936Loans from various unrelated parties, due in August 2011 with annual interest of 18% and unsecured
    
    
    38,051
    
    
    36,718Loans from various unrelated parties, due in September 2012 with annual interest of 18% and unsecured
    
    
    121,764
    
    
    117,498Loan from one unrelated individual, due in March 2012 with annual interest of 24% and unsecured.
    
    
    152,205
    
    
    146,873Total loans payable
    
    
    3,523,539
    
    
    3,436,830Less: current portion
    
    
    (3,203,909
    )
    
    (3,091,678
    )Long term liability
    
    $
    319,630
    
    $
    345,152





18

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 8 – LOANS PAYABLE (CONTINUED)



(1):    The
Company did not repay the loan on due date and the Company is negotiating with the credit union to extend the loan for another
year.



For the nine months ended March 31, 2011 and
2010, interest expense related to these loans amounted to $377,728 and $460,852, respectively. At March 31, 2011, future maturities
of debt are as follows:



2012 (current liability)
    $
    3,203,9092013
    $
    319,630

NOTE 9 – RELATED PARTY TRANSACTIONS



Due to related parties



From time to time, companies related through
common ownership advanced funds to the Company for working capital purposes.  These advances are non interest bearing, unsecured
and payable on demand.  At March 31, 2011 and June 30, 2010, due to related parties consisted of the following:



March 31, 2011
    
    June 30, 2010Name
    
    
    Relationship
    
    (Unaudited)Inner Mongolia Jin Ma Group Ltd and its subsidiaries
    
    
    Owned by Yang Liankuan
    
    $
    719,675
    
    $
    230,453







Other



During the nine months ended March 31, 2011
and 2010, the Company paid rent of $39,245 and $38,338 to Inner Mongolia Jin Ma Group Ltd., respectively.



NOTE 10 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES



Under the terms of a Securities Purchase Agreement,
on the closing date which occurred on November 30, 2007, the Company issued $2,183,000 principal amount 10% Secured Convertible
Debentures to the purchasers together with the common stock purchase warrants to purchase an aggregate of 238,009 shares of the
Company’s common stock. The Company paid Next Generation Equity Research, LLC (“Next”), a broker dealer and member
of FINRA, a commission of $174,640 and issued Next common stock purchase warrants to purchase an aggregate of 12,692 shares of
the Company’s common stock at $20.00 per share. Additionally, the Company reimbursed one of the investors $30,000 to defer
its legal fees in connection with the financing. The Company used the balance of the proceeds for general working capital.



The debentures, aggregating $2,183,000, which
prior to March 31, 2009 accrued interest at 10% per annum, were originally due on March 31, 2009.  The Company failed to repay
the debentures on the due date.  During May 2009, the Company entered into negotiations with the debenture holders to restructure
the payment terms and reached an understanding, subject to the execution of definitive documents, to extend the due date of the
debentures and cure the default. On May 18, 2009, the Company and the debenture holders signed a Debenture and Warrant Amendment
Agreement (the “Amendment Agreement”) and an Amended and Restated 14% Secured Convertible Debenture (the “Exchanged
Debentures”).  The Jin Ma Companies, however, had been unable to consummate this restructure due to delays caused by
China’s State Administration of Foreign Exchange (“SAFE”), the agency that the Jin Ma Companies must get approval
from to wire the funds to the debenture holders. On June 30, 2009, the Company and the debenture holders executed an Amendment
to the Amendment Agreement effectively consummating the Amendment Agreement and issuing the Exchanged Debentures thereby ceasing
any written or non-written declarations of an event of default under its Securities Purchase Agreement and the related 10% secured
convertible debentures and any process to foreclose upon the pledged shares in accordance with the terms of the pledge agreement
executed in connection Securities Purchase Agreement. The exercise price per share of common stock for the original 250,701 warrants
issued pursuant to the Securities Purchase Agreement was lowered from $20.00 to $4.00.



19

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 10 – CONVERTIBLE DEBT AND DERIVATIVE LIABILITIES (CONTINUED)



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



•
    waived all existing defaults under the June 2009 Amendment and the debentures,•
    reduced the conversion price of the 14% secured convertible debentures and the exercise price of 238,009 warrants to $3.20 per share,•
    converted all remaining principal amount of $409,667, all accrued interest due under the 14% secured convertible debentures of $48,074 together with the penalties owed the debenture holders of $168,333 into 195,648 shares of the Company’s common stock,•
    contained an agreement by the debenture holder that individually they would not sell any shares of our common stock acquired upon the conversion of the 14% debentures or the exercise of the warrants in an amount which was more than 7% of the daily trading volume of the Company’s common stock on any given day for a one year period,•
    The Company agreed not to issue shares of Common Stock at a price, or options, warrants or convertible securities with an exercise or conversion price that is less than the conversion price of the then outstanding convertible debt or the exercise price of the then outstanding warrants, as the case may be, with the intent of eliminating the provisions for a reduction in the exercise price of the warrants in the event that the Company issues stock at a price which is less than the exercise price of the warrants.

During the year
ended June 30, 2010,Company repaid all of its convertible debt by issuing 325,467 shares of its common stock for the principal
balance of $1,199,450 and repaid the remaining principal balance of $983,550 using cash.



In accordance with the FASB authoritative guidance,
the conversion feature of the convertible debt was separated from the host contract and recognized as a derivative instrument.
Both the conversion feature of the debt and the related warrants have been characterized as derivative liabilities to be re-measured
at the end of every reporting period with the change in value reported in the consolidated statement of income. The common stock
purchase warrants do not trade in an active securities market, and as such, the Company estimates the fair value of the warrants
as of March 31, 2011 and June 30, 2010 using a probability-weighted Black-Scholes-Merton option-pricing model using the following
assumptions:



March 31, 2011
    
    June 30, 2010Warrants:Risk-free interest rate
    
    
    0.80
    %
    
    1.00
    %Expected volatility
    
    
    149.87
    %
    
    179.74
    %Expected life (in years)
    
    
    1.67 years
    
    
    2.42 yearsExpected dividend yield
    
    
    —
    
    
    —Fair Value:
    
    $
    191,701
    
    $
    653,630




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



As of March 31, 2011 and June 30, 2010, the
outstanding numbers of warrants related to the convertible debentures were 196,195. At March 31, 2011 and June 30, 2010, the Company
recorded a derivative liability of $191,701 and $653,630, respectively, related to the warrants. When the debentures converted
or repaid, the derivative liability was extinguished and a gain on extinguishment of the derivative was recorded. For the nine
months ended March 31, 2011 and 2010, gains from the change in fair value of derivative liabilities were $461,929 and $1,704,654,
respectively. For the nine months ended March 31, 2011 and 2010, gains from the extinguishment of derivative liabilities were $0
and $1,893,310, respectively.



20

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 11 – 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 PRC 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%.



At March 31, 2011 and June 30, 2010, taxes payable are as follows:



March 31, 2011
    
    June 30, 2010(Unaudited)Income taxes payable
    
    $
    202,519
    
    $
    610,173Other taxes payable:- land appreciation tax
    
    
    1,117,056
    
    
    1,273,698- business tax
    
    
    139,565
    
    
    395,426- others
    
    
    82,034
    
    
    94,762Total
    
    $
    1,541,174
    
    $
    2,374,059




As of March 31, 2011 and June 30, 2010, the
Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods
and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve
months. No interest or penalties relating to income tax matters have been imposed on the Company during the three months and nine
months ended March 31, 2011 and 2010, and no provision for interest and penalties is deemed necessary as of March 31, 2011 and
June 30, 2010.



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



NOTE 12 – STOCKHOLDERS’ EQUITY



Common stock



On December 10, 2010, the Company issued an
aggregate of 50,000 shares of its common stock to its chief executive officer and its chief financial officer for services rendered
by them.  The shares were valued at $3.45 per share based on the fair value on the date of grant.  In connection with
the issuance of these shares, the Company recorded compensation expenses of $115,000 and reduced accrued expenses of $57,500.



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



On December 10,
2010, the Company issued 750 shares of its common stock to a director for services rendered and to be rendered by him. The shares
were valued at $3.45 per share based on the fair value on the date of grant. In connection with the issuance of these shares, the
Companyrecorded compensation expenses of $1,716, reduced accrued expenses of $250 and recorded prepaid expenses of $621
which will be amortized over the remainingservice period.



21

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 12 – STOCKHOLDERS’ EQUITY (CONTINUED)



Warrants



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



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




Warrant activities for the nine months ended March 31, 2011 were
summarized as follows:



Number of Warrants
    
    Weighted Average Exercise
PriceBalance at June 30, 2010
    
    
    196,195
    
    $
    3.25Granted
    
    
    8,750
    
    
    6.00Exercised
    
    
    —
    
    
    —Forfeited
    
    
    —
    
    
    —Balance at March 31, 2011 (Unaudited)
    
    
    204,945
    
    $
    3.37Warrants exercisable at March 31, 2011
    
    
    196,195
    
    $
    3.25




The following table summarizes the Company's stock warrants outstanding
at March 31, 2011:



Warrants Outstanding
    
    Warrants ExercisableRange of
Exercise
Price
    
    Number
Outstanding
at March 31,
2011
    
    Weighted
Average
Exercise
Price
    
    Aggregate
Intrinsic
Value(1)
    
    Weighted
Average
Remaining
Contractual
Life
    
    Number
Exercisable
at
March 31,
2011
    
    Weighted
Average
Exercise
Price$
    3.20
    
    
    183,503
    
    $
    3.20
    
    $
    —
    
    
    1.67 Years
    
    
    183,503
    
    $
    3.20$
    4.00
    
    
    12,692
    
    $
    4.00
    
    $
    —
    
    
    1.67 Years
    
    
    12,692
    
    $
    4.00$
    6.00
    
    
    8,750
    
    $
    6.00
    
    $
    —
    
    
    4.39 Years
    
    
    —
    
    $
    —Total
    
    
    204,945
    
    $
    3.37
    
    $
    —
    
    
    1.79 Years
    
    
    196,195
    
    $
    3.25




(1)
    The intrinsic value of warrants at March 31, 2011 is zero since the market value of the Company’s common stock of $1.60 as of March 31, 2011 is lower than the exercise price of the warrants.

