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
        September 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.
     Financial Information
     3Item 1.   Financial Statements
     3Condensed Consolidated Balance Sheet as of September 30, 2006 (Unaudited)
     3Condensed Consolidated Statements of Operations for the Nine MonthsEnded September 30, 2006 and 2005 (Unaudited)
     5Condensed Consolidated Statements of Operations for the Three MonthsEnded September  30, 2006 and 2005 (Unaudited)
     6Condensed Consolidated Statements of Stockholders Equity for the Year Ended December 31, 2005 and
        Nine Months Ended September 30, 2006 (Unaudited)
     7Condensed Consolidated Statements of Cash Flows for the Nine MonthsEnded September 30, 2006 and 2005 (Unaudited)
     8Notes to the Unaudited Condensed Consolidated Financial Statements
     9Item 2.   Managements Discussion and Analysis of Financial Condition and Results of Operations
     22Item 3.   Controls and Procedures
     29PART II.
     Other Information
     31Item 5.  Other Information
     31Item 6.  Exhibits
     31Signatures
     32 2




GREAT CHINA INTERNATIONAL
HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE
SHEETSEPTEMBER 30, 2006(Unaudited) ASSETS Current assets:Cash and equivalents
     $2,783,436Accounts receivableTrade, net of allowance of $625,768
     1,834,508Advances to suppliers
     75,884Advances to employees
     72,924Properties held for resale
     11,598,415Prepaid expenses
     12,356Loan costs, net of amortization of $583,230
     174,346Total current assets
     16,551,869Property and equipment:Land and buildings
     49,357,669Motor vehicles
     719,460Office furniture and equipment
     332,31450,409,443Less accumulated depreciation
     (6,461,226
        )43,948,217Construction in progress
     89,662,077Total assets
     $150,162,163  See accompanying notes to the condensed consolidated financial statements. 3




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                        CONDENSED CONSOLIDATED BALANCE SHEET
                                                   SEPTEMBER 30, 2006(Unaudited) LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities:Accounts payable and accrued expenses
     $9,855,618Deposits held
     911,145Advances from buyers
     3,597,006Amounts due to related companies
     2,020,721Taxes payable
     948,020Short-term loans
     54,943,182Current portion of long-term debt
     425,449Total current liabilities
     72,701,141Long term debt, net of current portion shown above
     77,853,883Total liabilities
     150,555,024Stockholders' equity:Common stock,  $.001 par value 50,000,000 shares authorized,11,782,036 issued and outstanding at September 30, 2006
     11,783Additonal paid in capital
     4,539,607Retained deficit
     (5,308,987
        )Accumulated other comprehensive income
     364,736Total stockholders equity before advances offset
     (392,861
        )Total liabilities and stockholders equity
     $150,162,163 See accompanying notes to the condensed consolidated financial statements. 4




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005(Unaudited) 2006
     
     2005(Restated)RevenuesSales
        
        
     $
        5,028,766
        
     
     $
        12,669,073Rental and management fee income
     3,742,139
        
     
     3,091,260Total revenues
     8,770,905
        
     
     15,760,333ExpensesCost of properties sold
     5,241,279
        
     
     10,241,358Operating and selling expenses
     479,980
        
     
     180,289Administrative expenses
     2,642,811
        
     
     595,421Depreciation and amortization
     1,701,318
        
     
     1,491,356Total expenses
     10,065,388
        
     
     12,508,424Income (loss) from operations
     (1,294,483
        )
     
     3,251,909Other income (expense)Other income
     339,739
        
     
     --Interest and finance costs
     (3,166,936
        )
     
     (2,632,068
        )Total other (expense)
     (2,827,197
        )
     
     (2,632,068
        )Income (loss) before income taxes
     (4,121,680
        )
     
     619,841Provision for income taxes
     --
        
     
     265,455Net income (loss)
     (4,121,680
        )
     
     354,386Other comprehensive income (loss):Foreign currency translation adjustment
     164,997
        
     
     (7,570
        )Total comprehensive income (loss)
     $(3,956,683
        )
     
     $346,816Basic and diluted net income (loss) per common share
     $(0.37
        )
     
     $0.03Weighted average basic and diluted shares outstanding
     11,268,609
        
     
     10,631,555 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 SEPTEMBER 30, 2006 AND 2005(Unaudited) 2006
     
     2005(Restated)RevenuesSales
     $503,188
        
     
     $4,910,244Rental income
     1,184,786
        
     
     943,693Total revenues
     1,687,974
        
     
     5,853,937ExpensesCost of properties sold
     1,192,478
        
     
     4,059,832Operating and selling expenses
     419,762
        
     
     50,237Administrative expenses
     416,010
        
     
     200,178Depreciation and amortization
     574,465
        
     
     818,302Total expenses
     2,602,715
        
     
     5,128,549Income (loss) from operations
     (914,741
        )
     
