Sentio Healthcare Properties 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                       to

Commission File Number   333-139704

CORNERSTONE GROWTH & INCOME REIT, INC.

(Exact name of registrant as specified in its charter)

MARYLAND	20-5721212
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1920 MAIN STREET, SUITE 400, IRVINE, CA	92614
(Address of principal executive offices)	(Zip Code)

949-852-1007

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

S Yes     £ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £ Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes    x No

As of October 31, 2008, there were approximately 755,874 shares of common stock of Cornerstone Growth & Income REIT, Inc. outstanding.

1

PART I - FINANCIAL INFORMATION

FORM 10-Q

Cornerstone Growth & Income REIT, Inc.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of  September 30, 2008 and December 31, 2007 (unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2008 and September 30, 2007 (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine Months ended September 30, 2008 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2008 and September 30, 2007 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	18
Item 4(T).	Controls and Procedures	18
PART II.	OTHER INFORMATION	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 6.	Exhibits	20
SIGNATURES		21

2

CORNERSTONE GROWTH & INCOME REIT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2008			December 31, 2007
ASSETS
Cash and cash equivalents	$	3,824,000		$	85,000
Prepaid expenses and other assets		2,000			73,000
Total assets	$	3,826,000		$	158,000
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY (DEFICIT)
Accounts payable and accrued expenses	$	46,000		$	115,000
Payable to related parties (Note 4)		2,629,000			48,000
Distributions payable		24,000			-
Total liabilities		2,699,000			163,000
Minority interest		-			127,000
Commitments and contingencies (Note 7)
Stockholders’ equity (deficit):
Preferred stock, $0.01 par value; 20,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.01 par value; 580,000,000 shares authorized; 511,578 and 100 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		5,000			-
Additional paid-in capital		1,892,000			1,000
Accumulated deficit		(770,000	)		(133,000	)
Total stockholders’ equity (deficit)		1,127,000			(132,000	)
Total liabilities, minority interest and stockholders’ equity (deficit)	$	3,826,000		$	158,000

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

3

CORNERSTONE GROWTH & INCOME REIT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2008			2007			2008			2007
Revenues	$	-		$	-		$	-		$	-
Expenses
General and administrative		287,000			94,000			660,000			95,000
Real estate acquisitions costs		102,000			-			102,000			-
Operating loss		(389,000	)		(94,000	)		(762,000	)		(95,000	)
Interest income, net		2,000			-			1,000			4,000
Net loss before minority interest		(387,000	)		(94,000	)		(761,000	)		(91,000	)
Minority interest		3,000			(43,000	)		(124,000	)		(44,000	)
Net loss	$	(390,000	)	$	(51,000	)	$	(637,000	)	$	(47,000	)
Per share amount :
Basic and diluted loss allocable to common stockholders	$	(3.62	)	$	(510.00	)	$	(44.08	)	$	(470.00	)
Weighted average number of common shares		107,743			100			14,452			100

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

4

CORNERSTONE GROWTH & INCOME REIT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Nine Months Ended September 30, 2008

(Unaudited)

	Common Stock
	Number of Shares		Common Stock Par Value		Additional Paid- In Capital			Accumulated Deficit			Total
Balance – December 31, 2007		100	$	-	$	1,000		$	(133,000	)	$	(132,000	)
Issuance of common stock		511,478		5,000		5,110,000			-			5,115,000
Offering costs						(3,187,000	)					(3,187,000	)
Distributions						(32,000	)					(32,000	)
Net loss		—		—		—			(637,000	)		(637,000	)
Balance – September 30, 2008		511,578	$	5,000	$	1,892,000		$	(770,000	)	$	1,127,000

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

5

CORNERSTONE GROWTH & INCOME REIT, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30,
	2008			2007
Cash flows from operating activities
Net loss	$	(637,000	)	$	(47,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interest		(124,000	)		(44,000	)
Change in operating assets and liabilities:
Prepaid expenses and other		71,000			(105,000	)
Payable to related parties		79,000			32,000
Accounts payable and accrued expenses		(69,000	)		109,000
Net cash used in operating activities		(680,000	)		(55,000	)
Cash flows from financing activities
Issuance of common stock		5,109,000			-
Offering costs		(685,000	)		-
Distribution paid to minority interests		(3,000	)		-
Distributions paid		(2,000	)		-
Net cash provided by financing activities		4,419,000			-
Net increase (decrease) in cash and cash equivalents		3,739,000			(55,000	)
Cash and cash equivalents - beginning of period		85,000			201,000
Cash and cash equivalents - end of period	$	3,824,000		$	146,000
Supplemental disclosure on non-cash financing and investing activities
Distributions declared not paid		24,000			-
Distributions reinvested		6,000			-
Payable to related parties		2,502,000			-

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

6

CORNERSTONE GROWTH & INCOME REIT, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

(UNAUDITED)

1. Organization

Cornerstone Growth & Income REIT, Inc. a Maryland corporation (the “Company”), was formed on October 16, 2006 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate.  The Company is newly formed and is subject to the general risks associated with a start-up enterprise, including the risk of business failure.  The Company’s year end is December 31.  As used in this report, “we” “us” and “our” refer to Cornerstone Growth & Income REIT, Inc and its consolidated subsidiary, except where context otherwise requires.

Our advisor is Cornerstone Leveraged Realty Advisors, LLC, a Delaware limited liability company (the “Advisor”), formed on October 16, 2006, and an affiliate of us.  The Advisor is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf under the terms of an advisory agreement.

