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EX-31.2 - UNIVERSAL TRAVEL GROUPv229405_ex31-2.htm
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EX-32.2 - UNIVERSAL TRAVEL GROUPv229405_ex32-2.htm
EX-32.1 - UNIVERSAL TRAVEL GROUPv229405_ex32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 3 to
 
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 June 30, 2010

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________ to _____________

Commission file number: 001-34284

UNIVERSAL TRAVEL GROUP
(Exact name of registrant as specified in its charter)

Nevada
 
90-0296536
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)

9F, Building A, Rongchao Marina Bay Center
NO. 2021 Haixiu Road, Bao’an District, Shenzhen
People’s Republic of China
 
518133
(Address of principal executive offices)
 
(Zip Code)

86 755 83668489
 (Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities 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 90days.
Yes x   No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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. Seethe definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer
¨
       
Non-accelerated filer
¨
Smaller reporting
company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨   No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes ¨   No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

As of August 6, 2010, there are 19,898,229 shares of $0.001 par value common stock issued and outstanding.

 
 

 
 
EXPLANATORY NOTE
 
This Amendment No. 3 to Form 10-Q (this “Amendment”) hereby amends our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, previously filed with the Securities and Exchange Commission (the “Commission’) on August 10, 2010, and as amended by Amendment No. 1 on August 12, 2010 and Amendment No. 2 on August 24, 2010 (the “Report”). This Amendment is being filed mainly to reclassify and restate certain line items on the June 30, 2010 unaudited consolidated financial statements.
 
In this Amendment, the Company has

 
·
Reclassified cash restricted by local travel bureau from cash and cash equivalent to restricted cash;
 
·
Restated goodwill, intangible assets, deferred tax liabilities, and retained earnings due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the Company;
 
·
Reclassified business tax and levies from selling expenses and COGS to revenues;
 
·
Reclassified commission paid to retail air ticketing agencies from selling expenses to COGS;
 
·
Restated overstated net income $857,027, revenues $10,579,717, and expenses for the six months ended June 30, 2010 and net income $313,620, revenues $4,875,489, and expenses for the three months ended June 30, 2010 due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the Company;
 
·
Restated overstated retained earnings $857,027 due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the Company;
 
·
Restated the corresponding line items on the consolidated statements of cash flows as a result of above reclassifications and restatement;
 
·
Restated the corresponding line items on the segment information as a result of above reclassifications and restatement;
 
·
Reclassified the revenue and cost of services of hotel reservation business in Huangshan Holiday Travel Service Co., Ltd. from packaged tours segment to hotel reservation segment; and
 
·
Reclassified the revenue and cost of services of packaged tours business in Chongqing Travel World E-Business Co., Ltd. from air ticketing segment to packaged tours segment.

Pursuant to the above reclassification and restatement, we have also revised our disclosure under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
 
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment contains new certifications pursuant to Rules 13a-14 and 15d-14 under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.
 
Except as discussed above, the Company has not modified or updated disclosures presented in this Amendment, except as required to reflect the effects of the restatement. Accordingly, this Amendment does not reflect events occurring after the Report or modify or update those disclosures affected by subsequent events, except as specifically referenced herein. Information not affected by the restatement is unchanged and reflects the disclosures made at the time of the Report.

 
 

 

FORM10-Q/A
UNIVERSALTRAVEL GROUP
INDEX

     
Page
       
PART I.
Financial Information
   
       
 
Item 1.  Financial Statements (Unaudited)
   
       
 
Report of  Independent Registered Public Accounting Firm
   
       
 
Consolidated Balance Sheets as of  June 30, 2010 (Unaudited) and December 31, 2009
  1
       
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)
  2
       
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)
  5
       
 
Consolidated Statements of Stockholders' Equity
  4
       
 
Notes to Consolidated Financial Statements as of  June 30, 2010 (Unaudited)
  6
       
 
Item 2.  Management’s Discussion and Analysis of Financial Condition or Results of Operation
  35
       
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
  46
       
 
Item 4.  Controls and Procedures
  46
       
PART II.
Other Information
   
       
 
Item 1.  Legal Proceedings
  46
       
 
Item 1A. Risk Factors.
  46
       
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
  47
       
 
Item 3.  Defaults Upon Senior Securities
  47
       
 
Item 4.  (Removed and Reserved).
  47
       
 
Item 5.  Other Information
  47
       
 
Item 6.  Exhibits
  47
 
 
 

 

PARTI - FINANCIAL INFORMATION

Item1. Financial Statements (Unaudited)

UNIVERSAL TRAVEL GROUP
 
CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2010

 
 

 

ACSB Acquavella, Chiarelli, Shuster, Berkower & Co., LLP
517 Route one
1 Penn Plaza
Iselin, New Jersey, 08830
36the Floor
732.855.9600
New York, NY 10119

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Universal Travel Group
 
We have reviewed the accompanying balance sheet of Universal Travel Group. (the “Company”) as of June 30, 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the six-month period ended June 30, 2010. These financial statements are the responsibility of the company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2009 and the related consolidated statements of income, retained earnings and comprehensive income, and consolidated statement of cash flows for the year then ended; and in our report dated February 22, 2010, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
Acquavella, Chiarelli, Shuster, Berkower & Co., LLP
 
Certified Public Accountant
New York, N.Y.
August 10, 2010

 
 

 

TABLEOF CONTENTS

Consolidated Balance Sheets
 
1
     
Unaudited Consolidated Statements of Income and Comprehensive Income
 
2-3
     
Unaudited Consolidated Statements of Cash Flows
 
5
     
Unaudited Consolidated Statements of Stockholders’ Equity
 
4
     
Notes to Unaudited Consolidated Financial Statements
 
6-34

 
 

 

UNIVERSALTRAVEL GROUP
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2010 AND DECEMBER 31, 2009

   
6/30/2010
   
12/31/2009
 
   
Restated
       
ASSETS
           
Cash and cash equivalents
  $ 43,488,236     $ 36,574,741  
Restricted Cash
    103,223       102,681  
Accounts receivable, net
    19,555,644       17,321,174  
Other receivables and deposits, net
    2,127,552       257,907  
Due from related party
    6,986,717       -  
Trade deposit
    7,706,484       9,775,735  
Advances
    -       440,063  
Prepayments
    2,389,960       216,727  
Note receivable
    227,182       1,711,392  
Acquisition Deposits
    3,599,530       4,077,921  
Total Current Assets
    86,184,528       70,478,341  
                 
Property, plant & equipment, net
    6,487,219       4,992,677  
Intangible assets
    3,482,297       339,240  
Goodwill
    24,508,909       9,896,270  
Total Noncurrent Assets 
    34,478,425       15,228,187  
Total Assets
  $ 120,662,953     $ 85,706,528  
                 
 LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Accounts payable and accrued expenses
  $ 6,507,357     $ 2,615,730  
Customer deposits
    1,334,192       2,000,117  
Income tax payable
    2,063,161       1,654,475  
Total Current Liabilities
    9,904,710       6,270,322  
Derivative liability
    866,314       1,815,319  
Deferred tax liabilities
    809,094       -  
Total  Liabilities
    11,580,118       8,085,641  
                 
Stockholders' Equity
               
Common stock, $.001 par value, 70,000,000 shares authorized, 19,898,235 and 16,714,457 issued and outstanding at June 30, 2010 and December 31,  2009, respectively
    19,898       16,714  
Additional paid in capital
    59,947,337       37,671,645  
Statutory reserve
    732,282       372,144  
Retained earnings
    47,192,264       37,915,251  
Accumulated other comprehensive income
    1,191,054       1,645,133  
Total Stockholders' Equity
    109,082,835       77,620,887  
Total Liabilities and Stockholders' Equity
  $ 120,662,953     $ 85,706,528  

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

 
1

 

UNIVERSALTRAVEL GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30,

   
2010
   
2009
 
   
Restated
       
Gross revenues,
  $ 31,866,123     $ 18,232,926  
Cost of services
    23,135,302       12,342,782  
Gross profit
    8,730,821       5,890,144  
                 
Selling, general and administrative expenses
    2,077,197       925,369  
Income from operations
    6,653,624       4,964,775  
                 
Other income (expense)
               
Other income
    3,363       2,591  
Gain/(Loss) on change in fair value of derivative liabilities
    839,553       (5,819,481 )
Interest income
    16,522       12,358  
Total other income (expense)
    859,438       (5,804,532 )
Income/(Loss) before income taxes –continuing operations
    7,513,062       (839,757 )
                 
Provision for income taxes
    1,782,484       1,020,955  
Income(Loss) from continuing operations
    5,730,578       (1,860,712 )
                 
Income/(loss) from discontinued operations
    -       46,282  
Loss on disposition of discontinued operations
    -       (770,595 )
Net income/(loss) from discontinued operation
    -       (724,313 )
                 
Net income/(loss)
  $ 5,730,578     $ (2,585,025 )
                 
Comprehensive income/(loss)
               
Net income/(loss)
  $ 5,730,578     $ (2,585,025 )
Foreign currency translation adjustments
    49,825       13,880  
Total comprehensive income/(loss)
  $ 5,780,403     $ (2,571,145 )
                 
Income (Loss) per common share from continuing operations
               
Basic
  $ 0.33     $ (0.14 )
Diluted
  $ 0.31     $ (0.13 )
Net loss per common share – discontinued operations
               
Basic
  $ -     $ (0.05 )
Diluted
  $ -     $ (0.05 )
Total net income (loss) per common share
               
Basic
  $ 0.35     $ (0.19 )
Dilute
  $ 0.31     $ (0.18 )
Weighted average common shares outstanding
               
Basic
    17,404,834       13,829,091  
Diluted
    18,219,639       14,301,057  

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

 
2

 

UNIVERSALTRAVEL GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30,

   
2010
   
2009
 
   
Restated
       
Gross revenues,
  $ 52,291,902     $ 33,654,919  
Cost of services
    37,304,787       22,648,834  
Gross profit
    14,987,115       11,006,085  
Selling, general and administrative expenses
    3,643,184       1,802,298  
Income from operations
    11,343,931       9,203,787  
                 
Other income (expense)
               
Other income
    6,917       6,419  
Gains/(losses) on change in fair value of derivative liabilities
    949,004       (5,706,217 )
Interest income
    38,711       23,296  
Total other income (expense)
    994,632       (5,676,502 )
Income before income taxes - continuing operation
    12,338,563       3,527,285  
                 
Provision for income taxes
    3,061,550       2,138,151  
Net income - continuing operation
    9,277,013       1,389,134  
                 
Income/(loss) from discontinued operations
            177,975  
Loss on disposition
    -       (770,595 )
Net income/(loss) from discontinued operation
    -       (592,620 )
                 
Net income
  $ 9,277,013     $ 796,514  
Comprehensive Income
               
Net income
  $ 9,277,013     $ 796,514  
Foreign currency translation adjustments
    (454,079 )     48,587  
Total comprehensive income
  $ 8,822,934     $ 845,101  
                 
Net income per common share - continuing operations
               
Basic
  $ 0.54     $ 0.10  
Diluted
  $ 0.52     $ 0.10  
Net income/(loss) per common share - discontinued operations
               
Basic
  $ -     $ (0.04 )
Diluted
  $ -     $ (0.04 )
Total net income per common share
               
Basic
  $ 0.54     $ 0.06  
Diluted
  $ 0.52     $ 0.06  
Weighted average common shares outstanding
               
Basic
    17,066,154       13,851,530  
Diluted
    17,935,313       14,277,656  

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

 
3

 

UNIVERSALTRAVEL GROUP
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31,2009
 
                                 
Accumulated
       
               
Additional
               
Other
   
Total
 
               
Paid In
   
Statutory
   
Retained
   
Comprehensive
   
Stockholders’
 
  
       
Amount
   
Capital
   
Reserve
   
Earnings
   
Income
   
Equity
 
                                           
Balance December 31, 2008
    13,873,969     $ 13,873     $ 15,861,116     $ 372,144     $ 26,633,573     $ 1,520,166     $ 44,400,872  
                                                         
Cumulative effect of a change in accounting principle-adoption of EITF 07-05 effective January 1, 2009
    -       -       (2,091,738 )     -       536,777       -       (1,554,961 )
Foreign currency translation adjustments
    -       -       -       -       -       124,967       124,967  
Stock based compensation – Net of warrants exercise
    41,120       42       1,154,367       -       -       -       1,154,409  
Fair market value Of treasury stock received and retired
    (238,095 )     (239 )     (2,780,711 )     -       -       -       (2,780,950 )
Warrants exercised
    811,941       813       6,571,017       -       -       -       6,571,830  
Options exercised
    3,300       3       9,567       -       -       -       9,570  
Stock issued for cash net of offering costs
    2,222,222       2,222       18,948,027       -       -       -       18,950,249  
Income for the year ended December 31, 2009
    -       -       -       -       10,744,901       -       10,744,901  
                                                         
Balance December 31, 2009 (Restated)
    16,714,457     $ 16,714     $ 37,671,645     $ 372,144     $ 37,915,251     $ 1,645,133     $ 77,620,887  
Foreign currency translation adjustments
    -       -       -       -       -       (454,079 )     (454,079 )
Stock based compensation
    -       -       677,004       -       -       -       677,004  
Stock issued for acquisitions
    326,635       327       2,833,491       360,138       -       -       3,193,956  
Stock issued for cash net of offering costs
    2,857,143       2,857       18,765,197       -       -       -       18,768,054  
Income for the six months ended June 30, 2010
    -       -       -       -       9,277,013       -       9,277,013  
                                                         
Balance June 30, 2010 (Restated)
    19,898,235     $ 19,898     $ 59,947,337     $ 732,282     $ 47,192,264     $ 1,191,054     $ 109,082,835  

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

 
4

 

UNIVERSALTRAVEL GROUP
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,

   
2010
   
2009
 
   
Restated
   
Restated
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 9,277,013     $ 796,514  
Add:
               
Net income from discontinued operations
    -       592,620  
Income from continuing operations
    9,277,013       1,389,134  
Adjustments to reconcile net income to net cash provided by operating activities
               
Depreciation and amortization
    763,707       190,739  
Provision for doubtful accounts
    56,824       10,905  
Stock based compensation
    677,004       495,725  
Gain on change in fair value of derivative liabilities
    (949,004 )     5,706,217  
(Increase) / Decrease in assets:
               
