UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549 FORM 10-Q (Mark One) x
QUARTERLY
  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934For the quarterly period endedDecember 31, 2008oro
TRANSITION
  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934 For the
transition period from _______ to _________ Commission
file number: 000-30311 GOLD
  HORSE INTERNATIONAL, INC.(Exact name of
  registrant as specified in its charter)  Florida


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


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


(Zip Code)  86
  (471) 339 7999(Registrants telephone
  number, including area code)  N/A.(Former name, former
  address and former fiscal year, if changed since last report) Indicated by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.          Yes.  x
No.  o Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company: Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
o
Smaller reporting company
þ Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange
Act)     Yes  o No  x Indicate the number of shares outstanding of each of
the issuers classes of common equity, as of the latest practicable date:
52,668,603 shares at February 1, 2009.   GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIESFORM 10-QQUARTERLY PERIOD
ENDED DECEMBER 31, 2008

INDEX

PagePART I - FINANCIAL INFORMATIONItem 1.
Financial Statements.Condensed
  Consolidated Balance Sheets As of December 31, 2008 (Unaudited) and June 30,
  2008
4Condensed
  Consolidated Statements of Income
  and Comprehensive Income (Unaudited) For the Three and Six Months Ended
  December 31, 2008 and 2007
5Condensed
  Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended December 31, 2008 and
  2007
6Notes to Condensed Consolidated
  Financial Statements
7Item 2.
Managements
  Discussion and Analysis of Financial Condition and Results of Operations
30Item 3.
Quantitative
  and Qualitative Disclosures About Market Risk
42Item 4T.
Controls and Procedures
43PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
44Item 1A.
Risk
  Factors
44Item 2.
Unregistered Sales of Equity
  Securities and Use of Proceeds
44Item 3.
Defaults Upon Senior Securities
44Item 4.
Submission of Matters to a Vote of
  Security Holders
44Item 5.
Other Information
44Item 6.
Exhibits
442

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.

OTHER
PERTINENT INFORMATION

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 SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS

As of

As ofDecember 31,

June 30,2008

2008(Unaudited)ASSETSCash and cash equivalents

$
243,983

$
1,637,986Accounts receivable, net


11,554,905


7,528,608Note receivable, net - current portion


158,618


Inventories, net


41,579


56,847Advances to suppliers, net


98,038


95,754Other receivable, net


28,761


35,478Due from related parties


43,074


1,700,036Deferred debt costs


38,370


115,110Real estate held for sale





125,070Cost and estimated earnings in excess of
billings


5,103


221,537Construction in progress


5,084,686


4,537,240Deposit on prepaid land use rights


1,889,419


2,524,877Prepaid land use rights - current portion


3,570


3,561Refundable performance deposit





145,522Total Current Assets


19,190,106


18,727,626Property and equipment, net


10,082,495


10,476,397Note receivable - non-current portion,
net


8,641,523


Deposit on prepaid land use rights


802,428


2,182,835Prepaid land use rights - non-current
portion


163,951


165,312Total Assets

$
38,880,503

$
31,552,170LIABILITIES
  AND STOCKHOLDERS EQUITYCurrent Liabilities:Convertible debt, net

$
1,773,687

$
955,062Loans payable, current portion


259,695


145,522Accounts payable


5,436,970


1,278,779Accrued expenses


596,891


468,235Taxes payable


839,027


2,215,381Advances from customers


194,888


192,356Billings in excess of costs and estimated
earnings


51,228


23,369Total Current Liabilities


9,152,386


5,278,704Loans payable, net of current portion


4,387,967


4,490,235Total Liabilities


13,540,353


9,768,939Commitments (Note 16)





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





Common stock ($.0001 par value; 300,000,000 shares
authorized;
  52,668,603 and 52,544,603 shares issued and outstanding at December 31, 2008
  and June 30, 2008)


5,266


5,254Non-controlling interest in variable interest
entities


6,095,314


6,095,314Additional paid-in capital


4,689,166


4,571,178Statutory reserve


1,665,779


1,216,292Retained earnings


10,451,852


7,526,144Other comprehensive income


2,432,773


2,369,049Total Stockholders Equity


25,340,150


21,783,231Total Liabilities and Stockholders
Equity

$
38,880,503

$
31,552,170See
accompanying notes to condensed consolidated financial statements

4

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

For the Three Months Ended

For the Six Months EndedDecember 31,

December 31,2008

2007

2008

2007(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)NET REVENUESConstruction

$
11,894,829

$
6,177,624

$
40,273,271

$
14,061,393Hotel


858,378


717,526


1,687,464


1,573,712Real estate


149,490


324,714


382,190


1,255,528Total Revenues


12,902,697


7,219,864


42,342,925


16,890,633COST Of REVENUESConstruction


10,207,643


5,177,403


34,590,647


11,867,776Hotel


475,448


379,225


921,535


861,604Real estate


157,087


177,375


300,303


742,029Total Cost of Revenues


10,840,178


5,734,003


35,812,485


13,471,409GROSS PROFIT


2,062,519


1,485,861


6,530,440


3,419,224OPERATING EXPENSES:Hotel operating expenses


16,659


21,138


32,290


56,314Bad debt expense (recovery)


(11,285
)

6,797


(193,901
)

307,691Salaries and employee benefits


150,307


184,297


301,848


318,498Depreciation and amortization


209,654


126,690


438,257


226,116General and administrative


87,151


118,256


294,479


283,727Total Operating Expenses


452,486


457,178


872,973


1,192,346INCOME FROM OPERATIONS


1,610,033


1,028,683


5,657,467


2,226,878OTHER INCOME (EXPENSES):Other income(expense)


2,086


(1,672
)

2,378


(1,672
)Interest income


551,373


2,027


552,318


2,114Interest expense


(671,835
)

(227,692
)

(1,336,226
)

(292,405
)Total Other Expenses


(118,376
)

(227,337
)

(781,530
)

(291,963
)INCOME BEFORE PROVISION FOR INCOME TAX


1,491,657


801,346


4,875,937


1,934,915PROVISION FOR INCOME TAXES


500,236


332,158


1,500,742


730,857NET INCOME

$
991,421

$
469,188

$
3,375,195

$
1,204,058COMPREHENSIVE INCOME:NET INCOME

$
991,421

$
469,188

$
3,375,195

$
1,204,058Unrealized foreign currency translation
  gain


9,130


398,951


63,724


558,025COMPREHENSIVE INCOME

$
1,000,551

$
868,139

$
3,438,919

$
1,762,083NET INCOME PER COMMON SHARE:Basic

$
0.02

$
0.01

$
0.06

$
0.02Diluted

$
0.02

$
0.01

$
0.06

$
0.02WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic


52,625,473


51,161,837


52,585,038


50,580,920Diluted


58,971,403


59,434,147


58,930,968


55,902,121See
accompanying notes to condensed consolidated financial statements.

5

GOLD
HORSE INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Month Ended
  December 31,2008

2007(Unaudited)

(Unaudited)CASH FLOWS FROM OPERATING
  ACTIVITIES:Net income

$
3,375,195

$
1,204,058Adjustments to reconcile net income to net cash
(used in) provided by
  operating activities:Depreciation


438,257


226,116Rent expense associated with prepaid land use
rights


1,786


Bad debt expense (recovery)


(193,901
)

307,691Interest expense from amortization of debt
discount


818,625


136,437Amortization of debt issuance costs


76,740


12,790Recognition of unearned gain


(51,735
)

Changes in assets and liabilities:Accounts receivable


(3,847,036
)

754,410Note receivable


200,378


Inventories


15,417


(30,785
)Other receivables


40,119


154,832Advance to suppliers


(2,038
)

(86,010
)Costs and estimated earnings in excess of
billings


217,038


14,289Real estate held for sale


125,412


647,237Construction in progress


(9,486,120
)

(978,031
)Refundable performance deposit


145,920


Accounts payable and accrued expenses


4,283,475


(642,811
)Taxes payable


(1,382,271
)

(280,423
)Advances from customers


2,038


(459,089
)Billings in excess of costs and estimated
earnings


27,804


(124,843
)NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES


(5,194,897
)

855,868CASH FLOWS FROM INVESTING ACTIVITIES:Repayment of amounts due from related
party


1,661,601


36,128Proceeds from sale of property and
equipment





1,451Proceeds from return of deposit on prepaid land use
rights


2,028,288


Payment of deposits for prepaid land use
rights





(732,722
)Purchase of property and equipment


(17,384
)

(1,854,866
)NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES


3,672,505


(2,550,009
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from convertible debt





2,183,000Payment of placement fees





(204,640
)Repayment of loans payable





(133,222
)Proceeds from sale of common stock


118,000


2,219,252NET CASH PROVIDED BY FINANCING ACTIVITIES


118,000


4,064,390EFFECT OF EXCHANGE RATE ON CASH


10,389


68,065NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS


(1,394,003
)

2,438,314CASH & CASH EQUIVALENTS - beginning of period


1,637,986


251,044CASH & CASH EQUIVALENTS - end of the period

$
243,983

$
2,689,358SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for:Interest

$
193,043

$
801,336Income taxes

$
2,308,429

$
946,591See
accompanying notes to condensed consolidated financial statements.

6

GOLD HORSE INTERNATIONAL,
INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 1  ORGANIZATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

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

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

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

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

The relationship among the
above companies as follows:

(CHART)

7

GOLD HORSE INTERNATIONAL,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

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

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

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

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

Inner Mongolia Jin Ma Construction Company Ltd.

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

Inner Mongolia Jin Ma Real Estate Development Co.
Ltd.

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

8

GOLD HORSE INTERNATIONAL,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

Inner Mongolia Jin Ma Hotel Co. Ltd.

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

Basis of presentation

Management
acknowledges its responsibility for the preparation of the accompanying interim
condensed consolidated financial statements which reflect all adjustments,
consisting of normal recurring adjustments, considered necessary in its opinion
for a fair statement of its condensed consolidated financial position and the
results of its operations for the interim period presented. These condensed
consolidated financial statements should be read in conjunction with the
summary of significant accounting policies and notes to condensed consolidated
financial statements included in the Companys Form 10-K annual report for the
year ended June 30, 2008.

