Gold Horse Intl (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).