22

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 13 – SEGMENT INFORMATION



ASC Topic 280 requires use of the “management
approach” model for segment reporting. The management approach model is based on the way a company’s management organizes
segments within the company for making operating decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
During the nine months ended March 31, 2011 and 2010, the Company operated in three reportable business segments - (1) the Construction
segment (2) Hotel segment and (3) Real estate development segment. The Company's reportable segments are strategic business units
that offer different products. The Company's reportable segments, although integral to the success of the others, offer distinctly
different products and services and require different types of management focus. As such, these segments are managed separately.



Condensed information with respect to these reportable business
segments for the three and nine months ended March 31, 2011 and 2010 is as follows:



For the three months ended March 31,
    
    For the nine months ended March 31,2011
(Unaudited)
    
    2010
(Unaudited)
    
    2011
(Unaudited)
    
    2010
(Unaudited)Revenues:Construction
    
    $
    7,994,860
    
    $
    11,143,476
    
    $
    32,986,009
    
    $
    20,739,488Real Estate
    
    
    193,661
    
    
    227,917
    
    
    907,030
    
    
    386,898Hotel
    
    
    739,027
    
    
    749,749
    
    
    2,304,502
    
    
    2,262,5788,927,548
    
    
    12,121,142
    
    
    36,197,541
    
    
    23,388,964Depreciation:Construction
    
    
    117,830
    
    
    112,996
    
    
    348,700
    
    
    340,986Real Estate
    
    
    11,232
    
    
    10,776
    
    
    33,239
    
    
    30,827Hotel
    
    
    71,162
    
    
    74,309
    
    
    210,722
    
    
    211,389200,224
    
    
    198,081
    
    
    592,661
    
    
    583,202Interest expense:Construction
    
    
    125,722
    
    
    120,915
    
    
    377,728
    
    
    460,852Other
    
    
    —
    
    
    273,752
    
    
    —
    
    
    2,250,891125,722
    
    
    394,667
    
    
    377,728
    
    
    2,711,743Net income (loss):Construction
    
    
    595,024
    
    
    988,505
    
    
    2,947,949
    
    
    1,778,111Real Estate
    
    
    29,842
    
    
    515,785
    
    
    512,437
    
    
    840,585Hotel
    
    
    48,806
    
    
    144,869
    
    
    265,704
    
    
    266,069Other (a)
    
    
    197,761
    
    
    (442,944
    )
    
    (44,562
    )
    
    1,042,720$
    871,433
    
    $
    1,206,215
    
    $
    3,681,528
    
    $
    3,927,485






March 31, 2011
    
    June 30, 2010(Unaudited)Identifiable long-lived tangible assets at March 31, 2011 and June 30, 2010:Construction
    
    $
    6,199,184
    
    $
    6,283,804Real Estate
    
    
    325,423
    
    
    346,430Hotel
    
    
    1,959,472
    
    
    2,097,562$
    8,484,079
    
    $
    8,727,796






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



23

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 14 - 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
(“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 nine months ended March 31, 2011. For the nine months ended March 31, 2011, statutory reserve activity
is as follows:



Statutory ReserveBalance – June 30, 2010
    
    $
    2,470,154Addition to statutory reserves
    
    
    26,570Balance – March 31, 2011 (Unaudited)
    
    $
    2,496,724




NOTE 15 – MAJOR CUSTOMERS AND VENDORS



The nature of the Company’s construction
segment is that at any given time, the Companywill have a concentration of significant customers depending
upon thenumber 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 nine months ended March 31, 2011, three construction
projects accounted for 91.1% of the Company’s total revenues. For the nine months ended March 31, 2010, four construction
projects accounted for 89.2% of the Company’s total revenues. Major customers are summarized as follows:



Project Name
    
    For the Nine Months
Ended March 31, 2011
(Unaudited)
    
    %
    
    For the Nine Months
Ended March 31, 2010
(Unaudited)
    
    %Lanyu Garden No. 3 residential apartment project
    
    $
    —
    
    
    0.0
    
    $
    3,439,758
    
    
    14.7Fu Xing Bath Center project
    
    
    —
    
    
    0.0
    
    
    3,054,935
    
    
    13.1Fuhengyuan residential project
    
    
    5,791,319
    
    
    16.0
    
    
    —
    
    
    0.0Tiantixingyuan No. 1 – No. 7 project
    
    
    11,223,429
    
    
    31.0
    
    
    —
    
    
    0.0Jianhe Garden residential project
    
    
    15,973,781
    
    
    44.1
    
    
    8,310,519
    
    
    35.5Tuzuoqi (Chasuqi) Low-rent House project
    
    
    —
    
    
    —
    
    
    6,051,725
    
    
    25.9




At March 31, 2011, the Company had $8,622,243
of accounts receivable due from its major customers. Any disruption in the relationships between the Company’s construction
segment and one or more of thesecustomers, or any significant variance in the magnitude or the timing
of construction projects from any one of these customers, may result in decreases inthe Company’sresults 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.



NOTE 16 – RESTRICTED NET ASSETS



Schedule I of Article 5-04 of Regulation S-X
requires that 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.).



24

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011



NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



The parent company
financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets
of the subsidiaries of Gold Horse International, Inc. exceed 25% of the consolidated net assets of Gold Horse International, Inc.
The ability of the Company’sChinese 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 all ofthe Company’soperations and revenues are conducted and generated
in China through the Jin Ma Companies, all ofthe Company’srevenues being earned and currency
received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, the Company
may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrictthe Company’sability to convert RMB into US Dollars.



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



GOLD HORSE INTERNATIONAL, INC.

CONDENSED PARENT COMPANY BALANCE SHEETS

As of March 31, 2011
    
    As of June 30, 2010(Unaudited)ASSETSCash and cash equivalents
    
    $
    4,818
    
    $
    1,043Prepaid expenses
    
    
    621
    
    
    210,000Total Current Assets
    
    
    5,439
    
    
    211,043Investments in subsidiaries at equity
    
    
    41,394,369
    
    
    36,261,257Due from subsidiaries
    
    
    749,638
    
    
    849,638Total Assets
    
    $
    42,149,446
    
    $
    37,321,938LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable
    
    $
    17,027
    
    $
    48,916Derivative liabilities
    
    
    191,701
    
    
    653,630Accrued expenses
    
    
    75,688
    
    
    62,125Total Current Liabilities
    
    
    284,416
    
    
    764,671Stockholders' equity:Common stock ($0.0001 par value; 300,000,000 shares authorized; 1,989,459 and 1,934,878 shares issued and outstanding at March 31, 2011 and June 30, 2010 respectively)
    
    
    199
    
    
    193Non-controlling interest in variable interest entities
    
    
    6,095,314
    
    
    6,095,314Additional paid-in capital
    
    
    7,346,784
    
    
    7,127,577Statutory reserve
    
    
    2,496,724
    
    
    2,470,154Retained earnings
    
    
    21,868,424
    
    
    18,213,466Other comprehensive income
    
    
    4,057,585
    
    
    2,650,563Total Stockholders' Equity
    
    
    41,865,030
    
    
    36,557,267Total Liabilities and Stockholders' Equity
    
    $
    42,149,446
    
    $
    37,321,938

25

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



GOLD HORSE INTERNATIONAL, INC.

CONDENSED PARENT COMPANY STATEMENTS OF OPERATIONS

For the Nine Months Ended March 31,2011
    
    2010(Unaudited)
    
    (Unaudited)REVENUES
    
    $
    —
    
    $
    —OPERATING EXPENSES:Salaries and employee benefits
    
    
    217,633
    
    
    214,125General and administrative
    
    
    288,858
    
    
    90,228Total Operating Expenses
    
    
    506,491
    
    
    304,353LOSS FROM OPERATIONS
    
    
    (506,491
    )
    
    (304,353
    )OTHER INCOME (EXPENSES):Gain on extinguishment of derivative liabilities
    
    
    —
    
    
    1,893,310Gain on change in fair value of derivative liabilities
    
    
    461,929
    
    
    1,704,654Interest expense
    
    
    —
    
    
    (2,250,891
    )Total Other Income
    
    
    461,929
    
    
    1,347,073(LOSS) GAIN ATTRIBUTABLE TO PARENT ONLY
    
    
    (44,562
    )
    
    1,042,720EQUITY INCOME EARNINGS OF SUBSIDIARIES
    
    
    3,726,090
    
    
    2,884,765NET INCOME
    
    $
    3,681,528
    
    $
    3,927,485

26

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)



GOLD HORSE INTERNATIONAL, INC.

