Gold Horse Intl Inc (OTC BB:GHII)

Update:

This morning, we have put Gold Horse International back on our watch list. The company provided some revenue and gross profit figures based on new construction projects valued at RMB 301.8 million ($44.2 million) with an expected gross profit of RMB 60.3 million ($8.8 million).

Concerns Still Remain

• The nature of Gold Horse's business can result in lumpy quarters.
• Fiscal first quarter 2010 financials were not impressive.
• $8.8 million is still below 2009 gross profit levels of $12.4 million.
• It appears that these projects will not impact fiscal 2010 financials.
• Fully diluted shares outstanding are be above our 50 million threshold.
• Liquidity issues may exist:

"Other than our existing cash we presently have no other alternative source of working capital. We have no operations other than the Contractual Arrangements with the Jin Ma Companies and, accordingly, we are dependent upon the quarterly service fees due us to or for the receipt of working capital from the Jin Ma Companies to provide cash to pay our operating expenses. To date, no quarterly service fees have been tendered to us and those funds are being retained by the Jin Ma Companies to fund their operations. At September 30, 2009 we were owed approximately $15.1 million in service fees, which such amount remains outstanding as of the date of this report.

In addition, we transferred $1,800,000 of the net proceeds from the November 2007 sale of the 10% secured convertible debentures to the Jin Ma Companies in the form of an unsecured, interest free advance for use by the Jin Ma Companies in their operations and to fund their registered capital requirements under PRC wholly-owned foreign enterprise rules. Jin Ma Companies repaid us approximately $921,000 of the amounts advanced to that company from July 2009 to September 2009. The rest of that amount remains outstanding and we do not have an understanding with the Jin Ma Companies regarding the repayment of the remainder."

We will code GHII as low tier GeoSpecial at $0.10 as we dissect this story a little more.  Investors may conclude that the risk reward trade off is worth the risk. (We had briefly placed GHII on the GeoSpecial list in October of 2009).

Guidance Report:

For fiscal year 2009, Gold Horse affirms its net revenue guidance, based on the number of construction projects underway for the fourth quarter of 2009.

'Although the current business environment remains challenging and unpredictable, we believe the stimulus package introduced by the Chinese government will play an important role in creating favorable long term benefits for our construction business,' commented Mr. Yang. 'We are actively bidding on several projects that meet our profitability requirements in the Inner Mongolia region, and look forward to securing some of them in the months ahead.'

Full Year Fiscal 2009 Guidance Ending June

The company has not provided EPS guidance.

Source: See Release, May 20, 2009

Guidance Report:

Full Year Fiscal 2009 Guidance Ending June

The company has not provided EPS guidance.

For fiscal year 2009, Gold Horse expects to generate combined revenue of approximately $90.0 million from its construction, hotel management and real estate development operations. The construction division is expected to generate the majority of revenue in fiscal 2009 due to the number of construction projects in progress and management's strategy to selectively bid on profitable projects. The hotel management segment is expected to remain consistent with fiscal 2008. For the real estate segment, continued interest rate cuts and the Chinese central government's commitment to offer more affordable property in its effort to weather the current global financial crisis should stimulate the real estate sector over time. Currently the Company expects to receive annual payments from projects built by Gold Horse and sold to educational institutions.

 "We see many potential business opportunities for our construction business, especially given the Chinese government's recent allocation of RMB 4 trillion to encourage affordable housing, rural development and infrastructure projects in response to the current global financial crisis. In addition, the Chinese government continues to foster the real estate market by lowering interest rates," commented Mr. Yang. "While the near term impact of these measures is not clear, we believe they provide favorable long term benefits for our construction and real estate development businesses," added Mr. Yang.

Source: PR Newswire (February 18, 2009)