UNIVERSAL TRAVEL GROUP - FORM 10-Q

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EX-31.2 - UNIVERSAL TRAVEL GROUP	v202242_ex31-2.htm
EX-32.1 - UNIVERSAL TRAVEL GROUP	v202242_ex32-1.htm
EX-31.1 - UNIVERSAL TRAVEL GROUP	v202242_ex31-1.htm
EX-32.2 - UNIVERSAL TRAVEL GROUP	v202242_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

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

For the transition period from ______________ to _____________

Commission file number: 000-51516

UNIVERSAL TRAVEL GROUP

(Exact name of registrant as specified in its charter)

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

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

86 755 836 68489

(Registrant’s telephone number, including area code)

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

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

Yes S 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 o No o

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	£	Smaller reporting company	S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of November 1, 2010, there are 19,898,235 shares of $0.001 par value common stock issued and outstanding.

FORM 10-Q

.UNIVERSAL TRAVEL GROUP

INDEX

		Page

PART I.	Financial Information	1

	Item 1. Financial Statements ( Unaudited)	1

	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	3

	Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2010 and 2009	4

	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009	5

	Notes to Unaudited Condensed Consolidated Financial Statements as of September 30, 2010	6 - 33

	Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation	34

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	46

	Item 4. Controls and Procedures	46

PART II.	Other Information	47

	Item 1. Legal Proceedings	47

	Item 1A. Risk Factors.	47

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	47

	Item 3. Defaults Upon Senior Securities	47

	Item 4. (Removed and Reserved).	47

	Item 5. Other Information	47

	Item 6. Exhibits	47

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

UNIVERSAL TRAVEL GROUP

CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

TABLE OF CONTENTS

Condensed Consolidated Balance Sheets			3

Unaudited Condensed Consolidated Statements of Income			4

Unaudited Condensed Consolidated Statements of Cash Flows			5

Notes to the Unaudited Condensed Consolidated Financial Statements			6 - 33

UNIVERSAL TRAVEL GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

	September 30, 2010		December 31, 2009
	Unaudited
ASSETS
Cash and cash equivalents	$	56,664,313	$	36,677,422
Accounts receivable, net		25,665,637		17,321,174
Other receivables and deposits, net		483,257		257,907
Due from related party		1,013,386		-
Trade deposit		7,802,370		9,775,735
Advances		-		440,063
Prepayments		1,531,433		216,727
Note receivable		4,823,883		1,711,392
Acquisition Deposits		3,644,317		4,077,921
Total Current Assets		101,628,596		70,478,341

Property & equipment, net		1,464,823		4,992,677
Intangible assets, net		3,134,972		339,240
Goodwill		24,812,040		9,896,270
Total Noncurrent Assets		29,411,835		15,228,187
Total Assets	$	131,040,431	$	85,706,528

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	6,873,874	$	2,615,730
Customer deposits		2,366,875		2,000,117
Income tax payable		2,719,351		1,654,475
Total Current Liabilities		11,960,100		6,270,322
Derivative liability		562,139		1,815,319
Total Liabilities		12,522,239		8,085,641

Stockholders' Equity
Common stock, $.001 par value, 70,000,000 shares authorized, 19,898,235 and 16,714,457 issued and outstanding at September 30, 2010 and December 31, 2009, respectively		19,898		16,714
Additional paid in capital		60,261,179		37,671,645
Accumulated other comprehensive income		2,181,497		1,645,133
Statutory reserve		732,282		372,144
Retained earnings		55,323,336		37,915,251
Total Stockholders' Equity		118,518,192		77,620,887
Total Liabilities and Stockholders' Equity	$	131,040,431	$	85,706,528

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

UNIVERSAL TRAVEL GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	For The Nine Months Ended					For The Three Months Ended
	September 30,					September 30,
	2010		2009			2010			2009
Revenues	$	109,161,750	$	63,701,070		$	46,290,131		$	29,784,918
Cost of services		76,643,966		41,882,670			32,827,460			19,985,549
Gross profit		32,517,784		21,818,400			13,462,671			9,799,369

Selling, general and administrative expenses		10,553,846		5,181,280			4,029,167			2,366,035
Gain on disposal of fixed assets		65,853		-			65,853
Income from operations		22,029,791		16,637,120			9,499,357			7,433,334

