China Growth Development, Inc. Reports Second Quarter 2008 Financial Results

TAIYUAN CITY, China and LOS ANGELES, Aug. 27 /PRNewswire-FirstCall/ --
China Growth Development, Inc. (OTC Bulletin Board: CGDI) ('China Growth
Development' or 'the Company'), the largest investor, owner and manager of
commercial real estate in the capital city of Taiyuan, located in the Shanxi
province of southern China, today announced its financial results for the
second quarter ended June 30, 2008.
Second Quarter 2008 Highlights:
-- Net revenues increased approximately 8% over same quarter last year to
$3.73 million, or 20% for the six-month period to $7.41 million as compared
with the same period last year.
-- Operating expenses increased approximately 49% over same quarter last
year to $2.55 million, or 27% for the six-month period to $3.42 million as
compared with same period last year. One-time charges of $880,485 incurred in
the closing of the reverse acquisition were expensed during the current
quarter.
-- Net income decreased approximately 64% over same quarter last year to
$1.15 million, or 41% for the six-month period to $1.46 million as compared
with same period last year, which was primarily due to one-time charges
associated with the closing of the reverse acquisition.
"We are pleased with our second quarter results," stated Mr. Ning Liu, COO
of China Growth Development, Inc. "We believe that our business will flourish
due to four important factors, which include: Location, our shopping centers
are in prime locations; strong management, our team members have extensive
commercial real estate experience; innovation, we offer our tenants innovative
payment options and we are able to maximize lease payments and reduce our
accounts receivable; and, land banking, we intend to acquire additional
popular and profitable land for future development.
"We have a solid development program for additional commercial spaces in
Taiyuan and we are optimistic that we will successfully acquire rights to a
very valuable land bank. These valuable development rights are unlikely to be
duplicated in Taiyuan, as it is not possible to create more land." He added,
"In addition, management will continue our financially prudent practice of
requiring prepaid rents from our commercial tenants, for the entire term of
the leases, which is typically five to eight years. This method allows for an
expeditious return of capital to the Company, while greatly reducing debt
service carried on the properties."
Comparison of Three Months Ended June 30, 2008 and 2007.
Net revenue increased by $278,649 from $3,459,975 for the three months
ended June 30, 2007 to $3,738,624 for the three months ended June 30, 2008, an
8% increase.
Operating expenses increased by $840,121 from $1,708,276 for the three
months ended June 30, 2007 to $2,548,397 for the three months ended June 30,
2008, a 49% increase. Such increase was primarily triggered by the issuances
of 1,400,000 warrants fair valued at $689,347 and 500,000 warrants fair valued
at $191,138 associated with the closing of reverse acquisition between CGDI
and TRBT as stated in "Reverse Merger" below. These expenses are deemed to be
one-time charges. Excluding the one-time charges, operating expenses
decreased by $40,364, or 2% to $1,667,912 during the current quarter over same
quarter prior year.
Income from operations decreased by $597,833 from $1,751,699 for the three
months ended June 30, 2007 to $1,153,866 for the three months ended June 30,
2008, a 34% decrease. Such decrease was mainly attributable to the one-time
charges associated with the closing of reverse acquisition as mentioned above.
Excluding the effect of the one-time charges, income from operations increased
by $282,652, or 16% to $2,034,351 during the current quarter over same quarter
prior year.
Net Income before Income Taxes and Minority Interest was $1,529,768 for
the three months ended June 30, 2007 and $1,001,699 for the three months ended
June 30, 2008, a 35% decrease which was also driven by the one-time charges
from the closing of reverse acquisition. Excluding the effect of the one-time
charges, net income before income taxes and minority interest was $1,882,184
for the current quarter, a 23% increase from same quarter last year.
Net income was $1,153,983 for the three months ended June 30, 2007,
compared to $410,348 for the three months ended June 30, 2008, a 64% decrease
which was primarily resulted from the one-time charges associated with the
closing of reverse acquisition as mentioned above.
Revenue recognition and deferred revenue
The Company's revenue recognition policies are in compliance with Staff
Accounting Bulletin (SAB) 104. Revenue is recognized when services are