CONDENSED PARENT COMPANY STATEMENTS OF CASH
FLOWS

For the Nine Months Ended March 31,2011
    
    2010(Unaudited)
    
    (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    3,681,528
    
    $
    3,927,485Adjustments to reconcile net income to net cash used in operating activities:Equity in earnings of subsidiary
    
    
    (3,726,090
    )
    
    (2,884,765
    )Common stock issued for services
    
    
    116,716
    
    
    232,500Common stock issued for interest
    
    
    —
    
    
    28,039Interest expense from amortization of debt discount
    
    
    —
    
    
    2,183,000Warrants issued for services
    
    
    31,188
    
    
    —Gain on extinguishment of derivative liabilities
    
    
    —
    
    
    (1,893,310
    )Gain on change in fair value of derivative liabilities
    
    
    (461,929
    )
    
    (1,704,654
    )Changes in assets and liabilities:Prepaid expenses
    
    
    210,000
    
    
    —Accounts payable
    
    
    (31,889
    )
    
    (9,654
    )Accrued expenses
    
    
    84,251
    
    
    (124,901
    )NET CASH USED IN OPERATING ACTIVITIES
    
    
    (96,225
    )
    
    (246,260)CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from subsidiaries
    
    
    100,000
    
    
    1,192,504NET CASH PROVIDED BY INVESTING ACTIVITIES
    
    
    100,000
    
    
    1,192,504CASH FLOWS FROM FINANCING ACTIVITIES:Repayment for convertible debt
    
    
    —
    
    
    (983,550
    )NET CASH USED IN FINANCING ACTIVITIES
    
    
    —
    
    
    (983,550
    )NET INCREASE (DECREASE) IN CASH
    
    
    3,775
    
    
    (37,306
    )CASH - beginning of period
    
    
    1,043
    
    
    39,956CASH - end of period
    
    $
    4,818
    
    $
    2,650

NOTE 17 – COMMITMENTS



Other than in the normal course of business,
the Company did not have significant capital and other commitments, or significant guarantees as of March 31, 2011.



27

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 18 – RESTATEMENT OF INTERIM FINANCIAL
RESULTS



The Company’s consolidated financial
statements have been restated for the three and nine months ended March 31, 2010 to properly record certain common stock purchase
warrants and conversion options related to convertible debt as derivative liabilities in accordance with Derivative and Hedging
Topic of the FASB Accounting Standards Codification Topic 815 (“ASC 815”), which has been effective for the Company
since July 1, 2009, and to record the subsequent accounting for the changes in the fair value of the associated liabilities at
March 31, 2010. Accordingly, the Company’s unaudited interim consolidated balance sheets, statements of income, and statements
of cash flows at March 31, 2010 have been restated herein. All the respective restatement adjustments are non-cash in nature and
not related to the operations of the Jin Ma Companies. The effect of correcting these errors in the Company’s (a) unaudited
consolidated balance sheets at March 31, 2011; (b) unaudited consolidated statements of income for the three and nine months ended
March 31, 2010; and (c) unaudited consolidated statements of cash flows for the nine months ended March 31, 2010 are shown in the
tables as follows:

Consolidated Balance Sheet data
    
    March 31, 2010 (Unaudited)As Previously Filed
    
    Adjustments  to Restate
    
    
    RestatedTotal Assets
    
    $
    49,326,183
    
    $
    —
    
    
    $
    49,326,183Derivative liabilities
    
    
    —
    
    
    924,132
    
    (a)
    
    924,132Total Current Liabilities
    
    
    16,644,892
    
    
    924,132
    
    
    
    17,569,024Total Liabilities
    
    
    16,988,655
    
    
    924,132
    
    
    
    17,912,787Stockholders’ EquityPreferred stock ($0.0001 par value; 20,000,000 shares authorized; none issued and outstanding)
    
    
    —
    
    
    —
    
    
    
    —Common stock ($0.0001 par value; 300,000,000 shares authorized;
1,739,230 shares issued and outstanding)
    
    
    174
    
    
    —
    
    
    
    174Non-controlling interest in variable interest entities
    
    
    6,095,314
    
    
    —
    
    
    
    6,095,314Additional paid-in capital
    
    
    8,503,411
    
    
    (2,183,000
    )
    (b)
    
    6,478,495158,084
    
    (d)Statutory reserve
    
    
    2,330,446
    
    
    —
    
    
    
    2,330,446Retained earnings
    
    
    12,906,816
    
    
    1,100,784
    
    (c)
    
    14,007,600Accumulated other comprehensive income
    
    
    2,501,367
    
    
    —
    
    
    
    2,501,367Total Stockholders’ Equity
    
    
    32,337,528
    
    
    (924,132
    )
    
    
    31,413,396Total Liabilities and Stockholders’ Equity
    
    $
    49,326,183
    
    $
    —
    
    
    $
    49,326,183(a)
    To record conversion feature and warrant derivative liability(b)
    To reverse effect on additional paid-in capital as a result of the reclassification of warrants as derivative liability(c)
    To adjust retained earnings for the adoption of ASC 815 accounting in (a) and (b)(d)
    To reclassify warrant derivative liabilities upon exercise of warrants

28

GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

March 31, 2011




NOTE 18 – RESTATEMENT OF INTERIM FINANCIAL
RESULTS (CONTINUED)



Consolidated Statement of Income Data
    
    For the Three Months Ended
        March 31, 2010 (Unaudited)
    
    
    For the Nine Months Ended
        March 31, 2010 (Unaudited)As previously filed
    
    Adjustments  to Restate
    
    Restated
    
    
    As Previously Filed
    
    Adjustments  to Restate
    
    RestatedIncome from Operations (*)
    
    $
    1,448,260
    
    
    —
    
    $
    1,448,260
    
    
    $
    2,182,570
    
    
    —
    
    $
    2,182,570Other Income (Expenses):Change in fair value of derivative liabilities
    
    
    —
    
    
    (298,283
    )
    
    (298,283
    )
    (e)
    
    —
    
    
    1,704,654
    
    
    1,704,654Gain from debt extinguishment
    
    
    —
    
    
    270,101
    
    
    270,101
    
    (f)
    
    —
    
    
    1,893,310
    
    
    1,893,310Gain on sale of land use rights (*)
    
    
    55
    
    
    —
    
    
    55
    
    
    
    449,528
    
    
    —
    
    
    449,528Interest income
    
    
    731,521
    
    
    —
    
    
    731,521
    
    
    
    1,274,716
    
    
    —
    
    
    1,274,716Interest expense
    
    
    (394,667
    )
    
    —
    
    
    (394,667
    )
    
    
    (2,711,743
    )
    
    —
    
    
    (2,711,743
    )Total Other Income (Expenses)
    
    
    336,909
    
    
    (28,183
    )
    
    308,727
    
    
    
    (987,499
    )
    
    3,597,964
    
    
    2,610,465Income (Loss) before Provision for Income Taxes
    
    
    1,785,169
    
    
    (28,183
    )
    
    1,756,987
    
    
    
    1,195,071
    
    
    3,597,964
    
    
    4,793,035Provision for Income Taxes
    
    
    550,772
    
    
    —
    
    
    550,772
    
    
    
    865,550
    
    
    —
    
    
    865,550Net Income (Loss)
    
    $
    1,234,397
    
    $
    (28,183
    )
    $
    1,206,215
    
    
    $
    329,521
    
    $
    3,597,964
    
    $
    3,927,485Comprehensive Income (Loss)
    
    $
    1,239,150
    
    $
    (28,183
    )
    $
    1,210,968
    
    
    $
    368,134
    
    $
    3,597,964
    
    $
    3,966,098Net Income (Loss) per Common Share:Basic
    
    $
    0.73
    
    $
    (0.02
    )
    $
    0.71
    
    
    $
    0.22
    
    $
    2.35
    
    $
    2.57Diluted
    
    $
    0.68
    
    $
    0.02
    
    $
    0.70
    
    
    $
    0.20
    
    $
    2.34
    
    $
    2.54Weighted Average Common Shares Outstanding:Basic
    
    
    1,702,336
    
    
    
    
    
    1,702,336
    
    
    
    1,531,055
    
    
    
    
    
    1,531,055Diluted
    
    
    1,814,095
    
    
    
    
    
    1,711,679
    
    
    
    1,648,004
    
    
    
    
    
    1,548,957(e)
    To reflect change in fair value of derivative liabilities(f)
    To reflect extinguishment of conversion feature derivative liability upon conversion of debt to equity(*)
    Gain on sale of land use rights has been reclassified from income from operations to other income to conform to the current period’s presentation

Consolidated Statement of Cash Flows
    
    For the Nine Months Ended
        March 31, 2010 (Unaudited)As previously filed
    
    Adjustments  to Restate
    
    RestatedNet Income
    $
    329,521
    $
    3,597,964
    $
    3,927,485Adjustments to reconcile net income to net cash used in operating activities:Gain on change in fair value of derivative liabilities
    
    —
    
    (1,704,654)
    (e)
    (1,704,654)Gain from debt extinguishment
    
    —
    
    (1,893,310)
    (f)
    (1,893,310)Cash Used in Operating Activities
    
    (531,041)
    
    —
    
    (531,041)

29

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



We are not engaged in any
business or operations other than pursuant to the terms of the various Contractual Arrangements with the Jin Ma Companies as described
elsewhere in this report. As such, we are completely dependent on the Contractual Arrangements. We do not generate any revenues.
Pursuant to the requirements of ASC Topic 810, under generally accepted accounting principles the Jin Ma Companies are deemed to
be variable interest entities (“VIEs”) and we are required to consolidate the financial statements of the Jin Ma Companies
with our financial statements. Accordingly, and as described elsewhere in this report, the assets and liabilities at March 31,
2011 and June 30, 2010 and the results of operations for the three and nine months ended March 31, 2011 and 2010 are primarily
those of the Jin Ma Companies. All of those assets and operations are located in the PRC and the Contractual Arrangements are subject
to enforcement under the laws of the PRC. There are no assurances we will be able to enforce these agreements if necessary. If
we are unable to enforce any legal rights we may have under these contracts or otherwise, our ability to continue as a going concern
is in jeopardy. In addition, the terms of these contracts expire in August 2016 and there are no assurances these agreements will
be renewed. If the Contractual Arrangements are not renewed or are significantly modified, unless we have developed business and
operations which are independent of the Jin Ma Companies, of which there are no assurances, we will in all likelihood be forced
to cease our operations.



