U.S. SECURITIES AND
EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [ X ]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended
        June 30, 2006 [     ]
     TRANSITION REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No.
0-23015 GREAT CHINA
INTERNATIONAL HOLDINGS, INC.(Exact name of small business issuer as specified in its
charter) Nevada
     
     87-0450232(State or Other Jurisdiction of
        Incorporation or Organization)
     
     (IRS Employer Identification No.)  C Site 25-26F
Presidential Building, No. 69 Heping North StreetHeping District,
Shenyang 110003, Peoples Republic of China(Address of Principal Executive Offices)  0086-24-22813888
(Issuers telephone number)  Not Applicable
(Former name, address and fiscal year, if changed since last report)  Check whether the issuer (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [    ] Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  Yes [    ] No [ X ] State the number of shares
outstanding of each of the issuers classes of common equity: As of June 30, 2006, there were 11,782,036 shares of common stock outstanding. Transitional Small
Business Format:  Yes [    ]  No [ X ]




FORM 10-QSBGREAT CHINA INTERNATIONAL HOLDINGS, INC. INDEX PagePART I.
     Item 1.  Financial Information
     3Condensed Consolidated Balance Sheet as of June 30, 2006 (Unaudited)
     3Condensed Consolidated Statements of Operations for the Six MonthsEnded June 30, 2006 and 2005 (Unaudited)
     5Condensed Consolidated Statements of Operations for the Three MonthsEnded June 30, 2006 and 2005 (Unaudited)
     6Condensed Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2005 and
        Six Months Ended June 30, 2006 (Unaudited)
     7Condensed Consolidated Statements of Cash Flows for the Six MonthsEnded June 30, 2006 and 2005 (Unaudited)
     8Notes to the Unaudited Condensed Consolidated Financial Statements
     9Item 2.  Managements Discussion and Analysis orPlan of Operation
     21Item 3.  Controls and Procedures
     26PART II.
     Other Information
     17Item 6.  Exhibits
     27Signatures
     28 2




GREAT CHINA INTERNATIONAL
HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE
SHEETJUNE 30, 2006(UNAUDITED) ASSETS Current assets:Cash and equivalents
     $1,120,994Accounts receivableTrade, net of allowance of $1,123,290
     1,074,677Advances to suppliers
     1,133,501Advances to employees
     88,949Properties held for resale
     11,944,161Loans receivable
     190,844Prepaid expenses
     1,108Loan costs, net of amortization of $388,356
     361,644Total current assets
     15,915,878Property and equipment:Land and buildings
     48,691,338Motor vehicles
     699,547Office furniture and equipment
     255,40449,646,289Less accumulated depreciation
     (5,819,078
        )43,827,211Construction in progress
     74,209,506Total assets
     $133,952,595  See accompanying notes to the condensed consolidated financial statements. 3




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                        CONDENSED CONSOLIDATED BALANCE SHEET
                                                   JUNE 30, 2006(UNAUDITED) LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities:Accounts payable and accrued expenses
     $11,247,904Deposits held
     843,074Advances from buyers
     3,215,122Amounts due to related companies
     58,946,346Taxes payable
     422,988Short-term loans
     55,642,750Current portion of long-term debt
     424,778Total current liabilities
     130,742,962Long term debt, net of current portion shown above
     2,210,889Total liabilities
     132,953,851Stockholders' equity:Common stock,  $.001 par value 50,000,000 shares authorized,11,782,036 issued and outstanding at June 30, 2006
     11,783Additonal paid in capital
     4,406,348Retained earnings
     (3,685,343
        )Accumulated other comprehensive income
     265,956Total stockholders equity before advances offset
     998,744Total liabilities and stockholders equity
     $133,952,595 See accompanying notes to the condensed consolidated financial statements. 4




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005(UNAUDITED) 2006
     
     2005(Restated)RevenuesSales
        
        
     $
        4,525,578
        
     
     $
        7,412,532Rental and management fee income
     2,557,353
        
     
     2,802,027Total revenues
     7,082,931
        
     
     10,214,559ExpensesCost of properties sold
     4,048,801
        
     
     6,845,792Operating and selling expenses
     60,218
        
     
     132,934Administrative expenses
     2,226,801
        
     
     733,189Depreciation and amortization
     1,126,853
        
     
     759,735Total expenses
     7,462,673
        
     
     8,471,650(Loss) from operations
     (379,742
        )
     
     1,742,909Other income (expense)Other income
     95,149
        
     
     7,852Interest and finance costs
     (2,213,443
        )
     
     (1,927,369
        )Total other income (expense)
     (2,118,294
        )
     
     (1,919,517
        )Income before income taxes
     (2,498,036
        )
     
     (176,608
        )Provision for income taxes
     --
        
     
     --Net (loss)
     (2,498,036
        )
     
     (176,608
        )Other comprehensive income (loss):Foreign currency translation adjustment
     66,217
        
     
     --Total comprehensive income (loss)
     $(2,431,819
        )
     
     $(176,608
        )Basic and diluted net income (loss) per common share
     $(0.22
        )
     
     $(0.02
        )Weighted average basic and diluted shares outstanding
     11,268,609
        
     
     10,557,406 See accompanying notes to the condensed consolidated financial statements. 5




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005(UNAUDITED) 2006
     
     2005(Restated)RevenuesSales
     $3,168,334
        
     
     $7,412,532Rental income
     1,231,527
        
     
     1,651,510Total revenues
     4,399,861
        
     
     9,064,042ExpensesCost of properties sold
     2,318,876
        
     
     6,237,207Operating and selling expenses
     20,368
        
     
     21,617Administrative expenses
     1,457,164
        
     
     452,533Depreciation and amortization
     640,556
        
     
     480,154Total expenses
     4,436,964
        
     
     7,191,511Income (loss) from operations
     (37,103
        )
     
     1,872,531Other income (expense)Other income
     (23,117
        )
     
     5,655Gain on disposal of fixed assets
     --
        
     
     --Interest and finance costs
     (882,266
        )
     
     (885,320
        )Total other income (expense)
     (905,383
        )
     
     (879,665
        )Income (loss) before income taxes
     (942,486
        )
     
     992,866Provision for income taxes
     --
        
     
     --Net income (loss)
     (942,486
        )
     
     992,866Other comprehensive income (loss):Foreign currency translation adjustment
     8,425
        
     
     --Total comprehensive income (loss)
     $(934,061
        )
     
     $992,866Basic and diluted net income (loss) per common share
     $(0.08
        )
     
     $0.09Weighted average basic and diluted shares outstanding
     11,439,751
        
     
     10,557,406 See accompanying notes to the condensed consolidated financial statements. 6




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                              STATEMENTS OF CONDENSED CONSOLIDATED STOCKHOLDERS' EQUITY
                     FOR THE YEAR ENDED DECEMBER 31, 2005 AND THE SIX MONTHS ENDED JUNE 30, 2006(UNAUDITED) Common Stock
     Additonal
     AccumulatedOther Comprehensive
     Retained
     
     TotalShareholdersShares
     
     Amount
     
     Paid in Capital
     
     Income
     
     Deficit
     
     EquityBalance, December 31, 2005 (Restated)
     
     
     
        11,097,466
        

    
     $
        11,098
        

     
     
        1,550,878
        

     
     $
        199,739
        

     
     
        (1,187,307
        )

     
     $
        574,408Employee stock options
     --
        
     
     --
        
     
     377,875
        
     
     --
        
     
     --
        
     
     377,875Net income for the six months endedJune 30, 2006
     --
        
     
     --
        
     
     --
        
     
     --
        
     
     (2,498,036
        )
     
     (2,498,036
        )Additional share issued at premium
     684,570
        
     
     685
        
     
     2,777,595
        
     
     --
        
     
     --
        
     
     2,778,280Share issuance costs
     --
        
     
     --
        
     
     (300,000
        )
     
     --
        
     
     --
        
     
     (300,000
        )Other comprehensive income:Change in exchange rate fluctuation reserve
     --
        