The
accompanying unaudited condensed consolidated financial statements for Gold
Horse International, Inc., its subsidiaries and variable interest entities,
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 8-03 of Regulation S-X. Operating results
for interim periods are not necessarily indicative of results that may be
expected for the fiscal year as a whole.

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

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

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

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

9

GOLD HORSE INTERNATIONAL,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

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

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

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

The accounts of the Jin Ma Companies are
consolidated in the accompanying financial statements pursuant to Financial
Accounting Standards Board Interpretation No. 46 (Revised), Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51. As a VIE, the
Jin Ma Companies sales are included in the Companys total revenues, its income
from operations is consolidated with the Companys, and the Companys net
income includes all of the Jin Ma Companies net income. The Company does not
have any non-controlling interests and accordingly, did not subtract any net
income in calculating the net income attributable to the Company. Because of
the contractual arrangements, the Company had a pecuniary interest in the Jin
Ma Companies that require consolidation of the Companys and the Jin Ma
Companies financial statements.

Use
of estimates

The preparation of financial statements in conformity with 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,
2008 and 2007 include the allowance for doubtful accounts, the useful life of
property and equipment, costs and estimated earnings in excess of billings,
billings in excess of costs and estimated earnings.

10

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

Fair value of financial instruments

The Company
adopted SFAS 157, Fair Value Measurements (SFAS 157). SFAS 157 clarifies the
definition of fair value, prescribes methods for measuring fair value, and
establishes a fair value hierarchy to classify the inputs used in measuring
fair value as follows:

Level
  1-Inputs are unadjusted quoted prices in active markets for identical assets
  or liabilities available at the measurement date.Level
  2-Inputs are unadjusted quoted prices for similar assets and liabilities in
  active markets, quoted prices for identical or similar assets and liabilities
  in markets that are not active, inputs other than quoted prices that are
  observable, and inputs derived from or corroborated by observable market
  data.Level
  3-Inputs are unobservable inputs which reflect the reporting entitys own
  assumptions on what assumptions the market participants would use in pricing
  the asset or liability based on the best available information.The adoption
of SFAS No. 157 did not have a material impact on the Companys fair value
measurements. The carrying amounts reported in the balance sheet for cash,
accounts receivable, loans payable, accounts payable and accrued expenses,
customer advances, and amounts due from related parties approximate their fair
market value based on the short-term maturity of these instruments.

Cash and cash equivalents

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

Concentrations
of credit risk

Financial
instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable. Substantially
all of the Companys cash is maintained with state-owned banks within the
Peoples Republic of China of which no deposits are covered by insurance. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any risks on its cash in bank accounts. A significant portion of the
Companys sales are credit sales which are primarily to customers whose ability
to pay is dependent upon the industry economics prevailing in these areas;
however, concentrations of credit risk with respect to trade accounts receivables
is limited due to generally short payment terms. The Company also performs
ongoing credit evaluations of its customers to help further reduce credit risk.
At December 31, 2008 and June 30, 2008, the Companys bank deposits by
geographic area were as follows:

December 31, 2008

June 30, 2008Country:United States

$
699


0. 3
%
$
19,826


1.3
%China


243,284


99.7
%

1,618,160


98.7
%Total cash and cash equivalents

$
243,983


100.0
%
$
1,637,986


100.0
%11

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

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, 2008 and June 30, 2008, the Company has
established, based on a review of its outstanding accounts receivable balances,
an allowance for doubtful accounts in the amount of $866,857 and $1,025,431, respectively, on its total accounts
receivable. Additionally, at
December 31, 2008 and June 30, 2008,
the Company has established, based on a review of its outstanding other
receivable balances, an allowance for doubtful accounts in the amount of
$852,841 and $883,875, respectively.

Inventories

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

Advances to suppliers

The Company
advances to certain vendors for purchase of construction materials and
services. The advances to suppliers are interest free and unsecured. The
advances to suppliers amounted to $98,038and $95,754at December 31, 2008 and June 30, 2008, respectively.

Property and equipment

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

Real estate held for sale

The Company
capitalizes as real estate held for sale the direct construction and
development costs, property taxes, interest incurred on costs related to land
under development and other related costs (i.e. engineering, surveying,
landscaping, etc.) until the property reaches its intended use. At December 31,
2008 and June 30,
2008, real estate held for sale amounted to $0 and $125,070, respectively.

Construction
in process

Properties currently under development are accounted for as
construction-in-process. Construction-in-process is recorded at acquisition
cost, including prepaid land use rights cost, development expenditure,
professional fees and the interest expenses capitalized during the course of
construction for the purpose of financing the project. Upon completion and
readiness for use of the project, the cost of construction-in-progress is to be
transferred to an appropriate asset such as real estate held for sale.
Construction in progress is valued at the lower of cost or market. Management
evaluates the market value of its properties on a periodic basis for
impairment. As of December 31, 2008 and June 30, 2008, construction in process
amounted to $5,084,686 and $4,537,240, respectively.

12

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

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, 2008and 2007.

Advances from customers

Advances from
customers at December 31, 2008 and June 30, 2008 of $194,888 and $192,356,
respectively, consist of prepayments from third party customers to the
Company for construction and real estate transactions to ensure sufficient
funds are available to complete the real estate and construction projects. The
Company will recognize the advances as revenue upon transfer of title to the
buyer, in compliance with its revenue recognition policy.

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, 2008 and June 30, 2008, there were no
significant book and tax basis differences.

Pursuant to
the PRC Income Tax Laws, prior to January 1, 2008, 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. Beginning January 1, 2008, the new
Enterprise Income Tax (EIT) law replaced the existing laws for Domestic
Enterprises (DES) and Foreign Invested Enterprises (FIEs).

The key changes are:

a.
The new standard EIT rate of 25% replaced the 33% rate currently
  applicable to both DES and FIEs, except for High Tech companies who pays a
  reduced rate of 15%; andb.
Companies established before March 16, 2007 will continue to enjoy
  tax holiday treatment approved by local government for a grace period of the
  next 5 years or until the tax holiday term is completed, whichever is sooner.Basic 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. Net earnings 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
earnings 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. Potentially dilutive common
shares consist of the common shares issuable upon the conversion of convertible
debt (using the if-converted method) and warrants. The following table presents
a reconciliation of basic and diluted earnings per share:

13

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

Three Months ended December 31,

Six Months ended December 31,2008

2007

2008

2007Net income for basic and diluted earnings per share

$
991,421

$
469,188

$
3,375,195

$
1,204,058Weighted average shares outstanding  basic


52,625,473


51,161,837


52,585,038


50,580,920Effect of dilutive securities:Unexercised warrants





4,042,577





2,544,713Convertible debentures


6,345,930


4,229,733


6,345,930


2,776,488Weighted average shares outstanding
  diluted


58,971,403


59,434,147


58,930,968


55,902,121Earnings per share  basic

$
0.02

$
0.01

$
0.06

$
0.02Earnings per share  diluted

$
0.02

$
0.01

$
0.06

$
0.02Revenue 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 units and community
environments are reported in accordance with the provisions of Statement of
Financial Accounting Standard No. 66, Accounting for Sales of Real Estate.
Generally, profits from the sale 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. In November 2007, Jin Ma Real Estate entered
into an agreement to construct new dormitories for the Inner Mongolia
Electrical Vocational Technical School (Vocational School). Pursuant to the
terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon
completion, pursuant to a sale-type capital lease, leased the buildings to the
Inner Mongolia Electrical Vocational Technical School and will receive payments
for a period of 26 years at an amount of 4,800,000 RMB or approximately
$700,000 per annum. In November 2008, Jin Ma Real Estate completed the
construction and in December 2008, Jin Ma Real Estate received the first
payment of 4,800,000 RMB. In accordance with FAS 66, Accounting for Sales of
Real Estate, the gain was deferred because the minimum initial investment by
the buyer was less than the required 20% initial investment expressed as a
percentage of the sales value (FAS 66, Accounting for Sales of Real Estate,
paragraph 54). Therefore the gain will be recognized into income as payments
are received using the installment method. The installment method apportions each cash
receipt and principal payment by the buyer between cost recovered and profit.
The apportionment is in the same ratio as total cost and total profit bear to
the sales value. Accordingly, revenue and cost of sales is recognized based on
this apportionment, and the Company recognized imputed interest income on the
accompanying statement of income as summarized below.

14

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

Since the
agreement did not have a stated interest rate, the Company used an imputed
interest rate of interest of 6.12% and is reflecting payments due under the
agreement as a note receivable on the accompanying balance sheets. The property
sold had a sales value of $61,691,138 RMB (approximately $9,000,000). The
deferred gain on the sale of the property was approximately $51,730 of which
$859 was recognized pursuant to the installment method and is reflected in the
accompanying statements of income follows:

For the six months endedDecember 31, 2008

For the six months endedDecember 31, 2007Revenues

$
149,495

$
Cost of sales


148,636


Gross profit recognized

$
859

$
As December
31, 2008, the remaining deferred gain of $50,875 is reflected as a reduction to
the note receivable in the accompanying balance sheet. The recorded imputed interest
discount will be realized as the balances due are collected. In the event of
early liquidation, interest is recognized on the simple interest method.
Principal and the related imputed interest are receivable annually at
approximately $700,000 per year. The Company allocated the first payment
received in December 2008 as follows:

Amount
  applied to principal balance of note receivable

$
149,495Interest
  income recognized on statement of income


550,920Total
  payment received

$
700,415Revenue from the performance of general contracting,
construction management and design-building services
is recognized upon completion of the service.

In accounting
for long-term engineering and construction-type contracts, the Company follows
the provisions of 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.

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.

Stock-based compensation

The Company
accounts for stock options issued to employees in accordance with SFAS 123R, Share-Based Payment, an Amendment of FASB
Statement No. 123
(SFAS 123R). SFAS 123R requires companies to recognize in the statement of
operations the grant-date fair value of stock options and other equity based
compensation issued to employees. There were no options outstanding as of
December 31, 2008 and 2007.