     725,388Other income (expense)Other income
     244,590
        
     
     --Interest and finance costs
     (953,493
        )
     
     (935,696
        )Total other income (expense)
     (708,903
        )
     
     (935,696
        )Income (loss) before income taxes
     (1,623,644
        )
     
     (210,308
        )Provision for income taxes
     --
        
     
     103,336Net income (loss)
     (1,623,644
        )
     
     (313,644
        )Other comprehensive income (loss):Foreign currency translation adjustment
     98,780
        
     
     (7,570
        )Total comprehensive income (loss)
     $(1,524,864
        )
     
     $(321,214
        )Basic and diluted net income (loss) per common share
     $(0.14
        )
     
     $(0.03
        )Weighted average basic and diluted shares outstanding
     11,439,751
        
     
     10,777,436 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 NINE MONTHS ENDED SEPTEMBER 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
     --
        
     
     --
        
     
     511,134
        
     
     --
        
     
     --
        
     
     511,134Net income for the nine months endedSeptember 30, 2006
     --
        
     
     --
        
     
     --
        
     
     --
        
     
     (4,121,680
        )
     
     (4,121,680
        )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
     --
        
     
     --
        
     
     --
        
     
     164,997
        
     
     --
        
     
     164,99711,782,036
        
     
     $11,783
        
     
     $4,539,607
        
     
     $364,736
        
     
     $(5,308,987
        )
     
     $(392,861
        ) See accompanying notes to the condensed consolidated financial statements. 7




GREAT CHINA INTERNATIONAL HOLDINGS, INC.
                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (Unaudited) 2006
     
     2005(Restated)Cash flows from operating activities:Net income (loss)
     $(4,121,680
        )
     
     $354,386Adjustments to reconcile net income (loss) to operating activities -Depreciation and amortization
     1,701,318
        
     
     1,491,356Gain on disposal of fixed assets
     (13,996
        )
     
     --Reduction in provision for doubtful accounts
     (482,287
        )
     
     (405,049
        )Non-cash stock compensation expense
     511,134
        
     
     --Changes in assets and liabilites:(Increase) decrease in -Accounts receivable and other receivable
     (352,459
        )
     
     1,061,829Advances to suppliers
     3,460,808
        
     
     79,078Refunds due from contractors
     --
        
     
     (4,445,750
        )Prepaid expenses
     1,311,032
        
     
     (18,153
        )Accounts payable and other payables
     (1,231,776
        )
     
     (1,146,226
        )Deposits held
     56,221
        
     
     --Advances from buyers
     779,450
        
     
     (1,957,465
        )Properties held for resale
     2,967,722
        
     
     8,684,099Restricted cash
     482,548
        
     
     315,558Income and other taxes payable
     293,251
        
     
     (423,192
        )Net cash provided by operating activities
     5,361,286
        
     
     3,590,471Cash flows from investing activities:Construction in progress
     (86,756,549
        )
     
     --Purchases of fixed assets
     (1,291,323
        )
     
     (1,401,352
        )Sales of fixed assets
     117,470
        
     
     --Net cash (used in) investing activities
     (87,930,402
        )
     
     (1,401,352
        )Cash flows from financing activities:Loan proceeds
     76,835,664
        
     
     451,600Loan repayments
     (8,177,427
        )
     
     (1,909,843
        )Advances from (to) directors and affiliated companies
     3,154,231
        
     
     --Dividends
     --
        
     
     (163,826
        )Proceeds from stock issuance, net of offering costs
     2,478,280
        
     
     --Net cash provided by (used in) financing activities
     74,290,748
        
     
     (1,622,069
        )Effect of exchange rate change on cash and cash equivalents
     164,997
        
     
     (7,570
        )Net increase (decrease) in cash and cash equivalents
     (8,113,371
        )
     
     559,480Cash and cash equivalents, beginning of period
     10,896,807
        
     
     1,031,144Cash and cash equivalents, end of period
     $2,783,436
        
     
     $1,590,624Supplemental disclosures of Cash Flow information:Interest paid, net of capitalized amounts
     $2,148,267
        
     
     $1,273,128Income taxes paid
     $249,262
        
     
     $293,391 See accompanying notes to the condensed consolidated financial statements. 8