Other income (expense)
Other income (expense)		6,900		8,879			(17	)		2,459

Gain/(Loss) on change in fair value of derivative liabilities		1,253,181		(6,553,971	)		304,177			(847,754	)
Interest income		58,435		39,206			17,723			15,909
Total other income (expense)		1,318,516		(6,505,886	)		321,883			(829,386	)
Income before income taxes –continuing operations		23,348,307		10,131,234			9,821,240			6,603,948

Provision for income taxes		5,940,222		4,029,194			2,547,194			1,891,043
Income from continuing operations	$	17,408,085	$	6,102,040			7,274,046			4,712,905

Income from discontinued operations	$	-	$	177,975		$	-		$	-
Loss on disposition of discontinued operations		-		(770,595	)		-			-
Loss from discontinued operation	$	-	$	(592,620	)	$	-		$	-

Net Income	$	17,408,085	$	5,509,420		$	7,274,046		$	4,712,905

Comprehensive Income
Net Income	$	17,408,085	$	5,509,420		$	7,274,046		$	4,712,905
Foreign currency translation adjustments		536,364		64,144			897,063			15,557
Total Comprehensive income	$	17,944,449	$	5,573,564		$	8,171,109		$	4,728,462

Income per common share from continuing operations
Basic	$	0.97	$	0.44		$	0.37		$	0.34
Diluted	$	0.93	$	0.41		$	0.36		$	0.31
Loss per common share from discontinued operations
Basic	$	-	$	(0.04	)	$	-		$	-
Diluted	$	-	$	(0.04	)	$	-		$	-
Net income per common share
Basic	$	0.97	$	0.40		$	0.37		$	0.34
Dilute	$	0.93	$	0.37		$	0.36		$	0.31
Weighted average common shares outstanding
Basic		18,020,554		13,828,739			19,898,235			13,739,880
Diluted		18,792,520		14,890,318			20,373,536			15,445,350

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

UNIVERSAL TRAVEL GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES				(Restated)
Net income	$	17,408,085		$	5,509,420
Add:
Net loss from discontinued operations		-			592,620
Income from operations		17,408,085			6,102,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,442,882			422,628
Provision for doubtful accounts		59,578			13,957
Stock based compensation		990,846			802,157
(Gain)/Loss on change in fair value of derivative liabilities		(1,253,181	)		6,553,971
(Gain)Loss on sales of fixed assets		(65,853	)		-
(Increase) / decrease in assets:
Accounts receivable		(7,491,629	)		(6,131,089	)
Other receivable		1,151,103			(51,134	)
Due from related party		(995,798	)		-
Advances		440,115			-
Prepayments		(991,909	)		127,532
Trade deposits		2,109,924			597,479
Escrow deposits		-			764,330
Increase / (decrease) in current liabilities:
Accounts payable and accrued expenses		3,554,277			2,036,948
Customer deposits		325,446			390,814
Income tax payable		385,391			(564,060	)
Net cash provided by continuing operations		17,069,277			11,065,573
Net cash provided by discontinued operations		-			435,259
Net cash provided by operating activities		17,069,277			11,500,832

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment		(2,779,988	)		(3,627,267	)
Purchase of intangibles		(51,359	)		(187,810	)
(Increase)/Decrease in notes receivable		(3,028,571	)		599,788
Proceeds from sale of fixed assets		5,599,590			-
Acquisition deposits		497,330			-
Paid for acquisition – net of cash acquired		(16,085,930	)		-
Net cash (used in) continuing operations		(15,848,928	)		(3,215,289	)
Net cash (used in) discontinued operations		-			(1,035,125	)
Net cash (used in) by investing activities		(15,848,928	)		(4,250,414	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of equity financing		18,768,054			-
Proceeds from warrants exercise		-			9,570
Net cash provided by financing activities		18,768,054			9,570

Effect of exchange rate changes on cash and cash equivalents		(1,512	)		511,945

Net change in cash and cash equivalents		19,986,891			7,771,933
Cash and cash equivalents, beginning balance		36,677,422			15,720,182
Cash and cash equivalents, ending balance	$	56,664,313		$	23,492,115

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Income taxes	$	4,875,346		$	4,164,214

Other non-cash transactions
Net assets sold of discontinued operations	$	-		$	1,659,292
Goodwill attributable to sold discontinued operations		-			3,630,539
Note received on disposition		-			(2,773,411	)
Fair value of treasury stock received		-			(2,780,950	)
Loss on disposition		-			(770,595	)
Net cash of discontinued operations	$	-		$	(1,035,125	)