Critical Accounting Policies and Estimates



Our discussion and analysis
of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared
in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, net revenues and expenses, and related disclosure of contingent assets and liabilities.
We continually evaluate our estimates, including the allowance for doubtful accounts, the useful life of property and equipment
and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, the calculation
of costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings, provisions for estimated
losses on uncompleted contracts, the fair value of conversion options embedded in convertible debt, and the fair values of warrants
granted in connection with the issuance of the convertible debt. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these
estimates and assumptions could cause a material change to our reported amounts of net revenues, expenses, assets and liabilities.
Actual results may differ from these estimates under different assumptions or conditions. These
critical accounting policies are discussed in more detail in the Management’s Discussion and Analysis of Financial Condition
and Results of Operations contained in our Annual Report on Form 10-K for the year ended June 30, 2010 and in Note 1 to the unaudited
consolidated financial statements contained herein.



Recent Accounting Pronouncements



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



In December 2010,
FASB issued ASU No. 2010-28, Intangibles - Goodwill and Other(ASC Topic 350). Under Topic 350 on goodwill and other
intangible assets, testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on
an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step
1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the
amount of that impairment (Step 2). The amendments in this update modify Step 1 of the goodwill impairment test for reporting units
with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment
test if it is more



30

likely than not that a goodwill impairment
exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether
there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors require that goodwill
of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely
than not reduce the fair value of a reporting unit below its carrying amount. The amendments in this update are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. As we do not
have any significant intangible assets, we believe that the impact of adopting this update will not be material on our consolidated
results of operations and financial position.



In December 2010,
FASB issued Accounting Standards Update (ASU) No. 2010-29, Business Combinations(ASC Topic 805). The amendments in
this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings
of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning
of the comparable prior annual reporting period only. The amendments also improve the usefulness of the pro forma revenue and earnings
disclosures by requiring a description of the nature and amount of material, nonrecurring pro forma adjustments that are directly
attributable to the business combination(s). The amendments in this update are effective for fiscal years, and interim periods
within those years, beginning after December 15, 2010. Early adoption is permitted. As we did not enter into any business combinations
in fiscal year 2010, we believe that the adoption this update will not have any material impact on our financial statement disclosures.
However, if we enter into material business combinations in the future, the adoption of this update may have significant impact
on our financial statement disclosures.



In January 2011, the FASB
issued ASU No. 2011-01- Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings
in Update No. 2010-20. The amendments in this update temporarily delay the effective date of the disclosures about troubled debt
restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses, for public entities. The delay is intended to allow the FASB time to complete its deliberations on
what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for
public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. This
deferral will have no material impact on our consolidated financial statements.



In January 2011, the FASB
issued ASU No. 2011-02- Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt
Restructuring. The amendments in this update provide additional guidance to assist creditors in determining whether a restructuring
of a receivable meets the criteria to be considered a troubled debt restructuring. For public companies, the new guidance is effective
for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on
or after the beginning of the fiscal year of adoption within those annual periods. Early application is permitted. The adoption
of the provisions in ASU 2011-02 will have no material impact on our consolidated financial statements.



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



RESULTS OF OPERATIONS



Three and Nine Months Ended March
31, 2011 Compared to the Three and Nine Months Ended March 31, 2010



For the Three Months Ended March 31,
    
    For the Nine Months Ended March 31,2011
    
    % of
Total Net
Revenues
    
    2010
    
    % of
Total Net
Revenues
    
    2011
    
    % of
Total Net
Revenues
    
    2010
    
    % of
Total Net
RevenuesNET REVENUESConstruction
    
    $
    7,994,860
    
    
    89.6
    
    $
    11,143,476
    
    
    91.9
    
    $
    32,986,009
    
    
    91.1
    
    $
    20,739,488
    
    
    88.6Hotel
    
    
    739,027
    
    
    8.3
    
    
    749,749
    
    
    6.2
    
    
    2,304,502
    
    
    6.4
    
    
    2,262,578
    
    
    9.7Real estate
    
    
    193,661
    
    
    2.2
    
    
    227,917
    
    
    1.9
    
    
    907,030
    
    
    2.5
    
    
    386,898
    
    
    1.7Total Revenues
    
    
    8,927,548
    
    
    100.0
    
    
    12,121,142
    
    
    100.0
    
    
    36,197,541
    
    
    100.0
    
    
    23,388,964
    
    
    100.0COST OF REVENUESConstruction
    
    
    6,851,787
    
    
    85.7*
    
    
    9,559,477
    
    
    85.8*
    
    
    28,289,607
    
    
    85.8*
    
    
    17,889,157
    
    
    86.3*Hotel
    
    
    414,640
    
    
    56.1*
    
    
    478,135
    
    
    63.8*
    
    
    1,323,695
    
    
    57.4*
    
    
    1,486,994
    
    
    65.7*Real estate
    
    
    130,334
    
    
    67.3*
    
    
    168,805
    
    
    74.1*
    
    
    670,548
    
    
    73.9*
    
    
    335,855
    
    
    86.8*Total Cost ofRevenues
    
    
    7,396,761
    
    
    82.9
    
    
    10,206,417
    
    
    84.2
    
    
    30,283,850
    
    
    83.7
    
    
    19,712,006
    
    
    84.3GROSS PROFITConstruction
    
    
    1,143,073
    
    
    14.3*
    
    
    1,583,999
    
    
    14.2*
    
    
    4,696,402
    
    
    14.2*
    
    
    2,850,331
    
    
    13.7*Hotel
    
    
    324,387
    
    
    43.9*
    
    
    271,614
    
    
    36.2*
    
    
    980,807
    
    
    42.6*
    
    
    775,584
    
    
    34.3*Real estate
    
    
    63,327
    
    
    32.7*
    
    
    59,112
    
    
    25.9*
    
    
    236,482
    
    
    26.1*
    
    
    51,043
    
    
    13.2*Total Gross Profit
    
    $
    1,530,787
    
    
    17.1
    
    $
    1,914,725
    
    
    15.8
    
    $
    5,913,691
    
    
    16.3
    
    $
    3,676,958
    
    
    15.7

*   Represents percentage
of respective segments total net revenues



31

Net Revenues.
For the nine months ended March 31, 2011, our overall net revenues increased 54.8% from the nine months ended March 31, 2010. For
the three months ended March 31, 2011, our overall net revenues decreased 26.3% from the three months ended March 31, 2010. The
fluctuation in overall net revenues was mainly due to the fluctuation in activity in our construction and real estate
operations caused by the timing of our construction projects as well as the timing of the sale real estate units held for sale.
We believe that the Hohhot real estate market, a Tier 3 city, remains strong and has not been effected by any real estate bubble
or restriction that have been seen in Tier 1 cities. However, changes in national and regional economic conditions, as well as
local economic conditions where we conduct our operations and where prospective purchasers of our homes live, may result in more
caution on the part of homebuyers and consequently fewer home purchases. Reference to Tier 1, Tier 2 and Tier 3 cities refer to
the categories set forth as the below.  We refer to cities that meet the following criteria as Tier 1 cities:



·
    Gross Domestic Product, or GDP, over RMB 200 billion (US$29 billion);

·
    Population with permanent residency in urban area over 5 million;

Tier 2 cities are cities that generally meet
the following criteria,



·
    Gross Domestic Product, or GDP, over RMB 150 billion (US$23 billion) and below RMB 200 billion (US$29 billion);

·
    Population with permanent residency in urban area over 3 million;

Tier 3 cities are the cities that do not meet
one or more criteria listed above.



For the three months ended
March 31, 2011 and 2010, net revenues from our construction segment operations are summarized as follows:



Project Name
    
    For the Three Months
Ended March 31, 2011
    
    %
(*)
    
    For the Three Months
Ended March 31, 2010
    
    %
(*)Ai Bo Garden residential apartment project (Phase I and II)
    
    $
    —
    
    
    0.0
    
    $
    (14
    )
    
    0.0Lanyu Garden project
    
    
    —
    
    
    0.0
    
    
    423
    
    
    0.0Fu Xing Committee Bath Center project
    
    
    —
    
    
    0.0
    
    
    375
    
    
    0.0Jianhe Garden residential project
    
    
    104,771
    
    
    1.3
    
    
    5,977,284
    
    
    53.6Tuzuoqi (Chasuqi) Low-rent House project
    
    
    (17
    )
    
    0.0
    
    
    5,165,408
    
    
    46.4Fuhengyuan residential project
    
    
    2,995,806
    
    
    37.5
    
    
    —
    
    
    —Tiantixingyuan No. 1 – No. 7 project
    
    
    4,894,300
    
    
    61.2
    
    
    —
    
    
    —Total construction segment revenues
    
    $
    7,994,860
    
    
    100.0
    
    $
    11,143,476
    
    
    100.0




For the nine months ended
March 31, 2011 and 2010, net revenues from our construction segment operations are summarized as follows:



Project Name
    
    For the Nine Months
Ended March 31, 2011
    
    %
(*)
    
    For the Nine Months
Ended March 31, 2010
    
    %
(*)Ai Bo Garden residential apartment project (Phase I and II)
    
    $
    —
    
    
    0.0
    
    $
    (117,449
    )
    
    (0.6
    )Lanyu Garden project
    
    
    —
    
    
    0.0
    
    
    3,439,758
    
    
    16.6Fu Xing Committee Bath Center project
    
    
    —
    
    
    0.0
    
    
    3,054,935
    
    
    14.7Jianhe Garden residential project
    
    
    15,973,782
    
    
    48.4
    
    
    8,310,519
    
    
    40.1Tuzuoqi (Chasuqi) Low-rent House project
    
    
    (2,521
    )
    
    0.0
    
    
    6,051,725
    
    
    29.2Fuhengyuan residential project
    
    
    5,791,319
    
    
    17.6
    
    
    —
    
    
    —Tiantixingyuan No. 1 – No. 7 project
    
    
    11,223,429
    
    
    34.0
    
    
    —
    
    
    —Total construction segment revenues
    
    $
    32,986,009
    
    
    100.0
    
    $
    20,739,488
    
    
    100.0




*   Represents percentage
of construction segment net revenues.



