10-Q/A 1 v195116_10qa.htm

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

Amendment No. 2
 
FORM 10-Q/A

(MarkOne)

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: 000-51516

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.)

5th Floor, South Block, Building 11, Shenzhen
Software Park, Zhongke 2nd Road,
Nanshan District, Shenzhen, China
 
518000
(Address of principal executive offices)
 
(Zip Code)

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

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

Indicate by check mark whether theregistrant (1) has filed reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ¨

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post suchfiles).    Yes    ¨   No   ¨

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seethe definitions of “large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer
o
       
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 acourt.   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

In this Amendment No. 2 to Quarterly Report on Form 10-Q (the "Form 10-Q/A"), we refer to Universal Travel Group, a Nevada corporation, as "we," "us," "our" or "our company."

Subsequent to filing our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 on August 10, 2010, we discovered that we had erroneously placed cost of service of one of subsidary from Air ticketing segment into tours segment. We are amending Note 13 and certain disclosures in our MD&A upon review and approval from our auditor.

Other than the correction of the error described above, all other information in our original Form 10-Q remains unchanged. For the convenience of the reader, this amendment includes, in their entirety, those items in our original filing not being amended. Except for the amendment, this Form 10-Q/A continues to describe conditions as of our original filing, and does not update disclosures contained herein to reflect events that occurred at a later date. Accordingly, this Form 10-Q/A should be read in conjunction with our other filings made with the SEC subsequent to the filing of our Report, if any.
 

FORM10-Q/A
.UNIVERSALTRAVEL GROUP
INDEX

     
Page
       
PART I.
Financial Information
 
1
       
 
Item 1.  Financial Statements (Unaudited)
 
1
       
 
Report of  Independent Registered Public AccountingFirm
 
2
       
 
Consolidated Balance Sheets as of  June 30, 2010 (Unaudited) and December 31, 2009
 
4
       
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)
 
5
       
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)
 
7
       
 
Consolidated Statements of Stockholders' Equity
 
8
       
 
Notes to Consolidated Financial Statements as of  June 30, 2010 (Unaudited)
 
9
       
 
Item 2.  Management’s Discussion and Analysis of Financial Condition or Plan of Operation
 
41
       
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
52
       
 
Item 4.  Controls and Procedures
 
52
       
PART II.
Other Information
 
53
       
 
Item 1.  Legal Proceedings
 
53
       
 
Item 1A. Risk Factors.
 
53
       
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
53
       
 
Item 3.  Defaults Upon Senior Securities
 
53
       
 
Item 4.  (Removed and Reserved).
 
53
       
 
Item 5.  Other Information
 
53
       
 
Item 6.  Exhibits
 
53

 
 

 

 
PARTI - FINANCIAL INFORMATION

 
Item1. Financial Statements (Unaudited)
UNIVERSAL TRAVEL GROUP
 
CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2010
 
1

 
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
 
2

 
TABLE OF CONTENTS
 
Consolidated Balance Sheets
4
   
Consolidated Statements of Income
5-6
   
Consolidated Statements of Cash Flows
7
   
Consolidated Statements of Stockholders’ Equity
8
   
Notes to Consolidated Financial Statements
9-40
 
3

 
UNIVERSAL TRAVEL GROUP
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2010 AND DECEMBER 31, 2009

   
6/30/2010
   
12/31/2009
 
         
Restated
 
ASSETS
           
Cash and cash equivalents
  $ 43,591,459     $ 36,677,422  
Accounts receivable, net
    19,555,646       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
    86,184,529       70,478,341  
                 
Property, plant & equipment, net
    6,487,219       4,992,677  
Intangible assets
    3,320,478       339,240  
Goodwill
    24,812,040       9,896,270  
Total Noncurrent Assets 
    34,619,736       15,228,187  
Total Assets
  $ 120,804,266     $ 85,706,528  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Accounts payable and accrued expenses
  $ 6,507,356     $ 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  
Total  Liabilities
    10,771,024       8,085,641  
                 
Stockholders' Equity
               
Common stock, $.001 par value, 70,000,000 shares authorized, 19,898,229 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  
Other comprehensive income
    1,284,434       1,645,133  
Statutory reserve
    732,282       372,144  
Retained earnings
    48,049,291       37,915,251  
Total Stockholders' Equity
    110,033,241       77,620,887  
Total Liabilities and Stockholders' Equity
  $ 120,804,265     $ 85,706,528  

The accompanying notes are an integral part of these consolidated financial statements.
 