Cornerstone Growth & Income Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”) was formed on October 17, 2006.  At September 30, 2008, we owned approximately 96.2% general partner interest in the Operating Partnership while our Advisor owned approximately 3.8% limited partnership interest.  We anticipate that we will conduct all or a portion of our operations through the Operating Partnership. Our financial statements and the financial statements of the Operating Partnership are consolidated in the accompanying condensed consolidated financial statements.  All inter company accounts and transactions have been eliminated in consolidation.

2. Public Offering

On November 14, 2006, Terry G. Roussel, our President and CEO, purchased 100 shares of common stock for $1,000 and became our initial stockholder. Our articles of incorporation authorize 580,000,000 shares of common stock with a par value of $.01 and 20,000,000 shares of preferred stock with a par value of $.01. We are offering a maximum of 50,000,000 shares of common stock, consisting of 40,000,000 shares for sale to the public (the “Primary Offering”) and 10,000,000 shares for sale pursuant to the distribution reinvestment plan (collectively, the “Offering”).

On August 10, 2007, the Securities and Exchange Commission (“SEC”) declared our registration statement effective.  We retained Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of the Advisor, to serve as the dealer manager for the Offering.  PCC is responsible for marketing our shares being offered pursuant to the Offering.

On June 20, 2008, we filed a post-effective amendment to the registration statement relating to our initial public offering in order to expand our investment strategy to include, in addition to multi-tenant industrial properties, potential investments in healthcare and net-leased retail properties. Upon the effective date of the post-effective amendment, we began accepting subscriptions into escrow. As of August 10, 2008, we had sold approximately $1.0 million of stock to the public, which was sufficient to satisfy the minimum offering amount in all states except Minnesota, New York and Pennsylvania. On August 19, 2008, we broke escrow with respect to subscriptions received from all states except Minnesota, New York, which have minimum offering amounts of $2.5 million, and Pennsylvania, which has a minimum offering amount of $20.0 million. As of August 29, 2008, we had sold more than $2.5 million of stock to the public.  Accordingly, we broke escrow on August 29, 2008 with respect to Minnesota and New York.  We intend to invest the net proceeds from the Offering primarily in investment real estate including health care, multi-tenant industrial, net-leased retail properties and other real estate related assets located in major metropolitan markets in the United States.  As of September 30, 2008, we have not purchased any properties nor contracted to purchase any properties.

As of September 30, 2008, a total of approximately 510,895 shares of our common stock had been sold for aggregate gross proceeds of approximately $5.1 million.

3. Summary of Significant Accounting Policies

Interim Financial Information

The accompanying interim condensed consolidated financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the SEC. Certain information and note disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.  The accompanying financial information reflects all adjustments which are, in the opinion of our management, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim periods.  Interim results of operations are not necessarily indicative of the results to be expected for the full year.  Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. Our accompanying interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included on our 2007 Annual Report on Form 10-K, as filed with the SEC.

7

Cash and Cash Equivalents

We consider all short-term, highly liquid investments that are readily convertible to cash with a maturity of three months or less at the time of purchase to be cash equivalents.

Real Estate

We will account for all acquisitions in accordance with Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 141, “Business Combinations.”  The results of operations of acquired properties will be included in our consolidated statements of operations after the date of acquisition.  Upon acquisition of a property, we will allocate the purchase price of the property based upon the fair value of the assets acquired and liabilities assumed, which will generally consist of land, buildings, site improvements, tenant improvements, leasing commissions and intangible assets including in-place leases and above market and below market leases.  We will allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant.  The value of the building will generally be depreciated over an estimated useful life of 39 years.  The value of site improvements will generally be depreciated over an estimated useful life of 15-20 years.  The value of tenant improvements will be depreciated generally over the shorter of lease term or useful life.

The purchase price will be further allocated to in-place lease values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with the respective tenant.  The value of in-place lease intangibles, which will be included as a component of investments in real estate, will be amortized to expense over the remaining lease term.

Acquired above and below market leases will be valued based on the present value of the difference between prevailing market rates and the in-place rates over the remaining lease term.  The value of acquired above and below market leases will be amortized over the remaining non-cancelable terms of the respective leases as an adjustment to rental revenue on our condensed consolidated statements of operations. Should a tenant terminate its lease, the unamortized portion of the above or below market lease value will be charged to revenue.  If a lease is terminated prior to its expiration, the unamortized portion of the tenant improvements, leasing commissions, and the in-place lease value will be immediately charged to expense.

Impairment of Real Estate Assets

Management will continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate assets, including those held through joint ventures, may not be recoverable.  When indicators of potential impairment are present that indicate the carrying amounts of real estate assets may not be recoverable, we will assess the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition.  In the event that such expected undiscounted future cash flows do not exceed the carrying value, we will adjust the real estate assets to the fair value and recognize an impairment loss.

Projections of expected future cash flows require us to estimate future market rental income amounts subsequent to the expiration of current lease agreements.  Such projections require us to make assumptions regarding property operating expenses, discount rates, the number of months it takes to re-lease the property and the number of years the property is held for investment.  The use of assumptions in the future cash flows analysis may result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of our real estate assets and net income if those assumptions ultimately prove to be incorrect.

Consolidation Considerations for our Investments in Joint Ventures

The FASB issued Interpretation No. 46 (“FIN 46R”), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“ARB 51”), which addresses how a business enterprise should evaluate whether it has a controlling interest in an entity through means other than voting rights and accordingly should consolidate the entity.  Before concluding that it is appropriate to apply the ARB 51 voting interest consolidation model to an entity, an enterprise must first determine that the entity is not a variable interest entity (VIE).  We will evaluate, as appropriate, our interests, if any, in joint ventures and other arrangements to determine if consolidation is appropriate.