Great China International Holdings, Inc.
September  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 Yunfeng,  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.
September  30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Shenyang Xinchao 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. Xinchao was formed to develop a certain tract of property  located in the Xita
 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, 2006.
 Yindu was also 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 nine months ended  September 30, 2006,  the proceeds from the
sales of properties  constituted 70 percent of the      total revenue,  with the
remaining revenue  consisting  primarily of rental income.  For the nine months ended
September 30, 2005,      the proceeds from the sales of properties  constituted 80
percent of the total  revenue,  with the remaining  revenues  consisting      primarily
of rental income. As of September 30, 2006, 76 percent of the available units had been
sold and 15 percent were leased. 2.      Going concern The Company was in default on
$34,943,182 of bank loans and $20,000,000 of additional  current bank loans as of
September 30, 2006      (Note 8). As a result the Company also had a working  capital
 deficit of  $56,149,272  as of September  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 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 at amounts different
from those reflected in these financial statements. 10




Great China International Holdings, Inc.
September  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 in the PRC and is not
protected by FDIC or any other form of insurance. 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 September 30, 2006, the provision for doubtful debts amounted to
$625,768. 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 nine  months  periods  ended  September  30, 2006 and 2005  totaled  $574,465,
 $818,302,      $1,701,318 and $1,491,356 respectively. 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 11




Great China International Holdings, Inc.
September  30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 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 nine month periods ended September 30,      2006 or 2005. As
of  September  30, 2006 fixed  assets  totaling  $93,273,907  have been pledged as
 security  to various  lenders in respect of      borrowings totaling $133,222,514. Construction-in-progress Properties currently under development are accounted for as
construction-in-progress. Construction-in-progress is recorded at acquisition
cost, including land 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. During the nine months ended September 30, 2006
interest expense, financing charges, and loan discounts of $1,212,171, $2,063,670, and $12,626,262, respectively, were capitalized as
construction-in-progress. No interest expense, financing charges, or loan discounts were capitalized during the
nine months ended September 30, 2005. 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 as it is earned. 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 $87,505, $486,301, $212,128, and $762,415
for the three and nine month periods ended September 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. 12




Great China International Holdings, Inc.
September  30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 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.  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 September 30, 2006 the      exchange rate was 7.92 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 tax The 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 tax Great 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.
September  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 September 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 September 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 nine-month  periods ended
 September 30, 2006 of $133,260 and $511,134  respectively.  These charges  increased
loss per share      for the three and nine months ended September 30, 2006 by $0.01 and
$0.05, 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 financing  cash  inflows.
 The Company did not report any excess tax benefits as financing  cash inflows for the
three and nine      months ended September 30, 2006. 14




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 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)
     1 to 5 yearsRisk-free rate
     4.5%   A
summary of option activity under the Plan as of September 30, 2006, and changes during
the nine months then ended is presented      below: Options
     Shares
     Weighted-AverageExercisePrice
     Weighted-AverageRemainingContractualTerm
     AggregateIntrinsicValueOutstanding at January 1, 2006
     
     
     
        --
        
     $
        --Granted
     827,841
        
     $6.09Exercised
     --
        
     $0.00Forfeited or expired
     --
        
     $0.00Outstanding at September 30, 2006
     827,841
        
     $6.09
        
     6.67
        
     $--Exercisable at September 30, 2006
        
        
     
        163,568
        
     $
        6.00
        
     
        5.50
        
     $
        --  15




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements A
summary of the status of the Companys nonvested options as of September 30, 2006, and
changes during the nine months then      ended, is presented below: Nonvested Shares
     Shares
     Weighted-AverageGrant DateFair ValueNonvested at January 1, 2006
     
     
     
        --
        
     $
        --Granted
        
        
     
        827,841
        
     $1.48Vested
     (163,568
        )
     $1.32Forfeited
     (--)
        
     $--Nonvested at September 20, 2006
        
        
     
        664,273
        
     $
        1.59 Unrecognized
compensation expense as of September 30, 2006 related to outstanding stock options was
$712,907. On
March 3, 2006 the Company issued to its Chief  Executive  Officer  options to purchase
 572,491 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
March 15, 2006 the Company issued to an employee  options to purchase 245,350 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 In February 2006, the FASB issued Statement No.155, Accounting
for Certain Hybrid Financial Instruments (SFASNo.155), which amends FASB
Statements No.133 and 140. This Statement permits fair value remeasurement for any
hybrid financial instrument containing an embedded derivative that would otherwise
require bifurcation, and broadens a Qualified Special Purpose Entitys (QSPE)
permitted holdings to include passive derivative financial instruments that pertain
to other derivative financial instruments. This Statement is effective for all
financial instruments acquired, issued or subject to a remeasurement event occurring
after the beginning of an entitys first fiscal year beginning after September15, 2006.
This Statement has no current applicability to the Companys financial statements.
Management plans to adopt this Statement on January1, 2007 and it is anticipated
that the initial adoption of this Statement will not have a material impact on the
Companys financial position, results of operations, or cash flows. In
March 2006, the FASB issued Statement No.156, Accounting for Servicing of Financial
Assets  an amendment of FASB Statement No. 140 (SFASNo.156). This Statement
is effective for fiscal years beginning after September15, 2006. This Statement
requires that all separately recognized servicing assets and servicing liabilities
be initially measured at fair value, if practicable. This Statement has no current
applicability to the Companys financial statements. Management plans to adopt this
Statement on January1, 2007 and it is anticipated that the initial adoption of this
Statement will not have a material impact on the Companys financial position,
results of operations, or cash flows. 16