4

 
UNIVERSAL TRAVEL GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,

   
2010
   
2009
 
   
Unaudited
   
Restated
 
Gross revenues,
  $ 36,741,613     $ 18,405,473  
Cost of services
    26,188,474       11,875,779  
Gross profit
    10,553,139       6,529,694  
                 
Selling, general and administrative expenses
    3,461,037       1,564,919  
Income from operations
    7,092,102       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
    17,081       12,358  
Total other income (expense)
    859,997       (5,804,532 )
Income/(Loss) before income taxes –continuing operations
    7,952,099       (839,757 )
                 
Provision for income taxes
    1,907,901       1,020,955  
Income(Loss) from continuing operations
    6,044,198       (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)
  $ 6,044,198     $ (2,585,025 )
                 
Comprehensive income/(loss)
               
Net income/(loss)
  $ 6,044,198     $ (2,585,025 )
Foreign currency translation gains
    55,759       13,880  
Total comprehensive income/(loss)
  $ 6,099,957     $ (2,571,145 )
                 
Income (Loss) per common share from continuing operations
               
Basic
  $ 0.35     $ (0.14 )
Diluted
  $ 0.33     $ (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
  $ 0.33     $ (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 audited consolidated financial statements.
 
5

 
UNIVERSAL TRAVEL GROUP
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,

   
2010
   
2009
 
   
Unaudited
   
Restated
 
Gross revenues,
  $ 62,871,619     $ 33,916,152  
Cost of services
    43,816,506       21,614,649  
Gross profit
    19,055,113       12,301,503  
                 
Selling, general and administrative expenses
    6,524,679       3,097,716  
Income from operations
    12,530,434       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
    40,712       23,296  
Total other income (expense)
    996,633       (5,676,502 )
Income before income taxes - continuing operation
    13,527,067       3,527,285  
                 
Provision for income taxes
    3,393,028       2,138,151  
Net income - continuing operation
    10,134,039       1,389,134  
                 
Income/(loss) from discontinued operations
            177,975  
Loss on didposition
    -       (770,595 )
Net income/(loss) from discontinued operation
    -       (592,620 )
                 
Net income
  $ 10,134,039     $ 796,514  
                 
Comprehensive Income
               
Net income
  $ 10,134,039     $ 796,514  
Foreign currency translation gains/(losses)
    (360,699 )     48,587  
Total comprehensive income
  $ 9,773,340     $ 845,101  
                 
Net income per common share - continuing operations
               
Basic
  $ 0.59     $ 0.10  
Diluted
  $ 0.57     $ 0.10  
Net income/(loss) per common share - discontinued operations
               
Basic
  $ -     $ (0.04 )
Diluted
  $ -     $ (0.04 )
Total net income per common share
               
Basic
  $ 0.59     $ 0.06  
Diluted
  $ 0.57     $ 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 audited consolidated financial statements.
 
6

 
UNIVERSAL TRAVEL GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,

   
2010
   
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net income
  $ 10,134,039     $ 796,514  
Add (deduct):
               
Net income from discontinued operations
    -       592,620  
Income from continuing operations
    10,134,039       1,389,134  
Depreciation and amortization
    952,402       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  
Accounts receivable
    (1,885,974 )     (2,716,909 )
Other receivable
    (501,682 )     (4,725 )
Due from related party
    (6,986,717 )     -  
Advances
    440,063       (758 )
Prepayments
    (1,878,178 )     32,791  
Trade deposits
    2,069,253       3,168,216  
Escrow deposits
    -       600,499  
Accounts payable and accrued expenses
    3,307,393       1,601,759  
Customer deposits
    (665,925 )     (160,426 )
Income tax payable
    (223,354 )     (848,691 )
Net cash (used in) provided by continuting operations
    4,546,144       9,464,476  
Net cash (used in) provided by discontinued operations
    -       435,259  
Net cash provided by operating activities
    4,546,144       9,899,734  
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchase of property & equipment
    (1,864,774 )     (6,076,248 )
Purchase of  intangibles
    (51,359 )     (168,955 )
Proceeds from collection of notes
    1,484,210       -  
Acquistion deposits
    478,391       -  
Paid for acquisition – net of cash acquired
    (16,085,930 )     (1,035,125 )
Net cash (used in) provided by continuing operations
    (16,039,462 )     (7,280,328 )
Net cash (used in) provided by investing activities
    (16,039,462 )     (7,280,328 )
                 
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
    (360,699 )     48,587  
                 
Net change in cash and cash equivalents
    6,914,037       2,667,993  
Cash and cash equivalents, beginning balance
    36,677,422       15,720,182  
Cash and cash equivalents, ending balance
  $ 43,591,459     $ 18,388,175  
                 
SUPPLEMENTAL DISCLOSURES:
               
Cash paid during the year for:
               
Income taxes
  $ 2,984,342     $ 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
  $ (14,915,770 )   $ -  
Purchased intangible assets
    (3,236,376 )     -  
Fair value of assets purchased less cash acquired
    (767,601 )     -  
Acquisition financed with stock issuance
    2,833,817       -  
Acquisition paid for with cash - net of acquired
  $ (16,085,930 )   $ -  

The accompanying notes are an integral part of these audited consolidated financial statements.
 