8

Revenue Recognition and Valuation of Receivables

Our revenues, which will be comprised largely of rental income, will include rents reported on a straight-line basis over the initial term of the lease. Because our leases may provide for free rent, lease incentives, or rental increases at specified intervals, we will be required to straight-line the recognition of revenue, which will result in the recording of a receivable for rent not yet due under the lease terms.

Depreciation of Real Property Assets

We will be required to make subjective assessments as to the useful lives of our depreciable assets.  We will consider the period of future benefit of the asset to determine the appropriate useful lives.

Depreciation of our assets is expected to be charged to expense on a straight-line basis over the assigned useful lives.

Organizational and Offering Costs

Our organization and offering costs are initially being paid by the Advisor on behalf of the Company.  Pursuant to the advisory agreement that we have entered into with our Advisor prior to commencement of the offering, we are required to reimburse the Advisor for such organization and offering costs up to 3.5% of the cumulative capital raised in the Primary Offering.  Organization and offering costs include items such as legal and accounting fees, marketing, due diligence, promotional and printing costs and amounts to reimburse our Advisor for all costs and expenses such as salaries and direct expenses of employees of our Advisor and its affiliates in connection with registering and marketing our shares.  Offering costs will be recorded as an offset to additional paid-in capital, and organization costs will be recorded as an expense at the time we become liable for the payment of these amounts.

Minority Interest in Consolidated Subsidiary

Due to our control through our general partnership interest in the Operating Partnership and the limited rights of the limited partner, the Operating Partnership is consolidated with the Company and the limited partner interest is reflected as minority interest in the accompanying condensed consolidated balance sheet.

As of September 30, 2008, the limited partner’s share of Operating Partnership losses exceeded its investments.  The limited partner has no obligation to fund Operating Partnership losses.

Income Taxes

We will be electing to be taxed as a REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”) beginning with our taxable year ending December 31, 2008.  To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% of the REIT’s ordinary taxable income to stockholders.  As a REIT, we generally will not be subject to federal income tax on taxable income that we distribute to our stockholders.  If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income taxes on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service granted us relief under certain statutory provisions.  Such an event could materially adversely affect our net income and net cash available for distribution to stockholders.  However, we believe that we will be organized and operate in such a manner as to qualify for treatment as a REIT and intend to operate in the foreseeable future in such a manner so that we will remain qualified as a REIT for federal income tax purposes.

During the nine months ended September 30, 2008, we generated a deferred tax asset of approximately $138,000.  Because we intend to qualify as a REIT in 2008, which would not allow for the realization of the deferred tax asset, a valuation allowance of a like amount was recorded.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments.  Cash is generally invested in investment-grade short-term instruments.  We have cash in financial institutions which is insured by the Federal Deposit Insurance Corporation, or FDIC, up to $100,000 per institution.  On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008, which temporarily raises the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The temporary increase in deposit insurance coverage became effective upon the President' signature. The legislation provides that the basic deposit insurance limit will return to $100,000 after December 31, 2009. As of September 30, 2008 we had cash accounts in excess of FDIC insured limits.

9

Per Share Data

We report earnings per share pursuant to SFAS No. 128, “Earnings Per Share.” Basic earnings per share attributable for all periods presented are computed by dividing the net income by the weighted average number of shares outstanding during the period.  Diluted earnings per share are computed based on the weighted average number of shares and all potentially dilutive securities, if any.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could materially differ from those estimates.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures required for fair value measurements under GAAP. SFAS 157 emphasizes that fair value is a market-based measurement, as opposed to a transaction-specific measurement.  On February 8, 2008, the FASB issued Staff Position No. SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”). FSP 157-1, which is effective upon the initial adoption of SFAS 157, excludes SFAS Statement No. 13, Accounting for Leases (“SFAS 13”), as well as other accounting pronouncements that address fair value measurements on lease classification or measurement under SFAS 13, from the scope of SFAS 157.  On February 12, 2008, the FASB issued Staff Position No. SFAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for all nonrecurring non-financial assets and liabilities until fiscal years beginning after November 15, 2008.  Accordingly, FSP 157-2 will be effective beginning January 1, 2009, and all other aspects of SFAS 157 were effective as of January 1, 2008.  We adopted SFAS 157 and FSP 157-1 on January 1, 2008 and the adoption had no material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007 (our fiscal year beginning January 1, 2008).  The adoption of this standard did not have a material effect on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations” (“SFAS 141(R)”).  In summary, SFAS 141(R) requires the acquirer of a business combination to measure at fair value the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, with limited exceptions.  The standard is effective for fiscal years beginning after December 15, 2008, and is to be applied prospectively, with no earlier adoption permitted. Real estate acquisition costs have been expensed as incurred in anticipation of our adoption of SFAS 141(R) effective January 1, 2009.

In December 2007, FASB issued Statements No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”), an amendment to Accounting Research Board No. 51. SFAS 160’s objective is to improve the relevance, comparability and transparency of financial information that a reporting entity provides in its consolidated financial statements.  The key aspects of SFAS 160 are (i) the minority interests in subsidiaries should be presented in the consolidated balance sheet within equity of the consolidated group, separate from the parent’s shareholders’ equity, (ii) acquisitions or dispositions of non-controlling interests in a subsidiary that do not result in a change of control should be accounted for as equity transactions, (iii) a parent recognizes a gain or loss in net income when a subsidiary is deconsolidated, measured using the fair value of the non-controlling equity investment, (iv) the acquirer should attribute net income and each component of other comprehensive income between controlling and non-controlling interests based on any contractual arrangements or relative ownership interests, and (v) a reconciliation of beginning to ending total equity is required for both controlling and non-controlling interests. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008 and should be applied prospectively.  We are currently evaluating the provisions for SFAS 160 to determine the potential impact, if any, the adoption will have on our financial position or results of operations.