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements In
June 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes (FIN48),
an interpretation of FASB Statement No.109, Accounting for Income Taxes. FIN48
clarifies the accounting and reporting for income taxes where interpretation of the
law is uncertain. FIN48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of income tax uncertainties
with respect to positions taken or expected to be taken in income tax returns. FIN48
is effective for fiscal years beginning after December15, 2006. This Statement has no
current applicability to the Companys financial statements. Management plans to
adopt this Statement on January1, 2007 and it is anticipated that the initial
adoption of FIN48 will not have a material impact on the Companys financial position,
results of operations, or cash flows. In
September 2006, the FASB issued Statement No.157, Fair Value Measurements (SFASNo.157).
SFASNo.157 addresses how companies should measure fair value when they are
required to use a fair value measure for recognition or disclosure purposes under
GAAP. SFASNo.157 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. SFASNo.157 is effective for
fiscal years beginning after November15, 2007, with earlier adoption permitted.
Management is assessing the impact of the adoption of this Statement. In
September 2006, the FASB issued Statement No.158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans (SFASNo.158), an amendment of
FASB Statements No.87, 88, 106 and 132(R). SFASNo.158 requires (a)recognition of
the funded status (measured as the difference between the fair value of the plan
assets and the benefit obligation) of a benefit plan as an asset or liability in the
employers statement of financial position, (b)measurement of the funded status as of
the employers fiscal year-end with limited exceptions, and (c)recognition of
changes in the funded status in the year in which the changes occur through
comprehensive income. The requirement to recognize the funded status of a benefit plan
and the disclosure requirements are effective as of the end of the fiscal year
ending after December15, 2006. The requirement to measure the plan assets and
benefit obligations as of the date of the employers fiscal year-end statement of
financial position is effective for fiscal years ending after December15, 2008.
This Statement has no current applicability to the Companys financial statements.
Management plans to adopt this Statement on December31, 2006 and it is anticipated
the adoption of SFASNo.158 will not have a material impact to the Companys
financial position, results of operations, or cash flows. In
September 2006, the Securities Exchange Commission issued Staff Accounting BulletinNo.108
(SABNo.108). SABNo.108      addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current      year
financial statements. SABNo.108 requires companies to quantify misstatements using a
balance sheet and income statement      approach and to evaluate whether either approach
results in quantifying an error that is material in light of relevant      quantitative
and qualitative factors. When the effect of initial adoption is material, companies will
record the effect as a      cumulative effect adjustment to beginning of year retained
earnings and disclose the nature and amount of each individual error      being corrected
in the cumulative adjustment. SABNo.108 will be effective beginning January1, 2007 and
it is anticipated that      the initial adoption of SABNo.108 will not have a material
impact on the Companys financial position, results of operations,      or cash flows. 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 17




Great China International Holdings, Inc.
September 30, 2006 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. 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. 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, $2,446,610 of which were 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 $78,315. The
cumulative effect of the correction of the above two errors was a reduction in earnings
of $101,663,  $476,307,  $222,686, and      $438,783 for the three and nine month periods
ended  September  30, 2006 and 2005  respectively.  Basic and diluted loss per share
     was  increased by $0.01,  $0.04,  $0.02,  and $0.04 during the three and nine months
 periods  ended  September 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
nine months  periods  ended  September      30, 2006 and 2005 and due to net operating
 loss  carryforwards.  As of September 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 September 30,      2006.  This deferred tax
asset was subject to a 100% valuation allowance at September 30, 2006. The
Company has amended the December 31, 2005 Form 10 K-SB to reflect the correction of these
errors retrospectively.  The Company      is in the  process of  amending  the  September
 30,  2005 Form  10-QSB,  the March 31,  2006 Form 10-QSB 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. 18




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements 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 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  $757,576 as of September  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. Payments
of dividends may be subject to government restrictions. 5.      Cash and equivalents At
September 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 September 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 September 30, 2006 by project is as follows: September 30, 2006Qiyun New Village
     
     
     $
        2,133,403Peacock Garden
     308,637Chenglong Garden
     8,369,679President Building
     406,984Maryland Building
     231,363Others
     148,349Total
     $11,598,415 As
of September 30, 2006 the carrying values of stock of properties of $11,598,415 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 September 30, 2006 are as follows: 19




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements September 30, 2006Amounts due from/(to) directorsFrank Jiang Fang
     
