China Golf Group, Inc. Announces Third Quarter 2010 Results

SHANGHAI, Nov. 24, 2010 /PRNewswire-Asia-FirstCall/ -- Headquartered in Shanghai, China Golf Group, Inc. ("China Golf", or the "Company", or "we"), a leading designer and developer of premium golf courses, golf communities and improved land properties in China, and the first of its kind publicly registered and reporting in the United States, today announced its financial results for the third quarter ended September 30, 2010, and the nine months ended September 30, 2010.

Highlights of Third Quarter ended September 30, 2010

• Revenues increased 6,842% to approximately $2.1 million from $29,933 for the same quarter 2009
• Cost of sales was approximately $1.1 million for the quarter 2010 compared to $15,099 one year ago
• Gross Profit increased 6,271% to $945,086 compared to $14,834 one year ago
• Gross Margin as a percentage of revenues decreased to 45.5% compared to 49.5% for the same quarter 2009
• Total operating expenses increased to $1.2 million compared to $35,335 one year ago due to expanded business operations and increased professional fees in connection with our capital markets transactions in the third quarter 2010;
• As a percentage of revenues, however, operating expenses decreased to 57.8% of revenues compared to 118.0% one year ago
• Net loss of $307,313 compared to net loss of $21,171 one year ago
• Consummated a share exchange transaction with the stockholders of Goodintend Holdings Limited, a British Virgin Islands company
• Entered into a Securities Purchase Agreement providing for the sale to investors of up to $7.0 million in common stock
• Engaged KPMG Advisory (China) Limited Beijing Branch to attest to the Company management's assessment of its internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002
• Opened its regional office in Beijing to further the Company's strategic development, marketing and sales efforts
• Positive outlook on revenue and net income growth objectives for the fourth quarter and full year 2010 through a number of contemplated development, consolidation and land transfer projects

Revenues increased 6,842% to $2,078,015 for the three months ended September 30, 2010 from $29,933 for the three months ended September 30, 2009.  The approximate $2 million increase was mainly attributable to the revenue derived from the completion of three golf course construction projects, and was also supported by our marketing efforts, increasing brand recognition and our expansion to previously unaddressed market sectors.

Cost of sales was $1,132,929 for the three months ended September 30, 2010 compared to $15,099 for the same period of 2009. The approximate $1.1 million increase in cost of sales was in line with our increased sales revenue.

Gross Profit increased 6,271% to $945,086 from $14,834, an increase of $930,252, or 6,271%, YoY attributable to the increased sales revenue recognized for the period.  Our gross profit as a percentage of revenues in the third quarter 2010, however, decreased to 45.5% compared to 49.5% in the same period of 2009. This is mainly because the costs of sales were much higher for golf course construction than design services. For the third quarter 2009, our revenue was derived from one golf course design services only, compared to our completed three golf course constructions for the same period 2010.

Total operating expenses increased to approximately $1.2 million for the third quarter 2010 from $35,335 for the same period 2009.  The change was due to the increase in general and administrative expenses, such as salary expenses in connection with our expanded business operations, as well as the increased professional expenses, such as accounting, legal and consulting fees associated with our share exchange transaction which consummated in July 2010 and our capital raise private placement activities in September 2010.  

As a percentage of revenues, however, operating expenses decreased to 57.8% of revenues for the three months ended September 30, 2010 compared to 118.0% for the same period 2009.

The Company reported a net loss of $307,313 for the third quarter, as compared to a net loss of approximately $21,171 for the same period 2009.  The decrease in its net income was primarily due to the increased costs of sales and the increased operating expenses as discussed above.

During the third quarter, China Golf consummated a share exchange transaction with the stockholders of Goodintend Holdings Limited, a British Virgin Islands company.  In September, the Company entered into a Securities Purchase Agreement providing for the sale to investors of up to $7.0 million in common stock contemplating one or more closings.   The first closing occurred on September 10 2010, through the sale of 939,992 Shares for an aggregate purchase price of $1,174,990.