Purchased goodwill	$	(14,915,770	)	$	-
Purchased intangible assets		(3,236,376	)		-
Fair value of assets purchased less cash acquired		(767,601	)		-
Acquisition financed with stock issuance		2,833,817			-
Acquisition paid for with cash - net of acquired	$	(16,085,930	)	$	-

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 1 - ORGANIZATION

Universal Travel Group was incorporated on January 28, 2004 under the laws of the State of Nevada. Full Power Enterprise Global Limited – BVI was incorporated under the laws of the British Virginia Islands. Shenzhen Yuzhilu Aviation Service Co., Ltd. was incorporated on March 9, 1998 under the laws of the Peoples Republic of China (PRC)., Shenzhen Speedy Dragon Enterprises Limited was incorporated in August of 2002 under the laws of PRC, Xian Golden Net Travel Serve Services was incorporated on July 25, 2001 under the laws of PRC, Shanghai Lanbao Travel Service Co., Ltd. was established in 2002 under the laws of Shanghai China. Foshan Overseas International Travel Service Co., Ltd. was incorporated in 1990 under the laws of PRC, Chongqing Universal Travel E-Commerce Co., Ltd. and Shenzhen Universal Travel Agency Co., Ltd. were both incorporated in 2009 under the laws of PRC, Hebei Tianyuan Travel Agency Co., Ltd. was incorporated in April 1999 under the laws of PRC, Huangshan Holiday Travel Service Co., Ltd. was incorporated in April 1999 under the laws of PRC, Zhengzhou Yulongkang Travel Agency Co., Ltd. was incorporated in 2000 under the laws of PRC, Kunming Business Travel Service Co., Ltd. was incorporated in 1993 under the laws of PRC, Shanxi Jinyang Travel Agency Co., Ltd. was incorporated in 1988 under the laws of PRC. Universal Travel group owns 100% of Full Power Enterprise Global Limited. Full Power Enterprise Global Limited owns 100% of the Shenzhen Yuzhilu Aviation Service Co., Ltd. Collectively these corporations are referred to herein as the Company.

On June 12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited. Accordingly, the Company had accounted for Shenzhen Speedy Dragon Enterprise Limited as a discontinued operation.

The Company is now engaged in the travel business, including airline ticketing, hotel reservation services, and packaged tours planning and tours guide services primarily in the PRC.

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These accompanying financial statements present the Company's results of operations, financial position and cash flows on a consolidated basis. The unaudited condensed consolidated financial statements include Universal Travel Group and its wholly-owned subsidiaries, significant intercompany transactions and accounts have been eliminated in consolidation.

These accompanying unaudited condensed consolidated financial statements of Universal Travel Group (the "Company"), have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. The Company's functional currency is the Chinese Renminbi, however the accompanying unaudited condensed consolidated financial statements have been translated and presented in United States Dollars. In the opinion of management, these condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results of the interim period. Accordingly, the results from operations for the three and nine-month period ended September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2009, previously filed with the Securities and Exchange Commission (“SEC”).

The Company operates in three segments in accordance with accounting guidance FASB ASC Topic 280, "Segment Reporting." Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassification

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

Discontinued Operations

On June 12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited (“Speedy Dragon”). The Company had acquired all the equity interest in Speedy Dragon on or about April 10, 2007 in exchange for 238,095 (post-reverse split) shares of the Company’s common stock and an interest-free promissory note in the principal amount of $3,000,000 payable no later than April 10, 2008. Pursuant to the termination agreement, the Company transferred back the equity interest in Speedy Dragon on or before June 30, 2009 and that the 238,095 (post-reverse split) shares of the Company’s common stock were returned to the Company and canceled as of June 30, 2009. In addition, the sole shareholder of Speedy Dragon was also required to return to the Company an aggregate of $2,773,411, in cash, within one year of the completion of all the formalities of the termination agreement. The cash to be returned to the Company included a declared dividend in the amount of $2,260,981 to be paid to the Company.

