PINX:GHII Gold Horse International Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
(Mark One)
x  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
For the quarterly period ended March 31, 2012

or
o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE OF 1934
For the transition period from _______ to _________
 
Commission file number: 000-30311
 
GOLD HORSE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
 
Florida
 
22-3719165
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
 
No. 31 Tongdao South Road, Hohhot, Inner Mongolia, China    010030
(Address of principal executive offices)    (Zip Code)
 
86 (471) 339 7999
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and post such files).  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
o
Non-accelerated filer
o
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   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: 2,195,033 shares at May 10, 2012.
 
 
 

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 2012

TABLE OF CONTENTS
 
   
Page
PART I - FINANCIAL INFORMATION
 
   
Item 1.
Unaudited Condensed Financial Statements.
 
     
 
Condensed Consolidated Balance Sheets:
 
 
    As of March 31, 2012 and June 30, 2011
3
     
 
Condensed Consolidated Statements of Income and Comprehensive Income
 
 
    For the Three and Nine Months Ended March 31, 2012 and 2011
4
     
 
Condensed Consolidated Statements of Cash Flows
 
 
    For the Nine Months Ended March 31, 2012 and 2011
5
     
 
Notes to Unaudited Condensed Consolidated Financial Statements
6
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
37
     
Item 4.
Controls and Procedures
37
     
PART II - OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
38
     
Item 1A.
Risk Factors
38
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
38
     
Item 3.
Defaults Upon Senior Securities
38
     
Item 4.
Mine Safety Disclosures
38
     
Item 5.
Other Information
38
     
Item 6.
Exhibits
38
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

You should consider the areas of risk described in connection with any forward-looking statements that may be made in our report as filed with the SEC.  Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this quarterly report and our annual report on Form 10-K for the year ended June 30, 2011, including the risks described in Item 1A. - Risk Factors, in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.  These forward-looking statements speak only as of the date of this quarterly report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
 
 
-1-

 
 
OTHER PERTINENT INFORMATION

Our web site is www.goldhorseinternational.com. The information which appears on our web site is not part of this report.
 
All share and per share information in this report gives effect to the 40:1 reverse stock split of our common stock which was effective on September 8, 2010.

Our business is conducted in China, using Renminbi (“RMB”), the currency of China, and our financial statements are presented in United States dollars.   In this report, we refer to assets, obligations, commitments and liabilities in our financial statements in United States dollars.   These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date.   Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

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

   
"Gold Horse International," the "Company, "we," "us," "ours," and similar terms refers to Gold Horse International, Inc., a Florida corporation,
   
"Gold Horse Nevada" refers to Gold Horse International, Inc., a Nevada corporation and wholly-owned subsidiary of Gold Horse International,
   
"Global Rise" refers to Global Rise International, Limited, a Cayman Islands corporation and wholly-owned subsidiary of Gold Horse Nevada,
   
"IMTD" refers to Inner Mongolia (Cayman) Technology & Development Ltd., a Chinese company and wholly-owned subsidiary of Global Rise,
   
"Jin Ma Real Estate" refers to Inner Mongolia Jin Ma Real Estate Development Co., Ltd., a Chinese company,
   
"Jin Ma Construction” refers to Inner Mongolia Jin Ma Construction Co., Ltd., a Chinese company,
   
“Jin Ma Hotel” refers to Inner Mongolia Jin Ma Hotel Co., Ltd., a Chinese company,
   
“Jin Ma Companies” collectively refers to Jin Ma Real Estate, Jin Ma Construction and Jin Ma Hotel, which are variable interest entities under contractual arrangements with us and whose financial statements are consolidated with ours, unless the context specifically states or implies otherwise; and
   
“first quarter of 2012” refers to the three months ended September 30, 2011 and, “first quarter of 2011” refers to the three months ended September 30, 2010, unless the context otherwise defines.
   
“second quarter of 2012” refers to the three months ended December 31, 2011 and, “second quarter of 2011” refers to the three months ended December 31, 2010, unless the context otherwise defines.
   
“third quarter of 2012” refers to the three months ended March 31, 2012 and, “third quarter of 2011” refers to the three months ended March 31, 2011, unless the context otherwise defines.

 
-2-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(AMOUNTS EXPRESSED IN US DOLLAR)
 
   
   
As of
 
   
March 31,
   
June 30,
 
   
2012
   
2011
 
   
(UNAUDITED)
       
ASSETS
           
             
    Cash and cash equivalents
  $ 376,686     $ 242,238  
    Restricted cash
    20,997       20,458  
    Accounts receivable, net
    16,362,420       7,938,821  
    Notes receivable on sales type lease - current portion
    1,318,691       572,039  
    Inventories
    102,969       73,201  
    Prepaid expenses
    36,057       28,427  
    Other receivables, net
    151,397       114,403  
    Cost and estimated earnings in excess of billings
    66,915       130,928  
    Deferred tax assets
    186,528       225,519  
                 
        Total Current Assets
    18,622,660       9,346,034  
                 
    Property and equipment, net
    8,080,798       8,542,010  
    Construction in progress
    26,150,006       25,148,978  
    Notes receivable on sales type lease - net of current portion
    15,282,978       15,844,259  
                 
        Total Assets
  $ 68,136,442     $ 58,881,281  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current Liabilities:
               
    Loans payable - current portion
  $ 648,888     $ 549,196  
    Accounts payable
    6,092,264       2,703,281  
    Due to related parties
    629,222       13,518  
    Accrued liabilities
    473,612       403,130  
    Taxes payable
    689,778       114,775  
    Derivative liability
    42,340       84,713  
                 
        Total Current Liabilities
    8,576,104       3,868,613  
                 
    Loans payable - net of current portion
    4,589,697       4,610,149  
                 
        Total Liabilities
    13,165,801       8,478,762  
                 
Commitments (Note 17)
    -       -  
                 
Stockholders' Equity:
               
    Preferred stock ($0.0001 par value; 20,000,000 shares authorized;
               
        none issued and outstanding)
    -       -  
    Common stock ($0.0001 par value; 300,000,000 shares authorized;
               
        2,195,033 and 2,158,244 shares issued and outstanding
               
        at March 31, 2012 and June 30, 2011, respectively)
    220       216  
    Additional paid-in capital
    7,488,664       7,464,917  
 Non-controlling interest in variable interest entities
    7,642,344       7,642,344  
    Retained earnings
    30,651,780       27,343,397  
    Statutory reserve
    3,116,020       3,066,583  
    Accumulated other comprehensive income
    6,071,613       4,885,062  
                 
        Total Stockholders' Equity
    54,970,641       50,402,519  
                 
        Total Liabilities and Stockholders' Equity
  $ 68,136,442     $ 58,881,281  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
-3-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(AMOUNTS EXPRESSED IN US DOLLAR)
 
(UNAUDITED)
 
                         
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 31,
   
March 31,
 
   
2012
   
2011
   
2012
   
2011
 
                         
NET REVENUES
                       
      Construction
  $ 10,183,420     $ 7,994,860     $ 35,777,658     $ 32,986,009  
      Hotel
    612,507       739,027       1,658,044       2,304,502  
      Real estate
    -       193,661       192,429       907,030  
                                 