10

In April 2008, the FASB issued FASB Staff Position SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 intends to improve the consistency between the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets, and the period of expected cash flows used to measure the fair value of the assets under SFAS 141(R).  FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions in determining the useful life of recognized intangible assets.  It requires an entity to consider its own historical experience in renewing or extending similar arrangements, or to consider market participant assumptions consistent with the highest and best use of the assets if relevant historical experience does not exist.  In addition to the required disclosures under SFAS No. 142, FSP FAS 142-3 requires disclosure of the entity’s accounting policy regarding costs incurred to renew or extend the term of recognized intangible assets, the weighted average period to the next renewal or extension, and the total amount of capitalized costs incurred to renew or extend the term of recognized intangible assets.  FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008.  While the standard for determining the useful life of recognized intangible assets is to be applied prospectively only to intangible assets acquired after the effective date, the disclosure requirements shall be applied prospectively to all recognized intangible assets as of, and subsequent to, the effective date.  Early adoption is prohibited.  The adoption of FSP FAS 142-3 is not expected to have a material impact on our consolidated financial statements.

4. Payable to Related Parties

Payable to related parties at September 30, 2008 and December 31, 2007 consists of offering costs, acquisition fees and expense reimbursements payable to our Advisor, and broker dealer management fees payable to PCC.

5. Related Party Transactions

We do not expect to have any employees.  Our Advisor is primarily responsible for managing our business affairs and carrying out the directives of our board of directors.  We have an advisory agreement with the Advisor and a dealer manager agreement with PCC entitling the Advisor and PCC to specified fees and incentives upon the provision of certain services with regard to the Offering and investment of funds in real estate projects, among other services, as well as reimbursement for organizational and offering costs incurred by the Advisor on our behalf and reimbursement of certain costs and expenses incurred by the Advisor in providing services to us.

Advisory Agreement

Under the terms of the advisory agreement, our Advisor will use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors.  The advisory agreement calls for our Advisor to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties.

The fees and expense reimbursements payable to our Advisor under the advisory agreement are described below.

Organizational and Offering Costs.  Organizational and offering costs of the Offering are being paid by the Advisor on our behalf and will be reimbursed to the Advisor from the proceeds of the Offering.  Organizational and offering costs consist of all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with the Offering, including our legal, accounting, printing, mailing and filing fees, charges of our escrow holder and other accountable offering expenses, including, but not limited to, (i) amounts to reimburse our Advisor for all marketing related costs and expenses such as salaries and direct expenses of employees of the Advisor and its affiliates in connection with registering and marketing our shares (ii) technology costs associated with the offering of our shares; (iii) our costs of conducting our training and education meetings; (iv) our costs of attending retail seminars conducted by participating broker-dealers; and (v) payment or reimbursement of bona fide due diligence expenses.  In no event will we have any obligation to reimburse the Advisor for organizational and offering costs totaling in excess of 3.5% of the gross proceeds from the Primary Offering.   Organizational costs will be expensed as incurred and offering costs which will reduce net proceeds of our offering.  As of September 30, 2008, the advisor and its affiliates had incurred on our behalf organizational and offering costs totaling approximately $2.8 million, including approximately $87,000 of organizational costs that have been expensed and approximately $2.7 of offering costs which reduce net proceeds of our offering. As of December 31, 2007, the advisor and its affiliates had incurred on our behalf organizational and offering costs totaling approximately $2.4 million

Acquisition Fees and Expenses.  The advisory agreement requires us to pay the Advisor acquisition fees in an amount equal to 2% of the costs of real estate assets acquired, including any debt attributable to such investments.  A portion of the acquisition fees will be paid upon receipt of the offering proceeds after reaching the minimum offering amount, and the balance will be paid at the time we acquire a property.  However, if the Advisory Agreement is terminated or not renewed, the Advisor must return acquisition fees not yet allocated to one of our investments.  In addition, we are required to reimburse the Advisor for direct costs the Advisor incurs and amounts the Advisor pays to third parties in connection with the selection and acquisition of a property, whether or not ultimately acquired.  For the three and nine months ended September 30, 2008 and 2007, the advisor was paid approximately $102,000 and $0 in acquisition fees, respectively, which was expensed as incurred in anticipation of our adoption of SFAS 141 (R) effective January 1, 2009.

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Development/Redevelopment Fee.  The advisory agreement requires us to pay the Advisor a development or redevelopment fee in an amount that is usual and customary for comparable services rendered to similar projects in the geographic area of the project for which the Advisor is providing us with development services.  However, we are not required to pay a development fee to the Advisor or an affiliate of the Advisor if our Advisor or any of its affiliates elects to receive an acquisition fee based on the cost of such development.

Management Fees.  The Advisory Agreement requires us to pay the Advisor a monthly asset management fee of one-twelfth of 1.0% of the sum of the aggregate book basis carrying values of our assets invested, directly or indirectly, in equity interests in and loans secured by real estate before reserves for depreciation or bad debts or other similar non-cash reserves, calculated in accordance with GAAP.  In addition, we will reimburse the Advisor for the direct costs and expenses incurred by the Advisor in providing asset management services to us.  These fees and expenses are in addition to management fees that we expect to pay to third party property managers.  For the three and nine months ended September 30, 2008 and 2007, the Advisor had not earned any asset management fees.