32

At March 31, 2011,
the percentage completed for each respective job is as follows:

% CompleteTuzuoqi Low-rent project
    
    
    100.0
    %Jianhe Garden residential project
    
    
    100.0
    %Fuhengyuan residential project
    
    
    35.0
    %Tiantixingyuan No. 1 – No. 7 project
    
    
    42.5
    %





As of March 31, 2011, Jin Ma Construction had two uncompleted third
party construction projects in progress:





•
    the Fuhengyuan residential project, a project consisting of ten residential buildings with a total construction area of 110,129 square meters that began construction in October 2010 with an expected completion date of December 2011 was 35.0% complete at March 31, 2011, and•
    the Tiantixingyuan Housing Project, a project consisting of seven residential buildings with a total construction area of 90,607 square meters that began construction at the end of September 2010 and was 42.5% complete at March 31, 2011.





The fluctuation in Jan
Ma Construction’s revenue for the three and nine months ended March 31, 2011 as compared to the three and nine months ended
March 31, 2010 was attributable to a the timing of construction work performed. As of March 31, 2011, we had two construction projects
in process and compared to three as of March 31, 2010. At any given time Jin Ma Construction will have a concentration of significant
customers depending upon the number and scope of construction projects. These significant customers may not be the same from period
to period depending upon the percentage of completion of the specific projects. Any disruption in the relationships between Jin
Ma Construction and one or more of these customers, or any significant variance in the magnitude or the timing of construction
projects from any one of these customers, may result in decreases in our results of operations, liquidity and cash flows. In addition,
if Jin Ma Construction does not successfully manage its business so that it has new projects ready to start as current projects
are completed its revenues will decline which will materially adversely impact our liquidity and operations in future periods.
In addition to the third-party construction projects outlined above, Jin Ma Construction has been acting as general contractor
for Jin Ma Real Estate to construct residential real estate development projects as discussed below and Jin Ma Construction is
now focusing on acting as general contractor for Jin Ma Real Estate in order to vertically integrate all development processes
from construction management to the sale of real estate units to customers.



Net revenues for Jin Ma
Hotel’s operations increased 1.9% for the nine months ended March 31, 2011 from the nine months ended March 31, 2010 primarily
due to the increased sales at the hotel’s banquet and catering facility offset by a decrease in revenue from lodging. Net
revenues from Jin Ma Hotel’s operations decreased 1.4% for the three months ended March 31, 2011 from the three months ended
March 31, 2010 mainly due to a small decrease in sales at the hotel’s banquet and catering facility and a decrease in revenue
from lodging due to normal market fluctuations. We continue to focus on our marketing efforts to increase traffic to the hotel,
to target new tour groups and local traffic to the banquet facilities.



For the three and nine
months ended March 31, 2011 and 2010, net revenues from real estate development operations are summarized as follows:



Project Name
    
    For the Three Months
Ended March 31, 2011
    
    For the Three Months
Ended March 31, 2010Building 1 to 4 of Procuratorate Housing Estates
    
    $
    91,451
    
    $
    —Inner Mongolia Electrical Vocational Technical School
    
    
    1,132
    
    
    19Inner Mongolia Chemistry College
    
    
    101,078
    
    
    227,898Total real estate segment net revenues
    
    $
    193,661
    
    $
    227,917





Project Name
    
    For the Nine Months Ended March 31, 2011
    
    For the Nine Months Ended March 31, 2010Building 1 to 4 of Procuratorate Housing Estates
    
    $
    417,342
    
    $
    —Inner Mongolia Electrical Vocational Technical School
    
    
    172,726
    
    
    159,000Inner Mongolia Chemistry College
    
    
    316,962
    
    
    227,898Total real estate segment net revenues
    
    $
    907,030
    
    $
    386,898





33

In 2010 the focus of Jin
Ma Construction was changed from acting as a general contractor for third party projects to building projects for Jin Ma Real Estate.
Accordingly, Jin Ma Construction does not report revenues from work completed for Jin Ma Real Estate. In fiscal 2011 and beyond,
we expect Jin Ma Real Estate’s revenues and gross profits to increase significantly from the sale of real estate units from
internally developed projects. Through the nine months ended March 31, 2011, our results reflected these expectations, and we expect
this trend to continue during the balance of fiscal 2011. During the third quarter of 2011, real estate segment net revenues decreased
by $34,256 or 15.0% as was attributable to a decrease in revenues recognized from the collections of funds from the Inner Mongolia
Chemistry College on the installment method of $126,820 due to timing of collections offset by an increase of revenues from the
sale of units at Building 1 to 4 of Procuratorate Housing Estates of $91,451. We did not have such sales of units during the third
quarter of 2010.



At March 31, 2011, we have
acquired land use rights and/or began developing the following residential projects in cooperation with Jin Ma Construction that
acts as the general contractor, an example of projects under the Jin Ma Companies new integrated business model. The timing of
any revenues from those projects is presently undeterminable and while we expect to fully sell out each project, there are no assurances
these expectations are correct. If we sell less than 100% of any project, our estimates of revenues from that project will decline
from those set forth below.



Total construction in progress at
        March 31, 2011
        (Unaudited)Prepaid land use rights and construction costs for building 6 of
        the
        Procuratorate Housing Estates (Jiari Residential
        Building)
    $
    917,823
    (a)Prepaid land use rights and construction costs for Shuian Renjia project
    
    19,771,345
    (b)Prepaid land use rights for the Jinwu residential project
    
    2,516,371
    (c)Prepaid land use rights for the Beiyuan residential building project
    
    9,893,304
    (d)Total construction in progress
    $
    33,098,843

(a)
    Building 6 of the Procuratorate Housing Estates (Jiari Residential Building) is located in Yuquan District, Hohhot City, Inner Mongolia, has a construction area of 38,000 square meters and is expected to be completed in January 2012. The successful sell out of this project is expected to yield revenues of 180 million RMB or $27.7 million during fiscal 2012.(b)
    The Shuian Renjia residential project is located at the south part of East Xinhua Street in Hohhot, and will consist of two buildings each with 17 floors and a total of 364 apartments. The total development area will be 56,841.2 square meters.  The Shuian Renjia project is expected to be completed by May 2011 and requires a total investment of 140 million RMB or about $22 million. The successful completion of this project is expected to yield revenues of 227 million RMB or $32.9 million during the fourth quarter of 2011. On January 10, 2011, Jin Ma Real Estate signed a sales agreement with a local company. Jin Ma Real Estate will sell the Shuian Renjia residential units to employees of a local company pursuant to a sales agreement. As a result, Jin Ma Real Estate will collect approximately $20 million by the end of May 2011 and collect approximately $13 million when the sales transaction is completed.(c)
    The Jinwu residential project will have a construction area of 53,000 square meters and is expected to be completed in December 2012. The successful sell out of this project is expected to yield revenues of 237.5 million RMB or $36.5 million during fiscal 2013.(d)
    The Beiyuan residential project will have a construction area of 70,000 square meters and is expected to be completed in fiscal 2013. The successful sell out of this project is expected to yield revenues of 250.0 million RMB or $38.5 million during fiscal 2013.

Virtually all purchasers
of our homes finance their acquisitions through lenders providing mortgage financing. A substantial increase in mortgage interest
rates or unavailability of mortgage financing would adversely affect the ability of prospective homebuyers to obtain the financing
they would need in order to purchase our homes, as well as adversely affect the ability of prospective move-up homebuyers to sell
their current homes. For example, if mortgage financing became less available, demand for our homes could decline. A reduction
in demand could also have an adverse effect on the pricing of our homes because we (and our competitors) may reduce prices in an
effort to better compete for home buyers. A reduction in pricing could result in a decline in revenues and in our margins. We do
not expect any substantial change of current mortgage policies or the prevailing mortgage rate in the near future. The People's
Daily (in PRC.) reported: "As with much of China, economic growth has led to a boom in construction, including new commercial
development and large apartment complexes. The nominal GDP of Inner Mongolia in 2009 was 970 billion RMB (US$142 billion), a growth
of 16.9% from 2008, with an average annual increase of 20% from the period 2003-2007." The New York Times reported in May
2009: "Not long ago, residents of this region 350 miles west of Beijing lived in elaborate tents called yurts. Now, with a
population of 1.5 million, many live in homes that would make New Yorkers jealous. According to Bao Chongming, the regional vice-mayor,
they have the second highest per-capita income in China (trailing only Shanghai, the country's financial capital) and an annual
economic growth



34

rate of 40 percent." Based on historical
events, we believe that real estate development in Hohhot, Inner Mongolia, as a third-tier city, and its surrounding areas will
remain strong and should not feel the effects of the slower real estate markets occurring in tier-one cities such as Beijing and
Shanghai.