     
     $
     (4,519,559
     )Amounts due from/(to) related companiesLiaoning Maryland Concrete Co. Limited
        
        
     
        2,456,547Shenyang Maryland Technology Co., Limited
        
        
     
        42,2912,498,838Amounts due from/(to) related parties, net
        
        
     $
        (2,020,721
        ) Amounts
due from/(to) related companies are unsecured, and have no fixed repayment terms. The related companies are
substantially controlled by the directors of the Company 8.      Short-term
loans September 30, 2006Loans from Banks  delinquent
     
     
     $
        13,224,432Loans from bank  due within 12 months
        
        
     
        20,000,000Bank loans purchased by asset management company
     21,718,750Total current notes payable
     54,943,182 At
September 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 $7,891,414  of past due notes.  In      accordance  with the terms of this  settlement
 agreement,  $4,103,535 in principal was repaid prior to September 30, 2006 and the
     balance of the note is to be repaid in three equal  quarterly  installments  of
$1,262,626  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  $1,127,820  in past due
interest.  The      Company will recognize the benefit of this interest waiver once it
has complied with all 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. 20




Great China International Holdings, Inc.
September 30, 2006 Notes to the Unaudited Condensed Consolidated Financial Statements Substantially
all of these loans were  collateralized,  however,  a significant  portion of the
properties held as collateral were      subsequently sold by the Company. 9.      Long-term
debts  secured September 30, 2006Long term debts:Bank loans
        
        
     $
        75,757,576Mortgage loans
        
        
     $
        2,521,756Less: Current portion of long-term debts
     (425,449
        )Long-term debts
     $77,853,883 On
June 28, 2006,  the Company  obtained a bank loan in amount of  50,000,000  Rmb.
 ($6,313,131).  The loan bears  interest at an      annual rate of 6.633% and matures on
July 2, 2009. The loan is secured by land and buildings with a carrying value of
$4,561,420. On
July 2, 2006, the Company obtained a bank loan in the amount of 550,000,000 Rmb.
 ($69,444,444).  The loan bears interest at an      annual rate of 6.633% and matures on
July 15, 2009. The loan is secured by land use rights totaling $56,606,796. During the nine months
ended September 30, 2006 interest expense, financing charges, and loan discounts of $1,212,171, $2,063,670, and
$12,626,262, respectively, were capitalized as construction-in-progress.  No interest expense, financing charges,
or loan discounts were capitalized during the nine months ended September 30, 2005. Maturities
of long-term debt including mortgage loans for each of the next five years and thereafter
are as follows: Amount2007
     
     
     $
        425,4492008
     425,4492009
     76,183,0252010
     385,1432011
     434,817Thereafter
     --$77,853,883 10.    Commitments As
of September 30, 2006 the Company had $100,507,639 in commitments for capital
 expenditures  for contractual  agreements of the      construction projects and
$24,382,000 commitments for funding the registered capital of its subsidiaries. 21




Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations (1)    Caution Regarding Forward-Looking
Information The
following discussion and analysis should be read in conjunction with our consolidated
financial statements prepared in accordance with accounting principles generally accepted
in the USA.  Unless otherwise indicated, references in this discussion to we,our and us are
to 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
under the heading Risk Factors in our annual report on Form 10-KSB, as amended, filed
with the Securities and Exchange Commission on September 5, 2006, and under the caption Item
1A. Risk Factors, below.  We do not undertake any 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., is a comprehensive real estate company with principal
activities in real estate investment, development, sales and management.  We conduct all
our operation in the Peoples Republic of China through our direct and indirect wholly
owned subsidiaries; 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 maintain a
         high occupancy rate with tenants who are mostly international companies, 25 of them are Fortune 500
         companies.  Great China International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. 22





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  
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.  Great
China International established Shenyang Jitian Property Company Limited (Jitian) 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 is 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 $12.6 million) out of proceeds of the Loan,
agreed to purchase certain creditors rights of Hexing to another unrelated entity,
Shenyang Night Musical Palace.  These credit rights were not believed to be of value and
were the reduction in the loan proceeds was treated as a loan discount, which was
consequently capitalized as construction-in-progress. 23