        Total Revenues
    10,795,927       8,927,548       37,628,131       36,197,541  
                                 
COST OF REVENUES
                               
      Construction
    8,725,881       6,851,787       30,654,157       28,289,607  
      Hotel
    327,722       414,640       834,191       1,323,695  
      Real estate
    -       130,334       202,291       670,548  
                                 
        Total Cost of Revenues
    9,053,603       7,396,761       31,690,639       30,283,850  
                                 
GROSS PROFIT
    1,742,324       1,530,787       5,937,492       5,913,691  
                                 
OPERATING EXPENSES:
                               
     Other hotel operating expenses
    14,424       15,156       41,438       47,116  
     Bad debt recovery
    (3,455 )     (1,291 )     (175,510 )     (196,903 )
     Salaries and employee benefits
    181,288       293,197       521,294       711,807  
     Depreciation
    219,983       200,224       654,500       592,661  
     Selling, general and administrative
    41,710       97,549       272,511       565,283  
                                 
        Total Operating Expenses
    453,950       604,835       1,314,233       1,719,964  
                                 
INCOME FROM OPERATIONS
    1,288,374       925,952       4,623,259       4,193,727  
                                 
OTHER (EXPENSES) INCOME:
                               
     Other income
    -       (38 )     -       6,804  
     Gain on change in fair value of derivative liabilities
    10,154       304,837       42,373       461,929  
     Interest income
    2,404       54,462       562,298       705,322  
     Interest expense
    (249,439 )     (125,722 )     (669,351 )     (377,728 )
                                 
        Total Other (Expenses) Income
    (236,881 )     233,539       (64,680 )     796,327  
                                 
INCOME BEFORE PROVISION FOR INCOME TAX
    1,051,493       1,159,491       4,558,579       4,990,054  
                                 
PROVISION FOR INCOME TAXES
    271,318       288,058       1,200,759       1,308,526  
                                 
NET INCOME
  $ 780,175     $ 871,433     $ 3,357,820     $ 3,681,528  
                                 
COMPREHENSIVE INCOME:
                               
      Net income
  $ 780,175     $ 871,433     $ 3,357,820     $ 3,681,528  
                                 
      OTHER COMPREHENSIVE INCOME:
                               
           Unrealized foreign currency translation gain
    335,815       252,349       1,186,551       1,407,022  
                                 
       COMPREHENSIVE INCOME
  $ 1,115,990     $ 1,123,782     $ 4,544,371     $ 5,088,550  
                                 
NET INCOME PER COMMON SHARE:
                               
    Basic
  $ 0.36     $ 0.44     $ 1.54     $ 1.88  
    Diluted
  $ 0.36     $ 0.44     $ 1.54     $ 1.86  
                                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
                         
    Basic
    2,195,033       1,989,459       2,179,623       1,957,237  
    Diluted
    2,195,710       1,989,459       2,180,327       1,977,994  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
-4-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(AMOUNTS EXPRESSED IN US DOLLAR)
 
(UNAUDITED)
 
             
   
For the Nine Months Ended
 
   
March 31,
 
   
2012
   
2011
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
  $ 3,357,820     $ 3,681,528  
Adjustments to reconcile net income to net cash
               
used in operating activities:
               
Depreciation
    654,500       592,661  
Stock-based compensation and fee
    11,250       116,716  
Bad debt recovery
    (175,510 )     (196,903 )
Warrants issued for service
    -       31,188  
Gain on change in fair value of derivative liabilities
    (42,373 )     (461,929 )
Changes in assets and liabilities:
               
Restricted cash
    (67 )     -  
Accounts receivable
    (8,008,158 )     (2,638,012 )
Notes receivable
    191,322       388,573  
Inventories
    (27,888 )     (5,072 )
Prepaid expenses
    (6,945 )     208,882  
Other receivables
    (34,122 )     (77,655 )
Costs and estimated earnings in excess of billings
    66,563       5,986  
Real estate held for sale
    -       223,351  
Construction in progress
    (418,983 )     (19,447,318 )
Accounts payable and accrued liabilities
    3,377,708       18,121,600  
Taxes payable
    612,271       (854,777 )
Advances from customers
    -       50,901  
Billings in excess of costs and estimated earnings
    -       (91,225 )
NET CASH USED IN OPERATING ACTIVITIES
    (442,612 )     (351,505 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of property and equipment
    (1,147 )     (41,304 )
NET CASH USED IN INVESTING ACTIVITIES
    (1,147 )     (41,304 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayment of loans payable
    (39,292 )     (37,428 )
Proceeds from related parties
    611,127       472,976  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    571,835       435,548  
                 
EFFECT OF EXCHANGE RATE ON CASH
    6,372       11,312  
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    134,448       54,051  
                 
CASH AND CASH EQUIVALENTS - beginning of period
    242,238       309,996  
                 
CASH AND CASH EQUIVALENTS - end of period
  $ 376,686     $ 364,047  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:
               
Cash paid for:
               
Interest
  $ 621,257     $ 320,314  
Income taxes
  $ 891,857     $ 1,682,059  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
-5-

 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

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

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

Gold Horse Nevada owns 100% of Global Rise International, Limited (“Global Rise”), a Cayman Islands corporation incorporated on May 9, 2007. Through Global Rise, Gold Horse Nevada operates, controls and beneficially owns 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, neither the Company, Gold Horse Nevada nor Global Rise have any business or operations. The Contractual Arrangements are discussed below.

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

The relationship among the above companies is as follows:
 
As a result of these Contractual Arrangements, the acquisition of Gold Horse Nevada and the Jin Ma Companies by the Company was accounted for as a reverse merger because on a post-merger basis, the former shareholders of Gold Horse Nevada held a majority of the outstanding common stock of the Company on a voting and fully-diluted basis. As a result, Gold Horse Nevada is deemed to be the acquirer for accounting purposes. Accordingly, the consolidated financial statement data presented are those of the Jin Ma Companies for all periods prior to the Company’s acquisition of Gold Horse Nevada on June 29, 2007, and the financial statements of the consolidated companies from the acquisition date forward.
 
 
-6-

 
 
 GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

The Contractual Arrangements are comprised of a series of agreements, including a Consulting Services Agreement and an Operating Agreement, through which Global Rise has the right to advise, consult, manage and operate each of the Jin Ma Companies, and collect and own all of their respective net profits. Additionally, under a Shareholders’ Voting Rights Proxy Agreement, the Jin Ma Companies Shareholders have vested their voting control over the Jin Ma Companies to Global Rise. In order to further reinforce the Company’s rights to control and operate the Jin Ma Companies, these companies and their shareholders have granted Global Rise, under an Option Agreement, the exclusive right and option to acquire all of their equity interests in the Jin Ma Companies or, alternatively, all of the assets of the Jin Ma Companies. Further the Jin Ma Companies Shareholders have pledged all of their rights, titles and interests in the Jin Ma Companies to Global Rise under an Equity Pledge Agreement.
 
