UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549  Amendment No. 1 to Form 10-QSB on FORM 10-Q  (Mark One)  x
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
  For the quarterly period ended December 31, 2007  or  o
        TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
  For the transition period from _______ to _________  Commission file number: 000-30311  GOLD HORSE INTERNATIONAL, INC. (Exact name of registrant as specified in its charter)  Florida
        22-3719165(State or other jurisdiction of incorporation or organization)
        (I.R.S. Employer Identification No.)
  No. 31 Tongdao South Road, Hohhot, Inner Mongolia, China (Address of principal executive offices)
        (Zip Code)
  86 (471) 339 7999 (Registrants telephone number, including area code)  N/A (Former name, former address and former fiscal year, if changed since last report)  Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YesxNoo  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
        x
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
        Yeso
        Nox
  Indicated the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 52,544,603 shares at February 4, 2007.    GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q/A

Amendment No. 1

QUARTERLY PERIOD ENDED DECEMBER 31, 2007



EXPLANATORY PARAGRAPH



We are amending our Form 10-QSB for the period ended December 31, 2007 to restate our Consolidated Balance Sheet at December 31, 2007 and Consolidated Statements of Income, Consolidated Statements of Cash Flows and Notes to Consolidated Financial Statements for the periods ended December 31, 2007, and to revise disclosure related to same which appeared in our Form 10-QSB as filed on February 19, 2008. On April 25, 2008, we determined it was necessary to revise our consolidated financial statements to properly reflect the accounting for a certain construction project that we are currently constructing. Pursuant to an agreement, we will lease these buildings to a third party for a period of 26 years. We originally recorded this project as a third-party construction project pursuant to our normal revenue recognition policies. Additionally, we reclassified balances reflected in non
controlling interest in variable interest entities to additional paid-in capital. In connection with the revision of our consolidated financial statements, as of December 31, 2007 and for the three and six months ended December 31, 2007, we:




(1)
        Reduced net revenues by $1,065,777, reduced cost of sales by $908,468 and reduced the corresponding gross profit by $157,309 related to an error in the elimination of inter-company net revenues and related cost of sales and gross profits;



(2)
        Reduced taxes payable and the corresponding income tax expense by $53,275 and $51,912, respectively;



(3)
        Increased construction in process to reflects capitalized costs incurred to date of $932,336;



(4)
        Eliminated intercompany accounts receivable of $727,636



(5)
        Reclassification of advances to suppliers to deposit on land use rights of $683,611.



(6)
        Reduced advances to suppliers by $366,142; and



(7)
        Reduced other comprehensive gain by $2,770.




Please see Note 17 - Restatement contained in the Notes to Consolidated Financial Statements appearing later in this Amendment No. 1 to Form 10-QSB on Form 10-Q which further describes the effect of this restatement.



The Items of this Amendment No. 1 to Form 10-QSB on Form 10-Q for the period ended December 31, 2007 which areamended and restated as a result of the restatement of our consolidated financial statements are as follows:





        Part I. Financial Information, including:





        Consolidated Balance Sheet at December 31, 2007,




        Consolidated Statements of Income for the three and six months ended December 31, 2007,




        Consolidated Statement of Cash Flows for the six months ended December 31, 2007, and




        Notes to Consolidated Financial Statements as of December 31, 2007,





        Part II, Item 2. Managements Discussion and Analysis and Results of Operations,



In addition, Part II, Item 6. Exhibits of this Form 10-Q/A includes currently dated certificates from our Chief Executive Officer and Chief Financial Officer in Exhibits 31.1, 31.2, 32.1 and 32.2.



The remaining Items contained in this Amendment No. 1 to Form 10-QSB on Form 10-Q consist of all other Items originally contained in our Form 10-QSB for the period ended December 31, 2007 as filed on February 19, 2008. This Amendment No. 1 to Form 10-QSB on Form 10-Q does not reflect events occurring after the filing of the original Form 10-QSB and supersedes in its entirety the previously filed Form 10-QSB for the quarter ended December 31, 2007.



ii




GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

AMENDMENT NO. 1 TO FORM 10-QSB ON

FORM 10-Q

QUARTERLY PERIOD ENDED DECEMBER 31, 2007



INDEX





PagePART I - FINANCIAL INFORMATIONItem 1.
        Financial StatementsConsolidated Balance Sheet - As of December 31, 2007 (Unaudited) and June 30, 2007
        4Consolidated Statements of Income (Unaudited)For the Three and Six Months Ended December 31, 2007 and 2006
        5Consolidated Statements of Cash Flows (Unaudited)For the Six Months Ended December 31, 2007 and 2006
        6Notes to Unaudited Consolidated Financial Statements
        7Item 2.
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        28Item 3.
        Quantitative and Qualitative Disclosures About Market Risk.
        37Item 4T.
        Controls and Procedures
        37PART II - OTHER INFORMATIONItem 1.
        Legal Proceedings
        38Item 1A.
        Risk Factors
        38Item 2.
        Unregistered Sales of Equity Securities and Use of Proceeds
        38Item 3.
        Defaults Upon Senior Securities
        38Item 4.
        Submission of Matters to a Vote of Security Holders
        38Item 5.
        Other Information
        38Item 6.
        Exhibits
        38





2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION



Certain statements in this quarterly report contain or may contain forward-looking statements that 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, our ability to increase our revenues, develop our brands, implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, Chinese, U.S. and global competition, and other factors. Most
of these factors are difficult to predict accurately and are generally beyond our control.



You should consider the areas of risk described in connection with any forward-looking statements that may be made in our annual 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 in its 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.



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





        Gold Horse International, the Company, we, us, ours, and similar terms refers to Gold Horse International, Inc., a Florida corporation,
        Gold Horse Nevada refers to Gold Horse International, Inc., a Nevada corporation and wholly-owned subsidiary of Gold Horse International,
        Global Rise refers to Global Rise International, Limited, a Cayman Islands corporation and wholly-owned subsidiary of Gold Horse Nevada,
        IMTD refers to Inner Mongolia (Cayman) Technology & Development Ltd., a Chinese company and wholly-owned subsidiary of Global Rise,
        Jin Ma Real Estate refers to Inner Mongolia Jin Ma Real Estate Development Co., Ltd., a Chinese company,
        Jin Ma Construction refers to Inner Mongolia Jin Ma Construction Co., Ltd., a Chinese company,
        Jin Ma Hotel refers to Inner Mongolia Jin Ma Hotel Co., Ltd., a Chinese company,
        Jin Ma Companies collectively refers to Jin Ma Real Estate, Jin Ma Construction and Jin Ma Hotel, and
        PRC or China refers to the Peoples Republic of China.



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





3


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(AS RESTATED - SEE NOTE 17)



December 31
        
        June 302007
        
        2007(unaudited)ASSETSCash
        
        $
        2,689,358
        
        $
        251,044Accounts receivable, net
        
        
        3,920,810
        
        
        5,246,986Inventories
        
        
        52,940
        
        
        20,477Advance to supplier
        
        
        294,799
        
        
        198,113Other receivable, net
        
        
        146,937
        
        
        193,815Deferred debt costs
        
        
        191,850
        
        
        Real estate held for sale
        
        
        534,512
        
        
        1,149,906Construction in process
        
        
        1,003,726
        
        
        Cost and estimated earnings in excess of billings
        
        
        1,220
        
        
        15,237Deposit
        
        
        136,722
        
        
        131,151Total Current Assets
        
        
        8,972,874
        
        
        7,206,729Deposit on land use rights
        
        
        3,069,476
        
        
        2,223,069Due from related parties, net
        
        
        836,817
        
        
        1,047,832Accounts receivable, net
        
        
        526,431
        
        
        Property and equipment, net
        
        
        6,608,913
        
        
        4,731,168Intangible asset
        
        
        167,304
        
        
        160,487Total Assets
        
        $
        20,181,815
        
        $
        15,369,285LIABILITIES AND STOCKHOLDERS' EQUITYLiabilities:Loans payable
        
        $
        136,722
        
        $
        Accounts payable
        
        
        709,286
        
        
        611,215Accrued expenses
        
        
        403,231
        
        
        1,091,154Taxes payable
        
        
        267,077
        
        
        532,257Advances from customers
        
        
        164,318
        
        
        609,574Billings in excess of costs and estimated earnings
        
        
        1,167
        
        
        124,021Total Current Liabilities
        
        
        1,681,801
        
        
        2,968,221Convertible debt, net
        
        
        136,437
        
        
        Loans payable, long-term, net of current portion
        
        
        1,484,256
        
        
        1,686,077Total Liabilities
        
        
        3,302,494
        
        
        4,654,298CommitmentsStockholders' equity:Preferred stock ($.0001 par value; 20,000,000 shares authorized;none issued and outstanding)
        
        
        
        
        
        Common stock ($.0001 par value; 300,000,000 shares authorized;52,219,254 shares issued and outstanding)
        
        
        5,222
        
        
        5,000Additional paid-in capital
        
        
        4,397,030
        
        
        Non-controlling interest in variable interest entities
        
        
        5,959,807
        
        
        5,954,807Statutory reserve
        
        
        752,931
        
        
        594,006Retained earnings
        
        
        4,661,428
        
        
        3,616,296Other comprehensive gain - foreign currency
        
        
        1,102,903
        
        
        544,878Total Stockholders' Equity
        
        
        16,879,321
        
        
        10,714,987Total Liabilities and Stockholders' Equity
        
        $
        20,181,815
        
        $
        15,369,285





See accompanying notes to unaudited consolidated financial statements.