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

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

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

	Three months		Nine months
	ended		ended
	September 30,		September 30,
	2009		2009
Sales	$	-	$	3,631,545
Cost of sales		-		(3,218,140	)
Gross profit		-		413,405

Operating expenses		-		(190,989	)
Income from discontinued operation before income tax		-		222,416

Income tax		-		(44,441	)
Income from discontinued operations, net of income tax	$	-	$	177,975

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Translation Adjustment

As of September 30, 2010 and December 31, 2009, the accounts of Universal Travel Group were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such financial statements were translated into U.S. Dollars (USD) in accordance with the Foreign Currency Matters Topic of the FASB Accounting Standards Codification (“ASC 830”) with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB Accounting Standard Codification (“ASC 220”). Transaction gains and losses are reflected in the income statement and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: useful lives and residual values of fixed assets, accounts receivable and notes receivables, stock based compensation, valuations of warrant derivative liabilities, goodwill and intangible assets impairments tests, and deferred taxes. The current economic environment has increased the degree of uncertainty inherent in this estimates and assumptions.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences maybe material to the financial statements. The more significant estimates and assumptions made by management include among others, allowance for doubtful accounts, long-lived asset impairment, useful lives and residual values of fixed assets, stock based compensation, valuation of warrant derivative liability, purchase price allocation of fair market value of assets and liabilities acquired and deferred income taxes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.

Principles of Consolidation

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Risks and Uncertainties

The Company's operation is located in the PRC. There can be no assurance that the Company will be able to successfully continue the operation and failure to do so would have a material adverse effect on the Company's financial position, results of operations and cash flows. Also, the success of the Company's operations is subject to numerous contingencies, some of which are beyond management's control. These contingencies include general economic conditions, competition, governmental and political conditions, and changes in regulations. Among other risks, the Company's operations will be subject to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.

Contingencies

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

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

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of September 30, 2010 and December 31, 2009, our cash and cash equivalents consisted primarily of prime institutional money market funds with no maturities limit as well as bank account balances. Given the current economic environment and the financial conditions of the banking industry there is risk that deposits may not be readily available or covered by such insurance, The Company has had no loss on excess cash in domestic or foreign banks in past years. As of September 30, 2010, cash on hand and cash in bank are $241,059 and $56,423,254, respectively.

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded primarily on a specific identification basis. Allowance for doubtful accounts amounted to $475,505 and $414,927 as of September 30, 2010 and December 31, 2009, respectively. The Company does not have any off balance sheet exposure related to its customers.

Description	Balance at beginning of year		Charged to expenses		Deductions		Balance as of September 30, 2010

Allowance for doubtful receivables	$	414,927	$	59,578	$	-	$	475,505

Property & Equipment

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


Transportation equipment		5 years
Office equipment		5 years
Leasehold Improvements		5 – 10 years or the shorter of the lease term

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

	September 30, 2010			December 31, 2009

Transportation equipment	$	428,749		$	150,232
Furniture and equipment		455,402			4,170,197
Leasehold improvements		1,465,384			1,385,481
		2,349,535			5,705,910
Accumulated depreciation		(884,712	)		(713,233	)
	$	1,464,823		$	4,992,677

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property & Equipment (Continued)

Depreciation expense for the three months ended September 30, 2010 and 2009 was $304,974 and $189,567, respectively, of which $70,296 and $175,056 was included as part of cost of services for the three months ended September 30, 2010 and 2009, respectively.

Depreciation expense for the nine months ended September 30, 2010 and 2009 was $950,879 and $324,734, respectively, of which $177,528 and $292,261 was included as part of cost of services for the nine months ended September 30, 2010 and 2009, respectively. However, the depreciation expenses for the nine months ended September 30, 2010 included those of disposed furniture and equipment on September 9, 2010.

Sales of equipment

On September 9, 2010, our subsidiary, Shenzhen Yuzhilu Aviation Service Co. sold all of its 1,523 TRIPEASY kiosks to Shenzhen Xunbao E-Commerce Co., Ltd. for a total proceed of $5,698,488. The original cost of the 1,523 TRIPEASY Kiosk was $6,650,592, excluding the accumulative depreciation of $1,017,957, resulting in a gain of $65,853.

On September 10, 2010, Shenzhen Xunbao E-Commerce Co. paid the amount of $1,492,961 to YZL as the first payment. The second payment amount of $2,239,441 and the remaining amount are due within 30 and 90 days of the closing date, respectively. As of September 30, 2009, the balance due from Shenzhen Xunbao was $4,523,883 and recorded in note receivable in the accompanying Condensed Consolidated Balance Sheet at September 30, 2010.