     
     --
        
     
     --
        
     
     66,217
        
     
     --
        
     
     66,21711,782,036
        
     
     $11,783
        
     
     $4,406,348
        
     
     $265,956
        
     
     $(3,685,343
        )
     
     $998,744 See accompanying notes to the condensed consolidated financial statements. 7




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (UNAUDITED) 2006
     
     2005(Restated)Cash flows from operating activities:Net (loss)
     $(2,498,036
        )
     
     $(176,608
        )Adjustments to reconcile net loss to operating activities -Depreciation and amortization
     1,126,853
        
     
     759,735Foreign currency translation adjustment
     66,217
        
     
     --Gain on disposal of fixed assets
     (103,043
        )
     
     --Non-cash stock compensation expense
     377,875
        
     
     --Changes in assets and liabilites:(Increase) decrease in -Accounts receivable and other receivable
     (831,050
        )
     
     1,373,025Advances to suppliers
     (771,533
        )
     
     (297,619
        )Refunds due from contractors
     3,536,692
        
     
     --Prepaid expenses
     1,322,280
        
     
     --Accounts payable and other payables
     148,660
        
     
     (471,489
        )Advances from buyers
     397,566
        
     
     (354,826
        )Properties held for resale
     2,621,976
        
     
     7,175,381Restricted cash
     482,548
        
     
     796,338Income and other taxes payable
     (231,781
        )
     
     (284,805
        )Net cash provided by operating activities
     5,645,224
        
     
     8,519,132Cash flows from investing activities:Construction in progress
     (71,303,978
        )
     
     --Purchases of fixed assets
     (587,846
        )
     
     (1,157,447
        )Sales of fixed assets
     198,511
        
     
     --Net cash (used in) investing activities
     (71,693,313
        )
     
     (1,157,447
        )Cash flows from financing activities:Loan repayments
     (6,285,860
        )
     
     (1,672,776
        )Advances from (to) directors and affiliated companies
     60,079,856
        
     
     (3,966,668
        )Proceeds from stock issuance, net of offering costs
     2,478,280
        
     
     --Net cash provided by (used in) financing activities
     56,272,276
        
     
     (5,639,444
        )Net increase (decrease) in cash and cash equivalents
     (9,775,813
        )
     
     1,722,241Cash and cash equivalents, beginning of period
     10,896,807
        
     
     819,441Cash and cash equivalents, end of period
     $1,120,994
        
     
     $2,541,682Supplemental disclosures of Cash Flow information:Interest paid, net of capitalized amounts
     $1,090,277
        
     
     $809,242Income taxes paid
     $249,262
        
     
     $99,186 See accompanying notes to the condensed consolidated financial statements. 8




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 1.     Description of business Nature of organization Great  China  International
 Holdings,  Inc.,  (the  Company  ) was  incorporated  in the State of Nevada on
     December  4, 1987,  under the name of Quantus  Capital,  Inc.,  and in 1992,  it
changed its name to Red Horse      Entertainment  Corporation.  Effective July 5, 2005,
 the Company  completed the  acquisition of  Silverstrand      International  Holdings
 Limited  (Silverstrand),   a  Hong  Kong  limited  liability  company,  by  issuing
     10,102,333  shares of its common voting stock to the former  stockholders  of
Silverstrand in exchange for all      of the capital  stock of  Silverstrand.  For
financial  reporting  purposes the  acquisition  was treated as a      recapitalization
 of  Silverstrand.  On  September  15,  2005,  the  Company  changed  its name to Great
China      International Holdings,  Inc. Prior to its acquisition of Silverstrand,  the
Company was not engaged in active      business operations. Silverstrand  was  incorporated  on
September  30, 2004 in Hong Kong  Special  Administrative  Region,  in the      Peoples
 Republic of China with an authorized  capital of $12,820,513  divided in 100 million
ordinary shares      of par value $0.12 per share. During  October  of  2004,
 Silverstrand  acquired  all  of  the  outstanding  capital  of  Shenyang  Maryland
     International  Industry Co.,  Limited  (Shenyang  Maryland) for  $5,000,000,
 payable to its former owners as      follows: 
Jiang
Fang as to $4,350,000; 
Jiang Peng as to $500,000; and, 
Pay $50,000 to
each of Dang Jing Shi, Li Guang Hua and Wang Li Rong  This transaction was treated as a
recapitalization  of Shenyang Maryland for financial  reporting purposes and      the
excess purchase was treated as dividends to shareholders. On  November  23, 2004 the  Ministry
of Commerce  and  Business  Registration  issued a business  registration
     certificate approving Shenyang Maryland reclassification to a wholly owned foreign
enterprise. Pursuant to several  agreements
 dated  December 8, 2005 and  December  28,  2005,  the  Company,  through its
     subsidiaries,  agreed to acquire in 2006 a 100% interest in the land use rights for
the Xita  Project.  First,      pursuant to a sale and purchase agreement dated December
8, 2005,  subsequently  amended on December 28, 2005,      the Company  agreed to
 acquire,  through  Shenyang  Maryland,  70 percent of the equity  interest in Shenyang
     Xinchao   Development  Co.  Limited   (Xinchao),   a  Sino-Foreign  joint  venture
  corporation  that  owns      approximately  66  percent of the land use rights of the
Xita  Project,  from  Shenyang  Yunfeng  Real  Estate      Development Co., Limited  (Yunfeng).
 The Company agreed to acquire the remaining 30 percent equity interest      in Xinchao
through  Silverstrand from Sapphire  Corporation  Limited (formerly:  I.R.E.  Corporation
 Limited)      (Sapphire), an unrelated Singapore corporation, pursuant an agreement
dated December 28, 2005. The  remaining  approximately  34%
 interest  in the land use rights of the Xita  Project is held by  Shenyang      Yindu
Property Co.,  Limited  (Yindu),  also a  Sino-Foreign  joint  venture.  Pursuant to
agreements  dated      December 28, 2005,  Shenyang  Maryland  agreed to acquire a 70
percent  interest in Yindu from  Yungfeng,  and      Silverstrand  agreed to  acquire a
30%  interest  in Yindu  from  Sapphire.  Following  the  closing  of these
     transactions,  which is expected to occur in the fourth  quarter of 2006,  the
Company will hold,  through its      subsidiaries, 100 percent interest in the land use
rights comprising the Xita Project. 9