7

 
UNIVERSAL TRAVEL GROUP
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND THE YEAR ENDED DECEMBER 31, 2009

         
Additional
   
Other
   
 
   
 
   
Total
 
         
Paid In
   
Comprehensive
   
Retained
   
Statutory
   
Stockholders’
 
         
Amount
   
Capital
   
Income
   
Earnings
   
Reserve
   
Equity
 
                                           
Balance December 31, 2008 Restated
    13,873,969     $ 13,873     $ 15,861,116     $ 1,520,166     $ 26,633,573     $ 372,144     $ 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 Subscription
    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
    16,714,457     $ 16,714     $ 37,671,645     $ 1,645,133     $ 37,915,251     $ 372,144     $ 77,620,887  
                                                         
Balance December 31, 2009
    16,714,457     $ 16,714     $ 37,671,645     $ 1,645,133     $ 37,915,251     $ 372,144     $ 77,620,887  
                                                         
Foreign currency translation adjustments
                            (360,699 )                     (360,699 )
Stock based compensation
                    677,004                               677,004  
Stock issued for acquisitions
    326,629       327       2,833,491                               2,833,818  
acquisitions adjustments
                                            360,138       360,138  
Stock Subscription
    2,857,143       2,857       18,765,197                               18,768,054  
Income for the six months  ended June 30, 2010
                                    10,134,039               10,134,039  
Balance June 30, 2010
    19,898,229     $ 19,898     $ 59,947,337     $ 1,284,434     $ 48,049,290     $ 732,282     $ 110,033,241  

The accompanying notes are an integral part of these audited consolidated financial statements.
 
8

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
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 1990 under 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 in April 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 in 1993 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 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 adiscontinued 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 in conformity 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.
 
9

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Discontinued Operations
 
On June 12, 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 for 238,095 (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.
 
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  
 
10

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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. 
 
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., Zhengzhou Yulongkang 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.
 
11

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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.
 
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  
 
12

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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, Plant & 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, Plant & 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 $ 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 $645,905 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.
 
13

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

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:

   
June 30, 2010
   
December 31,2009
 
Shanghai Lanbao Travel Service Co., Ltd.
  $ 3,081,799     $ 3,081,799  
Foshan 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.
    4,102,061       -  
Hebei Taiyuan Travel Agency Co., Ltd.
    3,208,455       -  
Huangshan Holiday Travel Service Co., Ltd
    1,949,080       -  
Kunming Business Travel Service Co., Ltd.
    4,009,070       -  
Shanxi Jinyang Travel Agency Co., Ltd.
    1,647,104       -  
    $ 24,812,040     $ 9,896,270  
 
14


UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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 360 requires 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.
 
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 ASC 815.  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 $109,451 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 $1,554,961 as the initial fair value at the adoption date of EITF No. 07-05.  The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions:  dividend yield: 0%; volatility: 136%, risk free rate: 1.55%, expected term: 4.66 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.
 
15

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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 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 June 12, 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.
 
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.
 
16

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Revenue Recognition (Continued)
 
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 June 12, 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.
 
17

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Cost of Services
 
Costs of services for air tickets cover mainly business and revenue related taxes.  Costs of services for hotel reservations cover mainly business and revenue related taxes, as well as 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.
 
18

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
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 $45,561 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 $260,937 and $161,819 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 a reconciliation 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.
 
19

 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
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
  $ 10,134,039     $ 1,389,134     $ 6,044,198     $ (1,860,712 )
Income (loss) from continuing operations applicable to common shareholders
  $ 10,134,039     $ 1,389,134     $ 6,044,198     $ (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
  $ 0.59     $ 0.10     $ 0.35     $ (0.14 )
                                 
Diluted earnings (losses) per share from continuing operations:
                               
Numerator:
                               
Income (loss) from continuing operations used in computing diluted earnings (losses) per share
  $ 10,134,039     $ 1,389,134     $ 6,044,198     $ (1,860,712 )
Income (loss) from continuing operations applicable to common shareholders
  $ 10,134,039     $ 1,389,134     $ 6,044,198     $ (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
  $ 0.57     $ 0.10     $ 0.33     $ (0.13 )
 
20

 

UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
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 discontinuing operations per share:
                       
Numerator:
                       
Income (loss) from discontinuing operations  used in computing basic earnings per share
  $ -     $ (592,620 )   $ -     $ (724,313 )
Income (loss) from discontinuing 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 discontinuing operations
  $ -     $ (0.04 )   $ -     $ (0.05 )
                                 