Restricted cash
    (542 )     -  
Accounts receivable
    (2,068,457 )     (2,556,854 )
Other receivable
    (726,410 )     (2,682,324 )
Due from related party
    (6,986,717 )     -  
Advances
    440,063       (758 )
Prepayments
    (1,676,062 )     32,791  
Trade deposits
    2,077,455       3,168,216  
Escrow deposits
    -       600,499  
Increase / (Decrease) in current liabilities:
               
Accounts payable and accrued expenses
    3,358,139       1,601,759  
Customer deposits
    (682,465 )     (160,426 )
Income tax payable
    49,711       (848,691 )
Net cash provided by continuing operations
    3,610,258       6,946,932  
Net cash provided by discontinued operations
    -       435,259  
Net cash provided by operating activities
    3,610,258       7,382,191  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of property & equipment
    (1,864,774 )     (3,558,705 )
Purchase of  intangibles
    (51,359 )     (168,955 )
Proceeds from collection of notes
    1,484,210       -  
Acquisition deposits
    478,391       -  
Paid for acquisition – net of cash acquired
    (15,782,799 )     (1,035,125 )
Net cash (used in) investing activities
    (15,736,331 )     (4,762,785 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Proceeds of equity financing
    18,768,054       -  
Net cash provided by financing activities
    18,768,054       -  
                 
Effect of exchange rate changes on cash and cash equivalents
    271,514       48,587  
                 
Net change in cash and cash equivalents
    6,913,495       2,667,993  
Cash and cash equivalents, beginning balance
    36,574,741       15,720,182  
Cash and cash equivalents, ending balance
  $ 43,488,236     $ 18,388,175  
                 
SUPPLEMENTAL DISCLOSURES:
               
Cash paid during the year for:
               
Income taxes
  $ 2,380,077     $ 3,043,089  
Other non-cash transactions
               
Net assets sold of discontinued operations
  $ -     $ 1,659,292  
Goodwill attributable to sold discontinued operations
    -       3,630,539  
Note received on disposition
    -       (2,773,411 )
Fair value of treasury stock received
    -       (2,780,950 )
Loss on disposition
    -       (770,595 )
Cash of discontinued operations
  $ -     $ (1,035,125 )
Purchased goodwill
  $ (14,612,639 )   $ -  
Purchased intangible assets
    (3,236,376 )     -  
Fair value of assets purchased less cash acquired
    (767,602 )     -  
Acquisition financed with stock issuance
    2,833,818       -  
Acquisition paid for with cash - net of acquired
  $ (15,782,799 )   $ -  

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

 
5

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 1 - ORGANIZATION

Universal Travel Group was incorporated on January 28, 2004 under the laws of the State of Nevada. Full Power Enterprise Global Limited – BVI was incorporated under the laws of the British Virginia Islands. Shenzhen Yuzhilu Aviation Service Co., Ltd. was incorporated on March 9, 1998 under the laws of the Peoples Republic of China (PRC)., Shenzhen Speedy Dragon Enterprises Limited was incorporated in August of 2002 under the laws of PRC, Xian Golden Net Travel Serve Services was incorporated on July 25, 2001 under the laws of PRC, Shanghai Lanbao Travel Service Co., Ltd. was established in 2002 under the laws of Shanghai China. Foshan Overseas International Travel Service Co., Ltd. was incorporated in 1990under the laws of PRC, Chongqing Universal Travel E-Commerce Co., Ltd. and Shenzhen Universal Travel Agency Co., Ltd. were both incorporated in 2009 under the laws of PRC, Hebei Tianyuan Travel Agency Co., Ltd. was incorporated inApril 1999 under the laws of PRC, Huangshan Holiday Travel Service Co., Ltd. was incorporated in April 1999 under the laws of PRC, Zhengzhou Yulongkang Travel Agency Co., Ltd. was incorporated in 2000 under the laws of PRC,  Kunming Business Travel Service Co., Ltd. was incorporated in1993 under the laws of PRC, Shanxi Jinyang Travel Agency Co., Ltd. was incorporated in 1988 under the laws of PRC. Full Power Enterprise Global Limited owns 100% of the Shenzhen Yuzhilu Aviation Service Co., Ltd. Collectively these corporations are referred to herein as the Company.

On June12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen Speedy Dragon Enterprise Limited a discontinued operations. The Company is now engaged in the travel business, including airline ticketing, hotel reservation services and technological solutions to travel reservations, and tour planning and tour guide services.

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying audited consolidated financial statements have been prepared inconformity with accounting principles generally accepted in the United States of America. The Company's functional currency is the Chinese Renminbi, however the accompanying audited consolidated financial statements have been translated and presented in United States Dollars.

Reclassification

Certain prior-year amounts have been reclassified to conform to the current-year presentation. These reclassifications had no effect on reported income or losses.
 
Discontinued Operations

On June12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited (“Speedy Dragon”). The Company had acquired all the equity interest in Speedy Dragon on or about April 10, 2007 in exchange for238,095 (post-reverse split) shares of the Company’s common stock and an interest-free promissory note in the principal amount of $3,000,000 payable no later than April 10, 2008 (see Note 7).  Pursuant to the termination agreement, the Company transferred back the equity interest in Speedy Dragon on/or before June 30, 2009 and that the 238,095 (post-reverse split) shares of the Company’s common stock were returned to the Company and canceled as of June 30,2009.  In addition, the sole shareholder of Speedy Dragon was also required to return to the Company an aggregate of $2,773,411, in cash, within one year of the completion of all the formalities of the termination agreement. The cash to be returned to the Company included a declared dividend in the amount of $2,260,981 to be paid to the Company.

 
6

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Discontinued Operations (Continued)

The loss on disposal of Shenzhen Speedy Dragon Enterprises Ltd was as following:

Consideration
 
$
5,554,361
 
Goodwill attributable to sold Shenzhen Speedy Dragon Enterprises Ltd.
   
(3,630,539
)
Net equity of Shenzhen Speedy Dragon Ltd.
   
(2,694,417
)
Loss on disposition of discontinued operation
 
$
(770,595
)

Accordingly, the Company has accounted for Shenzhen Speedy Dragon Enterprise Limited as discontinued operations. The consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. Prior year’s amounts have been reclassified to confirm with current year’s presentation of the discontinued operations. The following table summarized the operating result of the discontinued operations for the three and six month ended June 30,2009:

  
  
Six months ended
  
  
Three months ended
  
  
  
June 30, 2009
  
  
June 30, 2009
  
Sales
 
$
3,631,545
   
$
1,772,566
 
Cost of sales
   
3,218,140
     
1,613,857
 
                 
Gross profit
   
413,405
     
158,709
 
                 
Operating expenses
   
190,989
     
96,057
 
Income from discontinued operation before income tax
   
222,416
     
62,652
 
                 
Income tax
   
44,441
     
16,370
 
Net Income from discontinued operations
 
$
177,975
   
$
46,282
 
 
Translation Adjustment

As of June 30, 2010 and December 31, 2009 the accounts of Universal Travel Group were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such financial statements were translated into U.S. Dollars(USD) in accordance with the Foreign Currency Matters Topic of the FASB Accounting Standards Codification (“ASC 830”) with the CNY as the functional  currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB Accounting Standard Codification (“ASC 220”). Transaction gains and losses are reflected in the income statement.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 

 
7

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Principles of Consolidation

The consolidated financial statements include the accounts of Universal Travel Group and its wholly owned subsidiaries Shenzhen Yuzhilu Aviation Service Co., Ltd., Shenzhen Speedy Dragon Enterprises Limited, Shanghai Lanbao Travel Service Co., Ltd., Xian Golden Net Travel Serve Services, Ltd., Foshan Overseas International Travel Service Co. Ltd., Chongqing Universal Travel E-Commerce Co., Ltd., Shenzhen Universal Travel  Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., ZhengzhouYulongkang Travel Agency Co., Ltd., Kunming Business Travel Service Co., Ltd.,Shanxi Jinyang Travel Agency Co., Ltd., and Full Power Enterprise Global Limited collectively referred to herein as the Company.  On June 12, 2009 the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen Speedy Dragon Enterprise Limited as a discontinued operation. The consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. Prior year’s amounts have been reclassified to confirm with current year’s presentation of the discontinued operations.  All material inter-company accounts, transactions and profits have been eliminated in consolidation.

Risks and Uncertainties

The Company is subject to substantial risks from, among other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public markets.
 
Contingencies

Certain conditions may exist as of the date the financial statements are issued. These conditions may result in a future loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

Restricted Cash

Restricted cash of $103,223 and $102,681 as of June 30, 2010 and 2009, respectively, consists of cash deposited in bank required and hold by Providence Travel Bureaus.

 
8

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis. Allowance for doubtful accounts amounted to $471,751 and $414,927 as of June 30, 2010 and December 31, 2009,respectively.
 
Description 
  
Balance at 
beginning of year
  
  
Charged to 
expenses
  
  
Deductions
  
  
Balance as of June 
30, 2010
  
Allowance for doubtful receivables
 
$
414,927
   
$
56,824
   
$
-
   
$
471,751
 
 
Reverse Split

On March 31, 2009 the Company effected a three-for-one (3:1) reverse split of the Company’s issued and outstanding shares of common stock, decreasing the number of outstanding shares from 41,619,966 to 13,873,969. These statements have been adjusted to reflect this reverse split on a historical pro-forma basis.

Property & Equipment

Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:

Furniture and Fixtures
 
5 years
Transportation equipment
 
5 years
Office equipment
 
5 years
Leasehold Improvements
 
5 – 10 years

As of June 30, 2010 and December 31, 2009, Property & Equipment of consist of the following:

  
  
June 30, 2010
  
  
December 31, 2009
  
Office equipment
 
$
6,137,874
   
$
4,146,637
 
Transportation equipment
   
428,749
     
150,232
 
Furniture & fixtures
   
52,905
     
23,560
 
Leasehold improvements
   
1,465,385
     
1,385,481
 
     
8,084,913
     
5,705,910
 
Accumulated depreciation
   
(1,597,694
)
   
(713,233
)
   
$
6,487,219
   
$
4,992,677
 

Depreciation expense for the three months ended June 30, 2010 and 2009 was $334,439 and $77,997,respectively, of which $59,040 and $70,197 was included as part of cost of services for the three months ended June 30, 2010 and 2009,respectively.

Depreciation expense for the six months ended June 30, 2010 and 2009 was $613,603 and $60,082, respectively, of which $107,232 and $140,424 was included as part of cost of services for the six months ended June 30, 2010 and 2009, respectively.

 
9

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill

Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired.  In accordance with the Intangibles, Goodwill and other topic of the FASB Accounting Standard Codification (“ASC 350”),indefinite-life identifiable intangible assets and goodwill are not amortized. Under the provisions of ASC 350, we are required to perform an annual impairment test of our goodwill. Goodwill impairment is determined using a two-step process.  The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit, which we define as our business segments, with its net book value or carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.  The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit including any unrecognized intangible assets as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase  price paid to acquire the reporting unit.  See Note 7, Purchase of Subsidiaries, for additional information regarding goodwill.

As of June 30, 2010 and December 31, 2009, Goodwill consists of the following:

  
 
December 31,
2010
   
December 31,
2009
 
Shanghai Lanbao Travel Service Co., Ltd.
  $ 3,081,799     $ 3,081,799  
Foshan Overseas International Travel Service Co., Ltd.
    6,049,576       6,049,576  
Xian Golden Net Travel Serve Services Co.,Ltd.
    764,895       764,895  
Zhengzhou Yulongkang Agency Co., Ltd.
    3,812,004       -  
Hebei Taiyuan Travel Agency Co., Ltd.
    3,320,700       -  
Huangshan Holiday Travel Service Co., Ltd.
    1,892,511       -  
Kunming Business Travel Service Co., Ltd.
    3,977,608       -  
Shanxi Jinyang Travel Agency Co., Ltd.
    1,609,816       -  
    $ 24,508,909     $ 9,896,270  

Long-Lived Assets

The Company adopted the Property, Plant and Equipment Topic of the FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of March 31, 2010 and December 31, 2009 there were no significant impairments of its long-lived assets.

 
10

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative Liability
The Company issued warrants in connection with the “Securities Purchase Agreement” dated August 28, 2008 with certain reset exercise price provisions.  If the Company issues or sells shares of its common stock after the August 28, 2008 Securities Purchase Agreement or Financing for an amount less than the original exercise price per share, the exercise price of the warrants is reduced to equal the new issuance price of those shares.

Upon the Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”) on January 1, 2009, the Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC815.  On January 1, 2009, the warrants, under ASC 815, were reclassified from equity to derivative liability for the then relative fair market value of $2,091,738 and marked to market.  The values of the warrants were decreased by $536,776 from the warrants issuance date to the adoption date of ASC 815 on January 1, 2009.  As of January 1, 2009,the cumulative effect in adopting ASC 815 was a reduction to additional paid in capital of $2,091,738 to reclassify the warrants from equity to derivative liability and an increase in retained earnings of $536,776 as a cumulative effect of a change in accounting principle to reflect the change in the value of the warrants between their issuance date and January 1, 2009.  For the three and six month ended June 30, 2010, the Company recorded a gain on change in fair value of derivative liability of $839,553 and $949,004, respectively, to mark to market for the increase in fair value of the warrants during the three and six month periods ended June 30, 2010.   Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

The Company determined the fair value of the reset provisions at January 1, 2009 was $1,470,199 as the initial fair value at the adoption date of EITF No. 07-05. The fair value originally was determined using the Black-Scholes Option Pricing model based on the following assumptions: dividend yield: 0%; volatility:129%, risk free rate: 1.72%, expected term: 4.65 years.

The Company determined the fair value of the reset provisions at June 30, 2010 was 886,314. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%; volatility:115%, risk free rate: 1.79%, expected term: 3.16years.
 
Fair Value of Financial Instruments
FASB Accounting Standards Codification Topic on Fair Value Measurements and Disclosures (“ASC 820”) requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.

Revenue Recognition
The Company’s revenue recognition policies are in compliance with FASB Accounting Standards Codification Topic on Revenue Recognition (“ASC 605”). Revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.

The Company had four types of revenue stream from its four lines of businesses, namely (i) air-ticketing (Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Universal Travel E-Commerce Co., Ltd.), (ii) hotel reservations(Shanghai Lanbao Travel Service Co., Ltd.), (iii) packaged tours (Foshan Overseas International Travel Service Co., Ltd., Xian Golden Net Travel Serve Services Co., Ltd. and Shenzhen Universal Travel Agency Co., Ltd.) and (iv) air cargo agency services (Shenzhen Speedy Dragon Enterprises Ltd.).  On June12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Ltd. Accordingly the Company has accounted for Shenzhen Speedy Dragon Enterprise Ltd., its air cargo agency services as a discontinued operation (see Note 2 Discontinued Operations).  Effective June 12, 2009, the Company has three types of revenue stream from its current three lines of businesses.

