Attached files
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EX-31.2 - UNIVERSAL TRAVEL GROUP | v176458_ex31-2.htm |
EX-31.1 - UNIVERSAL TRAVEL GROUP | v176458_ex31-1.htm |
EX-32.1 - UNIVERSAL TRAVEL GROUP | v176458_ex32-1.htm |
EX-21.1 - UNIVERSAL TRAVEL GROUP | v176458_ex21-1.htm |
EX-32.2 - UNIVERSAL TRAVEL GROUP | v176458_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
FORM
10-K
x
|
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended December 31, 2009
or
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from _____________to ______________
Commission
file number 001-34284
UNIVERSAL
TRAVEL GROUP
(Exact
name of registrant as specified in its charter)
Nevada
|
90-0296536
|
State
or other jurisdiction of
|
(I.R.S.
Employer
|
Incorporation
or organization
|
Identification
No.)
|
5th Floor,
South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
Nanshan District,
Shenzhen, PRC
518000
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code 011-86-
755-836-68489
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
Name
of each exchange on which registered
|
Common
Stock, par value $0.001 par value per share
|
New
York Stock Exchange,
LLC
|
Securities
registered pursuant to section 12(g) of the Act:
Preferred
Stock, $0.001 par value per share
(Title of
class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
¨
Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. xYes ¨ No
Note – Checking the box above
will not relieve any registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under those
Sections.
Indicate
by check mark whether the registrant (1) has filed all 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 90 days.
x
Yes ¨ 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the 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 ¨
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
¨
Yes x No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
Note.—If a determination as to
whether a particular person or entity is an affiliate cannot be made without
involving unreasonable
effort and expense, the aggregate market value of the common stock held by
non-affiliates may be calculated on the basis of assumptions reasonable under
the circumstances, provided that the assumptions are set forth in this
Form.
The
aggregate market value of the voting and non-voting common stock of the issuer
held by non-affiliates as of June 30, 2009 was approximately
$60,539,791 (5,410,169 shares of common stock) based upon the closing
price of the common stock as quoted by NYSE Amex on such date.
APPLICABLE
ONLY TO REGISTRANTS 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 Section 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 REGISTRANTS)
Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
As of
March 2, 2010, there are presently 16,714,457 shares of common stock, par value
$0.001 issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
Table
of Contents
Page
|
||
PART
I
|
||
Item
1.
|
Description
of
Business
|
3
|
Item
1A.
|
Risk
Factors
|
13
|
Item
1B.
|
Unresolved
Staff Comments
|
19
|
Item
2.
|
Description
of Property
|
19
|
Item
3.
|
Legal
Proceedings
|
20
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders (Removed and
Reserved)
|
|
PART
II
|
||
Item
5.
|
Market
for Common Equity and Related Stockholder
Matters
|
21
|
Item
6.
|
Selected
Financial
Data
|
24
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition orPlan of
Operation
|
24
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
38
|
Item
8
|
Financial
Statements
|
38
|
Item
9.
|
Changes
in and Disagreements with Accountants
on Accounting and Financial Disclosure
|
38
|
Item
9A.
|
Controls
and
Procedures
|
38
|
Item
9B.
|
Other
Information
|
39
|
PART
III
|
48
|
|
Item
10.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
|
40
|
Item
11.
|
Executive
Compensation
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and
Management
|
|
Item
13.
|
Certain
Relationships and Related
Transactions
|
50
|
Item
14.
|
Principal
Accountant Fees and
Services
|
51
|
PART
IV
|
||
Item
15.
|
Exhibits
and Financial Statement
Schedules
|
52
|
2
PART
I
Item
1.
|
Business.
|
History
and Organization
We were
incorporated on January 28, 2004, pursuant to the laws of the state of
Nevada.
On March
15, 2006, we entered into an Acquisition Agreement and Plan of Merger (the
"Acquisition Agreement") with TAM of Henderson, Inc. ("TAM"), whereby TAM
acquired all of our outstanding shares of Common
Stock from our then sole stockholder and simultaneously merged with and into the
Company, with the Company as the surviving corporation.
On June
20, 2006, Mr. Xiao Jun ("Jun"), our former officer and director, acquired from
the then-majority-shareholder of our Company 2,666,667 shares of our Common
Stock, for an aggregate purchase price of $435,000 (the "Stock Transaction").
After giving effect to such acquisition, Jun held 2,666,667 of the 3,483,333
shares of our Common Stock then issued and outstanding, constituting, in the
aggregate, 77% of the then issued and outstanding shares of Common Stock of the
Company. In connection with his acquisition of shares in the Company, Jun was
appointed as our Chief Executive Officer.
On July
12, 2006, we consummated the transaction contemplated by the Agreement and Plan
of Merger, dated as of June 26, 2006 (the "Merger Agreement"), by and among the
Company, Merger Sub of Tam, Inc. ("Merger Subsidiary"), a wholly owned
subsidiary of us, Full Power Enterprise Global Limited (“Full Power”), and the
shareholders of Full Power. In accordance with the Merger Agreement, Merger
Subsidiary merged with and into Full Power, Merger Subsidiary ceased to exist
and Full Power was the surviving entity (the "Merger Transaction").
The Full
Power Shareholders received 6,666,667 shares of Common Stock in exchange for all
of the issued and outstanding shares of Full Power. As a result of the Merger
Transaction, Full Power became the Company's wholly owned subsidiary. Full Power
owns all of the issued and outstanding capital stock of Shenzhen Yu Zhi Lu
Aviation Service Company Limited (“YZL”).
In
connection with the Merger Transaction, Jiangping Jiang (who, prior to the
Merger Transaction was a shareholder of Full Power), Xin Zhang and Hoi-Yui Lee
were appointed to our Board of Directors and Jun resigned from all positions
with us.
Business
Overview
With the
acquisition of Full Power and hence YZL, we shifted our business to the online
travel service industry in the People’s Republic of China (“PRC”). YZL, a
company organized under the laws of the PRC, is primarily engaged in the
business of providing domestic and international airline ticketing services and
cargo transportation agency services. Additionally, YZL provides hotel
reservations, packaged tours, and air delivery services both online and through
customer representative offices. YZL also owns an aviation network
(www.cnutg.com) that provides a complete air ticket sales network.
During 2007, we made several
acquisitions, which expanded our scope of business.
On April
10, 2007, we acquired Shenzhen Speedy Dragon Enterprise Limited ("SSD") in
exchange for 238,095 shares of our shares of Common Stock and an interest-free
promissory note in the principal amount of $3,000,000, payable no later than
April 10, 2008. The note has been repaid in full. SSD is mainly a
cargo logistics company providing commercial, point-to-point parcel and
container transportation services within the PRC.
On June
12, 2009, the Company entered into a termination agreement with Xiangsheng Song,
the legal representative of SSD to return all its equity interest in SSD to Mr.
Song. As a result of the termination agreement, SSD is spun off from our
business.
3
On August
6, 2007, we acquired Xi'an Golden Net Travel Serve Service Company Limited
("XGN") in exchange for 50,588 shares of our Common Stock and interest-free
promissory notes in the aggregate principal amount of $1,542,000, payable no
later than August 6, 2008. The note has been repaid in full.
XGN was
established in 2001 and focuses on the domestic tourism market. It provides air
tickets, train tickets and other travel-related services including servicing
individuals and groups attending conferences and exhibitions, making travel
arrangements for business studies, academic exchanges, travel adventures,
cultural education, sports competition, and theatrical performances. XGN also
specializes in central plains tours of Xi'an. Since 2005, XGN has formed joint
ventures with other travel agencies in Tibet, Xinjiang, Shanxi and Inner
Mongolia that focus on western plains routes.
In August
8, 2007, we acquired Shanghai Lanbao Travel Service Company Limited ("SLB") in
exchange for 200,000 shares of our Common Stock and interest-free promissory
notes in the aggregate principal amount of $2,828,000, payable no later than
August 8, 2008. The note has been repaid in full.
SLB was
established in 2002 and its core business focus is a centralized real-time
booking system providing consumers and travel related businesses with hotel
bookings, air ticket and tourism information via the internet and mobile phone
text-messaging technology. It owns and manages the award winning China Booking
Association website, http://www.cba-hotel.com/, which receives approximately
200,000 visitors daily.
In
October 29, 2007, we acquired Foshan Overseas International Travel Service Co.,
Ltd. ("FOI") in exchange for 374,329 shares of our Common Stock and
interest-free promissory notes in the aggregate principal amount of $3,153,500,
payable no later than October 29, 2008. This note has been
repaid in full.
FOI was
established in 1990. Its core business focuses on both domestic and
international tourism, as well as packaged airfare, hotel and conference
reservations with ground transportation within the PRC. For three consecutive
years, FOI has been recognized as one of the 100 outstanding enterprises by the
China Tourism Bureau and in 2004 was voted one of the most credible enterprises
in the country. Last year it served more than 120,000 people with packaged tours
and conferences.
Also on
December 16, 2008, we established Shenzhen Universal Travel Agency Co. Ltd,
a PRC company (“STA”), to meet the increasing packaged-tour demand in Shenzhen
City. However, operations of STA did not start until June 6, 2009.
On March
23, 2009, in order to seize upon opportunities arising from the economic
promotion by the Chinese government of the middle and western regions of the
PRC, we strategically set up Chongqing Universal Travel E-Commerce Co., Ltd, a
PRC company (“CTE”), to strengthen our presence in that region. However,
operations of CTE did not start until June 16, 2009.
On
December 10, 2009, we entered into Subscription Agreements with certain
investors to sell to them an aggregate of 2,222,222 shares of common
stock of the Company, for a purchase price of $9.00 per share and an aggregate
gross purchase consideration of $19,999,998. 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. The sale and purchase of the shares closed on
December 15, 2009.
With the
completion of the raise, we then sought to seek out acquisition targets that
would both complement our strategic growth and service products.
On
December 17, 2009, we entered into a letter of intent to acquire Huangshan
Holiday Travel Service Company (“Huangshan Holiday”) for RMB 20 million
(approximately $2.9 million), 80% of which shall be paid cash and 20% in shares
of common stock of the Company. The purchase consideration may be subject to
adjustment after completion of due diligence on Huangshan Holiday by the
Company. Founded in 1999, Huangshan Holiday provides comprehensive travel
services in the Huangshan district in the Anhui Province of China. Huangshan, a
national geological park and UNESCO World Heritage Site, is one of China’s most
popular travel destinations, with over eight million tourists annually.
Huangshan Holiday provides guided and self-guided package tours and airline and
hotel reservation services for both leisure and business travelers. Huangshan
Holiday serves as the exclusive hotel reservation agency for several major
online travel service providers in China, including eLong and 12580, and has
over 70% share of the mid to high end hotel reservation market in
the Huangshan Tourism District. Estimated full year 2009 revenues and net
income for Huangshan Holiday are approximately $4.4 million and $0.6
million, respectively.
4
On
January 26, 2010, we entered into a letter of intent to acquire
Zhengzhou Yulongkang Travel Service Company (“Zhengzhou Yulongkang”) for RMB 39
million (approximately $5.7 million), 90% of which to be paid in cash and 10% of
the purchase consideration in shares of the Company’s common stock. The purchase
consideration may be subject to adjustment after the completion of acquisition
audit on Zhengzhou Yulongkang by the Company. Zhengzhou Yulongkang Travel
Service Company was established in 2000 in Zhengzhou, Henan Province of China.
The company currently has a management team of 25 people and over 60 tour
organizers and guides.The Company provides comprehensive travel services and
maintains long-term cooperation relations with transportation agents, travel
destinations, hotels, and air ticket agencies. Its regional tour routes include
“Charming Tibet”, “Winter Hot Spring”, “Passion Ski Trip”, etc. Zhengzhou
Yulongkang Travel Service Company has received a series of industry and
corporate awards from 2003 to 2006.
On
January 19, 2010, we entered into a letter of intent to acquire Hebei Tianyuan
Travel Agency (“Tianyuan”) for RMB 29 million (approximately $4.2 million), 80%
of which shall be paid in cash and 20% of the consideration in shares of the
Company’s common stock. The purchase consideration may be subject to adjustment
after completion of acquisition audit on Tianyuan by the Company. Founded in
1999, Tianyuan was the first authorized travel agency in the Hebei Province in
China. In addition, Tianyuan is the exclusive provider of travel
agency services to Mount Lu and Lushan National Park, both domestic tourist
attractions listed on the UNESCO World Heritage Site. Tianyuan was
the organizer of the International Economy & Culture
Communication Forum sponsored by the local government and the exclusive
organizer of the Young Journalist Summer Camp sponsored by the Yanzhao Evening
Paper. We believe that Taiyuan’s exclusive service with these regional sites and
unique partnership with the government provides Tianyuan with an advantage to be
a market leader in travel services in the region.
Sources
of Revenue
We have
three lines of business and revenue, namely (i) air-ticketing (Shenzhen Yu Zhi
Lu Aviation Service Company Limited and Chongqing
Universal Travel E-Commerce Co., Ltd), (ii) hotel reservations (Shenzhen Yu Zhi
Lu Aviation Service Company Limited and Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd,
and Shenzhen Universal Travel Agency Co. Ltd). We previously provided air
cargo agency services through Shenzhen Speedy Dragon Enterprise Limited, which
we spun off in June 2009.
Air-ticketing
We are,
through our subsidiary, YZL and CTE, in the air-ticketing business. YZL has
contracted with certain Chinese domestic airlines such as Air China, China
Southern Airlines and China Eastern Airlines and 34 international airlines
such as United Airlines, Cathay Pacific and Virgin Airlines to sell Chinese
domestic and international air tickets. YZL holds the “First Class
Air-Ticketing Agency” license from the General Administration of Civil Aviation
of China (“CAAC”). YZL has been in operation for more than ten
years.