15

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

Foreign currency translation and comprehensive income

The reporting currency of the Company is the U.S. dollar. The
functional currency of the 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 Accounting
Standards (SFAS) No. 52, Foreign Currency Translation. Results of operations and cash flows are
translated at average exchange rates during the period, assets and liabilities
are translated at the unified exchange rate at the end of the period, and
equity is translated at historical exchange rates. Translation
adjustments resulting from the process of translating the local currency
financial statements into U.S. dollars are included in determining
comprehensive income. The cumulative translation adjustment and effect of
exchange rate changes on cash for the six months ended December 31, 2008 and
2007 amounted to $10,389 and $68,065, respectively. Transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred.

Asset and liability accounts at December 31, 2008 and June 30, 2008
were translated at 6.8542 RMB to $1.00 USD and at 6.8718 RMB to $1.00 USD,
respectively. Equity accounts were stated at their historical rate. The average
translation rates applied to income statements for the six months ended
December 31, 2008 and 2007 were 6.85307 RMB and 7.56906 RMB to $1.00 USD,
respectively. In accordance with Statement of Financial Accounting Standards
No. 95, Statement of Cash Flows, cash flows from the Companys operations is
calculated based upon the local currencies using the average translation rate.
As a result, amounts related to assets and liabilities reported on the
statement of cash flows will not necessarily agree with changes in the
corresponding balances on the balance sheet.

Advertising

Advertising is
expensed as incurred. Advertising expenses for the six months ended December
31, 2008 and 2007 were not material.

Accumulated
other comprehensive income

The Company
follows Statement of Financial Accounting Standards No. 130 (SFAS 130) Reporting Comprehensive Income to
recognize the elements of comprehensive income. Comprehensive income is
comprised of net income and all changes to the statements of stockholders
equity, except those due to investments by stockholders, changes in paid-in
capital and distributions to stockholders. For the Company, comprehensive
income for the six months ended December 31, 2008 and 2007 included net income
and foreign currency translation adjustments.

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, 2008 and 2007, the Company operated in
three reportable business segments - (1) the Construction segment (2) Hotel
segment and (3) Real estate development segment.

Recent accounting pronouncements

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS 141(R)),
which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and

16

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

the goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141(R) may have an
impact on accounting for future business combinations once adopted.

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51(SFAS
160), which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the non-controlling
interest, changes in a parents ownership interest and the valuation of
retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling owners.
SFAS 160 is effective for fiscal years beginning after December 15, 2008. The
Company has not determined the effect that the application of SFAS 160 will
have on its financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities. The new
standard is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entitys financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The Company is currently evaluating
the impact of adopting SFAS 161 on its condensed consolidated financial
statements.

In April 2008,
the FASB finalized Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). This position amends the factors
that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset under SFAS
No. 142 (SFAS 142), Goodwill and Other Intangible Assets. FSP 142-3
applies to intangible assets that are acquired individually or with a group of
other assets and both intangible assets acquired in business combinations and
asset acquisitions. This position is effective for fiscal years beginning after
December 15, 2008. Management is currently evaluating the effect that the
adoption of FSP 142-3 will have on the Companys consolidated financial
position and results of operations.

In May 2008,
the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) APB 14-1, Accounting for Convertible
Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement). FSP APB 14-1 clarifies that convertible debt
instruments that may be settled in cash upon either mandatory or optional
conversion (including partial cash settlement) are not addressed by paragraph
12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt issued with Stock Purchase Warrants.
Additionally, FSP APB 14-1 specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that
will reflect the entitys non-convertible debt borrowing rate when interest cost
is recognized in subsequent periods. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company will adopt FSP APB 14-1
beginning in the first quarter of fiscal 2009, and this standard must be
applied on a retrospective basis. The Company is evaluating the impact the
adoption of FSP APB 14-1 will have on its consolidated financial position and
results of operations.

In May 2008,
the FASB issued Statement of Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally Accepted Accounting
Principles. This standard is intended to improve financial reporting
by identifying a consistent framework, or hierarchy, for selecting accounting
principles to be used in preparing financial statements that are presented in
conformity with generally accepted accounting principles in the United States
for non-governmental entities. SFAS No. 162 is effective 60 days following
approval by the U.S. Securities and Exchange Commission (SEC) of the Public
Company Accounting Oversight Boards amendments to AU Section 411, The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles. The Company does not
expect SFAS No. 162 to have a material impact on the preparation of its
condensed consolidated financial statements.

17

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

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

On June 16,
2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities, to
address the question of whether instruments granted in share-based payment
transactions are participating securities prior to vesting. The FSP determines
that unvested share-based payment awards that contain rights to dividend
payments should be included in earnings per share calculations. The guidance
will be effective for fiscal years beginning after December 15, 2008. The
Company is currently evaluating the requirements of (FSP) No. EITF 03-6-1 as
well as the impact of the adoption on its condensed consolidated financial
statements.

Reclassifications

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

NOTE 2  NOTE RECEIVABLE

Note
receivable, which was attributable to the leasing of the Vocational School
pursuant to a sale-type capital lease (see Note 1), is accounted for using the
installment method of accounting as well as original note value. In accordance
with FAS 66, Accounting for Sales of Real Estate, a gain was deferred on
notes not meeting the minimum initial 20% investment by the buyer expressed as
a percentage of the sales value (See Note 1). Management believes that the note
receivable is fully collectable. Therefore, no allowance for doubtful accounts
is deemed to be required.

At December 31, 2008 and June 30, 2008, note receivable consisted of
the following:

December 31,
  2008

June 30, 
  2008Note receivable  gross

$
17,507,513

$
Less: discount on note receivable


(8,656,497
)

Less: deferred gain on sale


(50,875
)

8,800,141Note receivable  current portion


(158,618
)

Note receivable  long-term

$
8,641,523

$
NOTE 3 - INVENTORIES

At December
31, 2008 and June 30, 2008, inventories consisted of the following:

December 31, 
  2008

June 30,
  2008Construction materials

$


$
371Consumable
  goods


41,579


56,476$
41,579

$
56,84718

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 4  COSTS
AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Costs and
estimated earnings in excess of billings at December 31, 2008 and June 30, 2008 consisted of:

December 31,

June 30,2008

2008Costs incurred on uncompleted
  contracts

$
3,893,378

$
36,203,033Estimated earnings


898,114


6,415,2264,791,492


42,618,259Less billings to date


(4,837,617
)

(42,420,091
)$
(46,125
)
$
198,168Amounts are included in the accompanying balance sheets under the
following captions:

December 31,

June 30,2008

2008Costs and estimated earnings
  in excess of billings

$
5,103

$
221,537Billings in excess of costs
  and estimated earnings


(51,228
)

(23,369
)$
(46,125
)
$
198,168NOTE 5  DEPOSITS
ON PREPAID LAND USE RIGHTS

For the
development of a new commercial real estate projects, the Company must first
obtain granted land use rights. Land use rights can be granted through bidding,
auction and listing. The Company then will enter into a land use right grant
contract with the relevant government authority. At December 31, 2008 and June
30, 2008, the Company made deposits with various governmental agencies to
acquire a long-term interests to utilize certain land to construct real
property for sale or development. In order to obtain the provincial
governments permission to build on top of the land, the Company will need to
make additional payments to the respective governmental agency. Since the
Company has not received the final land use rights contract or the license to
build on these lands, the Company has reflected these deposits as deposits on
prepaid land use rights on the accompanying balance sheets. Upon obtaining the land use contracts, the
deposit on land use rights is to be transferred to construction in process. At
December 31, 2008 and June 30, 2008, deposits on prepaid land use rights were
as follows:

December 31,
  2008

June 30,
  2008Nan Yuan Estates (residence
  buildings) (b)

$
1,889,419

$
2,524,877Inner Mongolia Electrical Vocational
  Technical School (old location) (a)





1,382,462Procuratorate (Yu Quan) Housing Estates


802,428


800,3732,691,847


4,707,712Less: current portion


(1,889,419
)

(2,524,877
)Long-term deposits of prepaid land use
  rights

$
802,428

$
2,182,835(a)
As approved
  by the Hohhot municipal government, the Inner Mongolia Vocational School is
  being relocated. This amount represents a deposit on the right to acquire the
  land use right at this location. During the six months ended December 31,
  2008, this deposit on prepaid land use rights was refunded to the Company.(b)
On September
  12, 2008, the Company signed a repayment agreement with Nanyingzi Village
  Committee pursuant to which the Nanyingzi Village Committee agreed to return
  the deposit on prepaid land use rights to Jin Ma Real Estate pursuant to a
  repayment plan. The repayment plan requires the Nanyingzi Village Committee to
  pay 2,000,000 RMB each month (approximately $291,000) from October 1, 2008 to
  April 30, 2009. This deposit on land use rights is being returned to the
  Company since the Company was unable to receive the prepaid land use rights
  certificate and will not continue with this project. The Company has received
  all required monthly payments under this repayment agreement,19

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 6  PROPERTY
AND EQUIPMENT

At December 31, 2008 and June 30, 2008, property
and equipment consist of the following:

December 31,

June 30,Useful Life

2008

2008Office equipment


5 Years

$
149,581

$
148,319Machinery equipment


5-15 Years


8,104,465


8,067,942Vehicles


10-15 Years


472,675


466,038Building and building improvements


20  50 Years


4,595,313


4,589,27513,323,034


13,271,574Less: accumulated depreciation





(3,240,539
)

(2,795,177
)$
10,082,495

$
10,476,397Depreciation
of property and equipment is provided using the straight-line method. For the
six months ended December 31, 2008 and 2007, depreciation expense amounted to
$438,257 and $226,116, respectively.

NOTE 7  PREPAID LAND USE RIGHTS

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 prepaid
land use rights are valued at a fixed amount RMB 1,223,679, fluctuated by the
exchange rate. At December 31, 2008 and June 30, 2008, the prepaid land use
rights are valued at $178,530 and $178,073, 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.