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Shenyang
 Xin Chao  Property  Company  Limited  (Xinchao)  was  registered  on August 16, 2005
in  Shenyang,      Liaoning   Province,   in  the  Peoples   Republic  of  China  with
 a  registered   capital  of  $12,330,456      (Rmb.100,000,000)  and a defined  period
of existence  of 11 years to August 15, 2016.  Xin Chao was formed to      develop  a
 certain  tract of  property  located  in the  Heping  District  of  Shenyang,  and will
 feature a      construction  area of almost  500,000  square meters with a linear site
area of  approximately  101,000 square      meters. Shenyang
 Yindu Property  Company  Limited  (Yindu) was registered on August 16, 2005 in
Shenyang,  Liaoning      Province,  in the Peoples Republic of China with a registered
 capital of $6,615,228  (Rmb.50,000,000)  and a      defined  period of existence of 11
years to August 15,  2016.  Xin Chao was formed to develop a certain  tract      of
property located in Xi Ta district of Shenyang, China. Shenyang
Jitian Property Company Limited  (Jitian) was registered on February 22, 2006 in
Shenyang  Liaoning      Province,  in the Peoples  Republic of China  (PRC) with a
registered  capital of $616,523  (Rmb.5,000,000)      and a defined period of existence
of 15 years to February 22, 2021. On March 7, 2006,  the registered  capital
     increased to $20,000,000  from $616,523.  Jitian was formed to develop a certain
tract of property  located in      Chessboard Mountain Tourism Development District of
Shenyang, China. The
 Company  engages  in the  development  and  sale of  high  quality  private  residential
 properties  and      commercial  buildings for lease in the City of Shenyang,  China.
 Shenyang  Maryland,  the Companys  indirect      wholly-owned  subsidiary,  was one of
the first  private  property  developers  and  retailers in China,  and,      according
to the statistical  information on sales of construction  area as published by Shenyang
 Statistical      Authority,  Shenyang  Maryland was the ninth largest private property
 developer in Shenyang City in 2004. For      the three months ended June 30, 2006,  the
proceeds  from the sales of  properties  constituted  72 percent of      the total
revenue,  with the remaining  revenue  consisting  primarily of rental income.  For the
three months      ended June 30, 2005,  the proceeds from the sales of properties
 constituted  82 percent of the total revenue,      with the remaining  revenues
 consisting  primarily of rental  income.  As of June 30, 2006, 76 percent of the
     available units had been sold and 17 percent were leased. 2.     Going concern The
Company was in default on  $35,642,750 of bank loans and  $20,000,000 of additional
 current bank loans as      of June 30, 2006 (Note 8). As a result the Company also had a
working  capital  deficit of  $114,827,084 as of      June 30,  2006.  The  Companys
 ability  to  continue  as a going  concern  is  dependent  on the  ability to
     renegotiate  an extension of the bank debt  maturities and to obtain a profitable
 level of operations.  These      issues  raise  doubts  about the  Companys  ability to
 continue  as a going  concern.  Management  is in the      process of negotiating a
settlement of these  delinquent  notes and it is also in the process of attempting to
     raise additional capital through debt and equity offerings. The
financial  statements do not give effect to any  adjustments  which would be necessary
 should the Company      be unable to continue as a going  concern and  therefore be
required to realize its assets and  discharge  its      liabilities  in the normal course
of business at amounts  different  from those  reflected in these  financial
     statements. 10




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 3.     Summary of
significant accounting policies The
financial  statements are prepared in accordance  with  accounting  principles  generally
 accepted in the      United States of America and the following is a summary of
significant accounting policies: Consolidation
policy All significant inter-company transactions and balances within the
Company are eliminated in consolidation. Cash
and equivalents The Company considers all highly liquid debt instruments
purchased with maturity period of three months or less to be cash equivalents.
The carrying amounts reported in the accompanying consolidated balance sheet
for cash and cash equivalents approximate their fair value. Substantially all of
the Companys cash is held as bank deposits in the PRC and is not protected by
FDIC or any other form of deposit insurance or guaranteed repayment. Accounts
receivable Provision is made against accounts receivable to the extent which they
are considered to be doubtful. Accounts receivable in the balance sheet is
stated net of such provision. As of June 30, 2006, the provision for doubtful
debts amounted to $1,123,290. Intangible
assets Intangible assets represent land use rights in the Peoples Republic of
China and are stated at costs or valuation less accumulated amortization.
Amortization is calculated on a straight-line basis to write off the cost over
the lease term of the land use rights. Related
companies A related company is a company in which a director has a beneficial
interest in and in which the Company has significant influence. Advances
from Buyers Advances from buyers represents prepayments from buyers on properties on
which sales revenues have not yet been recognized for financial reporting purposes. Properties
held for sale Properties held for sale are comprised of properties held
for sale and repossessed properties held for resale and are stated at the lower
of cost or net realizable value. Cost includes acquisition costs of land use
rights, development expenditures, interest costs and any overhead costs incurred
in bringing the developed properties to their present location and condition. Net
realizable value is determined by reference to management estimates based on
prevailing market conditions. Management evaluates the market value of its
properties on an annual basis by comparing selling prices of its properties
with those of other equivalent properties in the vicinity offered by other developers. Management
 reduces the estimated market value by anticipated  selling expenses and associated taxes
to derive      the net realizable value. Property
and equipment Property and equipment is being depreciated over the estimated useful
lives of the related assets. Depreciation is computed on the straight-line
basis for both financial and income tax reporting purposes over useful lives as
follows: Building and land use rights
     8-26 yearsLeasehold improvements
     20 yearsEquipment
     5 yearsMotor vehicles
     5 yearsOffice furniture and fixtures
     5 years Depreciation
 expense  for the three and six months  periods  ended June 30, 2006 and 2005  totaled
 $640,556,      $480,154, $1,126,853 and $759,735 respectively. 11




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Repairs
and  maintenance  costs are normally  charged to the statement of operations in the year
in which they      are incurred.  In situations  where it can be clearly  demonstrated
 that the  expenditure  has resulted in an      increase in the future economic  benefits
 expected to be obtained from the use of the asset,  the expenditure      is capitalized
as an additional cost of the asset. Property
and equipment are evaluated  annually for any impairment in value.  Where the
 recoverable  amount of      any property and equipment is determined to have declined
below its carrying  amount,  the carrying  amount is      reduced to reflect the decline
in value.  There were no property and equipment  impairments  recognized during      the
three and six month periods ended June 30, 2006. As
of June 30, 2006 fixed assets  totaling  $30,601,686  have been pledged as  securities
 to various banks in      respect of borrowings totaling $55,643,759 and mortgage loans
of $2,635,667. 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 expenses capitalized during the course of construction
for the purpose of financing the project. Upon completion and readiness for use of
the project, the cost of construction-in-progress is to be transferred to properties
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  quarterly  basis by  comparing  selling  prices of its
 properties  with those of other      equivalent  properties in the vicinity  offered by
other developers  reduced by anticipated  selling costs and      associated taxes. In the
case of construction in progress,  management takes into  consideration the estimated
     cost to complete the project when making the lower of cost or market calculation. Income
Recognition Revenue from the sale of properties is recognized when the following
four criteria are met: (1) a sale is consummated (2) the buyers initial and
continuing investments are adequate to demonstrate a commitment to pay for the
property, (3) the sellers receivable is not subject to future subordination and
(4) the seller has transferred to the buyer the usual risks and rewards of
ownership in a transaction that is in substance a sale and does not have a
substantial continuing involvement with the property. Rental
and building  management  income comprises rental and building  management income from
Qiyun New Garden      and President Building. Rental income is recognized on an accrual
basis. Interest
income is recognized when earned,  taking into account the average principal amounts
 outstanding and      the interest rates applicable. Cost
of sales The cost of sales includes the carrying amount of the properties being sold
and the business taxes paid by the Company in connection with the sales.
Business taxes included in cost of sales were $228,697, $467,870, $398,796,
and $550,287 for the three and six month periods ended June 30, 2006 and 2005,
respectively. Foreign
currencies The Companys principal country of operations is in The Peoples Republic of
China. The financial position and results of operations of the Company are determined
using the local currency (Renminbi or Yuan) as the functional currency. The
results of operations denominated in foreign currency are translated at the average
rate of exchange during the reporting period. Assets
and  liabilities  denominated  in foreign  currencies at the balance  sheet date are
 translated at the      market rate of exchange  ruling at that date.  The  registered
 equity  capital  denominated in the functional      currency  is  translated  at the
 historical  rate of  exchange  at the  time  of  capital  contribution. 12