Also during the quarter, China Golf retained KPMG Advisory (China) Limited Beijing Branch to assist the Company's management in carrying out the SOX 404 readiness project, and specifically, in planning and documentation of best practices of internal controls over financial reporting.    Separately, the Company opened its regional office in Beijing in the same location where the Company's strategic partner Beijing Capital Group Ltd. ("Beijing Capital") resides.   China Golf chose this location purposely to work closer with Beijing Capital and enhance the cross-sell efficiency for both companies.  

Looking into the fourth quarter, the Company management believes it will have more capacity and financial resources to focus on business executions.   In addition to a few acquisition opportunities for which China Golf has entered the late contract stage, the Company plans to start construction and consolidation of a few golf courses, selling memberships and realize some revenues from contemplated land transfer.  

Financial Highlights for the Nine Months ended September 30, 2010

• Revenues increased 528% to more than $4.8 million for the nine months ended September 30, 2010 from $772,046 for the same period 2009
• Cost of sales was approximately $2.1million for the nine months 2010 compared to $422,536 for the same period 2009
• Gross Profit increased 678% to over $2.7 million compared to $349,510 one year ago
• Gross Margin as a percentage of revenue increased to 56.1% compared to 45.2% YoY
• Total operating expenses increased to approximately $1.8 million for the nine months 2010 compared to $107,120 one year ago
• Net income attributable to the Company for the nine months ended September 30, 2010 was $843,327, an increase of 274%, over approximately $225,020 YoY
• Cash & Cash Equivalent of over $1.1 million as of September 30, 2010, compared to near $1.4 million as of December 31, 2009
• Current Assets of approximately $6.7 million as of September 30, 2010, compared to approximately $4.0 million as of December 31, 2009

The Company's revenues increased 528% to $4.847 million for the nine months ended September 30, 2010 from $772,046 for the same period 2009.  The approximate $4 million increase was mainly attributable to the revenue derived from our completed six golf course design services as well as the completion of three golf course construction projects in the nine months ended September 30, 2010.  The increase in our revenue for the nine months ended September 30, 2010 as compared to the comparable period of 2009 was also supported by our marketing efforts, increasing brand recognition and our expansion to previously unaddressed market such as golf course design projects located in Hubei, Shandong and Jiangxi provinces in China.

Cost of sales was approximately $2.1million for the nine months 2010 compared to $422,536 for the same period 2009.  The over $1.7 million increase in cost of sales for the nine months 2010 was in line with our increased sales revenue. Such increase in cost of sales was also because higher amount of revenue has been recognized for the nine months ended September 30, 2010, based on the progress of the construction of our golf course projects, therefore higher amount of construction costs were recorded based on percentage of completion method of revenue recognition. In the same period of year 2009, a relatively slower progress of our construction projects led to less recognized revenue and lower costs.

The Company's gross margin, however, increased 678% to over $2.7 million, compared to $349,510 one year ago, due primarily to the increased sales revenue recognized over the period and higher profit margin realized from more golf course design services rendered.  

Our general and administrative costs include salaries, rent expenses, audit, accounting, consulting and legal expenses and other related expenses. Total operating expenses increased to approximately $1.8 million for the nine months ended September 30, 2010 from $107,120 in the same period of 2009.  As a percentage of revenues, operating expenses increased to 36.4% for the nine months ended September 30, 2010 compared to 13.8% in the comparable period of 2009. The approximate $1.6 million increase in total operating expenses was due to the increase in salary expenses in connection with our expanded business operation, as well as increased accounting and legal expenses for the consummation of the Share Exchange Transaction and the fund raising in the third quarter of 2010. One of our controlled affiliate, Shanghai Zhonggao was founded in July 2010 and initiated its operation in July 2010. The additional expenses incurred by Shanghai Zhonggao's new operation, such as office lease expenses and increased salary expenses for the new employees, attributed to our increased general and administrative expenses. In addition, the increase in our operating expenses was also affected by our increased legal, accounting and consulting expenses incurred in connection with the Company's Share Exchange Transaction in July 2010 and the fund raising activities in September, 2010.  As a public company, we had to incur a higher amount of legal, accounting and consulting expenses in connection with our capital market transactions.  Our increased operating expenses reflected such transactions.  For the same period of 2009, we were still a private company with relatively limited business activities; as a result, operating expenses were much lower than that of the nine months ended September 30, 2010.

