UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 (Mark
One)
 
 FORM
10-K
 
 x
              ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
fiscal year ended December 31, 2009
  or
 
  ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the
transition period from _____________to ______________
 
 Commission
file number 001-34284
 
 UNIVERSAL
TRAVEL GROUP
 (Exact
name of registrant as specified in its charter)
 
 Nevada
                90-0296536State
      or other jurisdiction of
                (I.R.S.
      EmployerIncorporation
      or organization
                Identification
      No.)
 
 5th Floor,
South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
Nanshan District,
 Shenzhen, PRC
518000
 (Address
of principal executive offices) (Zip Code)
 
 Registrant’s
telephone number, including area code 011-86-
755-836-68489
 
 Securities
registered pursuant to Section 12(b) of the Act:
 
 Title
      of each class
                  Name
      of each exchange on which registeredCommon
      Stock, par value $0.001 par value per share
                  New
      York Stock Exchange,
LLC
 
 Securities
registered pursuant to section 12(g) of the Act:
 
 Preferred
Stock, $0.001 par value per share
 (Title of
class)
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
  ̈
Yes                       x No
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. xYes  ̈ No
 
 Note– Checking the box above
will not relieve any registrant required to file reports pursuant to Section 13
or 15(d) of the Exchange Act from their obligations under those
Sections.
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 x
Yes      ̈ No
 Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).
  ̈
Yes       ̈ No
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
      accelerated filer  ̈
                
                Accelerated
      filer  ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
                
                Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
  ̈
Yes                x  No
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter.
 
 Note.—If a determination as to
whether a particular person or entity is an affiliate cannot be made without
involving unreasonable
effort and expense, the aggregate market value of the common stock held by
non-affiliates may be calculated on the basis of assumptions reasonable under
the circumstances, provided that the assumptions are set forth in this
Form.
 
 The
aggregate market value of the voting and non-voting common stock of the issuer
held by non-affiliates as of  June 30, 2009 was approximately
$60,539,791 (5,410,169 shares of common stock)  based upon the closing
price of the common stock as quoted by NYSE Amex on such date.
 
 APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
 
 Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. ̈  Yes ̈ No
 
 (APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
 
 Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.
 
 As of
March 2, 2010, there are presently 16,714,457 shares of common stock, par value
$0.001 issued and outstanding.
 
 DOCUMENTS
INCORPORATED BY REFERENCE
 
 List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
  
  Table
of Contents
  PagePART
      IItem
      1.
                                                                                Description
      of
      Business
                                                                                3Item
      1A.
                                                                                Risk
      Factors
                                                                                13Item
      1B.
                                                                                Unresolved
      Staff Comments
                                                                                19Item
      2.
                                                                                Description
      ofProperty
                                                                                19Item
      3.
                                                                                Legal
      Proceedings
                                                                                20Item
      4.
                                                                                Submission
      of Matters to a Vote of Security Holders(Removed and
      Reserved)PART
      IIItem
      5.
                                                                                Market
      for Common Equity and Related Stockholder
      Matters
                                                                                21Item
      6.
                                                                                Selected
      Financial
      Data
                                                                                24Item
      7.
                                                                                Management’s
      Discussion and Analysis of Financial Condition orPlan of
      Operation
                                                                                24Item
      7A.
                                                                                Quantitative
      and Qualitative Disclosures About Market
      Risk
                                                                                38Item
      8
                                                                                Financial
      Statements
                                                                                38Item
      9.
                                                                                Changes
      in and Disagreements with Accountants
      on Accounting and Financial Disclosure
                                                                                38Item
      9A.
                                                                                Controls
      and
      Procedures
                                                                                38Item
      9B.
                                                                                Other
      Information
                                                                                39PART
      III
                                                                                48Item
      10.
                                                                                Directors,
      Executive Officers, Promoters and Control Persons; Compliance with Section
      16(a) of the Exchange Act
                                                                                40Item
      11.
                                                                                Executive
      CompensationItem
      12.
                                                                                Security
      Ownership of Certain Beneficial Owners and
      ManagementItem
      13.
                                                                                Certain
      Relationships and Related
      Transactions
                                                                                50Item
      14.
                                                                                Principal
      Accountant Fees and
      Services
                                                                                51PART
      IVItem
      15.
                                                                                Exhibits
      and Financial Statement
      Schedules
                                                                                52
  2
  PART
I
  Item
      1.
              Business.
  History
and Organization
 
 We were
incorporated on January 28, 2004, pursuant to the laws of the state of
Nevada.
 
 On March
15, 2006, we entered into an Acquisition Agreement and Plan of Merger (the
"Acquisition Agreement") with TAM of Henderson, Inc. ("TAM"), whereby TAM
acquired all of our outstanding shares of Common
Stock from our then sole stockholder and simultaneously merged with and into the
Company, with the Company as the surviving corporation.
 
 On June
20, 2006, Mr. Xiao Jun ("Jun"), our former officer and director, acquired from
the then-majority-shareholder of our Company 2,666,667 shares of our Common
Stock, for an aggregate purchase price of $435,000 (the "Stock Transaction").
After giving effect to such acquisition, Jun held 2,666,667 of the 3,483,333
shares of our Common Stock then issued and outstanding, constituting, in the
aggregate, 77% of the then issued and outstanding shares of Common Stock of the
Company. In connection with his acquisition of shares in the Company, Jun was
appointed as our Chief Executive Officer.
 
 On July
12, 2006, we consummated the transaction contemplated by the Agreement and Plan
of Merger, dated as of June 26, 2006 (the "Merger Agreement"), by and among the
Company, Merger Sub of Tam, Inc. ("Merger Subsidiary"), a wholly owned
subsidiary of us, Full Power Enterprise Global Limited (“Full Power”), and the
shareholders of Full Power. In accordance with the Merger Agreement, Merger
Subsidiary merged with and into Full Power, Merger Subsidiary ceased to exist
and Full Power was the surviving entity (the "Merger Transaction").
 
 The Full
Power Shareholders received 6,666,667 shares of Common Stock in exchange for all
of the issued and outstanding shares of Full Power. As a result of the Merger
Transaction, Full Power became the Company's wholly owned subsidiary. Full Power
owns all of the issued and outstanding capital stock of Shenzhen Yu Zhi Lu
Aviation Service Company Limited (“YZL”).
 
 In
connection with the Merger Transaction, Jiangping Jiang (who, prior to the
Merger Transaction was a shareholder of Full Power), Xin Zhang and Hoi-Yui Lee
were appointed to our Board of Directors and Jun resigned from all positions
with us.
 
 Business
Overview
 
 With the
acquisition of Full Power and hence YZL, we shifted our business to the online
travel service industry in the People’s Republic of China (“PRC”). YZL, a
company organized under the laws of the PRC, is primarily engaged in the
business of providing domestic and international airline ticketing services and
cargo transportation agency services. Additionally, YZL provides hotel
reservations, packaged tours, and air delivery services both online and through
customer representative offices. YZL also owns an aviation network
(www.cnutg.com) that provides a complete air ticket sales network.
 
 During 2007, we made several
acquisitions, which expanded our scope of business.
 
 On April
10, 2007, we acquired Shenzhen Speedy Dragon Enterprise Limited ("SSD") in
exchange for 238,095 shares of our shares of Common Stock and an interest-free
promissory note in the principal amount of $3,000,000, payable no later than
April 10, 2008.  The note has been repaid in full. SSD is mainly a
cargo logistics company providing commercial, point-to-point parcel and
container transportation services within the PRC.
 
 On June
12, 2009, the Company entered into a termination agreement with Xiangsheng Song,
the legal representative of SSD to return all its equity interest in SSD to Mr.
Song. As a result of the termination agreement, SSD is spun off from our
business.
  3
  On August
6, 2007, we acquired Xi'an Golden Net Travel Serve Service Company Limited
("XGN") in exchange for 50,588 shares of our Common Stock and interest-free
promissory notes in the aggregate principal amount of $1,542,000, payable no
later than August 6, 2008. The note has been repaid in full.
 
 XGN was
established in 2001 and focuses on the domestic tourism market. It provides air
tickets, train tickets and other travel-related services including servicing
individuals and groups attending conferences and exhibitions, making travel
arrangements for business studies, academic exchanges, travel adventures,
cultural education, sports competition, and theatrical performances. XGN also
specializes in central plains tours of Xi'an. Since 2005, XGN has formed joint
ventures with other travel agencies in Tibet, Xinjiang, Shanxi and Inner
Mongolia that focus on western plains routes.
 
 In August
8, 2007, we acquired Shanghai Lanbao Travel Service Company Limited ("SLB") in
exchange for 200,000 shares of our Common Stock and interest-free promissory
notes in the aggregate principal amount of $2,828,000, payable no later than
August 8, 2008. The note has been repaid in full.
 
 SLB was
established in 2002 and its core business focus is a centralized real-time
booking system providing consumers and travel related businesses with hotel
bookings, air ticket and tourism information via the internet and mobile phone
text-messaging technology. It owns and manages the award winning China Booking
Association website, http://www.cba-hotel.com/, which receives approximately
200,000 visitors daily.
 
 In
October 29, 2007, we acquired Foshan Overseas International Travel Service Co.,
Ltd. ("FOI") in exchange for 374,329 shares of our Common Stock and
interest-free promissory notes in the aggregate principal amount of $3,153,500,
payable no later than October 29, 2008.   This note has been
repaid in full.
 
 FOI was
established in 1990. Its core business focuses on both domestic and
international tourism, as well as packaged airfare, hotel and conference
reservations with ground transportation within the PRC. For three consecutive
years, FOI has been recognized as one of the 100 outstanding enterprises by the
China Tourism Bureau and in 2004 was voted one of the most credible enterprises
in the country. Last year it served more than 120,000 people with packaged tours
and conferences.
 
 Also on
December 16, 2008, we established Shenzhen Universal Travel Agency Co. Ltd,
a PRC company (“STA”), to meet the increasing packaged-tour demand in Shenzhen
City. However, operations of STA did not start until June 6, 2009.
  On March
23, 2009, in order to seize upon opportunities arising from the economic
promotion by the Chinese government of the middle and western regions of the
PRC, we strategically set up Chongqing Universal Travel E-Commerce Co., Ltd, a
PRC company (“CTE”), to strengthen our presence in that region. However,
operations of CTE did not start until June 16, 2009.
 
 On
December 10, 2009, we entered into Subscription Agreements with certain
investors to sell to them an aggregate of 2,222,222  shares of common
stock of the Company, for a purchase price of $9.00 per share and an aggregate
gross purchase consideration of $19,999,998. The offer and sale of the
shares were made pursuant to an effective Registration Statement on Form S-3
(Registration No. 333- 161139)  initially filed with the Securities
and Exchange Commission on August 7, 2009 and amended on November 2, 2009. The
Registration Statement was declared   effective on November 5,
2009.  The sale and  purchase of the shares closed on
December 15, 2009.
 
 With the
completion of the raise, we then sought to seek out acquisition targets that
would both complement our strategic growth and service products.
 
 On
December 17, 2009, we entered into a letter of intent to acquire Huangshan
Holiday Travel Service Company (“Huangshan Holiday”) for RMB 20 million
(approximately $2.9 million), 80% of which shall be paid cash and 20% in shares
of common stock of the Company. The purchase consideration may be subject to
adjustment after completion of due diligence on Huangshan Holiday by the
Company. Founded in 1999, Huangshan Holiday provides comprehensive travel
services in the Huangshan district in the Anhui Province of China. Huangshan, a
national geological park and UNESCO World Heritage Site, is one of China’s most
popular travel destinations, with over eight million tourists annually.
Huangshan Holiday provides guided and self-guided package tours and airline and
hotel reservation services for both leisure and business travelers. Huangshan
Holiday serves as the exclusive hotel reservation agency for several major
online travel service providers in China, including eLong and 12580, and has
over 70% share of the mid to high end hotel reservation market in
the Huangshan Tourism District. Estimated full year 2009 revenues and net
income for Huangshan Holiday are approximately $4.4 million and $0.6
million, respectively.
  4
  On
January 26, 2010, we entered  into a letter of intent to acquire
Zhengzhou Yulongkang Travel Service Company (“Zhengzhou Yulongkang”) for RMB 39
million (approximately $5.7 million), 90% of which to be paid in cash and 10% of
the purchase consideration in shares of the Company’s common stock. The purchase
consideration may be subject to adjustment after the completion of acquisition
audit on Zhengzhou Yulongkang by the Company. Zhengzhou Yulongkang Travel
Service Company was established in 2000 in Zhengzhou, Henan Province of China.
The company currently has a management team of 25 people and over 60 tour
organizers and guides.The Company provides comprehensive travel services and
maintains long-term cooperation relations with transportation agents, travel
destinations, hotels, and air ticket agencies. Its regional tour routes include
“Charming Tibet”, “Winter Hot Spring”, “Passion Ski Trip”, etc. Zhengzhou
Yulongkang Travel Service Company has received a series of industry and
corporate awards from 2003 to 2006.
 
 On
January 19, 2010, we entered into a letter of intent to acquire Hebei Tianyuan
Travel Agency (“Tianyuan”) for RMB 29 million (approximately $4.2 million), 80%
of which shall be paid in cash and 20% of the consideration in shares of the
Company’s common stock. The purchase consideration may be subject to adjustment
after completion of acquisition audit on Tianyuan by the Company. Founded in
1999, Tianyuan was the first authorized travel agency in the Hebei Province in
China.  In addition, Tianyuan is the exclusive provider of travel
agency services to Mount Lu and Lushan National Park, both domestic tourist
attractions listed on the UNESCO World Heritage Site.  Tianyuan was
the organizer of the International Economy & Culture
Communication Forum sponsored by the local government and the exclusive
organizer of the Young Journalist Summer Camp sponsored by the Yanzhao Evening
Paper. We believe that Taiyuan’s exclusive service with these regional sites and
unique partnership with the government provides Tianyuan with an advantage to be
a market leader in travel services in the region.
 
 Sources
of Revenue
 
 We have
three lines of business and revenue, namely (i) air-ticketing (Shenzhen Yu Zhi
Lu Aviation Service Company Limitedand Chongqing
Universal Travel E-Commerce Co., Ltd), (ii) hotel reservations (Shenzhen Yu Zhi
Lu Aviation Service Company Limited and Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd,
and Shenzhen Universal Travel Agency Co. Ltd). We previously provided air
cargo agency services through Shenzhen Speedy Dragon Enterprise Limited, which
we spun off in June 2009.
 
 Air-ticketing
 
 We are,
through our subsidiary, YZL and CTE, in the air-ticketing business. YZL has
contracted with certain Chinese domestic airlines such as Air China, China
Southern Airlines and China Eastern Airlines and 34 international airlines
such as United Airlines, Cathay Pacific and Virgin Airlines to sell Chinese
domestic and international air tickets.  YZL holds the “First Class
Air-Ticketing Agency” license from the General Administration of Civil Aviation
of China (“CAAC”). YZL has been in operation for more than ten
years.
 
 We and
our agents utilize a centralized air-ticketing booking system called the “eTerm
system” maintained and owned by the PRC government to issue air tickets. We pay
a license fee the use of the “eTerm system” and charge our agents a pro-rated
portion of that fee for their use of the system through us.
 
 YZL
receives commissions (averaging 6%) from travel suppliers for air-ticketing
under various services agreements. Commissions from air-ticketing services
rendered are recognized at the time when the air tickets are issued. Our
customers pay for their tickets online or through our TRIPEASY Travel Service
Kiosks  (the “Kiosks”) with credit cards or bank debit cards and are
then issued their tickets. Our revenue from such transactions is on a net basis
in the consolidated statements of income as we generally do not assume inventory
risks and have no obligations for cancelled air-ticket reservations. We are,
typically, paid our aggregated commissions once a month.
  5
  Our
air-ticketing business is affected by the condition of the travel industry in
China. Travel expenditures are highly sensitive to business and personal
discretionary spending levels and thus tend to decline during general economic
downturns, such as the slowdown in economic growth arising from the
international financial crisis which began in 2008. Adverse trends or events
that tend to reduce travel and are likely to reduce our revenues
include:
 
 ·
              declines
      in economic growth, recessions, and financial or other economic
      crises;
 ·
              increases
      in prices in the hotel, airline or other travel-related
      sectors;
 ·
              the
      occurrence of travel-related
accidents;
 ·
              outbreaks,
      or the fear of outbreaks, of H1N1 flu (swine flu), severe acute
      respiratory syndrome, avian flu or other
  diseases;
 ·
              terrorist
      attacks or threats of terrorist attacks or
wars;
 ·
              natural
      disasters or poor weather
conditions;
 ·
              increase
      in oil prices;
 ·
              a
      decrease in the number of extended holiday periods like the Spring
      Festival and long weekend holidays.
 
 As a
result of any of these events, over which we have no control, our results could
be severely and adversely affected.
 
 Further,
because we are agents for the sale of air tickets, we do not have any control
over air ticket prices, which directly affect their demand and our
profitability. Conversely, we do not bear any risk for unsold tickets and
maintain no inventory.  Also, we are affected by the seasonality of
travel in general and global events such as the World Expo in Shanghai in 2010
which, we anticipate, will increase the demand for travel.
 
 Hotel
reservations
 
 We are,
through our subsidiaries, YZL and SLB, are involved in the hotel reservations
business.
 
 We have
contracted with approximately 9,000 hotels and have established a China Booking
Association comprising more than 1,000 travel agencies which share more than
200,000 hotel resources internationally.
 
 Our
customers are able to inquire via either our centralized website (www.cnutg.com)
or SLB's website (www.cba-hotel.com).  Additionally,
SLB maintains a 100 square meters call center in Shanghai with 20 seats to
handle hotel reservation enquiries.
 
 We act as
agent in substantially all of our hotel-related transactions. Our customers
receive confirmed bookings and generally pay the hotels directly upon completion
of their stays, and in general, we pay no penalty to the hotels if our customers
do not check in. For our hotel suppliers, we earn pre-negotiated fixed
commissions on hotel rooms we sell.
 
 We
contract with hotels for rooms under two agency models, the “guaranteed
allotment” model and the “on-request” model. Under our agreements with our hotel
suppliers, hotels are generally required to offer us prices that are equal to or
lower than their published prices, and notify us in advance if they have
promotional sales, so that we can lower our prices accordingly.
 
 In
addition to the agreements that we enter into with all of our hotel suppliers,
we enter into a supplemental agreement with each of the hotel suppliers with
which we have a guaranteed allotment arrangement. Pursuant to this agreement, a
hotel guarantees us a specified number of available rooms every day, allowing us
to provide instant confirmations on such rooms to our customers before notifying
the hotel. The hotel is required to notify us in advance if it will not be able
to make the guaranteed rooms available to our customers due to reasons beyond
its control.
  6
  We
receive commission from travel suppliers for hotel room reservations based on
the transaction value of the rooms. Commission from hotel reservation services
rendered is recognized after hotel customers have completed their stay at the
applicable hotel and upon confirmation of pending payment of the commission by
the hotel.  Our revenue from such transactions is on a net basis in
the consolidated statements of income.  We, generally, do not assume
inventory risks and have no obligations for cancelled hotel
reservations.  Our customers reserve hotel rooms through us, our
website, or our Kiosks and pay for their rooms directly to the
hotel.
 
 Our
primary customers in this segment are business and leisure travelers in China
who do not travel in groups. These types of travelers, who are referred to in
the travel industry as FITs (free individual travelers) and whom we refer to as
independent travelers, form a traditionally under-served yet fast-growing
segment of the China travel market. We act as agent in substantially all of our
transactions and generally do not take inventory risks with respect to the hotel
rooms booked through us.
 
 Apart
from the same factors affecting our air-ticketing business, other factors
affecting our hotel reservations segment include:
 ·
              our
      ability to secure more room supply relationships with
    hotels;
 ·
              the
      quality and depth of our hotel supplier network  and our ability
      to provide a diverse range of hotel rooms, locations and price points to
      appeal to our customers;
 ·
              our
      commission rates which are largely determined by the
    hotels;
 ·
              our
      ability to offer reservations at highly rated hotels is particularly
      appealing to our customers.
 Packaged
Tours
 
 We are,
through our subsidiaries, FOI, XGN and STA, in the business of providing
domestic and cross border packaged tour travel services.
 
 We
contract with traffic service providers, accommodation providers and leisure
service providers so tha we are able to purchase air tickets, train and coach
tickets, accommodation and leisure or entertainment packages in bulk and then
resell them to our customers with a mark-up.  We have two sources of
revenue: one from payment by individual customers and the other, through group
sales. We recognize gross revenue when a tour is completed.
 
 As we are
the agent for packaged tours, we do not have any control over the components for
air-ticket prices, hotel accommodation, transportation and tourism attraction
ticket prices, which directly relates to the demand for packaged tours and their
popularity or lack thereof.
 
 We also
bear no risk because we maintain no inventory of air tickets, hotel rooms or
attraction tickets. We only purchase the various components comprising a
packaged tour when an order or request for such a tour is made and paid for by a
customer. Our customers may make an order for a packaged tour by booking it
directly through us, our website or Kiosks.  However, they may only
pay for the packaged tour at our offices.
 
 Because
the packaged tour segment is tourism related and a packaged tour typically
comprises a bundled travel and accommodation package, the significant factors,
trends, demands and uncertainties affecting this segment are the same for
air-ticketing and hotel reservations.
 
 Insurance
 
 We
presently have directors and officers insurance with Navigators Insurance
Company.  The policy is for a term of one year commencing June 23,
2009 to June 23, 2010 for an aggregate liability of
$5,000,000.   We have paid a premium of $42,000 for the
policy.  We do not have any other insurance.
 
 Intellectual
Property
 
 We have applied to register the
following trademarks with the Trademark Bureau of the State Administration for
Industry & Commerce
  7
 
 Trademark
                    
                    Class
                    
                    RegistrantUTG
                    
                    16,
      39, 43
                    
                    Shenzhen
      Yu Zhi Lu Aviation Service Company LimitedTRIPEASY
                    
                    39,
      42
                    
                    Shenzhen
      Yu Zhi Lu Aviation Service Company
Limited
 
 We,
through our subsidiary, XGN, have the “古都之旅” trademark
registered under Class 39 with the Trademark Bureau of the State Administration
for Industry & Commerce.  The term of the registration is valid
from January 7, 2005 through to January 6, 2015.
  Class 16
(Paper goods and printed matter) covers paper, cardboard and goods made from
these materials, not included in other classes; printed matter; bookbinding
material; photographs; stationery; adhesives for stationery or household
purposes; artists' materials; paint brushes; typewriters and office requisites
(except furniture); instructional and teaching material (except apparatus);
plastic materials for packaging (not included in other classes); playing cards;
printers' type; printing blocks.
 