4


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(AS RESTATED - SEE NOTE 17)



For the Three Months Ended
December 31,
        
        For the Six Months Ended
December 31,2007
        
        2006
        
        2007
        
        2006(Unaudited)
        
        (Unaudited)
        
        (Unaudited)
        
        (Unaudited)NET REVENUESConstruction
        
        $
        6,177,624
        
        $
        5,472,992
        
        $
        14,061,393
        
        $
        11,593,003Hotel
        
        
        717,526
        
        
        542,691
        
        
        1,573,712
        
        
        1,230,556Real estate
        
        
        324,714
        
        
        405,340
        
        
        1,255,528
        
        
        405,340Total Revenues
        
        
        7,219,864
        
        
        6,421,023
        
        
        16,890,633
        
        
        13,228,899COST OF SALESConstruction
        
        
        5,177,403
        
        
        4,563,750
        
        
        11,867,776
        
        
        9,714,200Hotel
        
        
        379,225
        
        
        276,928
        
        
        861,604
        
        
        636,697Real estate
        
        
        177,375
        
        
        286,801
        
        
        742,029
        
        
        286,801Total Cost of Sales
        
        
        5,734,003
        
        
        5,127,479
        
        
        13,471,409
        
        
        10,637,698GROSS PROFIT
        
        
        1,485,861
        
        
        1,293,544
        
        
        3,419,224
        
        
        2,591,201OPERATING EXPENSES:Hotel operating expenses
        
        
        21,138
        
        
        75,017
        
        
        56,314
        
        
        144,578Bad debt expense
        
        
        6,797
        
        
        287,949
        
        
        307,691
        
        
        831,832Salaries and employee benefits
        
        
        184,297
        
        
        48,772
        
        
        318,498
        
        
        95,568Depreciation and amortization
        
        
        126,690
        
        
        79,574
        
        
        226,116
        
        
        132,706General and administrative
        
        
        118,256
        
        
        1,487
        
        
        283,727
        
        
        404,188Total Operating Expenses
        
        
        457,178
        
        
        492,799
        
        
        1,192,346
        
        
        1,608,872INCOME FROM OPERATIONS
        
        
        1,028,683
        
        
        800,745
        
        
        2,226,878
        
        
        982,329OTHER INCOME (EXPENSE):Other expense
        
        
        (1,672
        )
        
        (390
        )
        
        (1,672
        )
        
        (2,087
        )Interest income
        
        
        2,027
        
        
        113
        
        
        2,114
        
        
        5,145Interest expense
        
        
        (227,692
        )
        
        (62,201
        )
        
        (292,405
        )
        
        (123,369
        )Total Other Expense
        
        
        (227,337
        )
        
        (62,478
        )
        
        (291,963
        )
        
        (120,311
        )INCOME BEFORE INCOME TAX
        
        
        801,346
        
        
        738,267
        
        
        1,934,915
        
        
        862,018INCOME TAX
        
        
        332,158
        
        
        135,052
        
        
        730,857
        
        
        336,912NET INCOME
        
        
        469,188
        
        
        603,215
        
        
        1,204,058
        
        
        525,106COMPREHENSIVE INCOME:Unrealized foreign currency translation gain
        
        
        398,951
        
        
        106,344
        
        
        558,025
        
        
        192,621COMPREHENSIVE INCOME
        
        $
        868,139
        
        $
        709,559
        
        $
        1,762,083
        
        $
        717,727NET INCOME PER COMMON SHARE:Basic
        
        $
        0.01
        
        $
        0.01
        
        $
        0.02
        
        $
        0.01Diluted
        
        $
        0.01
        
        $
        0.01
        
        $
        0.02
        
        $
        0.01WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
        
        
        51,161,837
        
        
        48,500,000
        
        
        50,580,920
        
        
        48,500,000Diluted
        
        
        59,434,147
        
        
        48,500,000
        
        
        55,902,121
        
        
        48,500,000





See accompanying notes to unaudited consolidated financial statements.



5


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AS RESTATED - SEE NOTE 17)



For the Six Months EndedDecember 31,2007
        
        2006(Unaudited)
        
        (Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
        
        $
        1,204,058
        
        $
        525,106Adjustments to reconcile net income to net cash provided by operating activities:Depreciation
        
        
        226,116
        
        
        132,706Bad debt expense
        
        
        307,691
        
        
        831,320Interest expense from amortization of debt discount
        
        
        136,437
        
        
        Amortization of debt issuance costs
        
        
        12,790
        
        
        Changes in assets and liabilities:Accounts receivable
        
        
        754,410
        
        
        (3,311,784
        )Inventories
        
        
        (30,785
        )
        
        (116,667
        )Other receivables
        
        
        154,832
        
        
        (137,294
        )Advance to suppliers
        
        
        (86,010
        )
        
        482,260Costs and estimated earnings in excess of billings
        
        
        14,289
        
        
        Real estate held for sale
        
        
        647,237
        
        
        251,687Accounts payable and accrued expenses
        
        
        (642,811
        )
        
        212,639Income tax payable
        
        
        (280,423
        )
        
        (78,749
        )Advances from customers
        
        
        (459,089
        )
        
        1,560,112Billings in excess of costs and estimated earnings
        
        
        (124,843
        )
        
        NET CASH PROVIDED BY OPERATING ACTIVITIES
        
        
        1,833,899
        
        
        351,336CASH FLOWS FROM INVESTING ACTIVITIES:Increase in due from related party
        
        
        36,128
        
        
        Proceeds from sale of property and equipment
        
        
        1,451
        
        
        Increase in construction in progress
        
        
        (978,031
        )
        
        (129,614
        )Payment of deposit for land use rights
        
        
        (732,722
        )
        
        Purchase of property and equipment
        
        
        (1,854,866
        )
        
        (107,830
        )NET CASH USED IN INVESTING ACTIVITIES
        
        
        (3,528,040
        )
        
        (237,444
        )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from convertible debt
        
        
        2,183,000
        
        
        Payment of placement fees
        
        
        (204,640
        )
        
        Repayment of loans payable
        
        
        (133,222
        )
        
        Repayments on related party advances
        
        
        
        
        
        (99,536
        )Proceeds from sale of common stock
        
        
        2,219,252
        
        
        NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
        
        
        4,064,390
        
        
        (99,536
        )EFFECT OF EXCHANGE RATE ON CASH
        
        
        68,065
        
        
        4,574NET INCREASE IN CASH
        
        
        2,438,314
        
        
        18,930CASH - beginning of year
        
        
        251,044
        
        
        180,924CASH - end of the period
        
        $
        2,689,358
        
        $
        199,854SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest
        
        $
        801,336
        
        $
        Income taxes
        
        $
        946,591
        
        $
        524,874





See accompanying notes to unaudited consolidated financial statements.



6


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Organization



The Company 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 our business plan to become a fully integrated online provider that links the supply and demand sides of the ground trucking industry. In November 2007, the Company filed a Certificate of Domestication in the State of Florida whereby the Company domesticated as a Florida corporation under the name Gold Horse International, Inc.



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



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



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



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



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



7


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



The relationship among the above companies as follows:







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



PRC law currently places certain limitations on foreign ownership of Chinese companies. To comply with these foreign ownership restrictions, the Company operates its business in China through the Jin Ma Companies, each of which is a limited liability company headquartered in Hohhot, the capital city of the Autonomous Region of Inner Mongolia in China, and organized under PRC laws. Each of the Jin Ma Companies has the relevant licenses and approvals necessary to operate the Companys businesses in China. The Company has Contractual Arrangements with each of the Jin Ma Companies and their shareholders (collectively the Jin Ma Companies Shareholders) pursuant to which the Company provides business consulting and other general business operation services to the Jin Ma Companies. Through these Contractual Arrangements, the Company 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 the Company 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 the Company 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 the Company. In order to further reinforce the Companys rights to control and operate the Jin Ma Companies, these companies and their shareholders have granted the Company, 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 the Company 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, 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, under which the Company was made a party to the Contractual Arrangements.



8


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



The Companys relationships with the Jin Ma Companies and their respective shareholders are governed by the Contractual Arrangements. Under PRC laws, each of Gold Horse International, Gold Horse Nevada, Global Rise, Jin Ma Real Estate, Jin Ma Construction and Jin Ma Hotel is an independent legal person and none of them is exposed to liabilities incurred by the other party. Other than pursuant to the Contractual Arrangements, the Jin Ma Companies do not transfer any other funds generated from their respective operations to the Company. The Company has entered into the following Contractual Arrangements with each of the Jin Ma Companies:



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



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



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



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



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



9


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



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, in the Autonomous Region of Inner Mongolia in China. In operation since 1980, Jin Ma Construction was formally registered as a limited liability company in Hohhot City in March 2002.



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 situated in Hohhot City approximately 15 kilometers from the Hohhot Baita Airport.



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.



Basis of presentation





The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Companys functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in United States Dollars ($). In the opinion of management, the accompanying unaudited financial statements of the Company include all adjustments (consisting only of normal recurring adjustments) considered necessary to present fairly its financial position as of December 31, 2007, the results of operations for the three and six months ended December 31, 2007 and 2006, and cash flows for the six months ended December 31, 2007 and 2006. The operating results for the six month period ended December 31, 2007 are not necessarily indicative of the results that may be expected for the year ending
June 30, 2008. The audited financial statements for the year ended June 30, 2007 filed with the Securities and Exchange Commission are hereby referenced. The information included in this Amendment No. 1 to Form 10-QSB on Form 10-Q should be read in conjunction with Managements Discussion and Analysis and financial statements and notes thereto included in the Companys 2007 Form 10-KSB.





Principles of consolidation



The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and present the financial statements of the Company and its wholly owned and majority-owned subsidiaries including variable interest entities (VIEs) for which the Company is the primary beneficiary.



The accompanying consolidated financial statements include the accounts of Speedhaul Holdings, Inc. and its wholly owned subsidiaries Gold Horse Nevada and Global Rise, and its variable interest entities Jin Ma Construction, Jin Ma Hotel and Jin Ma Real Estate. All significant inter-company accounts and transactions have been eliminated in consolidation.



The Company has adopted FASB Interpretation No. 46R Consolidation of Variable Interest Entities (FIN 46R), an Interpretation of Accounting Research Bulletin No. 51. FIN 46R requires a Variable Interest Entity (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 risks of, and enjoys the rewards normally associated with ownership of the entities, and therefore the Company is the primary beneficiary of these entities.



10


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



Use of estimates



The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates for the six months ended December 31, 2007 and 2006 include the allowance for doubtful accounts, the useful life of property and equipment, costs and estimated earnings in excess of billings, and billings in excess of costs and estimated earnings.



Accounts and other receivables



The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. At December 31 and June 30, 2007, the Company has established, based on a review of its outstanding accounts receivable balances, an allowance for doubtful accounts in the amount of $1,020,191 and $740,338, respectively, on its total accounts receivable. Additionally, at December 31 and June 30, 2007, the Company has
established, based on a review of its outstanding other receivable balances, an allowance for doubtful accounts in the amount of $859,257 and $923,803, respectively.



Inventories



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



Advances to suppliers





The Company advances to certain vendors for purchase of its material. The advances to suppliers are interest free and unsecured. The advances to suppliers amounted to $978,410 and $198,113, respectively, as at December 31 and June 30, 2007.





Property and equipment



Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation is computed using straight line method over the estimated useful lives of the assets, ranging from five to forty years.



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 December 31 and June 30, 2007, real estate held for sale amounted to $534,512 and $1,149,906, respectively.





Construction in process



Properties currently under development are accounted for as construction-in-process. Construction-in-process is recorded at acquisition cost, including land rights cost, development expenditure, professional fees and the interest expenses capitalized during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction-in-progress is to be transferred to 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.





11


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



Costs in excess of billings



Costs in excess of billings are stated at cost, unless events or circumstances indicate that cost cannot be recovered, in which case the carrying value is reduced to estimated fair value. Estimated fair value: (i) is based on the Companys plans for the development of each property; and (ii) considers the cost to complete and the estimated fair value of the completed projects.



Direct construction, development costs, property taxes and other related costs to the construction projects are capitalized during periods those activities which are necessary to get the projects ready for its intended use. The capitalization ends when the construction is substantially completed and the projects are ready for its intended use.