Gold Horse Nevada entered into the Contractual Arrangements with each of the Jin Ma Companies and their respective shareholders on August 31, 2006. On June 29, 2007, concurrently with the closing of the Share Exchange Transaction, the Contractual Arrangements were amended and restated by and among Gold Horse Nevada and Global Rise, the Company’s wholly-owned subsidiary, and the Company on the one hand, and each of the Jin Ma Companies and their respective shareholders on the other hand, pursuant to which the Company was made a party to the Contractual Arrangements.
 
Inner Mongolia Jin Ma Construction Company Ltd.
 
Jin Ma Construction is an engineering and construction company that offers general contracting, construction management and building design services primarily in Hohhot City, the Autonomous Region of Inner Mongolia in China. In operation since 1980, Jin Ma Construction was formally registered as a limited liability company in Hohhot City in March 2002.
 
Inner Mongolia Jin Ma Real Estate Development Co. Ltd.
 
Jin Ma Real Estate, established in 1999, was formally registered as a limited liability company in Hohhot City in February 2004. Jin Ma Real Estate develops residential and commercial properties in the competitive and growing real estate market in Hohhot.
 
Inner Mongolia Jin Ma Hotel Co. Ltd.

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

Inner Mongolia (Cayman) Technology & Development Ltd.

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

 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012

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

Basis of presentation
 
Basis of preparation
 
These interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements, which are of a normal and recurring nature, have been included.  The results reported in the condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The (a) condensed consolidated balance sheet as of June 30, 2011, which was derived from audited financial statements, and (b) the unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes of the Company for the year ended June 30, 2011.
 
Principle of consolidation
 
Pursuant to the Financial Accounting Standards Board Accounting Codification (ASC) Topic 810, the Company is required to include in its consolidated financial statements the financial statements of its variable interest entities (“VIEs”). ASC Topic 810 requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which the Company, through contractual arrangements, bears the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore the Company is the primary beneficiary of the entity.
 
The Jin Ma Companies are considered VIEs, and the Company is the primary beneficiary. On June 29, 2007, the Company entered into the Contractual Arrangements with the Jin Ma Companies pursuant to which the Company is to receive 100% of the Jin Ma Companies net income. In accordance with these agreements, the Jin Ma Companies are to pay consulting fees equal to 100% of their net income to the Company’s wholly-owned subsidiary, Global Rise, and Global Rise shall supply the technology and administrative services needed to service the Jin Ma Companies.
 
The accounts of the Jin Ma Companies are consolidated in the accompanying financial statements pursuant to ASC Topic 810. As a VIE, the Jin Ma Companies net revenues are included in the Company’s total net revenues, their income from operations is consolidated with the Company’s, and the Company’s net income includes all of the Jin Ma Companies net income. There is no non-controlling interest in net income and accordingly, no net income is subtracted in calculating the net income attributable to the Company. Because of the contractual arrangements, the Company has a pecuniary interest in the Jin Ma Companies that requires consolidation of the Jin Ma Companies financial statements with its financial statements.
 
These condensed consolidated financial statements include the financial statements of Gold Horse, its subsidiaries and variable interest entities.  All significant inter-company balances or transactions have been eliminated on consolidation.
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Financial instruments
 
The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of income. For stock-based derivative financial instruments, the Company uses the Black-Scholes-Merton option-pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. As of March 31, 2012 and June 30, 2011, the Company had $42,340 and $84,713, respectively, of warrants liability on the balance sheets.
 
The accounting standard governing financial instruments adopted by the Company on July 1, 2008, defines financial instruments and requires fair value disclosures about those instruments. It defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. Cash and cash equivalents, restricted cash, receivables, payables, loans payable and derivative liability all qualify as financial instruments. Management concluded the carrying amounts of cash and cash equivalents, restricted cash, receivables, payables and loans payables-current portion approximate their fair values because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their stated rates of interest are equivalent to rates currently available.
 
The three levels of valuation hierarchy are defined as follows:
 
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The Company analyzes all financial instruments with features of both liabilities and equity under the FASB’s accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Depending on the product and the terms of the transaction, the fair value of derivative liability was modeled using a series of techniques, including closed-form analytic formula, such as the Black-Scholes option-pricing model.
 
The following table presents a reconciliation of the derivative liability measured at fair value on a recurring basis using significant unobservable input (Level 3) for the nine months ended March 31, 2012:
 
   
Warrant liability
 
Balance at June 30, 2011
  $ 84,713  
Change in fair value included in earnings
    (42,373 )
Balance at March 31, 2012
  $ 42,340  
 
The Company did not identify any other non-recurring assets and liabilities that are required to be presented on the consolidated balance sheets at fair value in accordance with the relevant accounting standards.
 
See Note 10 for more information on these financial instruments.
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Accounts receivable, notes receivable and other receivables
 
The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing receivables. The Company periodically reviews its receivables to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
 
At March 31, 2012 and June 30, 2011, the Company has established, based on a review of its outstanding accounts receivable balances, an allowance for doubtful accounts in the amount of $687,990 and $845,261, respectively, on its total accounts receivable. Management believes that the notes receivable are fully collectable. Therefore, no allowance for doubtful accounts is deemed to be required on its notes receivable at March 31, 2012 and June 30, 2011.
 
Other receivables are primarily related to advances made to various vendors and other parties in the normal course of business and an allowance was established when those parties are deemed to be unlikely to repay the amounts. At March 31, 2012 and June 30, 2011, the Company has established, based on a review of its outstanding other receivables balances, an allowance for doubtful accounts in the amount of $28,513 and $27,871, respectively. At such time as management exhausts all collection efforts, the other receivables balance will be netted against the allowance account. The activities in the allowance for doubtful accounts for accounts receivable and other receivables for the nine months ended March 31, 2012 were as follows:
 
   
Allowance for doubtful accounts for accounts receivable
   
Allowance for doubtful accounts for other receivable
   
Total
 
Balance – June 30, 2011
  $ 845,261     $ 27,871     $ 873,132  
Reduction in allowance
    (175,510 )     -       (175,510 )
Foreign currency translation adjustments
    18,239       642       18,881  
                         
Balance – March 31, 2012
  $ 687,990     $ 28,513     $ 716,503  
 
Inventories
 
Inventories, consisting of consumable goods related to the Company’s hotel operations are stated at the lower of cost or market utilizing the first-in, first-out method.
 