rendered to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of
the Company exist and collectability is reasonably assured. The Company
recognizes revenue net of an allowance for estimated returns, at the time the
merchandise is sold or services performed. The allowance for sales returns is
estimated based on the Company's historical experience. Sales taxes are
presented on a net basis (excluded from revenues and costs). If the Company
had any merchandise on consignment, the related sales from merchandise on
consignment would be recorded when the retailer sold such merchandise.
Payments received before all of the relevant criteria for revenue recognition
are satisfied are recorded as deferred revenue.
The Company has two major sources of revenue from its shopping mall
leasing business, including rental revenue and management services revenue.
Rent covering the entire leasing period is generally collected up front from
the tenants upon signing the lease agreements, and recorded as deferred
revenue. Rental revenue is then recognized over the respective lease term,
generally on a monthly basis. Deferred revenue is classified as current and
non-current based on the length of maturities. In addition to rental revenue,
the Company charges management services fee from its tenants based on the size
of the leasing unit. Such management services fee is generally collected once
a month, or once every two to three months at certain locations. Fees
collected in advance to the months of services being performed will be
deferred and recognized as income in the later period being earned.
As of June 30, 2008 and December 31, 2007, current deferred revenue was
$8,357,591 and $9,530,814, whereas non-current deferred revenue was
$28,567,884 and $29,501,367, respectively.
Reverse Merger
On May 7, 2008, CGDI completed the acquisition of Taiyuan Rongan Business
Trading Company, Limited ("TRBT"), a company incorporated under the laws of
the People's Republic of China, pursuant to the Stock for Stock Equivalent
Exchange Agreement and Plan (the "Exchange Agreement") among CGDI, TRBT, and
each of the equity owners of TRBT ("TRBT Shareholders") entered into on
November 12, 2007. Pursuant to the Exchange Agreement, CGDI issued 31,500,000
shares of its common stock, representing 97.3% of CGDI's issued and
outstanding common stock immediately following the acquisition and 1,400,000
warrants exercisable at the rate of one warrant for one common share at a
price of $0.5 per share, in exchange of 80% equity interest in TRBT. The fair
value of the warrants was estimated on the grant date using the Black-Scholes
option pricing model as required under SFAS 123 and EITF-96-18 with the
following weighted average assumptions: expected dividend yield 0%, volatility
157.56%, risk-free interest rate of 1.57%, and expected warrant life of twelve
months. The Company fair valued these warrants at $689,347.
As TRBT Shareholders have become the majority shareholder of the
consolidated entity comprising CGDI and TRBT, the acquisition has been
accounted for as a reverse acquisition using the purchase method of
accounting, where CGDI (the legal acquirer) is deemed to be the accounting
acquiree and TRBT (the legal acquiree) to be the accounting acquirer.
However, the acquisition is also considered to be a capital transaction in
substance as TRBT (a private operating company) has been merged into CGDI (a
public corporation with nominal non-monetary net assets) with the shareholders
of CGDI, the former public corporation continuing only as passive investors.
Hence, the cost of the acquisition has been measured at the carrying value of
the net assets of CGDI with no goodwill or other intangible being recorded in
accordance with the accounting interpretation and guidance issued by the SEC
staff. The results of CGDI have been consolidated from the date of the
acquisition.
Subsequent to the closing of reverse acquisition, in consideration of
services provided, the Company issued to Mirador Consulting 500,000 warrants
exercisable at the rate of one warrant for one share of its common stock at a
price of $1.00 per share expiring on November 5, 2008. The fair value of the
warrants was estimated on the grant date using the Black-Scholes option
pricing model as required under SFAS 123 and EITF-96-18 with the following
weighted average assumptions: expected dividend yield 0%, volatility 157.56%,
risk-free interest rate of 1.57%, and expected warrant life of twelve months.
The Company fair valued these warrants at $191,138.
TRBT was incorporated in Taiyuan City, Shanxi Province, China in December
2005 under the laws of the PRC. TRBT is engaged in the business of building
