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| UTVG.OB > SEC Filings for UTVG.OB > Form 10-Q on 6-Aug-2008 | All Recent SEC Filings |
6-Aug-2008
Quarterly Report
Forward-Looking Statements: No Assurances Intended
In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words "believes," "expects," "intends," "anticipates," "plans to," "estimates," "projects," or similar expressions. These forward-looking statements represent Management's belief as to the future of Universal Travel Group. Whether those beliefs become reality will depend on many factors that are not under management's control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.
Business Overview
We are a travel services provider in the People's Republic of China and are engaged in providing reservation, booking, and domestic and international travel and tourism services throughout the People's Republic of China via the internet and through customer representatives.
Under the theme "Wings towards a more colorful life", our core services include tour packaging, booking services for air tickets and hotels as well as air cargo agency.
In 2007, we completed the acquisitions of Speedy Dragon, specializing in air cargo agency; Xi'an Golden Net, specializing in travel packaged tours; Shanghai LanBao, specializing in hotel reservations and Foshan Overseas International, a PRC-based company that handles both domestic and international travel inquiries.
Our goal is to become the foremost leading online travel services provider in all fields of the tourism industry including the aviation service, cargo agency, hotel booking and tour packaging segments in the People's Republic of China.
Major Factors Affecting the Travel Industry
A variety of factors affect the travel industry in the People's Republic of China, and we shall be discussing these together with analysis of our results of operations and financial condition.
Some of these factors include:
(i) Growth in the Overall Economy and Demand for Travel Services in the People's Republic of China.
We expect that our financial results will continue to be affected by the overall growth of the economy and demand for travel services in the People's Republic of China and the rest of the world.
According to the statistics from the website of National Bureau of Statistics of China, in February 2008, the People's Republic of China's gross domestic product (or "GDP") grew from US$1.7 trillion in 2003 to US$3.4 trillion in 2007, representing a compound annual growth rate of 16%. GDP per capita in the same period rose from US$1,273 to US$2,559, representing a 15% compound annual growth rate.
According to the statistics from the website of National Bureau of Statistics of China in February 2008, domestic tourism spending grew from US$41.6 billion in 2003 to US$106.5 billion in 2007, representing a compound annual growth of 23%.
According to the statistics from the website of Civil Aviation Administration of China:
· domestic passenger transportation volume grew 15.7% in 2007 compared to 2006;
· domestic cargo transportation volume grew 9.4% in 2007 compared to 2006;
· domestic passenger transportation volume grew 5.8% for the first half of 2008 compared to the same period of 2007;
· domestic cargo transportation volume grew 6.6% for the first half of 2008 compare to the same period of 2007.
The slower growth of the aviation industry for the first half of 2008 reflects the seasonality that the first half of the year, which is slower. This seasonality factor is further compounded by the increase in oil prices and the snowstorms during February of this year.
Subject to slight fluctuations, we believe that demand for travel services in the People's Republic of China will continue to increase in the foreseeable future as the economy in the People's Republic of China continues to grow. However, any adverse changes in economic conditions of the People's Republic of China and the rest of the world, such as a slow-down of the Chinese economy, could have a material and adverse effect on the travel industry in the People's Republic of China, which in turn would adversely affect our business.
(ii) Seasonality in the Travel Service Industry.
The travel service industry is characterized by seasonal fluctuations and accordingly our revenue may vary from quarter to quarter. To date, revenue generated during the summer season of each year generally is higher than those generated during the winter season, mainly because the summer season coincides with the domestic peak business and leisure travel season. By contrast, the winter season includes the Chinese New Year holiday, during which our customers reduce their business activities.
These seasonal trends are difficult to discern in our historical results because our revenue structure has changed due to our expansion over the years into more diversified fields and our revenue have grown substantially since inception.
However, the impact of seasonal fluctuations in the travel industry is likely to have a more apparent impact on our future results.
(iv) Disruptions in the Travel Industry.
Because the travel industry is sensitive to the weather, events and seasons, travelers tend to modify their travel plans according to such factors.