Construction in progress
 
Properties currently under development are accounted for as construction in progress. Construction in progress is recorded at acquisition cost, including land use rights cost, development expenditure, professional fees and the interest expense capitalized during the course of construction for the purpose of financing the project. Upon completion and readiness for use of the project, the cost of construction in progress is to be transferred to an appropriate asset such as real estate held for sale.  Construction in progress is valued at the lower of cost or market. Management evaluates the market value of its properties on a periodic basis for impairment. Construction in progress is classified in the balance sheets as current or non-current based on whether or not the sale of units of respective projects are expected to take place within 12 months of the balance sheets date.  As of March 31, 2012 and June 30, 2011, construction in progress amounted to $26,150,006 and $25,148,978, respectively, and was included in long-term assets.
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Revenue recognition
 
The Company follows the guidance of ASC Topic 605 and Topic 360 for revenue recognition. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The Company incurs business taxes and surcharges in connection with its business and they are included in cost of revenues. The following policies reflect specific criteria for the various revenue streams:
 
Real estate sales which primarily involve the sale of multi-family units and community environments are reported in accordance with the provisions of ASC Topic 360. Generally, profits from the sale of development properties, less 5% business tax, are recognized by the full accrual method when the sale is consummated. A sale is not considered consummated until (1) the parties are bound by the terms of a contract, (2) all consideration has been exchanged, (3) any permanent financing of which the seller is responsible has been arranged, (4) all conditions precedent to closing have been performed, (5) the seller does not have substantial continuing involvement with the property, and (6) the usual risks and rewards of ownership have been transferred to the buyer.
 
In 2007 and 2008, Jin Ma Real Estate entered into agreements to construct new dormitories as follows:
 
(a)  
In November 2007, Jin Ma Real Estate entered into an agreement to construct new dormitories for the Inner Mongolia Electrical Vocational Technical School (the “Vocational School”). Pursuant to the terms of the agreement, Jin Ma Real Estate constructed the buildings and, upon completion, pursuant to a sales-type capital lease, leased the buildings to the Vocational School and will receive payments for a period of 26 years at an amount of RMB4,800,000 or approximately $760,000 per annum. In November 2008, Jin Ma Real Estate completed the construction. Since the agreement did not have a stated interest rate, the Company used an imputed interest rate of 6.12% and are reflecting payments due under the agreement as a note receivable on the accompanying balance sheets. The property sold had an imputed sales value of RMB61,691,138 (approximately $9,764,000). The deferred gain on the sale of the property was approximately $55,000 of which $1,106 and $993 was recognized in the nine months ended March 31, 2012 and 2011, respectively, and nil and nil in the three months ended March 31, 2012 and 2011, respectively, pursuant to the installment method and was reflected in the accompanying statements of income.
 
(b)  
In 2008, Jin Ma Real Estate and Inner Mongolia Chemistry School entered an oral agreement and on September 29, 2009, formalized a written agreement for the construction of student apartments for the Inner Mongolia Chemistry College (the “Chemistry School”) situated in Inner Mongolia University City, a compound where many higher education institutions are located. Jin Ma Construction began developing the 51,037 square-meter project in July 2008 and completed the construction in October 2009. Jin Ma Real Estate leased the buildings to the Chemistry School for a period of 20 years. The annual lease payments are RMB10.62 million (approximately $1.68 million) for five years (from fiscal 2010 to fiscal 2014), and the annual lease payment is RMB5.42 million (approximately $0.86 million) for 15 years (from fiscal 2015 to fiscal 2029). Since the agreement did not have a stated interest rate, the Company used an imputed interest rate of 5.94% and are reflecting payments due under the agreement as a note receivable on the accompanying balance sheets. The property sold had an imputed sales value of RMB84,196,104 (approximately $13 million). The deferred gain on the sale of the property was approximately $4,159,000 of which nil and $100,122 was recognized in the nine months ended March 31, 2012 and 2011, respectively, and nil and $31,935 in the three months ended March 31, 2012 and 2011, respectively, pursuant to the installment method and was reflected in the accompanying statements of income.
 
In accordance with ASC Topic 360, the initial gains from the sales of the Vocational School and Chemistry School were deferred because the minimum initial investment by the buyer was less than the required 20% initial investment expressed as a percentage of the sales value (ASC Topic 360). Therefore the gains are being recognized into income as payments are received using the installment method. The installment method apportions each cash receipt and principal payment by the buyer between cost recovered and profit. The apportionment is in the same ratio as total cost and total profit bear to the sales value. Accordingly, revenues and cost of sales are recognized based on the apportionments, and the Company recognized imputed interest income on the accompanying consolidated statements of income as summarized below.
 
As of March 31, 2012, the remaining deferred gains for Vocational School and Chemistry School leases of $52,029 and $3,509,513, respectively, is reflected as a discount of notes receivable in the accompanying balance sheet. As of June 30, 2011, the remaining deferred gains for Vocational School and Chemistry School leases of $51,946 and $3,430,517, respectively, is reflected as a discount of notes receivable in the accompanying balance sheet. 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.
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Revenue recognition (Continued)
 
The deferred gains were recognized pursuant to the installment method and are reflected in the accompanying consolidated statements of income as follows:
 
 
For the Three Months Ended
 March 31,
 
For the Nine Months Ended
 March 31,
 
 
2012
 
2011
 
2012
 
2011
 
Net revenues
  $ -     $ 102,210     $ 192,429     $ 489,688  
Cost of sales
    -       70,275       191,323       388,573  
Gross profit recognized
  $ -     $ 31,935     $ 1,106     $ 101,115  
 
Jin Ma Real Estate receives annual payments of principal and the related imputed interest from the Vocational School and Chemistry School. During the three and nine months ended March 31, 2012 and 2011, the Company allocated the payments received as follows:
 
   
For the Three Months Ended
 March 31,
   
For the Nine Months Ended
 March 31,
 
   
2012
   
2011
   
2012
   
2011
 
Amount applied to principal balance of notes receivable
  $ -     $ 102,210     $ 192,429     $ 489,688  
                                 
Interest income recognized on consolidated statement of income
    -       54,354       561,980       705,102  
Total payment received
  $ -     $ 156,564     $ 754,409     $ 1,194,790  
 
Revenue from the performance of general contracting, construction management and design-building services is recognized upon completion of the service.
 
Revenue primarily derived from hotel operations, including the rental of rooms and food and beverage sales, is recognized when rooms are occupied and services have been rendered.
 
In accounting for long-term engineering and construction-type contracts, the Company follows the provisions of ASC Topic 605. The Company recognizes revenues using the percentage of completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion. Contract price and cost estimates are reviewed periodically as work progresses and adjustments proportionate to the percentage of completion are reflected in contract revenues and gross profit in the reporting period when such estimates are revised. This method of revenue recognition requires us to prepare estimates of costs to complete contracts in progress. In making such estimates, judgments are required to evaluate contingencies such as potential variances in schedule, the cost of materials and labor, and productivity, and the impact of change orders, liability claims, contract disputes, and achievement of contractual performance standards which may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.
 
The asset, costs and estimated earnings in excess of billings,” represents revenues recognized in excess of amounts billed. The liability, billings in excess of costs and estimated earnings,” represents billings in excess of revenues recognized.
 
Warranty policy

In accordance with ASC Topic 450, the Company estimates liabilities for construction defect, product liability and related warranty claims based on the possible claim amounts resulting from injury or damage caused by construction defects and expected material and labor costs to provide warranty replacement products.  The methodology used in determining the liability is based upon historical information and experience. Based on historical experience, claims made for construction defects and the warranty service calls and any related labor material costs have been minimal. As such, the warranty provision amounts for the three months and nine months ended March 31, 2012 and 2011 were immaterial.
 