Advances from customers



Advances from customers at December 31 and June 30, 2007 of $164,318 and $609,574, respectively, consist of prepayments from third party customers to the Company for construction and real estate transactions to ensure sufficient funds are available to complete the real estate and construction projects. The Company will recognize the deposits as revenue upon transfer of title to the buyer, in compliance with its revenue recognition policy.



Impairment of long-lived assets



In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the assets estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the six months ended December 31, 2007 and during the year ended June 30, 2007.



Income taxes



The Company is governed by the Income Tax Law of the Peoples Republic of China and the United States. The Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. At December 31 and June 30, 2007, there were no significant book
and tax basis differences.



Pursuant to the PRC Income Tax Laws, the Company is subject to Enterprise Income Taxes (EIT) at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax.



Earnings and diluted earnings per common share



Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), Earnings per share. SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The following table presents a reconciliation of basic and diluted earnings per share:



12


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007





Three Months ended December 31,
        
        Six Months ended December 31,2007
        
        2006
        
        2007
        
        2006Net income
        $
        469,188
        
        $
        603,215
        
        $
        1,204,058
        
        $
        525,106Weighted average shares outstanding  basic
        
        51,161,837
        
        
        48,500,000
        
        
        50,580,920
        
        
        48,500,000EPS  basic
        $
        0.01
        
        $
        0.01
        
        $
        0.02
        
        $
        0.01Net income
        $
        469,188
        
        $
        603,215
        
        $
        1,204,058
        
        $
        525,106Weighted average shares outstanding  basic
        
        51,161,837
        
        
        48,500,000
        
        
        50,580,920
        
        
        48,500,000Effect of dilutive securities:Unexercised warrants
        
        4,042,577
        
        
        
        
        
        2,544,713
        
        
        Convertible debentures
        
        4,229,733
        
        
        
        
        
        2,776,488
        
        
        Weighted average shares outstanding diluted
        
        59,434,147
        
        
        48,500,000
        
        
        55,902,121
        
        
        48,500,000EPS  diluted
        $
        0.01
        
        $
        0.01
        
        $
        0.02
        
        $
        0.01





Revenue recognition



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



Real estate sales which primarily involve the sale of multi-family homes and community environments are reported in accordance with the provisions of Statement of Financial Accounting Standard No. 66, Accounting for Sales of Real Estate. Profit from the sales of development properties, less 5% business tax, is 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. Sales transactions not meeting all the conditions of the full accrual method
are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability (reflected as advances from customers in the Companys consolidated balance sheets).



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.



13


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



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



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



Concentrations of credit risk



Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions in China. Total cash in state-owned banks at December 31, 2007 amounted to $2,548,041, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A portion of the Companys sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.



Stock-based compensation



The Company adopted SFAS 123(R) using the modified prospective transition method. In accordance with the modified prospective transition method, the Companys financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). There were no options outstanding as of December 31, 2007 and 2006.



Foreign currency translation and comprehensive income





The reporting currency is the U.S. dollar. The functional currency of the Company is the local currency, the Chinese Renminbi (RMB). The financial statements of the Company are translated into United States dollars in accordance with Statement of Financial Accounts Standards (SFAS) No. 52, Foreign Currency Translation, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for the equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At December 31, 2007, the cumulative translation adjustment of $1,102,903 was classified as an item of other comprehensive income in the stockholders equity section of the consolidated balance sheet. For
the six months ended December 31, 2007 and 2006, accumulated other comprehensive income was $1,762,083 and $717,727, respectively.





Segment reporting



Statement of Financial Accounting Standards No. 131 (SFAS 131), Disclosure About Segments of an Enterprise and Related Information requires use of the management approach model for segment reporting. The management approach model is based on the way a companys management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. During the six months ended December 31, 2007 and 2006, the Company operated in three reportable business segments - (1) the Construction segment (2) Hotel segment and (3) Real estate development segment (Refer to Note 11).



14


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



Recent accounting pronouncements



In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(SFAS 157), which provides guidance for how companies should measure fair value when required to use a fair value measurement for recognition or disclosure purposes under generally accepted accounting principle (GAAP). SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact, if any, the adoption of SFAS 157 will have on its financial statements.



In September 2006, the FASB issued SFAS 158 (SFAS 158),Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No.87, 88, 106, and 132(R).This statement requires an employer to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This statement also requires an employer to measure the funded status of a plan as of the date of its year end statement of financial position, with limited exceptions. The Company will be required to initially recognize the funded status of a defined
benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year end statement of financial position is effective for fiscal years ending after December 15, 2008, or fiscal 2009 for the Company. The Company is currently assessing the impact, if any, the adoption of SFAS 157 will have on its financial statements.



In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No.115, under which entities will now be permitted to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. This Statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. The Company is currently assessing the impact, if any, the adoption of SFAS 159 will have on its financial statements.



In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements. This Statement amends ARB 51 to establish accounting and reporting standards for the non-controlling (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 is effective for the Companys fiscal year beginning October 1, 2009. Management is currently evaluating the effect of this pronouncement on its consolidated financial statements.



In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This Statement replaces SFAS No. 141, Business Combinations. This Statement retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) will apply prospectively to business combinations for which the acquisition date is on or after Companys fiscal year beginning October 1, 2009. While the Company has not yet evaluated this statement for the impact, if any, that SFAS No. 141(R) will have on its consolidated financial statements, the Company will be required to expense costs related to any acquisitions after September 30, 2009.



15


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



NOTE 2 INVENTORIES



At December 31 and June 30, 2007, inventories consisted of the following:




December 31,
        
        June 30,2007
        
        2007Construction materials
        
        $
        24,411
        
        $
        1,746Consumable goods
        
        
        28,529
        
        
        18,731$
        52,940
        
        $
        20,477



NOTE 3 COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS



Costs in excess of billings at December 31 and June 30, 2007 consisted of:





December 31,
        
        June 30,2007
        
        2007Costs incurred on uncompleted contracts
        
        $
        3,730,220
        
        $
        8,980,006Estimated earnings
        
        
        824,698
        
        
        2,072,1594,554,918
        
        
        11,052,165Less billings to date
        
        
        (4,554,865
        )
        
        (11,160,949
        )$
        53
        
        $
        (108,784
        )





Amounts are included in the accompanying balance sheet under the following captions:




December 31,
        
        June 30,2007
        
        2007Costs and estimated earnings in excess of billings
        
        $
        1,220
        
        $
        15,237Billings in excess of costs and estimated earnings
        
        
        (1,167
        )
        
        (124,021
        )$
        53
        
        $
        (108,784
        )



NOTE 4 DEPOSIT ON LAND USE RIGHTS





The Company has recorded as a deposit on land use rights the costs paid to a local government agency to acquire a long-term interest to utilize certain land to construct real property for sale. In order to obtain the provincial governments permission to build on top on the land, the Company will need to make additional payments to the higher level government. The Company has not received the final license to build on the land. Additionally, during the six months ended December 31, 2007, the Company deposited funds to obtained land use rights on additional land. Accordingly, the Company has reflected amounts paid as of December 31 and June 30, 2007 of $3,069,476 and $2,223,069, respectively, as a deposit on land use rights on the accompanying consolidated balance sheet.





16


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



NOTE 5 PROPERTY AND EQUIPMENT



At December 31 and June 30, 2007, property and equipment consist of the following:




December 31,
        
        June 30,2007
        
        2007Useful LifeOffice equipment
        5 Years
        
        $
        55,997
        
        $
        49,230Machinery equipment
        5-15 Years
        
        
        4,091,058
        
        
        2,467,724Vehicles
        10 Years
        
        
        442,926
        
        
        61,390Building and building improvements
        20-40 Years
        
        
        3,918,075
        
        
        3,758,4198,508,056
        
        
        6,336,763Less: accumulated depreciation
        
        
        
        (1,899,143
        )
        
        (1,605,595
        )$
        6,608,913
        
        $
        4,731,168



Depreciation of property and equipment is provided using the straight-line method. For the six months ended December 31, 2007 and 2006, depreciation expense amounted to $226,116 and $132,706, respectively.



NOTE 6 INTANGIBLE ASSET



All land in the Peoples Republic of China is owned by the government and cannot be sold to any individual or company. The Company has recorded the costs paid to a local government agency to acquire a long-term interest to utilize certain land to construct real property for sale. This type of arrangement is common for the use of land in the PRC. The land use rights are valued at a fixed amount RMB 1,223,679, fluctuated by the exchange rate. At December 31 and June 30, 2007, the land use rights are valued at $167,304 and $160,487, respectively. Under the terms of the agreement, the Company has rights to use certain land for a period to be specified when the land is put into use. As of December 31, 2007, this land has not been entered into service. The Company will amortize these land use rights over the contract period when determined.



NOTE 7 ACCRUED EXPENSES



At December 31 and June 30, 2007, accrued expenses consist of the following:




December 31,
        
        June 30,2007
        
        2007Construction payable
        
        $
        
        
        $
        223,309Accrued interest payable
        
        
        43,005
        
        
        676,587Employees benefit
        
        
        149,607
        
        
        148,791Accrued payroll
        
        
        9,302
        
        
        28,638Other accounts payable
        
        
        201,317
        
        
        13,829$
        403,231
        
        $
        1,091,154



17


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007





NOTE 8 RELATED PARTY TRANSACTIONS



Due from related parties



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




December 31,
        
        June 30,Name
        Relationship
        
        2007
        
        2007Inner Mongolia Jin Ma Group Ltd and its subsidiaries
        Owned by Yang Liankuan
        
        $
        836,817
        
        $
        999,984Yang Liankuan 
        Officer and director
        
        
        
        
        
        47,848$
        836,817
        
        $
        1,047,832



NOTE 9 LOANS PAYABLE





Loans payable consisted of the following at December 31 and June 30, 2007:




December 31,
        
        June 30,2007
        
        2007Loans to various unrelated parties, due in January 2010 with annual interest of 14.4% and unsecured.
        
        $
        967,446
        
        $
        993,600Loans to various unrelated parties, due in December 2009 with annual interest of 14.4% and unsecured.
        
        
        106,643
        
        
        167,873Loans to various unrelated parties, due in August 2008 with annual interest of 14.4% and unsecured
        
        
        136,722
        
        
        131,151Loans to various unrelated parties, due in January 2010 with annual interest of 18% and unsecured.
        
        
        88,869
        
        
        85,248Loans to various unrelated parties, due in April 2012 with annual interest of 18% and unsecured
        
        
        177,739
        
        
        170,496Loans to various unrelated parties, due in August 2011 with annual interest of 18% and unsecured
        
        
        34,181
        
        
        32,788Loans to various unrelated parties, due in September 2012 with annual interest of 18% and unsecured
        
        
        109,378
        
        
        104,921Total loans payable
        
        
        1,620,978
        
        
        1,686,077Less : current portion
        
        
        (136,722
        )
        
        Long term liability
        
        $
        1,484,256
        
        $
        1,686,077



18


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



For the six months ended December 31, 2007 and 2006, interest expense related to these loans amounted to $128,910 and $123,369, respectively. Future maturities of long-term debt are as follows:




Period ended September:2008 (current liability)
        
        
        
        $
        136,7222010
        
        
        
        $
        1,162,9582011
        
        
        
        $
        34,1812012
        
        
        
        $
        287,117






NOTE 10 CONVERTIBLE DEBT



On November 30, 2007, the Company entered into a Securities Purchase Agreement pursuant to which the Company agreed to sell an aggregate of $3,275,000 principal amount 10% Secured Convertible Debentures to six accredited investors and to issue those investors common stock purchase warrants to purchase an aggregate of 9,520,352 shares of the Companys common stock in a private transaction exempt from registration under the Securities Act of 1933 in reliance on the exemptions provided by Section 4(2) and Rule 506 of Regulation D of that act.