At December
31, 2008 and June 30, 2008, prepaid land use rights consist of the following:

December 31,

June 30,Useful Life

2008

2008Prepaid Land Use Rights


50 years

$
178,530

$
178,073Less: Accumulated Amount Expensed





(11,009
)

(9,200
)167,521


168,873Less: current portion





(3,570
)

(3,561
)Prepaid land use rights  non-current




$
163,951

$
165,312Rent expense
attributable to future periods is as follows:

Period
  ending December 31:2009

$
3,5702010


3,5702011


3,5702012


3,570Thereafter


153,241$
167,52120

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 8  ACCRUED
EXPENSES

At December
31, 2008 and June
30, 2008, accrued expenses consist of the following:

December 31,

June 30,2008

2008Accrued
  interest payable

$
310,730

$
177,854Accrued
  payroll and employees benefit


134,274


147,816Accrued
  registration rights penalty


117,882


117,983Other


34,005


24,582$
596,891

$
468,235NOTE 9  LOANS
PAYABLE

Loans payable
consisted of the following at December 31, 2008 and June 30, 2008:

December 31,

June 30,2008

2008Loans from various credit unions, payable
  in four installments beginning in November 2009 and due on June 5, 2010 with
  variable annual interest adjustable every 12 months, at The Peoples Bank of
  China base loan rate + 175% (13.24% at December 31, 2008) and secured by the
  assets of Jin Ma Hotel.

$
2,917,919

$
2,910,446Loans from various unrelated parties, due
  in January 2010 with annual interest of 14.4% and unsecured.


1,032,360


1,029,716Loans from various unrelated parties, due
  in December 2009 with annual interest of 14.4% and unsecured.


113,799


113,507Loans from various unrelated parties, due
  in August 2009 with annual interest of 14.4% and unsecured.


145,896


145,522Loans from various unrelated parties, due
  in January 2010 with annual interest of 18% and unsecured.


58,358


58,209Loans from various unrelated parties, due
  in September 2010 with annual interest of 18% and unsecured


36,474


36,380Loans from various unrelated parties, due
  in April 2012 with annual interest of 18% and unsecured


189,665


189,179Loans from various unrelated parties, due
  in August 2011 with annual interest of 18% and unsecured


36,474


36,380Loans from various unrelated parties, due
  in September 2012 with annual interest of 18% and unsecured


116,717


116,418Total loans payable


4,647,662


4,635,757Less: current portion


(259,695
)

(145,522
)Long term liability

$
4,387,967

$
4,490,23521

GOLD HORSE INTERNATIONAL, INC. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 9  LOANS
PAYABLE (continued)

For the six
months ended December 31, 2008 and 2007, interest expense related to these
loans amounted to $325,494 and $128,910, respectively. Future maturities of
long-term debt are as follows:

Year ended
  December 31:2009
  (current liability)

$
259,6952010

$
4,045,1112011

$
36,4742012

$
306,382NOTE 10  RELATED
PARTY TRANSACTIONS

Due from related
parties

From time to
time, the Company advanced funds to companies related through common ownership
for working capital purposes. These advances are non interest bearing,
unsecured and payable on demand. At December 31, 2008 and June 30, 2008, due
from related parties was due from the following:

December 31,

June 30,Name

Relationship

2008

2008Inner Mongolia Jin Ma Group
  Ltd and its subsidiaries

Owned by
  Yang Liankuan

$
43,074

$
1,700,036Yang Liankuan

Officer and
  director





$
43,074

$
1,700,036In July 2008,
the Jin Ma Companies signed a repayment agreement with the Jin Ma Group.
Pursuant to the repayment agreement, during the six months ended December 31,
2008, the Jin Ma Group repaid substantially of the balance due. The remaining
balance of $43,074 shall be repaid during the third quarter of fiscal 2009.

NOTE 11  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 $0.50 per share. Additionally, the
Company reimbursed one of the investors $30,000 to defer its legal fees in
connection with the financing. The Company used the balance of the proceeds for
general working capital.

22

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 11  CONVERTIBLE DEBT (continued)

Within five days following the effectiveness of the registration statement
described below, a second closing was suppose to occur and the Company was to
issue the remaining $1,092,000 principal amount 10% Secured Convertible
Debentures to the purchasers together with the common stock purchase warrants
to purchase an aggregate of 3,174,422 shares of the Companys common stock. The
registration statement was declared effective on August 11, 2008 and, as of the
date of this report, the Company does not expect to receive the funds from the
second closing.

The debentures, which bear interest at 10% per annum, are due on March
31, 2009. 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.

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

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.

23

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 11  CONVERTIBLE DEBT (continued)

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

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

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.

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 which 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.

24

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 11  CONVERTIBLE DEBT (continued)

The registration statement was declared effective on
August 11, 2008. Pursuant to FASB Staff Position, or FSP, EITF
00-19-2, Accounting for Registration Payment
Arrangements, in fiscal 2008, the Company has recorded a
registration penalty of $117,093.

The Company concluded that since the series A
convertible redeemable preferred stock had a fixed redemption price of $0.374,
the convertible redeemable preferred stock was not a derivative instrument.
Additionally, the Company analyzed provisions under EITF 05-04 and concluded
that the series A convertible redeemable preferred stock qualified as equity
pursuant to EITF 00-19.

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. Additionally, the Company
evaluated whether or not the convertible debt contains 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 convertible debt has a fixed conversion
price of $0.374, the convertible debt is not a derivative.

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.

The amortization of debt discounts and debt issue
costs for the six months ended December 31, 2008 and 2007 was $895,365 and
$149,227, respectively, which has been included in interest expense on the
accompanying consolidated statement of operations. The balance of the debt
discount is $409,313 at December 31, 2008 which will be amortized over the
remaining 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. The Company
analyzed this provision under EITF 05-04 and, although the debt is
unconventional, the reset provision is deemed within the Companys control and
therefore it qualified as equity under EITF 00-19.

The convertible debenture liability is as follows at
December 31, 2008 and June 30, 2008:

December 31, 2008


June 30, 2008Convertible debentures payable

$
2,183,000

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


(409,313
)

(1,227,938
)Convertible debentures, net

$
1,773,687

$
955,06225

GOLD HORSE INTERNATIONAL,
INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 12  STOCKHOLDERS EQUITY

Common stock

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

Warrants

Stock warrant activity for the six months ended
December 31, 2008 is summarized as follows:

Number of
  shares

Weighted average
  exercise price

Aggregate
  intrinsic valueOutstanding at June 30, 2008


6,853,604

$
0.50

$
Granted








Exercised








Cancelled








Outstanding at December 31, 2008


6,853,604

$
0.50

$
Since the fair market value of the warrants is less
than the exercise price, there is no intrinsic value for the warrants.

The following table summarizes the Companys stock
warrants outstanding at December 31, 2008:

Warrants Outstanding

Warrants ExercisableRange of
  Exercise 
  Price

Number Outstanding at December 31, 2008

Weighted 
  Average
  Remaining
  Contractual 
  Life

Weighted
  Average
  Exercise 
  Price

Number
  Exercisable at
  December 31, 2008

Weighted
  Average
  Exercise 
  Price$
0.50

6,853,604

3.92 Years

$
0.50

6,853,604

$
0.50NOTE 13  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, 2008 and
2007, 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.

26

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 13 SEGMENT INFORMATION (continued)

Condensed information with respect to these reportable
business segments for the three and six months ended December 31, 2008 and 2007
is as follows

For the three months
  ended
  December 31,

For the six months
  ended
  December 31,2008

2007

2008

2007Revenues:Construction

$
11,894,829

$
6,177,624

$
40,273,271

$
14,061,393Real Estate


149,490


324,714


382,190


1,255,528Hotel


858,378


717,526


1,687,464


1,573,71212,902,697


7,219,864


42,342,925


16,890,633Depreciation:Construction


123,829


55,163


257,566


90,193Real Estate


12,957


6,223


25,564


8,655Hotel


72,868


65,304


155,127


127,268209,654


126,690


438,257


226,116Interest
  expense:Construction


163,816


64,197


325,494


128,910Other


508,019


163,495


1,010,732


163,495671,835


227,692


1,336,226


292,405Net income
  (loss):Construction


1,021,621


535,045


3,872,035


1,009,417Real Estate


344,838


79,350


293,795


277,227Hotel


171,617


65,289


312,912


197,215Other (a)


(546,655
)

(210,496
)

(1,103,547
)

(279,801
)991,421


496,188


3,375,195


1,204,058Identifiable
  assets at December 31, 2008 and June 30, 2008:Construction







$
19,152,274

$
17,177,790Real Estate








17,169,419


10,141,177Hotel








2,519,741


4,098,267Other (a)








39,069


134,936$
38,880,503

$
31,552,170(a)
The Company does not
  allocate its general and administrative expenses of its US activities to its
  reportable segments, because these activities are managed at a corporate
  level. Additionally, other identifiable assets represent assets located in
  the United States and are not allocated to reportable segments.NOTE 14 - 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:

27

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 14 - STATUTORY RESERVES (continued)

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, 2008 and the six months ended June 30, 2008.
  The amount included in the statutory reserves as of December 31, 2008 and
  June 30, 2008 amounted to $1,665,779 and $1,216,292, respectively.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. For the six months ended
December 31, 2008, three construction projects accounted for 84.3% of the
Companys total revenues. For the six months ended December 31, 2007, one
construction project accounted for 54.3% of the Companys total revenues. Major
customers are summarized as follows:

Project Name

For the six 
  Months Ended
  December 31, 2008

%

For the six 
  Months Ended
  December 31, 2007

%Xiao Kang Xin Cun Residential Apartments (Phase I
and II) (also known
  as Ta Bu Ban)

$





$
9,173,095


54.3Riverbank Garden
  Community (Buildings 5 to 8 and Phase II)


10,661,001


25.2





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


16,722,886


39.5





Ai Bo Garden
  residential apartment project


8,282,437


19.6





At December 31, 2008, the Company had $8,343,649 of
accounts receivable due from these customers. At June 30, 2008, the Company had
$7,573,850 of accounts receivable due from these customers. Any disruption in
the relationships between the Companys construction segment and one or more of
these customers, or any significant variance in the magnitude or the timing of
construction projects from any one of these customers, may result in decreases
in our results of operations, liquidity and cash flows.

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

28

GOLD HORSE
INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER, 2008 AND 2007

NOTE 16  RESTRICTED NET ASSETS

The Company did not have significant capital and other
commitments, long-term obligations, or guarantees as of December 31, 2008.