 
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 GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Advertising
 
Advertising is expensed as incurred. Advertising expenses for the three months and nine months ended March 31, 2012 and 2011 were deemed not material.
 
Concentrations of credit risk
 
The Company’s operations through the Jin Ma Companies are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all of the Company’s cash is maintained with state-owned banks within the PRC, and no deposits are covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts. A significant portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables are limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.
 
At March 31, 2012 and June 30, 2011, the Company’s bank deposits by geographic area were as follows:
 
   
March 31, 2012
   
June 30, 2011
 
United States
  $ 1,372       0.4 %   $ 1,886       0.8 %
China
    375,314       99.6 %     240,352       99.2 %
    $ 376,686       100.0 %   $ 242,238       100.0 %
 
Net income per common share

The following table presents a reconciliation of basic and diluted net income per common share:
 
   
Three Months Ended
 March 31,
   
Nine Months Ended
 March 31,
 
   
2012
   
2011
   
2012
   
2011
 
Net income used for basic and diluted net income per common share
  $ 780,175     $ 871,433     $ 3,357,820     $ 3,681,528  
Weighted average common shares outstanding - basic
    2,195,033       1,989,459       2,179,623       1,957,237  
Effect of dilutive securities:
                               
Restricted stocks
    677             704        
Unexercised warrants
                      20,757  
Weighted average common shares outstanding - diluted
    2,195,710       1,989,459       2,180,327       1,977,994  
Net income per common share - basic
  $ 0.36     $ 0.44     $ 1.54     $ 1.88  
Net income  per common share - diluted
  $ 0.36     $ 0.44     $ 1.54     $ 1.86  
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Net income per common share (Continued)

The diluted earnings per share calculation for the three and nine months ended March 31, 2012 and 2011 did not include the warrants to purchase up to 204,945 and 204,945 shares of common stock, respectively, because their effect was anti-dilutive.
 
Foreign currency translation and comprehensive income
 
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries and variable interest entities is the RMB. For the subsidiaries and variable interest entities whose functional currencies are the RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue transactions are transacted in the functional currency. The Company does not enter any material transaction in foreign currencies and accordingly, transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
 
Asset and liability accounts at March 31, 2012 and June 30, 2011 were translated at RMB6.3185 to USD1.00 and at RMB6.4640 to USD1.00, respectively. The average translation rates applied to income statements for the nine months ended March 31, 2012 and 2011 were RMB6.3626 and RMB6.6796 to USD1.00, respectively. In accordance with ASC Topic 230, cash flows from the Company’s operations are calculated based upon the local currencies using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
 
Recent accounting pronouncements
 
In May 2011, the FASB issued ASU No. 2011-04 – Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP and IFRSs. The amendments in this update intend to converge requirements for how to measure fair value and for disclosing information about fair value measurements in US GAAP with International Financial Reporting Standards.  For public entities, this ASU is effective for interim and annual periods beginning after December 15, 2011. The adoption of the provisions in ASU 2011-04 did not have a material impact on the Company’s consolidated financial statements.
 
In June 2011, the FASB issued ASU No. 2011-05 – Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The amendments in this update require (i) that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements (the current option to present components of other comprehensive income (“OCI”) as part of the statement of changes in stockholders’ equity is eliminated); and (ii) presentation of reclassification adjustments from OCI to net income on the face of the financial statements. For public entities, the amendments in this ASU are effective for years, and interim periods within those years, beginning after December 15, 2011. The amendments in this update should be applied retrospectively. Early adoption is permitted. The adoption of the provisions in ASU 2011-05 did not have a material impact on the Company’s consolidated financial statements.
 
In September 2011, the FASB issued ASU No. 2011-08 —Intangibles —Goodwill and Other (Topic 350). The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of the provisions in this update did not have a significant impact on the Company’s consolidated financial statements.
 
 
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GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recent accounting pronouncements (Continued)
 
In December 2011, the FASB issued ASU No. 2011-11—Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. The amendments in this update require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of the provisions in ASU 2011-05 will have no material impact on the Company’s consolidated financial statements.
 
In December 2011, the FASB issued ASU No. 2011-12 —Comprehensive Income (Topic 220). The amendments in this update supersede certain pending paragraphs in ASU No. 2011-05, to effectively defer only those changes in ASU No. 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the Board time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements for public, private, and non-profit entities. The amendments in this update are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of the provisions in this update did not have a significant impact on the Company’s consolidated financial statements.
 
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
 
NOTE 2 –RECEIVABLES
 
ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

   
March 31, 2012
   
June 30, 2011
 
Accounts receivable
  $ 17,050,410     $ 8,784,082  
Less: Allowance for doubtful debts
    (687,990 )     (845,261 )
                 
Accounts receivable, net
    16,362,420       7,938,821  
 
 
-15-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 2 –RECEIVABLES (CONTINUED)
 
NOTES RECEIVABLE ON SALES TYPE LEASE
 
Notes receivable, which are attributable to the leasing of the Inner Mongolia Electrical Vocational Technical School (the “Vocational School”) and the Inner Mongolia Chemistry College (the “Chemistry School”) pursuant to a sales-type capital leases, is accounted for using the installment method of accounting as well as original note value. In accordance with ASC Topic 360, a gain was deferred on notes not meeting the minimum initial 20% investment by the buyer expressed as a percentage of the sales value. At March 31, 2012 and June 30, 2011, notes receivable consisted of the following:
 
Due in 12-month periods ending March 31 and June 30, respectively
 
March 31, 2012
   
June 30, 2011
 
2012
  $ 3,409,000     $ 1,689,320  
2013
    2,440,453       2,385,520  
2014
    1,617,473       2,385,520  
2015
    1,617,473       1,581,064  
2016
    1,617,473       1,581,064  
Thereafter
    23,208,038       24,266,708  
Notes receivable - gross
  $ 33,909,910     $ 33,889,196  
Less: discount on notes receivable
    (13,746,699 )     (13,990,435 )
Less: deferred gain on sale
    (3,561,542 )     (3,482,463 )
      16,601,669       16,416,298  
Notes receivable - current portion
    (1,318,691 )     (572,039 )
Notes receivable – non-current portion
  $ 15,282,978     $ 15,844,259  
 
OTHER RECEIVABLES

Others receivables consisted of the following:

   
March 31, 2012
   
June 30, 2011
 
Other receivables
  $ 179,910     $ 142,274  
Less: Allowance for doubtful debts
    (28,513 )     (27,871 )
                 
Other receivables, net
    151,397       114,403  
 

 
-16-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 3 - INVENTORIES
 
At March 31, 2012 and June 30, 2011, inventories consisted of the following:
 
   
March 31, 2012
   
June 30, 2011
 
             
Consumable  goods
  $ 102,969     $ 73,201  
 
NOTE 4 – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS

Costs and estimated earnings in excess of billings at March 31, 2012 and June 30, 2011 consisted of:
 