Diluted earnings (losses) per share from discontinuing operations:
                               
Numerator:
                               
Income (loss) from discontinuing operations used in computing diluted earnings (losses) per share
  $ -     $ (592,620 )   $ -     $ (724,313 )
Income (loss) from discontinuing 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 discontinuing operations
  $ -     $ (0.04 )   $ -     $ (0.05 )
                                 
Total net income (loss) per common share
                               
Basic
  $ 0.59     $ 0.06     $ 0.35     $ (0.19 )
Dilute
  $ 0.57     $ 0.06     $ 0.33     $ (0.18 )
 
 
21

 
 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
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.
 
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 No 159 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 No 159 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 ARB 51 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 December 15, 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.

 
22

 
 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recent Accounting Pronouncements – (Continued)
 
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 (“ASC 105”).
 
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 (“ASC 815”). 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 June 2009, 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 periods ending after June 15, 2009. There was no material impact upon the adoption of this standard on the Company’s consolidated financial statements.

 
23

 

UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
Recent Accounting Pronouncements – (Continued)
 
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 (ASU 2010-06), 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.
 
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.

 
24

 
 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

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  

 
25

 
 
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.

 
26

 

UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)

Note 4 - COMPENSATED ABSENCES

Regulation 45 of local PRC labor law entitles employees to annual vacation leave after 1 year 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 acquisitons 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 subsidiary Shenzhen Yuzhilu Aviation Service Co., Ltd. is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred net accumulated operating losses for income tax purposes. Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT) the Company has a statutory rate of 25%. The following is a reconciliation 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
  $ 3,393,028     $ 2,138,151     $ 1,907,901     $ 1,020,955  
Deferred
            -               -  
Total
  $ 3,393,028     $ 2,138,151     $ 1,907,901     $ 1,020,955  
 
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  

 
27

 
 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 8 – COMMON STOCK
 
In January 2007 the company adopted the Universal Travel Group 2007 Equity Incentive Plan. Under the terms of this Plan the Company issued 1,256,667 shares of the Company’s stock, valued at $1,583,400, for services rendered during the period from October 2, 2006 through February 28, 2007.
 
On June 28, 2010, the Company 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. This amount is included in the cost of net assets and goodwill purchased.
 
The stock consideration consisted of 79,487 newly issued shares of the Registrant’s common stock, which were given to KBT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,163,626.
 
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.
 
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
  $ 686,825  
Accounts receivable
    1,983  
Due to shareholders
    155,624  
Other assets
    247,737  
Property Plant & Equipment
    94,074  
Identifiable Intangibles
    892,898  
Goodwill
    4,009,070  
Total assets acquired
    6,088,211  
Liabilities assumed
       
Accounts & Income Taxes payable
    244,784  
Other payable
    107,559  
Total
  $ 5,735,868  
 
The excess of purchase price over tangible assets acquired and liabilities assumed was $4,901,968 of which 4,009,070 was recorded as goodwill. At the time of the acquisition $892,898 of identifiable intangibles assets existed under the contractual-legal or the reparability criterion as required under ASC 805.
 
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 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. This amount is included in the cost of net assets and goodwill purchased.

 
28

 

UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 8 – COMMON STOCK (CONTINUED)
 
The stock consideration consisted of 31,387 newly issued shares of the Registrant’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.
 
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.
 
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
  $ 18,655  
Due from shareholders
    247,357  
Other assets
    146,972  
Property Plant & Equipment
    21,634  
Identifiable Intangibles
    361,124  
Goodwill
    1,647,104  
Total assets acquired
    2,442,846  
Liabilities assumed
       
Accounts & Income Taxes payable
    38,087  
Other payable
    139,827  
Total
  $ 2,264,932  

The excess of purchase price over tangible assets acquired and liabilities assumed was $2,008,228 of which 1,647,104 was recorded as goodwill. At the time of the acquisition $361,124 of identifiable intangibles assets existed under the contractual-legal or the reparability criterion as required under ASC 805.
 
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 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$4 million in aggregate. This amount is included in the cost of net assets and goodwill purchased.
 
The stock consideration consisted of 60,634 newly issued shares of the Registrant’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.
 
 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.

 
29

 
 
UNIVERSAL TRAVEL GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
 
Note 8 – COMMON STOCK (CONTINUED)
 
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
  $ 1,147,303  
Accounts receivable
    32,286  
Other assets
    5,926  
Property Plant & Equipment
    31,308  
Identifiable Intangibles
    805,626  
Goodwill
    4,102,061  
Total assets acquired
    6,124,510  
Liabilities assumed
       
Accounts & Income Taxes payable