Effective
July 19, 2006, Jitian entered into another loan agreement with Shenyang City Commercial
Bank whereby the Bank agreed to provide a loan of RMB50,000,000 (approximately US$ 6.25
million) pursuant to a loan agreement dated for reference on June 28, 2006.  The Loan
Agreement has a term of three years, commencing July 19, 2006, and amounts advanced
thereunder bear interest at a rate of 6.633% and are required to 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 cancel the agreement and
declare any amounts advanced thereunder due and owing.  Shenyang Maryland International
Industry Co., Ltd. has agreed to guarantee all amounts owing by Jitian under the Loan
Agreement, and Shenyang Maryland has also agreed to mortgage a portion of its property at
the President Building project as security for performance of its obligations under the
Loan Agreement. 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 September 30, 2006, Xinchao holds 70% equity interest in
the Xita Project and Shenyang Yindu Property Company Limited (Yindu), another
subsidiary of Great Chian International, 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.  The
government has been following a detailed review process on this substantial project, so
Xinchao and Yindu do not expect the final plan will be approved before December 2006, and
may not be approved until 2007.  Xinchao and Yindu are in negotiations with a prospective
partner for a joint venture to develop this project.  The formation of the joint venture
will depend, in part, on the ability of the prospective 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. (3)   Results of Operations Comparison of operations for the three months ended
September 30, 2006 with the three months ended September 30, 2005: The
Company incurred a net loss of $(1,623,644) for the three months ended September 30, 2006
compared to a net loss of $(313,644) for the same corresponding quarter in 2005,
representing an increase of $1,310,000 or 418% quarter-on-quarter.  Components of sales
and expenses resulting in this increase in net loss are discussed below. Sales
revenues decreased by $4,407,056 or 90% quarter-on-quarter to $503,188 for the quarter
ended September 30, 2006 compared to the same corresponding quarter in 2005 of
$4,910,244.  Rental and management fee income increased by $241,093 or 26% to $1,184,786
during the three months ended September 30, 2006 from $943,693 for the comparable period
in 2005.  These changes are mainly attributable to: 24





Significant decrease in sales of Chenglong Garden by $3,251,333 or 87%; 
Decreases in sales of Qiyun New Village by $593,582 or 100%; 
Decreases in gross floor area sold by 4,310 square meters quarter-on-quarter to 483 square meters for
         the quarter ended September 30, 2006 compared to 4,793 square meters in 2005; 
The number of units sold decreased by 17 units or 85% quarter-on-quarter to three units for the quarter
         ended September 30, 2006 compared to 20 units in 2005; 
Increases in rental income by $241,093 or 26%; and 
No new development projects were introduced during 2006.  Cost
of properties sold decreased by $2,867,354 or 71% during the three months ended September
30, 2006, as compared to the corresponding period in 2005.  This was primarily
attributable to a 90% decrease in the gross floor area sold as described above. Operating
and selling expenses increased by $369,525 or 736% to $419,762 for the three months ended
September 30, 2006 as compared to $50,237 for the three months ended September 30, 2005.
 The increase is mainly due to an increase in advertising expenses arising from the
preliminary marketing activities of the Chessboard Mountain project. General
and administrative expenses increased by $215,832 or 108% to $416,010 during the three
months ended September 30, 2006 compared to $200,178 for the three months ended September
30, 2005.  The increase is due to an increase in property tax of $151,170, an increase in
listing fee expenses of $92,348 and recognition of $133,260 in compensation expense
related to stock options issued to management, offset by a decrease in legal and
professional fees of $294,542. Depreciation
expense decreased by $243,837 or 30% to $574,465 for the quarter ended September 30,
2006, compared to $818,302 for the corresponding period in 2005 due primarily to
disposals of motor vehicles, furniture and fixtures and office equipment. Interest
and financing costs remained relatively constant at $953,493 for the three months ended
September 30, 2006, as compared to $935,696 for the three months ended September 30,
2005. Excluded from interest expense during the three months ended September 30, 2006 is
$1,212,171 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. Comparison
of operations for the nine months ended September 30, 2006 with the nine months ended
September 30, 2005: Great
China International had a net loss of $(4,121,680) during the nine months ended September
30, 2006, and had net income of $354,386 for the comparable period in 2005.  Components
of sales and expenses resulting in this increase in net loss are discussed below. 25




