Attached files
file | filename |
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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
1
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
|
2
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.
3
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.
4
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.
5
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.
6
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 |
7
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.
8
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.
9
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 |
10
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.
11
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.
12
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.
13
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.
14
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.
15
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.
16
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.
17
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 |
18
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 |
19
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:
20
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.
21
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
22
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:
23
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.
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:
24
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:
25
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:
26
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 | |||