   
March 31, 2012
   
June 30, 2011
 
Costs incurred on uncompleted contracts
  $ 50,597,012     $ 20,857,673  
Estimated earnings
    11,691,475       4,815,489  
      62,288,487       25,673,162  
Less: billings to date
    (62,221,572 )     (25,542,234 )
    $ 66,915     $ 130,928  

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

   
March 31, 2012
   
June 30, 2011
 
Costs and estimated earnings in excess of billings
  $ 66,915     $ 130,928  
Billings in excess of costs and estimated earnings
    -       -  
      66,915       130,928  
 
NOTE 5 - PROPERTY AND EQUIPMENT

At March 31, 2012 and June 30, 2011, property and equipment consist of the following:

 
Useful Life
 
March 31, 2012
   
June 30, 2011
 
Office equipment
5-8 Years
  $ 629,295     $ 614,001  
Machinery and equipment
5-15 Years
    7,811,873       7,636,033  
Vehicles
10 Years
    563,461       550,778  
Building and building improvements
20 – 50 Years
    4,256,619       4,160,806  
        13,261,248       12,961,618  
Less: accumulated depreciation
      (5,180,450 )     (4,419,608 )
      $ 8,080,798     $ 8,542,010  

Depreciation of property and equipment is provided using the straight-line method. For the three months ended March 31, 2012 and 2011, depreciation expense amounted to $219,983 and $200,224, respectively. For the nine months ended March 31, 2012 and 2011, depreciation expense amounted to $654,500 and $592,661, respectively.
 
 
-17-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 6 – CONSTRUCTION IN PROGRESS
 
At March 31, 2012 and June 30, 2011, construction in progress consists of the following:

   
March 31, 2012
   
June 30, 2011
 
Prepaid land use rights and buildings built for Procuratorate Housing Estates (located in Yuquan District, Hohhot City, Inner Mongolia)
  $ 1,376,277     $ 932,888  
Prepaid land use rights for Wusutu Village land – JinWu project
    2,616,572       2,557,675  
Prepaid land use rights for Fu Xing Ying land – Beiyuan project
    10,287,251       10,055,692  
Prepaid land use rights for East Wusutu Village land for future development (a)
    11,869,906       11,602,723  
    $ 26,150,006     $ 25,148,978  

Construction in progress are classified in the balance sheets as non-current based on that the sale of units of respective projects are expected to take place after 12 months of the balance sheets date.
 
(a) 
During the year ended June 30, 2011, the Company acquired from a local authority a piece of land in East Wusutu Village for a total cash consideration of $11,602,723, which was fully paid before June 30, 2011. As of March 31, 2012, the relevant formalities had not been completed and no land use right certificate had been issued. Management estimated that the relevant formalities will be completed and the land use right certificate will be issued by end of calendar year 2012.
 
NOTE 7 – ACCRUED LIABILITIES

At March 31, 2012 and June 30, 2011, accrued liabilities consist of the following:

   
March 31, 2012
   
June 30, 2011
 
Accrued interest payable
  $ 387,144     $ 331,090  
Accrued payroll and employees benefit
    42,839       62,395  
Others
    43,629       9,645  
    $ 473,612     $ 403,130  
 

 
-18-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 8 – LOANS PAYABLE
 
Loans payable consisted of the following at March 31, 2012 and June 30, 2011:

   
March 31, 2012
   
June 30, 2011
 
             
Loans from various unrelated parties, due in April 2012 with annual  interest of 18% and unsecured
  $ 205,746     $ 201,114  
                 
Loans from various unrelated parties, due and repaid in August 2011 with annual interest of 18% and unsecured
    -       38,676  
                 
Loans from various unrelated parties, due in September 2012 with  annual interest of 18% and unsecured
    126,613       123,762  
                 
Loan from one unrelated individual, due in March 2013 with annual  interest of 24% and unsecured
    158,265       154,703  
                 
Loan from a local bank, due on various dates until June 2014 with annual interest of 16.32%  and secured by assets of Jin Ma Hotel
    4,747,961       4,641,090  
 
    5,238,585       5,159,345  
     Less: current portion
    (648,888 )     (549,196 )
     Loans payable, non-current portion
  $ 4,589,697     $ 4,610,149  

For the three months ended March 31, 2012 and 2011, interest expense related to these loans amounted to $249,439 and $125,722, respectively. For the nine months ended March 31, 2012 and 2011, interest expense related to these loans amounted to $669,351 and $377,728, respectively.

At March 31, 2012, future maturities of loans payable are as follows:

Due in 12-month periods ending March 31,
     
2012 (current liability)
  $ 648,888  
2013
    633,062  
2014
    3,956,635  
    $ 5,238,585  
 
NOTE 9 – RELATED PARTY TRANSACTIONS
 
Due to related parties

From time to time, companies related through common ownership advanced funds to the Company for working capital purposes.  These advances are non interest bearing, unsecured and payable on demand.  At March 31, 2012 and June 30, 2011, due to related parties consisted of the following:

Name
Relationship
 
March 31, 2012
   
June 30, 2011
 
Inner Mongolia Jin Ma Group Ltd and its subsidiaries
Owned by Yang Liankuan
  $ 629,222     $ 13,518  

Other

During the three months ended March 31, 2012 and 2011, the Company paid rent of $14,135 and $13,253 to Inner Mongolia Jin Ma Group Ltd., respectively. During the nine months ended March 31, 2012 and 2011, the Company paid rent of $41,488 and $39,245 to Inner Mongolia Jin Ma Group Ltd., respectively.
 
 
-19-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 10 – DERIVATIVE LIABILITY
 
Under the terms of a Securities Purchase Agreement, on the closing date which occurred on November 30, 2007, the Company issued $2,183,000 principal amount 10% Secured Convertible Debentures to the purchasers together with the common stock purchase warrants to purchase an aggregate of 238,009 shares of the Company’s common stock. The Company paid Next Generation Equity Research, LLC (“Next”), a broker dealer and member of FINRA, a commission of $174,640 and issued Next common stock purchase warrants to purchase an aggregate of 12,692 shares of the Company’s common stock at $20.00 per share. Additionally, the Company reimbursed one of the investors $30,000 to defer its legal fees in connection with the financing. The Company used the balance of the proceeds for general working capital.

During 2009, the exercise price per share of common stock for the original 250,701 warrants issued pursuant to the Securities Purchase Agreement was lowered from $20.00 to $4.00.

On May 14, 2010, the Company entered into a further Debenture and Warrant Amendment Agreement with the remaining debenture holders which, among others, reduced the exercise price of 238,009 warrants to $3.20 per share.