 
11

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Air-ticketing services

The Company receives commissions from travel suppliers for air-ticketing services through its transaction and service platform under various services agreements. The Company does not charge customers differently from the prices provided by travel suppliers.  The Company has no discretion on the air ticket prices or the applicable commission rates as they are dictated by the travel suppliers. Commissions from air-ticketing services rendered are recognized after air tickets are issued. The Company presents revenues from such transactions on a net basis in the statements of income as the Company, generally, does not assume inventory risks and has no obligations for cancelled airline ticket reservations.
 
Hotel reservation services

The Company receives commissions from travel suppliers for hotel room reservations through its transaction and service platform. The Company does not charge customers differently from the prices provided by hotel suppliers.  The Company has no discretion on the hotel room prices or the applicable commission rates as they are dictated by the hotel suppliers.  Commissions from hotel reservation services rendered are recognized after hotel customers have completed their stay at the applicable hotel and upon confirmation of pending payment of the commissions by the hotel. The Company presents revenues from such transactions on a net basis in the statements of income as the Company, generally, does not assume inventory risks and has no obligations for cancelled hotel reservations.

Packaged-tour

The Company receives fees from providing domestic and cross-boarder travel tour our services.  The Company contracts with traffic service providers, accommodation providers and leisure service providers to purchase air tickets, train and coach tickets, accommodation and leisure or entertainment packages in bulk and then resell them to its customers with a mark-up.  Fees generated from packaged-tour are recognized on a gross basis in the statements of income, when the tour is completed, as the Company, generally, undertakes the majority of the business risk.  The Company is the primary obligor to pay the service providers upon rendering of those services.  In addition, the Company acts as principal related to the packaged-tour services rendered or when tour is completed and collections are reasonably assured.  Generally, the Company does not issue refund to its customers unless cancellation is due to its and or the service provider’s non-delivery of services. Historically, refunds and cancellations do not have a material impact on the Company’s consolidated financial statements in any accounting period.

Air Cargo Business

The Company received fees from its air cargo business. However, this business segment had been accounted for as a discontinued operation upon consummation of a termination agreement with Shenzhen Speedy Dragon Enterprise Ltd dated June12, 2009.  The Company basically brokered air cargo spaces and resell them to local logistic companies to generate revenue.  The Company had contracted with Chinese domestic airlines as its vendors to carry out its cargo services.  Revenues generated from air cargo business were recognized on a gross basis in the statements of income, when the service was rendered, as the Company, generally, undertook the majority of the business risk.  The Company was the primary obligor to pay the service providers upon rendering of those services.  In addition, the Company acted as principal related to the air cargo services rendered and collections are reasonably assured.  Customers were charged based on the class and weight of goods shipped. Historically, the Company has experienced minimum and or immaterial returns and or cancellation from its four lines of businesses, which amount if any, would have no material impact on its consolidated financial statements.  Accordingly, no allowance has been provided for in the periods presented.

 
12

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cost of Services

Costs of services for air tickets cover mainly related commissions paid to retail agents.  Costs of services for hotel reservations cover mainly commissions paid to the sales agents for selling hotel rooms in the Company’s system.  Costs of services for the cargo agency business mainly include the costs of warehousing and delivery charges.  Costs of services for packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours.

Other direct costs such as systems and related technologies used by each segment operations, and costs associated with payment processing are also included in the Company’s Costs of Services. In addition, the Company allocates costs of labor and facilities, depreciation, communications, and utility expenses incurred by each segment between costs of services and general administrative expenses.  The percentage, ranging from 50% to 80%, allocated to costs of sales is based on management estimate, and the percentage allocated is estimated to be directly associated with the generation of revenues.

Consolidated costs such as stock-based compensation and corporate professional fees are not allocated to any segment. These costs are reported as general operating expenses in the Company’s Statements of Operations. For the three months ended June 30,2010 and 2009, such expenses amounted $340.372 and $1,198,963, respectively. For the six months ended June 30, 2010 and 2009, such expenses amounted $677,004 and$1,504,751, respectively.

Advertising

Advertising expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The Company expenses all advertising costs as incurred.

Income Taxes

The Company utilizes FASB Accounting Standards Codification Topic on Income Taxes(“ASC 740”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at   each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Statement of Cash Flows

In accordance with FASB Accounting Standards Codification Topic on Statement of Cash flows (“ASC 230”), cash flows from the Company’s operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

 
13

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangibles

Intangible assets are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made annually to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented. The Company’s intangible assets consist primarily of map of hotels and scenic spots used for marketing purposes, CRM systems software, accounting software, and Organization cost of new companies. These definitive lived intangible assets are being amortized over their useful lives. Expenditures of $51,359 and $168,954 were capitalized for the six months ended June 30, 2010 and 2009, respectively, and will be amortized over a 5 year life.  In conjunction the acquisitions during the six months ended June 30, 2010, the Company capitalized $3,236,376 of Identifiable Intangible Assets, which are being amortized over 5 years. The Company recorded amortization expenses for definitive lived intangible assets of $50,986 and $55,572 for the six months ended June 30, 2010 and 2009, $29,046 and $28,545 for the three months ended June 30, 2010 and 2009, respectively, and amortization expenses for Identifiable Intangible Assets of $99,118 and $0 for the six months and three months ended June 30, 2010, respectively. The Company will record approximately $800,672, $762,162 and $683,499 over the next three years, respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base, most of which are in China. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.

Net Income (Loss) Per Share

The Company accounts for net income (loss) per share in accordance with FASB Accounting Standards Codification Topic on Earning Per Share (“ASC 260”), which requires presentation of basic and diluted EPS on the face of the statement of income for all entities with complex capital structures and requires are conciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.  Basic net income(loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period.  It excludes the dilutive effects of potentially issuable common shares such as those related to the Company’s warrants and stock options(calculated using the treasury stock method).  Diluted net income(loss) per share is calculated by including potentially dilutive share issuances in the denominator.

 
14

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Share (Continued)

 The following table sets forth the computation of basic and diluted earnings per share of common stock:

   
Six months ended June 30,
   
Three months ended June 30,
 
  
 
2010
   
2009
   
2010
   
2009
 
Basic earnings (losses) from continuing operations per share:
                       
Numerator:
                       
Income (loss) from continuing operations  used in computing basic earnings (losses) per share
  $ 9,277,013     $ 1,389,134     $ 5,730,578     $ (1,860,712 )
Income (loss) from continuing operations applicable to common shareholders
  $ 9,277,013     $ 1,389,134     $ 5,730,578     $ (1,860,712 )
                                 
Denominator:
                               
Weighted average common shares outstanding
    17,066,154       13,851,530       17,404,834       13,829,091  
Basic earnings (losses) per share from continuing operations
  $ 0.54     $ 0.10     $ 0.33     $ (0.14 )
                                 
Diluted earnings (losses) per share from continuing operations:
                               
Numerator:
                               
Income (loss) from continuing operations used in computing diluted earnings (losses) per share
  $ 9,277,013     $ 1,389,134     $ 5,730,578     $ (1,860,712 )
Income (loss) from continuing operations applicable to common shareholders
  $ 9,277,013     $ 1,389,134     $ 5,730,578     $ (1,860,712 )
                                 
Denominator:
                               
Weighted average common shares outstanding
    17,066,154       13,851,530       17,404,834       13,829,091  
Weighted average effect of dilutive securities:
                               
Stock options and warrants
    869,159       426,126       814,806       471,966  
Shares used in computing diluted net income (loss) per share
    17,935,313       14,277,656       18,219,639       14,301,057  
Diluted earnings (losses) per share from continuing operations
  $ 0.52     $ 0.10     $ 0.31     $ (0.13 )

 
15

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Share (Continued)

   
Six months ended June 30,
   
Three months ended June 30,
 
  
 
2010
   
2009
   
2010
   
2009
 
Basic earnings (losses) from discontinued operations per share:
                       
Numerator:
                       
Income (loss) from discontinued operations  used in computing basic earnings per share
  $ -     $ (592,620 )   $ -     $ (724,313 )
Income (loss) from discontinued operations applicable to common shareholders
  $ -     $ (592,620 )   $ -     $ (724,313 )
                                 
Denominator:
                               
Weighted average common shares outstanding
    17,066,154       13,851,530       17,404,834       13,829,091  
Basic earnings per share from discontinued operations
  $ -     $ (0.04 )   $ -     $ (0.05 )
                                 
Diluted earnings (losses) per share from discontinued operations:
                               
Numerator:
                               
Income (loss) from discontinuing operations used in computing diluted earnings (losses) per share
  $ -     $ (592,620 )   $ -     $ (724,313 )
Income (loss) from discontinued operations applicable to common shareholders
  $ -     $ (592,620 )   $ -     $ (724,313 )
                                 
Denominator:
                               
Weighted average common shares outstanding
    17,066,154       13,851,530       17,404,834       13,829,091  
Weighted average effect of dilutive securities:
                               
Stock options and  warrants
    869,159       426,126       814,806       471,966  
Shares used in computing diluted net income (loss) per share
    17,935,313       14,277,656       18,219,639       14,301,057  
Diluted earnings per share from discontinued operations
  $ -     $ (0.04 )   $ -     $ (0.05 )
                                 
Total net income (loss) per common share
                               
Basic
  $ 0.54     $ 0.06     $ 0.33     $ (0.19 )
Dilute
  $ 0.52     $ 0.06     $ 0.31     $ (0.18 )

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

 
16

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In February 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets and Financial Liabilities’ – Including an Amendment of FABS Statement No.115.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, SFAS No159 was superseded by the Financial Instruments Topic of FASB Accounting Standards Codification (“ASC 825”), the adoption of this accounting requirement has no effect on the Company’s consolidated financial statements.

In February 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets and Financial Liabilities’ – Including an Amendment of FABS Statement No.115.  This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, SFAS No159 was superseded by the Financial Instruments Topic of FASB Accounting Standards Codification (“ASC 825”), the adoption of this accounting requirement has no effect on the Company’s consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”).  This Statement amends ARB51 to establish accounting and reporting standards for the non-controlling(minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). SFAS No 160 was superseded by the Consolidation Topic of FASB Accounting Standards Codification (“ASC 810”) The Company adopted SFAS 160 on January 1, 2009. The adoption of this statement had no effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No 161 was superseded by the Derivative and Hedging Topic of FASB Accounting Standards Codification (“ASC 815”).

On May 8, 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally Accepted Accounting Principles, which will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles(GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature.  SFAS No 162 was superseded by the General Accounting Principle Topic of FASB Accounting Standards Codification (“ASC105”).

 
17

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 07-05, 05”). EITF No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. EITF No. 07-05 was superseded by the Derivative and Hedging Topic of FASB Accounting Standards Codification (“ASC815”). Based on the Company’s evaluation of this issue, the adoption of this accounting requirement has a material effect on the Company’s consolidated financial statements, please see note above under “Derivative Liability”.

In June 2009, the FASB issued amended standards for determining whether to consolidate a variable interest entity. These amended standards eliminate a mandatory quantitative approach to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity in favor of a qualitatively focused analysis, and require an ongoing reassessment of whether an entity is the primary beneficiary. These amended standards are effective for us beginning in the first quarter of fiscal year 2010 and we are currently evaluating the impact that adoption will have on our consolidated financial statements.

In June2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events),which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. It is effective for interim and annual period sending after June 15, 2009. There was no material impact upon the adoption ofthis standard on the Company’s consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional guidance on the measurement of liabilities at fair value. These amended standards clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, we are required to use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, or quoted prices for similar liabilities when traded as assets. If these quoted prices are not available, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective for us beginning in the fourth quarter of fiscal year 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820,adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures.  ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009,except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2012); early adoption is permitted.  The Company is currently evaluating the impact of adopting ASU 2009-14 on its financial statements.

 
18

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Merger and Corporate Restructure

On June 26, 2006 the company entered into an agreement and plan of merger with Full Power Enterprises Global Limited, a holding company that owns all of the issued and outstanding shares of Shenzhen Yuzhilu Aviation Service Company Limited, the operating Company. In substance the agreement is a recapitalization of Shenzhen Yuzhilu Aviation Service Company’s capital structure.

For accounting purposes, the company accounted for the transaction as a reverse acquisition and with Full Power Enterprises Global Limited being the surviving entity. The Company did not recognize goodwill or any intangible assets in connection with the transaction. Prior to the Agreement, the company was an inactive corporation with no significant assets and liabilities.

Note 3 – TRADE DEPOSITS AND ADVANCES

Trade deposits represents amount held by Airlines and deposits. As of June 30, 2010 and December 31, 2009 the Company had paid $7,706,484 and $9,775,735 as trade deposits respectively.

The following summaries the Company’s deposits outstanding by each of its subsidiaries and the nature and purpose of each deposit as of June 30, 2010 and December 31, 2009:
   
June 30,
   
December 31,
 
  
 
2010
   
2009
 
Shenzhen Yuzhilu Aviation Service Co., Ltd:
           
Deposit for tripeasy kiosks. The Company will start record of asset and depreciation on a 5 year straight-line method for the actual number of kiosk when they start operation.
 
$
-
   
$
1,465,592
 
Deposit for central ticket system. This was a credit based for obtaining air tickets from third party before any payments, and the full amounts are returnable.
   
3,834
         
Deposit for airlines. This was a credit based for issuing air-tickets, and the full amount is returnable if the company discontinues air-ticket business.
   
516,115
     
2,811,004
 
Deposit for Financial System Software
   
-
     
16,898
 
Deposit for air-ports. This was a deposit for admittance to do marketing in air-ports, and is deductible against monthly rental obligation to air-ports
   
-
     
8,508
 
Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.
   
3,529,929
     
1,100,158
 
Subtotal
   
4,049,878
     
5,402,160
 
                 
Huangshan Holiday Travel Agency Co., Ltd.:
               
Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide return from tour and provide supporting evidence.
   
885
     
-
 
Subtotal
   
885
     
-
 
                 
Foshan Overseas International Travel Service Co. Ltd.:
               
Deposit paid to tour companies.  This was a credit based for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies.
   
458,056
     
969,261
 
Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide return from tour and provide supporting evidence.
   