Goodwill

Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In accordance with the Intangibles, Goodwill and other topic of the FASB Accounting Standard Codification (“ASC 350”), indefinite-life identifiable intangible assets and goodwill are not amortized. Under the provisions of ASC 350, we are required to perform an annual impairment test of our goodwill. Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit, which we define as our business segments, with its net book value or carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit including any unrecognized intangible assets as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill (Continued)

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

	June 30, 2010		December 31,2009
Shanghai Lanbao Travel Service Co., Ltd.	$	3,081,799	$	3,081,799
Foshan International Travel Service Co., Ltd.		6,049,576		6,049,576
Xian Golden Net Travel Serve Services Co.,Ltd.		764,895		764,895
Zhengzhou Yulongkang Agency Co., Ltd.		4,102,061		-
Hebei Taiyuan Travel Agency Co., Ltd.		3,208,455		-
Huangshan Holiday Travel Service Co., Ltd		1,949,080		-
Kunming Business Travel Service Co., Ltd.		4,009,070		-
Shanxi Jinyang Travel Agency Co., Ltd.		1,647,104		-
	$	24,812,040	$	9,896,270

Long-Lived Assets

The Company applies the provisions of FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of September 30, 2010 and December 31, 2009 there were no significant impairments of its long-lived assets. However, there can be no assurances that demand for the Company's services will continue, which could result in an impairment of long-lived assets in the future.

Derivative Liability

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative Liability (Continued)

Upon the Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”) on January 1, 2009, the Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815. On January 1, 2009, the warrants, under ASC 815, were reclassified from equity to derivative liability at its fair market value of $2,091,738 and marked to market. The values of the warrants were decreased by $536,777 from the warrants issuance date to the adoption date of ASC 815 on January 1, 2009. As of January 1, 2009, the cumulative effect in adopting ASC 815 was a reduction to additional paid in capital of $2,091,738 to reclassify the warrants from equity to derivative liability and an increase in retained earnings of $536,777 as a cumulative effect of a change in accounting principle to reflect the change in the value of the warrants between their issuance date and January 1, 2009. For the three and nine month periods ended September 30, 2010, the Company recorded a gain on change in fair value of derivative liability of $304,177 and $1,253,181, respectively, to mark to market for the increase in fair value of the warrants during the three and nine month periods ended September 30, 2010. Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period.

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

The Company determined the fair value of the reset provisions at September 30, 2010 was $562,139. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%; volatility: 112%, risk free rate: 1.27%, expected term: 2.91years.

Fair Value of Financial Instruments

The Company applies the provisions of accounting guidance, FASB Topic ASC 820 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of September 30, 2010, the fair value of cash and cash equivalents, accounts receivable, other receivables, and accounts payable approximated carrying value due to the short maturity of the instruments, or are based on quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.

Fair Value Measurements

Effective January 1, 2009, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. Various inputs are considered when determining the fair value of the Company’s derivative liability. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value Measurements (Continued)

· Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.

· Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).

· Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The Company’s adoption of FASB ASC Topic 825 did not have a material impact on the Company’s condensed consolidated financial statements. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with FASB Accounting Standards Codification Topic on Revenue Recognition (“ASC 605” and SAB 104). Revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.

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

Air-ticketing services

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition (Continued)

Hotel reservation services

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

Packaged-tour

The Company receives fees from providing domestic and cross-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-tours are recognized on a gross basis in the statements of income, when the tour is completed, as the Company, generally, undertakes the majority of the business risk. The Company is the primary obligor to pay the service providers upon rendering of those services. In addition, the Company acts as principal related to the packaged-tour services rendered. Generally, the Company does not issue refunds to its customers unless cancellation is due to its and or the service provider’s non-delivery of services. Historically, refunds and cancellations do not have a material impact on the Company’s condensed consolidated financial statements in any accounting period.

Air Cargo Business

The Company received fees from its air cargo business. However, this business segment had been accounted for as a discontinued operation upon consummation of a termination agreement with Shenzhen Speedy Dragon Enterprise Ltd dated June 12, 2009. The Company basically brokered air cargo spaces and resold them to local logistic companies to generate revenue. The Company had contracted with Chinese domestic airlines as its vendors to carry out its cargo services. Revenues generated from air cargo business were recognized on a gross basis in the statements of income, when the service was rendered, as the Company, generally, undertook the majority of the business risk. The Company was the primary obligor to pay the service providers upon rendering of those services. In addition, the Company acted as principal related to the air cargo services rendered. Customers were charged based on the class and weight of goods shipped.

Historically, the Company has experienced minimum and or immaterial returns and or cancellation from its lines of businesses, which amount if any, would have no material impact on its consolidated financial statements. Accordingly, no allowance has been provided for in the periods presented.