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements All
     translation  adjustments  resulting  from the  translation  of the  financial
 statements  into the  reporting      currency (US Dollars) are dealt with as an
exchange fluctuation reserve in shareholders equity. Historically
 the local  currencys  exchange  rate had been  unofficially  tied to the US Dollar at a
rate of      approximately  8.28 Yuan per US  Dollar.  Effective  July 21,  2005,  the
Yuan was  revalued  to an  effective      exchange  rate of  approximately  8.11 Yuan per
US Dollar.  Subsequent  to the  revaluation  the Yuan has been      allowed to float
within a specified range. As of June 30, 2006 the exchange rate was 8.01 Yuan per US
Dollar. Taxation Taxation on overseas profits has been calculated on the estimated assessable profits
for the year at the rates of taxation prevailing in the countries in which the
Company operates. Provision for The Peoples Republic of China enterprise
income tax is calculated at the prevailing rate based on the estimated assessable
profits less available tax relief for losses brought forward. Enterprise
income taxUnder the Provisional Regulations of The Peoples Republic of China
Concerning Income Tax on Enterprises promulgated by the State Council and which
came into effect on January 1, 1994, income tax is payable by enterprises at a
rate of 33% of their taxable income. Preferential tax treatment may, however, be
granted pursuant to any law or regulations from time to time promulgated by the
State Council. Enterprise
income tax (EIT) is provided on the basis of the statutory profit for financial
reporting purposes, adjusted for income and expense items, which are not
assessable or deductible for income tax purposes. Value
added taxThe Provisional Regulations of The Peoples Republic of China
Concerning Value Added Tax promulgated by the State Council came into effect on
January 1, 1994. Under these regulations and the Implementing Rules of the
Provisional Regulations of the PRC Concerning Value Added Tax, value added tax
is imposed on goods sold in or imported into the PRC and on processing, repair and
replacement services provided within the PRC. Value
added tax payable in The Peoples  Republic of China is charged on an aggregated  basis
at a rate of 13%      or 17%  (depending  on the type of goods  involved) on the full
price  collected for the goods sold or, in the      case of taxable  services  provided,
 at a rate of 17% on the charges for the taxable services  provided,  but      excluding,
 in respect of both goods and  services,  any amount paid in respect of value added tax
included in      the price or charges,  and less any  deductible  value added tax already
 paid by the taxpayer on purchases of      goods and services in the same financial year. United
States income taxGreat China International Holdings, Inc., the U.S. holding
company, does not accrue income taxes on foreign earnings as there is no
intention at the current time to transfer any of these earnings to the holding
company. Should earnings be transferred to the U.S. holding company, they
would be subject to U.S. Corporate income taxes at rates approximating 40%. Deferred
taxes Deferred taxes are accounted for at the current tax rate in respect of timing
differences between profit as computed for taxation purposes and profit as
stated in the accounts to the extent that a liability or asset is expected to be
payable or receivable in the foreseeable future. 13




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Earnings
Per Share Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average number
of common shares and dilutive potential common shares outstanding during the period. As
of June 30, 2006, there were no outstanding securities or other contracts to issue common
stock, such as      options, warrants or conversion rights, which would have a dilutive
effect on earnings per share as the      effect of options outstanding at that time was
anti- dilutive. Fair
value of financial instruments The carrying amounts of certain financial instruments,
including cash, accounts receivable, commercial notes receivable, other
receivables, accounts payable, commercial notes payable, accrued expenses, and
other payables approximate their fair values as at June 30, 2006, because of the
relatively short-term maturity of these instruments. Use
of estimates The preparation of financial statements in accordance with generally
accepted accounting principles require management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Stock
based compensation In December 2004, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123(R),
Share-Based Payment. SFAS 123(R) replaces SFAS No. 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board(APB)
Opinion No. 25, Accounting for Stock Issued to Employees. Effective January 1,
2006, the Company adopted Statement of Financial Accounting Standard No. 123(R),
Share-Based Payment, (SFAS No. 123(R)), using the modified prospective
transition method. SFAS No. 123(R) requires equity-classified share-based payments to
employees, including grants of employee stock options, to be valued at fair
value on the date of grant and to be expensed over the applicable vesting
period. Under the modified prospective transition method, share-based awards
granted or modified on or after January 1, 2006, are recognized in compensation
expense over the applicable vesting period. Also, any previously granted
awards that are not fully vested as of January 1, 2006 are recognized as
compensation expense over the remaining vesting period. No retroactive or
cumulative effect adjustments were required upon The Companys adoption of SFAS No.
123(R). Prior
to adopting SFAS No. 123(R),  The Company accounted for its fixed-plan  employee stock
options using the      intrinsic-value  based method  prescribed by Accounting
 Principles Board Opinion No. 25, Accounting for Stock      Issued to Employees,  (APB
No. 25) and related  interpretations.  This method required  compensation expense
     to be recorded on the date of grant only if the current  market  price of the
 underlying  stock  exceeded the      exercise price. Had the Company elected the fair
value  provisions of SFAS No. 123(R),  The Companys 2005 net      earnings  and net
 earnings  per share  would not have  differed  from the  amounts  actually  reported  as
no      share-based payments were made during this period. As
a result of adopting SFAS No. 123(R) on January 1, 2006,  the Company  recognized
 additional  compensation      expense for the three and six-month  periods ended June
30, 2006 of $197,564 and $377,875 respectively.  These      charges  increased  loss per
share  for the  three and six  months  ended  June 30,  2006 by $0.02 and  $0.03,
     respectively. Prior
to the adoption of SFAS No.  123(R),  The Company  presented  all tax benefits of
 deductions  resulting      from the exercise of stock options as operating  cash inflows
in the statement of cash flows.  SFAS No. 123(R)      requires the cash inflows resulting
from tax deductions in excess of the compensation  expense  recognized for      those
stock options  (excess tax benefits) to be classified as 14




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements financing
 cash inflows.  The Company did not      report any excess tax benefits as financing cash
inflows for the three and six months ended June 30, 2006. The
fair value of each option  award is estimated  on the date of grant using a Black  Sholes
 option  pricing      model that uses the  assumptions  noted in the table below.
 Because  Black  Sholes  option  valuation  models      incorporate ranges of assumptions
for inputs, those ranges are disclosed.  Expected  volatilities are based on      implied
 volatilities  from traded  options on the  Companys  stock,  historical  volatility of
the Companys      stock,  and other  factors.  The  Company  uses  historical  data to
estimate  option  exercise  and  employee      termination  within the valuation model;
 separate groups of employees that have similar  historical  exercise      behavior are
considered  separately for valuation  purposes.  The expected term of options  granted is
derived      from the output of the option  valuation  model and  represents  the period
of time that  options  granted are      expected  to be  outstanding;  the range given
below  results  from  certain  groups of  employees  exhibiting      different  behavior.
 The risk-free rate for periods within the contractual life of the option is based on the
     U.S. Treasury yield curve in effect at the time of grant. Expected volatility
     25%Weighted-average volatility
     25%Expected dividends
     0%Expected term (in years)
     1toRisk-free rate
     4.5% A
summary of option activity under the Plan as of June 30, 2006, and changes during the six
months then      ended is presented below: Options
     Shares
     Weighted-AverageExercisePrice
     Weighted-AverageRemainingContractualTerm
     AggregateIntrinsicValueOutstanding at January 1, 2006
     
     
     
        --
        
     
        --Granted
     827,844
        
     $6.09Exercised
     --
        
     $0.00Forfeited or expired
     --
        
     $0.00Outstanding at June 30, 2006
     827,844
        
     $6.09
        
     6.92
        
     $1,224,041Exercisable at June 30, 2006
     163,568
        
     $6.00
        
     5.75
        
     $216,052  A
summary of the status of the Companys  nonvested  shares as of June 30, 2006,  and
changes during the six months then ended, is presented below: 15




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Nonvested Shares
     Shares
     Weighted-AverageGrant DateFair ValueNonvested at January 1, 2006
     
     
     
        --
        
     $
        --Granted
     827,844
        
     $1.10Vested
     (163,568
        )
     $1.32Forfeited
     (--)
        