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

The warrants issued to the investors in November 2007 contain reset exercise price provisions.  The exercise price of the warrants does not have fixed settlement provision because it can be lowered if the Company issues securities at lower prices in the future. In accordance with the FASB authoritative guidance, the Company had determined to classify these warrants as derivative liabilities. The reset exercise provisions of the warrants issued to the investors were recorded at their relative fair values at issuance and will continue to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense). These warrants will continue to be reported as a liability until such time when they are exercised or expire. The common stock purchase warrants do not trade in an active securities market, and as such, the Company estimates the fair value of the warrants as of March 31, 2012 and June 30, 2011 using a probability-weighted Black-Scholes-Merton option-pricing model using the following assumptions:
 
   
March 31, 2012
   
June 30, 2011
 
Warrants:
           
Risk-free interest rate
    0.19 %     0.19 %
Expected volatility
    156.68 %     147.73 %
Expected life
 
0.67 years
   
1.42 years
 
Expected dividend yield
    -       -  
                 
Fair Value:
  $ 42,340     $ 84,713  

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

As of March 31, 2012 and June 30, 2011, the outstanding warrants related to the convertible debentures were 196,195. At March 31, 2012 and June 30, 2011, the Company recorded a derivative liability of $42,340 and $84,713, respectively, related to the warrants. For the three months ended March 31, 2012 and 2011, gains from the change in fair value of derivative liabilities were $10,154 and $304,837, respectively. For the nine months ended March 31, 2012 and 2011, gains from the change in fair value of derivative liabilities were $42,373 and $461,929, respectively. For the three and nine months ended March 31, 2012 and 2011, no gain or loss from the extinguishment of derivative liabilities was earned or incurred as no warrants were exercised.
 
 
-20-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 11 – INCOME TAXES
 
The Company accounts for income taxes under ASC Topic 740. ASC Topic 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statements and the tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax losses and tax credit carryforwards.  ASC Topic 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Realization of deferred tax assets, including those related to the U.S. net operating loss carryforwards, are dependent upon future earnings, if any, of which the timing and amount are uncertain. Accordingly, the net deferred tax asset related to the U.S. net operating loss carryforward has been fully offset by a valuation allowance. The Company is governed by the Income Tax Law of the PRC and the United States.

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

At March 31, 2012 and June 30, 2011, taxes payable (prepaid) are as follows:
 
   
March 31, 2012
   
June 30, 2011
 
Income taxes payable
  $ 255,367     $ (34,636 )
Other taxes payable
               
- land appreciation tax
    113,643       111,085  
- business tax
    172,443       9,755  
- others
    148,325       28,571  
    $ 689,778     $ 114,775  

As of March 31, 2012 and June 30, 2011, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the three and nine months ended March 31, 2012 and 2011, and no provision for interest and penalties is deemed necessary as of March 31, 2012 and June 30, 2011.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.
 
NOTE 12 – STOCKHOLDERS’ EQUITY

Common stock

During the three months and the nine months ended March 31, 2012, the Company issued nil and a total of 22,727 shares of its common stock to the Company's ex-CFO for the services rendered by him. The shares were valued at $0.55 per share based on the fair value on the date of grant. In connection with the issuance of these shares, the Company reduced accrued expenses of $12,501.

Restricted shares granted to CFO

On July 1, 2011, the Company entered into an employment agreement with Mr. Li Xiaodong, who was later appointed as the Company’s CFO effective September 30, 2011. Pursuant to the terms of the employment agreement, the Company granted to Mr. Li $22,500 worth of restricted shares (the “Restricted Shares”) of the Company’s common stock subject to the vesting schedule therein. Up to March 31, 2012, the Company issued 14,062 Restricted Shares to the CFO.

The Restricted Shares will be vested in accordance with the share price as of the pay day:

-  
$5,625 worth of Restricted Shares to be vested on July 1, 2011;
-  
$5,625 worth of Restricted Shares to be vested on October 1, 2011;
-  
$5,625 worth of Restricted Shares to be vested on January 1, 2012; and
-  
$5,625 worth of Restricted Shares to be vested on April 1, 2012.
 
 
-21-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 12 – STOCKHOLDERS’ EQUITY (CONTINUED)

The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date. No compensation cost is recognized for instruments that are forfeited by the Company because a service condition or a performance condition is not satisfied.

Accordingly, the Company recognized compensation expense of nil and $11,250 related to the restricted shares granted to Mr. Li for the three and nine months ended March 31, 2012, respectively, based on the estimated grant-date fair value of the Company’s common stock of $0.8.

Warrants

On August 18, 2010, the Company entered into a six-month consulting agreement with Rodman & Renshaw, LLC (“Rodman”) for financial advisor services.  In connection with the consulting agreement, the Company issued to Rodman warrants to purchase 8,750 shares on the Company’s common stock at a price per share of $6.00.  The warrants are exercisable at any time in whole or in part during the four year period commencing one year from the date of this agreement.  The Company valued these warrants utilizing the Black-Scholes options pricing model using the following assumptions at approximately $3.56 per warrant or $31,188 in total and recorded this as stock-based professional fees.
 
Warrants:
 
At grant date
 
      Risk-free interest rate
    0.18 %
      Expected volatility
    175.4 %
      Expected life
 
5 years
 
      Expected dividend yield
    -  
         
Fair Value:
  $ 31,188  

Warrant activities for the nine months ended March 31, 2012 are summarized as follows:

   
Number of Warrants
   
Weighted Average
 Exercise Price
 
Balance at June 30, 2011
    204,945     $ 3.37  
Granted
    -       -  
Exercised
    -       -  
Forfeited
    -       -  
Balance at March 31, 2012
    204,945     $ 3.37  
                 
Warrants exercisable at March 31, 2012
    204,945     $ 3.37  

The following table summarizes the Company's stock warrants outstanding at March 31, 2012:

Warrants Outstanding
 
Warrants Exercisable
 
Range of Exercise Price
   
Number Outstanding at March 31, 2012
   
Weighted Average Exercise Price
   
 
Aggregate Intrinsic Value (1)
 
Weighted Average Remaining Contractual Life
 
Number
Exercisable at
March 31, 2012
   
Weighted Average Exercise Price
 
$ 3.20       183,503     $ 3.20     $ -  
0.67 Years
    183,503     $ 3.20  
$ 4.00       12,692     $ 4.00     $ -  
0.67 Years
    12,692     $ 4.00  
$ 6.00       8,750     $ 6.00     $ -  
3.38 Years
    8,750     $ 6.00  
          204,945     $ 3.37     $ -  
0.78 Years
    204,945     $ 3.37  

(1)
The intrinsic value of warrants at March 31, 2012 is zero since the market value of the Company’s common stock of $1.00 as of March 31, 2012 is lower than the exercise price of the warrants.
 

 
-22-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 13 – SEGMENT INFORMATION

ASC Topic 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. During the nine months ended March 31, 2012 and 2011, the Company operated in three reportable business segments - (1) the Construction segment (2) Hotel segment and (3) Real estate development segment. The Company's reportable segments are strategic business units that offer different products. The Company's reportable segments, although integral to the success of the others, offer distinctly different products and services and require different types of management focus. As such, these segments are managed separately.