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cost of Services

Costs of services for air tickets cover mainly business and revenue related taxes. Costs of services for hotel reservations cover mainly business and revenue related taxes, as well as commissions paid to the sales agents for selling hotel rooms in the Company’s system, no any accrued commission split to sales agents due to the same day transaction. Costs of services for the cargo agency business mainly included 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. However

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

Consolidated costs such as stock-based compensation and corporate professional fees are not allocated to any segment. These costs are reported as general operating expenses in the Company’s Statements of Operations. For the three month periods ended September 30, 2010 and 2009, such expenses amounted $344,112 and $787,666, respectively. For the nine month periods ended September 30, 2010 and 2009, such expenses amounted $1,021,116and $1,625,068, respectively.

Advertising

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

Income Taxes

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

Statement of Cash Flows

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Intangibles

Intangible assets are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made annually to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of our intangible assets are subject to amortization. No impairments of intangible assets have been identified during any of the periods presented. The Company’s intangible assets consist primarily of map of hotels and scenic spots used for marketing purposes, CRM systems software, accounting software. These definitive lived intangible assets are being amortized over their useful lives. Expenditures of $51,359 and $187,810 were capitalized for the nine month periods ended September 30, 2010 and 2009, respectively, and will be amortized over a 5 year life. In conjunction the acquisitions during the nine month periods ended September 30, 2010, the Company capitalized $3,236,376 of Identifiable Intangible Assets, which are being amortized over 5 years. The Company recorded amortization expenses for definitive lived intangible assets of $23,687 and $42,322 for the three month periods ended September 30, 2010 and 2009, $69,248 and $97,894 for the nine month periods ended September 30, 2010 and 2009, respectively, and amortization expenses for Identifiable Intangible Assets of $161,819 and $422,755 for the three and nine month periods ended September 30, 2010, respectively. The Company will record approximately $742,024, $742,024, $742,024, $680,496, and $228,404 over the next five years, respectively.

Concentration of Credit Risk

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

Net Income (Loss) Per Share

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Share (Continued)

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

	Nine months ended Sept 30,				Three months ended Sept 30,
	2010		2009		2010		2009
Basic earnings from continuing operations per share:
Numerator:
Income from continuing operations used in computing basic earnings per share	$	17,408,085	$	6,102,040	$	7,274,046	$	4,712,905

Income from continuing operations applicable to common shareholders	$	17,408,085	$	6,102,040	$	7,274,046	$	4,712,905

Denominator:
Weighted average common shares outstanding		18,020,554		13,828,739		19,898,235		13,739,880

Basic earnings per share from continuing operations	$	0.97	$	0.44	$	0.37	$	0.34

Diluted earnings per share from continuing operations:
Numerator:
Income from continuing operations used in computing diluted earnings per share	$	17,408,085	$	6,102,040	$	7,274,046	$	4,712,905

Income from continuing operations applicable to common shareholders	$	17,408,085	$	6,102,040	$	7,274,046	$	4,712,905

Denominator:
Weighted average common shares outstanding		18,020,554		13,828,739		19,898,235		13,739,880
Weighted average effect of dilutive securities:
Stock options and warrants		771,966		1,061,579		475,301		1,705,470

Shares used in computing diluted net income per share		18,792,520		14,890,318		20,373,536		15,445,350

Diluted earnings per share from continuing operations	$	0.93	$	0.41	$	0.36	$	0.31

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Share (Continued)

	Nine months ended Sept 30,					Three months ended Sept 30,
	2010		2009			2010		2009
Basic earnings (losses) from discontinuing operations per share:
Numerator:
Income (loss) from discontinuing operations used in computing basic earnings per share	$	-	$	(592,620	)	$	-	$	-

Income (loss) from discontinuing operations applicable to common shareholders	$	-	$	(592,620	)	$	-	$	-

Denominator:
Weighted average common shares outstanding		18,020,554		13,828,739			19,898,235		13,739,880

Basic (loss) per share from discontinuing operations	$	-	$	(0.04	)	$	-	$	-

Diluted earnings (losses) per share from discontinuing operations:
Numerator:
Income (loss) from discontinuing operations used in computing diluted earnings (losses) per share	$	-	$	(592,620	)	$	-	$	-

Income (loss) from discontinuing operations applicable to common shareholders	$	-	$	(592,620	)	$	-	$	-

Denominator:
Weighted average common shares outstanding		18,020,554		13,828,739			19,898,235		13,829,091
Weighted average effect of dilutive securities:
Stock options and warrants		771,966		1,061,579			475,301		1,616,259

Shares used in computing diluted net income (loss) per share		18,792,520		14,890,318			20,373,536		15,445,350

Diluted (loss) per share from discontinuing operations	$	-	$	(0.04	)	$	-	$	-

Total net income per common share
Basic	$	0.97	$	0.40		$	0.37	$	0.34
Diluted	$	0.93	$	0.37		$	0.36	$	0.31

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock Based Compensation

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505,“Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our condensed consolidated statement of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.