-
     
243,342
 
Subtotal
   
458,056
     
1,212,603
 
                 
Xian Golden Net Travel Serve Services, Ltd.:
               
Deposit for Tour companies. This was a credit based for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies
   
560,353
     
425,396
 
Deposit for transportations.  This was a credit based for co-operate transportation suppliers, and is deductible against transportation payments, the balance is returnable when cease doing business with these agencies.
   
-
     
132,019
 
Subtotal
   
560,353
     
557,415
 
                 
Chongqing Travel World E-Business Co., Ltd.
               
Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.
   
2,600,447
     
2,587,279
 
Subtotal
   
2,600,447
     
2,587,279
 
                 
Shenzhen Universal Travel
               
Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.
   
36,865
     
16,278
 
Subtotal
   
36,865
     
16,278
 
Total
 
$
7,706,484
   
$
9,775,735
 

The Company cancelled a co-operation agreement with an unrelated company, to assist that company in their business development by participating in that business operation and providing working capital funding and the unrelated company returned all advances. As of June 30, 2010 and December 31, 2009 the Company has advanced this company $0 and $440,063,respectively.

 
19

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 4 - COMPENSATED ABSENCES

Regulation45 of local PRC labor law entitles employees to annual vacation leave after 1year of service. In general all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 5 –  RELATED PARTY TRANSACTIONS

As of June 30, 2010, Due from related party account has balance of $6.99 million, which was an advance for cash payment of two acquisitions in June. The payments were paid by corporate account on June 28, 2010 and the related party returned the same amount on August 10, 2010.
 
Note 6- INCOME TAXES

The Company through its primary operating subsidiary, Shenzhen Yuzhilu Aviation Service Co., Ltd. (“YZL”), is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred accumulated net operating losses for income tax purposes. YZL is subject to the PRC Enterprise Income Tax (EIT) at a statutory rate of 22% and 20% for tax years ending 2010 and 2009, respectively. However, other PRC operating subsidiaries have a statutory rate of 25%. The following is components of income tax expense for the three and six months ended June 30, 2010 and 2009.

 
Six months
 
Six months
 
Three months
 
Three months
 
 
ended
 
ended
 
ended
 
ended
 
 
June 30,
 
June 30,
 
June 30,
 
June 30,
 
 
2010
 
2009
 
2010
 
2009
 
Current income tax expense
  $ 3,061,550     $ 2,138,151     $ 1,782,484     $ 1,020,955  
Actual effective tax rate
    24.81 %     60.62 %     23.73 %     -121.58 %

The Company recognized deferred tax liabilities and recorded a corresponding entry to goodwill from acquired identified intangible assets of five new acquisitions in March and June of 2010. As of June 30, 2010, deferred tax liabilities recognized from acquired identifiable intangibles are $809,094.

Management evaluates tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities. Uncertain tax positions are reviewed and adjusted accordingly based on new facts and circumstances or change in tax laws. As of September 30, 2010, there is no impact on the results of operations related to uncertain tax positions of the Company

Note 7– COMMITMENTS

The Company leases various office facilities under month-to-month arrangements. Rental expense for leases consisted of $551,511 and $147,903 for six months ended June 30, 2010 and 2009, respectively. Rental expense for leases were $340,995 and $52,966 for three months ended June 30, 2010 and 2009,respectively.  The Company has future minimum lease obligations as of June 30, 2010 as follows:

2011
 
$
698,395
 
2012
   
295,670
 
2013
   
262,934
 
2014
   
201,274
 
2015
   
30,818
 
There after
   
11,060
 
Total
 
$
1,500,151
 

 
20

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 8– COMMON STOCK

In March and June of 2010, the Company had 5 acquisitions to fit the its geographic expansion strategy, and in all and every acquisition, the Company negotiated in arm's length with acquisition target and got Board approval before closing.

On June 28, 2010, the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Kunming Business Travel Agency Co., Ltd.  (“KBT”) for a cash and stock transaction valued at approximately US$5.7 million in aggregate.

The stock consideration consisted of 79,487 newly issued shares of the company's common stock, which were given to KBT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,163,625. The shares were valued at $572,243, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

KBT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of KBT, and approved by board of directors.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC810. The allocation of the purchase price is as follows:

Cash acquired
 
$
814,097
 
Other assets
   
441,494
 
Property Plant & Equipment
   
80,121
 
Identifiable Intangibles
   
892,898
 
Goodwill
   
3,977,608
 
Total assets acquired
   
6,206,218
 
Liabilities assumed
       
Accounts & Income Taxes payable
   
174,732
 
Deferred Tax Liability
   
223,224
 
Other payable
   
72,394
 
Total
 
$
5,735,868
 

The excess of purchase price over tangible assets acquired and liabilities assumed was $4,870,506 of which $3,977,608 was recorded as goodwill.  At the time of the acquisition $892,898 of identifiable intangible assets and related deferred tax liability of $223,224 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.

Prior to the acquisition, Kunming Business Travel Agency Co., Ltd. prepared its financial statements under accounting principles generally accepted in the United States of America.

On June 28, 2010, the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Shanxi Jinyang Travel Agency Co., Ltd. (“SJT”) for a cash and stock transaction valued at approximately US$2.3 million in aggregate.

The stock consideration consisted of 31,387 newly issued shares of the company's common stock, which were given to SJT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $2,038,946. The shares were valued at $225,986, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

 
21

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 8– COMMON STOCK (CONTINUED)

SJT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of SJT, and approved by board of directors.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC810. The allocation of the purchase price is as follows:

Cash acquired
 
$
7,258
 
Other assets
   
534,373
 
Property Plant & Equipment
   
20,339
 
Identifiable Intangibles
   
361,124
 
Goodwill
   
1,609,816
 
Total assets acquired
   
2,532,910
 
Liabilities assumed
       
Accounts & Income Taxes payable
   
78,574
 
Deferred Tax Liability
   
90,281
 
Other payable
   
99,123
 
Total
 
$
2,264,932
 

The excess of purchase price over tangible assets acquired and liabilities assumed was $1,970,940 of which $1,609,816 was recorded as goodwill.  At the time of the acquisition $361,124 of identifiable intangible assets and related deferred tax liability of $90,281 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.

Prior to the acquisition, Shanxi Jinyang Travel Agency Co., Ltd. prepared its financial statements under accounting principles generally accepted in the United States of America.

On March 29, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Zhengzhou Yulongkang Travel agency Co. Ltd (“ZYT”) for a cash and stock transaction valued at approximately US$5.7 million in aggregate.

The stock consideration consisted of 60,633 newly issued shares of the Company’s common stock, which were given to ZYT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,141,764. The shares were valued at $571,172, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

ZYT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of ZYT.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC 810. The allocation of the purchase price is as follows:

 
22

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 8– COMMON STOCK (CONTINUED)

Cash acquired
 
$
1,513,636
 
Accounts receivable
   
29,154
 
Other assets
   
11,779
 
Property Plant & Equipment
   
29,019
 
Identifiable Intangibles
   
805,626
 
Goodwill
   
3,812,004
 
Total assets acquired
   
6,201,218
 
Liabilities assumed
       
Accounts & Income Taxes payable
   
230,107
 
Deferred Tax Liability
   
201,406
 
Other payable
   
56,769
 
Total
 
$
5,712,936
 

The excess of purchase price over tangible assets acquired and liabilities assumed was $4,617,630 of which $3,812,004 was recorded as goodwill. At the time of the acquisition $805,626 of identifiable intangible assets and related deferred tax liability of $201,406 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.

Prior to the acquisition, Zhengzhou Yulongkang Travel agency Co. Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.

On March 26, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Huangshan Holiday Travel Service Co., Ltd (“HHT”) for a cash and stock transaction valued at approximately US$2.9 million in aggregate.

The stock consideration consisted of 61,846 newly issued shares of the company’s common stock, which were given to HHTs Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $2,343,824. The shares were valued at $585,691, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

HHT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of HHT, and approved by board of directors.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC 810. The allocation of the purchase price is as follows:

Cash acquired
 
$
340,174
 
Accounts receivable
   
21,450
 
Other assets
   
452,193
 
Property Plant & Equipment
   
69,682
 
Identifiable Intangibles
   
479,870
 
Goodwill
   
1,892,511
 
Total assets acquired
   
3,255,880
 
Liabilities assumed
       
Accounts & Income Taxes payable
   
176,863
 
Deferred Tax Liability
   
119,968
 
Other payable
   
29,534
 
Total
 
$
2,929,515
 
 
 
23

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 8– COMMON STOCK (CONTINUED)

The excess of purchase price over tangible assets acquired and liabilities assumed was $2,372,381 of which $1,892,511 was recorded as goodwill. At the time of the acquisition $479,870 of identifiable intangible assets and related deferred tax liability of $119,968 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.

Prior to the acquisition, Huangshan Holiday Travel Service Co., Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.

On March 29, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Hebei Tianyuan Travel Agency Co., Ltd (“HTT”) for a cash and stock transaction valued at approximately US$4.4 million in aggregate.

The stock consideration consisted of 93,282 newly issued shares of the company’s common stock, which were given to HTT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $3,519,736. The shares were valued at $878,726, which was the average fair value of the shares prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

HTT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of HTT, and approved by board of directors.

The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC 810. The allocation of the purchase price is as follows:

Cash acquired
 
$
532,349
 
Accounts receivable
   
120,152
 
Other assets
   
208,771
 
Property Plant & Equipment
   
49,637
 
Identifiable Intangibles
   
696,858
 
Goodwill
   
3,320,700
 
Total assets acquired
   
4,928,467
 
Liabilities assumed
       
Accounts & Income Taxes payable
   
232,188
 
Deferred Tax Liability
   
174,215
 
Other payable
   
123,602
 
Total
 
$
4,398,462
 

The excess of purchase price over tangible assets acquired and liabilities assumed was $4,017,558 of which $3,320,700 was recorded as goodwill. At the time of the acquisition $696,858 of identifiable intangible assets and related deferred tax liability of $174,215 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.

Prior to the acquisition, Hebei Tianyuan Travel Agency Co., Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.

 
24

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 8– COMMON STOCK (CONTINUED)

On August 28, 2008, Universal Travel Group (the “Company”) entered into a Securities Purchase Agreement with Access America Fund, LP, China America Fund LP, Pope Investments II LLC, Heller Capital Investments, LLC, CGM as C/F Ronald I. Heller IRA, Investment Hunter, LLC, MARed Investments, High Capital Funding, LLC, and Merrill Lynch, Pierce, Fenner & Smith, FBO Beau L. Johnson(collectively, the “Buyers”) to sell to the Buyers 1,529,569 shares of common stock, par value $0.001 of the Company (“Common Stock”) and warrants to purchase764,785 shares of Common Stock for an aggregate purchase price of $7,112,500(the “Financing”). (See footnote 2, derivative liability)

On December 15, 2009, the Company closed a Subscription Agreements with certain investors to sell to them an aggregate of 2,222,222 shares of common stock ofthe Company, par value $0.001 (the “Shares”) for a purchase price of $9.00 per share and an aggregate purchase consideration of $19,999,998. In connection with the subscription the company paid fees and other costs pertaining to the agreement totaling $1,049,749. Net proceeds of the transaction were$18,950,249. The offer and sale of the Shares were made pursuant to an effective Registration Statement on Form S-3 (Registration No. 333- 161139)initially filed with the Securities and Exchange Commission on August 7, 2009and amended on November 2, 2009. The Registration Statement was declared effective on November 5, 2009.

On June 21, 2010, the Company closed an underwriting agreement with Brean Murrary, carret & Co., LLC, as representative of the underwriters, related to a public offering of 2, 857, 143 shares of the common stock, par value $0.001 (the “shares”) for a purchase price of $7.00 per share and an aggregate purchase consideration of $20,000,001. In connection with the subscription the company paid 5% underwriting commission, fees and other costs pertaining to the agreement totaling $1,231,947. Net proceeds of the transaction were $18,768,054.The offer and sale of the Shares were made pursuant to an effective Registration Statement on Form S-3 (Registration No. 333- 161139) initially filed with the Securities and Exchange Commission on August 7, 2009 and amended on November 2,2009. The Registration Statement was declared effective on November 5, 2009.

Note 9– STOCK WARRANTS, OPTIONS, AND COMPENSATION

On January 20, 2009, pursuant to the Securities Purchase agreement entered into on August 28, the Company enacted the Universal Travel Group 2009 Incentive Stock Option Plan which entitles the grant of up to 2,200,000 shares of common stock of Universal Travel Group, par value $0.001 to certain employees of the Company either as stock or stock options. The options are exercisable until January 19, 2019, with a vesting period of six years. Average purchase price for the options is $3.74 per share. The options were valued using the Black-Scholes option-pricing model on the date of grant. The total fair market value at grant date is $5,479,222 based on the following assumptions: dividend yield: 0%; volatility:127.94%, risk free rate: 2.35%, expected term: 10 years..
 
On September 1, 2009, the Company issued, to another newly appointed Board member, an option grant to purchase 10,000 shares of common stock at the closing price of $ 8.82 per share. The options are exercisable until August 2019. Stock options— the option holder has no voting or dividend rights. The company records the expense of the stock options over the related vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant.
 
On September 1, 2009, the Company issued, to the newly appointed CFO an option grant to purchase 105,000 shares of common stock at the closing price of $8.82 per share. The options are exercisable until August 2019. The options are exercisable until August 2019. Stock options— the option holder has no voting or dividend rights. The company records the expense of the stock options over the related vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant.

 
25

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 9– STOCK WARRANTS, OPTIONS, AND COMPENSATION (CONTINUED)

Expected volatility is based on the historical volatility of the Company’s stock price. The expected term represents the estimated average period of time that the options remain outstanding. No dividend payouts were assumed, as the Company has no plans to declare dividends during the expected term of the stock options. The risk-free rate of return reflects the weighted average interest rate offered for zero coupon treasury bonds over the expected term of the options. Based upon this calculation and pursuant to, ASC 718, the Company recorded a service period expense of $677,004 and $495,725 for the six months ended June 30, 2010 and 2009, and $340,372 and $330,725 for the three months ended June 30, 2010 and 2009, respectively.
   