     $--Nonvested at June 20, 2006
     664,276
        
     $1.59 Unrecognized
compensation expense as of June 30, 2006 related to outstanding stock options was
$846,167. On
March 3, 2006 the Company issued to its management options to purchase
 817,844 shares of its      common  stock at a purchase  price of $6.00 per share.  The
options  vest in five equal  increments  beginning      with the  date of  issuance  in
 March  2006  and the  following  four  anniversary  dates.  The  options  are
     exercisable over a term of five years from the date of vesting. On
May 18, 2006 the Company issued to its Chief  Financial  Officer  options to purchase
 10,000 shares of its      common stock at a purchase  price of $11.00 per share.  The
options  vest  immediately  upon  issuance and are      exercisable over the one year
period from the date of issuance. Recent
accounting pronouncements  SFAS 151, SFAS 152, SFAS 153 and SFAS 154 SFAS No. 151,
Inventory Costs - an amendment of ARB No. 4 and SFAS No. 152, Accounting for
Real Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66
and 67, SFAS No. 153, Exchange of Non-monetary Assets - an amendment of APB
Opinion No. 29 and SFAS No. 154, Accounting Changes and Error Corrections - a
replacement of APB No. 20 and SFAS 3 were recently issued. SFAS No. 123(R), 151,
152, and 153 have no current applicability to the Company and have no effect on
the consolidated financial statements. SFAS
154 Accounting  Changes and Error  Corrections calls in part for (1) the cumulative
effect o correction      of an error on  periods  prior to those  presented  to be
 reflected  in the  carrying  amounts  of assets and      liabilities as of the beginning
of the first period presented (2) An offsetting  adjustment,  if any, shall be      made
to the  opening  balance of  retained  earnings  for that period and (3)  financial
 statements  for each      individual prior period presented shall be adjusted to reflect
 correction of the  period-specific  effects of      the error.  During the current
 period,  two major  errors were  detected,  the effect of which will be rolled      back
to the appropriate  reporting  period in accordance with the  requirements of this SFAS.
See Note --- for      further details Corrections
of Errors Two significant errors were identified during the quarter ended June 30,
2006, both of which will be recorded as adjustments to the appropriate prior
accounting periods as required by SFAS 154. 16




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements The
 first  error  involved  the  inaccurate   estimation  of  construction  costs  on
 previously   completed      construction projects.  Construction costs were
underestimated by $9,653,828 as detailed below: Peacock Garden
     
     
     $
        170,121Chenglong Garden
     1,564,231President Building
     7,919,476Total
     $9,653,828 Of
this  balance  $2,565,718  represented  additional  cost on units  which  had  previously
 been  sold,  and      $2,446,610  of which  was on units  sold in  prior  fiscal  years.
 In  addition,  the  remaining  balance  of      $7,088,110  should have been
 capitalized,  resulting in the  understatement  of  depreciation  expense in the
     amount of $745,157 of which $594,041 was related to periods prior to January 1, 2006. The
 second  error  was the  recording  of  common  area  costs on the  President  Building
 in the  amount of      $2,640,066 in properties held for resale rather than  allocating
the costs to the usable space.  Correction of      this error  resulted  in a charge
 against  prior  years  earnings in the amount of  $432,492  and  increased
     depreciation expense in the current year of $52,210. The
 cumulative  effect of the  correction  of the above two errors was a reduction  in
earnings of  $200,809,      $182,352,  $322,434,  and  $273,057  for the  three  and six
 month  periods  ended  June  30,  2006  and 2005      respectively.  Basic and diluted
loss per share was  increased by $0.02,  $0.02,  $0.03,  and $0.03 during the      three
and six months periods ended June 30, 2006 and 2005, respectively. Retained
 earnings as of  December  31, 2005 was reduced by  $3,473,143  related to the
 corrections  of these      prior errors. These
 changes  had no effect on income  taxes as the  Company  had  losses  during  the three
and six  months      periods  ended June 30, 2006 and 2005 and due to net  operating
 loss  carryforwards.  As of June 30, 2006 the      Company had a net deferred asset of
approximately  $1,000,000  related to net operating loss  carryforwards of
     Enterprise  Income  Taxes in the PRC as of June 30,  2006.  This  deferred  tax
 asset was  subject  to a 100%      valuation allowance at June 30, 2006. The
Company is in the process of amending  the December  31, 2005 Form 10 K-SB , the
 September  30, 2005 Form 10-QSB,  the March  31,  2006  Forms 10 Q-SB and the Form
 8-K/A  dated  September  30,  2005 to  reflect  the      correction of these errors
retrospectively. Reclassifications Certain amounts in the 2005 financial statements have been reclassified to conform
to the 2006 presentation. 4.     Concentrations
of business and credit risk Substantially
 all of the  Companys  bank accounts are in banks located in the PRC and are not covered
by any      type of protection similar to that provided by the FDIC on funds held in U.S.
banks.      The Company  provides  credit to buyers of the  developed  properties if
requested and approved by the Company      in the normal  course of business.  The
Company  performs  ongoing  credit  evaluations  of its  customers and      clients and
 maintains  allowances  for  doubtful  accounts  based on factors  surrounding  the
credit risk of      specific  customers and clients,  historical  trends,  and other
 information.  Accounts  receivable  totaling      $701,997 as of June 30, 2006, were
collateralized by real estate. Substantially
all of the Company's fixed assets and operations are located in the Peoples Republic of
China. Substantially
all of the Company's profits are generated from operations in mainland China. 17




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Payments
of dividends may be subject to government restrictions. 5.     Cash and
equivalents At
June 30,  2006 the  Company  held no  restricted  cash  balances.  Pledged  bank
 deposits,  which  are now      unrestricted,  bear  interest  at 0.06% per  month and in
 accordance  with the  terms and  conditions  of the      banking  facilities  agreed
with banks to provide  mortgage loan facilities to buyers of properties  developed
     by the Company,  the Company  agreed to place  guarantee fund deposits of not less
than 5% to 10% of the total      outstanding  mortgage  loans  extended to property
 buyers and to  guarantee  the  repayments  of the mortgage      loans,  As of June 30,
2006,  the bank had released  the Company  from its loan  guarantees,  and the formerly
     restricted funds have been transferred to an unrestricted bank account at the same
bank. Substantially
 all of the Companys cash is held in financial  institutions  in China and are not
protected by      FDIC insurance or any other form of guaranteed payment. 6.     Properties
held for resale Properties
held for resale at June 30, 2006 by project is as follows: June 30, 2006Qiyun New Village
     
     
     $
        2,112,069Peacock Garden
     305,551Chenglong Garden
     8,504,346President Building
     646,416Maryland Building
     229,050Others
     146,729Total
     $11,944,161 As
of June 30, 2006 the carrying values of stock of properties of $11,604,201 have been
pledged as security      for the Companys bank loans and mortgage loans. 7.     Amounts due
from/(to) directors and related parties The
amounts due from/(to) directors and related parties at June 30, 2006 are as follows: June 30, 2006Amounts due from/(to) directorsFrank Jiang Fang
     
     
     $
     (4,727,717
     )Wang Li Rong
        
        
     
        75(4,727,642
        )Amounts due from/(to) related companiesLiaoning Maryland Concrete Co. Limited
        
        
     
        (54,256,825
        )Shenyang Maryland Technology Co., Limited
        
        
     
        38,121(54,218,704
        )Amounts due from/(to) related parties, net
        
        
     $
        (58,946,346
        ) Amounts
due from/(to) related companies are unsecured, and have no fixed repayment terms. 18




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Subsequent
to June 30, 2006, the Company reimbursed Liaoning Maryland Concrete Co., Limited (Maryland
     Concrete) $2,063,670 for interest and loan costs associated with Maryland Concretes
cost of obtaining bank      financing used to make this advance.  This cost was accrued
in interest payable at June 30, 2006 and the      offset was capitalized to construction
costs as these funds were used to acquire land use rights to the      Chessboard project.
 During July 2006, the Company obtained bank financing and repaid this advance from
     Maryland Concrete. 8.     Short-term
loans June 30, 2006Loans from Banks  delinquent
     
     
     $
        13,924,000Loans from bank  due within 12 months
        
        
     