Operating Expenses. The advisory agreement provides for reimbursement of our Advisor’s direct and indirect costs of providing administrative and management services to us.  For three and nine months ended September 30, 2008, approximately $119,000 and $309,000, respectively, of such costs were incurred.  For three and nine months ended September 30, 2007, approximately $33,000 and $0 of such costs respectively, were reimbursed.  The Advisor must pay or reimburse us the amount by which our aggregate annual operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income unless a majority of our independent directors determine that such excess expenses were justified based on unusual and non-recurring factors.

Disposition Fee.  The Advisory Agreement provides that if the Advisor or its affiliate provides a substantial amount of the services (as determined by a majority of our directors, including a majority of our independent directors) in connection with the sale of one or more properties, we will pay the Advisor or such affiliate shall receive at closing a disposition fee up to 3% of the sales price of such property or properties.  This disposition fee may be paid in addition to real estate commissions paid to non-affiliates, provided that the total real estate commissions (including such disposition fee) paid to all persons by us for each property shall not exceed an amount equal to the lesser of (i) 6% of the aggregate contract sales price of each property or (ii) the competitive real estate commission for each property.  We will pay the disposition fees for a property at the time the property is sold.

Subordinated Participation Provisions.  The Advisor is entitled to receive a subordinated participation upon the sale of our properties, listing of our common stock or termination of the Advisor, as follows:

· After we pay stockholders cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded return, the advisor will be paid a subordinated participation in net sale proceeds ranging from a low of 5% of net sales provided investors have earned annualized return of 6% to a high of 15% of net sales proceeds if investors have earned annualized returns of 10% or more.

· Upon termination of the advisory agreement, the advisor will receive the subordinated performance fee due upon termination.  This fee ranges from a low of 5% of the amount by which the sum of the appraised value of our assets minus our liabilities on the date the advisory agreement is terminated plus total distributions (other than stock distributions) paid prior to termination of the advisory agreement exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the appraised value of our assets minus its liabilities plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

· In the event we list our stock for trading, the advisor will receive a subordinated incentive listing fee instead of a subordinated participation in net sales proceeds.  This fee ranges from a low of 5% of the amount by which the market value of our common stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 6%, to a high of 15% of the amount by which the sum of the market value of our stock plus all prior distributions (other than stock distributions) exceeds the amount of invested capital plus annualized returns of 10% or more.

Dealer Manager Agreement

PCC, as dealer manager, is entitled to receive a sales commission of up to 7% of gross proceeds from sales in the Primary Offering.  PCC, as dealer manager, is also entitled to receive a dealer manager fee equal to up to 3% of gross proceeds from sales in the Primary Offering.  The dealer manager is also entitled to receive a reimbursement of bona fide due diligence expenses up to 0.5% of the gross proceeds from sales in the Primary Offering.  The advisory agreement requires the Advisor to reimburse us to the extent that offering expenses including sales commissions, dealer manager fees and organization and offering expenses (but excluding acquisition fees and acquisition expenses discussed above) to the extent are in excess of 13.5% of gross proceeds from the Offering.  For the three and nine months ended September 30, 2008, our dealer manager earned sales commission and dealer manager fee of approximately $506,000. For the three and nine months ended September 30, 2007, our dealer manager did not earn any sales commission and dealer manager fee.

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6. Stockholders’ Equity

Common Stock

Our articles of incorporation authorize the issuance of up to 580,000,000 shares of common stock with a par value of $0.01 and 20,000,000 shares of preferred stock with a par value of $0.01.  As of September 30, 2008, we have approximately 511,578 shares of common stock outstanding for a total gross proceeds of approximately $5.1 million, of which, 583 shares were issued under the distribution reinvestment plan.  As of December 31, 2007, we had issued 100 shares of common stock for a total of $1,000 to Terry G. Roussel, an affiliate of the Advisor.

Distribution Reinvestment Plan

We have adopted a distribution reinvestment plan that allows our stockholders to have dividends and other distributions otherwise distributable to them invested in additional shares of our common stock.  We have registered 10,000,000 shares of our common stock for sale pursuant to the distribution reinvestment plan.  The purchase price per share is 95% of the price paid by the purchaser for our common stock, but not less than $9.50 per share.   As of September 30, 2008 and December 31, 2007, approximately 583 and 0 shares, respectively, had been issued under the distribution reinvestment plan.  We may amend or terminate the distribution reinvestment plan for any reason at any time upon 10 days prior written notice to participants.

The following are the distributions declared during the first, second and third quarters of 2007 and 2008:

	Distribution Declared
Period	Cash		Reinvested		Total
First quarter 2007	$	-	$	-	$	-
Second quarter 2007		-		-		-
Third quarter 2007		-		-		-
First quarter 2008		-		-		-
Second quarter 2008		-		-		-
Third quarter 2008		14,000		18,000		32,000

Employee and Director Incentive Stock Plan

We have adopted an Employee and Director Incentive Stock Plan (“the Plan”) which provides for the grant of awards to our directors and full-time employees, as well as other eligible participants that provide services to us.  We have no employees, and we do not intend to grant awards under the Plan to persons who are not directors of ours.  Awards granted under the Plan may consist of nonqualified stock options, incentive stock options, restricted stock, share appreciation rights, and dividend equivalent rights.  The term of the Plan is 10 years.  The total number of shares of common stock reserved for issuance under the Plan is equal to 10% of our outstanding shares of stock at any time.

Upon our inception, we adopted the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” (“SFAS 123R”),  which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values.  There were no share-based payment awards granted or issued as of September 30, 2008 and December 31, 2007.