Total
 
Exercise Price
 
Remaining Life 
 
Aggregate 
Intrinsic Value
 
                   
Outstanding, December 31, 2009
 
 
1,603,888
 
 
$
2.70–11.25
 
7.44-9.67yrs
 
 
-
 
Outstanding, June 30, 2010
 
 
1,603,888
 
 
 
 
 
 
 
 
 
 

Pursuant to the Securities Purchase Agreement entered into On August 28, 2008, the Company issued warrants to purchase 764,786 shares of Common Stock. The unit purchase price was $4.65 per Common Share and a related Warrant for the purchase of one-half a Common Share, times the number of Common Shares purchased. Market Value of the Company’s stock on August 28, 2008 was $4.05. Each warrant has an Exercise Price of $8.13 and a term of 5 years from the date of issuance. The Company measured and recognized an aggregate of $2,091,738 of the proceeds to additional paid in capital upon issuance of these warrants. The terms of the warrants provide for an adjustment to the exercise price of these warrants if the company closes on the sale or issuance of common stock at a price which is less than the exercise price then in effect for these warrants. Upon the Company’s adoption of EITF No. 07-05 on January 1, 2009, the Company determined that the warrants did not qualify for a scope exception under SFAS No. 133 as they were determined to not be indexed to the Company’s stock as prescribed by EITF No. 07-05. On January 1, 2009, the warrants were reclassified from equity to derivative liability for the then fair market value and marked to market (see Note 2 Derivative Liability). On August 20, 2009 322,580 warrants valued at $3,398,135 as of that date, were exercised under the cashless exercise provisions of the warrants. The Company issued 132,251 shares of common stock. On October 15, 2009, 215,054 warrants valued at $2,888,495 as of that date were exercised under the cashless exercise provision of the warrants. The company issued 103,318 shares of common stock.

Note 10- OTHER COMPREHENSIVE INCOME

Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders equity, as of June 30, 2010 and December 31,2009 are as follows:

 
Foreign Currency
 
Accumulated Other
 
 
Translation
 
Comprehensive
 
 
Adjustment
 
Income
 
Balance December 31, 2008
  $ 1,520,166     $ 1,520,166  
Changes for year ended December 31, 2009
    124,967       124,967  
Balance December 31, 2009
    1,645,133       1,645,133  
Changes for the six months ended June 30, 2010
    (454,079 )     (454,079 )
Balance at June 30, 2010
  $ 1,191,054     $ 1,191,054  
 
 
26

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 11 - CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC's economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 12 – MAJOR CUSTOMERSAND CREDIT RISK

The Company derives a portion of its income from various Airlines. Most revenue is cleared through IATA, a centralized reporting platform.

Note 13 - SEGMENT INFORMATION

Pursuant to ASC 280 the Company operates and discloses three reportable segments: air ticketing, hotel reservation and packaged tours. Substantially all of the Company’s revenues and long-lived assets are in Peoples Republic of China.

Upon the disposition of Shenzhen Speedy Dragon Enterprises Limited pursuant to a termination agreement dated June 12, 2009, the Company currently operates and prepares accounting and other financial reports separately to management for eleven major business organizations (Shenzhen Yuzhilu Aviation Service Co., Ltd., Shanghai Lanbao Travel Service Co., Ltd., Foshan Overseas International Travel Service Co., Ltd., Xian Golden Net Travel Serve Services, Chongqing Travel World E-Business Co., Ltd., Shenzhen Universal Travel Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd.).

Our air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd., hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd. and Huangshan Holiday Travel Service Co., Ltd., packaged tours segment relates to Chongqing Travel World E-Business Co., Ltd., Foshan Overseas International Travel Service Co., Ltd., Xi’an Golden Net Travel Serve Service Company Ltd., Shenzhen Universal Travel Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd. Management monitors these segments regularly to make decisions about resources to be allocated to the segment and assess its performance.

 
27

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 13 - SEGMENTINFORMATION (CONTINUED)

The following tables’ present summarized information by segment:
   
Air
 
Hotel
 
Package
           
   
Ticketing
 
Reservation
 
Tours
 
Other
   
Total
 
 
 
Six Months Ended June 30, 2010 (Restated)
 
Sales, net
  $ 8,702,488     $ 6,462,123     $ 37,127,291     $ -     $ 52,291,902  
Cost of sales
  $ 2,833,290     $ 1,979,573     $ 32,491,924     $ -     $ 37,304,787  
Gross profit
  $ 5,869,198     $ 4,482,550     $ 4,635,367     $ -     $ 14,987,115  
Income from operations
  $ 4,165,082     $ 4,389,490     $ 4,130,012     $ (1,344,037 )   $ 11,340,547  
Depreciation & Amortization
  $ 740,235     $ 879     $ 22,593     $       $ 763,707  
Asset Expenditures
  $ 1,830,295     $ 33,467     $ 1,012     $       $ 1,864,774  
Total assets
  $ 60,542,681     $ 7,435,604     $ 28,741,119     $ 23,943,550     $ 120,662,954  
 
 
Six Months Ended June 30, 2009
 
Sales, net
  $ 6,045,642     $ 5,230,975     $ 22,378,302     $ -     $ 33,654,919  
Cost of sales
  $ 1,686,164     $ 1,683,627     $ 19,279,043     $ -     $ 22,648,834  
Gross profit
  $ 5,393,663     $ 3,547,348     $ 3,360,492     $ -     $ 11,006,085  
Income from operations
  $ 3,722,661     $ 3,471,539     $ 2,846,988     $ (837,401 )   $ 9,203,787  
Depreciation & Amortization
  $ 180,515     $ 2,618     $ 7,606     $ -     $ 190,739  
Asset Expenditures
  $ 3,558,705     $ -     $ -     $ -     $ 3,558,705  
Total assets
  $ 30,987,883     $ 9,499,533     $ 8,024,758     $ 5,210,309     $ 53,722,483  
 
 
Three Months Ended June 30, 2010 (restated)
 
Sales, net
  $ 4,796,513     $ 3,432,017     $ 23,637,593     $ -     $ 31,866,123  
Cost of sales
  $ 1,465,419     $ 981,156     $ 20,688,727     $ -     $ 23,135,302  
Gross profit
  $ 3,331,094     $ 2,450,861     $ 2,948,866     $ -     $ 8,730,821  
Income from operations
  $ 2,396,956       2,395,312       2,594,654       (736,682 )   $ 6,650,240  
Depreciation & Amortization
  $ 442,389     $ 440     $ 19,774     $       $ 462,603  
Asset Expenditures
  $ 1,244,146     $ 33,467     $ (10,394 )   $ -     $ 1,267,219  
Total assets
  $ 60,542,681     $ 7,435,604     $ 28,741,119     $ 23,943,550     $ 120,662,954  
 
 
Three Months Ended June 30, 2009
 
Sales, net
  $ 3,294,514     $ 2,714,144     $ 12,224,268     $ -     $ 18,232,926  
Cost of sales
  $ 816,176     $ 910,164     $ 10,616,442     $ -     $ 12,342,782  
Gross profit
  $ 2,478,338     $ 1,803,980     $ 1,607,826     $ -     $ 5,890,144  
Income from operations
  $ 2,147,871     $ 1,772,243     $ 1,461,127     $ (416,466 )   $ 4,964,775  
Depreciation & Amortization
  $ 100,886     $ 1,557     $ 3,640     $ -     $ 106,083  
Asset Expenditures
  $ 2,298,307     $ -     $ -     $ -     $ 2,298,307  
Total assets
  $ 30,987,883     $ 9,499,533     $ 8,024,758     $ 5,210,309     $ 53,722,483  
 
 
28

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has reclassified and restated certain line items on the June 30, 2010 unaudited consolidated financial statements.

Consolidated balance sheet
 
·
Reclassified cash restricted by local travel bureau from cash and cash equivalent to restricted cash;
 
·
Restated goodwill, intangible assets, deferred tax liabilities, and retained earnings due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the company;

Consolidated statement of income and comprehensive income
 
·
Reclassified business tax and levies from selling expenses and COGS to revenues;
 
·
Reclassified commission paid to retail air ticketing agencies from selling expenses to COGS;
 
·
Restated overstated net income $857,027, revenues $10,579,717, and expenses for the six months ended June 30, 2010 and net income $313,620, revenues $4,875,489, and expenses for the three months ended June 30, 2010 due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the company ;

Consolidated Stockholders Equity
 
·
Restated overstated retained earnings $857,027 due to an inconsistency between the acquisition dates of five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the company;

Consolidated statement of cash flows
 
·
As a result of above reclassifications and restatement, the corresponding line items on the consolidated statements of cash flows have been restated.

Segment information
 
·
As a result of above reclassifications and restatement, the corresponding line items on the segment information have been restated.
 
·
Reclassified the revenue and cost of services of hotel reservation business in Huangshan Holiday Travel Service Co., Ltd. from packaged tours segment to hotel reservation segment.
 
·
Reclassified the revenue and cost of services of packaged tours business in Chongqing Travel World E-Business Co., Ltd. from air ticketing segment to packaged tours segment.

 
29

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the effects of the reclassifications and restatements on the previously issued consolidated balance sheet as of June 30, 2010 (restated):
   
As of June 30, 2010
   
Changes
 
   
As restated
   
As previously reported
   
Inc/(Dec)
 
ASSETS
 
 
   
 
       
Cash and cash equivalents
  $ 43,488,236     $ 43,591,459     $ (103,223 )
Restricted cash
    103,223       -       103,223  
Accounts receivable, net
    19,555,644       19,555,644       -  
Other receivables and deposits, net
    2,127,552       2,127,552       -  
Due from related party
    6,986,717       6,986,717       -  
Trade deposit
    7,706,484       7,706,484       -  
Prepayments
    2,389,960       2,389,960       -  
Note receivable
    227,182       227,182       -  
Acquisition Deposits
    3,599,530       3,599,530       -  
Total Current Assets
    86,184,528       86,184,528       -  
 
                       
Property, plant & equipment, net
    6,487,219       6,487,219       -  
Intangible assets
    3,482,297       3,320,478       161,819  
Goodwill
    24,508,909       24,812,040       (303,131 )
Total Noncurrent Assets
    34,478,425       34,619,737       (141,312 )
Total Assets
  $ 120,662,953     $ 120,804,265     $ (141,312 )
 
                       
 LIABILITIES AND STOCKHOLDERS' EQUITY
                       
Current Liabilities
                       
Accounts payable and accrued expenses
  $ 6,507,357     $ 6,507,357     $ -  
Customer deposits
    1,334,192       1,334,192       -  
Income tax payable
    2,063,161       2,063,161       -  
Total Current Liabilities
    9,904,710       9,904,710       -  
Derivative liability
    866,314       866,314       -  
Deferred tax liabilities
    809,094       -       809,094  
Total Liabilities
    11,580,118       10,771,024       809,094  
 
                       
Stockholders' Equity
                       
Common stock, $.001 par value, 70,000,000 shares authorized, 19,898,235 and 16,714,457 issued and outstanding at June 30, 2010 and December 31, 2009, respectively
    19,898       19,898       -  
Additional paid in capital
    59,947,337       59,947,337       -  
Statutory reserve
    732,282       732,282       -  
Retained earnings
    47,192,264       48,049,291       (857,027 )
Accumulated other comprehensive income
    1,191,054       1,284,433       (93,379 )
Total Stockholders' Equity
    109,082,835       110,033,241       (950,406 )
Total Liabilities and Stockholders' Equity
  $ 120,662,953     $ 120,804,265     $ (141,312 )
 
 
30

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the effects of the reclassifications and restatements on the previously issued consolidated income and comprehensive income for the three months ended June 30, 2010 (restated):

   
For the three months ended June 30, 2010
   
Changes
 
   
As restated
   
As previously reported
   
Inc/(Dec)
 
Gross revenues,
  $ 31,866,123     $ 36,741,612     $ (4,875,489 )
Cost of services
    23,135,302       26,188,473       (3,053,171 )
Gross profit
    8,730,821       10,553,139       (1,822,318 )
 
                       
Selling, general and administrative expenses
    2,077,197       3,461,037       (1,383,840 )
Income from operations
    6,653,624       7,092,102       (438,478 )
 
                       
Other income (expense)
                       
Other income
    3,363       3,363       -  
Gain/(Loss) on change in fair value of derivative liabilities
    839,553       839,553       -  
Interest income
    16,522       17,081       (559 )
Total other income (expense)
    859,438       859,997       (559 )
Income/(Loss) before income taxes –continuing operations
    7,513,062       7,952,099       (439,036 )
 
                       
Provision for income taxes
    1,782,484       1,907,900       (125,416 )
Net income/(loss)
  $ 5,730,578     $ 6,044,198     $ (313,620 )
 
                       
Comprehensive income/(loss)
                       
Net income/(loss)
  $ 5,730,578     $ 6,044,198     $ (313,620 )
Foreign currency translation adjustments
    49,825       55,759       (5,934 )
Total comprehensive income/(loss)
  $ 5,780,403     $ 6,099,957     $ (319,554 )
 
                       
Income (Loss) per common share
                       
Basic
  $ 0.33     $ 0.35     $ (0.02 )
Diluted
  $ 0.31     $ 0.33     $ (0.02 )
 
                       
Weighted average common shares outstanding
                       
Basic
    17,404,834       17,404,834          
Diluted
    18,219,639       18,219,639          
 
 
31

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the effects of the reclassifications and restatements on the previously issued consolidated income and comprehensive income for the six months ended June 30, 2010 (restated):

   
For the six months ended June 30, 2010
   
Changes
 
   
As restated
   
As previously reported
   
Inc/(Dec)
 
Gross revenues,
  $ 52,291,902     $ 62,871,619     $ (10,579,717 )
Cost of services
    37,304,787       43,816,506       (6,511,719 )
Gross profit
    14,987,115       19,055,113       (4,067,998 )
Selling, general and administrative expenses
    3,643,184       6,524,678       (2,881,494 )
Income from operations
    11,343,931       12,530,435       (1,186,504 )
                         
Other income (expense)
                       
Other income
    6,917       6,917       -  
Gains/(losses) on change in fair value of derivative liabilities
    949,004       949,004       -  
Interest income
    38,711       40,712       (2,001 )
Total other income (expense)
    994,632       996,633       (2,001 )
Income before income taxes - continuing operation
    12,338,563       13,527,068       (1,188,504 )
                         
Provision for income taxes
    3,061,550       3,393,028       (331,478 )
Net income
  $ 9,277,013     $ 10,134,040     $ (857,027 )
Comprehensive Income
                       
Net income
  $ 9,277,013     $ 10,134,040     $ (857,027 )
Foreign currency translation adjustments
    (454,079 )     (360,699 )     (93,380 )
Total comprehensive income
  $ 8,822,934     $ 9,773,341     $ (950,407 )
                         
Net income per common share - continuing operations
                       
Basic
  $ 0.54     $ 0.59     $ (0.05 )
Diluted
  $ 0.52     $ 0.57     $ (0.05 )
Weighted average common shares outstanding
                       
Basic
    17,066,154       17,066,154       -  
Diluted
    17,935,313       17,935,313       -  