        20,000,000Bank loans purchased by asset management company
     21,718,750Total current notes payable
     55,642,750 At
June 30,  2006,  all bank  loans and those  purchased  by the asset  management  company
 were  treated  as      short-term  because all bank loans have  matured and
 negotiations,  while  ongoing,  are not settled as to an      extension of the due dates
of the bank loans. The
delinquent notes had due dates ranging from May of 2003 to December of 2005. On
June 22, 2006 the Company  entered into a settlement  agreement  with a bank with respect
to  $7,812,500 of      past due notes.  In  accordance  with the terms of this
 settlement  agreement,  $2,812,500  in principal  was      repaid  prior  to  June  30,
 2006  and the  balance  of the  note is to be  repaid  in four  equal  quarterly
     installments  of  $1,250,000  with the final  payment due on June 30, 2007.  If the
Company makes all payments      on a timely basis,  the bank has agreed to waive
 $1,125,000 in past due interest.  The Company will recognize      the benefit of this
interest waiver once it has complied with all of terms of the settlement agreement. There
have been  numerous  instances  of events of defaults  arising  from the  non-payment  of
 interest  and      principal in accordance with the terms of the loan  agreements  with
two of the banks.  No definitive  demands      have been made by the banks to foreclose
on the secured  borrowings.  The Company is still in discussions with      the banks to
approve an  extension  of the terms and tenure of the secured  and  unsecured  loans.
 Management      expects that the bank negotiations will result in an extension to bank
debt maturities. The
Company has not accrued any interest on the loans  acquired by the asset  management
 company  since March      21, 2005 as the asset  management  company has agreed to waive
interest on these acquired loans  subsequent to      that date. Interest
is accruing on all other past due loans at rates  ranging  from  6.0535% to 7.533%,  the
rates called      for in the original loan agreements. Substantially
all of these loans were  collateralized,  however, a significant  portion of the
properties held      as collateral were subsequently sold by the Company with the consent
of the secured lender. 19




Great China International Holdings, Inc.
June 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 9.     Long-term
debts  secured June 30, 2006Long term debts:Mortgage loans
        
        
     $
        2,635,667Less: Current portion of long-term debts
     (424,778
        )Long-term debts
     $2,210,889 Maturities
of long-term  debt  including  mortgage  loans for each of the next five years and
thereafter are as     follows: Amount2007
     
     
     $
        424,7782008
     424,7782009
     412,0652010
     291,2032011
     291,203Thereafter
     791,640$2,635,667 10.   Commitments As
of June 30, 2006 the Company had  $88,190,533  in  commitments  for capital  expenditures
 for  contractual      agreements on the construction  projects and $24,325,000 in
commitments for funding the registered  capital of      its subsidiaries. 20




Item 2.     
     Managements Discussion and Analysis or Plan of Operation (1)   Caution Regarding
Forward-Looking Information The
 following  Management  Discussion  and  Analysis  should  be read in  conjunction  with
our  consolidated      financial  statements  prepared in accordance with  accounting
 principles  generally  accepted in USA. Unless      otherwise  indicated,  references
 in  this  discussion  to  we,our  and  us  are  to
 the  Great  China      International Holdings, Inc and its subsidiaries. Any
statements in this discussion that are not historical  facts are  forward-looking
 statements that involve      risks and uncertainties;  actual results may differ from
the forward-looking statements.  Sentences or phrases      that use such words as
"believes,"  "anticipates,"  "plans,"  "may,"  "hopes,"  "can," "will,"  "expects," "is
     designed  to," "with the  intent,"  "potential"  and others  indicate
 forward-looking  statements,  but their      absence  does not mean that a  statement
 is not  forward-looking.  Factors  that could  have a  material  and      adverse
 impact on actual  results are described in the Company's  annual report on Form 10-KSB
filed with the      Securities and Exchange  Commission under the heading "Risk Factors."
The Company  undertakes no obligation to      publicly  release  the  results  of any
 revisions  to these  forward-looking  statements  that may be made to      reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. (2)   Executive Summary Great
China  International  Holdings,  Inc.,  (the  Company)  is a  comprehensive
 real estate  company with      principal activities in real estate investment,
 development,  sales and management.  The Company conducts all      its operation in the
Peoples  Republic of China through various wholly owned  subsidiaries,  whether
directly      or indirectly,  Shenyang  Maryland  International  Industry Company
Limited,  Shenyang Jitian Property Company      Limited,  Shenyang Yindu Property Company
Limited,  Shenyang Xinchao Property Company Limited and Silverstrand      International
Holdings Company Limited. Prior
to June 30, 2006,  Shenyang Maryland  International  Industry Company Limited  (Maryland)
has been the      principal operating company and until 2005 owned five real estate
projects. The
President Building comprises three blocks of commercial towers located in the financial
 district,  Heping      Street,  of Shenyang City.  While the original  intention was to
sell the buildings,  management  subsequently      decided to retain most of the
 properties for leasing  purposes.  The buildings have a 97% occupancy rate with
     tenants who are mostly  international  companies,  25 of them are Fortune 500
 companies.  The Companys  head      office is situated on the 25/F and 26/F of the
President Building. Chenglong
Garden,  situated in Shenyang Huanggu District,  comprises 12 blocks of modern
apartments,  a number      of retail shops and ancillary facilities including basement
car parking facilities and parks. Qiyun
New Village is situated along the Nanyun  Riverside and consists of 347 residential
 units,  among which      314 units have been sold, and 2,186 square meters of commercial
units. Peacock
 Garden is situated in Heping North Street,  the  commercial  district of Shenyang.
 Construction  was      completed in November 2000 and Peacock Garden  comprises 197
low-density  residential  apartments of which 191      have been sold. 21




The
Maryland  Building  consists of 12,858 square meters of commercial space among which
11,310 have been sold      and other remaining 1,548 square meters are held for leasing
purposes. Shenyang
 Jitian Property  Company  Limited  (Jitian) was established on February 22,
2006 for a new project      development,  Chessboard  Mountain  Residential  project.  On
February 27, 2006,  Jitian was  confirmed as the      highest bidder in a public auction
for a residential  development  project located in the Chessboard  Mountain
     International  Tourism Development  District in Shenyang City. The total purchase
price for the 420,317 square      meters  land use rights was  approximately  $56.7
 million.  On May 12,  2006,  bank  financing  was  obtained      through a related third
party.  On May 16, 2006,  Jitian  obtained  Planning  Approval from the relevant local
     authority for the project with a total  construction area of approximately  891,840
square meters (9.6 million      square  feet).  On May 28, 2006,  construction  approval
 from the relevant  local  authority  was obtained by      Jitian  after  which  it
 obtained  all  necessary  documents  to  start  construction.   On  June  28,  2006,
     construction  began on the  Chessboard  Mountain  Residential  project to be known
as Galaxy  Bay.  Subject to      approvals  from  relevant  local  authority,  the
 Company  intends  to  pursue  pre-sale  of the  residential      properties before the
end of 2006. Effective
July 3, 2006,  Jitian entered into a loan agreement with the Shenyang City  Commercial
 Bank whereby      the Bank agreed to provide a loan of up to RMB 550,000,000,  or
approximately  $68.7 million to Jitian for the      purpose of acquiring the land use
right for the  Chessboard  Mountain  Project.  The Loan Agreement has a term      of
three years,  and any amounts  advanced  thereunder bear interest at a rate of 6.633% per
annum and must be      repaid by the end of the term of the Loan Agreement.  Under the
Loan Agreement,  the Bank is entitled,  in the      event of certain  events of default
 enumerated  therein,  to adjust the Loan amount under the agreement or to      cancel
 the  agreement  and  declare  any  amounts  advanced  thereunder  due  and  owing.
 Shenyang  Maryland      International  Industry Co.,  Ltd., a subsidiary of the Company,
 has agreed to guarantee all amounts owing by      Jitian under the Loan  Agreement,  and
Jitian has mortgaged its title to the Chessboard  Mountain  property to      the Bank as
security  for  performance  of its  obligations  under the Loan  Agreement.  As part of
the Banks      terms and  conditions  and in further  consideration  for the
 extension  of the Loan,  Jitian  entered into a      Creditors  Right  Transfer
 Agreement with Hainan Hexing  Industry Co.,  Limited,  an unrelated  third party,
     whereby Jitian,  in exchange for the payment of RMB100 million  (approximately
 $12.5 million) out of proceeds      of the Loan,  agreed to purchase certain  creditors
 rights of Hexing to another  unrelated  entity,  Shenyang      Night Musical Palace. Shenyang
 Xinchao  Property  Company  Limited  (Xinchao)  was established in August
16, 2005 for a mixed-use      development,  later called the Xita Urban  Reconstruction
 Project.  The Xita project  occupies  83,071 square      meters of land with an
estimated  construction  area of 350,000  square meters.  As of June 30, 2006,  Xinchao
     holds 70% equity interest in the Xita Project and Shenyang Yindu Property Company
Limited  (Yindu),  another      subsidiary  of the  Company,  holds  the
other  30%.  A  preliminary  plan of the Xita  project  area has been      submitted to
the district  government for approval.  Because the plan was highly  appraised by the
government,      Xinchao  and Yindu  managed to  negotiate  an  expansion  of the total
 development  area to about  double the      original  size.  Since the  government  has
been  following  a detailed  review  process  on this  substantial      project,  Xinchao
 and Yindu  expect the final plan to be approved  before the end of 2006.  Xinchao and
Yindu      are in  negotiations  with a partner  for a joint  venture to  develop  this
 project.  The  condition  of the      partnership  will be  based  on the  ability  of
the  partner  to  provide  all  necessary  financing  for the      development.  Xinchao
and Yindu have not  reached any  agreement  on the joint  venture and cannot  predict at
     this time whether an acceptable arrangement will be reached or the timing of any
such agreement. 22