 Class 39
covers transport, packaging and storage of goods and travel
arrangements.
  Class 42
(Computer, scientific & legal) covers scientific and technological services
and research and design relating thereto: industrial analysis and research
services; design and development of computer hardware and software; legal
services.
  Class 43
(Hotels and Restaurants) covers services for providing food and drink; temporary
accommodations.
 
 We have also registered the following
domain names:
 
 Domain Name
                                          
                                          Owner
                                          
                                          Registration
                                            Date
                                          
                                          
                                          Expiration Datewww.cnutg.com
                                          
                                          Shenzhen
      Yuzhilu Aviation Service Company Ltd
                                          
                                          
                                          2006-05-05
                                          
                                          
                                          
                                          2011-05-05www.cnutg.com.cn
                                          
                                          Shenzhen
      Yuzhilu Aviation Service Company Ltd
                                          
                                          
                                          2006-07-27
                                          
                                          
                                          
                                          2013-07-27www.cnutg.cn
                                          
                                          Shenzhen
      Yuzhilu Aviation Service Company Ltd
                                          
                                          
                                          2006-07-27
                                          
                                          
                                          
                                          2012-07-27www.cnutg.net
                                          
                                          Shenzhen
      Yuzhilu Aviation Service Company Ltd
                                          
                                          
                                          2006-07-27
                                          
                                          
                                          
                                          2012-07-27www.cnutg.net.cn
                                          
                                          Shenzhen
      Yuzhilu Aviation Service Company Ltd
                                          
                                          
                                          2006-07-27
                                          
                                          
                                          
                                          2012-07-27
 
 Customers
 
 Our
customer base is very diversified and numerous.  Almost all our
customers are individuals and none of our customers comprise more than 1% of our
revenue.  The loss of any one of our customer will not have a material
adverse effect on any segment of our business or our business, as a
whole.
 
 Revenue
Breakdown
 
 Packaged
Tours
 Below is
a breakdown the number of sales of our packaged tours for the past three
years:
 Year
                    
                    Visitors
                    
                    Number of visitors multiplied by
                      the number of days comprising the tour2007
                    
                    
                    93,984
                    
                    364,6762008
                    
                    
                    139,242
                    
                    521,2702009
                    
                    
                    212,460
                    
                    807,300
 
 Air-ticketing
 Below is
a breakdown of the number of air tickets sold for the past three
years:
  8
 
 Year
                        
                        Number of Tickets2007
                        
                        
                        1,084,0002008
                        
                        
                        1,720,0002009
                        
                        
                        2,360,000
 
 Hotel
Reservations
 Below is
a breakdown of the number of hotel room nights booked through us for the past
three years:
 Year
                    
                    Number of Room Nights2007
                    
                    
                    680,0002008
                    
                    
                    1,466,0002009
                    
                    
                    2,349,000
 
 The
management of the Company uses these performance metrics to monitor the
performance of each of its business segments on a continuing basis and to
assess, discern and anticipate any trends or cycles in the
industry.  With such tools, the Company is able to make calculated
decisions and take any pre-emptive measures to safeguard the Company’s
interests.
 
 However,
because of a confluence of other pertinent factors affecting the segments, the
actual results of each segment may differ materially from what the metrics would
suggest and any undue weight on these metrics in isolation is
discouraged.  For example, an increase in the number of room nights
booked should conceivably mean an increase in revenue and hence an increase on
commissions earned.  However, this may be offset by lower room rates
and lower commission rates.
 
 Suppliers
 
 For our
air-ticketing business, our major suppliers are mainly the PRC domestic
airlines.  We contract directly and individually with each hotel and
supplier of the various components of our packaged tours.
 
 We do not
have long term contracts with any one of our suppliers.  We typically
signed one year contracts which renew for successive one-year terms unless
earlier terminated by either party.  The main terms of such contracts
would typically comprise terms pertaining to authorizations, trade deposits and
payment method.
 
 We are
not dependent on any one supplier and most of our suppliers are competitors
against each other within their own industry.  Accordingly, we are
able to choose the supplier with the most favorable terms to contract with and
because such terms vary from time to time, our list of suppliers constantly
changes too.
 
 Our
online reservation database is managed in-house and we are not dependent on a
third party service provider to maintain our database and ensure that it is
stable and secure.
 
 Sales
and Marketing
 
 We advertise our services for the
general public through roadside billboards, brochures, internet ads, cell phone
message ads, newspapers and magazines ads.
 
 Sales and
marketing for the past three years account for very small percentage of our
revenue, and as our Kiosks will be serving as an effective media platform in
coming years and a marketing tool for us, we believe our sales and marketing
expenses will not increase materially.
  9
 
 Subsidiary
                      
                      Amount (RMB)/ (US$)Foshan
      Overseas International Travel Service Co., Ltd.
                      
                      152,774/$22,369Shenzhen
      Yu Zhi Lu Aviation Service Company Limited
                      
                      1,063,459/
      $ 155,713(Media Advertisement expenses)
                        862,000
      / $126,024  (Airport Marketing expenses)Shanghai
      Lanbao Travel Service Company Limited
                      
                      38,000/
      $5,564 (Advertisements)
                        2,000/
      $293 (Website)Chongqing
      Universal Travel E-Commerce Co., Ltd
                      
                      4,500/
      $659 (Advertisements)Shenzhen
      Universal Travel  Agency Co., Ltd
                      
                      45,296/
      $6,632
(Advertisements)
 
 We
anticipate that our sales and marketing expenses for fiscal year 2010 will
increase proportionally with our sales volume.
 
 Competition
 
 Our main competitors in China in the
online booking industry for air-tickets and hotel reservations include Ctrip.com
International, Ltd. and eLong, Inc.
 
 It is very difficult to assess our
competitors in the packaged tour business as there are numerous packaged tour
providers in the PRC that operate different routes every year.
 
 Many of
our competitors, particularly those engaged in the online booking industry, are
better established than us, are more widely known to consumers, and have larger
infrastructures and greater capital resources.
 
 Our
Competitive Advantage
 
 We believe that we have the following
advantages over our competitors:
 
 •
              our
      business model and sources of revenue are diversified in that we are
      involved in the air ticketing, hotel reservations, and packaged tours
      businesses and any negative impact on one line of business may buffered by
      our other lines of businesses;
 
 •
              our
      businesses and presence are spread out throughout the PRC, which makes us
      less susceptible to a total loss or interruption to our business in the
      event of a natural calamity; and
 
 •
              As
      of December 31, 2009, we have 623 Kiosks in place to serve our customers.
      We plan to roll out an additional 1,400 Kiosks in 2010 in selected cities
      in the PRC.  The Kiosks would enable our customer to make travel
      related inquiries and book their travel when they do not have access to a
      computer or an internet connection.
 
 Our
Future Goals and Expansion Plans
 
 We
introduced the Kiosksin selected major cities in the PRC, with 623 Kiosks rolled
out in 2009. We plan to
further introduce the Kiosks to other cities in the PRC. Locations of our
Kiosks will include hotels, office buildings, banks, shopping malls and MTR
stations. The Company will promote the Kiosks via local media such as
newspapers, billboards and internet ads, including its own award-winning
website, www.cnutg.com, as
well as other related websites, which will in turn further the Company’s brand
recognition. The Kiosks themselves will provide a strong media platform to
strengthen Universal Travel Group’s franchise. Additionally, the Kiosks’
interface will feature the same look, feel and functionality as Universal Travel
Group’s new website, www.cnutg.com.cn,
which integrates the Company’s diversified services into a new platform with
selected value- added features and functionality.
  10
  The
Kiosks are interactive terminals placed in strategically targeted public areas.
They enable convenient, fast and easy to use, real-time air ticketing inquiries,
reservations and purchases, as well as hotel and tour reservations. The Kiosks
provide full 360° views of hotels and travel destinations and accept payment via
bank cards, debit cards and VISA. According to Credit Suisse Research, the
number of domestic travelers in the PRC that use online travel services
continues to rise, accounting for 16% of users in 2007, up from 12% in 2005.
Major cities such as Shanghai and Shenzhen have a higher proportion of people
using online travel services as compared to the rest of the PRC, representing
23% and 20% of the users in 2007, respectively. According to the China Internet
Network Information Center, the PRC is the world’s largest market for internet
users. Despite this, 95% of internet users still do not make purchases over the
internet. The Kiosks eliminate the need for a personal computer or online access
in order to make travel arrangements and are specifically targeted at this
demographic of users. We expect to roll out 1,400 additional Kiosks in
2010.
 
 The Kiosks, together with our website
and call center, will serve to integrate our air ticket sales, hotel room sales,
and packaged tours businesses. We are working on a cost-effective way for a
potential rollout by bundling it with Byte Power (CQ) Info Tech Limited's (a
subsidiary of Byte Power Group Limited - ASE: BPG.AX) E-Kiosks. This will allow
us to enter a new market in Chongqing quickly and efficiently.
 
 Employees
 
 At the current time, including our
officers, we have approximately 780 full-time employees, including 80
administrative employees, 200 marketing employees and approximately 500
employees working at our three call centers. None of our employees is a member
of a union and our relationships with our employees are generally satisfactory.
In accordance with Chinese Labor Law, we provide social security and medical
insurance to all our employees.
 
 Government
Regulations
  General
Regulation of Businesses
  Air-ticketing.
The air-ticketing business is subject to the supervision of China National
Aviation Transportation Association, or CNATA, and its regional branches. Prior
to March 31, 2006, the principal regulation governing air-ticketing in China is
the Administration on Civil Aviation Transporting Marketing Agency Business
Regulations (1993). The said regulation was abolished by PRC government on
January 24, 2008. Currently the principal regulation governing air-ticketing in
the PRC is the Rules on Cognizance of Qualification for Civil Aviation
Transporting Marketing Agencies (2006) which became effective on March 31,
2006.
  Under
these regulations, prior to May 19, 2005, an air-ticketing agency was required
to obtain a permit from CAAC or its regional branch in every city in which the
agency propose to conduct its air-ticketing business. On and after May 19, 2005,
any entity that wishes to conduct the air-ticketing business in the PRC must
apply for an air-ticketing permit from CNATA. The regulations provide for a
transitional grace period for air-ticketing agencies that have obtained a valid
license from CAAC or its regional branch prior to the promulgation of the new
rules. These agencies are permitted to use their original licenses until such
licenses expire.
  Travel
Agency. The travel industry is subject to the supervision of the China
National Tourism Administration and local tourism administrations. The principal
regulations governing travel agencies in the PRC include:
  •
              Administration
      of Travel Agencies Regulations (1996), as amended in December 2001;
      and
 
 •
              Administration
      of Travel Agencies Regulations Implementing Rules
  (2001).
 Under
these regulations, a travel agency must obtain a license from the China National
Tourism Administration to conduct cross-border travel business, and a license
from the provincial-level tourism administration to conduct domestic travel
agency business.
  Advertising.
The State General Administration of Industry and Commerce is responsible for
regulating advertising activities in the PRC. The principal regulations
governing advertising (including online advertising) in China
include:
 
 •
              Advertising
      Law (1994);
  11
  •
              Administration
      of Advertising Regulations (1987);
and
 
 •
              Implementing
      rules of the Administration of Advertising Regulations
    (2004).
  Under
these regulations, any entity conducting advertising activities must obtain an
advertising permit from the local Administration of Industry and
Commerce.
  Value-added
Telecommunications Business and Online Commerce. Our provision of
travel-related content on our websites is subject to PRC laws and regulations
relating to the telecommunications industry and Internet, and regulated by
various government authorities, including the Ministry of Information Industry
and the State General Administration of Industry and Commerce. The principal
regulations governing the telecommunications industry and Internet
include:
  •
              Telecommunications
      Regulations (2000);
 
 •
              The
      Administrative Measures for Telecommunications Business Operating Licenses
      (2001); and
 
 •
              The
      Internet Information Services Administrative Measures
    (2000).
  Under
these regulations, Internet content provision services are classified as
value-added telecommunications businesses, and a commercial operator of such
services must obtain a value-added telecommunications business license from the
appropriate telecommunications authorities to conduct any commercial value-added
telecommunications operations in the PRC.
  With
respect to online commerce, there are no specific PRC laws at the national level
governing online commerce or defining online commerce activities, and no
government authority has been designated to regulate online commerce. There are
existing regulations governing retail business that require companies to obtain
licenses to engage in the business. However, it is unclear whether these
existing regulations will be applied to online commerce.
  Regulation
of Foreign Currency Exchange and Dividend Distribution
  Foreign Currency
Exchange. The principal regulation governing foreign currency exchange in
the PRC is the Foreign Currency Administration Rules (1996), as amended. Under
these Rules, RMB is freely convertible for trade and service-related foreign
exchange transactions, but not for direct investment, loan or investment in
securities outside China unless the prior approval of the State Administration
for Foreign Exchange of the People’s Republic of China is obtained.
  Pursuant
to the Foreign Currency Administration Rules, foreign investment enterprises in
the PRC may purchase foreign currency without the approval of the State
Administration for Foreign Exchange of the PRC for trade and service-related
foreign exchange transactions by providing commercial documents evidencing these
transactions. They may also retain foreign exchange (subject to a cap approved
by the State Administration for Foreign Exchange of the PRC) to satisfy foreign
exchange liabilities or to pay dividends. In addition, if a foreign company
acquires a company in the PRC, the acquired company will also become a foreign
investment enterprise. However, the relevant PRC government authorities may
limit or eliminate the ability of foreign investment enterprises to purchase and
retain foreign currencies in the future. In addition, foreign exchange
transactions for direct investment, loan and investment in securities outside
the PRC are still subject to limitations and require approvals from the State
Administration for Foreign Exchange of the PRC.
  Dividend
Distribution. The principal regulations governing distribution of
dividends of wholly foreign-owned companies include:
  •
              The
      Foreign Investment Enterprise Law (1986), as amended in October
      2000;
  12
  •
              Administrative
      Rules under the Foreign Investment Enterprise Law
  (2001);
 
 •
              Company
      Law of the PRC (2005); and
 
 •
              Enterprise
      Income Tax Law and its Implementation Rules
  (2007).
  Under
these regulations, foreign investment enterprises in the PRC may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly foreign-owned
enterprises in the PRC are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds,
unless such reserve funds have reached 50% of their respective registered
capital. These reserves are not distributable as cash dividends.
  Under the
new EIT Law, dividends, interests, rent, royalties and gains on transfers of
property payable by a foreign-invested enterprise in the PRC to its foreign
investor who is a non-resident enterprise will be subject to a 10% withholding
tax, unless such non-resident enterprise’s jurisdiction of incorporation has a
tax treaty with the PRC that provides for a reduced rate of withholding
tax.
  Under the
new EIT Law, an enterprise established outside the PRC with its “de facto
management body” within the PRC is considered a resident enterprise and will be
subject to the enterprise income tax at the rate of 25% on its worldwide income.
The “de facto management body” is defined as the organizational body that
effectively exercises overall management and control over production and
business operations, personnel, finance and accounting, and properties of the
enterprise. It remains unclear how the PRC tax authorities will interpret such a
board definition.
  According
to the new EIT law, enterprises that currently enjoy a preferential tax rate
will transition to the statutory enterprise income tax rate of 25% over five
years.  The applicable tax rate would increase to 18% for 2008, 20% in
2009, 22% in 2010, 24% in 2011 and 25% in 2012.  Enterprises that were
currently subject to an enterprise income tax rate of 24% had their rates
increased to 25% in 2008.
  The tax
rates of our various subsidiaries in 2009 were all 25% except for YZL, the tax
rate of which was 20%. For 2010, these rates will remain 25% except for YZL, the
tax rate of which will become 22%.
  Notwithstanding
the foregoing provision, the new EIT Law also provides that, if a resident
enterprise directly invests in another resident enterprise, the dividends
received by the investing resident enterprise from the invested enterprise are
exempted from income tax, subject to certain conditions.
  Moreover,
under the new EIT Law, foreign ADS holders may be subject to a 10% withholding
tax upon dividends payable by a Chinese entity and gains realized on the sale or
other disposition of ADSs or ordinary shares, if such income is sourced from
within the PRC and we are classified as a PRC resident enterprise.
  Approvals,
licenses and certificates
 
 We have received the following licenses
and approvals:
 
 •
              “First
      Class Air-Ticketing Agency” awarded by the CAAC and IATA to
      YZL;
 •
              “International
      Travel Agency” awarded by the China Travel Bureau to FOI;
    and
 •
              “Domestic
      Travel Agency” awarded by the China Travel Bureau to
  XGN.
 
 Item
      1A.
              Risk
      Factors.
 
 The
reader should carefully consider each of the risks described below. If any of
the following risks described below should occur, our business, financial
condition or results of operations could be materially adversely affected and
the trading price of our common stock could decline
significantly.
  13
  An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information contained
in this prospectus before deciding to invest in our common stock.
 
 Risks
Related to the Company
 
 Risks
associated with business declines or disruptions in the travel industry
generally could reduce our revenue.
 
 A large
part of our revenue is driven by the trends that occur in the travel industry in
the PRC, including the hotel, airline and packaged-tour industries. As the
travel industry is highly sensitive to business and personal discretionary
spending levels, it tends to decline during general economic downturns. Other
adverse trends or events that tend to reduce travel and are likely to reduce our
revenue include the following:
 
 ·
              an
      outbreak of political or economic unrest in
  China;
 
 ·
              a
      recurrence of SARS or any other serious contagious
    diseases;
 
 ·
              increased
      prices in the hotel, airline, or other  travel-related
      industries;
 
 ·
              increased
      occurrence of travel-related
accidents;
 
 ·
              outbreak
      of war or conflict in the Asia-Pacific
region;
 
 ·
              increases
      in terrorism or the occurrence of a terrorist attack  in the
      Asia-Pacific region;
 
 ·
              poor
      weather conditions; and
 
 ·
              natural
      disasters.
  We could be severely affected by
changes in the travel industry and will, in many cases, have little or no
control over those changes. As a result of any of these events, our operating
results and financial conditions could be materially and adversely
affected.
 
 Loss
of key personnel could affect our ability to successfully grow our
business.
 
 We are highly dependent upon the
services of our senior management team. The permanent loss for any of the key
executives could have a material adverse effect upon our operating
results.
 
 Our
management is comprised almost entirely of individuals residing in the PRC with
very limited English skills.
 
 Our management is comprised almost
entirely of individuals born and raised in the PRC. As a result of differences
in culture, educational background and business experiences, our management may
analyze, evaluate and present business opportunities and results of operations
differently from the way they are analyzed, evaluated and presented by
management teams of public companies in Europe and the United States. In
addition, our management has very limited skills in English. Consequently, it is
possible that our management team will emphasize or fail to emphasize aspects of
our business that might customarily be emphasized in a different manner by
comparable public companies from different geographical and political
areas.
 
 Our
management is not familiar with the United States securities laws.
 
 Our management and the former owners of
the businesses we acquire are generally unfamiliar with the requirements of the
United States securities laws and may not appreciate the need to devote the
resources necessary to comply with such laws. A failure to adequately respond to
applicable securities laws could lead to investigations by the Securities and
Exchange Commission and other regulatory authorities that could be costly,
divert management's attention and disrupt our business.
  14
  Our
operating history is not an adequate basis to judge our future
prospects.
 
 We have encountered and will
continue to encounter risks and difficulties frequently experienced by companies
in evolving industries such as the travel service industry in the PRC. Some of
the risks relate to our ability to:
 
 ·
              attract
      and retain customers and encourage our customers to engage in repeat
      transactions;
 
 ·
              retain
      our existing agreements with travel suppliers such as hotels and airlines
      and to expand our service offerings on satisfactory terms with our travel
      suppliers;
 
 ·
              operate,
      support, expand and develop our operations, our call center, our website,
      and our communications and other
systems;
 
 ·
              diversify
      our sources of revenue;
 
 ·
              maintain
      effective control of our expenses;
and
 
 ·
              respond
      to changes in our regulatory
environment.
 
 If we are
not successful in addressing any or all of these risks, our business may be
materially affected in an adverse manner.
 
 The
travel industry in China is seasonal.
 
 Our
business travel operations experience seasonal fluctuations, reflecting seasonal
variations in demand for travel services. During the first quarter, demand for
travel services generally declines in the PRC and the number of
bookings flattens or decreases, in part due to a slowdown in business activity
during the Chinese New Year holiday. Demand for travel services generally peaks
during the second half of the year and there may be seasonal fluctuations
in allocations of travel services made available to us by travel suppliers.
Consequently, our revenue  may fluctuate from quarter to
quarter.
 
 Our
business depends on the technology infrastructure of third parties.
 
 We rely
on third-party computer systems and other service providers, including the
computerized reservation systems of airlines and hotels to make reservations and
confirmations. Other third parties provide, for instance, our back-up data
center, telecommunications access lines, significant computer systems and
software licensing, support and maintenance service and air-ticket delivery. Any
interruption in these or other third-party services or deterioration in their
performance could impair the quality of our service.
 
 Risks
Related to our Common Stock
 
 We
have not and do not anticipate paying any dividends on our Common
Stock.
 
 We have paid no dividends on our Common
Stock to date and it is not anticipated that any dividends will be paid to
holders of our Common Stock in the foreseeable future. While our future dividend
policy will be based on the operating results and capital needs of the business,
it is currently anticipated that any earnings will be retained to finance our
future expansion and for the implementation of our business plan. As an
investor, you should take note of the fact that a lack of a dividend can further
affect the market value of our stock, and could significantly affect the value
of any investment in our Company.
  15
  We
will incur significant costs as a result of operating as a public company and
our management will be required to devote substantial time to compliance
requirements.
 
 As a
public company we incur significant legal, accounting and other expenses under
the Sarbanes-Oxley Act of 2002, together with rules implemented by the
Securities and Exchange Commission and applicable market regulators. These rules
impose various requirements on public companies, including requiring certain
corporate governance practices. Our management and other personnel will need to
devote a substantial amount of time to these compliance
requirements.
 
 In addition, the Sarbanes-Oxley Act
requires, among other things, that we maintain effective internal controls for
financial reporting and disclosure controls and procedures. In particular,
commencing in 2007, we must perform system and process evaluations and testing
of our internal controls over financial reporting to allow management to report
on the effectiveness of our internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act. Our testing may reveal
deficiencies in our internal controls over financial reporting that are deemed
to be material weaknesses. Compliance with Section 404 may require that we incur
substantial accounting expenses and expend significant management efforts. If we
are not able to comply with the requirements of Section 404 in a timely manner,
or if our accountants later identify deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses, the market price
of our stock could decline and we could be subject to sanctions or
investigations by the SEC or other applicable regulatory
authorities.
 