The following table summarizes the effects of the reclassifications and restatements on our previously issued consolidated statement of stockholders' equity As of June 30, 2010 (restated):
 
   
As of March 31, 2010
   
Changes
 
   
As restated
   
As previously reported
   
Inc/(Dec)
 
                   
Retained earrings
  $ 47,192,264     $ 48,049,291     $ (857,027 )
Accumulated other comprehensive income
    1,191,054       1,284,433       (93,379 )
Total stock holders' equity
  $ 109,082,835     $ 110,033,241     $ (950,406 )
 
 
32

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 14 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes the effects of the reclassifications and restatements on our previously issued consolidated statement of cash flow for the six months ended June 30, 2010 (restated):

   
As of June 30, 2010
   
Changes
 
   
As restated
   
As previously reported
   
Inc/(Dec)
 
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net income
  $ 9,277,013     $ 10,134,040     $ (857,027 )
Adjustments to reconcile net income to net cash provided by operating activities
                       
Depreciation and amortization
    763,707       952,402       (188,695 )
Provision for doubtful accounts
    56,824       56,824       -  
Stock based compensation
    677,004       677,004       -  
Gain on change in fair value of derivative liabilities
    (949,004 )     (949,004 )     -  
(Increase) / Decrease in assets:
                       
Restricted cash
    (542 )     -       (542 )
Accounts receivable
    (2,068,457 )     (1,885,976 )     (182,481 )
Other receivable
    (726,410 )     (501,682 )     (224,728 )
Due from related party
    (6,986,717 )     (6,986,717 )     -  
Advances
    440,063       440,063       -  
Prepayments
    (1,676,062 )     (1,878,178 )     202,116  
Trade deposits
    2,077,455       2,069,253       8,202  
Increase / (Decrease) in current liabilities:
                       
Accounts payable and accrued expenses
    3,358,139       3,307,393       50,746  
Customer deposits
    (682,465 )     (665,925 )     (16,540 )
Income tax payable
    49,711       (223,354 )     273,065  
Net cash provided by operating activities
    3,610,258       4,546,143       (935,885 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES
                       
Purchase of property & equipment
    (1,864,774 )     (1,864,774 )     -  
Purchase of intangibles
    (51,359 )     (51,359 )     -  
Proceeds from collection of notes
    1,484,210       1,484,210       -  
Acquistion deposits
    478,391       478,391       -  
Paid for acquisition – net of cash acquired
    (15,782,799 )     (16,085,929 )     303,130  
Net cash (used in) provided by investing activities
    (15,736,331 )     (16,039,461 )     303,130  
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Proceeds of equity financing
    18,768,054       18,768,054       -  
Net cash provided by financing activities
    18,768,054       18,768,054       -  
                         
Effect of exchange rate changes on cash and cash equivalents
    271,514       (360,699 )     632,213  
                         
Net change in cash and cash equivalents
    6,913,495       6,914,037       (542 )
Cash and cash equivalents, beginning balance
    36,574,741       36,677,422       -  
Cash and cash equivalents, ending balance
  $ 43,488,236     $ 43,591,459     $ (542 )
                         
SUPPLEMENTAL DISCLOSURES:
                       
Cash paid during the year for:
                       
Income taxes
  $ 2,380,077     $ 2,984,342     $ (604,265 )
Other non-cash transactions
                       
Purchased goodwill
  $ (14,612,639 )   $ (14,915,770 )   $ 303,131  
Purchased intangible assets
    (3,236,376 )     (3,236,376 )     -  
Fair value of assets purchased less cash acquired
    (767,602 )     (767,601 )     (1 )
Acquisition financed with stock issuance
    2,833,818       2,833,818       -  
Acquisition paid for with cash - net of acquired
  $ (15,782,799 )   $ (16,085,929 )   $ 303,130  
 
 
33

 

UNIVERSALTRAVEL GROUP
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010

Note 15 - PRO FORMA FINANCIAL STATEMENTS

Pro Forma financial statements present revenue and related data of five subsidiaries acquired in 2010 as if the acquisitions were made at the earliest date presented of January 1, 2009.

For the six months ended June 30, 2010 and 2009, the revenue, income from operations, net income, and net income per common share in Pro Forma financial statements are as follow:

   
For the six months ended June 30,
 
   
2010
   
2009
 
Revenues
  $ 65,821,830     $ 52,412,514  
Income from operations
  $ 12,926,713     $ 11,480,676  
Net Income
  $ 10,431,632     $ 2,493,037  
Net income per common share
               
Basic
  $ 0.61     $ 0.18  
Dilute
  $ 0.58     $ 0.17  

Note16 - SUBSEQUENT EVENTS

On March 4, 2010, the company announced that it has entered into letters of intent to acquire four travel agency businesses in China – Tianjin Hongxun Aviation Agency Co., Ltd. (“Tianjin Hongxun”), Shanxi Jinyang Travel Agency Co., Ltd. (“Shanxi Jingyang”), Kunming Business travel Agency Co., Ltd.(“Kunming Business Travel”), and Shandong Century Aviation Development Co., Ltd.(“Shandong Century”) – for a total purchase consideration of $19.5 million. The combined unaudited 2009 revenue and net income for the four travel agencies were$23.0 million and $3.0 million, respectively. The final purchase consideration of Tianjin Hongxun and Shandong Century may be subject to adjustment after completion of the diligence by the Company.

On July13, 2010, the company announced a partnership with Agoda, a subsidiary ofPriceline.com, to strengthen its hotel reservation business segment and upgrade its website, www.cnutg.com. Under the agreement, Universal Travel Group will offer its customers access to Agoda’s international network of hotels. Through the updated cnutg.com website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide. Through this partnership with Universal Travel Group, Agoda intends to increase its exposure in the large Chinese travel market.

As of June 30, 2010, the Company has evaluated subsequent events for potential recognition and disclosure through the date of the financial statement issuance.

 
34

 

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Forward-Looking Statements: No Assurances Intended

 In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates, “projects,” or similar expressions. These forward-looking statements represent Management's belief as to the future of Universal Travel Group. Whether those beliefs become reality will depend on many factors that are not under management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

Business Overview

Headquartered in Shenzhen, Guangdong Province, the Company is a travel services provider in the People’s Republic of China (“PRC”) and is engaged in providing reservation, booking, and domestic and international travel and tourism services throughout the PRC via the internet, its TRIPEASY Kiosks and through customer representatives.

Under the theme of “Wings towards a more colorful life”, our core services include tour packaging, booking services for air tickets and hotels reservations.

In 2007,we completed the acquisition of Speedy Dragon Enterprise Limited, specializing in air cargo agency; Xi'an Golden Net Travel Serve Services Co., Ltd., specializing in travel packaged tours; Shanghai Lanbao Travel Service Co., Ltd., specializing in hotel reservations and Foshan Overseas International Travel Service Co., Ltd., a PRC-based company that handles both domestic and international travel inquiries.

In the second quarter of 2009, based on the past performance of our air cargo business, as well as the market perspective of this business, we decided to spin off our Speedy Dragon Enterprise Limited subsidiary, and as a result, exited the air cargo business. We believe the spin-off was beneficial to us as it allowed us to concentrate on our core business of selling air tickets, hotel accommodations and packaged tours.

In order to seize the opportunities arising from the economic promotion by the Chinese government of the mid and western regions of the PRC, we strategically set up Chongqing Universal Travel E-Business Co., Ltd. to strengthen our presence in that region in the second quarter of 2009 and began generating revenues in the third quarter of 2009.

In March 2010, we completed the acquisition of Huangshan Holiday Travel Service Co., Ltd.(“Huangshan Holiday”), Hebei Tianyuan International Travel Agency Co., Ltd.(“Tianyuan”), and Zhengzhou Yulongkang Travel Agency Co., Ltd. (“Yulongkang”).At the end of June 2010, we also completed the acquisition of Shanxi Jinyang Travel Agency Co., Ltd (“Shanxi Jinyang”) and Kunming Business Travel Agency Co., Ltd (“Kunming Business Travel”), two other packaged tour services providers.

We believe that these acquisitions of travel service providers would help us further expand our geographic coverage in the fast growing domestic travel market. We believe our comprehensive service platform and broad customer reach will enable us to improve the sales volume and operation efficiency of these new acquisitions. On the other hand, they will also help lift the sales volume and operation efficiency of our existing subsidiaries, and thus improve our overall earnings and profit margins.

We currently have three discrete lines of business and revenue. Our air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd. and Huangshan Holiday Travel Service Co., Ltd. Our packaged tours segment relates to Chongqing Travel World E-Business Co., Ltd., Foshan Overseas International Travel Service Co., Ltd., Xi’an Golden Net Travel Serve Service Co., Ltd., Shenzhen Universal Travel Agency Co. Ltd., Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Shanxi Jinyang Travel Agency Co., Ltd. and Kunming Business Travel Agency Co., Ltd.

Those new subsidiaries which previously had air-ticketing service, hotel reservation services, and packaged tours services were consolidated into our existing air-ticketing, hotel reservation services, and packaged tours services. With higher volume in these business segments, we believe that we now have better bargaining power with our suppliers, the airlines or hotels.

On June 21, 2010 we closed a common stock offering transaction. In this transaction, we issued 2,857,143 shares of common stock at $7.00 per share for an aggregate amount of $20 million.

 
35

 

On June 24, 2010, upon the approval of the Civil Aviation Administration of China (CAAC), a number of Chinese airlines claimed that they were authorized to cut the commission paid to travel agencies from 5% to 3%. Currently there has been no major impact on our existing businesses, since these airlines had only reduced the commission rate for a few flights departing from Beijing and Shanghai.

We believe that airlines will still heavily rely on travel agencies to sell their tickets in the near future and will have to continue payment sales commissions to them.

We also anticipate the proposed airline commission rate cut would accelerate the consolidation of the Chinese travel industry. The more efficient and better managed service providers will excel over their competitions and gain more market shares in this industry, while their smaller competitors would either consolidate with other agencies or wind up.

In July 2010, we partnered with Agoda, a subsidiary of Priceline.com, to strengthen our hotel reservation business segment. Under this partnership agreement, we offer our customers access to Agoda's international network of hotels. Through our website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide. Also through this partnership, Agoda intends to increase its exposure in the large Chinese travel market. This partnership offers us the opportunity to work with one of the world's largest online hotel reservation agencies and further strengthen our hotel reservation segment. The cooperation with Agoda fits with our strategy of expanding our higher margin business segments. We intend to leverage Agoda's global brand awareness and look forward to higher volume in hotel reservation.

In 2009, we were selected one of the Top Ten Brands of Travel Services in the PRC. We believe our quality of services will distinguish us in our long term competitiveness.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 2010 AND 2009

The following table presents certain consolidated statement of operations information derived from the consolidated statements of income for the three months ended June 30, 2010 and 2009 respectively.

Because the Company had spun off its Speedy Dragon Enterprise Limited subsidiary and exited the air cargo business in the second quarter of 2009, all numbers attributable to continuing operations in the following discussion do not include the operating results of Speedy Dragon Enterprise Limited for the second quarter of 2009 and its historical results. Such had been reclassified as discontinued operations.

   
Three months ended
   
Three months ended
   
Increase /
       
   
March 31, 2010
   
March 31, 2009
   
(Decrease)
   
Percentage
 
   
(Restated)
                   
Revenues
  $ 31,866,123     $ 18,232,926     $ 13,633,197       74.77 %
Cost of Services
    23,135,302       12,342,782       10,792,520       87.44 %
Gross Profit
    8,730,821       5,890,144       2,840,677       48.23 %
SG&A
    2,077,197       925,369       1,151,828       124.47 %
Income from Operations
    6,653,624       4,964,775       1,688,849       34.02 %
Other income
    3,363       2,591       772       29.80 %
Gain on change in fair value of derivative liabilities
    839,553       (5,819,481 )     6,659,034       -114.43 %
Interest income
    16,522       12,358       4,164       33.69 %
Income before income taxes
    7,513,062       (839,757 )     8,352,819       -994.67 %
Provision for income taxes
    1,782,484       1,020,955       761,529       74.59 %
Net Income
  $ 5,730,578     $ (1,860,712 )   $ 7,591,290       -407.98 %
 
                               
Net income (loss) from discontinued operation
  $ -     $ (724,313 )   $ 724,313       -100.00 %
Net Income
  $ 5,730,578     $ (2,585,025 )   $ 8,315,603       -321.68 %
 
 
36

 

For the three months ended June 30, 2010:
   
Air
   
(%) of
   
Hotel
   
(%) of
   
Packaged
   
(%) of
       
Revenue Segment
 
Ticketing
   
sector
   
Reservation
   
sector
   
Tours
   
sector
   
Total
 
Revenue
  $ 4,796,513       15.05 %   $ 3,432,017       10.77 %   $ 23,637,593       74.18 %   $ 31,866,123  
Cost of Services
    1,465,419       6.33 %     981,156       4.24 %     20,688,727       89.42 %     23,135,302  
Gross Profit
  $ 3,331,094       38.15 %   $ 2,450,861       28.07 %   $ 2,948,866       33.78 %   $ 8,730,821  
Gross Margin
    69.45 %             71.41 %             12.48 %             27.40 %
Segment effect in Gross Margin (*)
    10.45 %             7.69 %             9.25 %             27.40 %

For the three months ended March 31, 2009:
   
Air
   
(%) of
   
Hotel
   
(%) of
   
Packaged
   
(%) of
       
Revenue Segment
 
Ticketing
   
sector
   
Reservation
   
sector
   
Tours
   
sector
   
Total
 
Revenue
  $ 3,294,514       18.07 %   $ 2,714,144       14.89 %   $ 12,224,268       67.05 %   $ 18,232,926  
Cost of Services
    816,176       6.61 %     910,164       7.37 %     10,616,442       86.01 %     12,342,782  
Gross Profit
  $ 2,478,338       42.08 %   $ 1,803,980       30.63 %   $ 1,607,826       27.30 %   $ 5,890,144  
Gross Margin
    75.23 %             66.47 %             13.15 %             32.30 %
Segment effect in Gross Margin (*)
    13.59 %             9.89 %             8.82 %             32.30 %

 (*) “Segment effect in Gross Margin” was calculated by multiplying “the percentage of the segment revenue over the total revenue” with “gross margin of the related sector”. This outlines how each segment contributes to the total gross margin.