We and
our agents utilize a centralized air-ticketing booking system called the “eTerm
system” maintained and owned by the PRC government to issue air tickets. We pay
a license fee the use of the “eTerm system” and charge our agents a pro-rated
portion of that fee for their use of the system through us.
YZL
receives commissions (averaging 6%) from travel suppliers for air-ticketing
under various services agreements. Commissions from air-ticketing services
rendered are recognized at the time when the air tickets are issued. Our
customers pay for their tickets online or through our TRIPEASY Travel Service
Kiosks (the “Kiosks”) with credit cards or bank debit cards and are
then issued their tickets. Our revenue from such transactions is on a net basis
in the consolidated statements of income as we generally do not assume inventory
risks and have no obligations for cancelled air-ticket reservations. We are,
typically, paid our aggregated commissions once a month.
5
Our
air-ticketing business is affected by the condition of the travel industry in
China. Travel expenditures are highly sensitive to business and personal
discretionary spending levels and thus tend to decline during general economic
downturns, such as the slowdown in economic growth arising from the
international financial crisis which began in 2008. Adverse trends or events
that tend to reduce travel and are likely to reduce our revenues
include:
|
·
|
declines
in economic growth, recessions, and financial or other economic
crises;
|
|
·
|
increases
in prices in the hotel, airline or other travel-related
sectors;
|
|
·
|
the
occurrence of travel-related
accidents;
|
|
·
|
outbreaks,
or the fear of outbreaks, of H1N1 flu (swine flu), severe acute
respiratory syndrome, avian flu or other
diseases;
|
|
·
|
terrorist
attacks or threats of terrorist attacks or
wars;
|
|
·
|
natural
disasters or poor weather
conditions;
|
|
·
|
increase
in oil prices;
|
|
·
|
a
decrease in the number of extended holiday periods like the Spring
Festival and long weekend holidays.
|
As a
result of any of these events, over which we have no control, our results could
be severely and adversely affected.
Further,
because we are agents for the sale of air tickets, we do not have any control
over air ticket prices, which directly affect their demand and our
profitability. Conversely, we do not bear any risk for unsold tickets and
maintain no inventory. Also, we are affected by the seasonality of
travel in general and global events such as the World Expo in Shanghai in 2010
which, we anticipate, will increase the demand for travel.
Hotel
reservations
We are,
through our subsidiaries, YZL and SLB, are involved in the hotel reservations
business.
We have
contracted with approximately 9,000 hotels and have established a China Booking
Association comprising more than 1,000 travel agencies which share more than
200,000 hotel resources internationally.
Our
customers are able to inquire via either our centralized website (www.cnutg.com)
or SLB's website (www.cba-hotel.com). Additionally,
SLB maintains a 100 square meters call center in Shanghai with 20 seats to
handle hotel reservation enquiries.
We act as
agent in substantially all of our hotel-related transactions. Our customers
receive confirmed bookings and generally pay the hotels directly upon completion
of their stays, and in general, we pay no penalty to the hotels if our customers
do not check in. For our hotel suppliers, we earn pre-negotiated fixed
commissions on hotel rooms we sell.
We
contract with hotels for rooms under two agency models, the “guaranteed
allotment” model and the “on-request” model. Under our agreements with our hotel
suppliers, hotels are generally required to offer us prices that are equal to or
lower than their published prices, and notify us in advance if they have
promotional sales, so that we can lower our prices accordingly.
In
addition to the agreements that we enter into with all of our hotel suppliers,
we enter into a supplemental agreement with each of the hotel suppliers with
which we have a guaranteed allotment arrangement. Pursuant to this agreement, a
hotel guarantees us a specified number of available rooms every day, allowing us
to provide instant confirmations on such rooms to our customers before notifying
the hotel. The hotel is required to notify us in advance if it will not be able
to make the guaranteed rooms available to our customers due to reasons beyond
its control.
6
We
receive commission from travel suppliers for hotel room reservations based on
the transaction value of the rooms. Commission from hotel reservation services
rendered is recognized after hotel customers have completed their stay at the
applicable hotel and upon confirmation of pending payment of the commission by
the hotel. Our revenue from such transactions is on a net basis in
the consolidated statements of income. We, generally, do not assume
inventory risks and have no obligations for cancelled hotel
reservations. Our customers reserve hotel rooms through us, our
website, or our Kiosks and pay for their rooms directly to the
hotel.
Our
primary customers in this segment are business and leisure travelers in China
who do not travel in groups. These types of travelers, who are referred to in
the travel industry as FITs (free individual travelers) and whom we refer to as
independent travelers, form a traditionally under-served yet fast-growing
segment of the China travel market. We act as agent in substantially all of our
transactions and generally do not take inventory risks with respect to the hotel
rooms booked through us.
Apart
from the same factors affecting our air-ticketing business, other factors
affecting our hotel reservations segment include:
·
|
our
ability to secure more room supply relationships with
hotels;
|
|
·
|
the
quality and depth of our hotel supplier network and our ability
to provide a diverse range of hotel rooms, locations and price points to
appeal to our customers;
|
·
|
our
commission rates which are largely determined by the
hotels;
|
|
·
|
our
ability to offer reservations at highly rated hotels is particularly
appealing to our customers.
|
Packaged
Tours
We are,
through our subsidiaries, FOI, XGN and STA, in the business of providing
domestic and cross border packaged tour travel services.
We
contract with traffic service providers, accommodation providers and leisure
service providers so tha we are able to purchase air tickets, train and coach
tickets, accommodation and leisure or entertainment packages in bulk and then
resell them to our customers with a mark-up. We have two sources of
revenue: one from payment by individual customers and the other, through group
sales. We recognize gross revenue when a tour is completed.
As we are
the agent for packaged tours, we do not have any control over the components for
air-ticket prices, hotel accommodation, transportation and tourism attraction
ticket prices, which directly relates to the demand for packaged tours and their
popularity or lack thereof.
We also
bear no risk because we maintain no inventory of air tickets, hotel rooms or
attraction tickets. We only purchase the various components comprising a
packaged tour when an order or request for such a tour is made and paid for by a
customer. Our customers may make an order for a packaged tour by booking it
directly through us, our website or Kiosks. However, they may only
pay for the packaged tour at our offices.
Because
the packaged tour segment is tourism related and a packaged tour typically
comprises a bundled travel and accommodation package, the significant factors,
trends, demands and uncertainties affecting this segment are the same for
air-ticketing and hotel reservations.
Insurance
We
presently have directors and officers insurance with Navigators Insurance
Company. The policy is for a term of one year commencing June 23,
2009 to June 23, 2010 for an aggregate liability of
$5,000,000. We have paid a premium of $42,000 for the
policy. We do not have any other insurance.
Intellectual
Property
We have applied to register the
following trademarks with the Trademark Bureau of the State Administration for
Industry & Commerce
7
Trademark
|
Class
|
Registrant
|
||
UTG
|
16,
39, 43
|
Shenzhen
Yu Zhi Lu Aviation Service Company Limited
|
||
TRIPEASY
|
39,
42
|
Shenzhen
Yu Zhi Lu Aviation Service Company
Limited
|
We,
through our subsidiary, XGN, have the “古都之旅” trademark
registered under Class 39 with the Trademark Bureau of the State Administration
for Industry & Commerce. The term of the registration is valid
from January 7, 2005 through to January 6, 2015.
Class 16
(Paper goods and printed matter) covers paper, cardboard and goods made from
these materials, not included in other classes; printed matter; bookbinding
material; photographs; stationery; adhesives for stationery or household
purposes; artists' materials; paint brushes; typewriters and office requisites
(except furniture); instructional and teaching material (except apparatus);
plastic materials for packaging (not included in other classes); playing cards;
printers' type; printing blocks.
Class 39
covers transport, packaging and storage of goods and travel
arrangements.
Class 42
(Computer, scientific & legal) covers scientific and technological services
and research and design relating thereto: industrial analysis and research
services; design and development of computer hardware and software; legal
services.
Class 43
(Hotels and Restaurants) covers services for providing food and drink; temporary
accommodations.
We have also registered the following
domain names:
Domain Name
|
Owner
|
Registration
Date
|
Expiration Date
|
|||||||
www.cnutg.com
|
Shenzhen
Yuzhilu Aviation Service Company Ltd
|
2006-05-05 | 2011-05-05 | |||||||
www.cnutg.com.cn
|
Shenzhen
Yuzhilu Aviation Service Company Ltd
|
2006-07-27 | 2013-07-27 | |||||||
www.cnutg.cn
|
Shenzhen
Yuzhilu Aviation Service Company Ltd
|
2006-07-27 | 2012-07-27 | |||||||
www.cnutg.net
|
Shenzhen
Yuzhilu Aviation Service Company Ltd
|
2006-07-27 | 2012-07-27 | |||||||
www.cnutg.net.cn
|
Shenzhen
Yuzhilu Aviation Service Company Ltd
|
2006-07-27 | 2012-07-27 |
Customers
Our
customer base is very diversified and numerous. Almost all our
customers are individuals and none of our customers comprise more than 1% of our
revenue. The loss of any one of our customer will not have a material
adverse effect on any segment of our business or our business, as a
whole.
Revenue
Breakdown
Packaged
Tours
Below is
a breakdown the number of sales of our packaged tours for the past three
years:
Year
|
Visitors
|
Number of visitors multiplied by
the number of days comprising the tour
|
|||
2007
|
93,984
|
364,676
|
|||
2008
|
139,242
|
521,270
|
|||
2009
|
212,460
|
807,300
|
Air-ticketing
Below is
a breakdown of the number of air tickets sold for the past three
years:
8
Year
|
Number of Tickets
|
|||
2007
|
1,084,000 | |||
2008
|
1,720,000 | |||
2009
|
2,360,000 |
Hotel
Reservations
Below is
a breakdown of the number of hotel room nights booked through us for the past
three years:
Year
|
Number of Room Nights
|
|||
2007
|
680,000 | |||
2008
|
1,466,000 | |||
2009
|
2,349,000 |
The
management of the Company uses these performance metrics to monitor the
performance of each of its business segments on a continuing basis and to
assess, discern and anticipate any trends or cycles in the
industry. With such tools, the Company is able to make calculated
decisions and take any pre-emptive measures to safeguard the Company’s
interests.
However,
because of a confluence of other pertinent factors affecting the segments, the
actual results of each segment may differ materially from what the metrics would
suggest and any undue weight on these metrics in isolation is
discouraged. For example, an increase in the number of room nights
booked should conceivably mean an increase in revenue and hence an increase on
commissions earned. However, this may be offset by lower room rates
and lower commission rates.
Suppliers
For our
air-ticketing business, our major suppliers are mainly the PRC domestic
airlines. We contract directly and individually with each hotel and
supplier of the various components of our packaged tours.
We do not
have long term contracts with any one of our suppliers. We typically
signed one year contracts which renew for successive one-year terms unless
earlier terminated by either party. The main terms of such contracts
would typically comprise terms pertaining to authorizations, trade deposits and
payment method.
We are
not dependent on any one supplier and most of our suppliers are competitors
against each other within their own industry. Accordingly, we are
able to choose the supplier with the most favorable terms to contract with and
because such terms vary from time to time, our list of suppliers constantly
changes too.
Our
online reservation database is managed in-house and we are not dependent on a
third party service provider to maintain our database and ensure that it is
stable and secure.
Sales
and Marketing
We advertise our services for the
general public through roadside billboards, brochures, internet ads, cell phone
message ads, newspapers and magazines ads.
Sales and
marketing for the past three years account for very small percentage of our
revenue, and as our Kiosks will be serving as an effective media platform in
coming years and a marketing tool for us, we believe our sales and marketing
expenses will not increase materially.
9
Subsidiary
|
Amount (RMB)/ (US$)
|
|
Foshan
Overseas International Travel Service Co., Ltd.
|
152,774/$22,369
|
|
Shenzhen
Yu Zhi Lu Aviation Service Company Limited
|
1,063,459/
$ 155,713(Media Advertisement expenses)
862,000
/ $126,024 (Airport Marketing expenses)
|
|
Shanghai
Lanbao Travel Service Company Limited
|
38,000/
$5,564 (Advertisements)
2,000/
$293 (Website)
|
|
Chongqing
Universal Travel E-Commerce Co., Ltd
|
4,500/
$659 (Advertisements)
|
|
Shenzhen
Universal Travel Agency Co., Ltd
|
45,296/
$6,632
(Advertisements)
|
We
anticipate that our sales and marketing expenses for fiscal year 2010 will
increase proportionally with our sales volume.
Competition
Our main competitors in China in the
online booking industry for air-tickets and hotel reservations include Ctrip.com
International, Ltd. and eLong, Inc.
It is very difficult to assess our
competitors in the packaged tour business as there are numerous packaged tour
providers in the PRC that operate different routes every year.
Many of
our competitors, particularly those engaged in the online booking industry, are
better established than us, are more widely known to consumers, and have larger
infrastructures and greater capital resources.
Our
Competitive Advantage
We believe that we have the following
advantages over our competitors:
|
•
|
our
business model and sources of revenue are diversified in that we are
involved in the air ticketing, hotel reservations, and packaged tours
businesses and any negative impact on one line of business may buffered by
our other lines of businesses;
|
|
•
|
our
businesses and presence are spread out throughout the PRC, which makes us
less susceptible to a total loss or interruption to our business in the
event of a natural calamity; and
|
|
•
|
As
of December 31, 2009, we have 623 Kiosks in place to serve our customers.