Regulation in the PRC permit payments of dividends by
the Companys PRC VIEs only out of their retained earnings, if any, as
determined in accordance with PRC accounting standards and regulations. Subject
to certain cumulative limit, a statutory reserve fund requires annual
appropriations of at least 10% of after-tax profit, if any, of the relevant PRC
VIEs. The statutory reserve funds are not distributable as cash dividends. As
a result of these PRC laws and regulations, the Companys PRC VIEs are
restricted in their abilities to transfer a portion of their net assets to the
Company (See Note 14). Foreign exchange and other regulation in PRC may further
restrict the Companys PRC VIEs from transferring funds to the Company in the
form of loans and/or advances.

As of December 31, 2008 and June 30, 2008,
substantially all of the Companys net assets are attributable to the PRC VIEs.
Accordingly, the Company had no net assets as of December 31, 2008 and June 30,
2008 and the amount of restricted total assets was approximately $38,841,434
and $18,646,000, respectively.

NOTE 17  COMMITMENTS

The Company did not have significant capital and other
commitments, long-term obligations, or guarantees as of December 31, 2008.

29

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

The
following discussion of our financial condition and results of operation
should be read in conjunction with the financial statements and the notes to
those statements that are included elsewhere in this report). Our discussion
includes forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations
and intentions. Actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a result of a
number of factors, We use words such as anticipate, estimate, plan, project,
continuing, ongoing, expect, believe, intend, may,
will, should,
could, and similar expressions to identify forward-looking statements.

Overview

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
entered into a 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 which is a party to the Contractual
Arrangements with the Jin Ma Companies. On the closing of the share exchange,
Gold Horse Nevada was deemed to be the acquirer for accounting purposes.
Accordingly, the financial statements included in this prospectus 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
Gold Horse International nor its subsidiaries Gold Horse Nevada, Global Rise or
IMTD are engaged in any business or operations other than pursuant to the terms
of the various Contractual Arrangements with the Jin Ma Companies as described
elsewhere in this report. As such, we are completely dependent on the
Contractual Arrangements. We do not generate any revenues and have no assets.
Pursuant to the requirements of Financial Accounting Standards Board (FASB)
Interpretation No. 46R Consolidation of
Variable Interest Entities, under generally accepted accounting
principles the Jin Ma Companies which are deemed to be variable interest
entities (VIEs) we are required to consolidate the financial statements of
the Jin Ma Companies with our financial statements. Accordingly, and as
described elsewhere in this quarterly report, the assets and liabilities at
December 31, 2008 and June 30, 2008 and the results of operations for the three
and six months ended December 31, 2008 an 2007 are those of the Jin Ma
Companies. All of those assets and operations are located in the PRC and the
Contractual Arrangements are subject to enforcement under the laws of the PRC.
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. When used in this section, and except as may
be set forth otherwise, the terms we, us, ours, and similar terms
includes Gold Horse International and its subsidiaries Gold Horse Nevada,
Global Rise and IMTD as well as the Jin Ma Companies.

Critical
Accounting Policies and Estimates

While
our significant accounting policies are more fully described in Note 1 to our
condensed 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
condensed 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 VIEs for which we are the primary
beneficiary.

The
accompanying condensed consolidated financial statements include the accounts
of Gold Horse International and our wholly owned subsidiaries Gold Horse Nevada
and Global Rise, 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.

30

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 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.

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 include the allowance for doubtful accounts and the
useful life of property and equipment, costs and estimated earnings in excess
of billings, and billings in excess of costs and estimated earnings.

Accounts and other
receivables

We
have a policy of reserving for uncollectible accounts based on our best
estimate of the amount of probable credit losses in our existing accounts
receivable. We periodically review our accounts receivable and other
receivables to determine whether an allowance is necessary based on an analysis
of past due accounts and other factors that may indicate that the realization
of an account may be in doubt. Account balances deemed to be uncollectible are
charged to the allowance after all means of collection have been exhausted and
the potential for recovery is considered remote. At December 31, 2008 and June
30, 2008, the Company has established, based on a review of its outstanding
accounts receivable balances, an allowance for doubtful accounts in the amount
of $866,857 and $1,025,431, respectively, on its total accounts receivable.
Additionally, at December 31, 2008 and June 30, 2008, the Company has
established, based on a review of its outstanding other receivable balances, an
allowance for doubtful accounts in the amount of $852,841 and $883,875, 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, 2008 and June
30, 2008, real estate held for sale amounted to $0 and $125,070, respectively.

Advances from customers

Advances
from customers at December 31, 2008 of $194,888 consist of prepayments
from third party customers to the Company for construction and real estate
transactions to ensure sufficient funds are available to complete the real
estate and construction projects. The Company will recognize the deposits as
revenue upon transfer of title to the buyer, in compliance with its revenue
recognition policy.

Construction
in process

Properties
currently under development are accounted for as construction-in-process.
Construction-in-process is recorded at acquisition cost, including land use
rights cost, development expenditure, professional fees and the interest
expenses capitalized during the course of construction for the purpose of
financing the project. Upon completion and readiness for use of the project,
the cost of construction-in-progress is to be transferred to an appropriate
asset such as real estate held for sale. Construction in progress is valued at
the lower of cost or market. Management evaluates the market value of its
properties on a periodic basis for impairment. As of December 31, 2008 and June
30, 2008, construction in process amounted to $5,084,686 and $4,537,240, respectively.

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 of the Company:

31

Real
estate sales which primarily involve the sale of multi-family units and
community environments are reported in accordance with the provisions of
Statement of Financial Accounting Standard No. 66, Accounting for Sales of
Real Estate. Generally, profits from the sale 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. In November 2007, Jin Ma Real Estate entered
into an agreement to construct new dormitories for the Inner Mongolia
Electrical Vocational Technical School (Vocational School).

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

Amount applied to principal balance of note
  receivable

$
149,495Interest income recognized on statement of income


550,920Total payment received

$
700,415In
accordance with FAS 66, Accounting for Sales of Real Estate, any gain from
sales-type capital lease was deferred because the minimum initial investment by
the buyer was less than the required 20% initial investment expressed as a
percentage of the sales value (FAS 66, Accounting for Sales of Real Estate,
paragraph 54). Therefore the deferred gain will be recognized into income using
the installment method as payments are received. The installment method apportions each cash
receipt and principal payment by the buyer between cost recovered and profit.
The apportionment is in the same ratio as total cost and total profit bear to
the sales value. Accordingly, revenue and cost of sales is recognized based on
this apportionment and are presented on the income statement. Since the
agreement did not have a stated interest rate, the Company used an imputed
interest rate of interest of 6.12%. Principal and the related imputed interest
are receivable annually at approximately $700,000 per year. As December 31,
2008, the remaining deferred gain of $50,875 is reflected as a reduction to the
note receivable in the accompanying balance sheet. The recorded imputed interest discount will be realized as
the balances due are collected. In the event of early liquidation, interest is
recognized on the simple interest method.

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

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

In
accounting for long-term engineering and construction-type contracts, we follow
the provisions of 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.

32

Recent
Accounting Pronouncements

In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(SFAS 141(R)), which replaces
SFAS
No. 141. SFAS No. 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial effects
of the business combination. SFAS 141(R) is effective for fiscal years
beginning after December 15, 2008. The adoption of SFAS 141(R) may have an
impact on accounting for future business combinations once adopted.

In
December 2007, the FASB issued SFAS No. 160, Non-controlling
Interests in Consolidated Financial Statements  an amendment of Accounting
Research Bulletin No. 51(SFAS 160), which establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to
the parent and to the non-controlling interest, changes in a parents ownership
interest and the valuation of retained non-controlling equity investments when
a subsidiary is deconsolidated. The Statement also establishes reporting
requirements that provide sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. SFAS 160 is effective for fiscal years beginning after
December 15, 2008. We have not determined the effect that the application of
SFAS 160 will have on our financial statements.

In
March 2008, the FASB issued SFAS 161, Disclosures
about Derivative Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. We are currently evaluating the impact of adopting SFAS 161 on our
condensed consolidated financial statements.

In
May 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). FSP APB 14-1 clarifies that
convertible debt instruments that may be settled in cash upon either mandatory
or optional conversion (including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, Accounting
for Convertible Debt and Debt issued with Stock Purchase Warrants.
Additionally, FSP APB 14-1 specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that
will reflect the entitys non-convertible debt borrowing rate when interest
cost is recognized in subsequent periods. FSP APB 14-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. We will adopt FSP APB 14-1
beginning in the first quarter of fiscal 2010, and this standard must be
applied on a retrospective basis. We are evaluating the impact the adoption of
FSP APB 14-1 will have on our condensed consolidated financial position and
results of operations.

In
May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This standard is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with generally accepted accounting principles
in the United States for non-governmental entities. SFAS No. 162 is effective
60 days following approval by the U.S. Securities and Exchange Commission (SEC)
of the Public Company Accounting Oversight Boards amendments to AU Section
411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. We do not
expect SFAS No. 162 to have a material impact on the preparation of our
condensed consolidated financial statements.

On
June 16, 2008, the FASB issued final Staff Position (FSP) No. EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities, to
address the question of whether instruments granted in share-based payment
transactions are participating securities prior to vesting. The FSP determines
that unvested share-based payment awards that contain rights to dividend
payments should be included in earnings per share calculations. The guidance
will be effective for fiscal years beginning after December 15, 2008. We are
currently evaluating the requirements of (FSP) No. EITF 03-6-1 as well as the
impact of the adoption on our condensed consolidated financial statements.

33

RESULTS OF
OPERATIONS

Comparison of Six
Months Ended December 31, 2008 and Six Months Ended December 31, 2007.