Examples of some events which affected our travel industry this year are:
· the snow storms which affected the People's Republic of China during the Spring Festival this year;
· the Olympics in August which led to an increase in prices for hotels, airline and other travel-related costs and accordingly, a similar increase in travel products;
· the earthquakes in May 2008 which affected travel in the Sichuan area;
· the threat of terrorist attacks and increased security over international events, such as the the Olympics, which affect our cargo agency business; and
· a downturn in international economies such as in the United States.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2008 AND 2007
The following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for three months
ended June 30, 2008 and same period 2007.
Three months Three months Increase/
ended June 30, 2008 ended June 30, 2007 (Decrease) Percentage
Revenue $ 14,344,739 $ 7,024,363 $ 7,320,376 104.2 %
Cost of services (10,184,990 ) (4,405,393 ) (5,779,597 ) 131.2 %
Gross Profit 4,159,749 2,618,970 1,540,779 58.8 %
Selling, general and administrative
expenses (1,251,876 ) (658,149 ) (593,727 ) 90.2 %
Stock-based compensation (45,790 ) 0 (45,790 ) N/A
Income from operations 2,862,083 1,960,821 901,262 46.0 %
Other income 16,029 4,728 11,301 239.0 %
Interest expenses (28,297 ) (20,302 ) (7,995 ) 39.4 %
Provision for income taxes (736,122 ) (293,335 ) (442,787 ) 150.9 %
Net income 2,113,693 1,651,912 461,781 28.0 %
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Revenue Segment Analysis
For the three months ended June 30, 2008:
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 1,936,520 13.5% $ 2,541,764 17.7% $ 1,411,818 9.8% $ 8,454,637 58.9% $ 14,344,739
Cost of Services $ 99,612 1.0% $ 2,287,955 22.5% $ 504,988 5.0% $ 7,292,435 71.6% $ 10,184,990
Gross Profit $ 1,836,907 44.2% $ 253,810 6.1% $ 906,830 21.8% $ 1,162,202 27.9% $ 4,159,749
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For the three months ended June 30, 2007
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 1,835,765 26.1% $ 5,188,598 73.9% - - - - $ 7,024,363
Cost of Services $ 95,460 2.2% $ 4,309,933 97.8% - - - - $ 4,405,393
Gross Profit $ 1,740,305 66.4% $ 878,665 33.6% - - - - $ 2,618,970
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Revenue
Revenue for the three months ended June 30, 2008 were $14,344,739 compared to $7,024,363 for the same period 2007, an increase of approximately 104.2%. This increase is due to the company's strategic expansion into hotel reservation and packaged tours business via acquisitions of Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
Revenue from air-ticketing was $1,936,520 for the three months ended June 30, 2008 compared to $1,835,765 for the same period last year, an increase of approximately 5.5%. This increase is due to the seasonality of the industry. We believe our more diversified business model had help us weather the effects of the earthquakes in May 2008 on the travel industry as a whole.
Revenue generated by cargo agency for the three months ended June 30, 2008 was $$2,541,764 compared to $5,188,598 for the same period 2007, a decrease of approximately 51%. This decrease is due to the increase in global oil prices as well as the increase security for imports and exports due to the Beijing Olympics. We anticipate that our cargo agency revenue will increase the latter half of 2008.
Despite of no comparable segments for the same period last year, revenue generated from our hotel reservation and packaged tours services comprise a fairly substantial portion of our total revenue, 9.8% and 58.9% of total revenue respectively.
Gross Profit
Gross Profit for three months ended June 30, 2008 was $4,159,749 compared to $2,618,970 for three months ended June 30, 2007, an increase of approximately 58.8%. The increase in gross profit reflects the company's strategic expansion into profitable hotel reservation and packaged tours business via acquisitions. The increase also reflects the results of an efficient management and control of our operations by an experienced management team.
Gross profit margin for three months ended June 30, 2008 was 29.0% compared to 37.3% for three months ended June 30, 2008. This decrease is primarily due to the acquisition of a lower gross margin businesses in 2007. Despite the short term decrease in gross profit margin, we believe that this strategic move will bring a higher long term value to guarantee stable and long term growth of our various business segments as a whole. We believe that our gross profit margins will improve as our four business segments begin to integrate.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for three months ended June 30, 2008 totaled $1,251,876 compared to $658,149 for three months ended June 30, 2007, an increase of approximately 90.2%.