We plan to roll out an additional 1,400 Kiosks in 2010 in selected cities
in the PRC. The Kiosks would enable our customer to make travel
related inquiries and book their travel when they do not have access to a
computer or an internet connection.
|
Our
Future Goals and Expansion Plans
We
introduced the Kiosksin selected major cities in the PRC, with 623 Kiosks rolled
out in 2009. We plan to
further introduce the Kiosks to other cities in the PRC. Locations of our
Kiosks will include hotels, office buildings, banks, shopping malls and MTR
stations. The Company will promote the Kiosks via local media such as
newspapers, billboards and internet ads, including its own award-winning
website, www.cnutg.com, as
well as other related websites, which will in turn further the Company’s brand
recognition. The Kiosks themselves will provide a strong media platform to
strengthen Universal Travel Group’s franchise. Additionally, the Kiosks’
interface will feature the same look, feel and functionality as Universal Travel
Group’s new website, www.cnutg.com.cn,
which integrates the Company’s diversified services into a new platform with
selected value- added features and functionality.
10
The
Kiosks are interactive terminals placed in strategically targeted public areas.
They enable convenient, fast and easy to use, real-time air ticketing inquiries,
reservations and purchases, as well as hotel and tour reservations. The Kiosks
provide full 360° views of hotels and travel destinations and accept payment via
bank cards, debit cards and VISA. According to Credit Suisse Research, the
number of domestic travelers in the PRC that use online travel services
continues to rise, accounting for 16% of users in 2007, up from 12% in 2005.
Major cities such as Shanghai and Shenzhen have a higher proportion of people
using online travel services as compared to the rest of the PRC, representing
23% and 20% of the users in 2007, respectively. According to the China Internet
Network Information Center, the PRC is the world’s largest market for internet
users. Despite this, 95% of internet users still do not make purchases over the
internet. The Kiosks eliminate the need for a personal computer or online access
in order to make travel arrangements and are specifically targeted at this
demographic of users. We expect to roll out 1,400 additional Kiosks in
2010.
The Kiosks, together with our website
and call center, will serve to integrate our air ticket sales, hotel room sales,
and packaged tours businesses. We are working on a cost-effective way for a
potential rollout by bundling it with Byte Power (CQ) Info Tech Limited's (a
subsidiary of Byte Power Group Limited - ASE: BPG.AX) E-Kiosks. This will allow
us to enter a new market in Chongqing quickly and efficiently.
Employees
At the current time, including our
officers, we have approximately 780 full-time employees, including 80
administrative employees, 200 marketing employees and approximately 500
employees working at our three call centers. None of our employees is a member
of a union and our relationships with our employees are generally satisfactory.
In accordance with Chinese Labor Law, we provide social security and medical
insurance to all our employees.
Government
Regulations
General
Regulation of Businesses
Air-ticketing.
The air-ticketing business is subject to the supervision of China National
Aviation Transportation Association, or CNATA, and its regional branches. Prior
to March 31, 2006, the principal regulation governing air-ticketing in China is
the Administration on Civil Aviation Transporting Marketing Agency Business
Regulations (1993). The said regulation was abolished by PRC government on
January 24, 2008. Currently the principal regulation governing air-ticketing in
the PRC is the Rules on Cognizance of Qualification for Civil Aviation
Transporting Marketing Agencies (2006) which became effective on March 31,
2006.
Under
these regulations, prior to May 19, 2005, an air-ticketing agency was required
to obtain a permit from CAAC or its regional branch in every city in which the
agency propose to conduct its air-ticketing business. On and after May 19, 2005,
any entity that wishes to conduct the air-ticketing business in the PRC must
apply for an air-ticketing permit from CNATA. The regulations provide for a
transitional grace period for air-ticketing agencies that have obtained a valid
license from CAAC or its regional branch prior to the promulgation of the new
rules. These agencies are permitted to use their original licenses until such
licenses expire.
Travel
Agency. The travel industry is subject to the supervision of the China
National Tourism Administration and local tourism administrations. The principal
regulations governing travel agencies in the PRC include:
|
•
|
Administration
of Travel Agencies Regulations (1996), as amended in December 2001;
and
|
|
•
|
Administration
of Travel Agencies Regulations Implementing Rules
(2001).
|
Under
these regulations, a travel agency must obtain a license from the China National
Tourism Administration to conduct cross-border travel business, and a license
from the provincial-level tourism administration to conduct domestic travel
agency business.
Advertising.
The State General Administration of Industry and Commerce is responsible for
regulating advertising activities in the PRC. The principal regulations
governing advertising (including online advertising) in China
include:
|
•
|
Advertising
Law (1994);
|
11
|
•
|
Administration
of Advertising Regulations (1987);
and
|
|
•
|
Implementing
rules of the Administration of Advertising Regulations
(2004).
|
Under
these regulations, any entity conducting advertising activities must obtain an
advertising permit from the local Administration of Industry and
Commerce.
Value-added
Telecommunications Business and Online Commerce. Our provision of
travel-related content on our websites is subject to PRC laws and regulations
relating to the telecommunications industry and Internet, and regulated by
various government authorities, including the Ministry of Information Industry
and the State General Administration of Industry and Commerce. The principal
regulations governing the telecommunications industry and Internet
include:
|
•
|
Telecommunications
Regulations (2000);
|
|
•
|
The
Administrative Measures for Telecommunications Business Operating Licenses
(2001); and
|
|
•
|
The
Internet Information Services Administrative Measures
(2000).
|
Under
these regulations, Internet content provision services are classified as
value-added telecommunications businesses, and a commercial operator of such
services must obtain a value-added telecommunications business license from the
appropriate telecommunications authorities to conduct any commercial value-added
telecommunications operations in the PRC.
With
respect to online commerce, there are no specific PRC laws at the national level
governing online commerce or defining online commerce activities, and no
government authority has been designated to regulate online commerce. There are
existing regulations governing retail business that require companies to obtain
licenses to engage in the business. However, it is unclear whether these
existing regulations will be applied to online commerce.
Regulation
of Foreign Currency Exchange and Dividend Distribution
Foreign Currency
Exchange. The principal regulation governing foreign currency exchange in
the PRC is the Foreign Currency Administration Rules (1996), as amended. Under
these Rules, RMB is freely convertible for trade and service-related foreign
exchange transactions, but not for direct investment, loan or investment in
securities outside China unless the prior approval of the State Administration
for Foreign Exchange of the People’s Republic of China is obtained.
Pursuant
to the Foreign Currency Administration Rules, foreign investment enterprises in
the PRC may purchase foreign currency without the approval of the State
Administration for Foreign Exchange of the PRC for trade and service-related
foreign exchange transactions by providing commercial documents evidencing these
transactions. They may also retain foreign exchange (subject to a cap approved
by the State Administration for Foreign Exchange of the PRC) to satisfy foreign
exchange liabilities or to pay dividends. In addition, if a foreign company
acquires a company in the PRC, the acquired company will also become a foreign
investment enterprise. However, the relevant PRC government authorities may
limit or eliminate the ability of foreign investment enterprises to purchase and
retain foreign currencies in the future. In addition, foreign exchange
transactions for direct investment, loan and investment in securities outside
the PRC are still subject to limitations and require approvals from the State
Administration for Foreign Exchange of the PRC.
Dividend
Distribution. The principal regulations governing distribution of
dividends of wholly foreign-owned companies include:
|
•
|
The
Foreign Investment Enterprise Law (1986), as amended in October
2000;
|
12
|
•
|
Administrative
Rules under the Foreign Investment Enterprise Law
(2001);
|
|
•
|
Company
Law of the PRC (2005); and
|
|
•
|
Enterprise
Income Tax Law and its Implementation Rules
(2007).
|
Under
these regulations, foreign investment enterprises in the PRC may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly foreign-owned
enterprises in the PRC are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds,
unless such reserve funds have reached 50% of their respective registered
capital. These reserves are not distributable as cash dividends.
Under the
new EIT Law, dividends, interests, rent, royalties and gains on transfers of
property payable by a foreign-invested enterprise in the PRC to its foreign
investor who is a non-resident enterprise will be subject to a 10% withholding
tax, unless such non-resident enterprise’s jurisdiction of incorporation has a
tax treaty with the PRC that provides for a reduced rate of withholding
tax.
Under the
new EIT Law, an enterprise established outside the PRC with its “de facto
management body” within the PRC is considered a resident enterprise and will be
subject to the enterprise income tax at the rate of 25% on its worldwide income.
The “de facto management body” is defined as the organizational body that
effectively exercises overall management and control over production and
business operations, personnel, finance and accounting, and properties of the
enterprise. It remains unclear how the PRC tax authorities will interpret such a
board definition.
According
to the new EIT law, enterprises that currently enjoy a preferential tax rate
will transition to the statutory enterprise income tax rate of 25% over five
years. The applicable tax rate would increase to 18% for 2008, 20% in
2009, 22% in 2010, 24% in 2011 and 25% in 2012. Enterprises that were
currently subject to an enterprise income tax rate of 24% had their rates
increased to 25% in 2008.
The tax
rates of our various subsidiaries in 2009 were all 25% except for YZL, the tax
rate of which was 20%. For 2010, these rates will remain 25% except for YZL, the
tax rate of which will become 22%.
Notwithstanding
the foregoing provision, the new EIT Law also provides that, if a resident
enterprise directly invests in another resident enterprise, the dividends
received by the investing resident enterprise from the invested enterprise are
exempted from income tax, subject to certain conditions.
Moreover,
under the new EIT Law, foreign ADS holders may be subject to a 10% withholding
tax upon dividends payable by a Chinese entity and gains realized on the sale or
other disposition of ADSs or ordinary shares, if such income is sourced from
within the PRC and we are classified as a PRC resident enterprise.
Approvals,
licenses and certificates
We have received the following licenses
and approvals:
|
•
|
“First
Class Air-Ticketing Agency” awarded by the CAAC and IATA to
YZL;
|
|
•
|
“International
Travel Agency” awarded by the China Travel Bureau to FOI;
and
|
|
•
|
“Domestic
Travel Agency” awarded by the China Travel Bureau to
XGN.
|
Item
1A.
|
Risk
Factors.
|
The
reader should carefully consider each of the risks described below. If any of
the following risks described below should occur, our business, financial
condition or results of operations could be materially adversely affected and
the trading price of our common stock could decline
significantly.
13
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this prospectus before deciding to invest in our common stock.
Risks
Related to the Company
Risks
associated with business declines or disruptions in the travel industry
generally could reduce our revenue.
A large
part of our revenue is driven by the trends that occur in the travel industry in
the PRC, including the hotel, airline and packaged-tour industries. As the
travel industry is highly sensitive to business and personal discretionary
spending levels, it tends to decline during general economic downturns. Other
adverse trends or events that tend to reduce travel and are likely to reduce our
revenue include the following:
|
·
|
an
outbreak of political or economic unrest in
China;
|
|
·
|
a
recurrence of SARS or any other serious contagious
diseases;
|
|
·
|
increased
prices in the hotel, airline, or other travel-related
industries;
|
|
·
|
increased
occurrence of travel-related
accidents;
|
|
·
|
outbreak
of war or conflict in the Asia-Pacific
region;
|
|
·
|
increases
in terrorism or the occurrence of a terrorist attack in the
Asia-Pacific region;
|
|
·
|
poor
weather conditions; and
|
|
·
|
natural
disasters.
|
We could be severely affected by
changes in the travel industry and will, in many cases, have little or no
control over those changes. As a result of any of these events, our operating
results and financial conditions could be materially and adversely
affected.
Loss
of key personnel could affect our ability to successfully grow our
business.
We are highly dependent upon the
services of our senior management team. The permanent loss for any of the key
executives could have a material adverse effect upon our operating
results.
Our
management is comprised almost entirely of individuals residing in the PRC with
very limited English skills.
Our management is comprised almost
entirely of individuals born and raised in the PRC. As a result of differences
in culture, educational background and business experiences, our management may
analyze, evaluate and present business opportunities and results of operations
differently from the way they are analyzed, evaluated and presented by
management teams of public companies in Europe and the United States. In
addition, our management has very limited skills in English. Consequently, it is
possible that our management team will emphasize or fail to emphasize aspects of
our business that might customarily be emphasized in a different manner by
comparable public companies from different geographical and political
areas.
Our
management is not familiar with the United States securities laws.
Our management and the former owners of
the businesses we acquire are generally unfamiliar with the requirements of the
United States securities laws and may not appreciate the need to devote the
resources necessary to comply with such laws. A failure to adequately respond to
applicable securities laws could lead to investigations by the Securities and
Exchange Commission and other regulatory authorities that could be costly,
divert management's attention and disrupt our business.
14
Our
operating history is not an adequate basis to judge our future
prospects.
We have encountered and will
continue to encounter risks and difficulties frequently experienced by companies
in evolving industries such as the travel service industry in the PRC. Some of
the risks relate to our ability to:
|
·
|
attract
and retain customers and encourage our customers to engage in repeat
transactions;
|
|
·
|
retain
our existing agreements with travel suppliers such as hotels and airlines
and to expand our service offerings on satisfactory terms with our travel
suppliers;
|
|
·
|
operate,
support, expand and develop our operations, our call center, our website,
and our communications and other
systems;
|
|
·
|
diversify
our sources of revenue;
|
|
·
|
maintain
effective control of our expenses;
and
|
|
·
|
respond
to changes in our regulatory
environment.
|
If we are
not successful in addressing any or all of these risks, our business may be
materially affected in an adverse manner.
The
travel industry in China is seasonal.
Our
business travel operations experience seasonal fluctuations, reflecting seasonal
variations in demand for travel services. During the first quarter, demand for
travel services generally declines in the PRC and the number of
bookings flattens or decreases, in part due to a slowdown in business activity
during the Chinese New Year holiday. Demand for travel services generally peaks
during the second half of the year and there may be seasonal fluctuations
in allocations of travel services made available to us by travel suppliers.
Consequently, our revenue may fluctuate from quarter to
quarter.
Our
business depends on the technology infrastructure of third parties.
We rely
on third-party computer systems and other service providers, including the
computerized reservation systems of airlines and hotels to make reservations and
confirmations. Other third parties provide, for instance, our back-up data
center, telecommunications access lines, significant computer systems and
software licensing, support and maintenance service and air-ticket delivery. Any
interruption in these or other third-party services or deterioration in their
performance could impair the quality of our service.