Condensed information with respect to these reportable business segments for the three and nine months ended March 31, 2012 and 2011 is as follows:

   
For the Three Months Ended March 31,
   
For the Nine Months Ended March 31,
 
   
2012
   
2011
   
2012
   
2011
 
Revenues:
                       
Construction
  $ 10,183,420     $ 7,994,860     $ 35,777,658     $ 32,986,009  
Real Estate
    612,507       739,027       1,658,044       2,304,502  
Hotel
    -       193,661       192,429       907,030  
      10,795,927       8,927,548       37,628,131       36,197,541  
Depreciation:
                               
Construction
    123,228       117,830       366,631       348,700  
Real Estate
    11,832       11,232       35,204       33,239  
Hotel
    84,923       71,162       252,665       210,722  
      219,983       200,224       654,500       592,661  
Interest expense:
                               
Construction
    249,439       125,722       669,351       377,728  
Net income (loss):
                               
Construction
    797,862       595,024       2,942,405       2,947,949  
Real Estate
    (69,246     29,842       270,513       512,437  
Hotel
    44,353       48,806       153,189       265,704  
Other (a)
    7,206       197,761       (8,287 )     (44,562 )
    $ 780,175     $ 871,433     $ 3,357,820     $ 3,681,528  

   
March 31, 2012
   
June 30, 2011
 
Identifiable long-lived tangible assets
           
   Construction
  $ 5,958,758     $ 6,184,382  
   Real Estate
    293,189       321,241  
   Hotel
    1,828,851       2,036,387  
    $ 8,080,798     $ 8,542,010  
                 
Construction in progress
               
Real Estate
  $  26,150,006     $
25,148,978
 

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

 
-23-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 14 - STATUTORY RESERVES

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve, statutory public welfare fund and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after tax net income determined in accordance with the PRC GAAP until the reserve reaches 50% of the entities’ registered capital or members’ equity. For the nine months ended March 31, 2012, statutory reserve activity is as follows:

   
Statutory Reserve
 
Balance – June 30, 2011
  $ 3,066,583  
Addition to statutory reserves
    49,437  
Balance – March 31, 2012
  $ 3,116,020  
 
NOTE 15 – MAJOR CUSTOMERS AND VENDORS

The nature of the Company’s construction segment is that at any given time, the Company will have a concentration of significant customers depending upon the number and scope of construction projects. These significant customers may not be the same from period to period depending upon the percentage of completion of the specific projects. For the three months ended March 31, 2012, three construction projects accounted for 93.9% of the Company’s total revenues. For the three months ended March 31, 2011, two construction projects accounted for 88.4% of the Company’s total revenues.

For the nine months ended March 31, 2012, four construction projects accounted for 95.0% of the Company’s total revenues. For the nine months ended March 31, 2011, three construction projects accounted for 91.1% of the Company’s total revenues.

Major customers are summarized as follows:
 
Project Name   For the Three Months Ended March 31, 2012     %     For the Three Months Ended March 31, 2011     %  
Haitianshengdi project   $
6,064,765
     
56.2
       -        -  
Xinyuan residential project
   
3,118,606
     
28.9
     
-
     
-
 
Fuhengyuan residential No.   1 – No. 19 project
   
950,998
     
8.8
     
2,995,806
     
33.6
 
Tiantixingyuan No. 1 - No. 7 project
   
-
     
-
     
4,894,300
     
54.8
 

Project Name
 
For the Nine Months Ended March 31, 2012
   
%
   
For the Nine Months Ended March 31, 2011
   
%
 
                         
Fuhengyuan residential No. 1 - No. 19 project
  $ 10,831,365       28.8     $ 5,791,319       16.0  
Tiantixingyuan No. 1 - No. 7 project
    10,817,844       28.7       11,223,429       31.0  
Haitianshengdi project
    8,462,271       22.5       -       -  
Xinyuan residential project
    5,662,966       15.0       -       -  
Jianhe Garden residential project
    -       -       15,973,782       44.1  
 
At March 31, 2012, the Company had $15,580,755 of accounts receivable due from its major customers listed above.

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.
 
 
-24-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 16 – RESTRICTED NET ASSETS

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

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

The following condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. Refer to the consolidated financial statements and notes presented above for additional information and disclosures with respect to these financial statements.
 
GOLD HORSE INTERNATIONAL, INC.
CONDENSED PARENT COMPANY BALANCE SHEETS (UNAUDITED)
 
   
As of March 31,
   
As of June 30,
 
   
2012
   
2011
 
ASSETS
           
    Cash and cash equivalents
  $ 1,372     $ 1,886  
    Prepaid expenses
    58       1,000  
        Total Current Assets
    1,430       2,886  
    Investments in subsidiaries at equity
    54,329,370       49,776,712  
    Due from subsidiaries
    695,056       749,638  
     Total Assets
  $ 55,025,856     $ 50,529,236  
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current liabilities:
               
  Accounts payable
  $ 12,875     $ 21,171  
  Derivative liabilities
    42,340       84,713  
  Accrued liabilities
    -       20,833  
        Total Current Liabilities
    55,215       126,717  
Stockholders' equity:
               
Common stock ($0.0001 par value; 300,000,000 shares
authorized; 2,195,033 and 2,158,244 shares issued and outstanding at March 31, 2012 and June 30, 2011, respectively)
    220       216  
    Additional paid-in capital
    7,488,664       7,464,917  
    Non-controlling interest in variable interest entities
    7,642,344       7,642,344  
    Retained earnings
    30,651,780       27,343,397  
    Statutory reserve
    3,116,020       3,066,583  
    Other comprehensive income
    6,071,613       4,885,062  
        Total Stockholders' Equity
    54,970,641       50,402,519  
        Total Liabilities and Stockholders' Equity
  $ 55,025,856     $ 50,529,236  

 
 
-25-

 
 
GOLD HORSE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
 
NOTE 16 – RESTRICTED NET ASSETS (CONTINUED)

GOLD HORSE INTERNATIONAL, INC.
 
CONDENSED PARENT COMPANY STATEMENTS OF INCOME (UNAUDITED)
 
             
   
For the Three Months Ended
March 31,
   
For the Nine Months Ended
 March 31,
 
   
2012
   
2011
   
2012
   
2011
 
REVENUES
  $ -     $ -     $ -     $ -  
OPERATING EXPENSES:
                               
     Salaries and employee benefits
    -       72,422       36,250       217,633  
     General and administrative
    2,948       34,654       14,410       288,858  
        Total Operating Expenses
    2,948       107,076       50,660       506,491  
                                 
LOSS FROM OPERATIONS
    (2,948 )     (107,076 )     (50,660 )     (506,491 )
OTHER INCOME:
                               
Gain on change in fair value of derivative liabilities
    10,154       304,837       42,373       461,929  
                                 
INCOME (LOSS) ATTRIBUTABLE TO PARENT ONLY
    7,206       197,761       (8,287 )     (44,562 )
                                 
EQUITY INCOME EARNINGS OF SUBSIDIARIES
    772,969       673,672       3,366,107       3,726,090  
                                 
NET INCOME
  $ 780,175     $ 871,433     $ 3,357,820     $ 3,681,528  
 
 
GOLD HORSE INTERNATIONAL, INC.
 
CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS (UNAUDITED)