The Company recorded a net income of $843,327 for the nine months ended September 30, 2010, an increase of $618,307, or 274%, over the net income of approximately $225,020 for the same period 2009.  The increase in our net income was primarily due to our increased revenues and higher profit margin realized from more project design services rendered.

As of September 30, 2010, our working capital was approximately $6.1million and the operating results for the nine months ended September 30, 2010 reflected the profitability and liquidity of our business.   We recorded total Current Assets of approximately $6.681 million as of September 30, 2010, compared to $3,964 million as of December 31, 2009.  We had Cash & Cash Equivalent of approximately $1.103 million as of September 30, 2010, compared to $1.394 million as of December 31, 2009.   The decrease in cash was because our increased business activities required us to use more cash in our operations, and was also offset by an increase in Accounts Receivable from near $2 million as of December 31, 2009 to approximately $4 million as of September 30, 2010. The increased Accounts Receivable was a result of the increased number of design projects and golf course construction projects that have been completed and recognized  but have not yet been collected.

Business Outlook

The Company management expects that our emphasis on selective strategic acquisition, broadening our market coverage coupled with our increased project planning and construction, along with our enhanced sales and marketing efforts will continue to yield increases in our financial performance for fiscal year 2010 and beyond.  The management believes it will have more capacity and financial resources to focus on business executions during the fourth quarter.   In addition to a few acquisition opportunities for which China Golf has entered the late contract stage, the Company plans to start construction and consolidation of a few golf courses, selling memberships and realize some revenues from contemplated land transfer.  

Commenting on the Company's third quarter earnings, China Golf's Chief Executive Officer and Founder Mr. Tiger Bi said, "We are pleased to announce our operating Results for the first time as a public company, and we are committed to continuing our efforts to improve the business for our shareholders."  

About China Golf Group

Founded in 2006, China Golf Group ("China Golf" or the "Company") is a Shanghai headquartered, leading designer and developer of premium golf courses, golf communities and improved land properties sold to developers of private residence villas and/or corporate clubs.   In July 2010 China Golf merged with a Delaware public company and filed with the U.S. Securities and Exchange Commission ("SEC").  China Golf designs, constructs and develops premium golf courses and golf communities in the People's Republic of China ("PRC") through our PRC based operating companies.  We offer a full spectrum of golf course development and management services, including design, engineering, construction, and maintenance of golf courses as well as consulting and management of golf projects. Since the formation of Beijing Shungao in 2006, we have completed over ten golf courses in China.  With our influential strategic partners, we are expanding our business to an invest-design-build-sell model with an objective to become the top golf course management company and the largest golf course chain in China.

For more information on the Company, please visit http://www.chinagolfgroup.com/

About Strategic Alliance Beijing Capital Group Ltd.

Headquartered in Beijing, China, Beijing Capital Group Ltd. ("Beijing Capital") is a large-scale State-Owned Enterprise (SOE) affiliated to the State-Owned Assets Supervision and Administration Commission of Beijing Municipal Government. Since 1995 Beijing Capital has established three core businesses: urban infrastructure with water supply as the core, urban real estate with urban residential development and construction as the core, and financial services with investment banking and acquisition as the core. Beijing Capital has become an influential comprehensive urban investment and holding company with a well-defined strategy, clear development plan, outstanding reputation and brand recognition both within Beijing and throughout China.  With a group asset value of approximately RMB 75 billion, it owns 142 enterprises; some of them are listed on domestic or foreign stock markets or both.  Through its subsidiary Beijing Capital Land Ltd., a company listed on the Stock Exchange of Hong  Kong (HKEx stock code: 2868),  Beijing Capital is one of the largest Chinese state-owned real estate companies that focuses on urban real estate development and urban infrastructure construction.  For more information on Beijing Capital and its subsidiaries, please visit http://www.bjcapitalland.com.cn/en_investors.php?class_4.html

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release contains certain statements that may include "forward- looking statements" within the meaning of federal securities laws. All statements, other than statements of historical facts, included herein are "forward-looking statements". Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the Company's ability to successfully expand its market presence and those discussed in the Company's periodic reports that are filed with and available from the Securities and Exchange Commission. All forward- looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

SOURCE China Golf Group, Inc.

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