Revenue

Our air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd. and Huangshan Holiday Travel Service Co., Ltd. Our packaged tours segment relates to Chongqing Travel World E-Business Co., Ltd, Foshan Overseas International Travel Service Co., Ltd., Xi’an Golden Net Travel Serve Service Co., Ltd., Shenzhen Universal Travel Agency Co. Ltd., Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Shanxi Jinyang Travel Agency Co., Ltd. and Kunming Business Travel Agency Co., Ltd.

Revenues for the three months ended June 30, 2010 were $31,866,123, compared to $18,232,926 for the same period in 2009, an increase of $13,633,197, or approximately 74.8%. The contributions from the three newly acquired subsidiaries in March 2010 were $7,275,588, or 22.8% of our total revenues for these three months. Excluding this effect, revenues for the three months ended June 30, 2010 were $24,590,535, compared to $18,232,926 for the same period in 2009, an increase of $6,357,609, or approximately 34.9%.

We have expended considerable efforts to expand our businesses, especially the packaged tour business. This resulted in the acquisition of three new packaged tour subsidiaries in March this year. For that reason, along with the strong demand for travel demand as a result of the recovery of Chinese economy, and the continuing effect of the Chinese government’s stimulus package, our revenue for the quarter ended June 30, 2010 increased significantly from the same period the year before. The high growth rate is also helped by the comparatively lower numbers in the same quarter last year, when the tourism industry was adversely affected by H1N1. We continue to see success in cross marketing and selling our travel related products across our business segments and increased brand awareness from online resales and the deployment of our TRIPEASY kiosks.

 
37

 

Revenue from air-ticketing segment were $4,796,513 for the three months ended June 30, 2010 compared to $3,294,514 for the same period last year, an increase of $1,501,999, or approximately 45.6%. This increase is generally driven by the same factors mentioned above, but more specifically, a result of the increased demand for air passenger transportation and higher ticket prices. We attribute the higher air ticket prices to the booming tourism, general inflation in Chinese economy, as well as the airlines acting together on pricing. As China’s economy recovers, we believe that our growth in air-ticketing is sustainable in the coming quarters.

Revenue from hotel reservations segment were $3,432,017 for the three months ended June 30, 2010 compared to $2,714,144 for the same period in 2009, an increase of $717,873, or approximately 26.4%. This increase is a result of the factors mentioned above for air tickets and the successful cross marketing of our various business segments. For this specific segment, we expect higher reservation volumes and higher revenue growth in the coming quarters, after our partnership with Agoda to leverage its global brand awareness and international hotel network.

Revenue from our packaged tour segment were $23,637,593 for the three months ended June 30, 2010, compared to $12,224,268 for the same period in 2009, an increase of $11,413,325, or approximately 93.4%. Excluding the effect of the three newly acquired subsidiaries, which was $7,275,588, our revenues from this segment were $16,362,005 for the three months ended June 30, 2010, compared to $12,224,268, for the same period in 2009, an increase of $4,137,737, or approximately 33.8%. This increase is a result of the recovery of Chinese economy, the government’s stimulus package, and our strong efforts in carrying our various marketing programs.

Cost of Services

Costs of services for air tickets cover mainly business and revenue related expenses. Costs of services for hotel reservations cover mainly commissions paid to the sales agents for selling air tickets and hotel rooms in the Company’s system. Costs of services for packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours.

Other direct costs such as systems and related technologies used by each segment operations, and costs associated with payment processing are also included in the Company’s costs of services. In addition, the Company allocates costs of labor and facilities, depreciation, communications, and utility expenses incurred by each segment between costs of services and general administrative expenses. The percentage allocated to costs of sales is based on management estimate associated with the generation of revenues.

Costs of services for the three months ended June 30, 2010 were $23,135,302 compared to $12,342,782 for the same period in 2009, an increase of $10,792,520, or approximately 87.4%. The comparatively higher costs of services resulted from packaged tours making up a greater percentage of our total revenue and their corresponding higher cost of services. Excluding the costs of services for the three newly acquired subsidiaries in March 2010, which was $6,165,983, costs of services for the three months ended June 30, 2010 were $16,969,319, compared to $12,342,782, for the same period in 2009, an increase of $4,626,537, or approximately 37.5%. The increase is in tandem with the increase in revenue. 

Costs of services from air-ticketing were $1,465,419 for the three months ended June 30, 2010, compared to $816,176 for the same period last year, an increase of $649,243, or approximately 79.5%. This increase is associated with a new founded subsidiary in June 2009 which has much more business transactions in this period than the same period last year and the much higher increase in revenue in this segment.

Costs of services from hotel-reservation were $981,156 for the three months ended June 30, 2010, compared to $910,164 for the same period last year, an increase of $70,992, or approximately 7.8%. The increase is in tandem with the increase of revenue.

 
38

 

Costs of services from packaged-tour were $20,688,727 for the three months ended June 30, 2010, compared to $10,616,442 for the same period last year, an increase of $10,072,285 or approximately 94.9%. The increase is in tandem with the increase of revenue. Excluding the effect of the costs of services for the three newly acquired subsidiaries in March, which was $6,165,983, our costs of services from this segment were $14,522,744, for the three months ended June 30, 2010 compared to $10,616,442, for the same period in 2009, an increase of $3,906,302, or approximately 36.8%. The increase is also in tandem with the increase of revenue in this segment. 

Gross Profit

Gross profit for the three months ended June 30, 2010 was $8,730,821, compared to $5,890,144, for the same period in 2009, an increase of $2,840,677, or approximately 48.2%. The increase in gross profit is due to the same factors contributing to the growth in revenue. The exponential growth in both our domestic air-ticketing business and hotel reservations business is a result of synergies from our packaged tour operations.

Gross profit in our air-ticketing segment was $3,331,094 for the three months ended June 30, 2010, compared to $2,478,338 for the same period last year, an increase of $852,756, or approximately 34.4%. Gross profit margin for the three months ended June 30, 2010 was 69.5%, slightly lower than 75.2% for the same period in 2009. The continued strong growth in gross profit for this segment was mainly attributable to the increased demand for air passenger transportation. The higher air ticket prices are a result of the booming tourism in China, the general inflation in Chinese economy, as well as the airlines acting together to determine pricing. The slight decrease in gross margin was due to the new establishment of our Chongqing subsidiary in June 2009, which has higher cost of operations due to its smaller size.

Gross profit in our hotel reservation segment was $2,450,861 for the three months ended June 30, 2010 compared to $1,803,980 for the same period last year, an increase of $646,881, or approximately 35.9%. Gross profit margin in this segment for the three months ended June 30, 2010 was 71.4% compared to 66.5% for the same period in 2009, a decrease of approximately 5.0%. The increased gross profit margin is mostly due to the reclassification of the costs associated.

Gross profit in our packaged tour segment was $2,948,866 for the three months ended June 30, 2010 compared to $1,607,826 for the same period last year, an increase of $1,341,040, or approximately 83.4%. Gross profit margin in this segment for the three months ended June 30, 2010 was 12.5% compared to 13.2% for the same period in 2009, a slightly decrease of 0.7%. The reason for the lower overall gross profit margin is that we had to consolidate the three newly acquired subsidiaries in this segment and they had lower gross profit margins due to their smaller size generally. Although currently these subsidiaries have lower profit margins than the existing subsidiaries, we believe that they have great potential to improve, and their strong local networks are critical in our nationwide expansion strategy.

Our air-ticketing and hotel reservation have much higher gross margin than our packaged tour business primarily as our revenue from air-ticketing and hotel reservation are the commission we generate and our costs of service are mainly business taxes, systems and related technologies used in operations, costs associated with payment processing, and allocation of costs of labor and facilities, communications, and utility expenses, which all together are not substantial; while costs of services for the packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours, that all together are much substantial variable and fixed overheads.

Consolidated gross margin for the three months ended June 30, 2010 came in at 27.4%, a 4.9% decrease from the 32.3% the Company posted in the same period last year. The lower gross margin is mainly due to our changes in revenues mix. Due to the difference in revenues recognition, our packaged tour has lower gross margin. During the three months ended June 30, 2010, revenues generated from packaged tours, which have a smaller profit-margin, grew at a much higher rate than revenues generated from air ticketing and hotel reservations, leading to lower overall gross margin.

Selling, General and Administrative Expenses

Major selling, general, and administrative expenses for the three months ended June 30, 2010 and 2009 are as follows:

 
39

 

 
 
For the three months 
ended June 30
 
 
 
2010
   
2009
 
 
           
Salary and commission
  $ 401,699     $ 286,227  
Marketing
    103,815       508  
Rent
    89,759       44,151  
Depreciation and amortization
    435,821       10,655  
Professional fees
    394,245       85,742  
Stock-based compensation
    340,372       330,724  
Other general and administrative expenses
    311,486       167,362  
Total
  $ 2,077,197     $ 925,369  

Selling, general and administrative expenses totaled $2,077,197 for three months ended June 30, 2010 compared to $925,369 for the same period last year, an increase of approximately 124.5%.

Selling, general and administrative expenses were approximately 6.5% of revenue for the three months ended June 30, 2010 as compared to 5.1% for the same period last year. General increase in selling, general and administrative expenses are in connection with the growth in business operations during the three months ended June 30, 2010, as compared to the same period of last year. During the second quarter of 2010, we incurred extra professional fees and consolidation expenses for the aforesaid mergers and acquisitions, as well as for the $20 million of common stock offering in June. To promote our businesses, especially the packaged tour programs, we spent $103,815 on advertisements this quarter when we did not incur so much last year. In the second half of 2009, we established two subsidiaries, Chongqing Universal Travel E-Business Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd. Depreciation and amortization expenses of these two newly established companies, have been taken into account into selling, general and administrative expenses since the third quarter of 2009.

Other Income (Expenses)

Gain on change in fair value of derivative liability for the three months ended June, 2010 was $839,553 compared to a loss of $5,819,481 for same period last year. The Company adopted Derivative and Hedging, ASC 815-40 effective January 1, 2009. The warrants issued in connection with the “Securities Purchase Agreement” dated August 28, 2008 were reclassified from equity to derivative liability and marked to market. Therefore, the Company recorded a gain on change in fair value of derivative liability of $839,553 on June 30, 2010 to mark to market for the decrease in fair value of the warrants from April 1, 2010 to June 30, 2010.

Net Income

Net income was $5,730,578, or 18.0% of revenues for the three months ended June 30, 2010, compared to a loss of $1,860,712 for the same period last year. The significant increase in net income is mostly due to our efforts to expand our business, our merger and acquisition strategy, as well as the non-cash gain on change in fair value of derivative liability and the effect of the discontinued operation.

SIX MONTHS ENDED JUNE, 2010 AND 2009

The following table presents certain consolidated statement of operations information derived from the consolidated statements of income for the six months ended June 30, 2010 and 2009 respectively.

Because the Company had spun off its Speedy Dragon Enterprise Limited subsidiary and exited the air cargo business in the second quarter of 2009, all numbers attributable to continuing operations in the following discussion do not include the operating results of Speedy Dragon Enterprise Limited for the first quarter of 2009 and its historical results. Such had been reclassified as discontinued operations.

 
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Six months ended
   
Six months ended
   
Increase /
       
   
June 30, 2010
   
March 31, 2009
   
(Decrease)
   
Percentage
 
   
(Restated)
                   
Revenues
  $ 52,291,902     $ 33,654,919     $ 18,636,983       55.38 %
Cost of Services
    37,304,787       22,648,834       14,655,953       64.71 %
Gross Profit
    14,987,115       11,006,085       3,981,030       36.17 %
SG&A
    3,643,184       1,802,298       1,840,886       102.14 %
Income from Operations
    11,343,931       9,203,787       2,140,144       23.25 %
Other income
    6,917       6,419       498       7.76 %
Gain on change in fair value of derivative liabilities
    949,004       (5,706,217 )     6,655,221       -116.63 %
Interest income
    38,711       23,296       15,415       66.17 %
Income before income taxes
    12,338,563       3,527,285       8,811,278       249.80 %
Provision for income taxes
    3,061,550       2,138,151       923,399       43.19 %
Net Income
  $ 9,277,013     $ 1,389,134     $ 7,887,879       567.83 %
 
                               
Net income (loss) from discontinued operation
  $ -     $ (592,620 )   $ 592,620       -100.00 %
Net Income
  $ 9,277,013     $ 796,514     $ 8,480,499       1064.70 %

For the six months ended June 30, 2010:
   
Air
   
(%) of
   
Hotel
   
(%) of
   
Packaged
   
(%) of
       
Revenue Segment
 
Ticketing
   
sector
   
Reservation
   
sector
   
Tours
   
sector
   
Total
 
Revenue
  $ 8,702,488       16.64 %   $ 6,462,123       12.36 %   $ 37,127,291       71.00 %   $ 52,291,902  
Cost of Services
    2,833,290       7.59 %     1,979,573       5.31 %     32,491,924       87.10 %     37,304,787  
Gross Profit
  $ 5,869,198       39.16 %   $ 4,482,550       29.91 %   $ 4,635,367       30.93 %   $ 14,987,115  
Gross Margin
    67.44 %             69.37 %             12.49 %             28.66 %
Segment effect in Gross Margin (*)
    11.22 %             8.57 %             8.86 %             28.66 %

For the six months ended June 30, 2009:
   
Air
   
(%) of
   
Hotel
   
(%) of
   
Packaged
   
(%) of
       
Revenue Segment
 
Ticketing
   
sector
   
Reservation
   
sector
   
Tours
   
sector
   
Total
 
Revenue
  $ 6,045,642       17.96 %     5,230,975       15.54 %     22,378,302       66.49 %     33,654,919  
Cost of Services
    1,686,164       7.44 %     1,683,627       7.43 %     19,279,043       85.12 %     22,648,834  
Gross Profit
  $ 4,359,478       39.61 %     3,547,348       32.23 %     3,099,259       28.16 %     11,006,085  
Gross Margin
    72.11 %             67.81 %             13.85 %             32.70 %
Segment effect in Gross Margin (*)
    12.95 %             10.54 %             9.21 %             32.70 %

(*) “Segment effect in Gross Margin” was calculated by multiplying “the percentage of the segment revenue over the total revenue” with “gross margin of the related sector”. This outlines how each segment contributes to the total gross margin.

 
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Revenue

Our air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd. and Huangshan Holiday Travel Service Co., Ltd. Our packaged tours segment relates to Chongqing Travel World E-Business Co., Ltd, Foshan Overseas International Travel Service Co., Ltd., Xi’an Golden Net Travel Serve Service Co., Ltd., Shenzhen Universal Travel Agency Co. Ltd., Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Shanxi Jinyang Travel Agency Co., Ltd. and Kunming Business Travel Agency Co., Ltd.