 Our
Board of Directors has the authority, without stockholder approval, to issue
preferred stock with terms that may not be beneficial to common stock
holders.
 
 Our
Amended and Restated Articles of incorporation authorizes the issuance of
preferred shares which may be issued with dividend, liquidation, voting and
redemption rights senior to our Common Stock without prior approval by the
stockholders. The Preferred Stock may be issued for such consideration as may be
fixed from time to time by the Board of Directors. The Board of Directors may
issue such shares of Preferred Stock in one or more series, with such
designations, preferences and rights or qualifications, limitations or
restrictions thereof as shall be stated in the resolution of
resolutions.
 
 The
issuance of preferred stock could adversely affect the voting power and other
rights of the holders of common stock. Preferred stock may be issued quickly
with terms calculated to discourage, make more difficult, delay or prevent a
change in control of our Company or make removal of management more difficult.
As a result, the Board of Directors' ability to issue preferred stock may
discourage the potential hostile acquirer, possibly resulting in beneficial
negotiations. Negotiating with an unfriendly acquirer may result in, among other
things, terms more favorable to us and our stockholders. Conversely, the
issuance of preferred stock may adversely affect any market price of, and the
voting and other rights of the holders of the Common Stock. We presently have
no
 plans to
issue any preferred stock.
  The
issuance of shares through our stock compensation plans may dilute the value of
existing stockholders and may affect the market price of our stock.
  We may
use stock options, stock grants and other equity-based incentives, to provide
motivation and compensation to our officers, employees and key independent
consultants. The award of any such incentives will result in an immediate and
potentially substantial dilution to our existing stockholders and could result
in a decline in the value of our stock price. The exercise of these options and
the sale of the underlying shares of common stock and the sale of stock issued
pursuant to stock grants may have an adverse effect upon the price of our
stock.
 
 Risks
Related to Doing Business in the People’s Republic of China
 
 It
may be difficult for our stockholders to enforce their rights against the
Company or its officers or directors.
 
 Because our principal assets are
located outside of the United States and some of our directors and all of our
executive officers reside outside of the United States, it may be difficult for
you to enforce your rights based on the United States Federal securities laws
against us and our officers and directors in the United States or to enforce
judgments of United States courts against us or them in the People's Republic of
China.
  16
  In addition, our operating subsidiaries
and substantially all of our assets are located outside of the United States.
You will find it difficult to enforce your legal rights based on the civil
liability provisions of the United States Federal securities laws against us in
the courts of either the United States or the People's Republic of China and,
even if civil judgments are obtained in courts of the United States, to enforce
such judgments in the courts of the People's Republic of China. In addition, it
is unclear if extradition treaties in effect between the United States and the
People's Republic of China would permit effective enforcement against us or our
officers and directors of criminal
penalties, under the United States Federal securities laws or
otherwise.
 
 Our
business operations take place primarily in the PRC. Because Chinese laws,
regulations and policies are continually changing, our operations will face
numerous risks.
 
 Because
our operations primarily take place outside of the United States and are subject
to Chinese laws, regulations and policies affecting any change of Chinese laws
may adversely affect our business, such as exchange controls and currency
restrictions, currency fluctuations and devaluations, changes in local economic
conditions, changes in Chinese laws and regulations, exposure to possible
expropriation or other Chinese government actions, and unsettled political
conditions. These factors may have a material adverse effect on our operations
or on our business, results of operations and financial condition.
 
 China's
economy differs from the economies of most developed countries in many respects,
including substantial governmental regulation, development, growth rate, control
of foreign exchange, significant restrictions on property rights, taxation
levels, and permitted allocation of resources. While the People's Republic of
China economy has experienced significant growth in the past 20 years, growth
has been uneven across different regions and among various economic sectors of
China. The government of the People's Republic of China has implemented various
measures to encourage economic development and guide the allocation of
resources, which may or may not achieve the desired results or stated goals.
Some of these measures may benefit the overall economy of People's Republic
of China, but may also have a negative effect on us or on the economy in
general. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in
tax regulations that are applicable to us. Since early 2004, the government of
the People's Republic of China has implemented certain measures to control the
pace of economic growth. Such measures may cause a decrease in the level of
economic activity in the People’s Republic of China, which could adversely
affect our results of operations and financial condition.
 
 Limitations
on Chinese economic market reforms may discourage foreign investment in Chinese
businesses.
 
 The value of investments in Chinese
businesses could be adversely affected by political, economic and social
uncertainties in China. The economic reforms in China in recent years are
regarded by China's central government as a way to introduce economic market
forces into China. Given the overriding desire of the central
government leadership to maintain stability in China amid rapid social and
economic changes in the country, the economic market reforms of recent years
could be slowed, or even reversed.
 
 We
face economic risks in doing business in the PRC.
 
 As
a developing nation, the PRC's economy is more volatile than that of developed
Western industrial economies. It differs significantly from that of the U.S. or
a Western European country in such respects as structure, level of development,
capital reinvestment, resource allocation and self-sufficiency. Only in recent
years has the Chinese economy moved from what had been a command economy through
the 1970s to one that during the 1990s encouraged substantial private economic
activity. In 1993, the Constitution of China was amended to reinforce such
economic reforms. The trends of the 1990s indicate that future policies of the
Chinese government will emphasize greater utilization of market forces. For
example, in 1999 the Government announced plans to amend the Chinese
Constitution to recognize private property, although private business will
officially remain subordinated to the state-owned companies, which are the
mainstay of the Chinese economy. However, there can be no assurance that, under
some circumstances, the government's pursuit of economic reforms will not be
restrained or curtailed. Actions by the central government of the PRC could have
a significant adverse effect on economic conditions in the country as a whole
and on the economic prospects for our Chinese operations.
  17
  Any
slowdown of economic growth in the PRC could have a negative effect on our
business. There can be no assurance that the growth of the economy in the PRC
will continue or that any slowdown will not have a negative effect on our
business.
 
 Our online business relies on the
existence of an adequate telecommunications infrastructure for continued growth
of China's internet market.
 
 Although private sector Internet
service providers currently exist in the PRC, almost all access to the Internet
is maintained through a network owned by China Netcom under the regulatory
supervision of China's Ministry of Information Industry. In addition, the
national networks in the PRC connect to the Internet through a
government-controlled international gateway. This international gateway is the
only channel through which a domestic Chinese user can connect to the
international Internet network. We rely on this infrastructure and China Netcom
to provide data communications capacity, primarily through local
telecommunications lines. We cannot assure you that this infrastructure will be
further developed. In addition, we will have no access to alternative networks
and services, on a timely basis if at all, in the event of any infrastructure
disruption or failure. The Internet infrastructure in the PRC may not support
the demands associated with continued growth in Internet usage.
 
 We
may suffer currency exchange losses if the Renminbi depreciates relative to the
U.S. Dollar.
 
 Our
reporting currency is the U.S. dollar. However, a substantial portion of our
assets and revenues are denominated in the Chinese currency, Renminbi, commonly
referred to as RMB. Our assets and revenues expressed in our U.S. dollar
financial statements will decline in value of the Renminbi depreciates relative
to the U.S. dollar. Any such depreciation could adversely affect the market
price of our Common Stock. Very limited hedging transactions are available in
the PRC to reduce our exposure to exchange rate fluctuations and we do not
intend to engage in any such transactions. In addition, our currency exchange
losses may be magnified by Chinese exchange control regulations that restrict
our ability to convert Renminbi into U.S. Dollars.
 
 We
may not be able to freely convert Renminbi into foreign currency.
 
 A portion of our revenues and operating
expenses will be denominated in Renminbi while a portion of our capital
expenditures are denominated in U.S. dollars.
 
 Under
current Chinese regulations, the payment of dividends, trade and service-related
foreign transactions to a foreign investor of a foreign-invested enterprise is
treated as a "current account" payment for which the approval of the State
Administration of Foreign Exchange is not required. However, in order to
distribute dividends we may be required to file documentation to a designated
foreign exchange bank. The Bank must certify that all requirements have been
met, such as payment of taxes, directors' approval and a capital verification
report issued by an accounting firm. If a foreign-invested enterprise dissolves,
a return of capital, which includes foreign direct investment, is treated as a
"capital account" payment. This typically requires approval of the State
Administration of Foreign Exchanges' in addition to the filing of
documentation.
 
 We may currently convert Renminbi for
transactions under the "current account" without the approval of the State
Administration of Foreign Exchange for settlement of "current account"
transactions, including payment of dividends,
by providing commercial documents evidencing these transactions. They may also
retain foreign exchange in their current accounts (subject to a ceiling approved
by the State Administration of Foreign Exchange) to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant Chinese governmental
authorities may limit or eliminate the ability to purchase and retain foreign
currencies in the future. Such change of policy would materially and adversely
affect our business, financial condition and results of
operations.
  18




The
Chinese legal and judicial system may negatively impact foreign
investors.


In 1982,
the National Peoples Congress amended the Constitution of China to authorize
foreign investment and guarantee the "lawful rights and interests" of foreign
investors in the PRC. However, the PRC's system of laws is not yet
comprehensive. The legal and judicial systems in the PRC are still rudimentary,
and enforcement of existing laws is inconsistent. Many judges in the PRC lack
the depth of legal training and experience that would be expected of a judge in
a more developed country. Because the Chinese judiciary is relatively
inexperienced in enforcing the laws that do exist, anticipation of judicial
decision-making is more uncertain than would be expected in a more developed
country. It may be impossible to obtain swift and equitable enforcement of
laws  that do exist, or to obtain enforcement of the judgment of one
court by a court of another jurisdiction. The PRC's legal system is based on
written statutes; a decision by one judge does not set a legal precedent that is
required to be followed by judges in other cases. In addition, the
interpretation of Chinese laws may be varied to reflect domestic political
changes.





The
promulgation of new laws, changes to existing laws and the pre-emption of local
regulations by national laws may adversely affect foreign investors. However,
the trend of legislation over the last 20 years has significantly enhanced the
protection of foreign investment and allowed for more control by foreign parties
of their investments in Chinese enterprises. There can be no assurance that a
change in leadership, social or political disruption, or unforeseen
circumstances affecting the PRC’s political, economic or social life, will not
affect the Chinese government's ability to continue to support and pursue these
reforms. Such a shift could have a material adverse effect on our business and
prospects.





The
practical effect of the Peoples Republic of China legal system on our business
operations in the PRC can be viewed from two separate but intertwined
considerations. First, as a matter of substantive law, the Foreign Invested
Enterprise laws provide significant protection from government interference. In
addition, these laws guarantee the full enjoyment of the benefits of corporate
Articles and contracts to Foreign Invested Enterprise participants. These laws,
however, do impose standards concerning corporate formation and governance,
which are not qualitatively different from the general corporation laws of the
several states. Similarly, the Peoples Republic of China accounting laws mandate
accounting practices, which are not consistent with U.S. Generally Accepted
Accounting Principles. The PRC's accounting laws require that an annual
"statutory audit" be performed in accordance with the PRC accounting standards
and that the books of account of Foreign Invested Enterprises are maintained in
accordance with Chinese accounting laws. Article 14 of the Peoples Republic of
China Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned
Enterprise to submit certain periodic fiscal reports and statements to designate
financial and tax authorities, at the risk of business license revocation.
Second, while the enforcement of substantive rights may appear less clear than
United States procedures, the Foreign Invested Enterprises and Wholly
Foreign-Owned Enterprises are Chinese registered companies, which enjoy the same
status as other Chinese registered companies in business-to-business dispute
resolution. Generally, the Articles of Association provide that all business
disputes pertaining to Foreign Invested Enterprises are to be resolved by the
Arbitration Institute of the Stockholm Chamber of Commerce in Stockholm, Sweden,
applying Chinese substantive law. Any award rendered by this arbitration
tribunal is, by the express terms of the respective Articles of Association,
enforceable in accordance with the "United Nations Convention on the Recognition
and Enforcement of Foreign Arbitral Awards (1958)." Therefore, as a practical
matter, although no assurances can be given, the Chinese legal infrastructure,
while different in operation from its United States counterpart, should not
present any significant impediment to the operation of Foreign Invested
Enterprises.





Item
1B.              Unresolved
Staff Comments.





Not
Applicable.





Item
2.    Properties.





All land
in the PRC is owned by the government and cannot be sold to any individual or
entity. Instead, the government grants landholders a "land use right" after a
purchase price for such "land use right" is paid to the government. The "land
use right" allows the holder the right to use the land for a specified long-term
period of time and enjoys all the incidents of ownership of the land. The
following are the details regarding Universal travel Group’s land use
rights with regard to the land that it uses  in its
business.


19





Our
principal executive offices are located at 5/F South Tower, Building No. 11,
High-Tech Industrial Park, Second Zhongke Road, Nanshan,
Shenzhen, People's Republic of China. The offices contain approximately
1,425 square feet of usable space and are subject to a lease which expires
October 2010. The monthly rent payable for these offices is
$12,517.60.





In
addition to the above principal offices, we also have a call center located at
Shennan Road, Hualian Center Room 301 - 304, Shenzhen, People's Republic of
China. The offices contain approximately 356 square meters of usable space and
are subject to a lease which expires October 2010. The monthly rent payable for
these offices is $3,718.





In
addition to our headquarters, YZL and STA maintain offices at the locations
listed below which require aggregate monthly payments of $14,760.





1.
            Baoan
      Airport Branch: BT61-62, Area B, Shenzhen Baoan
  Airport.


2.
            Fuyong
      Branch: No. 129. Bai Shi Sha Blvd, Fuyong Zhen, Shenzhen
    City.


3.
            Longhua
      Zhuojing Branch: No.11 Sheng Di Long Quan, Ban Ren Min Bei Road, Longhua
      Blvd, Shenzhen City.


4.
            Xinzhou
      Branch: 1st Floor Business Center, Chu Tian Hotel, Hubei Building, Bin He
      Road, Shenzhen City.




FOI
maintains 9 offices around the Guangzhou area which require aggregate monthly
payments of $5,241.80;




XGN
maintains 3 offices in Xi’an which require aggregate monthly payments of
$732.60;




SLB
maintains its main office in Shanghai and makes aggregate monthly payments of
$5,827.33;





CTE
maintains offices of approximately 1,194 square meters, and makes aggregate
monthly payments of $3,496.




We plan
to expand our operations and lease more office space in the near future, based
on our increased office spaces and the rentals for our Kiosks.





Item
3.    Legal Proceedings.





We know
of no material, active, pending or threatened proceeding against us or our
subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or
defendant in any material proceeding or pending litigation.


20


PART
II





Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
Securities.





Market
Information





Since
October 27, 2009, our common stock has been listed and traded on the NYSE under
the symbol “UTA”. From May 28, 2009 until October 27, 2009, our common stock was
listed and traded on the NYSE Amex under the same symbol “UTA”. Previously from
August 21, 2006 until May 28, 2009, our common stock was traded on the
Over-the-Counter Bulletin Board under the symbol “UTVG.OB”. Prior to August 21,
2006, the date we changed our name from TAM of Henderson, Inc. to Universal
Travel Group, our Common Stock was quoted under the symbol
"TMHN.OB".





On
March 31, 2009, we effected an one-for-three reverse stock split of our common
stock.  The one-for-three reverse stock split automatically converts
three shares of the Company's common stock into one share of common stock. The
reverse stock split affected all issued and outstanding shares of the Company's
common stock, and shares of common stock underlying stock options and warrants
that were outstanding immediately prior to the effective date of the reverse
stock split. Any fractional shares resulting from the exchange would be
rounded up to the nearest whole share of new common stock.





The
prices set forth below reflect the quarterly high and low bid price information
for shares of our Common Stock for the periods indicated, based on reports of
transactions from the NYSE, NYSE Amex and the OTC Bulletin Board. Those
quotations taken from the OTC Bulletin Board  reflect inter-dealer
prices, without retail markup, markdown or commission, and may not represent
actual transactions.





Calendar Quarter
                    
                    Low Bid
                    
                    
                    High Bid2008
      First Quarter
                    
                    $
                    1.45
                    
                    
                    $
                    3.822008
      Second Quarter
                    
                    $
                    1.12
                    
                    
                    $
                    2.862008
      Third Quarter
                    
                    $
                    0.87
                    
                    
                    $
                    1.652008
      Fourth Quarter
                    
                    $
                    0.45
                    
                    
                    $
                    1.102009
      First Quarter
                    
                    $
                    0.59
                    
                    
                    $
                    2.952009
      Second Quarter
                    
                    $
                    2.01
                    
                    
                    $
                    12.602009
      Third Quarter
                    
                    $
                    8.62
                    
                    
                    $
                    17.202009
      Fourth Quarter
                    
                    $
                    8.91
                    
                    
                    $
                    16.50





Holders
of Securities




As of
March 4, 2010, there were approximately 82 holders of record of our common
stock, including shares held in street name by brokerage firms.  The
holders of common stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders.  Holders of the
common stock have no preemptive rights and no right to convert their common
stock into any other securities.  There are no redemption or sinking
fund provisions applicable to the common stock.





Our
common stock is covered by a Commission rule that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors, which are generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. For transactions covered by the rule, the broker-dealer must
make a special suitability determination for the purchaser and transaction prior
to the sale. Consequently, the rule may affect the ability of broker-dealers to
sell our securities and also may affect the ability of purchasers of our common
stock to sell their shares in the secondary market. It may also cause fewer
broker-dealers to be willing to make a market in our common stock, and it may
affect the level of news coverage we receive.




21




Dividends





We
have not declared or paid any cash dividends on our common stock since our
inception, and our board of directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements and other factors deemed relevant by our board of directors. There
are currently no restrictions that limit our ability to declare cash dividends
on its common stock and we do not believe that there are any that are likely to
do so in the future.





Securities
Authorized for Issuance under Equity Compensation Plans





In
January 2007, we adopted the Universal Travel Group 2007 Equity Incentive Plan.
In the first quarter of 2007, we issued 1,256,667 shares of our Common Stock
pursuant to the Plan for services rendered from October 2, 2006, through
February 28, 2007.  At the time of issuance the 1,256,667 shares were
valued at $1,583,400, of which $950,040 was charged against earnings in 2006 and
$633,360 was charged against earnings for 2007.





There are
no longer any shares available for issuance pursuant to the Universal Travel
Group 2007 Equity Incentive Plan.





During
2007 we issued options to purchase 33,333 shares to each of three newly
appointed directors. The options are exercisable for a period of approximately
10 years from the date of issuance and are exercisable at prices of $5.85; $8.55
and $11.25, respectively. All three directors have to date ceased to be
directors of the Company.  Accordingly, only an aggregate of options
to purchase 22,222 shares of our Common Stock has vested amongst these
three ex-directors.





Additionally,
on June 24, 2008, we granted an option to purchase 33,333 shares of our Common
Stock to our newly appointed director, Yizhao Zhang.  His options were
exercisable for a period of approximately 10 years from the date of issuance and
are exercisable at $4.56 per share. The option holder has no voting or
dividend rights. We record the expense of the stock options over the related
vesting period. The options were valued using the Black-Scholes option-pricing
model at the model at the date of grant stock option pricing.





In
January 2009, we adopted the Universal Travel Group 2009 Incentive Stock
Plan.  On January 20, 2009, we issued options to purchase 2,000,000
shares of common stock to our Chief Executive Officer, Ms. Jiangping Jiang at an
exercise price of $3.84.  The remaining options to purchase 200,000
shares of common stock were issued on the same date to various employees and
directors at an exercise price of $2.70.  The term of each option was
for 10 years.  The options vest in six annual equal
installments.  However, in the event (i) the Company reports an after
tax Net Income of $14,000,000  in its Annual Report on Form 10-K filed with
the SEC for its fiscal year 2008, then options to purchase one-third of the
shares granted shall vest and become immediately exercisable and each grantee of
such options shall be entitled to exercise his/her options rateably, (ii) 
the Company reports an after tax Net Income of $18,000,000  in its Annual
Report on Form 10-K filed with the SEC for its fiscal year 2009, then options to
purchase another one-third of the shares  granted shall vest and
become immediately exercisable and each grantee of such options shall be
entitled to exercise his/her options rateably and (iii) the Company reports an
after tax Net Income of $22,000,000  in its Annual Report on Form 10-K
filed with the SEC for its fiscal year 2010, then options to purchase another
one-third of the shares granted shall vest and become immediately exercisable
and each grantee of such options shall be entitled to exercise his/her options
rateably.   As of the date of this Annual Report, all the
2,200,000 options to purchase our common stock under the Universal Travel Group
2009 Incentive Stock Plan have been issued and there are no longer any shares
available for issuance under the said Plan.





The
following table provides information as of the date hereof our outstanding
equity compensation


plans and
arrangements .




22




Equity
Compensation Plan Information





Plan Category
                              
                              Number of securities
                                (post-split) to be issued
                                upon exercise of
                                outstanding options,
                                warrants and rights
                                (a)
                              
                              
                              Weighted average exercise
                                price of outstanding
                                options, warrants and
                                rights
                                (b)
                              
                              
                              Number of securities
                                remaining available for
                                future issuance under
                                equity compensation plans
                                (excluding securities
                                reflected in column (a))
                                (c)Equity
      compensation plans approved by security holders
                              
                              
                              2,200,000
                              
                              
                              $
                              3.72
                              
                              
                              
                              0Equity
      compensation plans not approved by security holders
                              
                              
                              55,555
                              
                              
                              $
                              6.70
                              
                              
                              
                              0Total
                              
                              
                              55,555
                              
                              
                              $
                              6.70
                              
                              
                              
                              0




Purchases
of Equity Securities by the Company and Affiliated Purchasers





During the fourth quarter of our fiscal
year ended December 31, 2009, neither we nor any "affiliated purchaser" (as
defined in Rule 10b-18(a)(3) under the Exchange Act) purchased any shares of our
Common Stock, the only class of our outstanding equity securities registered
pursuant to section 12 of the Exchange Act.





Recent
Sales of Unregistered Securities




The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ended December 31, 2009:





None.





The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ended December 31, 2008:





On
February 4, 2008, we received a commitment for $3.5 million in financing from
three Chinese financial institutions, namely Total Shine Group Limited, Victory
High Investments Limited and Think Big Trading Limited, in exchange for 433,827
shares of our Common Stock, a price of $8.10 per share. The proceeds were to be
used exclusively to reduce debt from past acquisitions. The funds were to be
paid in three installments: $600,000 was paid upon execution of the equity
financing agreement, $1,400,000 is to be paid no later than February 28, 2008
and the balance of $1,514,000 is to be paid no later than ten days after the
filing of our Annual report. The first round of financing closed on February 7,
2008.  Proceeds from the first closing amounting to $599,994 were paid
directly to the shareholders of  Foshan Overseas International Travel
Service Co., Ltd. (FOI) to satisfy an amount due to them under a note and we
issued 74,074 shares of our Common Stock to Total Shine Group Limited, Victory
High Investments Limited and Think Big Trading Limited.  On May 7,
2008 we terminated the equity financing agreement with the financial
institutions due to their failure to provide the remaining amounts according to
the agreement.