Risks
Related to our Common Stock
We
have not and do not anticipate paying any dividends on our Common
Stock.
We have paid no dividends on our Common
Stock to date and it is not anticipated that any dividends will be paid to
holders of our Common Stock in the foreseeable future. While our future dividend
policy will be based on the operating results and capital needs of the business,
it is currently anticipated that any earnings will be retained to finance our
future expansion and for the implementation of our business plan. As an
investor, you should take note of the fact that a lack of a dividend can further
affect the market value of our stock, and could significantly affect the value
of any investment in our Company.
15
We
will incur significant costs as a result of operating as a public company and
our management will be required to devote substantial time to compliance
requirements.
As a
public company we incur significant legal, accounting and other expenses under
the Sarbanes-Oxley Act of 2002, together with rules implemented by the
Securities and Exchange Commission and applicable market regulators. These rules
impose various requirements on public companies, including requiring certain
corporate governance practices. Our management and other personnel will need to
devote a substantial amount of time to these compliance
requirements.
In addition, the Sarbanes-Oxley Act
requires, among other things, that we maintain effective internal controls for
financial reporting and disclosure controls and procedures. In particular,
commencing in 2007, we must perform system and process evaluations and testing
of our internal controls over financial reporting to allow management to report
on the effectiveness of our internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act. Our testing may reveal
deficiencies in our internal controls over financial reporting that are deemed
to be material weaknesses. Compliance with Section 404 may require that we incur
substantial accounting expenses and expend significant management efforts. If we
are not able to comply with the requirements of Section 404 in a timely manner,
or if our accountants later identify deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses, the market price
of our stock could decline and we could be subject to sanctions or
investigations by the SEC or other applicable regulatory
authorities.
Our
Board of Directors has the authority, without stockholder approval, to issue
preferred stock with terms that may not be beneficial to common stock
holders.
Our
Amended and Restated Articles of incorporation authorizes the issuance of
preferred shares which may be issued with dividend, liquidation, voting and
redemption rights senior to our Common Stock without prior approval by the
stockholders. The Preferred Stock may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
issue such shares of Preferred Stock in one or more series, with such
designations, preferences and rights or qualifications, limitations or
restrictions thereof as shall be stated in the resolution of
resolutions.
The
issuance of preferred stock could adversely affect the voting power and other
rights of the holders of common stock. Preferred stock may be issued quickly
with terms calculated to discourage, make more difficult, delay or prevent a
change in control of our Company or make removal of management more difficult.
As a result, the Board of Directors' ability to issue preferred stock may
discourage the potential hostile acquirer, possibly resulting in beneficial
negotiations. Negotiating with an unfriendly acquirer may result in, among other
things, terms more favorable to us and our stockholders. Conversely, the
issuance of preferred stock may adversely affect any market price of, and the
voting and other rights of the holders of the Common Stock. We presently have
no
plans to
issue any preferred stock.
The
issuance of shares through our stock compensation plans may dilute the value of
existing stockholders and may affect the market price of our stock.
We may
use stock options, stock grants and other equity-based incentives, to provide
motivation and compensation to our officers, employees and key independent
consultants. The award of any such incentives will result in an immediate and
potentially substantial dilution to our existing stockholders and could result
in a decline in the value of our stock price. The exercise of these options and
the sale of the underlying shares of common stock and the sale of stock issued
pursuant to stock grants may have an adverse effect upon the price of our
stock.
Risks
Related to Doing Business in the People’s Republic of China
It
may be difficult for our stockholders to enforce their rights against the
Company or its officers or directors.
Because our principal assets are
located outside of the United States and some of our directors and all of our
executive officers reside outside of the United States, it may be difficult for
you to enforce your rights based on the United States Federal securities laws
against us and our officers and directors in the United States or to enforce
judgments of United States courts against us or them in the People's Republic of
China.
16
In addition, our operating subsidiaries
and substantially all of our assets are located outside of the United States.
You will find it difficult to enforce your legal rights based on the civil
liability provisions of the United States Federal securities laws against us in
the courts of either the United States or the People's Republic of China and,
even if civil judgments are obtained in courts of the United States, to enforce
such judgments in the courts of the People's Republic of China. In addition, it
is unclear if extradition treaties in effect between the United States and the
People's Republic of China would permit effective enforcement against us or our
officers and directors of criminal
penalties, under the United States Federal securities laws or
otherwise.
Our
business operations take place primarily in the PRC. Because Chinese laws,
regulations and policies are continually changing, our operations will face
numerous risks.
Because
our operations primarily take place outside of the United States and are subject
to Chinese laws, regulations and policies affecting any change of Chinese laws
may adversely affect our business, such as exchange controls and currency
restrictions, currency fluctuations and devaluations, changes in local economic
conditions, changes in Chinese laws and regulations, exposure to possible
expropriation or other Chinese government actions, and unsettled political
conditions. These factors may have a material adverse effect on our operations
or on our business, results of operations and financial condition.
China's
economy differs from the economies of most developed countries in many respects,
including substantial governmental regulation, development, growth rate, control
of foreign exchange, significant restrictions on property rights, taxation
levels, and permitted allocation of resources. While the People's Republic of
China economy has experienced significant growth in the past 20 years, growth
has been uneven across different regions and among various economic sectors of
China. The government of the People's Republic of China has implemented various
measures to encourage economic development and guide the allocation of
resources, which may or may not achieve the desired results or stated goals.
Some of these measures may benefit the overall economy of People's Republic
of China, but may also have a negative effect on us or on the economy in
general. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in
tax regulations that are applicable to us. Since early 2004, the government of
the People's Republic of China has implemented certain measures to control the
pace of economic growth. Such measures may cause a decrease in the level of
economic activity in the People’s Republic of China, which could adversely
affect our results of operations and financial condition.
Limitations
on Chinese economic market reforms may discourage foreign investment in Chinese
businesses.
The value of investments in Chinese
businesses could be adversely affected by political, economic and social
uncertainties in China. The economic reforms in China in recent years are
regarded by China's central government as a way to introduce economic market
forces into China. Given the overriding desire of the central
government leadership to maintain stability in China amid rapid social and
economic changes in the country, the economic market reforms of recent years
could be slowed, or even reversed.
We
face economic risks in doing business in the PRC.
As
a developing nation, the PRC's economy is more volatile than that of developed
Western industrial economies. It differs significantly from that of the U.S. or
a Western European country in such respects as structure, level of development,
capital reinvestment, resource allocation and self-sufficiency. Only in recent
years has the Chinese economy moved from what had been a command economy through
the 1970s to one that during the 1990s encouraged substantial private economic
activity. In 1993, the Constitution of China was amended to reinforce such
economic reforms. The trends of the 1990s indicate that future policies of the
Chinese government will emphasize greater utilization of market forces. For
example, in 1999 the Government announced plans to amend the Chinese
Constitution to recognize private property, although private business will
officially remain subordinated to the state-owned companies, which are the
mainstay of the Chinese economy. However, there can be no assurance that, under
some circumstances, the government's pursuit of economic reforms will not be
restrained or curtailed. Actions by the central government of the PRC could have
a significant adverse effect on economic conditions in the country as a whole
and on the economic prospects for our Chinese operations.
17
Any
slowdown of economic growth in the PRC could have a negative effect on our
business. There can be no assurance that the growth of the economy in the PRC
will continue or that any slowdown will not have a negative effect on our
business.
Our online business relies on the
existence of an adequate telecommunications infrastructure for continued growth
of China's internet market.
Although private sector Internet
service providers currently exist in the PRC, almost all access to the Internet
is maintained through a network owned by China Netcom under the regulatory
supervision of China's Ministry of Information Industry. In addition, the
national networks in the PRC connect to the Internet through a
government-controlled international gateway. This international gateway is the
only channel through which a domestic Chinese user can connect to the
international Internet network. We rely on this infrastructure and China Netcom
to provide data communications capacity, primarily through local
telecommunications lines. We cannot assure you that this infrastructure will be
further developed. In addition, we will have no access to alternative networks
and services, on a timely basis if at all, in the event of any infrastructure
disruption or failure. The Internet infrastructure in the PRC may not support
the demands associated with continued growth in Internet usage.
We
may suffer currency exchange losses if the Renminbi depreciates relative to the
U.S. Dollar.
Our
reporting currency is the U.S. dollar. However, a substantial portion of our
assets and revenues are denominated in the Chinese currency, Renminbi, commonly
referred to as RMB. Our assets and revenues expressed in our U.S. dollar
financial statements will decline in value of the Renminbi depreciates relative
to the U.S. dollar. Any such depreciation could adversely affect the market
price of our Common Stock. Very limited hedging transactions are available in
the PRC to reduce our exposure to exchange rate fluctuations and we do not
intend to engage in any such transactions. In addition, our currency exchange
losses may be magnified by Chinese exchange control regulations that restrict
our ability to convert Renminbi into U.S. Dollars.
We
may not be able to freely convert Renminbi into foreign currency.
A portion of our revenues and operating
expenses will be denominated in Renminbi while a portion of our capital
expenditures are denominated in U.S. dollars.
Under
current Chinese regulations, the payment of dividends, trade and service-related
foreign transactions to a foreign investor of a foreign-invested enterprise is
treated as a "current account" payment for which the approval of the State
Administration of Foreign Exchange is not required. However, in order to
distribute dividends we may be required to file documentation to a designated
foreign exchange bank. The Bank must certify that all requirements have been
met, such as payment of taxes, directors' approval and a capital verification
report issued by an accounting firm. If a foreign-invested enterprise dissolves,
a return of capital, which includes foreign direct investment, is treated as a
"capital account" payment. This typically requires approval of the State
Administration of Foreign Exchanges' in addition to the filing of
documentation.
We may currently convert Renminbi for
transactions under the "current account" without the approval of the State
Administration of Foreign Exchange for settlement of "current account"
transactions, including payment of dividends,
by providing commercial documents evidencing these transactions. They may also
retain foreign exchange in their current accounts (subject to a ceiling approved
by the State Administration of Foreign Exchange) to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant Chinese governmental
authorities may limit or eliminate the ability to purchase and retain foreign
currencies in the future. Such change of policy would materially and adversely
affect our business, financial condition and results of
operations.
18
The
Chinese legal and judicial system may negatively impact foreign
investors.
In 1982,
the National Peoples Congress amended the Constitution of China to authorize
foreign investment and guarantee the "lawful rights and interests" of foreign
investors in the PRC. However, the PRC's system of laws is not yet
comprehensive. The legal and judicial systems in the PRC are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in the PRC lack
the depth of legal training and experience that would be expected of a judge in
a more developed country. Because the Chinese judiciary is relatively
inexperienced in enforcing the laws that do exist, anticipation of judicial
decision-making is more uncertain than would be expected in a more developed
country. It may be impossible to obtain swift and equitable enforcement of
laws that do exist, or to obtain enforcement of the judgment of one
court by a court of another jurisdiction. The PRC's legal system is based on
written statutes; a decision by one judge does not set a legal precedent that is
required to be followed by judges in other cases. In addition, the
interpretation of Chinese laws may be varied to reflect domestic political
changes.
The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors. However,
the trend of legislation over the last 20 years has significantly enhanced the
protection of foreign investment and allowed for more control by foreign parties
of their investments in Chinese enterprises. There can be no assurance that a
change in leadership, social or political disruption, or unforeseen
circumstances affecting the PRC’s political, economic or social life, will not
affect the Chinese government's ability to continue to support and pursue these
reforms. Such a shift could have a material adverse effect on our business and
prospects.
The
practical effect of the Peoples Republic of China legal system on our business
operations in the PRC can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws provide significant protection from government interference. In
addition, these laws guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants. These laws,
however, do impose standards concerning corporate formation and governance,
which are not qualitatively different from the general corporation laws of the
several states. Similarly, the Peoples Republic of China accounting laws mandate
accounting practices, which are not consistent with U.S. Generally Accepted
Accounting Principles. The PRC's accounting laws require that an annual
"statutory audit" be performed in accordance with the PRC accounting standards
and that the books of account of Foreign Invested Enterprises are maintained in
accordance with Chinese accounting laws. Article 14 of the Peoples Republic of
China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned
Enterprise to submit certain periodic fiscal reports and statements to designate
financial and tax authorities, at the risk of business license revocation.
Second, while the enforcement of substantive rights may appear less clear than
United States procedures, the Foreign Invested Enterprises and Wholly
Foreign-Owned Enterprises are Chinese registered companies, which enjoy the same
status as other Chinese registered companies in business-to-business dispute
resolution. Generally, the Articles of Association provide that all business
disputes pertaining to Foreign Invested Enterprises are to be resolved by the
Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden,
applying Chinese substantive law. Any award rendered by this arbitration
tribunal is, by the express terms of the respective Articles of Association,
enforceable in accordance with the "United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical
matter, although no assurances can be given, the Chinese legal infrastructure,
while different in operation from its United States counterpart, should not
present any significant impediment to the operation of Foreign Invested
Enterprises.
Item
1B. Unresolved
Staff Comments.
Not
Applicable.
Item
2. Properties.
All land
in the PRC is owned by the government and cannot be sold to any individual or
entity. Instead, the government grants landholders a "land use right" after a
purchase price for such "land use right" is paid to the government. The "land
use right" allows the holder the right to use the land for a specified long-term
period of time and enjoys all the incidents of ownership of the land. The
following are the details regarding Universal travel Group’s land use
rights with regard to the land that it uses in its
business.
19
Our
principal executive offices are located at 5/F South Tower, Building No. 11,
High-Tech Industrial Park, Second Zhongke Road, Nanshan,
Shenzhen, People's Republic of China. The offices contain approximately
1,425 square feet of usable space and are subject to a lease which expires
October 2010. The monthly rent payable for these offices is
$12,517.60.