and operation of commercial real estates in China. TRBT holds 76.1% of the
issued and outstanding capital contributions of five subsidiaries organized in
China that owns and operates shopping malls.
The five subsidiaries of TRBT, including Yudu Minpin Shopping Mall
("Yudu"), Xicheng Shopping Mall ("Xicheng", also known as Taiyuan Clothing
City), Jingpin Clothing City ("Jingpin"), Longma Shopping Mall ("Longma"), and
Xindongcheng Clothing Distribution Mall ("Xindongcheng") were owned initially
by Taiyuan Clothing City Group ("TCCG"), the predecessor company of TRBT,
prior to May, 2003. During the year 2003, these five shopping malls were
acquired by individuals and incorporated as five separate business entities.
In January, 2005, TCCG reacquired 51% ownership of each of five shopping malls
from the individual shareholders and increased its ownerships to 76.1%.
In December 2005, TRBT, which is related to Taiyuan Clothing City Group
(TCCG) through common ownership, was incorporated. In December 2005, TRBT
acquired all the shares owned by TCCG for the five shopping malls. All five
shopping malls are located in Taiyuan City, Shanxi Province, China. TRBT
leases each shopping mall booth to commercial tenants conducting business in
retail, wholesale and distribution of clothes, shoes, cosmetics, beddings,
etc.
Liquidity and Capital Resources
The Company currently generates its cash flow through operations which it
believes will be sufficient to sustain current level operations for at least
the next twelve months. In 2008, we intend to continue to work to expand our
presence in the commercial real estate market, including the acquisition of
another shopping mall.
To the extent we are successful in growing our business, identifying
potential acquisition targets and negotiating the terms of such acquisition,
and the purchase price includes a cash component, we plan to use our working
capital and the proceeds of any financing to finance such acquisition costs.
Our opinion concerning our liquidity is based on current information. If this
information proves to be inaccurate, or if circumstances change, we may not be
able to meet our liquidity needs.
2008 - 2009 Outlook
Over the course of the next few years, we intend to grow and expand our
commercial real estate business. We expect to acquire an additional 3
shopping centers within the next two years. These acquisitions will be
financed either through revenues of the Company or by financings and sales of
the Company's stock or other securities. In addition, CGDI expects to
complete the acquisition of development rights to 3,000 square metric units of
prime commercial land.
About China Growth Development
China Growth Development Inc. (CGDI) is the largest investor, owner and
manager of commercial real estate in the capital city of Taiyuan, located in
the Shanxi province of southern China. China Growth Development Inc., owns and
manages 5,000 commercial units within its six strategically located shopping
centers, servicing an urban population of 3.4 million people.
Formed in 2005, CGDI provides high-quality leasing opportunities for both
retail and wholesale clients in convenient, modern shopping centers. Our
continued focus on anticipating and satisfying the evolving needs of our
retail and wholesale clients has positioned us as a leader in commercial real
estate leasing. With a portfolio valued at over US $60 million and more than
half of the market share in commercial leasing, we are committed to defining
the urban commercial landscape of Shanxi.
Forward Looking Statements: This news release contains certain "forward-
looking statements." Forward-looking statements are based on current
expectations and assumptions and are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified, and many of
which are beyond the Company's control. The forward-looking statements are
also identified through the use of words "believe," enable," "may," "will,"
"could," "intends," "estimate," "anticipate," "plan," "predict" "probable,"
"potential," "possible," "should," "continue," and other words of similar
meaning. Actual results could differ materially from these forward-looking
statements as a result of a number of risk factors detailed in the Company's
periodic reports filed with the SEC. Given these risks and uncertainties,
investors are cautioned not to place undue reliance on such forward-looking
statements and no assurances can be given that such statements will be
achieved. China Growth Development, Inc. does not assume any duty to publicly
update or revise the material contained herein.
Contact:
China Growth Development, Inc.
(626) 581-9098
Email: info@chinagrowthdevelopment.com