On August
28, 2008, we entered into a Securities Purchase Agreement with Access America
Fund, LP, Chinamerica Fund LP, Pope Investments II LLC, Heller Capital
Investments, LLC, CGM as C/F Ronald I. Heller IRA, Investment Hunter, LLC, MARed
Investments, High Capital Funding, LLC, and Merrill Lynch, Pierce, Fenner &
Smith, FBO Beau L. Johnson (collectively, the “Buyers”) to sell to the Buyers
1,529,569 shares of common stock, of the Company and warrants to purchase
764,785 shares of common stock for an aggregate purchase price of $7,112,500.
Each warrant has an exercise price of $8.13 and a term of 5 years from the date
of issuance.





The
private placements were exempt from registration under the Securities Act under
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder because
the securities were offered only to nine purchasers, all of which were
accredited investors, no general advertisement of the sale of securities was
made, and all other requirements of the exemption were satisfied.




23




The
following sets forth recent sales by the Company of unregistered securities
during the fiscal year ending December 31, 2007:





On April
10, 2007, we, Full Power Enterprise Global Limited ("Full Power"), Shenzhen Yu
Zhi Lu Aviation Service Company Limited (“YZL”), Shenzhen Speedy Dragon
Enterprise Limited (“SSD”) and Xiangsheng Song, entered into a share exchange
agreement pursuant to which YZL acquired 100% of SSD in a stock and cash
transaction valued at approximately US $4,000,000. Under the share exchange
agreement, in exchange for his shares in SSD, Xiangsheng Song received both
stock consideration and cash consideration. The stock consideration consisted of
238,095 newly issued shares of our Common Stock.





On August
6, 2007, pursuant to a share exchange agreement, in exchange for the shares of
Xi'an Golden Net Travel Serve Service Company Limited (“XGN”), we issued to the
shareholders of XGN an aggregate of 50,588 shares of our Common Stock, which
were divided proportionally among the shareholders in accordance with their
respective ownership interests in XGN immediately before the closing of the
share exchange agreement.





On August
8, 2007, pursuant to a share exchange agreement, in exchange for the shares of
Shanghai Lanbao Travel Service Company Limited (“SLB”), we issued to the
shareholders of SLB an aggregate of 200,000 shares of our Common Stock, which
were divided proportionally among the shareholders in accordance with their
respective ownership interests in SLB immediately before the closing of the
share exchange agreement.





On
October 29, 2007, pursuant to a share exchange agreement, in exchange for the
shares of Foshan Overseas International Travel Service Co., Ltd. (“FOI”), we
issued to the shareholders of FOI an aggregate of 374,329 shares of our Common
Stock, which were divided proportionally among the shareholders in accordance
with their respective ownership interests in FOI immediately before the closing
of the share exchange agreement.





The
shares of the our Common Stock were issued to Xiangsheng Song and the
shareholders without registration under Section 5 of the Securities Act in
reliance on the exemption from registration contained in Section 4(2) of the
Securities Act. Specifically, (1) we had determined that Xiangsheng Song
and the shareholders are knowledgeable and experienced in finance and business
matters and thus they are able to evaluate the risks and merits of acquiring our
securities; (2) Xiangsheng Song and the shareholders have advised us that they
are able to bear the economic risk of purchasing our common stock; (3) we have
provided Xiangsheng Song the shareholders with access to the type of information
normally provided in a prospectus; and (4) we did not use any form of public
solicitation or general advertising in connection with the issuance of the
shares.





In
addition, the shares of our Common Stock were issued to Xiangsheng Song and the
shareholders without registration under Section 5 of the Securities Act, in
reliance on the exemption from registration contained in Regulation S under the
Securities Act. We believe that the issuance of our Common Stock to Xiangsheng
Song and the shareholders (the "Offshore Shareholders") constituted an offshore
transaction. Each of the Offshore Shareholders is a resident of China. At the
time the Registrant offered to issue its shares to the Offshore Shareholders,
each of the Offshore Shareholders was located in China. Furthermore, at the time
we issued our Common Stock to the Offshore Shareholders, we reasonably believed
that each of the Offshore Shareholders was outside the United States. As a
result, we believed that these facts enable us to also rely on Regulation S for
an exemption from the registration requirements of Section 5 of the Securities
Act with respect to the issuances to the Offshore Shareholders.




Item
6. Selected Financial Data.




Not
applicable.




Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.




Forward-Looking
Statements: No Assurances Intended





In
addition to historical information, this Annual Report contains forward-looking
statements, which are generally identifiable by use of the words “believes,”
“expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or
similar expressions. These forward-looking statements represent Management’s
belief as to the future of Universal Travel Group.  Whether those
beliefs become reality will depend on many factors that are not under
management’s control.  Many risks and uncertainties exist that could
cause actual results to differ materially from those reflected in these
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements. We undertake no obligation to revise or
publicly release the results of any revision to these forward-looking
statements.


24





Business
Overview





We are a
travel services provider in the People’s Republic of China engaged in providing
air ticketing and hotel booking services as well as domestic and international
packaged tourism services throughout the People’s Republic of China via the
internet, the customer representatives and the kiosks.





In 2007,
we completed the acquisitions of Xi'an Golden Net Travel Serve Service Company
Limited, which specializes in domestic packaged tour services, and Shanghai
Lanbao Travel Service Company Limited, which specializes in hotel reservations
and Foshan Overseas International Travel Service Co., Ltd, which handles
both domestic and international travel inquiries.





In early
2008, we successfully integrated our packaged tours, air-ticketing and hotel
reservation businesses onto our newly developed on-line platform, which
provides rich and comprehensive travel information to primarily leisure
travelers.





In
October 2008, we successfully rolled out our Kiosks. We believe that the Kiosks
are innovate self-service terminals capable of handling a full ranging of
booking services including packaged tours through a secured built in payment
function that  accepts all major Chinese bank cards.  As of
the end of fiscal year 2009, we had 623 Kiosks manufactured and
operating.  511 of them were placed in Guangdong Province, where our
company is located, and another 112 were placed outside this province. We plan
to roll additional 1,400 Kiosks in 2010.





Under the
theme, "Wings towards a more colorful life", we currently have three discrete
lines of business and revenue, and each is carried out by one or two
subsidiaries of the Company:  (i) air-ticketing (Shenzhen Yu Zhi Lu
Aviation Service Company Limitedand Chongqing
Universal Travel E-Commerce Co., Ltd), (ii) hotel reservations (Shenzhen Yu Zhi
Lu Aviation Service Company Limited and Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd,
and Shenzhen Universal Travel Agency Co. Ltd ). Operations of each segment
are exclusive to the operations of the associated subsidiary
company.





Previously
in 2007, we also acquired Speedy Dragon Enterprise Limited, which specialized in
air cargo agency. In the second calendar quarter of 2009, based on the past
performance of our air cargo business, as well as the market perspective of this
business, we decided to spin off our Speedy Dragon Enterprise Limited
subsidiary, and as a result, exited the air cargo business. The air cargo
industry had been suffering from the contraction in manufacturing in the Pearl
River Delta, and we were not competitive enough in this segment of business. We
believe the spin-off was beneficial to us as it allowed us to concentrate on our
core business of selling air tickets, hotel accommodations and packaged
tours.





In
December 2008, we established Shenzhen Universal Travel Agency Co. Ltd, a
PRC company, to meet the increasing packaged-tour demand in Shenzhen
City.





In March
2009, in order to seize the opportunities arising from the economic promotion by
the Chinese government of the mid and western regions of the PRC, we
strategically set up Chongqing Universal Travel E-Commerce Co., Ltd, a PRC
company, to strengthen our presence in that region. It began generating revenues
in the third quarter of 2009.





On
December 17, 2009, we entered into a Letter of Intent to acquire Huangshan
Holiday Travel Service Company (“Huangshan Holiday”) for RMB 20 million
(approximately $2.9 million), 80% of which shall be paid cash and 20% in shares
of common stock of the Company. The purchase consideration may be subject to
adjustment after completion of due diligence on Huangshan Holiday by the
Company. Founded in 1999, Huangshan Holiday provides comprehensive travel
services in the Huangshan district in the Anhui Province of China. Huangshan, a
national geological park and UNESCO World Heritage Site, is one of China’s most
popular travel destinations, with over eight million tourists annually.
Huangshan Holiday provides guided and self-guided package tours and airline and
hotel reservation services for both leisure and business travelers. Huangshan
Holiday serves as the exclusive hotel reservation agency for several major
online travel service providers in China, including eLong and 12580, and has
over 70% share of the mid to high end hotel reservation market in
the Huangshan Tourism District. Estimated full year 2009 revenues and net
income for Huangshan Holiday are approximately $4.4 million and $0.6
million, respectively.


25





On
January 19, 2010, we entered into a Letter of Intent to acquire Hebei Tianyuan
Travel Agency (“Tianyuan”) for RMB 29 million (approximately $4.2 million), 80%
of which shall be paid in cash and 20% of the consideration in shares of the
Company’s common stock. The purchase consideration may be subject to adjustment
after completion of acquisition audit on Tianyuan by the Company. Founded in
1999, Tianyuan was the first authorized travel agency in the Hebei Province in
China.  In addition, Tianyuan is the exclusive provider of travel
agency services to Mount Lu and Lushan National Park, both domestic tourist
attractions listed on the UNESCO World Heritage Site.  Tianyuan was
the organizer of the International Economy & Culture
Communication Forum sponsored by the local government and the exclusive
organizer of the Young Journalist Summer Camp sponsored by the Yanzhao Evening
Paper. We believe that Tianyuan’s exclusive service with these regional sites
and unique partnership with the government provides Tianyuan with an advantage
to be a market leader in travel services in the region.





On
January 26, 2010, we entered  into a Letter of Intent to acquire
Zhengzhou Yulongkang Travel Service Company (“Zhengzhou Yulongkang”) for RMB 39
million (approximately $5.7 million), 90% of which is to be paid in cash and 10%
of which is to be paid in shares of the Company’s common stock. The purchase
consideration may be subject to adjustment after the completion of acquisition
audit on Zhengzhou Yulongkang by the Company. Zhengzhou Yulongkang was
established in 2000 in Zhengzhou, Henan Province of China. The company currently
has a management team of 25 people and over 60 tour organizers and guides.
Zhengzhou Yulongkang provides comprehensive travel services and maintains
long-term cooperation relations with transportation agents, travel destinations,
hotels, and air ticket agencies. Its regional tour routes include “Charming
Tibet”, “Winter Hot Spring”, “Passion Ski Trip”, etc. Zhengzhou Yulongkang has
received a series of industry and corporate awards from 2003 –
2006.





In order
to finance the abovementioned acquisitions and our working capital, on December
10, 2009, we entered into a definitive subscription agreement with to sell to
institutional investors an aggregate of 2,222,222 shares of its common stock at
a price of $9.00 per share for net proceeds of approximately $19.0 million. The
sale of the common stock closed on December 15, 2009.  The offer and sale
of the shares were made pursuant to an effective Registration Statement on Form
S-3 (Registration No. 333- 161139) initially filed with the Securities and
Exchange Commission on August 7, 2009 and amended on November 2, 2009. The
Registration Statement was declared effective on November 5,
2009.




In 2009,
we were selected one of the Top Ten Brands of Travel Services in the People’s
Republic of China. We believe our quality of services will distinguish us in our
long term competitiveness.





We aim to
be the foremost leading online travel services provider in the People’s Republic
of China, especially in the air ticketing service, hotel booking and packaged
tour providing sectors.





RESULTS
OF OPERATIONS





THREE
MONTHS ENDED DECEMBER 31, 2009 AND 2008





The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the three
months ended December 31, 2009 and 2008.




26




Revenue
Segment Analysis:





Three months
                                          ended December
                                          31, 2009
                                        
                                        
                                        Three months
                                          ended December
                                          31, 2008
                                        
                                        
                                        Increase / Decrease
                                        
                                        
                                        PercentageGross
      Revenues
                                        
                                        $
                                        34,174,482
                                        
                                        
                                        $
                                        27,107,173
                                        
                                        
                                        $
                                        7,157,3097
                                        
                                        
                                        
                                        26.5
                                        %Cost
      of Services
                                        
                                        
                                        (24,109,170
                                        )
                                        
                                        
                                        (17,498,796
                                        )
                                        
                                        
                                        (6,610,374
                                        )
                                        
                                        
                                        37.8
                                        %Gross
      Profit
                                        
                                        
                                        10,065,312
                                        
                                        
                                        
                                        9,518,377
                                        
                                        
                                        
                                        546,935
                                        
                                        
                                        
                                        5.7
                                        %SG&A
                                        
                                        
                                        (2,533,885
                                        )
                                        
                                        
                                        (1,489,052
                                        )
                                        
                                        
                                        (1,044,833
                                        
                                        
                                        
                                        70.2
                                        %Income
      from Operations
                                        
                                        
                                        7,531,427
                                        
                                        
                                        
                                        8,029,325
                                        
                                        
                                        
                                        (497,898
                                        )
                                        
                                        
                                        (6.2
                                        )%Other
      income
                                        
                                        
                                        11,431
                                        
                                        
                                        
                                        (1,461
                                        )
                                        
                                        
                                        12,892
                                        
                                        
                                        
                                        (882.4
                                        )%Other
      expenses
                                        
                                        
                                        (87,853
                                        )
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (87,853
                                        )
                                        
                                        
                                        N/ALoss
      on Disposal of Assets
                                        
                                        
                                        (10,473
                                        )
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (10,473
                                        )
                                        
                                        
                                        N/ALoss
      on change in fair value of derivative liabilities
                                        
                                        
                                        (278,215
                                        )
                                        
                                        
                                        ,0
                                        
                                        
                                        
                                        (278,215
                                        )
                                        
                                        
                                        N/AInterest
      income
                                        
                                        
                                        18,918
                                        
                                        
                                        
                                        15,626
                                        
                                        
                                        
                                        3,292
                                        
                                        
                                        
                                        21.1
                                        %Interest
      expenses
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (27,638
                                        )
                                        
                                        
                                        27,638
                                        
                                        
                                        
                                        (100
                                        )%Income
      before Income Taxes
                                        
                                        
                                        7,185,235
                                        
                                        
                                        
                                        8,015,852
                                        
                                        
                                        
                                        (830,617
                                        )
                                        
                                        
                                        (10.4
                                        )%Provision
      for income taxes
                                        
                                        
                                        (1,949,754
                                        )
                                        
                                        
                                        (1,823,500
                                        )
                                        
                                        
                                        (126,254
                                        )
                                        
                                        
                                        6.9
                                        %Net
      income-Continuing operations
                                        
                                        
                                        5,235,481
                                        
                                        
                                        
                                        6,192,352
                                        
                                        
                                        
                                        (956,871
                                        )
                                        
                                        
                                        (15.0
                                        )%Income
      from discontinuing operations
                                        
                                        
                                        0
                                        
                                        
                                        
                                        133,941
                                        
                                        
                                        
                                        (133,941
                                        )
                                        
                                        
                                        (100
                                        )%Net
      income
                                        
                                        
                                        5,235,481
                                        
                                        
                                        
                                        6,326,293
                                        
                                        
                                        
                                        (1,090,813
                                        )
                                        
                                        
                                        (17.2
                                        )%





For the
three months ended December 31, 2009:





Revenue Segment
                      Analysis
                    
                    Air tickets
                      (YZL and
                      CTE)
                    
                    
                    (%) of
                      sector
                    
                    
                    Hotel
                      (SLB)
                    
                    
                    (%) of
                      sector
                    
                    
                    Tours
                      (XGN,FOI
                      and STA**)
                    
                    
                    (%) of
                      sector
                    
                    
                    TotalRevenue
                    
                    
                    6,586,888
                    
                    
                    
                    19.27
                    %
                    
                    
                    3,981,586
                    
                    
                    
                    11.65
                    %
                    
                    
                    23,606,008
                    
                    
                    
                    69.07
                    %
                    
                    
                    34,174,482Cost
      of Services
                    
                    
                    1,290,678
                    
                    
                    
                    5.35
                    %
                    
                    
                    1,963,748
                    
                    
                    
                    8.15
                    %
                    
                    
                    20,854,744
                    
                    
                    
                    86.50
                    %
                    
                    
                    24,109,170Gross
      Profit
                    
                    
                    5,296,210
                    
                    
                    
                    52.62
                    %
                    
                    
                    2,017,838
                    
                    
                    
                    20.05
                    %
                    
                    
                    2,751,264
                    
                    
                    
                    27.33
                    %
                    
                    
                    10,065,312Gross
      Margin
                    
                    
                    80.41
                    %
                    
                    
                    
                    
                    
                    
                    50.68
                    %
                    
                    
                    
                    
                    
                    
                    11.65
                    %
                    
                    
                    
                    
                    
                    
                    29.45
                    %Segment effect in
      Gross Margin (*)
                    
                    
                    15.50
                    %
                    
                    
                    
                    
                    
                    
                    5.90
                    %
                    
                    
                    
                    
                    
                    
                    8.05
                    %
                    
                    
                    
                    
                    
                    
                    29.45
                    %





For the
three months ended December 31, 2008 (**):




Revenue Segment
                    
                    Air tickets
                      (YZL)
                    
                    
                    (%) of
                      sector
                    
                    
                    Hotel
                      (SLB)
                    
                    
                    (%) of
                      sector
                    
                    
                    Tours
                      (XGN&FOI)
                    
                    
                    (%) of
                      sector
                    
                    
                    TotalRevenue
                    
                    
                    5,082,404
                    
                    
                    
                    18.81
                    %
                    
                    
                    3,775,754
                    
                    
                    
                    13.98
                    %
                    
                    
                    18,159,015
                    
                    
                    
                    67.21
                    %
                    
                    
                    27,017,173Cost
      of Services
                    
                    
                    473,953
                    
                    
                    
                    2.71
                    %
                    
                    
                    1,280,450
                    
                    
                    
                    7.32
                    %
                    
                    
                    15,744,393
                    
                    
                    
                    89.97
                    %
                    
                    
                    17,498,796Gross
      Profit
                    
                    
                    4,608,451
                    
                    
                    
                    48.42
                    %
                    
                    
                    2,495,304
                    
                    
                    
                    26.22
                    %
                    
                    
                    2,414,622
                    
                    
                    
                    25.37
                    %
                    
                    
                    9,518,377Gross
      Margin
                    
                    
                    90.67
                    %
                    
                    
                    
                    
                    
                    
                    66.09
                    %
                    
                    
                    
                    
                    
                    
                    13.30
                    %
                    
                    
                    
                    
                    
                    
                    35.23
                    %Segment effect in
      Gross Margin (*)
                    
                    
                    17.06
                    %
                    
                    
                    
                    
                    
                    
                    9.24
                    %
                    
                    
                    
                    
                    
                    
                    8.94
                    %
                    
                    
                    
                    
                    
                    
                    35.23
                    %





(*)
"Segment effect in Gross Margin" was calculated by multiplying "the percentage
of the segment revenue over the total revenue" with "gross margin of the related
sector". This outlines how each segment contributes to the total gross
margin.


(**)Shenzhen
Universal Travel Agency Co. Ltd and Chongqing Universal Travel E-Commerce
Co., Ltd both began operations in June2009. Therefore they do not appear in the
2008 financial year figures.




27




Revenue


We
currently have three discrete lines of business and revenue, and each is carried
out by one or two subsidiaries of the Company: (i) air-ticketing (Shenzhen Yu
Zhi Lu Aviation Service Company Limited and Chongqing Universal Travel
E-Commerce Co., Ltd), (ii) hotel reservations (Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd
and Shenzhen Universal Travel Agency Co. Ltd). Operations of each segment
are exclusive to the operations of the associated subsidiary company. For the
three months ended December 31, 2008, we also had air cargo agency services,
which were operated by Shenzhen Speedy Dragon Enterprise Limited.




Revenue
for the three months ended December 31, 2009 was $34,174,482 compared to
$27,017,173 for the same period in 2008, an increase of approximately 26.5%.This
increase in revenue was primarily due to the successful integration and cross
selling among our newly diversified business segments that increased the group’s
competitiveness. Other factors attributable to this increase include the change
of public holiday period pattern, the easing of foreign travel restrictions
on October 29, 2008, as well as the reduction of air fuel surcharges due to the
lower global fuel prices in 2009, compared to 2008.





The
impact on the Company’s business by the abovementioned factors are derived from
management’s good faith beliefs and experience.  The exact extent of
the impact of each factor is impossible to quantify as a myriad of other factors
also influence the outcome.  Also, these factors are by their nature
unquantifiable.  For example, it is impossible to calculate how many
more people in China would be travelling because of the Lunar New Year and what
this would translate in terms of increased ticket sales or hotel room
bookings.





Revenue
from air-ticketing was $6,586,888 for the three months ended December 31, 2009,
compared to $5,082,405 for the same period last year, an increase of
approximately 29.6%. This increase is generally driven by the same factors
mentioned above, but more specifically to the increased demand for air passenger
transportation.





Revenue
generated by hotel reservations and bookings for the three month period ended
December 31, 2009 totaled $3,981,586 versus $3,775,754, a year over increase of
approximately 5.5%. This increase is generally driven by the factors mentioned
above for our increase in revenue, but more specifically, due to the successful
integration of the various business segments of the Company.





Revenue
generated through packaged travel services for the three months ended December
31, 2009 was $23,606,008 compared to $18,159,015, for the same period in 2008,
an increase of approximately 30.0%. This increase is generally driven by the
factors mentioned above for our increase in revenue, but more specifically due
to the increase in tourism demand and successful integration of the Company’s
various business segments and marketing channels.




Cost of
Services




Costs of
services for air tickets cover mainly business and revenue related
taxes.  Costs of services for hotel reservations cover mainly business
and revenue related taxes, as well as commissions paid to the sales agents for
selling hotel rooms in the Company’s system.   Costs of services
for packaged tours include meals, transportation (airline tickets, train tickets
and car rental), lodging, airport transfers, tickets to local attractions and
tours.





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





Costs of
services for the three months ended December 31, 2009 was $24,109,170 compared
to $17,489,496 for the same period in 2008, an increase of $6,610,374, or
approximately 37.8%. The comparatively higher costs of services result from
higher percentage of packaged tours in our revenues.