For the Six Months Ended
  December 31,2008

% of Total
  Revenues

2007

% of Total
  RevenuesNET REVENUESConstruction

$
40,273,271


95.1

$
14,061,393


83.3Hotel


1,687,464


4.0


1,573,712


9.3Real estate


382,190


0.9


1,255,528


7.4Total Revenues


42,342,925


100.0


16,890,633


100.0COST OF SALESConstruction


34,590,647


85.9
*

11,867,776


84.4
*Hotel


921,535


54.6
*

861,604


54.7
*Real estate


300,303


78.6
*

742,029


59.1
*Total Cost of Sales


35,812,485


84.6


13,471,409


79.8GROSS PROFITConstruction


5,682,624


14.1
*

2,193,617


15.6
*Hotel


765,929


45.4
*

712,108


45.3
*Real estate


81,887


21.4
*

513,499


40.9
*Total Gross Profit


6,530,440


15.4


3,419,224


20.2*
Represents percentage of respective
  segments total revenuesNet
Revenues.
For the six months ended December 31, 2008, our overall net revenues increased
150.7% from the six months ended December 31, 2007. The increase in revenues
was mainly due to increased activity in our construction operations
which are summarized as follows:

Project Name

For the Six Months
  Ended 
  December 31, 2008

% 
  (*)

For the Six Months
  Ended 
  December 31, 2007

%
  (*)Wu Jing Yin Fang

$





$
655,453


4.7Ta Bu Ban








9,173,095


65.2Sai Han District Street renovation








334,570


2.4Riverbank Garden Community (Buildings 5 to
  8 and Phase II)


10,661,001


26.5


3,898,275


27.7Tian Fu Garden residential project (Phase I
  and II)


16,722,885


41.5





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


8,282,437


20.6





Lanyu Garden


922,633


2.3





Fu Xing Committee Bath Center project


3,684,315


9.1





Total construction revenues

$
40,273,271


100.0

$
14,061,393


100.0*
Represents
  percentage of construction segment revenues.34

At
December 31, 2008, the percentage completed for each respective job is as
follows:

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


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


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


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


1.0
%Lanyu Garden


11.9
%Fu Xing
  Committee Bath Center project


15.2
%We
were recently awarded the Lanyu Garden Number 3 residential building project,
which covers a construction area of 28,000 square meters. We began the Lanyu
project in October 2008 and expect to complete it in December 2009. We were
also awarded The Fu Xing Committee Bath Center project, with estimated revenues
amounting to RMB 165.8 million ($24.2 million) and an estimated gross profit of
approximately $4,500,000, contains one building with a construction area of
46,054 square meters. We began the Fu Xing project in November 2008 and expect
to complete the project in August 2009.

Gold Horse
also began construction of the second phase of the Ai Bo Garden residential
apartment this month after successfully completing the first phase in November
2008. With estimated revenues of RMB 128.4 million ($18.8 million) and
estimated gross profit of $3,500,000, this project contains nine buildings with
a construction area of 116,700 square meters. Gold Horse expects to complete
this project in June 2009.

We
expect that our construction division will continue to generate the majority of
revenue in fiscal 2009, due to the number of projects currently under
construction and an active pipeline of future projects available for bid.

Revenues
for our hotel operations increased approximately 7.2% for the six months ended
December 31, 2008 from the six months ended December 31, 2007 primarily due to
a favorable foreign currency exchange rate used to converts RMB to U.S dollars.
Excluding the effect of the favorable foreign currency exchange rate, revenues
from our hotel operations decreases approximately 2%.

Revenues
for our real estate development operation decreased approximately 69.6% for the
six months ended December 31, 2008 to the six months ended December 31, 2007due
to a lack of inventory of apartment units available for sale. For the six months ended December 31, 2008,
following the effect date of the PRC Property Right Law in October 2007 which
impacted the method by which Jin Ma Real Estate could obtain land use rights to
build additional residential projects coupled with a softening in the
residential real estate market, Jin Ma Real Estate put more of its focus on
completing the two school projects. Accordingly, it has sold all remaining
units available for sale in the first quarter of year 2009 period which
impacted its revenues. Accordingly, we do not presently anticipate that Jin Ma
Real Estate will generate any revenues from its historical real estate
development operations in future periods.

In November
2007, Jin Ma Real Estate entered into an agreement to construct new dormitories
for the Inner Mongolia Electrical Vocational Technical School. Pursuant to the
terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon
completion, pursuant to a sale-type capital lease, leased the buildings to the
Inner Mongolia Electrical Vocational Technical School and we will receive
payments for a period of 26 years at an amount of 4,800,000 RMB or approximately
$700,000 per annum. Since Jin Ma Real Estate does not have any construction
licenses, Jin Ma Construction performed all of the construction services on
behalf of Jin Ma Real Estate. We completed this project in November 2008 and
received the first annual payment in December 2008. Additionally, Jin Ma Real
Estate and Jin Ma Construction is responsible for the cost of construction of
student apartments for the Inner Mongolia Chemistry College situated in Inner
Mongolia University City, a compound where many higher education institutions
are located. Jin Ma Construction is performing all of the construction services
on behalf of Jin Ma Real Estate for this project as well. Once completed, Jin
Ma Real Estate will lease the buildings to the college for a period of 20 years
pursuant to a sale-type capital lease. The cost of construction is estimated to
be RMB 50 million ($7.4 million). Upon completion, Jin Ma Real Estate will
receive an annual payment of RMB 7 million (approximately $1 million) for 20
years. Jin Ma Construction began developing the 51,037 square-meter project in
July 2008 and expects to complete the project in August 2009. Through December
31, 2008, the Jin Ma Companies have invested approximately $1.4 million in this
project. Currently, we have no plans to continue this business model for our
real estate segment due to its capital intensive requirements and in future
periods we will recognize revenues, cost of sales and the related gross profit
as payments are received based on the installment method.

35

Cost
of Sales.
Overall, cost of sales increased from approximately 79.8% of net revenues for
the six months ended December 31, 2007, to approximately 84.6% of net revenues
for the six months ended December 31, 2008. Cost of sales as a percentage of
net revenues from our construction operation for the six months ended December
31, 2008 increased to approximately 85.9% from approximately 84.4 % for six
months ended December 31, 2007. The slight increase in cost of sales from our
construction operation was partly attributable to increases in costs for
building supplies and labor costs incurred on our projects. While material and
labor costs worldwide are on the rise, we anticipate minimal direct impact on
our business because of our ability to factor in rising material costs into our
budgets when selecting subcontractors. Cost of sales as a percentage of net
revenues for our hotel operation for the six months ended December 31, 2008
decreased to approximately 54.6% from approximately 54.7% for the six months
ended December 31, 2007. The decrease in cost of sales from our hotel operation
for the six months ended December 31, 2008 period was primarily attributable
to a slight decrease in food and beverage costs. Cost of sales for our real
estate development operation as a percentage of net revenues for the six months
ended December 31, 2008 increased to approximately 78.6% from approximately
59.1% for the six months ended December 31, 2007 due to a decrease in the sale
price per unit to reflect the sell-off of all remaining units available for
sale as well as the slight gross margin of approximately 1% we recognized on
our Vocational School project.

Gross
Profit. Gross profit increased approximately 91%
from $3,419,224 (20.2% of overall net revenues) for the six months ended
December 31, 2007 to $6,530,440 (15.4% of overall net revenues) for the six
months ended December 31, 2008.

Operating
Expenses. For the six months ended December 31,
2008, overall operating expenses decreased approximately 26.7% from the six
months ended December 31, 2007. This decrease was mainly due to the recording
of a one-time gain from bad debt recovery related to the collection of
previously written off accounts receivable and a slight decrease in salaries
and employee benefits offset by increases in depreciation expense, and general
and administrative expenses, as discussed below.

Hotel
Operating Expenses. Hotel operating expense, represent costs and expenses
associated with operating Jin Ma Hotels restaurant and banquet facilities and
hotel operating expenses except for food and beverage costs which have been
included in cost of revenues. Hotel operating expenses decreased approximately
42.7% for the six months ended December 31, 2008 from the six months ended
December 31, 2007. Hotel operating expenses were approximately 1.9% of hotel
revenues for the six months ended December 31, 2008 as compared to
approximately 3.6% for the six months ended December 31, 2007. The decrease for
the six months ended December 31, 2008 period is primarily attributable to a
reduction in operating costs from period to period.

Bad
Debt Expense.
For the six months ended December 31, 2008, bad debt recovery income amounted
to $193,901 as compared to bad debt expense of $307,691 for the six months
ended December 31, 2007, a decrease of approximately 163%. 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 periodically review our credit policies and
are aggressively pursuing overdue accounts. Accordingly, the Jin Ma Companies
bad debt allowance decreased during the six months ended December 31, 2008
compared to the six months ended December 31, 2007 since we collected balances
previously written off.

Salaries
and Employee Benefits. For the six months ended
December 31, 2008, salaries and employee benefits amounted to $301,848 as
compared to $318,498 for the six months ended December 31, 2007, a decrease of
approximately 5.2% related to a decrease in employees in our real estate
segment since we sold out remaining inventory.

Depreciation
and Amortization. For the six months ended
December 31, 2008, depreciation and amortization increased approximately 93.8%
for the six months ended December 2008 as compared to the same period 2007.
This increase was primarily due to the depreciation of construction equipment
of approximately $5,800,000, which primarily included cranes and other heavy
equipment, together with approximately $200,000 of additional vehicles purchased
during fiscal 2008.

General
and Administrative Expenses. General and
administrative expenses consist of office expenses and supplies, utilities,
insurance, telephone and communications, maintenance and automobile expense
incurred by the Jin Ma Companies as well as expenses incurred by us which
primarily consist of professional and other fees. General and administrative
expenses increased by $10,752 or approximately 3.8% for the six months ended
December 31, 2008 compared to the six months ended December 31, 2007. The
increase was primarily attributable to an increase in professional fees of
$29,382 related to our new investor relations program together with a decrease
of $18,630 in other general and administrative expenses.

36

Total
Other Expenses. Total other expenses increased
approximately 167.7% for the six months ended December 31, 2008 from the six
months ended December 31, 2007. The increase is primarily attributable to an
increase in interest expense of approximately $1,043,821 attributable to an
increase in amortization of non-cash debt discount and debt issuance costs of
$746,138 related to our 10% convertible secured convertible debentures and an
increase of interest incurred on additional borrowings offset by an increase in
interest income of $550,204 attributable to the recording of imputed interest
income on a note receivable from the sale of our Vocational School project of
approximately $550,000 and an increase of other income of $4,050.

Provision
for Income Taxes. Total provision for income taxes
increased approximately 105.3% for the six months ended December 31, 2008
(30.8% of income before income taxes) from the six months ended December 31,
2007 (37.8% of income before income taxes). The increase is attributable to an
increase in income before income taxes. The decrease in income taxes as a
percentage of income before income taxes was attributable to the decrease in
the statutory PRC income rate from 33% to 25% on January 1, 2008.