Jin Ma Real Estate will
continue to record revenues from the Chemistry School during the rest of fiscal 2011 upon collection of the annual payment due.



Cost
of Revenues. Overall, cost of revenues as a percentage of net revenues decreased from
84.3% for nine months ended March 31, 2010 to 83.7% for the nine months ended March 31, 2011. Our overall cost of revenues as a
percentage of our overall net revenues decreased from 84.2% for the three months ended March 31, 2010 to 82.9% for the three months
ended March 31, 2011. This overall change included the following segment changes:







•
    Cost of revenues as a percentage of net revenues from Jin Ma Construction’s operation for the nine months ended March 31, 2011 decreased to 85.8% from 86.3% for the nine months ended March 31, 2010. Cost of revenues as a percentage of net revenues from Jin Ma Construction’s operation for the three months ended March 31, 2011 decreased to 85.7% from 85.8% for the three months ended March 31, 2010. The slight decrease was mainly attributable to normal business fluctuations. We expect our cost of revenues as a percentage of net revenues from Jin Ma Construction will remain at its current level with minimal increase for the rest of fiscal 2011.•
    Cost of revenues as a percentage of net revenues for Jin Ma Hotel’s operation for the nine months ended March 31, 2011 decreased to 57.4% from 65.7% for the nine months ended March 31, 2010. Cost of revenues as a percentage of net revenues from Jin Ma Hotel’s operation for the three months ended March 31, 2011 decreased to 56.1% from 63.8% for the three months ended March 31, 2010. The decrease in cost of revenues as a percentage of net revenues was primarily attributable to the better management of raw material costs. We expect the cost of revenues as a percentage of net revenues for our hotel operation will remain at its current level in the near future.•
    Cost of revenues for Jin Ma Real Estate’s operation as a percentage of net real estate revenues for the nine months ended March 31, 2011 decreased to 73.9% from 86.8% for the nine months ended March 31, 2010. Cost of revenues for Jin Ma Real Estate’s operation as a percentage of net real estate revenues for the three months ended March 31, 2011 decreased to 67.3% from 74.1% for the three months ended March 31, 2010. For the nine months ended March 31, 2011, 19.0% of revenues from our real estate development operations were attributable to the Vocational School, 35.0% of revenues from our real estate development operation were attributable to the Chemistry School, and 46.0% were attributable to the sale of remaining units of real estate held for sale. For the nine months ended March 31, 2010, 41.1% of revenues from our real estate development operations were attributable to the Vocational School and 58.9% of revenues were attributable to the Chemistry School which were both recognized on the installment method which apportions each cash receipt and principal payment by the buyer between cost recovered and profit. The different revenue mix for the nine months ended March 31, 2011 had an effect of lowering cost of revenues as a percentage of net revenues as compared to the nine months ended March 31, 2010. In the third quarter of 2011, 0.6% of revenues for our real estate development operation related to the Vocational School, 52.2% of revenues related to the Chemistry School and the remaining 47.2% was attributable to the cost of our remaining units of real estate held for sale. In the third quarter of 2010, 100% of revenues for our real estate development operation was attributable to the Chemistry School and was recognized on the installment method which apportions each cash receipt and principal payment by the buyer between cost recovered and profit. The different revenue mix in the third quarter of 2011 had an effect of lowering cost of revenues as a percentage of net revenues as compared to the third quarter of 2010. We expect gross margins on Jin Ma Real Estate development projects to range from 30% to 40% in future periods.

Gross Profit.
Gross profit increased 60.8% for the nine months ended March 31, 2011 from the nine months ended March 31, 2010. Gross profit decreased
20.1% for the three months ended March 31, 2011 from the three months ended March 31, 2010. Gross profit margin increased from
15.7% for the nine months ended March 31, 2010 to 16.3% for the nine months ended March 31, 2011. Gross profit margin increased
from 15.8% for the three months ended March 31, 2010 to 17.1% for the three months ended March 31, 2011. The changes in gross profit
were attributable to the changes in revenues generated from Jin Ma Construction and Jin Ma Real Estate.



Total Operating Expenses.
For the nine months ended March 31, 2011, overall operating expenses increased 15.1% from the nine months ended March 31, 2010,
which was mainly attributable to a decrease in bad debt recovery, an increase in salaries and employee benefits and an increase
in selling, general and administrative offset by a decrease in other hotel operating expenses. For the three months ended March
31, 2011, overall operating expenses increased 29.7% from the three months ended March 31, 2010, which was mainly due to an increase
in other hotel operating expenses and a decrease in bad debt recovery, offset by a decrease in selling, general and administrative
expenses. We expect that operating expenses will maintain at their current level with minimal increases in the near future. We
do not expect any substantial change in total operating expenses caused by inflation in the near future.



35

Other Hotel
Operating Expenses. Other hotel operating expenses represent costs and expenses associated with operating Jin Ma Hotel's
restaurant and banquet facilities and hotel operating expenses except for food and beverage costs which have been included in cost
of revenues. Other hotel operating expenses decreased 39.1% for the nine months ended March 31, 2011 from the nine months ended
March 31, 2010. Other hotel operating expenses increased 158.2% for the three months ended March 31, 2011 from the three months
ended March 31, 2010. Other hotel operating expenses were 2.0% of hotel revenues for the nine months ended March 31, 2011 as compared
to 3.4% for the nine months ended March 31, 2010. Other hotel operating expenses were 2.1% of hotel revenues for the three months
ended March 31, 2011 as compared to -3.5% for the three months ended March 31, 2010. The decrease in other hotel operating expenses
for the nine months ended March 31, 2011 was primarily attributable to a decrease in expenditures related to the purchase of low
cost items such as plates, glasses which were expensed in the 2010 period, the period these items were put in use. The increase
in other hotel operating expenses for the three months ended March 31, 2011 was mainly due to the capitalization of low cost items
such as chairs, tables and other items in the third quarter of fiscal 2010 that were previously expensed in the prior quarter of
fiscal 2010 and reclassified to property and equipment during the third quarter of fiscal 2010.



Bad Debt Recovery.
For the nine months ended March 31, 2011, bad debt recovery income amounted to $196,903 as compared to $215,090 for the nine months
ended March 31, 2010, a decrease of 8.5% and relates to the collection of aged receivable balances previously written off. For
the three months ended March 31, 2011, bad debt recovery income amounted to $1,291 as compared to $109,535 for the three months
ended March 31, 2010, a decrease of 98.8% and relates to the collection of aged receivable balances previously written off. We
have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in the
Jin Ma Companies existing accounts and other receivables. We periodically review the Jin Ma Companies’ accounts receivable
and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors
that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to
the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.



Salaries and Employee
Benefits. For the nine months ended March 31, 2011, salaries and employee benefits increased 4.2% from the nine months
ended March 31, 2010. For the three months ended March 31, 2011, salaries and employee benefits increased 0.8% from the three months
ended March 31, 2010. This increase is primarily related to the increase in employee salaries. We expect that salaries and employee
benefits will remain at the current level with minimal increase in the near future.



Depreciation.
For the nine months ended March 31, 2011, depreciation increased 1.6% as compared to the nine months ended March 31, 2010. For
the three months ended March 31, 2011, depreciation increased 1.1% as compared to the three months ended March 31, 2010. This slight
increase was primarily due to our newly purchased fixed assets for which we began the depreciation in the nine months ended March
31, 2011.



Selling, General
and Administrative Expenses. Selling, general and administrative expenses consist of selling, office expenses and supplies,
utilities, insurance, telephone and communications, maintenance and automobile expense incurred by the Jin Ma Companies as well
as expenses incurred by us which primarily consist of professional and other fees. Selling, general and administrative expenses
increased 54.6% for the nine months ended March 31, 2011 compared to the nine months ended March 31, 2010. Selling, general and
administrative expenses decreased 13.8% for the three months ended March 31, 2011 compared to the three months ended March 31,
2010. For the nine months ended March 31, 2011, the increase for selling, general and administrative expenses was primarily attributable
to the increase in the amortization of stock-based professional fees for business development and planning of $150,000 and warrants
issued for service of approximately $31,000 and the increase in fees paid for auditors’ service of approximately $10,000.
We expect to incur similar expenses in future periods. For the three months ended March 31, 2011, the decrease for selling, general
and administrative expenses was mainly due to the decrease in the amortization of stock-based professional fees for business development
and planning of $30,000 offset by the increase in travel expenses of approximately $10,000.