Under the terms of the Securities Purchase Agreement, on the first closing which occurred on November 30, 2007, the Company issued $2,183,000 principal amount 10% Secured Convertible Debentures to the purchasers together with the common stock purchase warrants to purchase an aggregate of 6,345,930 shares of the Companys common stock. The Company paid Next Generation Equity Research, LLC (Next), a broker dealer and member of FINRA, a commission of $174,640 and issued Next common stock purchase warrants to purchase an aggregate of 507,674 shares of the Companys common stock at $.50 per share. Additionally, the Company reimbursed one of the investors $30,000 to defer its legal fees in connection with the financing. The Company intends to use the balance of the proceeds for general working capital.



Within five days following the effectiveness of the registration statement described below, a second closing will occur and the Company will issue the remaining $1,092,000 principal amount 10% Secured Convertible Debentures to the purchasers together with the common stock purchase warrants to purchase an aggregate of 3,174,419 shares of the Companys common stock. The Company will pay an additional commission of $87,360 and will grant an additional common stock purchase warrants to purchase an aggregate of 253,953 shares of the Companys common stock. The issuance is not subject to any other condition other than the registration of the securities.



The debentures, which bear interest at 10% per annum, are due 16 months from the issuance date. Interest is payable in cash quarterly on January 1, April 1, July 1 and October 1 beginning on the first date after the issuance. At the Companys option, and providing certain conditions precedent have been met, interest can be paid in shares of our common stock valued at the lesser of (i) the conversion rate, or (ii) 90% of the lesser of (a) the average VWAP (as defined in the debenture) for the 20 consecutive trading days prior to the interest payment date or (b) the average VWAP for the 20 consecutive trading days ending on the trading day immediately prior to the delivery of the interest conversion shares. The Company is not permitted to prepay the debentures without the prior written consent of the holders. The debentures are convertible at any time at the option of the holder into shares of the
Companys common stock based upon a conversion rate of $0.344 per share, subject to adjustment as hereinafter set forth.



19


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



The Company agreed that so long as the debentures remain outstanding, unless the Company receives the prior written consent of the holders of at least 85% of the outstanding principal amount of the debentures, the Company agreed that it will not:





        incur additional indebtedness, subject to certain exceptions,
        incur any liens on any of our property or assets,
        repurchase any of its common stock, subject to certain exceptions,
        amend its charter documents in a manner that would be adverse to the debenture holders,
        pay any cash dividends or distributions on any equity securities, or
        enter into any transaction with an affiliate unless it is made on an arms-length basis and approved by a majority of the disinterred directors.



If the Company should default on the debentures, the holders have the right to immediately accelerate the maturity date of the principal amount of the debentures as well as any accrued but unpaid interest and it such amount is not satisfied within five days the interest rate on the debentures increases to 18%. Events of default include customary clauses such as failure to make payments when required, failure to observe any covenant contained in the debentures, a default under any other document executed in connection with the transaction, bankruptcy or default under any other obligation greater than $150,000. In addition, an event of default would occur if the Companys common stock should no longer be quoted on the OTC Bulletin Board, if the Company were a party to a change of control transaction involving in excess of 33% of its assets or if the registration statement described below is not declared
effective within 180 days after the first closing date, among other provisions.



The warrants are exercisable for five years from the date of issuance at an initial exercise price of $0.50 per share, subject to adjustment as hereinafter set forth. The warrants are exercisable on a cashless basis at any time when there is not an effective registration statement covering the underlying shares. The Company is permitted to call the warrants on 30 trading days prior notice at $0.001 per warrant at any time after the effective date of the registration statement covering the shares underlying the warrants when, (i) the VWAP (as defined in the warrant) for each of 20 consecutive trading days beginning with the effective date of the registration statement exceeds $1.50, (ii) the average daily volume for during this period exceeds 500,000 shares of common stock per trading day and (iii) the holder is not in possession of any information that constitutes, or might constitute, material
non-public information which was provided by the Company to the holder.



The conversion price of the debentures and the exercise price of the warrants are subject to the proportional adjustment in the event of a stock splits, stock dividends, recapitalizations or similar corporate events. Both the conversion price of the debentures and the number of shares issuable upon conversion of the debentures as well as the exercise price of the warrants and the number of shares issuable upon the exercise of the warrants is subject to adjustment if the Company should issue shares of common stock or other securities convertible or exercisable into shares of common stock or otherwise reprice any existing conversion or exercise prices to a price less than the then current conversion and/or exercise prices. In that event, the conversion and/or exercise price would be reduced to such lesser price and the number of shares of our common stock issuable upon the conversion of the debentures and/or
exercise of the warrants would be increased so that the aggregate conversion and/or exercise prices prior to such reduction will be equal to the aggregate conversion and/or exercise prices prior to such reduction.



The debentures are not convertible and the warrants are not exercisable to the extent that (i) the number of shares of our common stock beneficially owned by the holder and (ii) the number of shares of our common stock issuable upon the conversion of the debentures and/or the exercise of the warrants would result in the beneficial ownership by holder of more than 4.99% of our then outstanding common stock. This ownership limitation can be increased to 9.99% by the holder upon 61 days notice to the Company.



In conjunction with the transaction, Mr. Liankuan Yang and Yang Yang and Ms. Runlan Ma, officers and directors of the Company, pledged an aggregate of 19,000,000 shares of the Companys common stock owned by them as additional security for the Companys obligations under the transaction. Mr. Liankuan Yang, Ms. Yang Yang and Ms. Runlan Ma have also entered into lock-up agreements whereby they are agreed not to offer or sell any shares of the Companys common stock owned by them until the 180th trading day after the effective date of the registration statement described elsewhere herein.



20


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



So long as the debentures are outstanding, should the Company issue any common stock or common stock equivalent, the Company granted the purchasers a right of first refusal whereby each purchaser in this offering has the right to participate in such subsequent financing up to an amount equal to 100% of such subsequent financing upon the same terms and conditions of that financing. If the Company undertakes such a financing while the debentures remain outstanding, other than an underwritten offering, the holders are entitled to exchange the debentures on a dollar for dollar basis for any securities which the Company may issue in the subsequent financing.



In addition, during the period from the execution of the Securities Purchase Agreement until 90 days following the effective date of the registration statement described below, the Company agreed not to issue any shares of common stock or securities convertible or exercisable into shares of common stock subject to certain exceptions with includes the offer and sale of up to $3,000,000 of equity securities limited solely to offshore purchasers. The Company also agreed that so long as the purchasers own any of the securities sold or to be issued in the transaction, the Company will not enter into any agreement which would involve a variable rate transaction, which includes floating conversion prices, conversion prices with reset mechanisms or equity lines of credit among others.



The Company granted the purchasers certain piggy-back registration rights. In addition, the Company agreed to file a registration statement with the Securities and Exchange Commission registering the shares of common stock underlying the $3,275,000 principal amount debentures and the warrants so as to permit the public resale thereof within 45 days from the first closing date. The Company is subject to the payment to the holders liquidated damages if it fails to file the registration statement within 45 days from the date of the Securities Purchase Agreement, or if the registration statement is not declared effective within 120 days from the date of the Securities Purchase Agreement (or 150 days if the staff of the SEC reviews the filing), or if all the securities are not registered by April 30, 2008 as well as certain other events. The liquidated damages, which are payable in cash, will be calculated at
1.5% of the aggregate purchase price paid by each holder for every 30 day period, with a maximum of 18% of the aggregate purchase price. If the Company fails to pay all or any portion of these liquidated damages, they accrue interest at 18% per annum. The Company is obligated to pay all expenses associated with the registration statement, other than fees and expenses of the holders counsel, if any, any commissions payable by the holders on the sale of the underlying securities. The Company filed its registration on January 23, 2008 and has been notified by the staff of the SEC that it will receive a full review.



In accordance with Emerging Issues Task Force (EITF) 98-5 and EITF 00-27, the convertible notes were considered to have an embedded beneficial conversion feature (BCF) because the effective conversion price was less than the fair value of the Companys common stock. This convertible notes were fully convertible at the issuance date, therefore the portion of proceeds allocated to the convertible notes of $1,295,233 was determined to be the value of the beneficial conversion feature and was recorded as a debt discount and is being amortized over the 16-months note term.



Pursuant to the terms of the Warrants, the Purchasers are entitled to purchase up to 6,345,930 shares of common stock of the Company at an exercise price of $0.50 per share. The Warrants have a term of 5 years after the issue date of November 30, 2007. These warrants were treated as a discount on the secured notes and were valued at $887,768 to be amortized over the 16-month note term. The fair market value of each stock warrant was estimated on the date of grant using the Black-Scholes option-pricing model in accordance with SFAS No. 123R using the following weighted-average assumptions: expected dividend yield 0%; risk-free interest rate of 3.41%; volatility of 25% and an expected term of five year.



During the six months ended December 31, 2007, amortization of debt issue costs was $12,790. The remaining balance of debt issue costs at December 31, 2007 was $191,850 which will be amortized over the term of the debenture. The amortization of debt discounts for the six months ended December 31, 2007 was $136,437, which has been included in interest expense on the accompanying statement of operations. The balance of the debt discount is $2,046,563 at December 31, 2007 which will be amortized over the term of the debenture.



The Company evaluated whether or not the secured convertible debentures contain embedded conversion options, which meet the definition of derivatives under SFAS 133 Accounting for Derivative Instruments and Hedging Activities and related interpretations. The Company concluded that since the secured convertible debentures had a fixed conversion rate of $0.344, the secured convertible debt was not a derivative instrument.