-- FINANCIAL TABLES FOLLOW --

Comparison of Three and Six Months Ended June 30, 2008 and 2007.

The following table sets forth the results of our operations for the
periods indicated:

CHINA GROWTH DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

For The Three Months For The Six Months
Ended June 30, Ended June 30,
2008 2007 2008 2007

Net revenue $3,738,624 $3,459,975 $7,407,703 $6,195,900

Cost of revenue 36,361 - 36,361 -

Gross Profit 3,702,263 3,459,975 7,371,342 6,195,900

General, selling and
administrative expenses 2,548,397 1,708,276 4,339,844 3,422,813

Operating income 1,153,866 1,751,699 3,031,498 2,773,087

Non-operating income
(expenses)
Interest income 1,494 - 3,466 3,714
Interest expense (72,679) (221,931) (176,561) (138,971)
Other expense (80,982) - (101,548) -
Total non-operating
expenses (152,167) (221,931) (274,643) (135,257)

Income before provision
for income tax 1,001,699 1,529,768 2,756,855 2,637,830

Provision for income tax 22,534 17,898 43,069 30,863

Net income before minority
interest 979,165 1,511,870 2,713,786 2,606,967

Minority interest 568,817 357,886 1,254,647 148,067

Net income $410,348 $1,153,983 $1,459,138 $2,458,900

Net earnings per share:
Basic & diluted $0.03 $0.05 $0.08 $0.08

Weighted average number
of shares outstanding:
Total Current
Liabilities 32,562,612 31,500,000 32,031,306 31,500,000

CHINA GROWTH DEVELOPMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

For The Six Months
Ended June 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,459,138 $2,458,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 1,182,313 868,972
Minority interest 1,254,647 148,067
Warrants issued for compensation 191,138 -
Warrants issued in reverse acquisition 689,347 -
Decrease (increase) in current assets:
Accounts receivable 8,883 -
Inventories 17,683 -
Other receivable (29,653) (207,636)
Other receivable from related parties (43,651) -
Interest receivable from related parties 563 3,648
Advances to suppliers (74,853) -
Prepaid expenses 30,369 141,245
Increase (decrease) in liabilities:
Construction payable (765,553) (1,106,882)
Other payable (62,080) (239,744)
Tax payable 25,605 2,647,551
Accrued expense (206,256) 169,693
Deferred revenue (4,440,735) (2,819,783)
Net cash (used in) provided by
operating activities (763,095) 2,064,032

CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired on reverse acquisition 3,742 -
Acquisition of property & equipment (229,055) (837,037)
Proceeds from loan receivables from employees 9,216 -
Proceeds from loan receivables from related
parties - (101,930)
Proceeds from loan receivables from others - 59,904
Advance to related parties for notes receivable (9,435) -

Net cash used in investing activities (225,532) (879,063)

CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from loans payable 369,320 -
Net proceeds from loans from related parties 394,383 4,616
Repayments of short-term loan - (1,222,523)
Proceeds from long-term debt - 1,070,857

Net cash provided by (used in) financing activities 763,703 (147,050)

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND
CASH EQUIVALENTS 67,800 82,505

NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (157,123) 1,120,423

CASH & CASH EQUIVALENTS, BEGINNING BALANCE 1,184,621 1,676,718

CASH & CASH EQUIVALENTS, ENDING BALANCE $1,027,498 $2,797,141

SUPPLEMENTAL DISCLOSURES:
Interest paid $172,617 $138,971
Income tax paid $- $-

SOURCE China Growth Development, Inc.

China Growth Development, Inc., +1-626-581-9098,
info@chinagrowthdevelopment.com