(3)   Results of Operations Comparison
of operations for the three months ended June 30, 2006 with the three months ended June
30, 2005: The
Company had a  $1,935,352  or 195%  decrease in earnings to a loss of  $(934,061)  during
the three months      ended June 30, 2006 from a net income of $992,866 for the
comparable  period in 2005.  Components of sales and      expenses resulting in this
increase in net loss are discussed below. Sales
 revenues  decreased by $4,244,198 or 57%  quarter-on-quarter  to $3,168,334  for the
quarter ended June      30, 2006 compared to the same  corresponding  quarter in 2005 of
$7,412,532.  Rental and management fee income      decreased by $419,983 or 25% to
 $1,231,527  during the three months ended June 30, 2006 from  $1,651,510  for      the
comparable period in 2005.  These charges are mainly attributable to: 
Significant decrease in sales of Chenglong Garden by $4,412,413 or 79%; 
Decrease in rental  income  primarily  due to a decrease in rental rates on a large  restaurant  tenant in
the President Building; 
Decreases in sales of Qiyun New Village by $133,732 or 7%; 
Decreases in gross floor area sold by 8,637 square  meters  quarter-on-quarter  to 5,465 square meters for
the quarter ended June 30, 2006 compared to 14,102 square meters in 2005; 
The number of units  sold  decreased  by 49 units or 64%  quarter-on-quarter  to 27 units for the  quarter
ended June 30, 2006 compared to 76 units in 2005; 
Increases in building management fee income by $61,621 or 19%; 
Increase in sales of Peacock Garden by $301,947; and, 
No new development projects were introduced during 2006. Cost
of  properties  sold  decreased  by  $3,918,331  or 63% during the three  months  ended
June 30,  2006 as      compared  to the  corresponding  period in 2005.  This was
 primarily  attributable  to a 61%  decrease in the      gross floor area sold as
described above. Operating
and selling expenses remained relatively constant being $20,368 for the three months
ended June      30, 2006 as compared to $21,617 for the three months ended June 30, 2005. General
and  administrative  expenses  increased  by $1,004,631 or 222% to  $1,457,164  during the
three months      ended  compared to $452,533 for the three months ended June 30, 2005.
 The increase is due primarily  related      to an increase in  consultation  fees of
$206,742,  an increase in property  tax of $112,832,  an increase in      listing fee
expenses of $64,996,  an increase in insurance expenses of $15,913, an increase in travel
expense      of $52,266 and recognition of $197,564 in compensation expense related to
stock options issued to management. Depreciation
 expense  increased by $159,402 or 33% to $640,556 for the quarter ended June 30, 2006,
 compared      to $480,154 for the  corresponding  period in 2005 due primarily to the
decision to rent  additional  units in      the President Building which had previously
been held for resale. Interest
and  financing  costs  remained  relatively  constant at $882,266 for the three months
ended June 30,      2006 as compared to  $885,320  for the three  months  ended June 30,
 2005.  Excluded  from  interest  expense      during the three  months  ended June 30,
 2006 is  $2,063,670  in finance  charges  reimbursable  to  Liaoning      Maryland
 Concrete  Co.,  Limited  (Maryland  Concrete)  related to the  acquisition
 of land  rights on the      Chessboard   project.   These  charges  were  capitalized
 to  construction  in  progress.   No  interest  was      capitalized during the
comparable period of 2005. 23




Comparison
of operations for the six months ended June 30, 2006 with the six months ended June 30,
2005: The
Company had a $2,321,428  increase in net loss to  $(2,498,036)  during the six months
ended June 30, 2006      from a net loss of $(176,608) for the comparable  period in
2005.  Components of sales and expenses  resulting      in this increase in net loss are
discussed below. Sales
 revenues  decreased by $2,886,954 or 39%  period-on-period  to $4,525,578 for the six
months ended June      30, 2006 compared to the same  corresponding  period in 2005 of
 $7,412,532.  Rental and management fee income      decreased by $244,674 or 9% to
$2,557,353  for the six months ended June 30, 2006  compared to $2,802,027  for      the
comparable period in 2005.  These changes were mainly attributable to: 
Significant decrease in sales of Chenglong Garden by $3,186,733 or 57%; 
Decrease in rental income  primarily due to decrease in rental rates on a large  restaurant  tenant in the
President Building; 
Decreases in sales of Qiyun new Village by $2,168 or 0.1%; 
Decreases  in gross floor area sold by 6,815 square  meters  period-on-period  to 7,287 square  meters for
the half-year ended June 30, 2006 compared to 14,102 square meters in 2005; 
The number of units  sold  decreased  by 42 units or 55%  period-on-period  to 34 units for the  half-year
ended June 30, 2006 compared to 76 units in 2005; 
Increases in building management fee income by $112,352 or 17% period-on-period; and, 
Increase in sales of Peacock Garden by $301,947; 
No new development projects were introduced during 2006. Cost
of  properties  sold  decreased by $2,796,991 or 41%  period-on-period  to $4,048,801
 for the six months      ended  June 30,  2006  compared  to the same  corresponding
 period  in 2005 of  $6,845,792.  Period-on-period      decreases in gross floor area
sold of 48% as noted above was the primary factor contributing to the decrease. Operating
and selling expenses  decreased by $72,716 or 54% to $60,218 for the six months ended
June 30, 2006      compared to $132,934 for the  comparable  period in 2005.  This
 decrease was due  primarily to reduced sales      activities during 2006. Administrative
 expense  increased by $1,493,612  or 197% to  $2,226,801  during the six months ended
June 30,      2006 from  $733,189  during the same period in 2005.  The increase is due
 primarily  related to an increase in consulting fees of $240,836,  an increase in
property tax of $228,960,  an increase in listing fee expenses of      $136,642, and
$377,875 in compensation expense related to stock options granted to officers of the
Company. Depreciation
 increased by $367,118 or 48%  period-on-period  to $1,126,853  for the six months ended
June 30,      2006  compared to the same  corresponding  period in 2005 of $759,735  and
was due to the transfer of units in      the President  Building from inventory of
properties  held for sale to properties  held for rental and subject      to depreciation
for the six months ended June 30, 2006. Interest
and  financing  costs  increased by $286,074 or 15% to  $2,213,443  for the six months
ended June 30,      2006,  compared to  $1,927,369  for the  corresponding  period in
2005.  The increase is  primarily  due to an      increase in interest  expenses on bank
 borrowings  and loan closing costs in relation to a bank  borrowing of      $15,000,000
 made during December 2005..  Excluded from interest  expense during the six months ended
June 30,      2006 is $2,063,670 in finance  charges  reimbursable to Liaoning  Maryland
 Concrete Co.,  Limited  (Maryland      Concrete)  related to the
 acquisition of land rights on 24