In
addition to the above principal offices, we also have a call center located at
Shennan Road, Hualian Center Room 301 - 304, Shenzhen, People's Republic of
China. The offices contain approximately 356 square meters of usable space and
are subject to a lease which expires October 2010. The monthly rent payable for
these offices is $3,718.
In
addition to our headquarters, YZL and STA maintain offices at the locations
listed below which require aggregate monthly payments of $14,760.
1.
|
Baoan
Airport Branch: BT61-62, Area B, Shenzhen Baoan
Airport.
|
2.
|
Fuyong
Branch: No. 129. Bai Shi Sha Blvd, Fuyong Zhen, Shenzhen
City.
|
3.
|
Longhua
Zhuojing Branch: No.11 Sheng Di Long Quan, Ban Ren Min Bei Road, Longhua
Blvd, Shenzhen City.
|
4.
|
Xinzhou
Branch: 1st Floor Business Center, Chu Tian Hotel, Hubei Building, Bin He
Road, Shenzhen City.
|
FOI
maintains 9 offices around the Guangzhou area which require aggregate monthly
payments of $5,241.80;
XGN
maintains 3 offices in Xi’an which require aggregate monthly payments of
$732.60;
SLB
maintains its main office in Shanghai and makes aggregate monthly payments of
$5,827.33;
CTE
maintains offices of approximately 1,194 square meters, and makes aggregate
monthly payments of $3,496.
We plan
to expand our operations and lease more office space in the near future, based
on our increased office spaces and the rentals for our Kiosks.
Item
3. Legal Proceedings.
We know
of no material, active, pending or threatened proceeding against us or our
subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or
defendant in any material proceeding or pending litigation.
20
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.
Market
Information
Since
October 27, 2009, our common stock has been listed and traded on the NYSE under
the symbol “UTA”. From May 28, 2009 until October 27, 2009, our common stock was
listed and traded on the NYSE Amex under the same symbol “UTA”. Previously from
August 21, 2006 until May 28, 2009, our common stock was traded on the
Over-the-Counter Bulletin Board under the symbol “UTVG.OB”. Prior to August 21,
2006, the date we changed our name from TAM of Henderson, Inc. to Universal
Travel Group, our Common Stock was quoted under the symbol
"TMHN.OB".
On
March 31, 2009, we effected an one-for-three reverse stock split of our common
stock. The one-for-three reverse stock split automatically converts
three shares of the Company's common stock into one share of common stock. The
reverse stock split affected all issued and outstanding shares of the Company's
common stock, and shares of common stock underlying stock options and warrants
that were outstanding immediately prior to the effective date of the reverse
stock split. Any fractional shares resulting from the exchange would be
rounded up to the nearest whole share of new common stock.
The
prices set forth below reflect the quarterly high and low bid price information
for shares of our Common Stock for the periods indicated, based on reports of
transactions from the NYSE, NYSE Amex and the OTC Bulletin Board. Those
quotations taken from the OTC Bulletin Board reflect inter-dealer
prices, without retail markup, markdown or commission, and may not represent
actual transactions.
Calendar Quarter
|
Low Bid
|
High Bid
|
||||||
2008
First Quarter
|
$ | 1.45 | $ | 3.82 | ||||
2008
Second Quarter
|
$ | 1.12 | $ | 2.86 | ||||
2008
Third Quarter
|
$ | 0.87 | $ | 1.65 | ||||
2008
Fourth Quarter
|
$ | 0.45 | $ | 1.10 | ||||
2009
First Quarter
|
$ | 0.59 | $ | 2.95 | ||||
2009
Second Quarter
|
$ | 2.01 | $ | 12.60 | ||||
2009
Third Quarter
|
$ | 8.62 | $ | 17.20 | ||||
2009
Fourth Quarter
|
$ | 8.91 | $ | 16.50 |
Holders
of Securities
As of
March 4, 2010, there were approximately 82 holders of record of our common
stock, including shares held in street name by brokerage firms. The
holders of common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders. Holders of the
common stock have no preemptive rights and no right to convert their common
stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock.
Our
common stock is covered by a Commission rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors, which are generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell our securities and also may affect the ability of purchasers of our common
stock to sell their shares in the secondary market. It may also cause fewer
broker-dealers to be willing to make a market in our common stock, and it may
affect the level of news coverage we receive.
21
Dividends
We
have not declared or paid any cash dividends on our common stock since our
inception, and our board of directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our board of directors. There
are currently no restrictions that limit our ability to declare cash dividends
on its common stock and we do not believe that there are any that are likely to
do so in the future.
Securities
Authorized for Issuance under Equity Compensation Plans
In
January 2007, we adopted the Universal Travel Group 2007 Equity Incentive Plan.
In the first quarter of 2007, we issued 1,256,667 shares of our Common Stock
pursuant to the Plan for services rendered from October 2, 2006, through
February 28, 2007. At the time of issuance the 1,256,667 shares were
valued at $1,583,400, of which $950,040 was charged against earnings in 2006 and
$633,360 was charged against earnings for 2007.
There are
no longer any shares available for issuance pursuant to the Universal Travel
Group 2007 Equity Incentive Plan.
During
2007 we issued options to purchase 33,333 shares to each of three newly
appointed directors. The options are exercisable for a period of approximately
10 years from the date of issuance and are exercisable at prices of $5.85; $8.55
and $11.25, respectively. All three directors have to date ceased to be
directors of the Company. Accordingly, only an aggregate of options
to purchase 22,222 shares of our Common Stock has vested amongst these
three ex-directors.
Additionally,
on June 24, 2008, we granted an option to purchase 33,333 shares of our Common
Stock to our newly appointed director, Yizhao Zhang. His options were
exercisable for a period of approximately 10 years from the date of issuance and
are exercisable at $4.56 per share. The option holder has no voting or
dividend rights. We record the expense of the stock options over the related
vesting period. The options were valued using the Black-Scholes option-pricing
model at the model at the date of grant stock option pricing.
In
January 2009, we adopted the Universal Travel Group 2009 Incentive Stock
Plan. On January 20, 2009, we issued options to purchase 2,000,000
shares of common stock to our Chief Executive Officer, Ms. Jiangping Jiang at an
exercise price of $3.84. The remaining options to purchase 200,000
shares of common stock were issued on the same date to various employees and
directors at an exercise price of $2.70. The term of each option was
for 10 years. The options vest in six annual equal
installments. However, in the event (i) the Company reports an after
tax Net Income of $14,000,000 in its Annual Report on Form 10-K filed with
the SEC for its fiscal year 2008, then options to purchase one-third of the
shares granted shall vest and become immediately exercisable and each grantee of
such options shall be entitled to exercise his/her options rateably, (ii)
the Company reports an after tax Net Income of $18,000,000 in its Annual
Report on Form 10-K filed with the SEC for its fiscal year 2009, then options to
purchase another one-third of the shares granted shall vest and
become immediately exercisable and each grantee of such options shall be
entitled to exercise his/her options rateably and (iii) the Company reports an
after tax Net Income of $22,000,000 in its Annual Report on Form 10-K
filed with the SEC for its fiscal year 2010, then options to purchase another
one-third of the shares granted shall vest and become immediately exercisable
and each grantee of such options shall be entitled to exercise his/her options
rateably. As of the date of this Annual Report, all the
2,200,000 options to purchase our common stock under the Universal Travel Group
2009 Incentive Stock Plan have been issued and there are no longer any shares
available for issuance under the said Plan.
The
following table provides information as of the date hereof our outstanding
equity compensation
plans and
arrangements .
22
Equity
Compensation Plan Information
Plan Category
|
Number of securities
(post-split) to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
|
Weighted average exercise
price of outstanding
options, warrants and
rights
(b)
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
|
|||||||||
Equity
compensation plans approved by security holders
|
2,200,000 | $ | 3.72 | 0 | ||||||||
Equity
compensation plans not approved by security holders
|
55,555 | $ | 6.70 | 0 | ||||||||
Total
|
55,555 | $ | 6.70 | 0 |
Purchases
of Equity Securities by the Company and Affiliated Purchasers
During the fourth quarter of our fiscal
year ended December 31, 2009, neither we nor any "affiliated purchaser" (as
defined in Rule 10b-18(a)(3) under the Exchange Act) purchased any shares of our
Common Stock, the only class of our outstanding equity securities registered
pursuant to section 12 of the Exchange Act.
Recent
Sales of Unregistered Securities
The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ended December 31, 2009:
None.
The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ended December 31, 2008:
On
February 4, 2008, we received a commitment for $3.5 million in financing from
three Chinese financial institutions, namely Total Shine Group Limited, Victory
High Investments Limited and Think Big Trading Limited, in exchange for 433,827
shares of our Common Stock, a price of $8.10 per share. The proceeds were to be
used exclusively to reduce debt from past acquisitions. The funds were to be
paid in three installments: $600,000 was paid upon execution of the equity
financing agreement, $1,400,000 is to be paid no later than February 28, 2008
and the balance of $1,514,000 is to be paid no later than ten days after the
filing of our Annual report. The first round of financing closed on February 7,
2008. Proceeds from the first closing amounting to $599,994 were paid
directly to the shareholders of Foshan Overseas International Travel
Service Co., Ltd. (FOI) to satisfy an amount due to them under a note and we
issued 74,074 shares of our Common Stock to Total Shine Group Limited, Victory
High Investments Limited and Think Big Trading Limited. On May 7,
2008 we terminated the equity financing agreement with the financial
institutions due to their failure to provide the remaining amounts according to
the agreement.
On August
28, 2008, we entered into a Securities Purchase Agreement with Access America
Fund, LP, Chinamerica 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, of the Company and warrants to purchase
764,785 shares of common stock for an aggregate purchase price of $7,112,500.
Each warrant has an exercise price of $8.13 and a term of 5 years from the date
of issuance.
The
private placements were exempt from registration under the Securities Act under
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder because
the securities were offered only to nine purchasers, all of which were
accredited investors, no general advertisement of the sale of securities was
made, and all other requirements of the exemption were satisfied.
23
The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ending December 31, 2007:
On April
10, 2007, we, Full Power Enterprise Global Limited ("Full Power"), Shenzhen Yu
Zhi Lu Aviation Service Company Limited (“YZL”), Shenzhen Speedy Dragon
Enterprise Limited (“SSD”) and Xiangsheng Song, entered into a share exchange
agreement pursuant to which YZL acquired 100% of SSD in a stock and cash
transaction valued at approximately US $4,000,000. Under the share exchange
agreement, in exchange for his shares in SSD, Xiangsheng Song received both
stock consideration and cash consideration. The stock consideration consisted of
238,095 newly issued shares of our Common Stock.
On August
6, 2007, pursuant to a share exchange agreement, in exchange for the shares of
Xi'an Golden Net Travel Serve Service Company Limited (“XGN”), we issued to the
shareholders of XGN an aggregate of 50,588 shares of our Common Stock, which
were divided proportionally among the shareholders in accordance with their
respective ownership interests in XGN immediately before the closing of the
share exchange agreement.
On August
8, 2007, pursuant to a share exchange agreement, in exchange for the shares of
Shanghai Lanbao Travel Service Company Limited (“SLB”), we issued to the
shareholders of SLB an aggregate of 200,000 shares of our Common Stock, which
were divided proportionally among the shareholders in accordance with their
respective ownership interests in SLB immediately before the closing of the
share exchange agreement.
On
October 29, 2007, pursuant to a share exchange agreement, in exchange for the
shares of Foshan Overseas International Travel Service Co., Ltd. (“FOI”), we
issued to the shareholders of FOI an aggregate of 374,329 shares of our Common
Stock, which were divided proportionally among the shareholders in accordance
with their respective ownership interests in FOI immediately before the closing
of the share exchange agreement.
The
shares of the our Common Stock were issued to Xiangsheng Song and the
shareholders without registration under Section 5 of the Securities Act in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act. Specifically, (1) we had determined that Xiangsheng Song
and the shareholders are knowledgeable and experienced in finance and business
matters and thus they are able to evaluate the risks and merits of acquiring our
securities; (2) Xiangsheng Song and the shareholders have advised us that they
are able to bear the economic risk of purchasing our common stock; (3) we have
provided Xiangsheng Song the shareholders with access to the type of information
normally provided in a prospectus; and (4) we did not use any form of public
solicitation or general advertising in connection with the issuance of the
shares.
In
addition, the shares of our Common Stock were issued to Xiangsheng Song and the
shareholders without registration under Section 5 of the Securities Act, in
reliance on the exemption from registration contained in Regulation S under the
Securities Act. We believe that the issuance of our Common Stock to Xiangsheng
Song and the shareholders (the "Offshore Shareholders") constituted an offshore
transaction. Each of the Offshore Shareholders is a resident of China. At the
time the Registrant offered to issue its shares to the Offshore Shareholders,
each of the Offshore Shareholders was located in China. Furthermore, at the time
we issued our Common Stock to the Offshore Shareholders, we reasonably believed
that each of the Offshore Shareholders was outside the United States. As a
result, we believed that these facts enable us to also rely on Regulation S for
an exemption from the registration requirements of Section 5 of the Securities
Act with respect to the issuances to the Offshore Shareholders.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Statements: No Assurances Intended
In
addition to historical information, this Annual 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.
24
Business
Overview
We are a
travel services provider in the People’s Republic of China engaged in providing
air ticketing and hotel booking services as well as domestic and international
packaged tourism services throughout the People’s Republic of China via the
internet, the customer representatives and the kiosks.
In 2007,
we completed the acquisitions of Xi'an Golden Net Travel Serve Service Company
Limited, which specializes in domestic packaged tour services, and Shanghai
Lanbao Travel Service Company Limited, which specializes in hotel reservations
and Foshan Overseas International Travel Service Co., Ltd, which handles
both domestic and international travel inquiries.