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7. Commitments and Contingencies

Our Advisor has informed us that the Financial Industry Regulatory Authority (“FINRA”) (formerly, NASD) is conducting a non-public inquiry of our affiliated dealer manager that is, we understand, focused on the private placements conducted by our dealer manager during the period from January 1, 2004 through October 31, 2007.  FINRA’s correspondence requesting document production states, “This inquiry should not be construed as an indication that the Enforcement Department or its staff has determined that any violations of federal securities laws or NASD, NYSE or MSRB rules have occurred.”  We have been advised that our dealer manager is responding to FINRA’s request for information and intends to continue to cooperate in the inquiry.

Although we cannot, at this time, assess either the duration or the likely outcome or consequences of this inquiry, FINRA has the authority to impose sanctions on our dealer manager that could adversely affect its effectiveness and ability to raise funds in our offering.

8. Stock Repurchase Program

We have adopted a stock repurchase program that would enable our stockholders to sell their stock to us in limited circumstances.  We could choose to amend its provisions without stockholder approval.  As long as our common stock is not listed on a national securities exchange, our stockholders who have held their stock for at least one year may be able to have all or any portion of their shares of stock redeemed by us.  We may redeem the shares of stock presented for redemption for cash to the extent that we have sufficient funds available to fund such redemption.  The amount that we may pay to redeem stock is expected to be the redemption price set forth in the following table which is based upon the number of years the stock is held:

Number Years Held	Redemption Price
Less than 1	No Redemption Allowed
1 or more but less than 2	90% of your purchase price
2 or more but less than 3	95% of your purchase price
Less than 3 in the event of death	100% of your purchase price
3 or more but less than 5	100% of your purchase price
5 or more	Estimated value

Our board of directors could amend, suspend or terminate the program at any time upon thirty (30) days prior notice to our stockholders.  Our stock repurchase program will have limitations and restrictions and may be cancelled at any time.  The stock repurchase price is subject to adjustment as determined from time to time by our board of directors.  At no time will the stock repurchase price exceed the price at which we are offering our common stock for sale.  The estimated value will be determined by our board of directors or a firm chosen by our board of directors.

Redemption Rights

The limited partners of our Operating Partnership have the right to cause our Operating Partnership to redeem their limited partnership units for cash equal to the value of an equivalent number of our shares, or, at the our option, we may purchase their limited partnership units by issuing one share of our common stock for each limited partnership unit redeemed.  These rights may not be exercised under certain circumstances which could cause us to lose our REIT election. Furthermore, limited partners may exercise their redemption rights only after their limited partnership units have been outstanding for one year.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Company’s financial statements and notes thereto contained elsewhere in this report.  Certain statements in this section and elsewhere contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements may relate to risks and other factors that may cause the Company’s future results of operations to be materially different than those expressed or implied herein.  Some of these risks and other factors include, but are not limited to: (i) the Company does not own any properties and does not have an operating history; (ii) suitable investment properties may not be available and (iii) adverse changes to the general economy may disrupt operations.  All forward-looking statements should be read in light of the risks identified in Part II, Item 1A herein and Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2007 filed with the SEC.

Overview

Cornerstone Growth & Income REIT, Inc. , a Maryland corporation (the “Company”), was formed on October 16, 2006 under the General Corporation Law of Maryland for the purpose of engaging in the business of investing in and owning commercial real estate.  The Company is newly formed and is subject to the general risks associated with a start-up enterprise, including the risk of business failure.  The Company’s year end is December 31.  As used in this report, “we” “us” and “our” refer to Cornerstone Growth & Income REIT, Inc. and its consolidated subsidiary, except where context otherwise requires.

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On November 14, 2006, Terry G. Roussel, our President and CEO, purchased 100 shares of common stock for $1,000 and became our initial stockholder.  Our articles of incorporation authorize 580,000,000 shares of common stock with a par value of $0.01 and 20,000,000 shares of preferred stock with a par value of $0.01.  We are offering a maximum of 50,000,000 shares of common stock, consisting of 40,000,000 shares for sale to the public (the “Primary Offering”) and 10,000,000 shares for sale pursuant to the distribution reinvestment plan (collectively, the “Offering”).

On August 10, 2007, the Securities and Exchange Commission (“SEC”) declared our registration statement effective.  We retained Pacific Cornerstone Capital, Inc. (“PCC”), an affiliate of the advisor, to serve as the dealer manager for the Offering.  PCC is responsible for marketing our shares being offered pursuant to the Offering.

On June 20, 2008, we filed a post-effective amendment to the registration statement relating to our initial public offering in order to expand our investment strategy to include, in addition to multi-tenant industrial properties, potential investments in healthcare and net-leased retail properties. Upon the effective date of the post-effective amendment, we began accepting subscriptions into escrow. As of August 10, 2008, we had sold approximately $1.0 million of stock to the public, which was sufficient to satisfy the minimum offering amount in all states except Minnesota, New York and Pennsylvania. On August 19, 2008, we broke escrow with respect to subscriptions received from all states except Minnesota, New York, which have minimum offering amounts of $2.5 million, and Pennsylvania, which has a minimum offering amount of $20.0 million. As of August 29, 2008, we had sold more than $2.5 million of stock to the public.  Accordingly, we broke escrow on August 29, 2008 with respect to Minnesota and New York.  We intend to invest the net proceeds from the Offering primarily in investment real estate including health care, multi-tenant industrial, net-leased retail properties and other real estate related assets located in major metropolitan markets in the United States.  As of September 30, 2008, we have not purchased any properties nor contracted to purchase any properties.