Total Other Income
(Expenses). For the nine months ended March 31, 2011, we recorded other income of $796,327 as compared to other income
of $2,610,465 in the nine months ended March 31, 2010. For the three months ended March 31, 2011, we recorded other income of $233,539
as compared to other income of $308,727 in the three months ended March 31, 2010. For the three and nine months ended March 31,
2011 and 2010, total other income (expenses) primarily consisted of the following:





•
    For the three and nine months ended March 31, 2011, we did not record any gain on extinguishment of derivative liabilities as compared to a gain of $270,101 and $1,893,310 related to the conversion and repayment of convertible debt during the three and nine months ended March 31, 2010;•
    For the nine months ended March 31, 2011, we recorded a gain on change in fair value of derivative liabilities of $461,929 related to the change in fair value of derivative liabilities associated with warrants as compared to $1,704,654 related to the change in fair value of derivative liabilities associated with warrants and the embedded conversion option on convertible debt during the nine months ended March 31, 2010. For the three months ended March 31, 2011, we recorded a gain on change in fair value of derivative liabilities of $304,837 related to the change in fair value of derivative liabilities associated with warrants as compared to a loss on change in fair value of derivative liabilities of $298,283 related to the change in fair value of derivative

36

liabilities associated with warrants and the embedded conversion option on convertible debt during the three months ended March 31, 2010;•
    For the nine and three months ended March 31, 2011, we did not dispose any assets. For the nine and three months ended March 31, 2010, Jin Ma Construction recognized a gain from the sale of land use rights and property of $449,528 and $55, respectively.•
    For the nine months ended March 31, 2011, we recorded interest income of $705,322 as compared to $1,274,716 for the nine months ended March 31, 2010, a decrease of $569,394 or 44.7%, which was primarily attributable to the decrease in the recording of interest income from the collection of the payments from the Chemistry School. For the three months ended March 31, 2011, we recorded interest income of $54,462 as compared to $731,521 for the three months ended March 31, 2010, a decrease of $677,059 or 92.6%, which was mainly attributable to the decrease in the recording of interest income from the collection of payments from the Chemistry School.•
    For the nine months ended March 31, 2011, we recorded interest expense of $377,728 as compared to $2,711,743 for the nine months ended March 31, 2010, a decrease of $2,334,015 or 86.1%, which was attributable to a decrease in interest expense from the amortization of debt discount of approximately $2,183,000, a decrease in interest of approximately $118,000 attributable to the repayment of convertible debt, and a decrease in interest of approximately $83,000 from the repayment of loan payable offset by the decrease in interest expenses caused by the write-off of a penalty of $50,000 in the 2010 period. For the three months ended March 31, 2011, we recorded interest expense of $125,722 as compared to $394,667 for the three months ended March 31, 2010, a decrease of $268,945 or 68.1%, which was primarily attributable to a decrease in interest expense from the amortization of debt discount of approximately $251,000 and a decrease in interest of approximately $22,000 attributable to the repayment of convertible debt.

Provision for Income
Taxes. Total provision for income taxes increased 51.2% for the nine months ended March 31, 2011 (26.2% of income before
income taxes) from the nine months ended March 31, 2010 (18.1% of income before income taxes). Total provision for income taxes
decreased 47.7% for the three months ended March 31, 2011 (24.8% of income before income taxes) from the three months ended March
31, 2010 (31.3% of income before income taxes). The change in the provision for income taxes was mainly attributable to a change
in income before income taxes related to our Chinese subsidiaries and VIEs offset by the effect of our U.S. net gains (losses).
The change in the provision for income taxes as a percentage of income before income taxes was attributable to the effect of our
U.S. net gains (losses) on our overall effective tax rate.



Net Income.
Net income decreased 6.3% for the nine months ended March 31, 2011 from the nine months ended March 31, 2010. Net income decreased
27.8% for the three months ended March 31, 2011 from the three months ended March 31, 2010. For the nine months ended March 31,
2011, this decrease in net income was attributable to an increase in operating expenses, a decrease in other income and an increase
in provision for income taxes, offset by an increase in revenues and related gross profits. For the three months ended March 31,
2011, this decrease in net income was primarily attributable to a decrease in revenues and related gross profits, a decrease in
other income and an increase in operating expenses, offset by a decrease in provision for income taxes. This translates to basic
net income per common share of $1.88 and $2.57, and diluted net income per common share of $1.86 and $2.54, for the nine months
ended March 31, 2011 and 2010, respectively, and basic net income per common share of $0.44 and $0.71, and diluted net income per
common share of $0.44 and $0.70, for the three months ended March 31, 2011 and 2010, respectively.



Comprehensive Income.
For the nine months ended March 31, 2011, we reported unrealized gain on foreign currency translation of $1,407,022 as compared
to $38,613 for the nine months ended March 31, 2010 which reflects the effect of the declining value of the U.S. dollar. These
gains are non-cash items. For the three months ended March 31, 2011, we reported unrealized gain on foreign currency translation
of $252,349 as compared to $4,753 for the three months ended March 31, 2010. As described elsewhere herein, the functional currency
of our China subsidiaries and variable interest entities is the Chinese Renminbi. The accompanying consolidated financial statements
have been translated and presented in U.S. dollars using period end rates of exchange for assets and liabilities, and average rates
of exchange for the period for net revenues, costs, and expenses. Net gains resulting from foreign exchange transactions, if any,
are included in the consolidated statements of income and do not have a significant effect on our consolidated financial statements.
As a result of this non-cash foreign currency translation gain, we reported comprehensive income of $5,088,550 and $1,123,782 for
the nine and three months ended March 31, 2011, respectively, as compared to comprehensive income of $3,966,098 and $1,210,968
for the nine and three months ended March 31, 2010, respectively.



Liquidity and Capital Resources



Liquidity is the ability
of a company to generate adequate amounts of cash to meet its needs for cash. Our principal liquidity demands are based on the
capital needs of the Jin Ma Companies related to the development of new properties, land use right acquisitions, and our general
corporate purposes. We do not have any external sources of liquidity. The Jin Ma Companies have historically relied on bank loans
and advances from related parties to supplement their working capital.



37

At March 31, 2011, we had
a cash balance of $364,047, substantially all of which is located in financial institutions in China under the control of the Jin
Ma Companies.



Our working capital increased
by $5,324,033 to $4,784,691 at March 31, 2011 from a working capital deficit balance of $539,342 at June 30, 2010. This increase
in working capital is primarily attributable to:



•An increase in cash and cash equivalents of $54,051,

•An increase in accounts receivable, net of allowance for doubtful accounts, of $3,161,634,

•An increase in notes receivable on sales type lease – current portion of $487,127,

•An increase in other receivables, net of allowance for doubtful accounts, of $87,587,

•An increase in construction in progress – current portion of $19,771,345,

•A decrease in accrued expenses of $272,166,

•A decrease in taxes payable of $832,885,

•A decrease in derivative liability of $461,929,

•A decrease in billings in excess of costs and estimated earnings of $89,470,

Offset by:

•A decrease in prepaid expenses of $208,243,

•A decrease in real estate held for sale of $213,750,

•A decrease in deferred tax assets of $40,330,

•An increase in loans payable – current portion of $112,231,

•An increase in accounts payable of $18,778,186 associated with the increase in construction
in progress,

•An increase in due to related parties of $489,222,

•An increase in advances from customers of $57,001.



Our balance sheet at March
31, 2011 reflects loans payable to third parties of $3,523,539 due through September 2012 which were working capital loans made
to the Jin Ma Companies by third parties. These loans bear annual interest rates ranging from 11.16% to 24.00% and are due between
May 2011and September 2012. Of this amount, approximately $3.0 million is secured by the assets
of the Jin Ma Hotel which matures in May 2011 and the remaining balances are unsecured. These loans generally can be renewed with
the respective parties when the loans mature.



The Jin Ma Companies
intend to meet their liquidity requirements, including capital expenditures related to the purchase of land for the development
of future projects, through cash flow provided by operations, from the collection of outstanding accounts and notes receivable
balances and from the sale of units at the Shuian Renjia residential project. Through March 31, 2011, we have capitalized construction
in progress consisting of the acquisition of land use rights and construction costs related to the Shuian Renjia project of approximately
$19.8 million. In connection with the acquisition of land use rights and for construction costs, pursuant to agreements with Jin
Ma Construction’s sub-contractors, we will only partially pay subcontractors until such time as we begin selling units of
real estate held for sale and accordingly, accounts payable has increased substantially. Subcontractors are willing to extend us
credit due to their long-term relationship with the Jin Ma Companies. During the fourth quarter of 2011, we expect to sell all of our
units in Shuian Renjia and we expect to collect approximately $33,000,000 from these sales which will be used to pay subcontractors
and other accounts payable balances and will be used for working capital purposes.



We are confident that
we will collect all outstanding accounts and notes receivable on a timely basis.



During the nine months
ended March 31, 2011, the Jin Ma Companies received advances from a company owned by our chief executive officer of approximately
$473,000 which was used for working capital purposes. Upon acquiring land for future developments, the Jin Ma Companies intend
to raise funds to develop its projects by the presale of units and by obtaining financing mainly from local banking institutions
with which it has done business in the past. We also expect to fund projects through related party advances, from the collection
of previous accounts receivable and from progress billings.



We believe that the relationships
with these banks are in good standing and that the Jin Ma Companies’ real estate will secure the loans needed. According
to the National Bureau of Statistics of China, in the first four months of 2011 as indicated at http://www.stats.gov.cn/english/newsandcomingevents/t20110511_402725066.htm,
the sources of funds for real estate development enterprises from current year reached 2,536.2 billion RMB (or approximately $386.0
billion), up by 17.4% year-on-year. Of this total, capital from domestic loans was 480.0 billion RMB (or approximately $73.1 billion),
up by 5.4%; that from foreign investment stood at 22.2 billion RMB (or approximately $3.4 billion), up by 62.3%; that from self-raising
funds was 948.6 billion RMB (or approximately $144.4 billion), up by 27.2% and that from other sources was 1,085.3 billion RMB
(or approximately $165.2 billion), up by 14.8%. In other sources of funds, down payment and prepayment reached 644.9 billion RMB
(or approximately $98.2 billion), up by 23.1% and individual mortgage was 275.3 billion RMB (or approximately $41.9 billion), down
by 6.8%.



38

We estimate that the Jin
Ma Companies will have sufficient cash flow from operations to satisfy their working capital needs and to fund their operations
for the next 12 months from the collection of their outstanding accounts and notes receivable, and from the sale of units at
the Shuian Renjia residential project. However, any delay in the collection of the receivables or from collections from the sale
of completed real estate units held for sale would have an adverse effect on their ability to fund their working capital requirements.