In early
2008, we successfully integrated our packaged tours, air-ticketing and hotel
reservation businesses onto our newly developed on-line platform, which
provides rich and comprehensive travel information to primarily leisure
travelers.
In
October 2008, we successfully rolled out our Kiosks. We believe that the Kiosks
are innovate self-service terminals capable of handling a full ranging of
booking services including packaged tours through a secured built in payment
function that accepts all major Chinese bank cards. As of
the end of fiscal year 2009, we had 623 Kiosks manufactured and
operating. 511 of them were placed in Guangdong Province, where our
company is located, and another 112 were placed outside this province. We plan
to roll additional 1,400 Kiosks in 2010.
Under the
theme, "Wings towards a more colorful life", we currently have three discrete
lines of business and revenue, and each is carried out by one or two
subsidiaries of the Company: (i) air-ticketing (Shenzhen Yu Zhi Lu
Aviation Service Company Limited and Chongqing
Universal Travel E-Commerce Co., Ltd), (ii) hotel reservations (Shenzhen Yu Zhi
Lu Aviation Service Company Limited and Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd,
and Shenzhen Universal Travel Agency Co. Ltd ). Operations of each segment
are exclusive to the operations of the associated subsidiary
company.
Previously
in 2007, we also acquired Speedy Dragon Enterprise Limited, which specialized in
air cargo agency. In the second calendar 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. The air cargo
industry had been suffering from the contraction in manufacturing in the Pearl
River Delta, and we were not competitive enough in this segment of 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
December 2008, we established Shenzhen Universal Travel Agency Co. Ltd, a
PRC company, to meet the increasing packaged-tour demand in Shenzhen
City.
In March
2009, 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-Commerce Co., Ltd, a PRC
company, to strengthen our presence in that region. It began generating revenues
in the third quarter of 2009.
On
December 17, 2009, we entered into a Letter of Intent to acquire Huangshan
Holiday Travel Service Company (“Huangshan Holiday”) for RMB 20 million
(approximately $2.9 million), 80% of which shall be paid cash and 20% in shares
of common stock of the Company. The purchase consideration may be subject to
adjustment after completion of due diligence on Huangshan Holiday by the
Company. Founded in 1999, Huangshan Holiday provides comprehensive travel
services in the Huangshan district in the Anhui Province of China. Huangshan, a
national geological park and UNESCO World Heritage Site, is one of China’s most
popular travel destinations, with over eight million tourists annually.
Huangshan Holiday provides guided and self-guided package tours and airline and
hotel reservation services for both leisure and business travelers. Huangshan
Holiday serves as the exclusive hotel reservation agency for several major
online travel service providers in China, including eLong and 12580, and has
over 70% share of the mid to high end hotel reservation market in
the Huangshan Tourism District. Estimated full year 2009 revenues and net
income for Huangshan Holiday are approximately $4.4 million and $0.6
million, respectively.
25
On
January 19, 2010, we entered into a Letter of Intent to acquire Hebei Tianyuan
Travel Agency (“Tianyuan”) for RMB 29 million (approximately $4.2 million), 80%
of which shall be paid in cash and 20% of the consideration in shares of the
Company’s common stock. The purchase consideration may be subject to adjustment
after completion of acquisition audit on Tianyuan by the Company. Founded in
1999, Tianyuan was the first authorized travel agency in the Hebei Province in
China. In addition, Tianyuan is the exclusive provider of travel
agency services to Mount Lu and Lushan National Park, both domestic tourist
attractions listed on the UNESCO World Heritage Site. Tianyuan was
the organizer of the International Economy & Culture
Communication Forum sponsored by the local government and the exclusive
organizer of the Young Journalist Summer Camp sponsored by the Yanzhao Evening
Paper. We believe that Tianyuan’s exclusive service with these regional sites
and unique partnership with the government provides Tianyuan with an advantage
to be a market leader in travel services in the region.
On
January 26, 2010, we entered into a Letter of Intent to acquire
Zhengzhou Yulongkang Travel Service Company (“Zhengzhou Yulongkang”) for RMB 39
million (approximately $5.7 million), 90% of which is to be paid in cash and 10%
of which is to be paid in shares of the Company’s common stock. The purchase
consideration may be subject to adjustment after the completion of acquisition
audit on Zhengzhou Yulongkang by the Company. Zhengzhou Yulongkang was
established in 2000 in Zhengzhou, Henan Province of China. The company currently
has a management team of 25 people and over 60 tour organizers and guides.
Zhengzhou Yulongkang provides comprehensive travel services and maintains
long-term cooperation relations with transportation agents, travel destinations,
hotels, and air ticket agencies. Its regional tour routes include “Charming
Tibet”, “Winter Hot Spring”, “Passion Ski Trip”, etc. Zhengzhou Yulongkang has
received a series of industry and corporate awards from 2003 –
2006.
In order
to finance the abovementioned acquisitions and our working capital, on December
10, 2009, we entered into a definitive subscription agreement with to sell to
institutional investors an aggregate of 2,222,222 shares of its common stock at
a price of $9.00 per share for net proceeds of approximately $19.0 million. The
sale of the common stock closed on December 15, 2009. 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.
In 2009,
we were selected one of the Top Ten Brands of Travel Services in the People’s
Republic of China. We believe our quality of services will distinguish us in our
long term competitiveness.
We aim to
be the foremost leading online travel services provider in the People’s Republic
of China, especially in the air ticketing service, hotel booking and packaged
tour providing sectors.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED DECEMBER 31, 2009 AND 2008
The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the three
months ended December 31, 2009 and 2008.
26
Revenue
Segment Analysis:
|
Three months
ended December
31, 2009
|
Three months
ended December
31, 2008
|
Increase / Decrease
|
Percentage
|
||||||||||||
Gross
Revenues
|
$ | 34,174,482 | $ | 27,107,173 | $ | 7,157,3097 | 26.5 | % | ||||||||
Cost
of Services
|
(24,109,170 | ) | (17,498,796 | ) | (6,610,374 | ) | 37.8 | % | ||||||||
Gross
Profit
|
10,065,312 | 9,518,377 | 546,935 | 5.7 | % | |||||||||||
SG&A
|
(2,533,885 | ) | (1,489,052 | ) | (1,044,833 | 70.2 | % | |||||||||
Income
from Operations
|
7,531,427 | 8,029,325 | (497,898 | ) | (6.2 | )% | ||||||||||
Other
income
|
11,431 | (1,461 | ) | 12,892 | (882.4 | )% | ||||||||||
Other
expenses
|
(87,853 | ) | 0 | (87,853 | ) | N/A | ||||||||||
Loss
on Disposal of Assets
|
(10,473 | ) | 0 | (10,473 | ) | N/A | ||||||||||
Loss
on change in fair value of derivative liabilities
|
(278,215 | ) | ,0 | (278,215 | ) | N/A | ||||||||||
Interest
income
|
18,918 | 15,626 | 3,292 | 21.1 | % | |||||||||||
Interest
expenses
|
0 | (27,638 | ) | 27,638 | (100 | )% | ||||||||||
Income
before Income Taxes
|
7,185,235 | 8,015,852 | (830,617 | ) | (10.4 | )% | ||||||||||
Provision
for income taxes
|
(1,949,754 | ) | (1,823,500 | ) | (126,254 | ) | 6.9 | % | ||||||||
Net
income-Continuing operations
|
5,235,481 | 6,192,352 | (956,871 | ) | (15.0 | )% | ||||||||||
Income
from discontinuing operations
|
0 | 133,941 | (133,941 | ) | (100 | )% | ||||||||||
Net
income
|
5,235,481 | 6,326,293 | (1,090,813 | ) | (17.2 | )% |
For the
three months ended December 31, 2009:
Revenue Segment
Analysis
|
Air tickets
(YZL and
CTE)
|
(%) of
sector
|
Hotel
(SLB)
|
(%) of
sector
|
Tours
(XGN,FOI
and STA**)
|
(%) of
sector
|
Total
|
|||||||||||||||||||||
Revenue
|
6,586,888 | 19.27 | % | 3,981,586 | 11.65 | % | 23,606,008 | 69.07 | % | 34,174,482 | ||||||||||||||||||
Cost
of Services
|
1,290,678 | 5.35 | % | 1,963,748 | 8.15 | % | 20,854,744 | 86.50 | % | 24,109,170 | ||||||||||||||||||
Gross
Profit
|
5,296,210 | 52.62 | % | 2,017,838 | 20.05 | % | 2,751,264 | 27.33 | % | 10,065,312 | ||||||||||||||||||
Gross
Margin
|
80.41 | % | 50.68 | % | 11.65 | % | 29.45 | % | ||||||||||||||||||||
Segment effect in
Gross Margin (*)
|
15.50 | % | 5.90 | % | 8.05 | % | 29.45 | % |
For the
three months ended December 31, 2008 (**):
Revenue Segment
|
Air tickets
(YZL)
|
(%) of
sector
|
Hotel
(SLB)
|
(%) of
sector
|
Tours
(XGN&FOI)
|
(%) of
sector
|
Total
|
|||||||||||||||||||||
Revenue
|
5,082,404 | 18.81 | % | 3,775,754 | 13.98 | % | 18,159,015 | 67.21 | % | 27,017,173 | ||||||||||||||||||
Cost
of Services
|
473,953 | 2.71 | % | 1,280,450 | 7.32 | % | 15,744,393 | 89.97 | % | 17,498,796 | ||||||||||||||||||
Gross
Profit
|
4,608,451 | 48.42 | % | 2,495,304 | 26.22 | % | 2,414,622 | 25.37 | % | 9,518,377 | ||||||||||||||||||
Gross
Margin
|
90.67 | % | 66.09 | % | 13.30 | % | 35.23 | % | ||||||||||||||||||||
Segment effect in
Gross Margin (*)
|
17.06 | % | 9.24 | % | 8.94 | % | 35.23 | % |
(*)
"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.
(**)Shenzhen
Universal Travel Agency Co. Ltd and Chongqing Universal Travel E-Commerce
Co., Ltd both began operations in June2009. Therefore they do not appear in the
2008 financial year figures.
27
Revenue
We
currently have three discrete lines of business and revenue, and each is carried
out by one or two subsidiaries of the Company: (i) air-ticketing (Shenzhen Yu
Zhi Lu Aviation Service Company Limited and Chongqing Universal Travel
E-Commerce Co., Ltd), (ii) hotel reservations (Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd
and Shenzhen Universal Travel Agency Co. Ltd). Operations of each segment
are exclusive to the operations of the associated subsidiary company. For the
three months ended December 31, 2008, we also had air cargo agency services,
which were operated by Shenzhen Speedy Dragon Enterprise Limited.
Revenue
for the three months ended December 31, 2009 was $34,174,482 compared to
$27,017,173 for the same period in 2008, an increase of approximately 26.5%.This
increase in revenue was primarily due to the successful integration and cross
selling among our newly diversified business segments that increased the group’s
competitiveness. Other factors attributable to this increase include the change
of public holiday period pattern, the easing of foreign travel restrictions
on October 29, 2008, as well as the reduction of air fuel surcharges due to the
lower global fuel prices in 2009, compared to 2008.
The
impact on the Company’s business by the abovementioned factors are derived from
management’s good faith beliefs and experience. The exact extent of
the impact of each factor is impossible to quantify as a myriad of other factors
also influence the outcome. Also, these factors are by their nature
unquantifiable. For example, it is impossible to calculate how many
more people in China would be travelling because of the Lunar New Year and what
this would translate in terms of increased ticket sales or hotel room
bookings.
Revenue
from air-ticketing was $6,586,888 for the three months ended December 31, 2009,
compared to $5,082,405 for the same period last year, an increase of
approximately 29.6%. This increase is generally driven by the same factors
mentioned above, but more specifically to the increased demand for air passenger
transportation.
Revenue
generated by hotel reservations and bookings for the three month period ended
December 31, 2009 totaled $3,981,586 versus $3,775,754, a year over increase of
approximately 5.5%. This increase is generally driven by the factors mentioned
above for our increase in revenue, but more specifically, due to the successful
integration of the various business segments of the Company.
Revenue
generated through packaged travel services for the three months ended December
31, 2009 was $23,606,008 compared to $18,159,015, for the same period in 2008,
an increase of approximately 30.0%. This increase is generally driven by the
factors mentioned above for our increase in revenue, but more specifically due
to the increase in tourism demand and successful integration of the Company’s
various business segments and marketing channels.
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 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.
Costs of
services for the three months ended December 31, 2009 was $24,109,170 compared
to $17,489,496 for the same period in 2008, an increase of $6,610,374, or
approximately 37.8%. The comparatively higher costs of services result from
higher percentage of packaged tours in our revenues.
Costs of
services from air-ticketing was $1,290, 678 for the three months ended December
31, 2009, compared to $473,953 for the same period last year, an
increase of $816,725, or approximately 172.3%. The increase is mostly due to our
reclassification of costs. Previously we had mistakenly allocated some direct
costs to selling, general and administrative expenses.
28
Costs of
services from hotel-reservation was $1,963,748 for the three months ended
December 31, 2009, compared to $1,280,450 for the same period last
year, an increase of $683,298, or approximately 53.4%. The increase
is mostly due to our reclassification of costs. Previously we had mistakenly
allocated some direct costs to selling, general and administrative
expenses.
Costs of
services from packaged-tour was $20,854,744 for the three months ended December
31, 2009, compared to $15,744,393 for the same period last year, an
increase of $5,110,351, or approximately 32.5%. The increase is in tandem with
the increase of revenue.
Gross
Profit
Gross
profit for the three months ended December 31, 2009 was $10,065,312 compared to
$9,518,377 for the three months ended December 31, 2008, an increase of
approximately 5.7 %. The increase in gross profit partially reflects the
Company’s success in implementing its online strategy, an increase in packaged
tour services as a percentage of overall revenue and to a lesser
degree, the rollout of our TRIPEASY Kiosks, which have
relatively lower variable costs associated with it.