21


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



The convertible debenture liability is as follows at December 31, 2007:




Convertible debentures payable
        
        $
        2,183,000Less: unamortized discount on debentures
        
        
        (2,046,563
        )Convertible debentures, net
        
        $
        136,437



NOTE 11 SEGMENT INFORMATION



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



During the six months ended December 31, 2007 and 2006, 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 six months ended December 31, 2007 and 2006 is as follows:





Six months Ended December 31, 2007:
        
        ConstructionSegment
        
        Hotel Segment
        
        Real estateDevelopmentSegment
        
        Unallocated
        
        ConsolidatedNet revenues from unaffiliated customers
        
        $
        14,061,393
        
        $
        1,573,712
        
        $
        1,255,528
        
        $
        
        
        $
        16,890,633Cost of sales
        
        
        11,867,776
        
        
        861,604
        
        
        742,029
        
        
        
        
        
        13,471,409Operating expenses (excluding depreciation)
        
        
        466,348
        
        
        290,494
        
        
        92,648
        
        
        116,740
        
        
        966,230Depreciation
        
        
        90,193
        
        
        127,268
        
        
        8,655
        
        
        
        
        
        226,116Interest expense
        
        
        128,910
        
        
        
        
        
        
        
        
        163,495
        
        
        292,405Net income (loss)
        
        
        1,009,417
        
        
        197,215
        
        
        277,227
        
        
        (279,801
        )
        
        1,204,058Identifiable assets
        
        
        8,623,058
        
        
        3,723,433
        
        
        5,701,712
        
        
        2,133,612
        
        
        20,181,815






Six months Ended December 31, 2006:
        
        ConstructionSegment
        
        HotelSegment
        
        Real estateDevelopmentSegment
        
        ConsolidatedNet revenues from unaffiliated customers
        
        $
        11,593,003
        
        $
        1,230,556
        
        $
        405,340
        
        $
        13,228,899Cost of sales
        
        
        9,714,200
        
        
        636,697
        
        
        286,801
        
        
        10,637,698Operating expenses (excluding depreciation)
        
        
        919,607
        
        
        295,144
        
        
        261,415
        
        
        1,476,166Depreciation
        
        
        63,521
        
        
        52,865
        
        
        16,320
        
        
        132,706Interest expense
        
        
        123,606
        
        
        
        
        
        (237
        )
        
        123,369Net income (loss)
        
        
        519,308
        
        
        164,727
        
        
        (158,929
        )
        
        525,106Identifiable assets
        
        
        18,108,869
        
        
        3,173,865
        
        
        1,594,551
        
        
        22,877,285



22


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



Condensed information with respect to these reportable business segments for the three months ended December 31, 2007 and 2006 is as follows:





Three months Ended December 31, 2007:
        
        ConstructionSegment
        
        Hotel Segment
        
        Real estateDevelopmentSegment
        
        Unallocated
        
        ConsolidatedNet revenues from unaffiliated customers
        
        $
        6,177,624
        
        $
        717,526
        
        $
        324,714
        
        $
        
        
        $
        7,219,864Cost of sales
        
        
        5,177,403
        
        
        379,225
        
        
        177,375
        
        
        
        
        
        5,734,003Operating expenses (excluding depreciation)
        
        
        83,302
        
        
        175,554
        
        
        24,197
        
        
        47,435
        
        
        330,488Depreciation
        
        
        55,163
        
        
        65,304
        
        
        6,223
        
        
        
        
        
        126,690Interest expense
        
        
        64,197
        
        
        
        
        
        
        
        
        163,495
        
        
        227,337Net income (loss)
        
        
        535,045
        
        
        65,289
        
        
        79,350
        
        
        (210,496
        )
        
        469,188Identifiable assets
        
        
        8,623,058
        
        
        3,723,433
        
        
        5,701,712
        
        
        2,133,612
        
        
        20,181,815






Three months Ended December 31, 2006:
        
        ConstructionSegment
        
        HotelSegment
        
        Real estateDevelopmentSegment
        
        ConsolidatedNet revenues from unaffiliated customers
        
        $
        5,472,992
        
        $
        542,691
        
        $
        405,340
        
        $
        6,421,023Cost of sales
        
        
        4,563,750
        
        
        276,928
        
        
        286,801
        
        
        5,127,479Operating expenses (excluding depreciation)
        
        
        27,745
        
        
        124,147
        
        
        261,333
        
        
        413,225Depreciation
        
        
        33,522
        
        
        32,148
        
        
        13,904
        
        
        79,574Interest expense
        
        
        62,438
        
        
        
        
        
        (237
        )
        
        62,478Net income (loss)
        
        
        676,687
        
        
        83,174
        
        
        (156,646
        )
        
        603,215Identifiable assets
        
        
        18,108,869
        
        
        3,173,865
        
        
        1,594,551
        
        
        22,877,285



NOTE 12 STOCKHOLDERS EQUITY



Common stock



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



2007 Equity Compensation Plan



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



23


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



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



Subject to the limitation on the aggregate number of shares issuable under the 2007 Equity Compensation Plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the 2007 Equity Compensation Plan, although such shares may also be used by us for other purposes. As of December 31, 2007, the Company has not made any grants under the 2007 Equity Compensation Plan.



Warrants



Stock warrant activity for the six months ended December 31, 2007 is summarized as follows:




Number of
        
        Weighted average
        
        Aggregateshares
        
        exercise price
        
        Intrinsic valueOutstanding at June 30, 2007
        
        
        $
        
        
        $
        Granted
        6,853,604
        
        
        0.50
        
        
        Exercised
        
        
        
        
        
        
        Cancelled
        
        
        
        
        
        
        Outstanding at December 31, 2007
        6,853,604
        
        $
        0.50
        
        $
        



The following table summarizes the Companys stock warrants outstanding at December 31, 2007:




Warrants Outstanding
        
        
        
        Warrants ExercisableRange ofExercisePrice
        
        
        
        NumberOutstanding atDecember 31,2007
        
        
        
        WeightedAverageRemainingContractual Life
        
        
        
        WeightedAverageExercisePrice
        
        
        
        NumberExercisable atDecember 31,2007
        
        
        
        WeightedAverageExercisePrice$
        0.50
        
        
        
        6,853,604
        
        
        
        4.92 Years
        
        
        
        $
        0.50
        
        
        
        6,853,604
        
        
        
        $
        0.50



24


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



NOTE 13 STATUTORY RESERVES



As stipulated by the Company Law of the Peoples Republic of China (PRC), net income after taxation can only be distributed as dividends after appropriation has been made for the following:


1.
        Making up cumulative prior years losses, if any;2.
        Allocations to the Statutory surplus reserve of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Companys registered capital;3.
        Through December 31, 2005, allocations of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the Companys Statutory common welfare fund, which is established for the purpose of providing employee facilities and other collective benefits to the Companys employees; and4.
        Allocations to the discretionary surplus reserve, if approved in the shareholders general meeting.

In accordance with the Chinese Company Law, the Company allocated 10% of income after taxes to the statutory surplus reserve for the six months ended December 31, 2007 and 2006. The amount included in the statutory reserves as of December 31, 2007 amounted to $752,931.



NOTE 14 OPERATING RISK



(a) Country risk



Currently, the Companys revenues are primarily derived from construction projects, real estate and hotel revenues to customers in the Peoples Republic of China (PRC). The Company hopes to expand its operations to countries outside the PRC, however, such expansion has not been commenced and there are no assurances that the Company will be able to achieve such an expansion successfully. Therefore, a downturn or stagnation in the economic environment of the PRC could have a material adverse effect on the Companys financial condition.



(b) Products risk



In addition to competing with other construction companies, real estate companies, and hotel operations, the Company competes with larger Chinese and international companies who may have greater funds available for expansion, marketing, buying power, resources, and the ability to attract more qualified personnel. These Chinese companies may be able to offer products at a lower price. There can be no assurance that the Company will remain competitive should this occur.



(c) Political risk



Currently, PRC is in a period of growth and is openly promoting business development in order to bring more business into PRC. Additionally PRC allows a Chinese corporation to be owned by a United States corporation. If the laws or regulations are changed by the PRC government, the Companys ability to operate the PRC subsidiaries could be affected.



(d) Exchange risk



The Company can not guarantee that the current exchange rate will remain steady, therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of a fluctuating exchange rate actually post higher or lower profit depending on exchange rate of Chinese Renminbi (RMB) converted to U.S. dollars on that date. The exchange rate could fluctuate depending on changes in the political and economic environments without notice.



25


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007



NOTE 15 MAJOR CUSTOMERS & VENDORS





The nature of the Companys construction segment is that at any given time, the Company will have a concentration of significant customer depending upon the number and scope of construction projects. These significant customers may not be the same from period to period depending upon the percentage of completion of the specific projects. One customer, relating to the construction project Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known as Ta Bu Ban) provided 54% of the Companys revenue for the six months ended December 31, 2007. At December 31, 2007, the Company had $1,648,526 of accounts receivable due from this customer.





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



NOTE 16 SUBSEQUENT EVENT



On January 17, 2008, the Company issued 145,349 shares of common stock to its chief financial officer or his assignee for services rendered. The shares were fair value on the date of grant based on recent trading price. In connection with the issuance of these shares, the Company recorded compensation of $75,581.



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





NOTE 17 - RESTATEMENT



The Company is amending its Form 10-QSB for the period ended December 31, 2007 to restate its Consolidated Balance Sheet at December 31, 2007 and the Consolidated Statements of Income and Consolidated Statements of Cash Flows for the periods ended December 31, 2007. On April 25, 2008, the Company determined it was necessary to revise its consolidated financial statements to properly reflect the accounting for a certain construction project that it is currently constructing. Pursuant to an agreement, the Company will lease these buildings to a third party for a period of 26 years. The Company originally recorded this project as a third-party construction project pursuant to its normal revenue recognition policies. In connection with the revision of the Companys consolidated financial statements, as of December 31, 2007 and for the three and six months ended December 31, 2007, the following changes were made:




1.
        Balance Sheet at December 31, 2007

Original
        
        Increase(Decrease)
        
        RestatedAssets :Accounts receivable, net
        
        $
        4,648,446
        
        $
        (727,636
        )
        $
        3,920,810Advance to supplier
        
        
        1,344,552
        
        
        (1,049,753
        )
        
        294,799Deposit on land use rights
        
        
        2,385,865
        
        
        683,611
        
        
        3,069,476Construction in process
        
        
        71,390
        
        
        932,336
        
        
        1,003,726Total Assets
        
        $
        8,450,253
        
        $
        (161,442
        )
        $
        8,288,811Liabilities :Taxes payable
        
        
        320,352
        
        
        (53,275
        )
        
        267,077Retained earnings
        
        
        4,766,825
        
        
        (105,397
        )
        
        4,661,428Other comprehensive gain - foreign currency
        
        
        1,105,673
        
        
        (2,770
        )
        
        1,102,903Total Liabilities and Stockholders Equity
        
        $
        6,192,850
        
        $
        (161,442
        )
        $
        6,031,408



26


GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007




2.
        Statement of Income for the six months ended December 31, 2007:



Original
        
        Increase(Decrease)
        
        RestatedNET REVENUESConstruction
        
        $
        15,127,170
        
        $
        (1,065,777
        )
        $
        14,061,393COST OF SALESConstruction
        
        
        12,776,244
        
        
        (908,468
        )
        
        11,867,776GROSS PROFIT
        
        
        3,576,533
        
        
        (157,309
        )
        
        3,419,224INCOME BEFORE INCOME TAX
        
        
        2,092,224
        
        
        (157,309
        )
        
        1,934,915INCOME TAX
        
        
        782,769
        
        
        (51,912
        )
        