Sales revenues decreased by $7,640,307 or 60%
period-on-period to $5,028,766 for the nine months ended September 30, 2006, compared to
$12,669,073 for the same corresponding period in 2005.  Rental and management fee income
increased by $650,879 or 21% to $3,742,139 for the nine months ended September 30, 2006,
compared to $3,091,260 for the comparable period in 2005.  These changes were mainly
attributable to: 
Significant decrease in sales of Chenglong Garden by $6,438,066 or 70%; 
Decreases in sales of Qiyun new Village by $280,681 or 13%; 
Decreases in gross floor area sold by 12,751 square meters period-on-period to 7,770 square meters for
         the nine months ended September 30, 2006 compared to 20,521 square meters in 2005; 
The number of units sold decreased by 61 units or 62% period-on-period to 37 units for the nine months
         ended September 30, 2006 compared to 98 units in 2005; 
Increases in rental income by $650,879 or 21% period-on-period; and, 
No new development projects were introduced during 2006.  Cost
of properties sold decreased by $5,000,079 or 49% period-on-period to $5,241,279 for the
nine months ended September 30, 2006 compared to $10,241,358 for the same corresponding
period in 2005.  Period-on-period decreases in gross floor area sold of 62% as noted
above was the primary factor contributing to the decrease. Operating
and selling expenses increased by $299,691 or 166% to $479,980 for the nine months ended
September 30, 2006 compared to $180,289 for the comparable period in 2005.  This increase
was due primarily to an increase in advertising expenses arising from the preliminary
marketing activities of the Chessboard Mountain project. Administrative
expense increased by $2,047,390 or 344% to $2,642,811 during the nine months ended
September 30, 2006 from $595,421 during the same period in 2005.  The increase is due to
an increase in consulting fees of $575,213, an increase in property tax of $392,163, an
increase in listing fee expenses of $228,989, an increase in travel expenses of $126,788
and $511,134 in compensation expense related to stock options granted to officers of the
Company. Depreciation
increased by $209,962 or 14% period-on-period to $1,701,318 for the nine months ended
September 30, 2006 compared to the same corresponding period in 2005 of $1,491,356 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 nine
months ended September 30, 2006. Other
income increased by $339,739 for the nine months ended September 30, 2006 compared to
none for the same corresponding period in 2005.  The increase was primarily due to the
adjustment of the allowance for doubtful accounts. Interest
and financing costs increased by $534,868 or 20% to $3,166,936 for the nine months ended
September 30, 2006, compared to $2,632,068 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
and 26




$76,000,000
of new borrowings in the nine months ended September 30, 2006. Excluded from interest
expense during the nine months ended September 30, 2006 is $3,275,841 in interest and
finance charges related to the acquisition of land rights on the Chessboard project.
These costs were 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 nine months ended September 30, 2006,
was $5,361,286 as compared with $3,590,471 provided by operating activities for the nine
months ended September 30, 2005, for a net increase of $1,770,815. This increase was due
primarily to positive changes in advances to suppliers of $3,460,808, amounts due to
related parties of $4,445,750, prepaid expenses of $1,292,879, and advances from buyers
of $2,736,915 offset by negative changes in net income(loss) of $(4,476,066), and
properties held for resale of $(5,716,377)  in 2006 as compared to 2005. Net
cash flows used in investing activities for the nine months ended September 30, 2006, was
$87,930,402 compared to $1,401,352 for the nine months ended September 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 nine months ended September 30, 2006,
was $74,290,748 compared to net cash used in financing activities of $1,622,069 for the
nine months ended September 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 $56,149,272 as of September 30, 2006. The working
capital deficit was incurred primarily due to $34,943,182 of bank loans currently in
default, $20,000,000 of short term 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. 27




As
of September 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 $39,791,667 with the following relevant banks: 1.
   The Bank of China: As of September 30, 2006, bank loans from the Bank
of China totaled $11,616,162. 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. 2.   The
Agricultural Bank of China: As of September 30, 2006, bank loans from the Agricultural
Bank of China totaled $2,449,495. 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 September 30,
2006, the bank loans from the ICBC totaled $25,726,010 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 $7,891,414. 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 September 30, 2006, Maryland has
paid $4,103,535 to ICBC in installments on 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 September 30,
2006: 28




Total
     
     Less thanone year
     
     1-3 Years
     
     ThereafterShort-Term Debt
     
     
     $
        54,943,182
        

     
     $
        54,943,182
        

     
     $
        --
        

     
     $
        --Long-Term Debt
     78,279,332
        
     
     425,449
        
     
     77,033,923
        
     
     819,960Amounts due to related parties
     2,020,721
        
     
     2,020,721Construction commitments
     100,507,639
        
     
     100,507,639
        
     
     --
        
     
     --Total Contractual Cash Obligations
     $235,750,874
        
     
     $157,896,991
        
     
     $77,033,923
        
     
     $819,960 Item 3.   Controls and Procedures Disclosure Controls and Procedures As
of September 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. Changes in Internal Control Over Financial Reporting Great
China restated its financial statements for the year ended December 31, 2005, and for the
interim period ended March 31, 2006, as a result of identifying certain errors related to
accounting for the construction costs of the President Building, Chenglong Garden, and
Peacock Garden during the independent accountants review of the June 30, 2006 financial
data.  The final investigation, evaluation, and quantification of these issues occurred
in August 2006, and was addressed in Great Chinas Form 10-QSB for the period ended June
30, 2006. Great
Chinas construction projects span several years of construction and the final cost
settlement negotiations may occur several years subsequent to the completion of the
project.  Our experience with most of our construction projects was that the final cost
settlements have historically been consistent with advance cost payments recorded as
construction costs and thus there would be little or no change in the value of the
property with the final cost settlement.  Based on this history, we had not developed
formal procedures for the review of the recorded costs versus potential unpaid and
unrecorded costs for projects where a final negotiated settlement with the construction
contractors had not been reached and where resulting revisions to the initial
construction costs may be required.  Construction and sale of the three construction
projects, unlike our other projects, were characterized by construction costs not paid as
advances and unrecorded until final settlement. The
accounting procedure for construction costs (including deed taxes attributable to
developed units) commonly used in China is that the real estate development enterprise
records the construction costs based on official receipts issued by the contractors.
 Payments of these costs made throughout the construction work are recorded as advances
to suppliers before receiving the official receipts issued by the contractors.  These
balances are reclassified as  construction-in-progress 29