Gross
profit in air-ticketing was $5,296,210 for the three months ended December 31,
2009 compared to $4,608,451 for the same period last year, an increase of
approximately 14.9%. Gross profit margin in this segment for the
three months ended December 31, 2009 was 80.4% compared to 90.7% for the same
period 2008. The decrease of gross profit margin in this segment is mostly
due to the reclassification of our costs of services.
Gross
profit in hotel reservations was $2,017,838 for the three month ended December
31, 2009 compared to $2,495,304 for the same period last year, a decrease of
$477,466, or approximately 19.1%. Gross profit margin in this segment for the
three months ended December 31, 2009 was 50.7% compared to 66.1% for the same
period in 2008, a decrease of approximately 15.4%. The decrease of
gross profit margin in this segment is mostly due to the reclassification of our
costs of services.
Gross
profit in packaged travel was $2,751,264 for the three months ended December 31,
2009 compared to $2,414,622 for the same period in 2008, an increase of
$336,642, or approximately 13.9%. Gross profit margin in this segment for the
three months ended December 31, 2009 was 11.7% compared to 13.3% for the same
period in 2008 . The decrease in gross profit margin was due to more discounts
in certain packaged tour programs in order to attract new clients.
Consolidated
gross margin for three months ended December 31, 2009 came in at 29.5%, compared
to 35.2% for the same period last year. The major reason for this decline is
that packaged tours generally have lower profit margins and they constituted a
higher portion of our total revenue.
Our
air-ticketing and hotel reservation have much higher gross margins than our
packaged tour business primarily as our revenue from air-ticketing and hotel
reservation are the commissions 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.
In
comparison, 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, which all together are much substantial
fixed overheads. The Company receives fees from providing domestic and
cross-border travel tour 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 in relation to
the packaged-tour services rendered or when tours are completed and collections
are reasonably assured.
29
Selling, General and
Administrative Expenses
Major
selling, general, and administrative expenses for the three months ended
December 31, 2009 and 2008 are as follows:
For
the three months ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Business
related tax
|
$
|
212,454
|
$
|
159,502
|
||||
Salary
|
213,772
|
137,813
|
||||||
Commission
paid
|
1,022,599
|
851,974
|
||||||
Professional
fees
|
239,000
|
190,541
|
||||||
Marketing
|
110,721
|
42,416
|
||||||
Rent
|
156,899
|
23,186
|
||||||
Depreciation
and amortization
|
43,006
|
1,803
|
||||||
Stock-based
compensation
|
355,346
|
51,786
|
||||||
Other
general and administrative expenses
|
180,089
|
30,031
|
||||||
Total
|
$
|
2,533,885
|
$
|
1,489,052
|
Selling,
general and administrative expenses for three months ended December 31, 2009
totaled $2,533,885 compared to $1,489,052 for three months ended December 31,
2008, an increase of $1,044,833 approximately 70.2%. Selling, general and
administrative expenses were 7.4% of revenue versus 5.5% last year. The increase
is mostly due to the higher amortization of employee stock incentive plan. We
also needed to increase marketing and renting expenses to support our increased
sales volume. In addition, we incurred extra professional fees, including but
not limited to, application for listing in New York Stock Exchange, engagement
of a third party consultant in addressing SEC comments, etc.
Net
Income
Net
income for the three months ended December 31, 2009 was $5,235,481, representing
15.3% of revenue, compared to $6,326,293, or 23.4% of revenue for the three
months ended December 31, 2008.
During
the fourth quarter of 2009, to promote our packaged tour business in Shenzhen
and Chongqing area, we initiated some marketing campaigns, including offering
some discounts in certain packaged tour programs. Some of the
programs were less profitable or even not profitable. The decrease in net income
reflects the overall lower profit margins of these programs. Management believes
that the surrender of some profits to gain market share is in line with our long
term strategy, and believes the effect of this decline is short
termed.
30
The lower
net margin compared to the same period last year, mainly comes from the higher
percentage of packaged-tour and the marketing campaigns in Shenzhen Universal
Travel Agency Co. Ltd. To a lesser extent, the non-cash charge of loss on
change in fair value of derivative liabilities, as well as the non-cash
expenditure from the 2009 Incentive Stock Option Plan, are also the factors to
lower the net profit margin.
FISCAL
YEARS ENDED DECEMBER 31, 2009 AND 2008
The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the fiscal
years ended December 31, 2009 and same period 2008.
Revenue
Segment Analysis:
Fiscal year 2009
|
Fiscal year 2008
|
Increase / Decrease
|
Percentage
|
|||||||||||||
Gross
Revenues
|
$ | 97,875,552 | $ | 65,821,838 | $ | 32,053,714 | 48.7 | % | ||||||||
Cost
of Services
|
(65,502,426 | ) | (43,312,826 | ), | (21,683,702 | ) | 51.2 | % | ||||||||
Gross
Profit
|
32,373,126 | 22,509,012 | 10,307,012 | 43.8 | % | |||||||||||
SG&A
|
(8,204,579 | ) | (4,591,903 | ) | (3,612,676 | ) | 78.7 | % | ||||||||
Income
from Operations
|
24,168,547 | 17,917,109 | 6,254,832 | 34.9 | % | |||||||||||
Other
income
|
11,431 | 8,402 | 3,029 | 36.1 | % | |||||||||||
Other
Expenses
|
(87,853 | ) | 0 | (87,853 | ) | N/A | ||||||||||
Loss
on disposal of assets
|
(1,594 | ) | (1,105 | ) | (489 | ) | 44.3 | % | ||||||||
Loss
on change in fair value of derivative liabilities
|
(6,832,186 | ) | 0 | (6,832,186 | ) | N/A | % | |||||||||
Interest
income
|
$ | 58,124 | 37,099 | 21,025 | 56.7 | % | ||||||||||
Interest
expense
|
0 | (106,163 | ) | (106,163 | ) | (100 | )% | |||||||||
Income
before Income Taxes
|
17,316,469 | 17,855,342 | (538,873 | ) | (3.0 | )% | ||||||||||
Provision
for income taxes
|
(5,978,948 | ) | (4,073,614 | ) | (1,905,334 | ) | 46.8 | % | ||||||||
Net
Income-Continuing Operation
|
11,337,521 | 13,781,728 | (2,444,207 | ) | (17.7 | )% | ||||||||||
Income
from Discontinued Operation
|
177,975 | 750,449 | (572,474 | ) | (76.3 | )% | ||||||||||
Loss
on disposition of discounted operations
|
(770,595 | ) | 0 | (770,595 | ) | N/A | % | |||||||||
Net
income
|
10,744,901 | 14,532,177 | 3,787,276 | (26.1 | )% |
For the
fiscal year ended December 31, 2009:
Revenue Segment
|
Air tickets
(YZL and
CTE)
|
(%) of
sector
|
Hotel
(SLB)
|
(%) of
sector
|
Tours
(XGN,FOI
& STA**)
|
(%) of
sector
|
Total
|
|||||||||||||||||||||
Revenue
|
17,509,195 | 17.89 | % | 13,044,815 | 13.33 | % | 67,321,542 | 68.78 | % | 97,875,552 | ||||||||||||||||||
Cost
of Services
|
2,726,424 | 4.16 | % | 4,343,328 | 6.63 | % | 58,432,674 | 89.21 | % | 65,502,426 | ||||||||||||||||||
Gross
Profit
|
14,782,771 | 45.66 | % | 8,701,487 | 26.88 | % | 8,888,868 | 27.46 | % | 32,373,126 | ||||||||||||||||||
Gross
Margin
|
84.43 | % | 66.70 | % | 13.20 | % | 33.08 | % | ||||||||||||||||||||
Segment effect in
Gross Margin (*)
|
15.10 | % | 8.89 | % | 9.08 | % | 33.08 | % |
For the
fiscal year ended December 31, 2008(**):
Revenue Segment
|
Air tickets
(YZL)
|
(%) of
sector
|
Hotel
(SLB)
|
(%) of
sector
|
Tours
(XGN&FOI)
|
(%) of
sector
|
Total
|
|||||||||||||||||||||
Revenue
|
12,333,527 | 18.74 | % | 8,340,519 | 12.67 | % | 45,147,792 | 68.59 | % | 65,821,838 | ||||||||||||||||||
Cost
of Services
|
1,166,155 | 2.69 | % | 3,209,777 | 7.41 | % | 38,936,894 | 89.90 | % | 43,312,826 | ||||||||||||||||||
Gross
Profit
|
11,167,372 | 49.61 | % | 5,130,742 | 22.79 | % | 6,210,898 | 27.59 | % | 22,509,012 | ||||||||||||||||||
Gross
Margin
|
90.54 | % | 61.52 | % | 13.76 | % | 34.20 | % | ||||||||||||||||||||
Segment effect in
Gross Margin (*)
|
16.97 | % | 7.79 | % | 9.44 | % | 34.20 | % |
31
(*)
"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.
(**)Shenzhen
Universal Travel Agency Co. Ltd and Chongqing Universal Travel E-Commerce
Co., Ltd both began operations in June2009. Therefore they do not appear in the
2008 financial year figures
Revenue
We
currently have three discrete lines of business and revenue, and each is carried
out by one or two subsidiaries of the Company: (i) air-ticketing (Shenzhen Yu
Zhi Lu Aviation Service Company Limited and Chongqing Universal Travel
E-Commerce Co., Ltd), (ii) hotel reservations (Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd
and Shenzhen Universal Travel Agency Co. Ltd). Operations of each segment
are exclusive to the operations of the associated subsidiary company. For the
year ended December 31, 2008, we also had air cargo agency services, which were
operated by Shenzhen Speedy Dragon Enterprise Limited.
Revenue
for fiscal year 2009 totaled $97,875,552 compared to $65,821,838 in the same
period last year, reflecting a year over year increase of approximately 48.7%.
The increase was attributable to both organic growth, as well as our expansion
into, successful integration and cross selling of the Company’s diversified
business segments related to packaged tours and hotel booking services through
the acquisitions of Xi’an Golden Net Travel Service Company Limited, Shanghai
Lanbao Travel Service Company Limited and Foshan Overseas International Travel
Service Co., Ltd.
More
specifically, revenue from air-ticketing was $17,509,195 for fiscal year 2009
compared to $12,333,527 for the fiscal year 2008, an increase of approximately
42.0%. This increase in revenue was primarily due to the successful integration
and cross selling among our newly diversified business segments that increased
the group’s competitiveness. It is also a result of successful integration of
the Company’s acquisitions of various complementary business segments, the
synergies among these segments and the consolidation of marketing channels among
the subsidiaries in major domestic cities. Other factors attributable to this
increase include the change of public holiday period pattern, the easing of
foreign travel restrictions on October 29, 2008, as well as the reduction of air
fuel surcharges due to lower global fuel prices in 2009, compared to
2008.
Revenue
from hotel reservations was $13,044,815 for the fiscal year 2009 compared to
$8,340,519 for the fiscal year 2008, an increase of approximately 56.4%. The
revenue increase is attributable to SLB’s own organic growth during the fiscal
2009. Our organic growth was driven by the successful integration and
the synergies among our various business segments and also the consolidation of
marketing channels among the subsidiaries in major domestic cities.
Revenue
from packaged travel was $67,321,542 for the fiscal year 2009 compared to
$45,147,792 for the fiscal year 2008, an increase of approximately 49.1%. The
revenue increase is mostly attributable to the organic growth of XGN and FOI
during the fiscal 2009. The growth in these two subsidiaries was driven by the
successful integration, the synergies among segments and also the consolidation
of marketing channels among the subsidiaries in major domestic
cities.
Organic
revenue growth played an important role in fiscal year2009. Since the average
price of our travel products and commission rates were stable (and some of them
were even slightly decreased during fiscal year 2009), we believe the greatest
impact to our financial performance is from the growth of our business volume.
Our increase in revenues in the past year reflects the development of the PRC
domestic tourism market, and dynamics of our overall operating platform and
synergies in our different business segments. Our innovative marketing mix and
marketing strategies, our cost synergies of combining online services with
traditional services, as well as the good integration of acquired businesses are
all important factors contributing to our performance thus far. Management
believes that these competitive advantages are sustainable in the long
term.
32
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
expenses such as stock-based compensation and corporate professional fees are
not allocated to any segment as costs of sales. Instead, the Company disclosed
these two numbers in Others (Corporate Expense) of its Segment Information
footnote and these expenses were included in the selling, general, and
administrative expenses.
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 generated 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.
In
comparison, 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, which all together are much substantial
fixed overheads. The Company receives fees from providing domestic and
cross-border 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. In addition,
the Company acts as principal in relation to the packaged-tour services rendered
or when tours are completed and collections are reasonably
assured.
Costs of
services for the year ended December 31, 2009 was $65,502,426 compared to
$43,312,826 for the same period in 2008, an increase of 22,189,600, or
approximately 51.2%. Consolidated gross margin for the year ended December 31,
2009 came in at 33.1%, compared to 34.2% for the same period last year. The
major reason for this decline is that packaged tours, which have a lower profit
margin , constituted to a higher proportion of our total
revenue.
Costs of
services from air-ticketing was $2,726,424 for the year ended December 31, 2009,
compared to $1,166,155 for the same period last year, an increase of
$1,560,269, or approximately 133.8%. The increase is mostly due to our
reclassification of costs. Previously we had mistakenly allocated some direct
costs to selling, general and administrative expenses.
Costs of
services from hotel-reservation was $4,343,328 for the year ended December 31,
2009, compared to $3,209,777 for the same period last year, an
increase of $1,133,551, or approximately 35.3%. The increase is mostly due to
our reclassification of costs. Previously we had mistakenly allocated some
direct costs to selling, general and administrative expenses.
33
Costs of
services from packaged-tour was $58,432,674 for the year ended December 31,
2009, compared to $38,936,894 for the same period last year, an
increase of $19,495,780, or approximately 50.1%. The increase is in tandem with
the increase of revenues.