        730,857NET INCOME
        
        
        1,309,455
        
        
        (105,397
        )
        
        1,204,058OTHER COMPREHENSIVE INCOME:Unrealized foreign currency translation gain
        
        
        560,795
        
        
        (2,770
        )
        
        558,025COMPREHENSIVE INCOME
        
        $
        1,870,250
        
        $
        (108,167
        )
        $
        1,762,083NET INCOME PER COMMON SHARE:Basic
        
        $
        0.03
        
        $
        (0.01
        )
        $
        0.02





3.
        Statement of Cash Flows for the six months ended December 31, 2007:





Original
        
        Increase(Decrease)
        
        RestatedCASH FLOWS FROM OPERATING ACTIVITIES:Net income
        
        $
        1,309,455
        
        $
        (105,397
        )
        $
        1,204,058Adjustments to reconcile net income to net cash providedby operating activities:Changes in assets and liabilities:Accounts receivable
        
        
        45,402
        
        
        709,008
        
        
        754,410Advance to suppliers
        
        
        (1,108,890
        )
        
        356,769
        
        
        (752,121
        )Income tax payable
        
        
        (228,512
        )
        
        (51,911
        )
        
        (280,423
        )NET CASH PROVIDED BY OPERATING ACTIVITIES
        
        
        259,319
        
        
        908,469
        
        
        1,167,788CASH FLOWS FROM INVESTING ACTIVITIES:Increase in construction in progress
        
        
        (69,562
        )
        
        (908,469
        )
        
        (978,031
        )NET CASH USED IN INVESTING ACTIVITIES
        
        $
        (1,953,460
        )
        $
        (908,469
        )
        $
        (2,861,929
        )





27


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



Overview



Prior to June 29, 2007, we were a development stage company attempting to implement our business plan to become a fully integrated online provider that linked the supply and demand sides of the ground trucking industry. On June 29, 2007, we executed the Share Exchange Agreement with Gold Horse Nevada whereby we acquired all of the outstanding common stock of Gold Horse Nevada in exchange for newly-issued shares of our common stock to the Gold Horse Nevada shareholders. Gold Horse Nevada conducts its business operations through its wholly-owned subsidiary Global Rise and three operating companies based in the PRC. The acquisition of Gold Horse Nevada was accounted for as a reverse merger because on a post-merger basis, the members of Gold Horse Nevada held a majority of our outstanding common stock on a voting and fully-diluted basis. As a result of the share exchanges, Gold Horse
Nevada was deemed to be the acquirer for accounting purposes. Accordingly, the financial statement data presented are those of Gold Horse Nevada for all periods prior to our acquisition of Gold Horse Nevada on June 29, 2007, and the financial statements of the consolidated companies from the acquisition date forward.



Neither our company nor our subsidiaries, Gold Horse Nevada, Global Rise or IMTD are engaged in any business or operations other than pursuant to the terms of the various Contractual Arrangements with the Jin Ma Companies as described elsewhere in this report. As such, we are completely dependent on the Contractual Arrangements. We do not have any assets other than limited cash on deposit in U.S. banks which we are using to fund our operating expenses. Pursuant to the requirements of Financial Accounting Standards Board (FASB) Interpretation No. 46R Consolidation of Variable Interest Entities (FIN 46R), under generally accepted accounting principles the Jin Ma Companies which are deemed to be variable interest entities (VIEs) we are required to consolidate the financial statements of the Jin Ma Companies with our financial statements. Accordingly, and
as described in the consolidated financial statements included in this report, the assets and liabilities at December 31, 2007 and the results of operations for the three and six months ended December 31, 2007 and 2006 are substantially those of the Jin Ma Companies. All of those assets and operations are located in the PRC and the Contractual Arrangements are subject to enforcement under the laws of the PRC. If we are unable to enforce any legal rights we may have under these contracts or otherwise, our ability to continue as a going concern is in jeopardy. In addition, the terms of these contracts expire in August 2016 and there are no assurances these agreements will be renewed. If the Contractual Arrangements are not renewed or are significantly modified, unless we have expanded our business and operations, of which there are no assurances, we will in all likelihood be forced to cease our operations.



Critical Accounting Policies and Estimates



While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements appearing elsewhere herein, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.



Principles of consolidation



The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and present the financial statements of the Company and our wholly-owned and majority-owned subsidiaries including variable interest entities (VIEs) for which we are the primary beneficiary.



The accompanying consolidated financial statements include the accounts of Gold Horse International and our wholly-owned subsidiaries Gold Horse Nevada, Global Rise, and IMTD and our variable interest entities Jin Ma Construction, Jin Ma Hotel and Jin Ma Real Estate. All significant inter-company accounts and transactions have been eliminated in consolidation.



We have adopted FASB Interpretation No. 46R Consolidation of Variable Interest Entities (FIN 46R), an Interpretation of Accounting Research Bulletin No. 51. FIN 46R requires a Variable Interest Entity (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 we, through contractual arrangements, bear the risks of, and enjoy the rewards normally associated with ownership of the entities, and therefore we are the primary beneficiary of these entities.



28


Use of estimates



The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates in 2007 and 2006 include the allowance for doubtful accounts, the useful life of property and equipment, costs and estimated earnings in excess of billings, and billings in excess of costs and estimated earnings.



Accounts and other receivables



We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. On December 31 and June 30, 2007, the Company has established, based on a review of its outstanding accounts receivable balances, an allowance for doubtful accounts in the amount of $1,74,669 and $740,338, respectively, on its current accounts receivable. The Company has also established an allowance of $845,522 on
its long-term accounts receivable which represents amounts due it by various governmental agencies. Additionally, at December 31 and June 30, 2007, we established, based on a review of our outstanding other receivable balances, an allowance for doubtful accounts in the amount of $859,257 and $923,803, respectively.



Inventories



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



Real estate held for sale



We capitalize as real estate held for sale the direct construction and development costs, property taxes, interest incurred on costs related to land under development and other related costs (i.e. engineering, surveying, landscaping, etc.) until the property reaches its intended use. At December 31 and June 30, 2007, real estate held for sale amounted to $534,512 and $1,149,906, respectively.



Advances from customers



Advances from customers at December 31 and June 30, 2007 of $164,318 and $609,574, respectively, consist of prepayments from third party customers to the Company for construction and real estate transactions to ensure sufficient funds are available to complete the real estate and construction projects. The Company will recognize the deposits as revenue upon transfer of title to the buyer, in compliance with its revenue recognition policy.



Revenue recognition



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



Real estate sales which primarily involve the sale of multi-family homes and community environments are reported in accordance with the provisions of Statement of Financial Accounting Standard (SFAS) No. 66, Accounting for Sales of Real Estate. Profit from the sales of development properties, less 5% business tax, is recognized by the full accrual method when the sale is consummated. A sale is not considered consummated until:





        the parties are bound by the terms of a contract,
        all consideration has been exchanged,
        any permanent financing of which the seller is responsible has been arranged,
        all conditions precedent to closing have been performed,



29



        the seller does not have substantial continuing involvement with the property, and
        the usual risks and rewards of ownership have been transferred to the buyer.



Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as a deposit liability (reflected as advances from customers in our consolidated balance sheets).



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



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



In accounting for long-term engineering and construction-type contracts, we follow the provisions of the AICPAs Statement of Position 81-1Accounting for Performance of Construction-Type and Certain Production-Type Contracts. We recognize revenues using the percentage of completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenues and gross profit in the reporting period when such estimates are revised. This method of revenue recognition requires we 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.



Recent Accounting Pronouncements



In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes,an interpretation of FASB Statement No. 109 (SFAS 109). The interpretation clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with SFAS 109,Accounting for Income Taxes.It prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The adoption of this interpretation did not have an
impact on our consolidated financial statements.



In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements(SFAS 157), which provides guidance for how companies should measure fair value when required to use a fair value measurement for recognition or disclosure purposes under generally accepted accounting principle (GAAP). SFAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact, if any, the adoption of SFAS 157 will have on our financial statements.



In September 2006, the FASB issued SFAS 158 (SFAS 158),Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No.87, 88, 106, and 132(R).This statement requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. This statement also requires an employer to measure the funded status of a plan as of the date of its year end statement of financial position, with limited exceptions. We will be required to initially recognize the funded status of a
defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal year end statement of financial position is effective for fiscal years ending after December 15, 2008, or fiscal 2009 for us. We are currently assessing the impact, if any, the adoption of SFAS 157 will have on our financial statements.



In December 2006, FASB Staff
Position No. EITF 00-19-2,Accounting for Registration Payment Arrangements,was issued. The FSP specifies that the contingent obligation to make future payments or otherwise transfer consideration
under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5,Accounting for Contingencies.We believe that our current accounting is
consistent with the FSP.



30


In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No.115, under which entities will now be permitted to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. This Statement is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157. We are currently assessing the impact, if any, the adoption of SFAS 159 will have on our financial statements.



Results of Operations



Comparison of Three and Six Months Ended December 31, 2007 and December 31, 2006.



The following table sets forth the results of our operations for the periods indicated:





For the Three months
        
        For the Six monthsEnded December 31,
        
        Ended December 31,2007
        
        2006
        
        2007
        
        2006(Unaudited)
        
        (Unaudited)
        
        (Unaudited)
        
        (Unaudited)NET REVENUES:Construction
        $
        6,177,624
        
        $
        5,472,992
        
        $
        14,061,393
        
        $
        11,593,003Hotel
        
        717,526
        
        
        542,691
        
        
        1,573,712
        
        
        1,230,556Real Estate
        
        324,714
        
        
        405,340
        
        
        1,255,528
        
        
        405,340Total Revenues
        
        7,219,864
        
        
        6,421,023
        
        
        16,890,633
        
        
        13,228,899COST OF SALES:Construction
        
        5,177,403
        
        
        4,563,750
        
        
        11,867,776
        
        
        9,714,200Hotel
        
        379,225
        
        
        276,928
        
        
        861,604
        
        
        636,697Real Estate
        
        177,375
        
        
        286,801
        
        
        742,029
        
        
        286,801Total Cost of sales
        
        5,734,003
        
        
        5,127,479
        
        
        13,471,409
        
        
        10,637,698GROSS PROFIT
        
        1,485,861
        
        
        1,293,544
        
        
        3,419,224
        
        
        2,591,201OPERATING EXPENSES:Hotel operating expenses
        
        21,138
        
        
        75,017
        
        
        56,314
        
        
        144,578Bad debt expense
        
        6,797
        
        
        287,949
        
        
        307,691
        
        
        831,832Salaries and employee benefits
        
        184,297
        
        
        48,772
        
        
        318,498
        
        
        95,568Depreciation and amortization
        
        126,690
        
        
        79,574
        
        
        226,116
        
        
        132,706General and administrative
        
        118,256
        
        
        1,487
        
        
        283,727
        
        
        404,188Total Operating Expenses
        
        457,178
        
        
        492,799
        
        
        1,192,346
        
        
        1,608,872INCOME FROM OPERATIONS
        
        1,028,683
        
        
        800,745
        
        
        2,226,878
        
        
        982,329OTHER INCOME (EXPENSE):Other expense
        
        (1672
        )
        