Selling, general and administrative expenses were approximately 8.7% of revenue for three months ended June 30, 2008 as compared to 9.4% for three months ended June 30, 2007.
The increase in selling, general and administrative expenses reflects the increase in our expenses as a result of acquiring of Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
The decrease in selling, general and administrative expenses as a percentage of revenue reflect the fact that certain expenses did not grow proportionately with the increase in our revenue and there are economies of scale. The decrease of selling, general and administrative expenses as a percentage of the revenue is also a result of management performing effective control over its expenses despite the growth in its revenue.
Stock based compensation reflects standard amount of options issued to U.S independent directors.
Interest expense for three months ended June 30, 2008 totaled $28,297 compared to $20,302 for three months ended June 30, 2007. The increase in interest expense reflects the expenses we incurred through financing via short term bank loans to support our expansion while our market valuation was still low.
Net Income
Net income was $2,113,692 or 14.7% of revenue for three months ended June 30, 2008, compared to $1,651,912 or 23.5% of revenue for three months ended June 30, 2007.
The increase in net income reflects the continued growth in our business and the income derived from the acquisitions of Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
The decrease in net income as a percentage of revenue in the result of the acquisitions of lower net income margin businesses. We believe that despite the short term decrease in net income margin, the acquisitions will bring a more stable and long term growth to our business as a whole. By integrating the different business segments and leveraging off the synergies between such segments, we believe that we will be able to improve our net income margin.
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
The following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for six months
ended June 30, 2008 and same period 2007.
23
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Six Months ended Six Months ended Increase/
June 30, 2008 June 30, 2007 (Decrease) Percentage
Revenue $ 24,421,043 $ 13,985,503 $ 10,435,540 74.6 %
Cost of services (7,417,748 ) (9,111,071 ) (8,306,677 ) 91.2 %
Gross Profit 7,003,295 4,874,432 2,128,863 43.7 %
Selling, General and
Administrative expenses (2,107,398 ) (1,409,943 ) (697,455 ) 49.5 %
Stock-based compensation (155,802 ) (633,360 ) 477,558 -75.4 %
Income from operations 4,740,095 2,831,129 1,908,966 67.4 %
Other income 19,213 14,828 4,385 29.6 %
Interest expenses (65,004 ) (21,282 ) (43,722 ) 205.4 %
Provision for income taxes (1,116,747 ) (519,153 ) (597,594 ) 115.1 %
Net income 3,577,557 2,305,522 1,272,035 55.2 %
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Revenue Segment Analysis
For the six months ended June 30, 2008:
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 3,365,400 13.8% $ 5,665,690 23.2% $ 2,024,296 8.3% $ 13,365,657 54.7% $ 24,421,043
Cost of Services $ 173,113 1.0% $ 4,896,575 28.1% $ 699,660 4.0% $ 11,648,400 66.9% $ 17,417,748
Gross Profit $ 3,192,286 45.6% $ 769,116 11.0% $ 1,324,636 18.9% $ 1,717,257 24.5% $ 7,003,295
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For the six months ended June 30, 2007:
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 3,505,818 25.1% $ 10,479,685 74.9% - - - - $ 13,985,503
Cost of Services $ 181,806 2.0% $ 8,929,265 97.9% - - - - $ 9,111,071
Gross Profit $ 3,324,012 68.2% $ 1,550,419 37.5% - - - - $ 4,874,432
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Revenue
Revenue for the six months ended June 30, 2008 was $24,421,043 compared to $13,985,503 for six months ended June 30, 2007, an increase of approximately 74%. This increase is attributable to our organic growth as well as our expansion into the air cargo agency, packaged tours services and hotel booking services business through the acquisitions of Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
Gross profit for the six months ended June 30, 2008 was $7,003,295 compared to $4,874,432 for six months ended June 30, 2007, an increase of approximately 43%. The increase in gross profit reflects our aggressive growth strategy as exemplified by continued growth in our traditional customer base and the acquisitions of Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
Gross profit margin for six months ended June 30, 2008 was 28.7% compared to 34.9% for six months ended June 30, 2007. This decrease is primarily due to the acquisition of a lower gross margin businesses in 2007. Despite the short term decrease in gross profit margin, we believe that this strategic move will bring a higher long term value to guarantee stable and long term growth of our various business segments as a whole. We believe that our gross profit margins will improve as our four business segments begin to integrate and leverage off the synergism of these various segments.