A
detailed breakdown of cost of services by subsidiary is set forth
below:
Shenzhen
Yuzhilu Aviation Service Co., Ltd. (YZL)
|
2009
|
2008
|
||||||
Franchise
system cost sharing
|
$ | 17,901 | $ | 4,264 | ||||
Staff
salaries
|
436,076 | 345,519 | ||||||
Telecommunication
expenses
|
64,609 | 29,866 | ||||||
Rental
expenses
|
311,016 | 95,317 | ||||||
Utilities
|
16,755 | 12,875 | ||||||
Website
maintenance
|
44,135 | 21,457 | ||||||
Depreciation
and amortization
|
390,985 | 39,052 | ||||||
Business
tax
|
888,639 | 617,805 | ||||||
Subtotal
|
$ | 2,170,116 | 1,166,155 | |||||
Shanghai
Lanbao Travel Service Co., Ltd. (SLB)
|
||||||||
Business
Tax
|
$ | 704,420 | $ | 448,973 | ||||
Staff
salaries and Staff welfare
|
75,799 | 43,165 | ||||||
Rental
expenses
|
43,967 | 51,660 | ||||||
Telecommunication
expenses
|
9,029 | 6,713 | ||||||
Utilities
|
6,523 | 5,585 | ||||||
Depreciation
and amortization
|
3,698 | 3,965 | ||||||
Franchise
commission paid
|
3,499,851 | 2,649,716 | ||||||
Subtotal
|
$ | 4,343,287 | $ | 3,209,777 | ||||
Foshan
International Travel Service Co., Ltd. (FOI)
|
||||||||
Depreciation
and amortization
|
$ | 11,949 | $ | 12,072 | ||||
Cost
of Services (Package Tours)
|
36,834,916 | 23,930,685 | ||||||
Subtotal
|
$ | 36,846,865 | $ | 23,942,757 | ||||
Xian
Golden Net Travel Serve Services (XGN)
|
||||||||
Depreciation
and amortization
|
$ | 830 | $ | 475 | ||||
Cost
of Services (Package Tours)
|
19,197,510 | 14,993,662 | ||||||
Subtotal
|
$ | 19,198,340 | $ | 14,994,137 | ||||
Chongqing
Universal Travel E-Commerce Co., Ltd (CTE)
|
||||||||
Opening
fee
|
$ | 69,813 | ||||||
Depreciation
|
96,868 | |||||||
Rental
|
24,261 | |||||||
Utilities
|
1,549 | |||||||
Website
|
3,001 | |||||||
Maintenance
|
559 | |||||||
Payroll
|
25,048 | |||||||
Business
Tax
|
16,025 | |||||||
Subtotal
|
$ | 237,124 | ||||||
Shenzhen
Universal Travel Agency Co. Ltd (STA)
|
||||||||
Depreciation
and amortization
|
$ | 79 | ||||||
Cost
of Services (Package Tours)
|
2,706,615 | |||||||
Subtotal
|
$ | 2,706,694 | ||||||
Total
|
$ | 65,502,426 | 43,312,826 |
34
Gross
Profit
Gross
profit for the fiscal year 2009 was $32,373,126 compared to $22,509,012 for the
fiscal year 2008, an increase of $9,864,114, or approximately 43.8%. The
increase in gross profit partially reflects the Company’s success in
implementing its online strategy, an increase in packaged tour services as a
percentage of overall revenue and to a lesser degree, the rollout of our
TRIPEASY Kiosks, which have relatively lower variable costs associated with
it.
Gross
profit in air-ticketing was $14,782,771 for the twelve months ended December 31,
2009, compared to $11,167,372 for the same period last year, an increase of
approximately32.4%. Gross profit margin in this segment for the year ended
December 31, 2009 was 84.4% compared to 90.5% for the same period 2008. The
decrease in gross profit margin is mostly due to the reclassification of our
costs. Some of the costs, which were directly associated with the generation of
revenues and were mistakenly recognized in selling, general and administrative
expenses, are now reclassified in the costs of services.
Gross
profit in hotel reservations was $8,701,487 for the twelve month ended December
31, 2009 compared to $5,130,742 for the same period last year, an increase of
$3,570,745, or approximately 69.6%. Gross profit margin in this segment for the
year ended December 31, 2009 was 66.7% compared to 61.5% for the same period
2008, an increase of approximately 5.2%. The gross profit margin increase was
mainly due to the increase in commission revenue as a result of increased
reservation volume while our associated cost of services was increased to a
lesser extent. These factors together resulted in the significant
increase in the gross profit of our hotel reservation business operated by
SLB.
Gross
profit in packaged travel was $8,888,868 for the twelve months ended December
31, 2009 compared to $6,210,898 for the same period 2008, an increase of
$2,677,970, or approximately 43.1%. Gross profit margin in this segment for the
year ended December 31, 2009 was 13.2%, compared to 13.8% for the same period
2008. This decline of gross profit margin is mostly due to the lower margin of
some of our discounted packaged tour programs in the second half of
2009. To promote our packaged tour business in the newly established
Shenzhen Universal Travel Agency Co. Ltd., we initiated some marketing
campaigns, including offering some discounts in certain packaged tour
programs. Some of the programs were less profitable or even not
profitable. The decrease in net income reflects the overall lower profit margins
of these programs. Management believes that the surrender of some profits to
gain market share is line with our long term strategy, and believes the effect
of this decline is short termed.
35
Consolidated
gross margin for year ended December 31, 2009 came in at 33.1%, a 1.1% decrease
from the 34.2% the Company posted in the same period last year. As discussed
above, the slight decrease of gross profit is mostly due to the gross profit
margin for packaged tour services.
Selling, General and
Administrative Expenses
Major
selling, general, and administrative expenses for the twelve months ended
December 31, 2009 and 2008 are as follows:
For
the twelve months ended December
31,
|
||||||||
2009
|
2008
|
|||||||
Business
related tax
|
$
|
494,335
|
$
|
246,250
|
||||
Salary
and commission paid
|
3,273,212
|
2,626,906,
|
||||||
Professional
fees
|
472,900
|
250,751
|
||||||
Marketing
|
191,230
|
148,903
|
||||||
Rent
|
289,320
|
190,212
|
||||||
Depreciation
and amortization
|
185,870
|
7,212
|
||||||
Stock-based
compensation
|
1,154,408
|
207,588
|
||||||
Other
general and administrative expenses
|
2.143,304
|
914,081
|
||||||
Total
|
$
|
8,204,579
|
$
|
4,591,903
|
Selling,
general and administrative expenses for fiscal year 2009 totaled $8,204,579
compared to $4,591,903 for fiscal year 2008, reflecting approximately 8.4% and
7.0% of total revenue, respectively. The increase is mostly due to the higher
amortization of employee stock incentive plan. For the years ended December 31,
2009 and 2008, the Company recorded $1,154,408 and $207,588 as stock-based
compensation expense and corporate professional fees, respectively. We also need
to increase marketing and renting expenses to support our increased sales
volume. In addition, we incurred extra professional fees, including but not
limited to, application for listing in New York Stock Exchange and Amex,
engagement of a third party consultant in addressing SEC comments,
etc.
Interest
Expenses
There was
no interest expense for year 2009, compared to $106,163 for the fiscal year
2008. This decrease was due to our repayment of a short term bank
loan in August 2008.
Loss on change in fair value
of derivative liabilities
We
incurred a loss on change in fair value of derivative liabilities of $6,832,168,
which we were not required to recognize in fiscal year 2008, to mark to market
for the increase in fair value of the 764,785 warrants we issued in August 28,
2008 . Since most of these warrants were exercised in the past quarters, we
expect the loss would be immaterial in the future.
36
Net
Income
Net
income was $10,744,901 or 11.0% of revenue for the fiscal year 2009, compared to
$14,532,177 or 22.1% of revenue for the fiscal year 2008. The
decrease in net income was mainly due to $6.8 million increase of non-cash loss
on change in fair value of derivative liability, an increase of non-cash
stock-based compensation expenses amounting to near ly$1.2 million, and loss of
approximately $0.77 million from the disposition of discontinued operations,
namely our cargo business.
LIQUIDITY
AND CAPITAL RESOURCES
Cash and Cash
Equivalent
Cash and
liquidity needs have been funded primarily through cash flows from operations,
short-term borrowings, and a private investment of equity securities. At the end
of December 31, 2009, cash and cash equivalents totaled $36,677,422, while
working capital, current assets of $70,478,341 less current liabilities of
$6,270,322 came in at $ $64,208,019. We believe that the funds available to us
from operations are adequate to meet our operating needs in 2010. For the year
ended December 31, 2009, net cash provided by operating activities was
approximately $11,520,423, which resulted primarily from our organic operations
and effective management of cash flow.
Capital
expenditure
Total
capital expenditure for the year 2009 was $5,705,910, which was mainly used to
purchase fixed assets, primarily office equipments and leasehold improvement.
Management may, from time to time, increase such expenditure to support new
initiatives and developments such as the rollout of our
Kiosks.
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. We are
strategically expanding our business operations in Chongqing, the largest
metropolis in Southwest China, and Xi’an, the largest metropolis in Northwest of
China. Recently we also entered into Letters of Intent to acquire Huangshan
Holiday Travel Service Company, Hebei Tianyuan Travel Agency and Zhengzhou
Yulongkang Travel Service Company. To satisfy these capital needs, 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 August 7, 2009, which became effective on November 5, 2009. We
then entered into a definitive subscription agreement with to sell to
institutional investors an aggregate of 2,222,222 shares of its common stock at
a price of $9.00 per share for net proceeds of approximately $19.0 million. The
net proceeds of the financing would be used for identified acquisitions and for
working capital. Brean Murray, Carret & Co., LLC acted as exclusive
placement agent in connection with the offering. The sale of the common stock
was closed on December 15, 2009.
Inflation
In the
opinion of management, inflation will not have an impact on our financial
condition and results of its operations.
37
Off Balance Sheet
Arrangements
We have
never entered into any off-balance sheet financing arrangements, have never
established any special purpose entities to fulfill such obligations and have
not made any debt or related commitments to other entities.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
Applicable.
Item
8. Financial Statements and Supplementary Data.
UNIVERSAL
TRAVEL GROUP
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2009
38
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
Board of
Directors and Stockholders of
Universal
Travel Group
We have
audited the accompanying consolidated balance sheets of Universal Travel Group
as of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2009. We
have also audited Universal Travel Group’s internal control over financial
reporting as of December 31, 2009, based on criteria established in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Universal Travel Group’s management is
responsible for these financial statements, for maintaining effective control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included. Our responsibility is to
express an opinion on these financial statements based on our
audits.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses were identified:
·
|
The
Company’s policy documentation of all controls identified during their
assessment and remediation process was
incomplete.
|
·
|
Lack
of technical accounting expertise among financial staff regarding US GAAP
and the requirements of the PCAOB, and regarding preparation of financial
statements.
|
These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2009 consolidated financial
statements of the Company as of and for the year ended December 31,
2009.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Universal Travel Group as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the three years ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
Also in
our opinion, because of the effect of the aforementioned material
weaknesses on the achievement of the objectives of the internal control
criteria, Universal Travel Group did not maintain effective internal control
over financial reporting as of December 31, 2009 based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Our opinion on the
effectiveness of internal control over financial reporting does not affect our
opinion on the consolidated financial statements.
/s/Acquavella,
Chiarelli, Shuster, Berkower & Co., LLP
Certified
Public Accountants
New York,
N.Y.
February
22, 2010
TABLE
OF CONTENTS
Consolidated Balance Sheets
|
1
|
Consolidated Statements of
Income
|
2
|
Consolidated Statements of Cash
Flows
|
3
|
Consolidated Statements of Stockholders’
Equity
|
4
|
Notes to Consolidated Financial
Statements
|
5-32
|
UNIVERSAL
TRAVEL GROUP
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2009 AND 2008
12/31/2009
|
12/31/2008
|
|||||||||
Note
|
Restatde
|
|||||||||
Assets
|
||||||||||
Cash
and cash equivalents
|
$ | 36,677,422 | $ | 15,720,182 | ||||||
Accounts
receivable, net
|
17,321,174 | 8,991,849 | ||||||||
Other
receivables and deposits, net
|
257,907 | 62,547 | ||||||||
Trade
deposits
|
3
|
9,775,735 | 6,571,164 | |||||||
Advances
|
3
|
440,063 | 438,468 | |||||||
Escrow
deposits
|
12
|
- | 762,800 | |||||||
Prepaid
expenses
|
216,727 | 312,409 | ||||||||
Note
receivable
|
1,711,392 | - | ||||||||
Acquisition
Deposits
|
4,077,921 | - | ||||||||
Current
assets held of discontinued operations
|
- | 2,459,777 | ||||||||
Total
Current Assets
|
70,478,341 | 35,319,196 | ||||||||
Property,
plant & equipment, net
|
4,992,677 | 242,648 | ||||||||
Intangible
assets
|
339,240 | 307,335 | ||||||||
Goodwill
|
9,896,270 | 9,896,270 | ||||||||
Non-current
assets held of discontinued operations
|
- | 3,661,231 | ||||||||
15,228,187 | 14,107,484 | |||||||||
Total
Assets
|
$ | 85,706,528 | $ | 49,426,680 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||||
Current
Liabilities
|
||||||||||
Accounts
payable and accrued expenses
|
$ | 2,615,730 | $ | 1,691,689 | ||||||
Customer
deposits
|
2,000,117 | 1,039,942 | ||||||||
Income
tax payable
|
1,654,475 | 1,731,246 | ||||||||
Current
liabilities held of discontinued operations
|
- | 562,931 | ||||||||
Total
Current Liabilities
|
6,270,322 | 5,025,808 | ||||||||
Derivative
liability
|
8
|
1,815,319 | - | |||||||