        (390
        )
        
        (1672
        )
        
        (2,087
        )Interest income
        
        2,027
        
        
        113
        
        
        2,114
        
        
        5,145Interest expense
        
        (227,692
        )
        
        (62,201
        )
        
        (292,405
        )
        
        (123,369
        )Total Other Income (Expense)
        
        (227,337
        )
        
        (62,478
        )
        
        (291,963
        )
        
        (120,311
        )INCOME BEFORE INCOME TAX
        
        801,346
        
        
        738,267
        
        
        1,934,915
        
        
        862,018INCOME TAX
        
        332,158
        
        
        135,052
        
        
        730,857
        
        
        336,912NET INCOME
        $
        469,188
        
        $
        603,215
        
        $
        1,204,058
        
        $
        525,106





31


Six Months ended December 31, 2007 compared to six months ended December 31, 2006





Net Revenues.Overall, for the six months ended December 31, 2007, our net revenues increased $3,661,734 or approximately 27.7% from the comparable period in fiscal 2007. The increase in revenues in the six month period was mainly due to increased activity in our construction operations. During the fiscal 2008 periods we reported increase in revenues in that segment of approximately 21.3%, from the comparable periods in fiscal 2007. One customer, relating to the construction project Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known as Ta Bu Ban) provided 54% of the Companys revenue for the six months ended December 31, 2007. Jin Ma Construction completed the Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known as Ta Bu Ban) project during the six months ended December 31, 2007 and
began one new project during the period. Revenues for our hotel operations increased approximately 28% for the six months ended December 31, 2007 from the comparable periods in fiscal 2007, because of an increase in tourism resulting from the completion of the Muslim Scenic Route through Hohhot City. Finally, revenues for our real estate development operation increased approximately 210% in the six months ended December 31, 2007 from the comparable period in fiscal 2007 due to the sale of apartments from our inventory of completed projects.



Cost of Sales.Overall, cost of sales as a percentage of net revenues remained relatively constant for the six months ended December 31, 2007 as compared to the six months ended December 31, 2006. Cost of sales from our construction operation as a percentage of revenues increased less than 1% for each of the six months ended December 31, 2007 from the comparable periods in fiscal 2007 in conjunction with the additional project that Jin Ma Construction added to its roster during fiscal 2008. Additionally, increases in cost of sales from our construction operation were partly attributable to increases in costs for building supplies, labor costs, and other costs incurred on our projects. Cost of sales as a percentage of revenues for our hotel operation increased approximately 3% for the six months ended December 31, 2007 as compared
to the six months ended December 31, 2006, which was primarily attributable to an increase in food costs. Cost of sales for our real estate development operation as a percentage of net revenues decreased approximately 12% for the six months ended December 31, 2007 from the comparable fiscal 2007 periods. We started to generate revenues from this segment during the three month ended December 31 2006 period and a higher cost of sales as a percentage of net revenues is associated with initial start up costs.



Gross Profit.Overall, gross profit increased approximately 32% for the six months ended December 31, 2007 from the six months ended December 31, 2006.





Operating Expenses. For the six months ended December 31, 2007, overall operating expenses decreased approximately 26% as compared to the six months ended December 31, 2006. These decreases were mainly due to a decrease in hotel operating expenses, bad debt and general and administrative expenses offset by the increases in salaries and employee benefits and depreciation expense as discussed below.



Hotel Operating Expenses.Hotel operating expenses decreased by approximately 61% for the six months ended December 31, 2007 as compared to the six months ended December 31, 2006. Hotel operating expenses were approximately 3% of revenues from this segment for the six months ended December 31, 2007 as compared to approximately 12%for the six months ended December 31, 2006 due to the write off of supply inventory in the 2006 period.



Bad Debt Expense.For the six months ended December 31, 2007, bad debt expense amounted to $307,691 as compared to $831,832 for the six months ended December 31, 2006, a decrease of $524,141 or approximately 63%. We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts and other receivables. We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We are currently reviewing our credit
policies and began aggressively pursuing overdue accounts.



Salaries and Employee Benefits. During the fiscal 2008 periods our salaries and employee benefits increased approximately 233% as compared from the comparable period in fiscal 2007, as we increased the number of our employees. These increases included increases in our accounting staff and administrative staff to meet the needs of becoming a public entity as well as increases in real estate sales staff as our sales in this segment increased.



32


Depreciation and Amortization. For the six months ended December 31, 2007, depreciation and amortization increased approximately 70%, respectively, from the comparable periods in fiscal 2007 relating to the acquisition of construction equipment in the current period.



General and Administrative Expenses. General and administrative expenses consist of office expenses and supplies, utilities, telephone and communications, maintenance and automobile expense as well as expenses incurred to operate our company in the US. General and administrative expenses decreased approximately 30% for the six months ended December 31, 2007 as compared to the six months ended December 31, 2006. The decrease was attributable to a significant decrease in general and administrative expenses in our hotel operations as a result of efficient hotel and restaurant management and proficient trained employees.



Total Other Expense. Total other expense increased approximately 142% for the six month ended December 31, 2007 from the comparable period in fiscal 2007. The increase is primarily attributable to interest expense related to the sale of our 10% Secured Convertible Debentures in November 2007.





Net Income.Net income increased 149% from a net income of $525,106 for the six months ended December 31, 2006 to net income of $1,204,058 for the six months ended December 31, 2007. The increase for the six month ended December 31, 2007 as compared to the comparable periods in fiscal 2006 were due primarily to revenues and gross profits and the overall decrease in operating expenses as described above. This translates to basic per common share of $0.02 and $0.01, and diluted net income per common share of $0.02 and $0.01, for the six months ended December 31, 2007 and 2006, respectively.



Comprehensive Income.For the six months ended December 31, 2007 we reported unrealized gain on foreign currency translation of $558,025 as compared to $192,621 for the six months ended December 31, 2006. These gains are non-cash items. As described elsewhere herein, our functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and can have a significant effect on our financial statements. As a result of this non-cash gain, we reported comprehensive income of $1,762,083 for the six months ended
December 31, 2007 as compared to $717,727 for comparable fiscal 2007 period.





Three Months ended December 31, 2007 compared to three months ended December 31, 2006





Net Revenues.Overall, for the three months ended December 31, 2007, our net revenues increased $798,841 or approximately 12% from the comparable period in fiscal 2007. The increase in revenues in the three month period was mainly due to increased activity in our construction operations. During the fiscal 2008 period, we reported increase in revenues in that segment of approximately 13% from the comparable periods in fiscal 2007. Jin Ma Construction completed the Xiao Kang Xin Cun Residential Apartments (Phase I and II) (also known as Ta Bu Ban) project in December 31, 2007 and began one new project during the period. Revenues for our hotel operations increased approximately 32% in the three months ended December 31, 2007 because of an increase in tourism resulting from the completion of the Muslim Scenic Route through
Hohhot City. Finally, revenues for our real estate development operation decreased approximately 20% for the three months ended December 31, 2007 from the comparable period in fiscal 2007 due to fluctuation based on overall Chinese housing market





Cost of Sales.Overall, cost of sales as a percentage of net revenues remained relatively constant for the three months ended December 31, 2007 as compared to the three months ended December 31, 2006. Cost of sales from our construction operation as a percentage of revenues increased less than 1% for the three months ended December 31, 2007 from the comparable periods in fiscal 2007 in conjunction with the additional projects that Jin Ma Construction added to its roster during fiscal 2006. Additionally, increases in cost of sales from our construction operation were partly attributable to increases in costs for building supplies, labor costs, and other costs incurred on our projects. Cost of sales as a percentage of revenues for our hotel operation increased approximately 1.2% for the three months ended December 31, 2007 as
compared to the three months ended December 31, 2006, which was primarily attributable to an increase in food costs. Cost of sales for our real estate development operation as a percentage of net revenues decreased approximately 16% for the three months ended December 31, 2007. We started to generate revenues from this segment during the three month ended December 31 2006 period and a higher cost of sales as a percentage of net revenues is associated with initial start up costs.





Gross Profit.Overall, gross profit increased approximately 15% for the three months ended December 31, 2007 from the comparable period in fiscal 2007.





33


Operating Expenses. For the three months ended December 31, 2007, overall operating expenses decreased approximately 7% as compared to the three months ended December 31, 2006. These decreases were mainly due to a decrease in hotel operating expenses, bad debt and general and administrative expenses offset by the increases in salaries and employee benefits and depreciation expense as discussed below.



Hotel Operating Expenses.Hotel operating expenses decreased by approximately 72% for the three months ended December 31, 2007 from the comparable period in fiscal 2006. Hotel operating expenses were approximately 3% of revenues from this segment for the three months ended December 31, 2007 as compared to approximately 14% for the three months ended December 31, 2006 due to the write off of supply inventory in the 2006 period.



Bad Debt Expense.For the three months ended December 31, 2007, bad debt expense amounted to $6,797 as compared to $287,949 for the three months ended December 31, 2006, a decrease of $281,152 or approximately 98%. We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts and other receivables. We periodically review our accounts receivable and other receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. We are currently reviewing our credit
policies and began aggressively pursuing overdue accounts.



Salaries and Employee Benefits. During the fiscal 2008 periods our salaries and employee benefits increased approximately 278% as compared from the comparable period in fiscal 2007, as we increased the number of our employees. These increases included increases in our accounting staff and administrative staff to meet the needs of becoming a public entity as well as increases in real estate sales staff as our sales in this segment increased.



Depreciation and Amortization. For the three months ended December 31, 2007, depreciation and amortization increased approximately 59% from the comparable periods in fiscal 2007 relating to the acquisition of construction equipment in the current period.



General and Administrative Expenses. General and administrative expenses consist of office expenses and supplies, utilities, telephone and communications, maintenance and automobile expense as well as expenses incurred to operate our company in the US. General and administrative expenses increased significantly in the three months ended December 31, 2007 to $118,256 from $1,487 for the three months ended December 31, 2006 as a result of significant increases in our offices supplies, insurance coverage, travel and other expenses to meet the needs of becoming a public entity.



Total Other Expense. Total other expense increased 263% for the three months ended December 31, 2007 from the three months ended December 31, 2006. The increase is primarily attributable to interest expense related to the sale of our 10% Secured Convertible Debentures in November 2007.





Net Income.Net income decreased approximately 22% from a net income of $603,215 for the three months ended December 31, 2006 to net income of $469,188 for the three months ended December 31, 2007. The decrease for the three month in net income ended December 31, 2007 as compared to the comparable periods in fiscal 2006 were due primarily to revenues and gross profits and the increase in total other expense as described above. This translates to basic per common share of $0.01 and $0.01, and diluted net income per common share of $0.01 and $0.01, for the three months ended December 31, 2007 and 2006, respectively.