Selling, general and administrative expenses for six months ended June 30, 2008 totaled $2,107,398 compared to $1,409,943 for six months ended June 30, 2007. Selling, general and administrative expenses was approximately 8.6% of revenue for six months ended June 30, 2008 as compared to 10.1% for six months ended June 30, 2007. The increase in selling, general and administrative expenses is a result acquiring Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
The decrease in selling, general and administrative expenses as a percentage of revenue reflects the fact that certain expenses did not grow proportionately with the increase in our revenue. The decrease of selling, general and administrative expenses as a percentage of revenue is also indicative of effective controls over expenses.
Stock-based compensation reflects standard amount of options issued to U.S independent directors.
Interest expense for six months ended June 30, 2008 totaled $65,004 compared to $21,282 for six months ended June 30, 2007, an increase of approximately 205%. The increase in interest expense is a result of the expenses incurred from short term bank loans to support our expansion while our market valuation was still low.
Net Income
Net income was $3,577,557 or 14.6% of revenue for the six months ended June 30, 2008, compared to $2,305,522 or 16.5% of revenue for the six months ended June 30, 2007. The increase in net income reflects the continued growth in our business and the additional income derived through Xi'an Golden Net Travel Service Company Limited, Shanghai Lanbao Travel Service Company Limited and Foshan Overseas International Travel Service Co., Ltd.
The decrease in net income as a percentage of revenues reflects the acquisitions of lower net income margin businesses. However, we believe that despite the short term decrease in net income margin, these acquisitions will bring a more stable and long term growth to our business as a whole. We anticipate improving our net income margins by integrating our four business segments and leveraging off the synergies created.
We believe a more meaningful comparison should be made for the first quarter ended March 31, 2008 to the second quarter ended June 30, 2008 because it will reveal the progress from quarter to quarter of all our business segments including our two new business segments, namely the hotel reservations and travel packaged services businesses.
FIRST QUARTER ENDED MARCH 31, 2007 AND THE SECOND QUARTER ENDED JUNE 30, 2008
The following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the three
months ended June 30, 2008 and March 31, 2008.
Three Months
Three Months ended March 31, Increase /
ended June 30, 2008 2008 (Decrease) Percentage
Revenue 14,344,739 10,076,304 4,268,435 42.4 %
Cost of services -10,184,990 -7,232,758 -2,952,232 40.8 %
Gross Profit 4,159,749 2,843,546 1,316,203 46.3 %
Selling, General and
Administrative expenses -1,251,876 -855,522 -396,354 46.3 %
Stock-based compensation -45,790 -110,012 64,222 -58.4 %
Income from operations 2,862,083 1,878,012 984,071 52.4 %
Other income 16,029 3,184 12,845 403.4 %
Interest expenses -28,297 -36,707 8,410 -22.9 %
Provision for income taxes -736,122 -380,625 -355,497 93.4 %
Net income 2,113,693 1,463,864 649,829 44.4 %
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Revenue Segment Analysis
For the first quarter ended March 31, 2008
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 1,428,880 14.2% $ 3,123,926 31.0% $ 612,478 6.1% $ 4,911,020 48.7% $ 10,076,304
Cost of Services $ 73,501 1.0% $ 2,608,620 36.1% $ 194,672 2.7% $ 4,355,965 60.2% $ 7,232,758
Gross Profit $ 1,355,379 47.7% $ 515,306 18.1% $ 417,806 14.7% $ 555,055 19.5% $ 2,843,546
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For the second quarter ended June 30, 2008
Percentage Percentage Percentage Percentage
of of Of of
Revenue Revenue Revenue Revenue
Air-ticketing (%) Cargo Agency (%) Hotel (%) Travel (%) Total
Sales $ 1,936,520 13.5% $ 2,541,764 17.7% $ 1,411,818 9.8% $ 8,454,637 58.9% $ 14,344,739
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