Share-based compensation costs that have been included in operating expenses amounted to $313,842 and $306,432 for the three months ended September 30, 2010 and 2009, respectively, and $990,846 and $802,157 for the nine months ended September 30, 2010 and 2009, respectively.

Related parties

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

Recent Accounting Pronouncements

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

Note 3 – TRADE DEPOSITS AND ADVANCES

Trade deposits represents amount held by Airlines and agency. As of September 30, 2010 and December 31, 2009 the Company had paid $7,802,370 and $9,775,735 as trade deposits respectively.

The following summaries the Company’s deposits outstanding by each of its subsidiaries and the nature and purpose of each deposit as of September 30, 2010 and December 31, 2009:

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 3 – TRADE DEPOSITS AND ADVANCES (CONTINUTED)

	September 30,			December 31,
	2010			2009
Shenzhen Yuzhilu Aviation Service Co., Ltd:
Deposit for TRIPEASY kiosks. In September 2010, all of kiosks were sold.		$	-	$	1,465,592
Deposit for central ticket system. This was a deposit for obtaining air tickets from third party before any payments, and the full amounts are returnable.			3,882		-
Deposit for government according to regulation.			49,268		-
Deposit for airlines. This was a deposit for issuing air-tickets, and the full amount is returnable if the company discontinues air-ticket business.			686,762		2,811,004
Deposit for Financial System Software			-		16,898
Deposit for air-ports. This was a deposit for admittance to do marketing in air-ports, and is deductible against monthly rental obligation to air-ports			23,589		8,508
Deposit for agencies. This was a deposit for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.			3,336,767		1,100,158
Subtotal			4,100,267		5,402,160

Huangshan Holiday Travel Agency Co., Ltd.:
Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide returns from the tour.			896		-
Subtotal			896		-

Foshan Overseas International Travel Service Co. Ltd.:
Deposit paid to tour companies. This was a deposit for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies.			159,747		-
Deposit for agencies. This was a deposit for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.			304,009		969,261
Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide returns from the tour.			-		243,342
Subtotal			463,756		1,212,603

Xian Golden Net Travel Serve Services, Ltd.:
Deposit for Tour companies. This was a deposit for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies			432,959		425,396
Deposit for agencies. This was a deposit for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.			134,366		-
Deposit for transportations. This was a deposit for co-operate transportation suppliers, and is deductible against transportation payments, the balance is returnable when cease doing business with these agencies.			-		132,019
Subtotal			567,325		557,415

Chongqing Travel World E-Business Co., Ltd.
Deposit for agencies. This was a deposit for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.			2,632,802		2,587,279
Subtotal			2,632,802		2,587,279

Shenzhen Universal Travel Agency Co., Ltd.
Deposit for agencies. This was a deposit for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.			37,324		16,278
Subtotal			37,324		16,278
Total		$	7,802,370	$	9,775,735

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 4 - COMPENSATED ABSENCES

Regulation 45 of local PRC labor law entitles employees to annual vacation leave after 1 year of service. In general all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.

Note 5 – RELATED PARTY TRANSACTIONS

As of September 30, 2010, Due from related party had balance of $1,013,816, which were due from shareholders of new subsidiaries acquired in 2010. All amounts were advances to shareholders before our acquisitions and will be returned in full before December 31, 2010.

Note 6 – NOTES RECEIVABLE

As of September 30, 2010 and December 31,2009, Notes receivable had balance of $4,823,883 and $1,711,392, respectively.

As of September 30, 2010, amount of $4.5million was due from Shenzhen Xunbao E-Commerce Co., Ltd. for purchasing 1,523 TRIPEASY Kiosks. On October 10, 2010, Shenzhen Xunbao paid the second payment of $2.2million. The remaining balance is due within 90 days after closing date.

As of December 31, 2009, amount of $1.7 million was due from Shenzhen Speedy dragon - a discontinued operation. The amount has been paid in full.