Costs of
services from air-ticketing was $1,290, 678 for the three months ended December
31, 2009, compared to $473,953 for the same period last year,  an
increase of $816,725, or approximately 172.3%. The increase is mostly due to our
reclassification of costs. Previously we had mistakenly allocated some direct
costs to selling, general and administrative expenses.


28





Costs of
services from hotel-reservation was $1,963,748 for the three months ended
December 31, 2009, compared to $1,280,450 for the same period last
year,  an increase of $683,298, or approximately 53.4%. The increase
is mostly due to our reclassification of costs. Previously we had mistakenly
allocated some direct costs to selling, general and administrative
expenses.





Costs of
services from packaged-tour was $20,854,744 for the three months ended December
31, 2009, compared to $15,744,393 for the same period last year,  an
increase of $5,110,351, or approximately 32.5%. The increase is in tandem with
the increase of revenue.




Gross
Profit




Gross
profit for the three months ended December 31, 2009 was $10,065,312 compared to
$9,518,377 for the three months ended December 31, 2008, an increase of
approximately 5.7 %. The increase in gross profit partially reflects the
Company’s success in implementing its online strategy, an increase in packaged
tour services as a percentage of overall revenue and to a lesser
degree, the rollout of our TRIPEASY Kiosks, which have
relatively lower variable costs associated with it.




Gross
profit in air-ticketing was $5,296,210 for the three months ended December 31,
2009 compared to $4,608,451 for the same period last year, an increase of
approximately 14.9%.  Gross profit margin in this segment for the
three months ended December 31, 2009 was 80.4% compared to 90.7% for the same
period 2008. The decrease of gross profit margin in this segment is mostly
due to the reclassification of our costs of services.




Gross
profit in hotel reservations was $2,017,838 for the three month ended December
31, 2009 compared to $2,495,304 for the same period last year, a decrease of
$477,466, or approximately 19.1%. Gross profit margin in this segment for the
three months ended December 31, 2009 was 50.7% compared to 66.1% for the same
period in 2008, a decrease of approximately 15.4%.  The decrease of
gross profit margin in this segment is mostly due to the reclassification of our
costs of services.




Gross
profit in packaged travel was $2,751,264 for the three months ended December 31,
2009 compared to $2,414,622 for the same period in 2008, an increase of
$336,642, or approximately 13.9%. Gross profit margin in this segment for the
three months ended December 31, 2009 was 11.7% compared to 13.3% for the same
period in 2008 . The decrease in gross profit margin was due to more discounts
in certain packaged tour programs in order to attract new clients.




Consolidated
gross margin for three months ended December 31, 2009 came in at 29.5%, compared
to 35.2% for the same period last year. The major reason for this decline is
that packaged tours generally have lower profit margins and they constituted a
higher portion of our total revenue.





Our
air-ticketing and hotel reservation have much higher gross margins than our
packaged tour business primarily as our revenue from air-ticketing and hotel
reservation are the commissions we generate and our costs of service are mainly
business taxes, systems and related technologies used in operations, costs
associated with payment processing, and allocation of costs of labor and
facilities, communications, and utility expenses, which all together are not
substantial.





In
comparison, costs of services for packaged tours include meals, transportation
(airline tickets, train tickets and car rental), lodging, airport transfers,
tickets to local attractions and tours, which all together are much substantial
fixed overheads. The Company receives fees from providing domestic and
cross-border travel tour services.  The Company contracts with traffic
service providers, accommodation providers and leisure service providers to
purchase air tickets, train and coach tickets, accommodation and leisure or
entertainment packages in bulk and then resell them to its customers with a
mark-up.  Fees generated from packaged-tour are recognized on a gross
basis in the statements of income, when the tour is completed, as the Company,
generally, undertakes the majority of the business risk.  The Company
is the primary obligor to pay the service providers upon rendering of those
services.  In addition, the Company acts as principal in relation to
the packaged-tour services rendered or when tours are completed and collections
are reasonably assured.


29





Selling, General and
Administrative Expenses




Major
selling, general, and administrative expenses for the three months ended
December 31, 2009 and 2008 are as follows:




For
      the three months ended December 31,2009
                    
                    
                    2008Business
      related tax
                    
                    $
                    212,454
                    
                    
                    $
                    159,502Salary
                    
                    
                    213,772
                    
                    
                    
                    137,813Commission
      paid
                    
                    
                    1,022,599
                    
                    
                    
                    851,974Professional
      fees
                    
                    
                    239,000
                    
                    
                    
                    190,541Marketing
                    
                    
                    110,721
                    
                    
                    
                    42,416Rent
                    
                    
                    156,899
                    
                    
                    
                    23,186Depreciation
      and amortization
                    
                    
                    43,006
                    
                    
                    
                    1,803Stock-based
      compensation
                    
                    
                    355,346
                    
                    
                    
                    51,786Other
      general and administrative expenses
                    
                    
                    180,089
                    
                    
                    
                    30,031Total
                    
                    $
                    2,533,885
                    
                    
                    $
                    1,489,052





Selling,
general and administrative expenses for three months ended December 31, 2009
totaled $2,533,885 compared to $1,489,052 for three months ended December 31,
2008, an increase of $1,044,833 approximately 70.2%. Selling, general and
administrative expenses were 7.4% of revenue versus 5.5% last year. The increase
is mostly due to the higher amortization of employee stock incentive plan. We
also needed to increase marketing and renting expenses to support our increased
sales volume. In addition, we incurred extra professional fees, including but
not limited to, application for listing in New York Stock Exchange, engagement
of a third party consultant in addressing SEC comments, etc.





Net
Income





Net
income for the three months ended December 31, 2009 was $5,235,481, representing
15.3% of revenue, compared to $6,326,293, or 23.4% of revenue for the three
months ended December 31, 2008.





During
the fourth quarter of 2009, to promote our packaged tour business in Shenzhen
and Chongqing area, we initiated some marketing campaigns, including offering
some discounts in certain packaged tour programs.  Some of the
programs were less profitable or even not profitable. The decrease in net income
reflects the overall lower profit margins of these programs. Management believes
that the surrender of some profits to gain market share is in line with our long
term strategy, and believes the effect of this decline is short
termed.


30





The lower
net margin compared to the same period last year, mainly comes from the higher
percentage of packaged-tour and the marketing campaigns in Shenzhen Universal
Travel Agency Co. Ltd. To a lesser extent, the non-cash charge of loss on
change in fair value of derivative liabilities, as well as the non-cash
expenditure from the 2009 Incentive Stock Option Plan, are also the factors to
lower the net profit margin.





FISCAL
YEARS ENDED DECEMBER 31, 2009 AND 2008




The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the fiscal
years ended December 31, 2009 and same period 2008.





Revenue
Segment Analysis:




Fiscal year 2009
                                        
                                        
                                        Fiscal year 2008
                                        
                                        
                                        Increase / Decrease
                                        
                                        
                                        PercentageGross
      Revenues
                                        
                                        $
                                        97,875,552
                                        
                                        
                                        $
                                        65,821,838
                                        
                                        
                                        $
                                        32,053,714
                                        
                                        
                                        
                                        48.7
                                        %Cost
      of Services
                                        
                                        
                                        (65,502,426
                                        )
                                        
                                        
                                        (43,312,826
                                        ),
                                        
                                        
                                        (21,683,702
                                        )
                                        
                                        
                                        51.2
                                        %Gross
      Profit
                                        
                                        
                                        32,373,126
                                        
                                        
                                        
                                        22,509,012
                                        
                                        
                                        
                                        10,307,012
                                        
                                        
                                        
                                        43.8
                                        %SG&A
                                        
                                        
                                        (8,204,579
                                        )
                                        
                                        
                                        (4,591,903
                                        )
                                        
                                        
                                        (3,612,676
                                        )
                                        
                                        
                                        78.7
                                        %Income
      from Operations
                                        
                                        
                                        24,168,547
                                        
                                        
                                        
                                        17,917,109
                                        
                                        
                                        
                                        6,254,832
                                        
                                        
                                        
                                        34.9
                                        %Other
      income
                                        
                                        
                                        11,431
                                        
                                        
                                        
                                        8,402
                                        
                                        
                                        
                                        3,029
                                        
                                        
                                        
                                        36.1
                                        %Other
      Expenses
                                        
                                        
                                        (87,853
                                        )
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (87,853
                                        )
                                        
                                        
                                        N/ALoss
      on disposal of assets
                                        
                                        
                                        (1,594
                                        )
                                        
                                        
                                        (1,105
                                        )
                                        
                                        
                                        (489
                                        )
                                        
                                        
                                        44.3
                                        %Loss
      on change in fair value of derivative liabilities
                                        
                                        
                                        (6,832,186
                                        )
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (6,832,186
                                        )
                                        
                                        
                                        N/A
                                        %Interest
      income
                                        
                                        $
                                        58,124
                                        
                                        
                                        
                                        37,099
                                        
                                        
                                        
                                        21,025
                                        
                                        
                                        
                                        56.7
                                        %Interest
      expense
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (106,163
                                        )
                                        
                                        
                                        (106,163
                                        )
                                        
                                        
                                        (100
                                        )%Income
      before Income Taxes
                                        
                                        
                                        17,316,469
                                        
                                        
                                        
                                        17,855,342
                                        
                                        
                                        
                                        (538,873
                                        )
                                        
                                        
                                        (3.0
                                        )%Provision
      for income taxes
                                        
                                        
                                        (5,978,948
                                        )
                                        
                                        
                                        (4,073,614
                                        )
                                        
                                        
                                        (1,905,334
                                        )
                                        
                                        
                                        46.8
                                        %Net
      Income-Continuing Operation
                                        
                                        
                                        11,337,521
                                        
                                        
                                        
                                        13,781,728
                                        
                                        
                                        
                                        (2,444,207
                                        )
                                        
                                        
                                        (17.7
                                        )%Income
      from Discontinued Operation
                                        
                                        
                                        177,975
                                        
                                        
                                        
                                        750,449
                                        
                                        
                                        
                                        (572,474
                                        )
                                        
                                        
                                        (76.3
                                        )%Loss
      on disposition of discounted operations
                                        
                                        
                                        (770,595
                                        )
                                        
                                        
                                        0
                                        
                                        
                                        
                                        (770,595
                                        )
                                        
                                        
                                        N/A
                                        %Net
      income
                                        
                                        
                                        10,744,901
                                        
                                        
                                        
                                        14,532,177
                                        
                                        
                                        
                                        3,787,276
                                        
                                        
                                        
                                        (26.1
                                        )%




For the
fiscal year ended December 31, 2009:





Revenue Segment
                  
                  Air tickets
                    (YZL and
                    CTE)
                  
                  
                  (%) of
                    sector
                  
                  
                  Hotel
                    (SLB)
                  
                  
                  (%) of
                    sector
                  
                  
                  Tours
                    (XGN,FOI
                    & STA**)
                  
                  
                  (%) of
                    sector
                  
                  
                  TotalRevenue
                  
                  
                  17,509,195
                  
                  
                  
                  17.89
                  %
                  
                  
                  13,044,815
                  
                  
                  
                  13.33
                  %
                  
                  
                  67,321,542
                  
                  
                  
                  68.78
                  %
                  
                  
                  97,875,552Cost
      of Services
                  
                  
                  2,726,424
                  
                  
                  
                  4.16
                  %
                  
                  
                  4,343,328
                  
                  
                  
                  6.63
                  %
                  
                  
                  58,432,674
                  
                  
                  
                  89.21
                  %
                  
                  
                  65,502,426Gross
      Profit
                  
                  
                  14,782,771
                  
                  
                  
                  45.66
                  %
                  
                  
                  8,701,487
                  
                  
                  
                  26.88
                  %
                  
                  
                  8,888,868
                  
                  
                  
                  27.46
                  %
                  
                  
                  32,373,126Gross
      Margin
                  
                  
                  84.43
                  %
                  
                  
                  
                  
                  
                  
                  66.70
                  %
                  
                  
                  
                  
                  
                  
                  13.20
                  %
                  
                  
                  
                  
                  
                  
                  33.08
                  %Segment effect in
      Gross Margin (*)
                  
                  
                  15.10
                  %
                  
                  
                  
                  
                  
                  
                  8.89
                  %
                  
                  
                  
                  
                  
                  
                  9.08
                  %
                  
                  
                  
                  
                  
                  
                  33.08
                  %





For the
fiscal year ended December 31, 2008(**):




Revenue Segment
                  
                  Air tickets
                    (YZL)
                  
                  
                  (%) of
                    sector
                  
                  
                  Hotel
                    (SLB)
                  
                  
                  (%) of
                    sector
                  
                  
                  Tours
                    (XGN&FOI)
                  
                  
                  (%) of
                    sector
                  
                  
                  TotalRevenue
                  
                  
                  12,333,527
                  
                  
                  
                  18.74
                  %
                  
                  
                  8,340,519
                  
                  
                  
                  12.67
                  %
                  
                  
                  45,147,792
                  
                  
                  
                  68.59
                  %
                  
                  
                  65,821,838Cost
      of Services
                  
                  
                  1,166,155
                  
                  
                  
                  2.69
                  %
                  
                  
                  3,209,777
                  
                  
                  
                  7.41
                  %
                  
                  
                  38,936,894
                  
                  
                  
                  89.90
                  %
                  
                  
                  43,312,826Gross
      Profit
                  
                  
                  11,167,372
                  
                  
                  
                  49.61
                  %
                  
                  
                  5,130,742
                  
                  
                  
                  22.79
                  %
                  
                  
                  6,210,898
                  
                  
                  
                  27.59
                  %
                  
                  
                  22,509,012Gross
      Margin
                  
                  
                  90.54
                  %
                  
                  
                  
                  
                  
                  
                  61.52
                  %
                  
                  
                  
                  
                  
                  
                  13.76
                  %
                  
                  
                  
                  
                  
                  
                  34.20
                  %Segment effect in
      Gross Margin (*)
                  
                  
                  16.97
                  %
                  
                  
                  
                  
                  
                  
                  7.79
                  %
                  
                  
                  
                  
                  
                  
                  9.44
                  %
                  
                  
                  
                  
                  
                  
                  34.20
                  %




31




(*)
"Segment effect in Gross Margin" was calculated by multiplying "the percentage
of the segment revenue over the total revenue" with "gross margin of the related
sector". This outlines how each segment contributes to the total gross
margin.


(**)Shenzhen
Universal Travel Agency Co. Ltd and Chongqing Universal Travel E-Commerce
Co., Ltd both began operations in June2009. Therefore they do not appear in the
2008 financial year figures




Revenue





We
currently have three discrete lines of business and revenue, and each is carried
out by one or two subsidiaries of the Company: (i) air-ticketing (Shenzhen Yu
Zhi Lu Aviation Service Company Limited and Chongqing Universal Travel
E-Commerce Co., Ltd), (ii) hotel reservations (Shanghai Lanbao Travel Service
Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve
Service Company Limited, Foshan Overseas International Travel Service Co., Ltd
and Shenzhen Universal Travel Agency Co. Ltd). Operations of each segment
are exclusive to the operations of the associated subsidiary company. For the
year ended December 31, 2008, we also had air cargo agency services, which were
operated by Shenzhen Speedy Dragon Enterprise Limited.





Revenue
for fiscal year 2009 totaled $97,875,552 compared to $65,821,838 in the same
period last year, reflecting a year over year increase of approximately 48.7%.
The increase was attributable to both organic growth, as well as our expansion
into, successful integration and cross selling of the Company’s diversified
business segments related to packaged tours and hotel booking services through
the acquisitions of Xi’an Golden Net Travel Service Company Limited, Shanghai
Lanbao Travel Service Company Limited and Foshan Overseas International Travel
Service Co., Ltd.





More
specifically, revenue from air-ticketing was $17,509,195 for fiscal year 2009
compared to $12,333,527 for the fiscal year 2008, an increase of approximately
42.0%. This increase in revenue was primarily due to the successful integration
and cross selling among our newly diversified business segments that increased
the group’s competitiveness. It is also a result of successful integration of
the Company’s acquisitions of various complementary business segments, the
synergies among these segments and the consolidation of marketing channels among
the subsidiaries in major domestic cities. Other factors attributable to this
increase include the change of public holiday period pattern, the easing of
foreign travel restrictions on October 29, 2008, as well as the reduction of air
fuel surcharges due to lower global fuel prices in 2009, compared to
2008.





Revenue
from hotel reservations was $13,044,815 for the fiscal year 2009 compared to
$8,340,519 for the fiscal year 2008, an increase of approximately 56.4%. The
revenue increase is attributable to SLB’s own organic growth during the fiscal
2009.  Our organic growth was driven by the successful integration and
the synergies among our various business segments and also the consolidation of
marketing channels among the subsidiaries in major domestic cities.




Revenue
from packaged travel was $67,321,542 for the fiscal year 2009 compared to
$45,147,792 for the fiscal year 2008, an increase of approximately 49.1%. The
revenue increase is mostly attributable to the organic growth of XGN and FOI
during the fiscal 2009. The growth in these two subsidiaries was driven by the
successful integration, the synergies among segments and also the consolidation
of marketing channels among the subsidiaries in major domestic
cities.




Organic
revenue growth played an important role in fiscal year2009. Since the average
price of our travel products and commission rates were stable (and some of them
were even slightly decreased during fiscal year 2009), we believe the greatest
impact to our financial performance is from the growth of our business volume.
Our increase in revenues in the past year reflects the development of the PRC
domestic tourism market, and dynamics of our overall operating platform and
synergies in our different business segments. Our innovative marketing mix and
marketing strategies, our cost synergies of combining online services with
traditional services, as well as the good integration of acquired businesses are
all important factors contributing to our performance thus far. Management
believes that these competitive advantages are sustainable in the long
term.


32




Cost of
services




Costs of
services for air tickets cover mainly business and revenue related
taxes.  Costs of services for hotel reservations cover mainly business
and revenue related taxes, as well as commissions paid to the sales agents for
selling hotel rooms in the Company’s system.  Costs of services for
the cargo agency business mainly include the costs of warehousing and delivery
charges.  Costs of services for packaged tours include meals,
transportation (airline tickets, train tickets and car rental), lodging, airport
transfers, tickets to local attractions and tours.




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




Consolidated
expenses such as stock-based compensation and corporate professional fees are
not allocated to any segment as costs of sales. Instead, the Company disclosed
these two numbers in Others (Corporate Expense) of its Segment Information
footnote and these expenses were included in the selling, general, and
administrative expenses.





Our
air-ticketing and hotel reservation have much higher gross margin than our
packaged tour business primarily as our revenue from air-ticketing and hotel
reservation are the commission we generated and our costs of service are mainly
business taxes, systems and related technologies used in operations, costs
associated with payment processing, and allocation of costs of labor and
facilities, communications, and utility expenses, which all together are not
substantial.





In
comparison, costs of services for packaged tours include meals, transportation
(airline tickets, train tickets and car rental), lodging, airport transfers,
tickets to local attractions and tours, which all together are much substantial
fixed overheads. The Company receives fees from providing domestic and
cross-border travel tour our services.  The Company contracts with
traffic service providers, accommodation providers and leisure service providers
to purchase air tickets, train and coach tickets, accommodation and leisure or
entertainment packages in bulk and then resell them to its customers with a
mark-up.  Fees generated from packaged-tour are recognized on a gross
basis in the statements of income, when the tour is completed, as the Company,
generally, undertakes the majority of the business risk.  In addition,
the Company acts as principal in relation to the packaged-tour services rendered
or when tours are completed and collections are reasonably
assured.





Costs of
services for the year ended December 31, 2009 was $65,502,426 compared to
$43,312,826 for the same period in 2008, an increase of 22,189,600, or
approximately 51.2%. Consolidated gross margin for the year ended December 31,
2009 came in at 33.1%, compared to 34.2% for the same period last year. The
major reason for this decline is that packaged tours, which have a lower profit
margin , constituted to a higher proportion  of our total
revenue.




Costs of
services from air-ticketing was $2,726,424 for the year ended December 31, 2009,
compared to $1,166,155 for the same period last year,  an increase of
$1,560,269, or approximately 133.8%. The increase is mostly due to our
reclassification of costs. Previously we had mistakenly allocated some direct
costs to selling, general and administrative expenses.





Costs of
services from hotel-reservation was $4,343,328 for the year ended December 31,
2009, compared to $3,209,777 for the same period last year,  an
increase of $1,133,551, or approximately 35.3%. The increase is mostly due to
our reclassification of costs. Previously we had mistakenly allocated some
direct costs to selling, general and administrative expenses.


33





Costs of
services from packaged-tour was $58,432,674 for the year ended December 31,
2009, compared to $38,936,894 for the same period last year,  an
increase of $19,495,780, or approximately 50.1%. The increase is in tandem with
the increase of revenues.





A
detailed breakdown of cost of services by subsidiary is set forth
below:





Shenzhen
      Yuzhilu Aviation Service Co., Ltd. (YZL)
                    
                    2009
                    
                    
                    2008Franchise
      system cost sharing
                    
                    $
                    17,901
                    
                    
                    $
                    4,264Staff
      salaries
                    
                    
                    436,076
                    
                    
                    
                    345,519Telecommunication
      expenses
                    
                    
                    64,609
                    
                    
                    
                    29,866Rental
      expenses
                    
                    
                    311,016
                    
                    
                    
                    95,317Utilities
                    
                    
                    16,755
                    
                    
                    
                    12,875Website
      maintenance
                    
                    
                    44,135
                    
                    
                    
                    21,457Depreciation
      and amortization
                    
                    
                    390,985
                    
                    
                    
                    39,052Business
      tax
                    
                    
                    888,639
                    
                    
                    
                    617,805Subtotal
                    
                    $
                    2,170,116
                    
                    
                    
                    1,166,155Shanghai
      Lanbao Travel Service Co., Ltd. (SLB)Business
      Tax
                    
                    $
                    704,420
                    
                    
                    $
                    448,973Staff
      salaries and Staff welfare
                    
                    
                    75,799
                    
                    
                    
                    43,165Rental
      expenses
                    
                    
                    43,967
                    
                    
                    
                    51,660Telecommunication
       expenses
                    
                    
                    9,029
                    
                    
                    
                    6,713Utilities
                    
                    
                    6,523
                    
                    
                    
                    5,585Depreciation
      and amortization
                    
                    
                    3,698
                    
                    
                    
                    3,965Franchise
      commission paid
                    
                    
                    3,499,851
                    
                    
                    
                    2,649,716Subtotal
                    
                    $
                    4,343,287
                    
                    
                    $
                    3,209,777Foshan
      International Travel Service Co., Ltd. (FOI)Depreciation
      and amortization
                    
                    $
                    11,949
                    
                    
                    $
                    12,072Cost
      of Services (Package Tours)
                    
                    
                    36,834,916
                    
                    
                    
                    23,930,685Subtotal
                    
                    $
                    36,846,865
                    
                    
                    $
                    23,942,757Xian
      Golden Net Travel Serve Services  (XGN)Depreciation
      and amortization
                    
                    $
                    830
                    
                    
                    $
                    475Cost
      of Services (Package Tours)
                    
                    
                    19,197,510
                    
                    
                    
                    14,993,662Subtotal
                    
                    $
                    19,198,340
                    
                    
                    $
                    14,994,137Chongqing
      Universal Travel E-Commerce Co., Ltd (CTE)Opening
      fee
                    
                    $
                    69,813Depreciation
                    
                    
                    96,868Rental
                    
                    
                    24,261Utilities
                    
                    
                    1,549Website
                    
                    
                    3,001Maintenance
                    
                    
                    559Payroll
                    
                    
                    25,048Business
      Tax
                    
                    
                    16,025Subtotal
                    
                    $
                    237,124Shenzhen
      Universal Travel Agency Co. Ltd (STA)Depreciation
      and amortization
                    
                    $
                    79Cost
      of Services (Package Tours)
                    
                    
                    2,706,615Subtotal
                    
                    $
                    2,706,694Total
                    
                    $
                    65,502,426
                    
                    
                    
                    43,312,826




34




Gross
Profit





Gross
profit for the fiscal year 2009 was $32,373,126 compared to $22,509,012 for the
fiscal year 2008, an increase of $9,864,114, or approximately 43.8%. The
increase in gross profit partially reflects the Company’s success in
implementing its online strategy, an increase in packaged tour services as a
percentage of overall revenue and to a lesser degree, the rollout of our
TRIPEASY Kiosks, which have relatively lower variable costs associated with
it.