the
Chessboard  project.  This cost was  capitalized      to construction in progress.  No
interest was capitalized during the comparable period of 2005. (4)   Liquidity and Capital Resources Net
cash flows  provided by operating  activities  for the six months ended June 30, 2006,
 was  $5,645,224 as      compared with  $8,519,132  provided by operating  activities for
the six months ended June 30, 2005, for a net      decrease of  $2,879,908.  This
 decrease was due  primarily  to a  $2,216,317  increase in net loss in 2006 as
     compared to 2005, which was primarily a result of lower sales of properties. Net
cash flows used in investing  activities for the six months ended June 30, 2006, was
$71,693,313  compared      to  $1,157,447  for the six months  ended  June 30,  2005.
 The  increase  in  investing  activity  was due to      commencement of the Xita and
Chessboard construction projects during 2006. Net
cash flows  provided by  financing  activities  for the six months ended June 30,  2006,
 was  $56,272,276      compared  to net cash used in  financing  activities  of
 $5,639,444  for the six months  ended June 30,  2005      representing  substantial
 borrowings  which  incurred for expansion of the  operations and to finance the new
     property developments discussed above. Current
 liabilities  exceeded  current  assets by  $114,827,084  as of June 30,  2006.  The
 working  capital      deficit was incurred primarily due to the short term nature of
certain construction  financing,  advances from      affiliated  companies  for  the
 development  of  new  construction   projects,  and  accruals  to  additional
     construction costs agreed to with contractors. Due
to frequent  changes in government  fiscal and bank lending policies in the past 15 years
as well as other      administrative  controls from time to time in China,  it is not
uncommon for many companies to find themselves      unexpectedly  holding  overdue  loans
 borrowed  from the banks,  although the initial  intention  between the      borrowers
 and  lenders was for terms with longer  maturity  period.  Under the  circumstances,
 most  lending      banks  had and  have  usually  worked  sympathetically  and  closely
 with  borrowers  for loan  extension  or      restructuring  for a  shorter  period
 within  the  administrative  guidelines  of the  government.  As  State      policies
 are issued  outside the control of the banks in China and form part of the macro and
 micro-economic      measures,  many bankers and their  customers are often stuck in the
 situation,  thus they are generally  more      tolerant and supportive to overdue loans
than their  counterparts  in Western  economies;  they will work hard      to deal with
the  situation  provided  the  borrowers  are  responsible  and have good  relationship
 with the      lenders. As
of June  30,  2006,  the  Companys  subsidiary,  Shenyang  Maryland  International
 Industry  Co.  Limited      (Maryland),  has ongoing  discussions with
lending banks to renegotiate  various matured bank loans totaling      $40,643,750 with
the following relevant banks: 1.   
 The Bank of China:  As of June 30,  2006,  bank  loans  from the Bank of China  totaled
 $11,500,000.  The      loans were  originally  extended for the  development  of the
President  Building in 2000.  While the bank had      originally  agreed orally on a
10-year  long-term loan period for the project,  in 2002,  owing to a change in
     lending  policy,  the Bank  changed  the terms of the  loans  into  short-term
 development  loans.  Since the      maturity of the various loans by December 31, 2004,
 Maryland  commenced ongoing  negotiation with the Bank of      China for an extension of
the loans.  Due to the initial  verbal  agreement and a credible  relationship  over
     the years,  the Bank has agreed to  renegotiate  a  settlement  term.  As of July
13,  2006,  the  Company has      received a written notice from the Bank of China
explaining the situation. 25




2.   
 The  Agricultural  Bank of China:  As of June 30,  2006,  bank loans from the
 Agricultural  Bank of China      totaled  $2,425,000.  The loans were originally
 extended for the development of Chenglong  Garden.  Since the      loans matured on
December 21, 2005,  Maryland has commenced ongoing  negotiation with the Agricultural
Bank of      China for a short-term  loan extension for another  one-year term. The
Company plans to close the  negotiation      before the end of 2006. 3.   
 The  Industrial  and  Commercial  Bank of China (ICBC):  As of June 30, 2006, the bank
loans from the ICBC      totaled  $26,718,750 and were originally  extended for the
development of the Chenglong  Garden in 2001. Since      the loans had matured at the end
of 2003,  Maryland has  commenced  ongoing  negotiations  for an extension of      the
 loans.  As part of the  listing  procedures  on the  Stock  Exchange  of Hong  Kong,
 reorganization  and      restructuring,  certain  of the  loans  totaling  $21,718,750
 were sold to the Great  Wall  Asset  Management      Limited.  On January 5, 2006,
 Great Wall Asset  Management  Limited issued a notification  letter to Maryland
     that certain loans  totaling  $21,718,750  has been assigned  from the ICBC.  The
Great Wall Asset  Management      Limited and Maryland are conducting ongoing
 negotiation on the terms and repayment  schedules of the assigned      loans.  The
 terms  and  repayment  schedules  requires  approval  from  various  government
  bureaus,   and,      accordingly,  Maryland  believes  the  negotiation  could  be
 closed  by the end of 2006.  On June 22,  2006,      Maryland  has also  negotiated a
settlement  repayment  schedule  with ICBC on the  remaining  loans  totaling
     $7,812,500.  Under  the  negotiated  terms  of the  repayment  schedule,  Maryland
 will be  required  to make      quarterly  installment  repayments  commencing  from
June 30,  2006 until  June 30,  2007.  On June 30,  2006,      Maryland paid  $2,812,500
to ICBC as the first  repayment  installment  in the repayment  plan.  When Maryland
     shall  have fully  repaid the last  installment  on or before  June 30,  2007,
 accrued  accumulated  interest      totaling $1,125,000 will be waived by ICBC. (5)   Contractual Obligations The
following table is a summary of the Companys contractual obligations as of June 30,
2006: Total
     
     Less thanone year
     
     1-3 Years
     
     ThereafterShort-Term Debt
     
     
     $
        55,642,750
        

     
     $
        55,642,750
        

     
     $
        --
        

     
     $
        --Long-Term Debt
     2,635,667
        
     
     424,778
        
     
     1,128,046
        
     
     1,082,843Amounts due to related parties
     58,946,346
        
     
     58,946,346Construction commitments
     88,190,533
        
     
     88,190,533
        
     
     --
        
     
     --Total Contractual Cash Obligations
     $205,415,296
        
     
     $203,204,407
        
     
     $1,128,046
        
     
     $1,082,843 Item 3.     Controls
and Procedures As
of June 30, 2006 an evaluation was performed  under the  supervision  and with the
 participation  of Great China's  management,  including the Chief Executive Officer
and Chief Financial Officer,  of the effectiveness      of the design and operation of
Great China's  disclosure  controls and procedures.  Based on that  evaluation,
     Great China's  management,  including the Chief Executive Officer and Chief
Financial Officer,  concluded that Great Chinas  disclosure  controls and
procedures were effective.  There have been no significant  changes in      Great
 China's  internal  controls or in other  factors  that could  significantly  affect
 internal  controls      subsequent to the date of the evaluation. 26




PART II. OTHER INFORMATION Item
6.    Exhibits. Exhibits:  Copies of
the following documents are included or furnished as exhibits to this report pursuant to
Item 601 of Regulation S-B. Exhibit No.
     SEC Ref.No.
        Title of Document31.1
     31
     The certification of chief executive officer required by
  Rule 13a-14(a) or Rule 15d-14(a)31.2
     31
     The certification of chief financial officer required by
  Rule 13a-14(a) or Rule 15d-14(a)32.1
     32
     The certifications required by Rule 13a-14(b) or
  Rule 15d-14(b) and 18 U.S.C. Section 1350 27




SIGNATURES In
accordance with the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. Great China International
Holdings, Inc. Date:August 11, 2006
     
     By:
     
     /s/ Deng Zhi RenDeng Zhi Ren Chief Executive Officer(Principal Financial Officer)   Date:August  11, 2006
     
     By:
     
     /s/ Cheng Shui San, LawrenceCheng Shui San, LawrenceChief Financial Officer(Principal Financial and Accounting Officer) 28