At September 30, 2008, we had not commenced our intended operating activities, and accordingly, our results of operations for the three and nine months ended September 30, 2008 are not indicative of those expected in future periods.

We have no employees and are externally advised and managed by Cornerstone Leveraged Realty Advisors, LLC (the “Advisor”).

Critical Accounting Policies

There have been no material changes to our critical accounting policies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2007.

Factors That May Influence Future Results of Operations

Recent market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth through the third quarter of 2008. For the nine-month period ended September 30, 2008, continued concerns about the energy costs,  and the availability and cost of credit, have contributed to increased market volatility and diminished expectations for the U.S. economy. In the third quarter, added concerns fueled by the federal government conservatorship of the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, the declared bankruptcy of Lehman Brothers Holdings Inc., the U.S. government provided loan to American International Group Inc. and other federal government interventions in the U.S. credit markets lead to increased market uncertainty and instability in both U.S. and international capital and credit markets. These conditions, combined with volatile oil prices, declining business and consumer confidence and increased unemployment have in recent weeks subsequent to the end of the quarter contributed to volatility of unprecedented levels.

As a result of these market conditions, the cost and availability of credit may continue to be adversely affected by illiquid credit markets.

Results of Operations

The Company has not commenced active operations as of the date of this report.  Operating results in future periods will depend on the results of the operation of the real estate properties that are acquired by the Company.   The Company did not engage in any operations and, accordingly, had no income no property expenses.

For the three and nine months ended September 30, 2008 and 2007, the Company engaged only in activities related to its stock offering, which commenced in August 2007.

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Three months ended September 30, 2008 and 2007

General and administrative expenses increased to $287,000 from $94,000 for the comparable period of 2007.   The increase is due primarily to a full three months of stock offering activities in 2008 compare to only two months of stock offering activities in 2007. Real estate acquisition costs increased to $102,000 from $0 for the comparable period of 2007.  The increase is due primarily to acquisition-related fees paid to our Advisor subsequent to us reaching the minimum offering amount on August 10, 2008.

Nine months ended September 30, 2008 and 2007

General and administrative expenses for the nine months ended September 30, 2008 increased to $660,000 from $95,000 for the comparable period of 2007.  The increase is due primarily to a full nine months of stock offering activities in 2008 compare to only two months of stock offering activities in 2007. Real estate acquisition costs increased to $102,000 from $0 for the comparable period of 2007.  The increase is due primarily to acquisition-related fees paid to our Advisor subsequent to us reaching the minimum offering amount on August 10, 2008.

Liquidity and Capital Resources

We expect that primary sources of capital over the long term will include net proceeds from the sale of our common stock and net cash flows from operations.  We expect that our primary uses of capital will be for property acquisitions, for the payment of tenant improvements and leasing commissions, operating expenses, including interest expense on any outstanding indebtedness, distributions and for the repayment of notes payable.

As of September 30, 2008, we had approximately $3.8 million in cash and cash equivalents on hand.  Our liquidity will increase as additional subscriptions are accepted and decrease as net offering proceeds are expended in connection with the acquisition and operation of properties.

Until proceeds from our Offering are invested and generating operating cash flow sufficient to make distributions to stockholders, we intend to pay all or a substantial portion of our distributions from the proceeds of our Offering or from borrowings in anticipation of future cash flow.  For the nine months ended September 30, 2008, distributions to stockholders were paid from proceeds of our offering in anticipation of future cash flow.

We are dependent on our Advisor to fund our organization and offering activities.  As of the date of this report , we are relying on our Advisor because we have not raised sufficient capital to pay these expenses and because the amount we can spend on organization and offering expenses (including sales commissions, dealer manager fee and due diligence expense allowance) is limited to 13.5% of the gross proceeds from the Offering.  Our Advisor will pay those expenses on our behalf.  We will reimburse our Advisor for expenses paid on our behalf using the gross proceeds of the Offering subject to the 13.5% limitation described above.  Our Advisor will pay all of our organization and offering expenses which are in excess of the 13.5% limitation.  We will repay our Advisor for expenses paid on our behalf using the gross proceeds of our Offering but in no event will we have to reimburse our Advisor for organization and offering expenses, (excluding sales commissions dealer manager fee and due diligence expense allowance) totaling in excess of 3.5% of the gross proceeds from our Offering.  As of September 30, 2008, our advisor had incurred approximately $2.8 million of organization and offering costs on our behalf.  Of this amount, we have reimbursed approximately $175,000 to our advisor.  Our advisor will not charge us interest on these advances.  We will not rely on advances from our Advisor to acquire properties but our Advisor and its affiliates may loan funds to special purposes entities which may acquire properties on our behalf pending our raising of sufficient proceeds from our Offering to purchase the properties from the special purpose entity.

Our Advisor is newly formed, has limited capitalization, has incurred losses since its inception and is continuing to incur losses.  Our Advisor must raise funds through the sale of its own debt or equity securities, or obtain financial support from its affiliates or sole member, to obtain the cash necessary to provide these advances.  There can be no assurance as to the amount or timing of our Advisor’s receipt of funds.  Adverse changes in the financial condition of our Advisor could adversely affect us.  If our Advisor’s financial condition affects the amount of funds available to us for organization and offering activities, our ability to raise funds in this offering could be adversely affected. CIP Leveraged Fund Advisors, LLC, the sole and managing member of our Advisor, has limited capitalization, has incurred significant losses since its inception and is continuing to incur significant losses.