Gross
profit in air-ticketing was $14,782,771 for the twelve months ended December 31,
2009, compared to $11,167,372 for the same period last year, an increase of
approximately32.4%. Gross profit margin in this segment for the year ended
December 31, 2009 was 84.4% compared to 90.5% for the same period 2008. The
decrease in gross profit margin is mostly due to the reclassification of our
costs. Some of the costs, which were directly associated with the generation of
revenues and were mistakenly recognized in selling, general and administrative
expenses, are now reclassified in the costs of services.




Gross
profit in hotel reservations was $8,701,487 for the twelve month ended December
31, 2009 compared to $5,130,742 for the same period last year, an increase of
$3,570,745, or approximately 69.6%. Gross profit margin in this segment for the
year ended December 31, 2009 was 66.7% compared to 61.5% for the same period
2008, an increase of approximately 5.2%. The gross profit margin increase was
mainly due to the increase in commission revenue as a result of increased
reservation volume while our associated cost of services was increased to a
lesser extent.  These factors together resulted in the significant
increase in the gross profit of our hotel reservation business operated by
SLB.




Gross
profit in packaged travel was $8,888,868 for the twelve months ended December
31, 2009 compared to $6,210,898 for the same period 2008, an increase of
$2,677,970, or approximately 43.1%. Gross profit margin in this segment for the
year ended December 31, 2009 was 13.2%, compared to 13.8% for the same period
2008. This decline of gross profit margin is mostly due to the lower margin of
some of our discounted packaged tour programs in the second half of
2009.  To promote our packaged tour business in the newly established
Shenzhen Universal Travel Agency Co. Ltd., we initiated some marketing
campaigns, including offering some discounts in certain packaged tour
programs.  Some of the programs were less profitable or even not
profitable. The decrease in net income reflects the overall lower profit margins
of these programs. Management believes that the surrender of some profits to
gain market share is line with our long term strategy, and believes the effect
of this decline is short termed.


35





Consolidated
gross margin for year ended December 31, 2009 came in at 33.1%, a 1.1% decrease
from the 34.2% the Company posted in the same period last year. As discussed
above, the slight decrease of gross profit is mostly due to the gross profit
margin for packaged tour services.





Selling, General and
Administrative Expenses





Major
selling, general, and administrative expenses for the twelve months ended
December 31, 2009 and 2008 are as follows:




For
      the twelve months ended December
                        31,2009
                      
                      
                      2008Business
      related tax
                      
                      $
                      494,335
                      
                      
                      $
                      246,250Salary
      and commission paid
                      
                      
                      3,273,212
                      
                      
                      
                      2,626,906,Professional
      fees
                      
                      
                      472,900
                      
                      
                      
                      250,751Marketing
                      
                      
                      191,230
                      
                      
                      
                      148,903Rent
                      
                      
                      289,320
                      
                      
                      
                      190,212Depreciation
      and amortization
                      
                      
                      185,870
                      
                      
                      
                      7,212Stock-based
      compensation
                      
                      
                      1,154,408
                      
                      
                      
                      207,588Other
      general and administrative expenses
                      
                      
                      2.143,304
                      
                      
                      
                      914,081Total
                      
                      $
                      8,204,579
                      
                      
                      $
                      4,591,903





Selling,
general and administrative expenses for fiscal year 2009 totaled $8,204,579
compared to $4,591,903 for fiscal year 2008, reflecting approximately 8.4% and
7.0% of total revenue, respectively. The increase is mostly due to the higher
amortization of employee stock incentive plan. For the years ended December 31,
2009 and 2008, the Company recorded $1,154,408 and $207,588 as stock-based
compensation expense and corporate professional fees, respectively. We also need
to increase marketing and renting expenses to support our increased sales
volume. In addition, we incurred extra professional fees, including but not
limited to, application for listing in New York Stock Exchange and Amex,
engagement of a third party consultant in addressing SEC comments,
etc.




Interest
Expenses




There was
no interest expense for year 2009, compared to $106,163 for the fiscal year
2008.  This decrease was due to our repayment of a short term bank
loan in August 2008.





Loss on change in fair value
of derivative liabilities





We
incurred a loss on change in fair value of derivative liabilities of $6,832,168,
which we were not required to recognize in fiscal year 2008, to mark to market
for the increase in fair value of the 764,785 warrants we issued in August 28,
2008 . Since most of these warrants were exercised in the past quarters, we
expect the loss would be immaterial in the future.




36




Net
Income





Net
income was $10,744,901 or 11.0% of revenue for the fiscal year 2009, compared to
$14,532,177 or 22.1% of revenue for the fiscal year 2008.  The
decrease in net income was mainly due to $6.8 million increase of non-cash loss
on change in fair value of derivative liability, an increase of non-cash
stock-based compensation expenses amounting to near ly$1.2 million, and loss of
approximately $0.77 million from the disposition of discontinued operations,
namely our cargo business.





LIQUIDITY
AND CAPITAL RESOURCES




Cash and Cash
Equivalent




Cash and
liquidity needs have been funded primarily through cash flows from operations,
short-term borrowings, and a private investment of equity securities. At the end
of December 31, 2009, cash and cash equivalents totaled $36,677,422, while
working capital, current assets of $70,478,341 less current liabilities of
$6,270,322 came in at $ $64,208,019. We believe that the funds available to us
from operations are adequate to meet our operating needs in 2010. For the year
ended December 31, 2009, net cash provided by operating activities was
approximately $11,520,423, which resulted primarily from our organic operations
and effective management of cash flow.




Capital
expenditure




Total
capital expenditure for the year 2009 was $5,705,910, which was mainly used to
purchase fixed assets, primarily office equipments and leasehold improvement.
Management may, from time to time, increase such expenditure to support new
initiatives and developments such as the rollout of our 
Kiosks.




Working Capital
Requirements




Historically,
operations and short term financing have been sufficient to meet our cash needs.
We believe that we will be able to generate revenue from operations to provide
the necessary cash flow to meet anticipated working capital requirements.
However, our actual working capital needs for the long and short term will
depend upon numerous factors, including operating results, competition, the
opportunity to acquire or start-up new businesses, and the availability of
credit facilities, none of which can be predicted with certainty.





Due to
our rapid growth and expansion, our need for additional capital may arise, and
management will seek to raise capital for the maintenance and expansion of our
operations through the issuance of debt or equity if necessary. We are
strategically expanding our business operations in Chongqing, the largest
metropolis in Southwest China, and Xi’an, the largest metropolis in Northwest of
China. Recently we also entered into Letters of Intent to acquire Huangshan
Holiday Travel Service Company, Hebei Tianyuan Travel Agency and Zhengzhou
Yulongkang Travel Service Company. To satisfy these capital needs, as well as to
set up more TRIPEASY
kiosks, we may incur additional capital expenditure.





We filed
a Registration Statement on Form S-3 to register $50,000,000 worth of
securities on August 7, 2009, which became effective on November 5, 2009. We
then entered into a definitive subscription agreement with to sell to
institutional investors an aggregate of 2,222,222 shares of its common stock at
a price of $9.00 per share for net proceeds of approximately $19.0 million. The
net proceeds of the financing would be used for identified acquisitions and for
working capital. Brean Murray, Carret & Co., LLC acted as exclusive
placement agent in connection with the offering. The sale of the common stock
was closed on December 15, 2009.




Inflation





In the
opinion of management, inflation will not have an impact on our financial
condition and results of its operations.




37




Off Balance Sheet
Arrangements





We have
never entered into any off-balance sheet financing arrangements, have never
established any special purpose entities to fulfill such obligations and have
not made any debt or related commitments to other entities.





Item
7A. Quantitative and Qualitative Disclosures About Market Risk.




Not
Applicable.




Item
8. Financial Statements and Supplementary Data.




UNIVERSAL
TRAVEL GROUP
  CONSOLIDATED
FINANCIAL STATEMENTS
  DECEMBER
31, 2009
  38
  ACSB
      Acquavella,
      Chiarelli, Shuster, Berkower & Co., LLP517
      Route one
                  1
      Penn PlazaIselin,
      New Jersey, 08830
                  36the
      Floor732.855.9600
                  New
      York, NY 10119
 
 Report of Independent
Registered Public Accounting Firm
 
 Board of
Directors and Stockholders of
 Universal
Travel Group
 
 We have
audited the accompanying consolidated balance sheets of Universal Travel Group
as of December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 31, 2009.  We
have also audited Universal Travel Group’s internal control over financial
reporting as of December 31, 2009, based on criteria established in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Universal Travel Group’s management is
responsible for these financial statements, for maintaining effective control
over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting included. Our responsibility is to
express an opinion on these financial statements based on our
audits.
 
 We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
required that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an
understanding on internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our audit.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual or interim financial
statements will not be prevented or detected on a timely basis. The following
material weaknesses were identified:
  
 
 ·
              The
      Company’s policy documentation of all controls identified during their
      assessment and remediation process was
  incomplete.
  ·
              Lack
      of technical accounting expertise among financial staff regarding US GAAP
      and the requirements of the PCAOB, and regarding preparation of financial
      statements.
  These
material weaknesses were considered in determining the nature, timing, and
extent of audit tests applied in our audit of the 2009 consolidated financial
statements of the Company as of and for the year ended December 31,
2009.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Universal Travel Group as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the three years ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America.
  Also in
our opinion, because of the effect of the aforementioned material
weaknesses on the achievement of the objectives of the internal control
criteria, Universal Travel Group did not maintain effective internal control
over financial reporting as of December 31, 2009 based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Our opinion on the
effectiveness of internal control over financial reporting does not affect our
opinion on the consolidated financial statements.
 
 /s/Acquavella,
Chiarelli, Shuster, Berkower & Co., LLP
 
 Certified
Public Accountants
 
 New York,
N.Y.
 February
22, 2010
  
  TABLE
OF CONTENTS
  Consolidated Balance Sheets
                  1Consolidated Statements of
      Income
                  2Consolidated Statements of Cash
      Flows
                  3Consolidated Statements of Stockholders’
      Equity
                  4Notes to Consolidated Financial
      Statements
                  5-32
  
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
BALANCE SHEETS
 DECEMBER
31,  2009 AND 2008
 12/31/2009
                                  
                                  
                                  12/31/2008Note
                                  
                                  
                                  
                                  
                                  RestatdeAssetsCash
      and cash equivalents
                                  
                                  
                                  
                                  $
                                  36,677,422
                                  
                                  
                                  $
                                  15,720,182Accounts
      receivable, net
                                  
                                  
                                  
                                  
                                  17,321,174
                                  
                                  
                                  
                                  8,991,849Other
      receivables and deposits, net
                                  
                                  
                                  
                                  
                                  257,907
                                  
                                  
                                  
                                  62,547Trade
      deposits
                                  
                                  3
                                  
                                  
                                  9,775,735
                                  
                                  
                                  
                                  6,571,164Advances
                                  
                                  3
                                  
                                  
                                  440,063
                                  
                                  
                                  
                                  438,468Escrow
      deposits
                                  
                                  12
                                  
                                  
                                  -
                                  
                                  
                                  
                                  762,800Prepaid
      expenses
                                  
                                  
                                  
                                  
                                  216,727
                                  
                                  
                                  
                                  312,409Note
      receivable
                                  
                                  
                                  
                                  
                                  1,711,392
                                  
                                  
                                  
                                  -Acquisition
      Deposits
                                  
                                  
                                  
                                  
                                  4,077,921
                                  
                                  
                                  
                                  -Current
      assets held of discontinued operations
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,459,777Total
      Current Assets
                                  
                                  
                                  
                                  
                                  70,478,341
                                  
                                  
                                  
                                  35,319,196Property,
      plant & equipment, net
                                  
                                  
                                  
                                  
                                  4,992,677
                                  
                                  
                                  
                                  242,648Intangible
      assets
                                  
                                  
                                  
                                  
                                  339,240
                                  
                                  
                                  
                                  307,335Goodwill
                                  
                                  
                                  
                                  
                                  9,896,270
                                  
                                  
                                  
                                  9,896,270Non-current
      assets held of discontinued operations
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,661,23115,228,187
                                  
                                  
                                  
                                  14,107,484Total
      Assets
                                  
                                  
                                  
                                  $
                                  85,706,528
                                  
                                  
                                  $
                                  49,426,680LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                                  
                                  
                                  
                                  $
                                  2,615,730
                                  
                                  
                                  $
                                  1,691,689Customer
      deposits
                                  
                                  
                                  
                                  
                                  2,000,117
                                  
                                  
                                  
                                  1,039,942Income
      tax payable
                                  
                                  
                                  
                                  
                                  1,654,475
                                  
                                  
                                  
                                  1,731,246Current
      liabilities held of discontinued operations
                                  
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  562,931Total
      Current Liabilities
                                  
                                  
                                  
                                  
                                  6,270,322
                                  
                                  
                                  
                                  5,025,808Derivative
      liability
                                  
                                  8
                                  
                                  
                                  1,815,319
                                  
                                  
                                  
                                  -Total  liabilities
                                  
                                  
                                  
                                  
                                  8,085,641
                                  
                                  
                                  
                                  5,025,808Stockholders'
      EquityCommon
      stock, $.001 par value, 70,000,000 shares authorized, 16,714,457 and
      13,873,969 issued and outstanding at December 31, 2009  2008,
      respectively
                                  
                                  
                                  
                                  
                                  16,714
                                  
                                  
                                  
                                  13,873Additional
      paid in capital
                                  
                                  
                                  
                                  
                                  37,671,645
                                  
                                  
                                  
                                  15,861,116Other
      comprehensive income
                                  
                                  9
                                  
                                  
                                  1,645,133
                                  
                                  
                                  
                                  1,520,166Statutory
      reserve
                                  
                                  
                                  
                                  
                                  372,144
                                  
                                  
                                  
                                  372,144Retained
      earnings
                                  
                                  
                                  
                                  
                                  37,915,251
                                  
                                  
                                  
                                  26,633,573Total
      Stockholders' Equity
                                  
                                  
                                  
                                  
                                  77,620,887
                                  
                                  
                                  
                                  44,400,872Total
      Liabilities and Stockholders' Equity
                                  
                                  
                                  
                                  $
                                  85,706,528
                                  
                                  
                                  $
                                  49,426,680
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  1
 
 UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR THE THREE YEARS ENDEDDECEMBER 31,
  Note
                                        
                                        2009
                                        
                                        
                                        2008
                                        
                                        
                                        2007(Restated)
                                        
                                        
                                        (Restated)Gross
      revenues,
                                        
                                        
                                        
                                        $
                                        97,875,552
                                        
                                        
                                        $
                                        65,821,838
                                        
                                        
                                        $
                                        32,555,580Cost
      of services
                                        
                                        
                                        
                                        
                                        65,502,426
                                        
                                        
                                        
                                        43,312,826
                                        
                                        
                                        
                                        20,610,777Gross
      Profit
                                        
                                        
                                        
                                        
                                        32,373,126
                                        
                                        
                                        
                                        22,509,012
                                        
                                        
                                        
                                        11,944,803Selling,
      general and administrative expenses
                                        
                                        
                                        
                                        
                                        8,204,579
                                        
                                        
                                        
                                        4,591,903
                                        
                                        
                                        
                                        2,740,857Income
      from operations
                                        
                                        
                                        
                                        
                                        2,4168,547
                                        
                                        
                                        
                                        17,917,109
                                        
                                        
                                        
                                        9,203,946Other
      income (expense)Other
      expense
                                        
                                        
                                        
                                        
                                        (87,853
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Loss
      on disposal of assets
                                        
                                        
                                        
                                        
                                        (1,594
                                        )
                                        
                                        
                                        (1,105
                                        )
                                        
                                        
                                        -Other
      income
                                        
                                        
                                        
                                        
                                        11,431
                                        
                                        
                                        
                                        8,402
                                        
                                        
                                        
                                        25,105Loss
      on change of fair value of derivative liabilities
                                        
                                        
                                        
                                        
                                        (6,832,186
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Interest
      income
                                        
                                        
                                        
                                        
                                        58,124
                                        
                                        
                                        
                                        37,099
                                        
                                        
                                        
                                        2,385Interest
      expense
                                        
                                        
                                        
                                        
                                        -
                                        )
                                        
                                        
                                        (106,163
                                        )
                                        
                                        
                                        (80,847
                                        )Total
      other income (expense)
                                        
                                        
                                        
                                        
                                        (6,852,078
                                        )
                                        
                                        
                                        (61,767
                                        )
                                        
                                        
                                        (53,356
                                        )Income
      before income taxes–continuing operations
                                        
                                        
                                        
                                        
                                        17,316,469
                                        
                                        
                                        
                                        17,855,342
                                        
                                        
                                        
                                        9,150,589Provision
      for income taxes
                                        
                                        
                                        
                                        
                                        5,978,948
                                        
                                        
                                        
                                        4,073,614
                                        
                                        
                                        
                                        1,641,950Net
      income – continuing operations
                                        
                                        
                                        
                                        
                                        11,337,521
                                        
                                        
                                        
                                        13,781,728
                                        
                                        
                                        
                                        7,508,639Income
      from discontinued operations
                                        
                                        
                                        
                                        
                                        177,975
                                        
                                        
                                        
                                        750,449
                                        
                                        
                                        
                                        1,187,254Loss
      on disposition of discontinued operations
                                        
                                        
                                        
                                        
                                        (770,595
                                        )Net
      (loss) income from discontinued operation
                                        
                                        
                                        
                                        
                                        (592,620
                                        )
                                        
                                        
                                        750,449
                                        
                                        
                                        
                                        1,187,254Net
      Income
                                        
                                        
                                        
                                        
                                        10,744,901
                                        
                                        
                                        
                                        14,532,177
                                        
                                        
                                        
                                        8,695,894Net
      income per common share – continuing operationsBasic
                                        
                                        
                                        
                                        $
                                        0
      .80
                                        
                                        
                                        $
                                        1.07
                                        
                                        
                                        $
                                        0.67Diluted
                                        
                                        
                                        
                                        $
                                        0
      .74
                                        
                                        
                                        $
                                        1.07
                                        
                                        
                                        $
                                        0.67Net
      income per common share – discontinued operationsBasic
                                        
                                        
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        .06
                                        
                                        
                                        $
                                        0.11Diluted
                                        
                                        
                                        
                                        $
                                        (0.04
                                        )
                                        
                                        $
                                        .06
                                        
                                        
                                        $
                                        0.11Weighted
      average common shares outstandingBasic
                                        
                                        
                                        
                                        
                                        14,121,542
                                        
                                        
                                        
                                        12,854,051
                                        
                                        
                                        
                                        11,209,839Diluted
                                        
                                        
                                        
                                        
                                        15,318,460
                                        
                                        
                                        
                                        12,854,051
                                        
                                        
                                        
                                        11,209,839Net
      income
                                        
                                        
                                        
                                        $
                                        10,744,901
                                        
                                        
                                        $
                                        14,532,177
                                        
                                        
                                        $
                                        8,695,894Other
      comprehensive income-foreign currency Translation
                                        
                                        
                                        
                                        
                                        124,967
                                        
                                        
                                        
                                        975,002
                                        
                                        
                                        
                                        441,353Comprehensive
      income
                                        
                                        
                                        
                                        
                                        10,869,868
                                        
                                        
                                        
                                        15,507,179
                                        
                                        
                                        
                                        9,137,247
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  2
 
 UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE THREE YEARS ENDEDDECEMBER 31,
  2009
                              
                              
                              2008
                              
                              
                              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                              
                              $
                              10,744,901
                              
                              
                              $
                              14,532,177
                              
                              
                              $
                              8,695,894Add
      (deduct):Net
      loss (income from discontinued operations
                              
                              
                              592,620
                              
                              
                              
                              (750,449
                              )
                              
                              
                              (1,187,254
                              )Income
      from continuing operations
                              
                              
                              11,337,521
                              
                              
                              
                              13,781,728
                              
                              
                              
                              7,508,640Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                              
                              
                              813,272
                              
                              
                              
                              61,737
                              
                              
                              
                              82,074Provision
      for doubtful accounts
                              
                              
                              204,788
                              
                              
                              
                              137,024
                              
                              
                              
                              42,900Stock
      based compensation
                              
                              
                              1,154,409
                              
                              
                              
                              207,588
                              
                              
                              
                              945,903Loss
      on change in fair value of derivative liabilities
                              
                              
                              6,832,186
                              
                              
                              
                              -
                              
                              
                              
                              -Loss
      on asset disposal
                              
                              
                              1,594
                              
                              
                              
                              1,105
                              
                              
                              
                              -(Increase)
      / decrease in assets:Accounts
      receivable
                              
                              
                              (8,523,007
                              )
                              
                              
                              (5,242,516
                              )
                              
                              
                              (298,560
                              )Other
      receivable
                              
                              
                              (195,360
                              )
                              
                              
                              1,090,398
                              
                              
                              