Revenues for the six months ended June 30, 2010 were $52,291,902, compared to $33,654,919 for the same period in 2009, an increase of $18,636,983, or approximately 55.4%. The contributions from the three newly acquired subsidiaries in March were $7,275,588, or 13.9% of our total revenues for these six months. Excluding this effect, revenues for the six months ended June 30, 2010 were $45,016,314, compared to $33,654,919 for the same period in 2009, an increase of $11,361,395 or approximately 33.8%.

The acquisition of the five subsidiaries this year was primarily due to our efforts to expand our businesses, especially the packaged tour business, along with the strong demand for travel demand as a result of the recovery of Chinese economy, and the continuing effect of the Chinese government’s stimulus package. The high growth rate is also helped by the comparatively lower numbers in the same quarter last year, when the tourism industry was adversely affected by H1N1. We continue to see success in cross marketing and selling our travel related products across our business segments and increased brand awareness from online sales and the deployment of our TRIPEASY kiosks.

Revenues from air-ticketing segment were $8,702,488 for the six months ended June 30, 2010 compared to $6,045,642 for the same period last year, an increase of $2,656,846, or approximately 43.9%. This increase is generally driven by the same factors mentioned above, but more specifically, a result of the increased demand for air passenger transportation and higher ticket prices. We attribute the higher air ticket prices to the booming tourism, general inflation in Chinese economy, as well as the airlines acting together on pricing. As China’s economy recovers, we believe that our growth in air-ticketing is sustainable in the coming quarters.

Revenues from hotel reservations segment were $6,462,123 for the six months ended June 30, 2010 compared to $5,230,975 for the same period in 2009, an increase of $1,231,148, or approximately 23.5%. This increase is a result of the factors mentioned above for air tickets and the successful cross marketing of our various business segments. For this specific segment, we expect higher reservation volumes and higher revenue growth in the coming quarters, after our partnership with Agoda to leverage its global brand awareness and international hotel network.

Revenues from our packaged tour segment were $37,127,291 for the six months ended June 30, 2010, compared to $22,378,302 for the same period in 2009, an increase of $14,748,989, or approximately 65.9%. Excluding the effect of the three newly acquired subsidiaries in March 2010, which was $7,275,588, our revenues from this segment were $29,851,703 for the six months ended June 30, 2010, compared to $22,378,302, for the same period in 2009, an increase of $7,473,401, approximately 33.4%. This increase is a result of the recovery of Chinese economy, the government’s stimulus package, and our strong efforts in carrying our various marketing programs.

Cost of Services

Costs of services for air tickets cover mainly business and revenue related expenses. Costs of services for hotel reservations cover mainly commissions paid to the sales agents for selling air tickets and hotel rooms in the Company’s system. Costs of services for packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours.

Other direct costs such as systems and related technologies used by each segment operations, and costs associated with payment processing are also included in the Company’s Costs of Services. In addition, the Company allocates costs of labor and facilities, depreciation, communications, and utility expenses incurred by each segment between costs of services and general administrative expenses. The percentage, ranging from 50% to 80%, allocated to costs of sales is based on management estimate, and the percentage allocated is estimated to be directly associated with the generation of revenues.

 
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Costs of services for the six months ended June 30, 2010 were $37,304,787 compared to $22,648,834 for the same period in 2009, an increase of $14,655,953, or approximately 64.7%. The comparatively higher costs of services resulted from packaged tours making up a greater percentage of our total revenue and their corresponding higher cost of services. Excluding the effect of the costs of services of the three newly acquired subsidiaries, which is $6,165,983, costs of services for the six months ended June 30, 2010 were $31,138,804, compared to $22,648,834, for the same period in 2009, an increase of $8,489,970, or approximately 37.5%. The increase is in tandem with the increase of revenue. 

Costs of services from air-ticketing were $2,833,290 for the six months ended June 30, 2010, compared to $1,686,164 for the same period last year, an increase of $1,147,126, or approximately 68.0%. The increase is in tandem with the increase of revenue, but more costs were incurred from a newly established Chongqing subsidiary, which was established only in June 2009.

Costs of services from hotel-reservation were $1,979,573 for the six months ended June 30, 2010, compared to $1,683,627 for the same period last year, an increase of $295,946, or approximately 17.6%. The increase is in tandem with the increase of revenue, and the higher percentage increase is mostly due to our reclassification of costs.

Costs of services from packaged-tour were $32,491,924 for the six months ended June 30, 2010, compared to $19,279,043 for the same period last year, an increase of $13,212,881 or approximately 68.5%. The increase is in tandem with the increase of revenue. Excluding the effect of the costs of services for the three newly acquired subsidiaries, which was $6,165,983, our costs of services from this segment were $26,325,941 for the six months ended June 30, 2010 compared to $19,279,043 for the same period in 2009, an increase of $7,046,898, or approximately 36.6%. The increase is also in tandem with the increase of revenue. 

Gross Profit

Gross profit for the six months ended June 30, 2010 was $14,987,115 compared to $11,006,085, for the same period in 2009, an increase of $3,981,030, or approximately 36.2%. The increase in gross profit is due to the same factors contributing to the growth in revenue. The exponential growth in both our domestic air-ticketing business and hotel reservations business is a result of synergies from our packaged tour operations.

Gross profit in our air-ticketing segment was $5,869,198 for the six months ended June 30, 2010, compared to $4,359,478 for the same period last year, an increase of $1,509,720, or approximately 34.6%. Gross profit margin for the six months ended June 30, 2010 was 67.4%, slightly lower than 72.1% for the same period in 2009. The continued strong growth in gross profit for this segment was mainly attributable to the increased demand for air passenger transportation. The higher air ticket prices are a result of the booming tourism in China, the general inflation in Chinese economy, as well as the airlines acting together to determine pricing. The slight decrease in gross margin was due to the consolidation of a newly established Chongqing subsidiary from June 2009.

Gross profit in our hotel reservation segment was $4,482,550 for the six months ended June 30, 2010 compared to $3,547,348 for the same period last year, an increase of $935,202, or approximately 26.4%. Gross profit margin in this segment for the six months ended June 30, 2010 was 69.4%, compared to 67.8% for the same period in 2009, an increase of 1.6%. The increased gross profit margin is mostly due to the reclassification of the costs associated.

Gross profit in our packaged tour segment was $4,635,367 for the six months ended June 30, 2010 compared to $3,099,259 for the same period last year, an increase of $1,536,108, or approximately 49.6%. Gross profit margin in this segment for the six months ended June 30, 2010 was 12.5% compared to 13.9% for the same period in 2009, a decrease of 1.4%. The reason for the lower overall gross profit margin is that we had to consolidate the three newly acquired subsidiaries into this segment and they had lower gross profit margins due to their smaller size generally. Although currently these subsidiaries have lower profit margins than the existing subsidiaries, we believe that they have great potential to improve, and their strong local networks are critical in our nationwide expansion strategy.

 
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Our air-ticketing and hotel reservation have much higher gross margin than our packaged tour business primarily as our revenues from air-ticketing and hotel reservation are the commission we generated and our costs of service are mainly systems and related technologies used in operations, costs associated with payment processing, and allocation of costs of labor and facilities, communications, and utility expenses, which all together are not substantial; while costs of services for the packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours, that all together are much substantial variable and fixed overheads.

Consolidated gross margin for the six months ended June 30, 2010 came in at 28.7%, a 4.0% decrease from the 32.7% we posted in the same period last year. The lower gross margin is mainly due to our changes in revenues mix. Due to the difference in revenues recognition, our packaged tour has lower gross margin. During the six months ended June 30, 2010, revenues generated from packaged tours, which have a smaller profit-margin, grew at a much higher rate than revenues generated from air ticketing and hotel reservations, leading to lower overall gross margin.

Selling, General and Administrative Expenses

Major selling, general, and administrative expenses for the six months ended June 30, 2010 and 2009 are as follows:

    
For the six months ended June 30,
 
    
2010
   
2009
 
 
           
Salary and commission
  $ 717,699     $ 430,967  
Marketing
    175,057       38,855  
Rent
    170,343       82,671  
Depreciation and amortization
    668,383       19,074  
Professional fees
    659,250       341,676  
Stock-based compensation
    677,004       495,725  
Other general and administrative expenses
    575,448       393,330  
Total
  $ 3,643,184     $ 1,802,298  

Selling, general and administrative expenses totaled $3,643,184 for six months ended June 30, 2010 compared to $1,802,298 for the same period last year, an increase of approximately 102.1%.

Selling, general and administrative expenses were approximately 7.0% of revenue for the six months ended June 30, 2010 as compared to 5.4% for the same period last year. General increase in selling, general and administrative expenses are in connection with the growth in business operations during the six months ended June 30, 2010, as compared to the same period of last year. During the first half of 2010, we incurred extra professional fees and consolidation expenses for the aforesaid mergers and acquisitions, as well as for the $20 million of common stock offering in June. To promote our businesses, especially the packaged tour programs, we spent $175,057 of advertisements in the first two quarters of 2010, while we did not incur so much for the same period last year. In the second half of 2009, we established two subsidiaries, Chongqing Universal Travel E-Business Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd. Depreciation and amortization expenses of these two newly established companies have been taken into account since the third quarter of 2009.

Other Income (Expenses)

Gain on change in fair value of derivative liability for the six months ended June, 2010 was $949,004 compared to a loss of $5,706,217 for same period last year. The Company adopted Derivative and Hedging, ASC 815-40 effective January 1, 2009. The warrants issued in connection with the “Securities Purchase Agreement” dated August 28, 2008 were reclassified from equity to derivative liability and marked to market. Therefore, the Company recorded a gain on change in fair value of derivative liability of $949,004 on June 30, 2010 to mark to market for the decrease in fair value of the warrants from January 1, 2010 to June 30, 2010.

 
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Net Income

Net income was $9,277,013, or 17.7% of revenues for the six months ended June 30, 2010, compared to $1,389,134, or 4.1% of revenues for the same period last year. The significant increase in net income is mostly due to our efforts to expand our business, our merger and acquisition strategy, as well as the non-cash gain on change in fair value of derivative liability and the effect of the discontinued operation.

LIQUIDITY AND CAPITAL RESOURCES

Cash for operations and liquidity needs are funded primarily through cash flows from operations and short-term borrowings. Cash and cash equivalents were $43,488,236 as of June 30, 2010. Current assets and current liabilities as of June 30, 2010 were $86,184,528 and $9,904,710, respectively, yielding working capital of $76,279,818. We believe that the funds available to us from operations are adequate to meet our operating needs in 2010. For the six months ended June 30, 2010, net cash provided by operating activities was approximately $3,610,258, which resulted primarily from our organic operations and effective management of cash flow.

Capital Expenditure

Total capital expenditure for six months ended June 30, 2010 was $1,864,774 to purchase fixed assets, primarily machinery and equipment, such as TRIPEASY kiosks. Management may consider substantial increase in equipment or other supporting machinery expenditure to support the fast development and expansion of our business.

Working Capital Requirements

Historically, operations and short term financing have been sufficient to meet our cash needs. We believe that we will be able to generate revenue from operations to provide the necessary cash flow to meet anticipated working capital requirements. However, our actual working capital needs for the long and short term will depend upon numerous factors, including operating results, competition, the opportunity to acquire or start-up new businesses, and the availability of credit facilities, none of which can be predicted with certainty. Due to our rapid growth and expansion, our need for additional capital may arise, and management will seek to raise capital for the maintenance and expansion of our operations through the issuance of debt or equity if necessary. To satisfy these capital needs due to our broad expansion in PRC, as well as to set up more TRIPEASY kiosks, we may incur additional capital expenditure.

We filed a Registration Statement on Form S-3 to register $50,000,000 worth of securities on Aug 7, 2009, which became effective on November 5, 2009. In December 15, 2009, we closed Subscription Agreements with certain investors to sell to them an aggregate of 2,222,222 shares of common stocks for a consideration of $20 million. We also closed another common stock public offering transaction on June 16, 2010. In this transaction we issued 2,857,143 shares of common stocks for an aggregate amount of $20 million.

Unless otherwise indicated in a prospectus supplement, we intend to use the net proceeds from the sale of the securities under the S-3 registration for general corporate purposes, including expanding our products, and for general working capital purposes. We may also use a portion of the net proceeds to acquire or invest in businesses and products that are complementary to our own, although we have no current plans, commitments or agreements with respect to any acquisitions.

Off Balance Sheet Arrangements

We have never entered into any off-balance sheet financing arrangements and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

 
45

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We currently do not hold or use any derivative or other financial instruments that expose us to substantial market risk and we have no foreign exchange contracts.

We are exposed to foreign exchange risk arising from fluctuations in the exchange rate between U.S. Dollars and Renminbi. Our operations are located in the People’s Republic of China and substantially all of our revenues and assets are denominated in Renminbi. However our reporting currency is the U.S. Dollar and some of our expenses are denominated in U.S. Dollars. As a result, our financial results are potentially subject to the impact of changes in value between U.S. Dollars and Renminbi. If the Renminbi depreciates relative to the U.S. Dollar, the value of our revenues, earnings and assets as reported in our financial statements will decline.

Item 4. Controls and Procedures.

Evaluation of our Disclosure Controls

As of the end of the period covered by this Quarterly Report on Form 10-Q/A, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our management, including the CEO and CFO, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
Based upon their controls evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective at a reasonable assurance level.

Changes in internal control over financial reporting

There have been no changes in our internal controls over financial reporting during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PARTII - OTHER INFORMATION

Item1. Legal Proceedings.

There is no material legal proceeding pending against us.

Item1A. Risk Factors

Not Applicable.

 
46

 

Item2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item4. (Removed and Reserved).

None.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

Copies of the following documents are included as exhibits to this report pursuant to Item601 of Regulation S-K.

Exhibit No. 
 
SEC Ref. 
No. 
 
Title of Document 
 
 
 
 
 
1
 
31.1
 
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
2.
 
31.2
 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002
         
3
 
32.1
 
Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 
 
 
 
 
4
 
32.2
 
Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* The Exhibit attached to this Form 10-Q/A shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to liability under that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 
47

 

SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: July 22, 2011

 
UNIVERSAL TRAVEL GROUP
 
 
 
 
By: 
/s/ Jiangping Jiang
 
Jiangping Jiang
 
Chairwoman and Chief Executive Officer
 
(Principal Executive Officer)

 
By: 
/ s/ Jing Xie
 
Jing Xie
 
Chief Financial Officer
 
(Principal Financial Officer)
 
 
48