Comprehensive Income.For the three months ended December 31, 2007 we reported unrealized gain on foreign currency translation of $398,951 as compared to $106,344 for the three months ended December 31, 2006. These gains are non-cash items. As described elsewhere herein, our functional currency is the Chinese Renminbi; however the accompanying consolidated financial statements have been translated and presented in U.S. dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and can have a significant effect on our financial statements. As a result of this non-cash gain, we reported comprehensive income of $868,139 for the three months
ended December 31, 2007 as compared to $709,559 for comparable fiscal 2007.





34


Liquidity and Capital Resources



Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.





At December 31, 2007, we had a cash balance of $2,689,358. Total cash of $2,548,041 is located in financial institutions in China under the control of the Jin Ma Companies, with the balance maintained in U.S. accounts which is under our control.



Our working capital position increased $2,688,344 to $7,974,684 at December 31, 2007 from $5,286,340 at June 30, 2007. This increase in working capital is primarily attributable to an increase in cash due to net proceeds of approximately $4,198,000 from the sales of our securities and from net proceeds from convertible debt offset by the acquisition of properties and equipment of $1,854,866. We have lent $1,800,000 of the net proceeds received from our convertible debt to the Jin Ma Companies, which they are using as working capital for their current operations and to fund their registered capital requirements under PRC wholly-owned foreign enterprise rules. These advances are unsecured and interest free. Upon receipt of additional funds from the second closing of the sale of our 10% Secured Convertible Debentures, we intend to transfer additional funds to the Jin Ma Companies. It is
anticipated that this advance will also be unsecured and interest free. There has been no repayment schedule fixed for the funds advanced to date to the Jin Ma Companies and we do not anticipate that a repayment schedule will be established for any additional funds we should advance.



Our current assets increased $2,449,756 at December 31, 2007 from June 30, 2007. This increase includes:



At December 31, 2007, cash balance was $2,689,358 as compared to $251,044 at June 30, 2007, an increase of $2,438,314.



At December 31, 2007 current portion of accounts receivable, net of allowance for doubtful accounts, was $3,920,810 as compared to $5,246,986 at June 30, 2007, a decrease of $1,326,176 and was attributable to our construction segment. We anticipate that the balance of these accounts receivable will be paid in accordance with each of their terms.



Our inventory of real estate held for sale at December 31, 2007 was $534,512 as compared to $1,149,906 at June 30, 2007, a decrease of $615,394. We will continue to sell our current inventory of real estate. If we sell our remaining inventory of real estate and have no additional units in our inventory, our cash flows from the sale of real estate inventory may decrease.



During the six months ended December 31, 2007, we capitalized construction cost in connection to the development of building for the Inner Mongolia Electrical Vocational Technical School of $1,003,726. In November 2007, Jin Ma Real Estate entered into an agreement with the Vocational School to construct various student dormitory buildings at the schools new location. Jin Ma Real Estate is responsible for all costs associated with the completion of the student dormitory buildings which are being constructed by Jin Ma Construction. Pursuant to this agreement, upon completion of the construction project, Jin Ma Real Estate will lease these buildings to the Vocational School for a period of 26 years at an annual amount of 4,800,000 RMB or approximately $685,000. During the lease term, Jin Ma Real Estate will not have any other participation or obligations to the school. At the end of
the lease, the title to the buildings will be transferred to the Vocational School.



Our balance sheet at December 31, 2007 also reflects notes payable to third parties of approximately $1,620,978 due through September 2012 which was a working capital loan made to us by these third parties. These loans bear annual interest rates ranging from 14.4% to 18% and are unsecured. In October and November 2007, we paid these third parties accrued interest due of approximately $786,000.



Our balance sheet at December 31, 2007 reflects a due from related parties of $836,817 which represents advances to a related party for working capital. These advances could also be deemed to be in violation of Section 402 of the Sarbanes Oxley Act of 2002 which prohibits a public company from extending or maintaining credit or arranging for the extension of credit in the form of a personal loan to an officer or director. If it is determined that these working capital advances violated Section 402 of the Sarbanes Oxley Act of 2002, we could become subject to SEC investigations and/or litigation, which may not be resolved favorably and will require significant management time and attention, and we could incur costs, which could negatively affect our business, results of operations and cash flows. While at June 30, 2007 it was managements intent to collect these amounts
prior to December 31, 2007, the balances have yet to be repaid and there is no indication that the related party receivable balances will be repaid within one year. Accordingly, we have reclassified these balances to a long-term receivable.



35


Net cash flow provided by operating activities was $1,167,788 for the six months ended December 31, 2007 as compared to net cash provided $351,336 for the six months ended December 31, 2006, an increase of $816,452. The increase of net cash flow provided by operating activities in the 2007 period as compared to the 2006 period was primarily due to an increase in our net income, a decrease in accounts receivable balances offset by an increase in advances to suppliers of $752,121, the payment of accounts payable and accrued expenses of $642,811 and a decrease in advances from customers of $459,089 offset by an increase in our net income.



Net cash flow used in investing activities was $2,861,929 for the six months ended December 31, 2007 as compared to cash used in investing activities of $237,444 for the six months ended December 31, 2006. For the six months ended December 31, 2007, cash used in investing activities consisted of cash used for the purchase of property and equipment of $2,763,335 which included heavy equipment for our construction segment and the increase in construction in process related to the construction of buildings thats we will lease for a period of 26 years, the payments of a deposit on land use rights of $66,611, an increase in construction in progress of $69,562 related to our real estate segment offset by an increase in due from related parties of $36,128. For the six months ended December 31, 2006, cash used in investing activities consisted of an increase in construction in progress of
$129,614 and cash used for the purchase of property and equipment of $107,830.





Net cash flow provided by financing activities was $4,064,390 for the six months ended December 31, 2007 which was primarily attributable to proceeds received from the sale of our common stock of $2,219,252 and net proceeds from convertible debt of $2,183,000 offset by a repayment of loans payable of $133,222 and a payment of placement fees of $204,640. For the six months ended December 31, 2006, we used cash for the repayment of related party advances of $99,536.



We have no operations other than the Contractual Arrangements with the Jin Ma Companies and, accordingly, we are dependent upon the quarterly service fees due us to provide cash to pay our operating expenses. Such payments have not been tendered to us and those funds are being retained by the Jin Ma Companies to fund their operations. At December 31, 2007 the Jin Ma Companies owned us $1,309,455 for such fees and we do not know when such funds will be paid to us. Our CEO is also the CEO and principal shareholder of the Jin Ma Companies. Accordingly, we are solely reliant upon his judgment to ensure that these funds advanced to the Jin Ma Companies are repaid to us. If these funds should not be repaid, or if the Jin Ma Companies should continue to withhold payment of the quarterly service fee due us under the Contractual Arrangement, it is possible that we will not have sufficient funds to
pay our operating expenses in future periods.



Other than our existing cash we presently have no other alternative source of working capital. We currently have no material commitments for capital expenditures but believe that our working capital is sufficient to fund our current operations for approximately the next 12 months. The Jin Ma Companies have historically funded their capital expenditures and ongoing development projects from their working capital and have advised us that they believe this capital is sufficient for their current needs. Should these funds prove insufficient, the Jin Ma Companies believe that they could secure bank financing at competitive rates as necessary to provide funding for their committed projects. However, the ability of the Jin Ma Companies to raise any significant capital to expand their operations is very limited. We believe that it is in our best long term interests to assist the Jin Ma Companies
in their growth plans. Accordingly, it is likely that we will seek to raise working capital to fund the further expansion of various construction and real estate projects by the Jin Ma Companies as the Jin Ma Companies may not have sufficient working capital to fund new construction and real estate projects as well as to provide working capital necessary for their current projects, ongoing operations and financial obligations. No assurances can be given that we will be successful in obtaining additional capital, or that such capital will be available in terms acceptable to our company.



Contractual Obligations and Off-Balance Sheet Arrangements



Contractual Obligations



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



36


The following tables summarize our contractual obligations as of December 31, 2007, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.




Payments Due by PeriodTotal
        
        
        Less than 1 year
        
        
        1-3 Years
        
        
        4-5 Years
        
        
        5 Years +Contractual Obligations :Other Indebtedness *
        
        $
        1,620,978
        
        
        $
        136,722
        
        
        $
        1,162,958
        
        
        $
        321,298
        
        
        
        --Convertible debt
        
        
        2,183,000
        
        
        
        --
        
        
        
        2,183,000
        
        
        
        --
        
        
        
        --Purchase Obligations
        
        
        --
        
        
        
        --
        
        
        
        --
        
        
        
        --
        
        
        
        --Total Contractual Obligations:
        
        $
        3,803,978
        
        
        $
        136,722
        
        
        $
        3,345,958
        
        
        $
        321,298
        
        
        
        --




*
        Other indebtedness includes long-time loans borrowed from individuals.



Off-balance Sheet Arrangements



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





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.



Not applicable to a smaller reporting company.







ITEM 4T. CONTROLS AND PROCEDURES



As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2007, the end of the period covered by this report, our management initially concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure 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.





As of the evaluation date, our Chief Executive Officer and Chief Financial Officer initially concluded that we do not maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, 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. As described elsewhere herein, this report is being amended and our financial statements for the three and six months ended December 31, 2007 are being restated to correct an accounting error to properly reflect the accounting for a certain construction project that Jin Ma
Construction is currently



37


constructing. We originally recorded this project as a third-party construction project pursuant to our normal revenue recognition policies. However, because Jin Ma Real Estate is a party to an agreement to lease these buildings to a third party for a period of 26 years, we have subsequently determined that the proper accounting for this construction project should have been to reflect the costs incurred to date a construction ion process as part of our property and equipment and to eliminate any revenues, cost of sales and related gross profit. This control deficiency in our ability to properly record construction in progress is a material weakness in both our disclosure controls and procedures and our internal control over financial reporting. While we have taken certain remedial steps to correct these control deficiencies, we have an inadequate number personnel in China with the requisite expertise in
generally accepted accounting principles to ensure the proper application thereof. Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.



Other than changes associated with
our recordation of construction in progress, there have been no changes in our internal control over financial reporting that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





PART II  OTHER INFORMATION




Item 1.
        Legal Proceedings.



None.





Item 1A.
        Risk Factors.



Not applicable to a smaller reporting company.





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



On January 17, 2008 we issued 180,000 shares of our common stock valued at $93,600 to our directors as compensation for their services. On January 17, 2008 we also issued 145,349 shares of our common stock valued at $75,581 to our Chief Financial Officer or his assignee as compensation for services rendered to us. All of the recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.




Item 3.
        Defaults Upon Senior Securities.



None.




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



None.




Item 5.
        Other Information.



None.




Item 6.
        Exhibits




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



38


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, 2008
        By: /s/ Liankuan Yang

Liankuan Yang

Chief Executive Officer, Principal Executive Officer




Date: May 23, 2008
        By: /s/ Adam Wasserman

Adam Wasserman

Chief Financial Officer, Principal Financial and Accounting officer



39