Net
Income.
Net income increased approximately 180.3% from the six months ended December
31, 2007 to the six months ended December 31, 2008. The increase for the six
months ended December 31, 2008 as compared to the six months ended December 31,
2007 was due primarily to an increase in revenue and related gross profits and
the decrease in operating expenses offset by an increase in interest expense
and income taxes. This translates to basic earnings per common share of $0.06
and $0.02, and diluted earnings per common share of $0.06and $0.02, for the six
months ended December 31, 2008 and 2007, respectively.

Comprehensive
Income. For the six months ended December 31, 2008 we reported unrealized gain
on foreign currency translation of $63,724 as compared to $558,025 for the six
months ended December 31, 2007 which reflects the effect of the declining value
of the U.S. dollar. These gains are non-cash items. As described elsewhere
herein, our functional currency is the
Chinese Renminbi; however the accompanying condensed consolidated financial statements
have been translated and presented in U.S. dollars using period-end rates of
exchange for assets and liabilities, and average rates of exchange for the
period for revenues, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions, if any, are included in the consolidated
statements of income and do not have a significant effect on our financial
statements. As a result of this non-cash foreign currency translation gain, we
reported comprehensive income of $3,438,919 for the six months ended December
31, 2008 as compared to $1,762,083 for the six months ended December 31, 2007.

Comparison of Three
Months Ended December 31, 2008 Compared to Three Months Ended December 31, 2007

For the Three Months Ended
  December 31,2008

% of Total
  Revenues

2007

% of Total
  RevenuesNET REVENUESConstruction

$
11,894,829


92.2

$
6,177,624


85.6Hotel


858,378


6.7


717,526


9.9Real estate


149,490


1.1


324,714


4.5Total Revenues


12,902,697


100.0


7,219,864


100.0COST OF SALESConstruction


10,207,643


85.8
*

5,177,403


83.8
*Hotel


475,448


55.4
*

379,225


52.9
*Real estate


157,087


105.1
*

177,375


54.6
*Total Cost of Sales


10,840,178


84.0


5,734,003


79.4GROSS PROFITConstruction


1,687,186


14.2
*

1,000,221


16.2
*Hotel


382,930


44.6
*

338,301


47.1
*Real estate


(7,597
)

(5.1
)*

147,339


45.4
*Total Gross Profit


2,062,519


16.0


1,485,861


20.6*
Represents
  percentage of respective segments revenues.37

Net
Revenues.
For the three months ended December 31, 2008, our overall net revenues
increased 78.7% for the three months ended December 31, 2008 from the three
months ended December 31, 2007. The increase in revenues was mainly due
to increased activity in our construction operations which are
summarized as follows:

Project Name

For the Three Months
  Ended 
  December 31, 2008

% 
  (*)

For the Three Months
  Ended 
  December 31, 2007

%
  (*)Wu Jing Yin Fang

$





$
481,059


7.8Ta Bu Ban








2,162,915


35.0Sai Han District street renovation








330,607


5.4Riverbank Garden Community (Buildings 5 to
  8 and Phase II)


2,754,383


23.2


3,203,043


51.8Tian Fu Garden residential project (Phase I
  and II)


2,438,980


20.5





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


2,094,518


17.6





Lanyu Garden


922,633


7.7





Fu Xing Committee Bath Center project


3,684,315


31.0





Total construction revenues

$
11,894,829


100.0

$
6,177,624


100.0*
Represents
  percentage of construction segment revenues.Revenues
for our hotel operations increased slightly from $717,526 for the three months
ended December 31, 2007 to $858,389 for the three months ended December 31,
2008, an increase of $140,852 or 19.6%, primarily due to a favorable foreign
currency exchange rate used to converts RMB to U.S dollars.

Revenues
for our real estate development operation decreased from $324,714 for the three
months ended December 31, 2007 to $149,490 for the three months ended December
31, 2008, a decrease of $175,224 or 54.0% due to a lack of inventory of
apartment units available for sale. Our
revenues for the three months ended December 31, 2008 related to the Inner
Mongolia Electrical Vocational Technical School Jin Ma Real Estate as discussed
above.

Cost
of Sales.
Overall, cost of sales increased from approximately 79.4% of net revenues for
the three months ended December 31, 2007, to approximately 84.0% of net
revenues for the three months ended December 31, 2008. Cost of sales as a
percentage of net revenues from our construction operation for the three months
ended December 31, 2008 increased to approximately 85.8% from approximately
83.8 % for three months ended December 31, 2007. The slight increase in cost of
sales from our construction operation was partly attributable to increases
in costs for building supplies and labor costs incurred on our projects. While
material and labor costs worldwide are on the rise, we anticipate minimal
direct impact on our business because of our ability to factor in rising
material costs into our budgets when selecting subcontractors. Additionally, we
will enforce internal management and increase productivity to offset rising
labor costs. Cost of sales as a percentage of net revenues for our hotel
operation for the three months ended December 31, 2008 increased to
approximately 55.4% from approximately 52.9% for the three months ended
December 31, 2007. The increase in cost of sales from our hotel operation for
the three months ended December 31, 2008 period was primarily attributable
to a slight increase in food and beverage costs. Cost of sales for our
real estate development operation as a percentage of net revenues for the three
months ended December 31, 2008 increased to approximately 105.1% from approximately
54.6% for the three months ended December 31, 2007 due to the recording of a
slight gross margin we recognized on our Vocational School project which was
offset by various sale taxes incurred during the period for approximately
$8,500.

Gross Profit. Gross
profit increased approximately 38.8% from $1,485,861 (20.6% of overall net
revenues) for the three months ended December 31, 2007 to $2,062,519 (16.0% of
overall net revenues) for the three months ended December 31, 2008.

Operating
Expenses. For the three months ended December 31,
2008, overall operating expenses decreased approximately 1.0% from the three
months ended December 31, 2007. This decrease was mainly due to the recording
of a gain from bad debt recovery related to the collection of previously
written off accounts receivable and a decrease in salaries and employee
benefits and general and administrative expenses offset by increases in
depreciation expense, as discussed below.

38

Hotel
Operating Expenses. Hotel operating expense, represent costs and expenses
associated with operating Jin Ma Hotels restaurant and banquet facilities and
hotel operating expenses except for food and beverage costs which have been
included in cost of revenues. Hotel operating expenses decreased approximately
21.2% for the three months ended December 31, 2008 from the three months ended
December 31, 2007. Hotel operating expenses were approximately 1.9% of hotel
revenues for the three months ended December 31, 2008 as compared to approximately
2.9% for the three months ended December 31, 2007. The decrease for the three
months ended December 31, 2008 period is primarily attributable to a reduction
in operating costs from period to period.

Bad
Debt Expense.
For the three months ended December 31, 2008, bad debt recovery income amounted
to $11,285 as compared to bad debt expense of $6,797 for the three months ended
December 31, 2007, a decrease of approximately 266%. 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 periodically review our credit policies and
are aggressively pursuing overdue accounts. Accordingly, the Jin Ma Companies
bad debt allowance decreased during the three months ended December 31, 2008
compared to the three months ended December 31, 2007 since we collected
balances previously written off.

Salaries
and Employee Benefits. For the three months ended
December 31, 2008, salaries and employee benefits amounted to $150,307 as
compared to $184,297 for the three months ended December 31, 2007, a decrease
of approximately 18.4%.

Depreciation
and Amortization. For the three months ended
December 31, 2008, depreciation and amortization increased approximately 65.5%
for the three months ended December 2008 as compared to the same period 2007.
This increase was primarily due to the depreciation of construction equipment
of approximately $5,800,000, which primarily included cranes and other heavy
equipment, together with approximately $200,000 of additional vehicles purchased
during fiscal 2008.

General
and Administrative Expenses. General and
administrative expenses consist of office expenses and supplies, utilities,
insurance, telephone and communications, maintenance and automobile expense
incurred by the Jin Ma Companies as well as expenses incurred by us which
primarily consist of professional and other fees. General and administrative
expenses decreased by $31,105 or approximately 26.3% for the three months ended
December 31, 2008 compared to the three months ended December 31, 2007. The
decrease was primarily attributable to a decrease in professional fees of
$45,235 related to a decrease in legal fees associated with our private
placement in December 2007 offset by an increase of $14,130 in other general and
administrative expenses.

Total
Other Expenses. Total other expenses decreased
47.9% for the three months ended December 31, 2008 from the three months ended
December 31, 2007. The decrease is primarily attributable to an increase in
interest expense of $444,143 attributable to an increase in amortization of
non-cash debt discount and debt issuance costs of $447,682 offset by an
increase in interest income of $549,346 attributable to the recording of
imputed interest income on a note receivable from the sale of our Vocational
School project of approximately $550,000 and an increase in other income of
$3,758.

Provision
for Income Taxes. Total provision for income taxes
increased approximately 50.6% for the three months ended December 31, 2008
(33.5% of income before income taxes) from the three months ended December 31,
2007 (41.5% of income before income taxes). The increase is attributable to an
increase in income before income taxes. The decrease in income taxes as a
percentage of income before income taxes was attributable to the decrease in
the statutory PRC income rate from 33% to 25% on January 1, 2008.

Net
Income.
Net income increased approximately 111.3% from the three months ended December
31, 2007 to the three months ended December 31, 2008. The increase for the
three months ended December 31, 2008 as compared to the three months ended
December 31, 2007 was due primarily to an increase in revenue and related gross
profits and the decrease in operating expenses offset by an increase in
interest expense and income taxes. This translates to basic earnings per common
share of $0.02 and $0.01, and diluted earnings per common share of $0.02 and
$0.01, for the three months ended December 31, 2008 and 2007, respectively.

Comprehensive
Income. For the three months ended December 31, 2008 we reported unrealized gain
on foreign currency translation of $9,130 as compared to $398,951 for the three
months ended December 31, 2007 which reflects the effect of the declining value
of the U.S. dollar. These gains are non-cash items. As described elsewhere
herein, our functional currency is the
Chinese Renminbi; however the accompanying condensed consolidated financial statements
have been translated and presented in U.S. dollars using period-end rates of
exchange for assets and liabilities, and average rates of exchange for the
period for revenues, costs, and expenses. Net gains and losses resulting from
foreign exchange transactions, if any, are included in the consolidated statements
of income and do not have a significant effect on our financial statements. As
a result of this non-cash foreign currency translation gain, we reported
comprehensive income of $1,000,551 for the three months ended December 31, 2008
as compared to $868,139 for the three months ended December 31, 2007.