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We will require funds for property acquisitions, either directly or through investment interests, for paying operating expenses and distributions, and for paying interest on our outstanding indebtedness, if any.  Generally, cash from operations will be used to pay for items other than property acquisitions, and the proceeds from the public Offerings of our stock and debt financings, if any, will be used to fund property acquisitions.

We intend to own our core plus properties with low to moderate levels of debt financing.  We will incur moderate to high levels of indebtedness when acquiring our value-added and opportunistic properties and possibly other real estate investments.  During the offering period, we intend to use debt financing to facilitate our acquisitions of properties in anticipation of receipt of offering proceeds.  The debt levels on core plus properties during the offering period may exceed the long-term target range of debt percentages on these types of properties.  However, we intend to reduce the percentage to fall within the 40% to 50% range no later than the end of the Offering.  Currently, we have no credit facilities in place, but intend to locate adequate debt financing as appropriate consistent with our investment policies.  To the extent sufficient proceeds from the Offering, debt financing, or a combination of the two are unavailable to repay acquisition debt financing down to the target ranges within a reasonable time as determined by our board of directors, we will endeavor to raise additional equity or sell properties to repay such debt so that we will own our properties with low to moderate levels of permanent financing.  In the event that the Offering is not fully sold, our ability to diversify our investments may be diminished.

During the period between the execution of the purchase contract for a property and the satisfaction of any closing conditions, such as completion of financing arrangements, if any, review of the title insurance commitment, an appraisal, an environmental analysis and other due diligence, we may decide to temporarily invest any unused proceeds from the Offering in certain investments that could yield lower returns than the properties.  These lower returns may affect our ability to make distributions.

Potential future sources of capital include proceeds from future equity offerings, proceeds from secured or unsecured financings from banks or other lenders, proceeds from the sale of properties and undistributed funds from operations.  If necessary, we may use financings or other sources of capital at the discretion of our board of directors.

Financial markets have recently experienced unusual volatility and uncertainty. Liquidity has tightened in all financial markets, including the debt and equity markets.  Our ability to fund property acquisitions or development projects could be adversely affected by an inability to secure financing at reasonable terms, if at all.

Contractual Obligations

As of September 30, 2008, we had no contractual obligations or commercial commitments.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments.  In pursuing our business plan, we expect that the primary market risk to which we will be exposed is interest rate risk.  The Company invests its cash and cash equivalents in FDIC insured savings account which, by its nature, is subject to interest rate fluctuations.  As of September 30, 2008, a 1% increase or decrease in interest rates would have no material effect on our interest income.

Item 4(T).  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We are in the process of developing and implementing a formal set of internal controls and procedures for financial reporting as required by the Sarbanes-Oxley Act of 2002.  The efficacy of the steps we have taken to date and steps we are still in the process of completing are subject to continued management review supported by confirmation and testing by management.  We anticipate that additional changes may be made to our internal controls and procedures.  Other than the foregoing initiatives, no change in our internal control over financial reporting occurred during the period ended September 30, 2008 that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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Subject to the limitations notes above, our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) as of the period ended September 30, 2008.  Based on this evaluation, the chief executive officer and chief financial officer have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objectives for which they were designed and operate at a reasonable assurance level.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.  Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

The following risk supplements the risks disclosed in our annual report on Form 10-K for the fiscal year ended December 31, 2007.

Recent disruptions in the financial markets and deteriorating economic conditions could adversely affect the values of our investments and our ongoing results operations.

Turmoil in the capital markets has constrained equity and debt capital available for investment in commercial real estate, resulting in fewer buyers seeking to acquire commercial properties and consequent reductions in property values.  Furthermore, the current state of the economy and the implications of future potential weakening may negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our future  portfolio.  The current downturn may impact our future tenants’ business operations directly, reducing their ability to pay base rent, percentage rent or other charges due to us.

Liquidity in the global credit market has been significantly contracted by market disruptions, making it costly to obtain new lines of credit or refinance existing debt, when debt financing is available at all.  We rely on debt financing to finance our properties and we expect to continue to use debt to acquire properties and other real estate-related investments.

The occurrence of these events could have the following negative effects on us:

· the values of our future investments in commercial properties could decrease below the amounts we paid for the investments; and

· revenues from our future properties could decrease due to lower occupancy rates, reduced rental rates and potential increases in uncollectible receivables;

· we may not be able to refinance our future indebtedness or to obtain additional debt financing on attractive terms.

These factors could impair our ability to make distributions to you and decrease the value of your investment in us.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On August 10, 2007, our Registration Statement on Form S-11 (File No. 333-139704), covering a public offering of up to 40,000,000 shares of common stock, was declared effective under the Securities Act of 1933. The offering commenced on August 10, 2007 and has not terminated.   As of September 30, 2008, we had sold approximately 510,895 shares of common stock in our ongoing offering and raised gross offering proceeds of approximately $5.1 million.  From this amount, we incurred approximately $0.5 million in selling commissions and dealer manager fees payable to our dealer manager and approximately $0.1 million in acquisition fees payable to our advisor.  We have not acquired any properties as of September 30, 2008.

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As of September 30, 2008, the advisor and its affiliates had incurred on our behalf organizational and offering costs totaling approximately $2.8 million which reduce net proceeds of our offering.

Item 6.       Exhibits

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 10th day of November 2008.

CORNERSTONE GROWTH & INCOME REIT, INC.
By:	/s/ TERRY G. ROUSSEL
	Terry G. Roussel, Chief Executive Officer
By:	/s/ SHARON C. KAISER
	Sharon C. Kaiser, Chief Financial Officer
	(Principal Financial Officer and
	Principal Accounting Officer)

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