                              (491,788
                              )Advances
                              
                              
                              (1,595
                              )
                              
                              
                              178,393
                              
                              
                              
                              1,214,697Due
      from shareholder
                              
                              
                              -
                              
                              
                              
                              1,444,818
                              
                              
                              
                              496,287Prepaid
      expenses
                              
                              
                              95,682
                              
                              
                              
                              (304,111
                              )
                              
                              
                              26,829Trade
      deposits
                              
                              
                              (3,204,571
                              )
                              
                              
                              (3,920,420
                              )
                              
                              
                              (1,177,822
                              )Escrow
      deposits
                              
                              
                              762,800
                              
                              
                              
                              (762,800
                              )
                              
                              
                              -Increase
      / (decrease) in current liabilities:Accounts
      payable and accrued expenses
                              
                              
                              924,041
                              
                              
                              
                              (1,319,797
                              )
                              
                              
                              (2,093,977
                              )Customer
      deposits
                              
                              
                              960,175
                              
                              
                              
                              (92,943
                              )
                              
                              
                              309,251Income
      tax payable
                              
                              
                              (76,771
                              )
                              
                              
                              1,139,224
                              
                              
                              
                              24,685Net
      cash provided by continuing operations
                              
                              
                              11,085,164
                              
                              
                              
                              6,399,428
                              
                              
                              
                              6,589,119Net
      cash provided by discontinued operations
                              
                              
                              435,259
                              
                              
                              
                              111,418
                              
                              
                              
                              284,229Net
      cash provided by operating activities
                              
                              
                              11,520,423
                              
                              
                              
                              6,510,846
                              
                              
                              
                              6,873,348CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property & equipment
                              
                              
                              (5,300,678
                              )
                              
                              
                              (192,436
                              )
                              
                              
                              (57,930
                              )Purchase
      of  intangibles
                              
                              
                              (296,264
                              )
                              
                              
                              (316,106
                              )
                              
                              
                              -Proceeds
      from collection of notes
                              
                              
                              1,062,019
                              
                              
                              
                              -
                              
                              
                              
                              -Proceeds
      from asset disposals
                              
                              
                              -
                              
                              
                              
                              663
                              
                              
                              
                              -Acquisition
      deposits
                              
                              
                              (4,077,921
                              )
                              
                              
                              1,453,050
                              
                              
                              
                              1,428,773Paid
      for acquisition – net of cash acquired
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (10,008,642
                              )Net
      cash (used in) provided by continuing operations
                              
                              
                              (8,612,844
                              )
                              
                              
                              945,171
                              
                              
                              
                              (8,637,799
                              )Net
      cash (used in) provided by discontinued operations
                              
                              
                              (1,035,125
                              )
                              
                              
                              -
                              
                              
                              
                              -Net
      cash (used in) provided by Investing activities
                              
                              
                              (9,647,969
                              )
                              
                              
                              945,171
                              
                              
                              
                              (8,637,799
                              )CASH
      FLOWS FROM FINANCING ACTIVITIES(Repayments)Proceeds
      of bank loan
                              
                              
                              -
                              
                              
                              
                              (1,288,554
                              )
                              
                              
                              1,288,554Proceeds
      of equity financing
                              
                              
                              18,950,249
                              
                              
                              
                              7,712,494
                              
                              
                              
                              -Proceeds
      of warrant exercise
                              
                              
                              9,570
                              
                              
                              
                              -
                              
                              
                              
                              -Note
      payable – others
                              
                              
                              -
                              
                              
                              
                              (1,576,750
                              )
                              
                              
                              1,576,750Net
      cash provided by financing activities
                              
                              
                              18,959,819
                              
                              
                              
                              4,847,190
                              
                              
                              
                              2,865,304Effect
      of exchange rate changes on cash and cash equivalents
                              
                              
                              124,967
                              
                              
                              
                              975,002
                              
                              
                              
                              297,565Net
      change in cash and cash equivalents
                              
                              
                              20,957,240
                              
                              
                              
                              13,278,209
                              
                              
                              
                              1,398,418Cash
      and cash equivalents, beginning balance
                              
                              
                              15,720,182
                              
                              
                              
                              2,441,973
                              
                              
                              
                              1,043,555Cash
      and cash equivalents, ending balance
                              
                              $
                              36,677,422
                              
                              
                              $
                              15,720,182
                              
                              
                              $
                              2,441,973SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Interest
      payments
                              
                              $
                              -
                              
                              
                              $
                              106,163
                              
                              
                              $
                              80,847Income
      taxes
                              
                              $
                              6,055,719
                              
                              
                              $
                              3,181,245
                              
                              
                              $
                              1,450,924Other
      non-cash transactionsPurchased
      goodwill
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              (13,526,809
                              )Fair
      value of assets purchased less cash acquired
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (2,178,333
                              )Acquisition
      financed with stock issuance
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,696,500Acquisition
      paid for with cash – net of acquired
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              (10,008,642
                              )Net
      assets sold of discontinued operations
                              
                              $
                              1,659,292Goodwill
      attributable to sold discontinued operations
                              
                              
                              3,630,539Notes
      received on disposition
                              
                              
                              (2,773,411
                              )Fair
      value of treasury stock received
                              
                              
                              (2,780,950
                              )Loss
      on pisposition
                              
                              
                              (770,595
                              )Net
      cash of discontinued operations
                              
                              $
                              (1,035,125
                              )
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  3
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
 FOR
THE THREE YEARS ENDED DECEMBER 31, 2009, 2008, and 2007
 
 Common Stock
                                  
                                  
                                  Additional
                                    Paid In
                                  
                                  
                                  Other
                                    Comprehensive
                                  
                                  
                                  Retained
                                  
                                  
                                  Statutory
                                  
                                  
                                  Total
                                    Stockholders’Shares
                                  
                                  
                                  Amount
                                  
                                  
                                  Capital
                                  
                                  
                                  Income
                                  
                                  
                                  Earnings
                                  
                                  
                                  Reserve
                                  
                                  
                                  EquityBalance
      December 31, 2008
                                  
                                  
                                  13,873,969
                                  
                                  
                                  $
                                  13,873
                                  
                                  
                                  $
                                  15,861,116
                                  
                                  
                                  $
                                  1,520,166
                                  
                                  
                                  $
                                  26,633,573
                                  
                                  
                                  $
                                  372,144
                                  
                                  
                                  $
                                  44,400,872RestatedCumulative
      effect of a change in accounting principle-adoption of EITF 07-05
      effective January 1, 2009
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,091,738
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  536,777
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,554,961
                                  )Foreign
      currency translation adjustments
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  124,967
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  124,967Stock
      based compensation – Net of warrants exercise
                                  
                                  
                                  41,120
                                  
                                  
                                  
                                  42
                                  
                                  
                                  
                                  1,154,367
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,154,409Fair
      market value Of treasury stock received and retired
                                  
                                  
                                  (238,095
                                  )
                                  
                                  
                                  (239
                                  )
                                  
                                  
                                  (2,780,711
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (2,780,950
                                  )Warrants
      exercised
                                  
                                  
                                  811,941
                                  
                                  
                                  
                                  813
                                  
                                  
                                  
                                  6,571,017
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  6,571,830Options
      exercised
                                  
                                  
                                  3,300
                                  
                                  
                                  
                                  3
                                  
                                  
                                  
                                  9,567
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  9,570Stock
      Subscription
                                  
                                  
                                  2,222,222
                                  
                                  
                                  
                                  2,222
                                  
                                  
                                  
                                  18,948,027
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  18,950,249Income
      for the year  ended December 31, 2009
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  10,744,901
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  10,744,901Balance
      December 31, 2009
                                  
                                  
                                  16,714,457
                                  
                                  
                                  
                                  16,714
                                  
                                  
                                  
                                  37,671,645
                                  
                                  
                                  
                                  1,645,133
                                  
                                  
                                  
                                  37,915,251
                                  
                                  
                                  
                                  372,144
                                  
                                  
                                  
                                  77,620,887Balance
      December 31, 2007
                                  
                                  
                                  12,270,326
                                  
                                  
                                  
                                  12,269
                                  
                                  
                                  
                                  8,626,075
                                  
                                  
                                  
                                  545,164
                                  
                                  
                                  
                                  12,101,396
                                  
                                  
                                  
                                  372,144
                                  
                                  
                                  
                                  21,657,048RestatedForeign
      currency translation adjustments
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  975,002
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  975,002Forfeited
      options
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (683,437
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (683,437
                                  )Stock
      based compensation
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  207,588
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  207,588Equity
      financings
                                  
                                  
                                  74,074
                                  
                                  
                                  
                                  74
                                  
                                  
                                  
                                  599,920
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  599,994Equity
      financings
                                  
                                  
                                  1,529,569
                                  
                                  
                                  
                                  1,530
                                  
                                  
                                  
                                  7,110,970
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  7,112,500Income
      for the  year ended December 31, 2008
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  14,532,177
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  14,532,177Balance
      December 31, 2008
                                  
                                  
                                  13,873,969
                                  
                                  
                                  
                                  13,873
                                  
                                  
                                  
                                  15,861,116
                                  
                                  
                                  
                                  1,520,166
                                  
                                  
                                  
                                  26,633,573
                                  
                                  
                                  
                                  372,144
                                  
                                  
                                  
                                  44,400,872Balance
      December 31, 2006
                                  
                                  
                                  10,150,000
                                  
                                  
                                  
                                  10,150
                                  
                                  
                                  
                                  352,313
                                  
                                  
                                  
                                  103,811
                                  
                                  
                                  
                                  3,442,473
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  3,908,747RestatedStock
      paid for acquisition
                                  
                                  
                                  863,659
                                  
                                  
                                  
                                  863
                                  
                                  
                                  
                                  5,695,637
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  5,696,500Foreign
      currency translation adjustments
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  441,353
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  441,353Stock
      based compensation
                                  
                                  
                                  1,256,667
                                  
                                  
                                  
                                  1,256
                                  
                                  
                                  
                                  1,582,144
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  1,583,400Warrants
      issued
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  995,981
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  995,981Reflect
      acquisition
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  335,173
                                  
                                  
                                  
                                  335,173Transfer
      to statutory reserve
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (36,971
                                  )
                                  
                                  
                                  36,971
                                  
                                  
                                  
                                  -Income
      for the  year ended December 31, 2007
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,695,894
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  8,695,894Balance
      December 31, 2007
                                  
                                  
                                  12,270,326
                                  
                                  
                                  $
                                  12,269
                                  
                                  
                                  $
                                  8,626,075
                                  
                                  
                                  $
                                  545,164
                                  
                                  
                                  $
                                  12,101,396
                                  
                                  
                                  $
                                  372,144
                                  
                                  
                                  $
                                  21,657,048
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  4
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  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 the Peoples Republic of China
(PRC), Xian Golden Net Travel Serve Services was incorporated on July 25, 2001
under the laws of the Peoples Republic of China, Xian City, 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 the Peoples Republic of China, Chongqing Universal
Travel E-Commerce Co., Ltd and Shenzhen Universal Travel  Agency Co.,
Ltd., were both incorporated in 2009 under the laws of the Peoples Republic of
China.  Full Power Enterprise Global Limited owns 100% of the Shenzhen
Yuzhilu Aviation Service Co., Ltd. Collectively these corporations are referred
to herein as the Company.
  On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen
Speedy Dragon Enterprise Limited adiscontinued operations. The Company is now
engaged in the travel business, including airline ticketing, hotel reservation
services and technological solutions to travel reservations, and tour planning
and tour guide services.
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
  Basis of
Presentation
  The
accompanying audited consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The Company's functional currency is the Chinese Renminbi, however the
accompanying audited consolidated financial statements have been translated and
presented in United States Dollars.
  Reclassification
  Certain
prior-year amounts have been reclassified to conform to the current-year
presentation. These reclassifications had no effect on reported income or
losses.
  Discontinued
Operations
  On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Limited (“Speedy Dragon”). The Company had acquired all the
equity interest in Speedy Dragon on or about April 10, 2007 in exchange for
238,095 (post-reverse split) shares of the Company’s common stock and an
interest-free promissory note in the principal amount of $3,000,000 payable no
later than April 10, 2008 (see Note 7).  Pursuant to the termination
agreement, the Company transferred back the equity interest in Speedy Dragon on
or before June 30, 2009 and that the 238,095 (post-reverse split) shares of the
Company’s common stock were returned to the Company and canceled as of June 30,
2009.  In addition, the sole shareholder of Speedy Dragon was also
required to return to the Company an aggregate of $2,773,411, in cash, within
one year of the completion of all the formalities of the termination agreement.
The cash to be returned to the Company included a declared dividend in the
amount of $2,260,981 to be paid to the Company.
  5
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Discontinued Operations
(Continued)
  The loss
on disposal of Shenzhen Speedy Dragon Enterprises Ltd was as
follows:
  Consideration
                      
                      $
                      5,554,361Goodwill
      attributable to sold Shenzhen Speedy Dragon Enterprises
    Ltd.
                      
                      
                      (3,630,539
                      )Net
      equity of Shenzhen Speedy Dragon Ltd.
                      
                      
                      (2,694,417
                      )Loss
      on disposition of discontinued operation
                      
                      
                      (770,595
                      )
 
 Accordingly,
the Company has accounted for Shenzhen Speedy Dragon Enterprise Limited as
discontinued operations. The consolidated financial statements reflect the
operating results and balance sheet items of the discontinued operations
separately from continuing operations. Prior year’s amounts have been
reclassified to confirm with current year’s presentation of the discontinued
operations. The following table summarized the operating result of the
discontinued operations for the years ended December 31, 2009, 2008, and 2007
respectively:
  December 31,
                        
                        
                        December 31,
                        
                        
                        December
      31,2009
                        
                        
                        2008
                        
                        
                        2007Sales
                        
                        $
                        3,631,545
                        
                        
                        $
                        10,937,573
                        
                        
                        $
                        11,739,273Cost
      of sales
                        
                        
                        (3,218,140
                        )
                        
                        
                        (9,347,312
                        )
                        
                        
                        (9,631,553
                        )Gross
      profit
                        
                        
                        413,405
                        
                        
                        
                        1,590,261
                        
                        
                        
                        2,107,720Operating
      expenses
                        
                        
                        (190,989
                        )
                        
                        
                        (637,774
                        )
                        
                        
                        (710,346
                        )Income
      from discontinued operation before
                        
                        
                        222,416
                        
                        
                        
                        952,487
                        
                        
                        
                        1,397,374Income
      tax
                        
                        
                        (44,441
                        )
                        
                        
                        (202,038
                        )
                        
                        
                        (210,119
                        )Net
      Income from discontinued operations
                        
                        $
                        177,975
                        
                        
                        $
                        750,449
                        
                        
                        $
                        1,187,255
  6
  UNIVERSAL TRAVEL
GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Discontinued Operations
(Continued)
  The
following summarized the assets and liabilities of discontinued operations as of
December 31, 2008:
  Cash
      and cash equivalents
                    
                    $
                    484,349Accounts
      receivable, net
                    
                    
                    1,723,357Other
      receivables and deposits, net
                    
                    
                    78,866Trade
      deposit
                    
                    
                    6,848Prepaid
      expenses
                    
                    
                    166,357Current
      assets held of discontinued operations
                    
                    $
                    2,459,777Non-current
      assets held of discontinued operations
                    
                    
                    3,661,231Total
      assets held of discontinued operations
                    
                    $
                    6,121,008Accounts
      payable and accrued expenses
                    
                    $
                    527,467Customer
      deposits
                    
                    
                    7,308Income
      tax payable
                    
                    
                    28,156Current
      liabilities held of discontinued operations
                    
                    $
                    562,931
  Translation
Adjustment
  As of
December 31, 2009 and 2008 the accounts of Universal Travel Group were
maintained, and its financial statements were expressed, in Chinese Yuan
Renminbi (CNY). Such financial statements were translated into U.S. Dollars
(USD) in accordance with the Foreign Currency Matters Topic of the FASB
Accounting Standards Codification (“ASC 830”) with the CNY as the functional
currency. According to the Statement, all assets and liabilities were translated
at the current exchange rate, stockholders equity are translated at the
historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with the Comprehensive Income
Topic of the FASB Accounting Standard Codification (“ASC 220”). Transaction
gains and losses are reflected in the income statement.
  Use of
Estimates
  The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
  7
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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., 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 operations. The
consolidated financial statements reflect the operating results and balance
sheet items of the discontinued operations separately from continuing
operations. Prior year’s amounts have been reclassified to confirm with current
year’s presentation of the discontinued operations.  All material
inter-company accounts, transactions and profits have been eliminated in
consolidation.
  Risks and
Uncertainties
  The
Company is subject to substantial risks from, among other things, intense
competition associated with the industry in general, other risks associated with
financing, liquidity requirements, rapidly changing customer requirements,
limited operating history, foreign currency exchange rates and the volatility of
public markets.
  Contingencies
  Certain
conditions may exist as of the date the financial statements are issued. These
conditions may result in a future loss to the Company but which will only be
resolved when one or more future events occur or fail to occur. The Company’s
management and legal counsel assess such contingent liabilities, and such
assessment inherently involves an exercise of judgment. In assessing loss
contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company’s legal
counsel evaluates the perceived merits of any legal proceedings or unasserted
claims as well as the perceived merits of the amount of relief sought or
expected to be sought.
  If the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company’s financial statements. If
the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material would be disclosed. Loss
contingencies considered to be remote by management are generally not disclosed
unless they involve guarantees, in which case the guarantee would be
disclosed.
  Cash and Cash
Equivalents
  Cash and
cash equivalents include cash on hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.
  8
  UNIVERSAL TRAVEL
GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  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 $414,927 and $210,139 as of December 31, 2009 and 2008,
respectively.
 
 Description
                    
                    Balance
                      at
                      beginning
                      of
                      year
                    
                    
                    Charged to
                      expenses
                    
                    
                    Deductions
                    
                    
                    Balance at end
                      ofyearAllowance
      for doubtful receivables
                    
                    $
                    210,139
                    
                    
                    $
                    204,788
                    
                    
                    $
                    -
                    
                    
                    $
                    414,927
  Reverse
Split
  On March
31, 2009 the Company effected a three-for-one (3:1) reverse split of the
Company’s issued and outstanding shares of common stock, decreasing the number
of outstanding shares from 41,619,966 to 13,873,969. These statements have been
adjusted to reflect this reverse split on a historical pro-forma
basis.
  Property, Plant &
Equipment
  Property
and equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of:
  Furniture
      and Fixtures
                
                5
      yearsTransportation
      equipment
                
                5
      yearsOffice
      equipment
                
                5
      yearsLeasehold
      Improvements
                
                5 –
      10 years
  9
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Property, Plant &
Equipment (Continued)
  As of
December 31, 2009 and  2008 Property, Plant & Equipment of consist
of the following:
  December 31,
                        2009
                      
                      
                      December31,
                        2008RestatedFurniture
      & fixtures
                      
                      $
                      23,560
                      
                      
                      $
                      18,247Transportation
      equipment
                      
                      
                      150,232
                      
                      
                      
                      143,332Office
      equipment
                      
                      
                      4,146,637
                      
                      
                      
                      360,145Leasehold
      improvements
                      
                      
                      1,385,481
                      
                      
                      
                      31,3745,705,910
                      
                      
                      
                      553,098Accumulated
      depreciation
                      
                      
                      (713,233
                      )
                      
                      
                      (310,450
                      )$
                      4992,677
                      
                      
                      $
                      242,648
  Depreciation
expense for the years ended December 31, 2009, 2008, and 2007 was $548,913, $34,340,
and $50,812, respectively, of which $494,022, $30,906,
and $45,731 was included as part of cost of services for the years ended
December 31, 2009, 2008, and 2007, respectively.
  Goodwill
  Goodwill
represents the excess cost of a business acquisition over the fair value of the
net assets acquired.  In accordance with the Intangibles, Goodwill and
other topic of the FASB Accounting Standard Codification (“ASC 350”),
indefinite-life identifiable intangible assets and goodwill are not amortized.
Under the provisions of ASC 350, we are required to perform an annual impairment
test of our goodwill. Goodwill impairment is determined using a two-step
process.  The first step of the goodwill impairment test is used to
identify potential impairment by comparing the fair value of a reporting unit,
which we define as our business segments, with its net book value or carrying
amount including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired and
the second step of the impairment test is unnecessary.  If the
carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test compares the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. If the carrying
amount of the reporting unit's goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that
excess.  The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination.  The fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit including any unrecognized intangible
assets as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase  price paid to
acquire the reporting unit.  See Note 7, Purchase of Subsidiaries, for
additional information regarding goodwill.
  10
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  As of
December 31, 2009 and 2008, Goodwill consists of the following:
  December 31, 2009
                    
                    
                    December 31,2008Shanghai
      Lanbao Travel Service Co., Ltd.
                    
                    
                    3,081,799
                    
                    
                    
                    3,081,799Foshan
      International Travel Service Co., Ltd.
                    