39

Liquidity and Capital
Resources

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

At
December 31, 2008, we had a cash balance of $243,983, substantially all of
which is located in financial institutions in China under the control of the
Jin Ma Companies.

Our
working capital position decreased $3,411,202 to $10,037,720 at December 31,
2008 from $13,448,922 at June 30, 2008. This decrease in working capital for
the six months ended December 31, 2008 period is primarily attributable to an
increase in accounts receivable of $4,026,297, an increase of construction in
progress of $547,446, a decrease in taxes payable of $1,376,354 offset by a
decrease in cash and cash equivalents of $1,394,003, a decrease in due from
related party of $1,656,962, a decrease in deposit on prepaid land use rights,
an increase of convertible debt of $818,625 due to the amortization of debt
discount and a increase of accounts payable $4,158,191.

Our
balance sheet at December 31, 2008 also reflects notes payable to third parties
of approximately $4,387,967 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 13.24%
to 18% and are due between August 2009 and September 2012. Of this amount,
approximately $2,900,000 is secured by the assets of the Jin Ma Hotel and the
remaining balances are unsecured. Additionally, we have a convertible debt of
$2,183,000 due in March 2009. This debt bears an annual interest rate of 10%
and is secured by 19,000,000 shares of our common stock owned by Mr. Liankuan
Yang, Ms. Runlan Ma and Ms. Yang Yang, officers and directors of our company.
As describe below, we do not have sufficient funds to pay this obligation when
it becomes due.

Our
balance sheet at December 31, 2008 reflects a due from related parties of
$43,074 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. We expect to receive repayment of this remaining
balance during the three months ending March 31, 2009.

Operating Activities

Net
cash flow used in operating activities was $5,194,897 for the six months ended
December 31, 2008 as compared to net cash provided $855,868 for the six months
ended December 31, 2007, a decrease of $6,050,765. The decrease in net cash
flow provided by operating activities in the six months ended December 31, 2008
as compared to the six months ended December 31, 2007 was primarily due to by
an increase in accounts receivable of $ 4,601,446, an increase in construction
in progress of $8,508,089, and a decrease in taxes payable of $1,101,848 offset
by an increase net income of $2,171,137, an increase of $682,188 interest
expense from amortization of debt discount, an increase of $202,749 of costs
and estimated earnings in excess of billings, an increase of $4,926,286 in
accounts payable and accrued expenses.

Investing Activities

Net
cash flow provided by investing activities was $3,672,505 for the six months
ended December 31, 2008 as compared to cash used in investing activities of
$2,550,009 for the six months ended December 31, 2007. For the six months ended
December 31, 2008, cash used in investing activities consisted of cash provided
by repayment of amounts due from related party of $1,661,601 and cash provided
of proceeds from return of deposit on prepaid land use rights of $2,028,288
offset by $ 17,384 cash used for purchase of property and equipment.

Financing Activities

Net
cash flow provided by financing activities was $118,000 for the six months
ended December 31, 2008 which was attributable to proceeds from sale of common
stock. For the six months ended December 31, 2007, we received proceeds from
the sale of common stock of $2,219,252 and proceeds from our convertible debt
financing of $2,183,000 offset by cash used for the payment of placement fees
of $204,640 and the repayment of loans of $133,222.

40

Other
than our existing cash we presently have no other alternative source of working
capital. We have no operations other than the Contractual Arrangements with the
Jin Ma Companies and, accordingly, we are dependent upon the quarterly service
fees due us to or for the receipt of working capital from the Jin Ma Companies
to provide cash to pay our operating expenses. To date, no quarterly service
fees have been tendered to us and those funds are being retained by the Jin Ma
Companies to fund their operations. At December 31, 2008 the Jin Ma Companies
owed us approximately $10,660,000 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 funds advanced to the Jin Ma Companies are repaid to us. The Jin Ma
Companies have represented to us that they intend to either pay all or a
portion of the fees due us and/or repay all or a portion of the amounts
advanced to them to ensure that we have sufficient capital to make the interest
and principal payments on the 10% secured convertible debentures. The interest
payments are due quarterly and the principal in the aggregate amount of
$2,183,000 is due in March 2009. Should it fail to pay these amounts, we would
not have sufficient capital to meet our obligations. Even if the Jin Ma Companies
pay all the past due amounts to us, it is possible that the Jin Ma Companies
will continue to fail to timely pay our management fees. If the quarterly
service fees due us under the Contractual Arrangement are not paid to us on a
timely basis, it is possible that we will not have sufficient funds to pay our
operating expenses in future periods. 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,
nor we will have sufficient funds to pay the 10% secured convertible debentures
when due or to make the quarterly interest payment on those debentures. As of
the date of this report, we have not paid our quarterly interest payment due on
December 31, 2008 and we have received a demand notice from certain investors
demanding this payment. Default interest shall accrue at 18% per annum. The Company
is currently seeking bank financing and plans on paying back this debt on the
due date.

The
Jin Ma Companies have historically funded their capital expenditures and
ongoing development projects from their working capital. The Jin Ma Companies
intend to meet their liquidity requirements, including capital expenditures
related to the purchase of land for the development of our future projects,
through cash flow provided by operations and additional funds raised by future
financings. Upon acquiring land for future development, the Jin Ma Companies
will seek to raise funds to develop their projects by obtaining mortgage
financing from local banking institutions with which it has done business in
the past. The Jin Ma Companies believe that its relationships with these banks
are in good standing and that its real estate will secure the loans needed.
However, banks
have recently reduced the lending to developers and home buyers alike in
response to an increase by the Peoples Bank of China of the ratio of deposits
that must be set must aside as reserves. Additional measures undertaken by the
Chinese government have also tightened mortgage lending to second-home buyers
and there are new rules that block developers from using bank loans to finance
land purchases. The government also tightened controls over the banking system
to make it more difficult for developers to use funds from presales of projects
to aid expansion. These measures have also affected remittances on offshore
financing, making it more difficult for firms to access cash from foreign
private-equity firms and hedge funds. Despite this, the Jin Ma Companies
believe that their good banking relations, strong government contacts, and
strong reputation will enable it to obtain bank funding, if necessary. Accordingly,
the Jin Ma Companies believe that adequate cash flow will be available to fund
its historic operations.

The
Jin Ma Companies, however, will need to raise significant additional capital to
fund the wind farm project and to date it has not been successful in its
efforts. However, the ability of the Jin Ma Companies to raise any significant
capital to fund the wind farm project or to expand their operations beyond the
current level is very limited. We believe that it is in our best long term
interests to assist the Jin Ma Companies in their growth plans. We advanced the
Jin Ma Companies approximately $1,920,000 on an unsecured basis which it has
used for working capital. Even with these amounts the Jin Ma Companies will need
additional capital. 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 well as to provide working capital
necessary for their current projects, ongoing operations and financial
obligations. It is likely that we will face difficulties in raising additional
capital given the current status of the capital markets and the terms of the
10% secured convertible debentures which restrict our ability to raise capital
while those debentures remain outstanding.

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. Even if we are successful in raising additional capital, it is likely
that the terms of such capital will be dilutive to our existing shareholders.
If we are not able to assist the Jin Ma Companies in their capital needs, it is
unlikely that our revenues will grow beyond current levels.

41

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.

The
following tables summarize our contractual obligations as of December 31, 2008,
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 +ContractualObligations:OtherIndebtedness*

$
4,647,662

$
259,695

$
4,387,967





Convertibledebt


2,183,000


2,183,000








Accruedliquidatedpenalties


120,000


120,000








Interestpaymentsonconvertibledebt


110,000


110,000








TotalContractualObligations:

$
7,060,662

$
2,672,695

$
4,387,967





*
Other
  indebtedness includes long-time loans borrowed from individuals and credit
  unions.We
currently have no material commitments for capital expenditures. Other than
working capital and loans, we presently have no other alternative source of
working capital. We need working capital to fund our construction and real
estate projects. We may not have sufficient working capital to fund new
construction projects line as well as providing working capital necessary for
our ongoing operations and obligations. We may need to raise additional working
capital to complete these projects. We may seek to raise additional capital
through the sale of equity securities. 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. At this time, we have no
commitments or plans to obtain additional capital.

Off-balance Sheet Arrangements

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

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.

Not
applicable to a smaller reporting company.

42

ITEM
4. CONTROLS AND PROCEDURES

Evaluation of
Disclosure Controls and Procedures

As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
December 31, 2008, the end of the period covered by this report, our management
concluded its evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures. Disclosure controls and procedures 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
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. In
May 2008 we were required to restate our financial statements for the three and
six months ended December 31, 2007 to correct an accounting error to properly
reflect the accounting for a certain construction project that Jin Ma
Construction is currently 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
sell these buildings to a third party and will received annual payments 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.

Changes in
Internal Control over Financial Reporting

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

43

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.In November
  2008, the Company sold 124,000 shares of common stock to 6 individuals
  residing in China for net proceeds of $124,000 in a private transaction
  exempt from registration under the Securities Act of 1933 in reliance on
  exemptions provided by Section 4(2) of that act. We are using the proceeds
  for general working capital and the proceeds were received directly by the
  Jin Ma Companies. We paid no commissions or finders fees on this transaction
  and none of these individuals were related parties.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.
Exhibits31.1
Rule
  13a-14(a)/15d-14(a) certification of Chief Executive Officer31.2
Rule
  13a-14(a)/15d-14(a) certificate of Chief Financial Officer32.1
Section 1350
  certification of Chief Executive Officer32.2
Section 1350
  certification of Chief Financial OfficerSIGNATURES

Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

Gold Horse
  International, Inc.Date:
  February 17, 2009
By:
/s/ Liankuan
  YangLiankuan
  YangChief
  Executive Officer, Principal Executive OfficerDate:
  February 17, 2009
By:
/s/ Adam
  WassermanAdam
  WassermanChief
  Financial Officer, Principal Financial and Accounting officer44