for financial reporting purposes.  Great China has historically followed this procedure.
 Its internal accounting staff monitors the total construction costs incurred on an
on-going basis while a project is built, reviews with contractors and engineers the
progress of construction for which payment is sought, and checks the contract sum before
making advance payments on work performed.  Payments are made based on the completion of
construction work in accordance with applicable contracts.  With regard to the allocation
of the construction costs, Great China tracks all costs by project and costs are
allocated to each unit based on the size and location of the unit.  These costs are
recognized upon the completion of a sales transaction, and for units that are leased or
rented the costs are recognized over the applicable lease or rental term. With
respect to the President Building, Chenglong Garden, and Peacock Garden, we experienced
unexpected construction costs arising from the deed tax assessed on the sale price of the
units sold and the allocation of costs to the common areas of the President Building,
which consists of a three building complex.  Accordingly, we believed our historical
controls and procedures were adequate in light of our historical experience and accepted
practices in China.  Our new and different experience with the President Building,
Chenglong Garden, and Peacock Garden led us to modify certain procedures. To
address the above matters and strengthen our internal controls, we have taken the
following actions: 
Great China has established a policy of performing detailed reviews of its construction costs on at
         least a quarterly basis to evaluate both estimated and known construction costs along with the
         allocation of these costs.  These reviews and the associated estimates will be further reviewed and
         approved by the chief executive officer, chief financial officer, and chairman of the board to ensure
         that all known information has been considered in the evaluation of construction costs.  
Great China appointed a new chief financial officer effective October 1, 2006.  Our new chief financial
         officer has greater financial accounting experience beyond the Chinese real estate market.  We believe
         that this addition has expanded the depth of knowledge of our management, which will better enable it
         to anticipate and record construction and operational costs.  
Great China has obtained what it believes to be a more comprehensive real estate construction computer
         software package that it is using for new projects to record contractual construction costs and
         non-contractual construction costs.  Both our construction department and accounting department will
         update the information/details of contract sum, estimated costs, progress of the construction work and
         the payment status on a regular basis.  However, the deed taxes related to construction contracts, land
         appreciation tax based on the finalized construction costs of a project, and interest expenses on bank
         loans specified for construction to be capitalized are not cost items covered by the new software, so
         for each project Great China will designate one or more of its internal accounting staff to evaluate,
         estimate and monitor these items so that they can be recorded as appropriate and necessary.  30




PART II.  OTHER INFORMATION Item 5.   Other Information. On
September 15, 2006, Great China filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2, SEC File No. 333-137330, to register resale of
762,500 shares of common stock sold outside of the United States and 817,844 shares
issuable on exercise of certain options.  In a letter dated October 5, 2006, the staff of
the Commission suggested, based on its review of Great Chinas historical revenues and
operations, that Great China did not belong in the Regulation S-B reporting system
following the business reorganization with a shell company in 2005, which means it would
not be appropriate for Great China to use Form SB-2 to file its registration statement.
 In a letter to the Commission dated October 24, 2006, Great China responded that the
applicable rules and staff interpretations related to this matter are not clear with
respect timing or manner of transition from Regulation S-B reporting to Regulation S-K
reporting for companies in Great Chinas circumstances, and that Great Chinas
interpretation of the applicable guidance and continued reporting under the Regulation
S-B system is reasonable and allowable under the applicable rules.  Great China is now
waiting for the staff of the Commission to complete its evaluation of the response.  If
the Commission does not find Great Chinas position acceptable, then Great China would be
required to refile the registration statement on Form S-1 and adopt the Regulation S-K
filing system for its periodic reports. 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
     Certifications required by Rule 13a-14(b) or
  Rule 15d-14(b) and 18 U.S.C. Section 1350 31




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: November 16, 2006
        
     By:
     
     /s/ Deng Zhi RenDeng Zhi Ren Chief Executive Officer(Principal Financial Officer)   Date:November 16, 2006
     
     By:
     
     /s/ Danny Sui Keung ChauDanny Sui Keung ChauChief Financial Officer(Principal Financial and Accounting Officer) 32