Note 7 – ACQUISITION DEPOSITS

As of September 30, 2010 and December 31, 2009, Acquisition deposits had balance of $3,644,317 and $4,077,921, respectively. All amounts were advances to shareholders of acquisition companies.

Note 8 - INCOME TAXES

The Company through its subsidiary Shenzhen Yuzhilu Aviation Service Co., Ltd. is governed by the Income Tax Laws of the PRC. Operations in the United States of America have incurred net accumulated operating losses for income tax purposes. Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT) the Company has a statutory rate of 22%. However, other subsidiaries have a statutory rate of 25%. The following is a reconciliation of income tax expense for the three and nine months ended September 30, 2010 and 2009.

	Nine months			Nine months			Three months			Three months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009
Current		$	5,940,222		$	4,029,194		$	2,547,194		$	1,891,043
Deferred						-						-
Total		$	5,940,222		$	4,029,194		$	2,547,194		$	1,891,043

Management of the Company evaluates tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustainable despite the belief that the underlying tax position are fully supportable. Tax uncertainties in light of emerging facts and circumstances are reviewed and adjusted accordingly. As of September 30, 2010, there is no impact on the results of operations related to uncertain tax positions of the Company

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 9 – COMMITMENTS

The Company leases various office facilities from one year to six years periods under monthly payments. Rental expense for leases consisted of $790,039 and $309,711 for nine months period ended September 30, 2010 and 2009, respectively. Rental expense for leases were $238,528 and $161,808 for three months period ended September 30, 2010 and 2009, respectively. The Company has future minimum lease obligations as of September 30, 2010 as follows:

2011	$	363,824
2012		297,691
2013		247,902
2014		171,465
2015		4,777
There after		10,077
Total	$	1,095,736

Note 10 – COMMON STOCK

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

The stock consideration consisted of 79,487 newly issued shares of the company's common stock, which were given to KBT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,163,626. The shares were valued at $572,242, which was the fair value of the shares at the date of exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.

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

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 10 – COMMON STOCK (CONTINUED)

Cash acquired	$	686,825
Accounts receivable		1,983
Due to shareholders		155,624
Other assets		247,737
Property Plant & Equipment		94,074
Identifiable Intangibles		892,898
Goodwill		4,009,070
Total assets acquired		6,088,211
Liabilities assumed
Accounts & Income Taxes payable		244,784
Other payable		107,559
Total	$	5,735,868

The excess of purchase price over tangible assets acquired and liabilities assumed was $4,901,968 of which $4,009,070 was recorded as goodwill. At the time of the acquisition $892,898 of identifiable intangibles assets existed under the contractual-legal or the reparability criterion as required under ASC 805.

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

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

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

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 10 – COMMON STOCK (CONTINUED)

Cash acquired	$	18,655
Due from shareholders		247,357
Other assets		146,972
Property Plant & Equipment		21,634
Identifiable Intangibles		361,124
Goodwill		1,647,104
Total assets acquired		2,442,846
Liabilities assumed
Accounts & Income Taxes payable		38,087
Other payable		139,827
Total	$	2,264,932

The excess of purchase price over tangible assets acquired and liabilities assumed was $2,008,228 of which $1,647,104 was recorded as goodwill. At the time of the acquisition $361,124 of identifiable intangibles assets existed under the contractual-legal or the reparability criterion as required under ASC 805.

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

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

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

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

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 10– COMMON STOCK (CONTINUED)

Cash acquired	$	1,147,303
Accounts receivable		32,286
Other assets		5,926
Property Plant & Equipment		31,308
Identifiable Intangibles		805,626
Goodwill		4,102,061
Total assets acquired		6,124,510
Liabilities assumed
Accounts & Income Taxes payable		364,999
Other payable		46,575
Total	$	5,712,936

The excess of purchase price over tangible assets acquired and liabilities assumed was $4,907,687 of which $4,102,061 was recorded as goodwill. At the time of the acquisition $805,626 of identifiable intangibles assets existed under the contractual-legal or the reparability criterion as required under ASC 805.

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

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

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

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

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

UNIVERSAL TRAVEL GROUP

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

Note 10 – COMMON STOCK (CONTINUED)

Cash acquired	$	87,867
Accounts receivable		204,435
Other assets		404,929
Property Plant & Equipment		75,788
Identifiable Intangibles		479,870
Goodwill		1,949,080
Total assets acquired		3,201,969
Liabilities assumed
Accounts & Income Taxes payable		223,734

UNIVERSAL TRAVEL GROUP - FORM 10-Q - November 15, 2010

Attached files