The Jin Ma Companies
have $3.0 million of debt which becomes due in May 2011 and the majority of which is collateralized by the assets of the Jin
Ma Hotel. The Jin Ma Companies do not presently have sufficient capital to satisfy this obligation. While the Jin Ma
Companies believe they will be able to restructure this debt to extend the due date and are currently negotiating with the
lender on the terms of such an extension, if they are unable to do so, or to otherwise refinance the amount, a risk exists
that this debt could be foreclosed upon which would deprive the Jin Ma Companies of revenue associated with this company and
would materially adversely impact our results of operations in future periods.



We require working capital
to pay general and administrative expense, including audit, legal and related fees, associated with our reporting obligations under
the Securities Exchange Act of 1934. Other than the management fees which are due us by the Jin Ma Companies, we do not presently
have any other source of working capital. At March 31, 2011, we were owed approximately $25.3 million by the Jin Ma Companies.
We continue to be reliant on the Jin Ma Companies to pay the service fees due us and/or to repay all or a portion of the funds
advanced to the Jin Ma Companies. Even if the Jin Ma Companies pay all the past due amounts to us, it is possible that the Jin
Ma Companies will continue to fail to timely pay our management fees. Although we have received funds from the Jin Ma Companies
to fund our operation during the nine months ended March 31, 2011, if the quarterly service fees due us under the Contractual Arrangement
are not paid to us on a timely basis, it is possible that we will not have sufficient funds to pay our operating expenses in future
periods, our ability to continue as a going concern is in jeopardy and investors could lose their entire investment in our company.



Operating Activities



Net cash flow used in operating
activities was $351,505 for the nine months ended March 31, 2011 as compared to net cash used in operating activities of $531,041
for the nine months ended March 31, 2010, a decrease in outflow of $179,536.



For the nine months ended
March 31, 2011, net cash flow used in operating activities was primarily attributable to:

·
    changes in operating assets and liabilities consisting of an increase in accounts receivable of $2,638,012, an increase in other receivables of $77,655, an increase in construction in progress of $19,447,318, a decrease in taxes payable of $854,777 and a decrease in billings in excess of costs and estimated earnings of $91,225, and the effect of non-cash items such as bad debt recovery of $196,903, a gain on change in fair value of derivative liabilities of $461,929;

Offset by:

·
    net income of $3,681,528 and adjustments to net income for the add back of non-cash items such as depreciation of $592,661, stock-based compensation of $116,716, and warrants issued for service of $31,188, and·
    changes in operating assets and liabilities consisting of a decrease in notes receivable of $388,573, a decrease in prepaid expenses of $208,882, a decrease in real estate held for sale of $223,351, an increase in accounts payable and accrued expenses of $18,121,600 and an increase in advance from customers of $50,901.

For the nine months ended March 31, 2010, net
cash flow used in operating activities was primarily due to:


·
    changes in operating assets and liabilities consisting of an increase in accounts receivable of $2,844,223, an increase in advance to suppliers of $123,167, an increase in construction in progress of $2,724,368, a decrease in accounts payable and accrued expenses of $721,044, and a decrease in taxes payable of $876,846 and the effect of non-cash items such as bad debt recovery of $215,091, a gain from changes in fair value of derivative liabilities of $1,704,654, a gain from debt extinguishment related to derivative liabilities of $1,893,310, and a gain on disposal of land use right of $449,528;

Offset by:

·
    net income of $3,927,485 and adjustments to net income for the add back of non-cash items such as depreciation of $583,202, stock-based compensation of $232,500, and interest expense from amortization of debt discount of $2,183,000, and·
    changes in operating assets and liabilities consisting of a decrease in note receivable of $313,995, a decrease in other receivables of $1,182,265 and an increase in advances from customers of $2,601,870.

39

Investing Activities



Net cash flow used in investing
activities was $41,304 for the nine months ended March 31, 2011 as compared to cash provided by investing activities of $2,005,386
for the nine months ended March 31, 2010. For the nine months ended March 31, 2011, we spent cash of $41,304 on purchase of property
and equipment. For the nine months ended March 31, 2010, cash provided by investing activities consisted of proceeds fromsale of land use right of $2,193,710 offset by $188,324 cash used for purchase of property and equipment.



Financing Activities



Net cash flow provided
by financing activities was $435,548 for the nine months ended March 31, 2011 which was attributable to proceeds from advances
from related party of $472,976 offset by repayment of loans payable of $37,428. Net cash flow used in financing activities was
$1,133,288 for the nine months ended March 31, 2010 which was attributable to repayment of loan payable of $1,353,666 and repayment
of convertible debt of $983,550 offset by proceeds from advancesfrom related party of $1,203,928.



Contractual Obligations and Off-Balance
Sheet Arrangements



Contractual Obligations



Jin Ma Real Estate guarantees
a customer’s mortgage until the home and the title of ownership are delivered to the customer. If a property buyer defaults
under the loan, Jin Ma Real Estate is required, during the guarantee period, to repay all debt owed by the defaulting property
buyer to the mortgage bank. Jin Ma Real Estate’s liability for guarantor’s obligation is valued based on the actual
outstanding mortgage amount at each reporting period. For the nine months ended March 31, 2011 and 2010, the liability for guarantor’s
obligation was not material and Jin Ma Real Estate has not suffered any losses.



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



The
following table summarizes the Jin Ma Companies’ contractual obligations as of March 31, 2011, and the effect these obligations
are expected to have on our liquidity and cash flows in future periods.



Payments Due by PeriodTotal
    
    
    Less than
        1 year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years +Contractual Obligations :Bank and other third-party Indebtedness
    
    $    3,523,539
    
    
    
    $    3,203,909
    
    
    
    $    319,630
    
    
    
    —
    
    
    
    —Total Contractual Obligations:
    
    $    3,523,539
    
    
    
    $    3,203,909
    
    
    
    $    319,630
    
    
    
    —
    
    
    
    —

Off-balance Sheet Arrangements



Neither we nor the Jin
Ma Companies have entered into any other financial guarantees or other commitments to guarantee the payment obligations of any
third parties other than the guarantee of mortgages for Jin Ma Real Estate’s customers in the normal course of business.
For the nine months ended March 31, 2011 and 2010, the liability for guarantor’s obligation was not material and Jin Ma Real
Estate has not incurred any losses related to the guarantee of mortgages. We have not entered into any derivative contracts that
are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that
serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity
that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging services with us.



ITEM 3.   QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.



Not applicable to a smaller
reporting company.



40

ITEM 4.   CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



As required by Rule 13a-15
under the Securities Exchange Act of 1934, as of March 31, 2011, the end of the period covered by this report, our management concluded
its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls
and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports
we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.



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



Management conducted its
evaluation of disclosure controls and procedures at March 31, 2011 under the supervision of our Chief Executive Officer and our
Chief Financial Officer. Based on that evaluation, Messrs. Yang and Wasserman concluded that because of the continuing material
weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective
as of March 31, 2011 as a result of continuing material weaknesses in our internal control over financial reporting.



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





•
    our failure to properly record certain common stock purchase warrants and conversion options related to convertible debt as derivative liabilities and our failure to properly record the subsequent accounting for the changes in the fair value of the associated liabilities at September 30, 2009, December 31, 2009 and March 31, 2010,•
    the lack of U.S. GAAP expertise of the Jin Ma Companies’ internal accounting staff,•
    the lack of our internal audit functions,•
    the absence of an Audit Committee as of June 30, 2010, and•
    a lack of segregation of duties within accounting functions.

As a result of these material
weaknesses, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting
was not effective as of June 30, 2010. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies,
in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention
by those responsible for oversight of the company’s financial reporting.



While we have made certain
changes in our internal control over financial reporting during the first and second quarters of fiscal 2011 to remediate the weakness
associated with the recording of derivative liabilities, we have not remediated the remaining material weaknesses cited at June
30, 2010. In order to correct these material weaknesses, we have committed to the establishment of effective internal audit functions
and the addition of accounting staff at the Jin Ma Companies with the proper expertise. We will also implement additional changes
to our internal controls to ensure that derivative liabilities are properly recorded in future periods. We have began our search
for additional accounting staff with assistance from recruiters and through referrals, however, due to the scarcity of qualified
candidates with extensive experience in U.S. GAAP reporting and accounting in the region in which the Jin Ma Companies conduct
operations, we were not able to hire sufficient internal audit resources before the end of March 31, 2011. However, during the
rest of fiscal 2011 we will increase our search for qualified candidates with assistance from recruiters and through referrals.



We believe that the foregoing
steps will remediate the material weaknesses identified above, and we will continue to monitor the effectiveness of these steps
and make any changes that our management deems appropriate. Until we are able to hire the proper accounting staff it is unlikely
we will be able to remediate these material weaknesses in our internal control over financial reporting and the resulting material
weakness in our disclosure controls and procedures.



41

Changes in Internal Control over Financial
Reporting



There have been no changes in our internal control
over financial reporting during our last fiscal quarter 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.



None



ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.



None.



ITEM 4.   (REMOVED AND RESERVED).





ITEM 5.   OTHER INFORMATION.



None.



ITEM 6.   EXHIBITS



31.1    Rule 13a-14(a)/15d-14(a) certification of Chief Executive
Officer

31.2    Rule 13a-14(a)/15d-14(a) certificate of Chief Financial
Officer

32.1    Section 1350 certification of Chief Executive Officer

32.2    Section 1350 certification of Chief Financial Officer



42

SIGNATURES



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:   May 23, 2011
    By:
    /s/ Liankuan YangLiankuan YangChief Executive Officer, principal executive officerDate:   May 23, 2011
    By:
    /s/ Adam WassermanAdam WassermanChief Financial Officer, principal financial and accounting officer

43