                    
                    6,049,576
                    
                    
                    
                    6,049,576Xian
      Golden Net Travel Serve Services Co.,Ltd
                    
                    
                    764,895
                    
                    
                    
                    764,895$
                    9,896,270
                    
                    
                    $
                    9,896,270
  Long-Lived
Assets
  The
Company adopted the Property, Plant and Equipment Topic of the FASB Accounting
Standard Codification (“ASC 360”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a
Segment of a Business. The Company periodically evaluates the carrying value of
long-lived assets to be held and used in accordance with ASC 360. ASC 360
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair market value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Based on its review, the Company believes that, as of December 31, 2009 and 2008
there were no significant impairments of its long-lived assets.
  Derivative
Liability
  The
Company issued warrants in connection with the “Securities Purchase Agreement”
dated August 28, 2008 with certain reset exercise price
provisions.  If the Company issues or sells shares of its common stock
after the August 28, 2008 Securities Purchase Agreement or Financing for an
amount less than the original exercise price per share, the exercise price of
the warrants is reduced to equal the new issuance price of those
shares.
  Upon the
Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting
Standards Codification (“ASC 815”) on January 1, 2009, the Company
determined that the warrants did not qualify for a scope exception under ASC 815
as they were determined to not be indexed to the Company’s stock as prescribed
by ASC 815.  On January 1, 2009, the warrants, under ASC 815, were
reclassified from equity to derivative liability for the then relative fair
market value of $2,091,738 and marked to market.  The value of the warrants
decreased by $536,776 from the warrants issuance date to the adoption date of
ASC 815, January 1, 2009.  As of January 1, 2009, the cumulative
effect in adopting ASC 815 was a reduction to additional paid in capital of
$2,091,738 to reclassify the warrants from equity to derivative liability and an
increase in retained earnings of $536,776 as a cumulative effect of a change in
accounting principle to reflect the change in the value of the warrants between
their issuance date and January 1, 2009.  For the year ended December
31, 2009, the Company recorded a loss on change in fair value of derivative
liability of $6,832,186 to mark to market for the increase in fair value of the
warrants during the year ended December 31, 2009.   Under ASC
815, the warrants will be carried at fair value and adjusted at each reporting
period.
  11
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Derivative Liability
(Continued)
  The
Company determined the fair value of the reset provisions at January 1, 2009 was
$1,554,961 as the initial fair value at the adoption date of EITF No.
07-05.  The fair value was determined using the Black Scholes Option
Pricing Model based on the following assumptions:  dividend
yield: 0%; volatility: 136%, risk free rate: 1.55%, expected term: 4.66
years.
  The
Company determined the fair value of the reset provisions at December 31, 2009
was $1,815,319. The fair value was determined using the Black Scholes Option
Pricing Model based on the following assumptions: dividend yield: -0-%;
volatility: 120%, risk free rate: 2.69%, expected term: 3.66 years.
  Fair Value of Financial
Instruments
  FASB
Accounting Standards Codification Topic on Fair Value Measurements and
Disclosures (“ASC 820”) requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
  Revenue
Recognition
  The
Company’s revenue recognition policies are in compliance with FASB Accounting
Standards Codification Topic on Revenue Recognition (“ASC 605”). Revenue is
recognized at the date the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
  The
Company had four types of revenue stream from its four lines of businesses,
namely (i) air-ticketing (Shenzhen Yuzhilu Aviation Service Co., Ltd. and
Chongqing Universal Travel E-Commerce Co., Ltd.), (ii) hotel reservations
(Shanghai Lanbao Travel Service Co., Ltd.), (iii) packaged tours (Foshan
International Travel Service Co., Ltd., Xian Golden Net Travel Serve Services
Co, Ltd. and Shenzhen Universal Travel Agency Co., Ltd.) and (iv) air cargo
agency services (Shenzhen Speedy Dragon Enterprises Ltd.).  On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Ltd. Accordingly the Company has accounted for Shenzhen Speedy
Dragon Enterprise Ltd, its air cargo agency services as a discontinued operation
(see Note 2 Discontinued Operations).  Effective June 12, 2009, the
Company has three types of revenue stream from its current three lines of
businesses.
  Air-ticketing
services
  The
Company receives commissions from travel suppliers for air-ticketing services
through its transaction and service platform under various services agreements.
The Company does not charge customers differently from the prices provided by
travel suppliers.  The Company has no discretion on the air ticket
prices or the applicable commission rates as they are dictated by the travel
suppliers. Commissions from air-ticketing services rendered are recognized after
air tickets are issued. The Company presents revenues from such transactions on
a net basis in the statements of income as the Company, generally, does not
assume inventory risks and has no obligations for cancelled airline ticket
reservations.
  12
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Revenue Recognition
(Continued)
  Hotel reservation
services
  The
Company receives commissions from travel suppliers for hotel room reservations
through its transaction and service platform. The Company does not charge
customers differently from the prices provided by hotel
suppliers.  The Company has no discretion on the hotel room prices or
the applicable commission rates as they are dictated by the hotel
suppliers.  Commissions from hotel reservation services rendered are
recognized after hotel customers have completed their stay at the applicable
hotel and upon confirmation of pending payment of the commissions by the hotel.
The Company presents revenues from such transactions on a net basis in the
statements of income as the Company, generally, does not assume inventory risks
and has no obligations for cancelled hotel reservations.
  Packaged-tour
  The
Company receives fees from providing domestic and cross-boarder travel tour
services.  The Company contracts with traffic service providers,
accommodation providers and leisure service providers to purchase air tickets,
train and coach tickets, accommodation and leisure or entertainment packages in
bulk and then resell them to its customers with a mark-up.  Fees
generated from packaged-tour are recognized on a gross basis in the statements
of income, when the tour is completed, as the Company, generally, undertakes the
majority of the business risk.  The Company is the primary obligor to
pay the service providers upon rendering of those services.  In
addition, the Company acts as principal related to the packaged-tour services
rendered or when tour is completed and collections are reasonably
assured.  Generally, the Company does not issue refund to its
customers unless cancellation is due to its and or the service provider’s
non-delivery of services. Historically, refunds and cancellations do not have a
material impact on the Company’s consolidated financial statements in any
accounting period.
  Air Cargo
Business
  The
Company received fees from its air cargo business. However, this business
segment had been accounted for as a discontinued operation upon consummation of
a termination agreement with Shenzhen Speedy Dragon Enterprise Ltd dated June
12, 2009.  The Company basically brokered air cargo spaces and resell
them to local logistic companies to generate revenue.  The Company had
contracted with Chinese domestic airlines as its vendors to carry out its cargo
services.  Revenues generated from air cargo business were recognized
on a gross basis in the statements of income, when the service was rendered, as
the Company, generally, undertook the majority of the business
risk.  The Company was the primary obligor to pay the service
providers upon rendering of those services.  In addition, the Company
acted as principal related to the air cargo services rendered and collections
are reasonably assured.  Customers were charged based on the class and
weight of goods shipped.
  Historically,
the Company has experienced minimum and or immaterial returns and or
cancellation from its four lines of businesses, which amount if any, would have
no material impact on its consolidated financial
statements.  Accordingly, no allowance has been provided for in the
periods presented.
  13
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Cost of
Services
  Costs of
services for air tickets cover mainly business and revenue related
taxes.  Costs of services for hotel reservations cover mainly business
and revenue related taxes, as well as commissions paid to the sales agents for
selling hotel rooms in the Company’s system.  Costs of services for
the cargo agency business mainly include the costs of warehousing and delivery
charges.  Costs of services for packaged tours include meals,
transportation (airline tickets, train tickets and car rental), lodging, airport
transfers, tickets to local attractions and tours.
  Other
direct costs such as systems and related technologies used by each segment
operations, and costs associated with payment processing are also included in
the Company’s Costs of Services. In addition, the Company allocates costs of
labor and facilities, depreciation, communications, and utility expenses
incurred by each segment between costs of services and general administrative
expenses.  The percentage, ranging from 50% to 80%, allocated to costs
of sales is based on management estimate, and the percentage allocated is
estimated to be directly associated with the generation of
revenues.
  Consolidated
costs such as stock-based compensation and corporate professional fees are not
allocated to any segment. These costs are reported as general operating expenses
in the Company’s Statements of Operations. For the years ended December 31,
2009, 2008, and 2007, such expenses amounted $2,393,958, $464,917 and
$945,903.
  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 ateach 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.
  14
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 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, and Organization cost of new
companies. These definitive lived intangible assets are being amortized over
their useful lives.  Expenditures of $296,264 and
$316,107 were capitalized in 2009 and 2008 and will be amortized over a 3 year
life.  The Company recorded amortization expense for definitive lived
intangible assets of $264,359, $27,397
and $31,262 for the years ended December 31, 2009, 2008, and 2007, respectively.
The Company will record approximately $138,073, $118,756, and $17,337 over the
next three years, respectively.
  Concentration of Credit
Risk
  Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions. The Company has a diversified customer
base, most of which are in China. The Company controls credit risk related to
accounts receivable through credit approvals, credit limits and monitoring
procedures. The Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk, establishes an
allowance, if required, for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such allowance
is limited.
  Net Income (Loss) Per
Share
  The
Company accounts for net income (loss) per share in accordance with FASB
Accounting Standards Codification Topic on Earning Per Share (“ASC 260”), which
requires presentation of basic and diluted EPS on the face of the statement of
income for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS.  Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during each
period.  It excludes the dilutive effects of potentially issuable
common shares such as those related to the Company’s warrants and stock options
(calculated using the treasury stock method).  Diluted net income
(loss) per share is calculated by including potentially dilutive share issuances
in the denominator.
  15
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  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:
  Year
      ended December 31,2009
                    
                    
                    2008
                    
                    
                    2007Restated
                    
                    
                    RestatedBasic
      earnings from continuing operations per share:Numerator:Income
      from continuing operations used in computing basic earnings per
      share
                    
                    $
                    11,337,521
                    
                    
                    $
                    13,781,728
                    
                    
                    $
                    7,508,639Income
      from continuing operations applicable to common
    shareholders
                    
                    $
                    11,337,521
                    
                    
                    $
                    13,781,728
                    
                    
                    $
                    7,508,639Denominator:Weighted
      average common shares outstanding
                    
                    
                    14,121,542
                    
                    
                    
                    12,854,051
                    
                    
                    
                    11,209,839Basic
      earnings (losses) per share from continuing operations
                    
                    $
                    0.80
                    
                    
                    $
                    1.07
                    
                    
                    $
                    0.67Diluted
      earnings (losses) per share from continuing operations:Numerator:Income
      (loss) from continuing operations used in computing diluted earnings
      (losses) per share
                    
                    $
                    11,337,521
                    
                    
                    $
                    13,781,728
                    
                    
                    $
                    7,508,639Income
      (loss) from continuing operations applicable to common
      shareholders
                    
                    $
                    11,337,521
                    
                    
                    $
                    13,781,728
                    
                    
                    $
                    7,508,639Denominator:Weighted
      average common shares outstanding
                    
                    
                    14,121,542
                    
                    
                    
                    12,854,051
                    
                    
                    
                    11,209,839Weighted
      average effect of dilutive securities:Stock
      options and warrants
                    
                    
                    1,196,918
                    
                    
                    
                    -
                    
                    
                    
                    -Shares
      used in computing diluted net income per share
                    
                    
                    15,318,460
                    
                    
                    
                    12,854,051
                    
                    
                    
                    11,209,839Diluted
      earnings per share from continuing operations
                    
                    
                    0.74
                    
                    
                    
                    1.07
                    
                    
                    
                    0.67
  16
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Year
      ended December 31,2009
                          
                          
                          2008
                          
                          
                          2007Restated
                          
                          
                          RestatedBasic
      losses(earnings) from discontinuing operations per share:Numerator:Income
      (loss) from discontinuing operations used in computing basic earnings per
      share
                          
                          $
                          (592,620
                          )
                          
                          $
                          750,449
                          
                          
                          $
                          1,187,255Income
      (loss) from discontinuing operations applicable to common
      shareholders
                          
                          $
                          (592,620
                          )
                          
                          $
                          750,449
                          
                          
                          $
                          1,187,255Denominator:Weighted
      average common shares outstanding
                          
                          
                          14,121,542
                          
                          
                          
                          12,854,051
                          
                          
                          
                          11,209,839Basic
      losses(earnings) earnings per share from discontinuing
      operations
                          
                          $
                          (0.04
                          )
                          
                          $
                          0.06
                          
                          
                          $
                          0.11Diluted
      losses(earnings) per share from discontinuing operations:Numerator:Income
      (loss) from discontinuing operations used in computing diluted earnings
      (losses) per share
                          
                          $
                          (592,620
                          )
                          
                          $
                          750,449
                          
                          
                          $
                          1,187,255Income
      (loss) from discontinuing operations applicable to common
      shareholders
                          
                          $
                          (592,620
                          )
                          
                          $
                          750,449
                          
                          
                          $
                          1,187,255Denominator:Weighted
      average common shares outstanding
                          
                          
                          14,121,542
                          
                          
                          
                          12,854,051
                          
                          
                          
                          11,209,831Weighted
      average effect of dilutive securities:Stock
      options and warrants
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Shares
      used in computing diluted net income (loss) per share
                          
                          
                          14,121,542
                          
                          
                          
                          12,854,051
                          
                          
                          
                          11,209,831Diluted
      losses(earnings) earnings per share from discontinuing
      operations
                          
                          $
                          (0.04
                          )
                          
                          $
                          0.06
                          
                          
                          $
                          0.11Total
      net income (loss) per common shareBasic
                          
                          $
                          0.76
                          
                          
                          $
                          0.06
                          
                          
                          $
                          0.11Diluted
                          
                          
                          0.70
                          
                          
                          
                          0.06
                          
                          
                          
                          0.11
  17
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Recent Accounting
Pronouncements
  In
February, 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets
and Financial Liabilities’ – Including an Amendment of FABS Statement No.
115.  This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial instruments. 
This statement is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, SFAS No
159 was superseded by the Financial Instruments Topic of FASB Accounting
Standards Codification (“ASC 825”), the adoption of this accounting requirement
has no effect on the Company’s consolidated financial
statements.
  In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”).  This Statement amends ARB
51 to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This Statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). SFAS
No 160 was superseded by the Consolidation Topic of FASB Accounting Standards
Codification (“ASC 810”) The Company adopted SFAS 160 on January 1, 2009. The
adoption of this statement had no effect on the Company’s consolidated financial
statements.
  In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. SFAS No 161 was
superseded by the Derivative and Hedging Topic of FASB Accounting Standards
Codification (“ASC 815”).
  18
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  On May 8,
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally
Accepted Accounting Principles, which will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP
hierarchy for nongovernmental entities will move from auditing literature to
accounting literature.  SFAS No 162 was superseded by the General
Accounting Principle Topic of FASB Accounting Standards Codification (“ASC
105”).
  In
June 2008, the FASB ratified the consensus reached on Emerging Issues Task
Force (“EITF”) Issue No. 07-05, 05”). EITF No. 07-05 clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF
No. 07-05 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. EITF No. 07-05 was superseded by the
Derivative and Hedging Topic of FASB Accounting Standards Codification (“ASC
815”). Based on the Company’s evaluation of this issue, the adoption of this
accounting requirement has a material effect on the Company’s consolidated
financial statements, please see note above under “Derivative
Liability”.
  In June
2009, the FASB issued amended standards for determining whether to consolidate a
variable interest entity. These amended standards eliminate a mandatory
quantitative approach to determine whether a variable interest gives the entity
a controlling financial interest in a variable interest entity in favor of a
qualitatively focused analysis, and require an ongoing reassessment of whether
an entity is the primary beneficiary. These amended standards are effective for
us beginning in the first quarter of fiscal year 2010 and we are currently
evaluating the impact that adoption will have on our consolidated financial
statements.
  In June
2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events),
which establishes general standards of accounting for and disclosures of events
that occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. There was no material impact upon the adoption of
this standard on the Company’s consolidated financial statements.
  In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional
guidance on the measurement of liabilities at fair value. These amended
standards clarify that in circumstances in which a quoted price in an active
market for the identical liability is not available, we are required to use the
quoted price of the identical liability when traded as an asset, quoted prices
for similar liabilities, or quoted prices for similar liabilities when traded as
assets. If these quoted prices are not available, we are required to use another
valuation technique, such as an income approach or a market approach. These
amended standards are effective for us beginning in the fourth quarter of fiscal
year 2009. There was no material impact upon the adoption of this standard on
the Company’s consolidated financial statements.
  19
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  In
January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU
2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820,
adding new requirements for disclosures for Levels 1 and 2, separate disclosures
of purchases, sales, issuances, and settlements relating to Level 3 measurements
and clarification of existing fair value disclosures.  ASU 2010-06 is
effective for interim and annual periods beginning after December 15, 2009,
except for the requirement to provide Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010 (the Company’s fiscal year 2012); early
adoption is permitted.  The Company is currently evaluating the impact of
adopting ASU 2009-14 on its financial statements.
  Merger and Corporate
Restructure
  On June
26, 2006 the company entered into an agreement and plan of merger with Full
Power Enterprises Global Limited, a holding company that owns all of the issued
and outstanding shares of Shenzhen Yuzhilu Aviation Service Company Limited, the
operating Company. In substance the agreement is a recapitalization of Shenzhen
Yuzhilu Aviation Service Company’s capital structure.
  For
accounting purposes, the company accounted for the transaction as a reverse
acquisition and with Full Power Enterprises Global Limited being the surviving
entity. The Company did not recognize goodwill or any intangible assets in
connection with the transaction. Prior to the Agreement, the company was an
inactive corporation with no significant assets and
liabilities.
  Note
3 – TRADE DEPOSITS AND
ADVANCES
  Trade
deposits represents amount held by Airlines and deposits. As of December 31,
2009 and 2008 the Company had paid $9,775,735 and $6,571,164 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 December 31, 2009
and 2008:
  December 31,
                      2009
                    
                    
                    December 31,
                      2008Shenzhen
      Yuzhilu Aviation Service Co., Ltd:Deposit
      for tripeasy kiosks.
                      The
      Company will record the asset and the related depreciation utilizing the
      straight-line method over 5 years for the kiosk at the time they are
      placed in service.
                    
                    $
                    1,465,592
                    
                    
                    $
                    3,171,851CRM
      System Design Deposit.
                      The
      deposit with CRM System Design represents a prepayment for the design of
      the CRM system. The company will record the intangible asset and the
      related amortization utilizing the Straight-line method over 5 years at
      the time the system is operational and placed in service.
                    
                    
                    -
                    
                    
                    
                    41,216Deposit
      on Design fee for kiosks.
                      Advance
      payments for design fees related to the kiosks will begin to record the
      amortization as they are placed in service as a percent of the expected
      total of 600 units.
                    
                    
                    -
                    
                    
                    
                    103,479Airlines
      Deposit. The deposits with the airlines are required in order to issue
      air-tickets. The deposits are fully refundable should the company decide
      to discontinue its air-ticket business.
                    
                    
                    2,811,004
                    
                    
                    
                    674,277Financial
      System Software Deopsit
                      The
      deposit on the financial system software will be capitalized and amortized
      upon the implementation and operations of the system.
                    
                    
                    16,898Airport
      Deposit
                      These
      deposits are for the ability to market in the airports, and are netted
      against the monthly rental obligations to the airports.
                    
                    
                    8,508
                    
                    
                    
                    21,631Ticket
      Agency Deposit
                      The
      deposits to ticket agencies are required in order for the company to issue
      other ticket agencies special fare tickets. The deposits are fully
      refundable should the company decide to discontinue business with other
      agencies.
                    
                    
                    1,100,158
                    
                    
                    
                    1,096,170Subtotal
                    
                    $
                    5,402,160
                    
                    
                    $
                    5,108,624
  20
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009
 (UNAUDITED)
  Note
3 – TRADE DEPOSITS AND
ADVANCES (CONTINUED)
  (Continued)
                  
                  December 31, 2009
                  
                  
                  December 31, 2008Foshan
      Overseas International Travel Service Co. Ltd.:Deposit
      with Tour Companies
                    The
      deposits with tour companies represent advances to tour companies. These
      deposits are required for co-operate travel agencies, and is deducted
      against tour payments. Any remaining deposits will be refunded to the
      company should the company decide to discontinue business with these
      agencies.
                  
                  $
                  969,261
                  
                  
                  $
                  632,726Advance
      payments with Tour Guides
                    The
      deposits with tour guides represent advances for expenses while conducting
      the tour. These advances will be reclassified to cost of services at the
      conclusion of the tour and the tour guides provide the supporting
      documentation.
                  
                  
                  243,342
                  
                  
                  
                  230,574Subtotal
                  
                  
                  1,212,603
                  
                  
                  
                  863,300Xian
      Golden Net Travel Serve Services, Ltd.:Deposit
      with Tour companies
                    The
      deposits with tour companies, represent advances to co-operate travel
      agencies, and is deducted against tour payments. Any remaining deposits
      will be refunded to the company should the company decide to discontinue
      business with these agencies.
                  
                  
                  425,396
                  
                  
                  
                  511,546Deposit
      with Transportation Suppliers
                    The
      deposits with transportation suppliers represent advances to
      transportation suppliers and are required for co-operate transportation
      suppliers. The advances are deducted against transportation payments. Any
      remaining deposits will be refunded to the company should the company
      decide to discontinue business with these agencies.
                  
                  
                  132,019
                  
                  
                  
                  87,694Subtotal
                  
                  
                  557,415
                  
                  
                  
                  599,240Chongqing
      Travel World E-Business Co., Ltd.Ticket
      Agency Deposit
                    The
      deposits to ticket agencies are required in order for the company to issue
      other ticket agencies special fare tickets. The deposits are fully
      refundable should the company decide to discontinue business with other
      agencies.
                  
                  
                  2,587,279
                  
                  
                  
                  -Subtotal
                  
                  
                  2,587,279
                  
                  
                  
                  -Shenzhen
      Universal TravelTicket
      Agency Deposit
                    The
      deposits to ticket agencies are required in order for the company to issue
      other ticket agencies special fare tickets. The deposits are fully
      refundable should the company decide to discontinue business with other
      agencies.
                  
                  
                  16,278
                  
                  
                  
                  -Subtotal
                  
                  
                  16,278
                  
                  
                  
                  -Total
                  
                  $
                  9,775,735
                  
                  
                  $
                  6,571,164
  The
Company has entered into a co-operation agreement with an unrelated company, to
assist that company in their business development by participating in that
business operations and providing working capital funding. As of December 31,
2009 and December 31, 2008 the Company has advanced this company $440,063 and
$438,468 respectively.
  21
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 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 - INCOME
TAXES
  The
Company through its subsidiary Shenzhen Yuzhilu Aviation Service Co..Ltd is
governed by the Income Tax Laws of the PRC. Operations in the United States of
America have incurred net accumulated operating losses for income tax purposes.
Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT) the Company
has a statutory rate of 25%. The following is a reconciliation of income tax
expense for the three years ended December 31, 2009, 2008, and
2007.
  December 31,
                    
                    
                    December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008
                    
                    
                    2007Current
                    
                    $
                    5,978,948
                    
                    
                    $
                    4,073,614
                    
                    
                    $
                    1,641,950Deferred
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    5,978,948
                    
                    
                    $
                    4,073,614
                    
                    
                    $
                    1,641,950
  Note
6 – COMMITMENTS
  The
Company leases various office facilities under month-to-month arrangements.
Rental expense for leases consisted of $634,792, $339,032 and $184,552 for
years ended December 31, 2000, 2008, and 2007, respectively. The Company
has future minimum lease obligations as of December 31, 2009 as
follows:
  2010
                    
                    $
                    299,3682011
                    
                    
                    220,5512012
                    
                    
                    220,5512013
                    
                    
                    150,4932014
                    
                    
                    100,329Total
                    
                    $
                    991,292
  Pursuant
to the Securities Purchase Agreement entered into on August 28, 2008, the
Company and the Buyers in this Agreement entered into a Lock up Agreement. Under
the Lock-Up Agreement, the Principal Shareholder agreed that she would not sell
any of the Lock-Up Shares, 5,000,000 shares of Common Stock and options to
purchase 2,000,000 shares of Common Stock, and shall not transfer such shares
for twelve (12) months.
  22
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
7 – COMMON
STOCK
  In
January 2007 the company adopted the Universal Travel Group 2007 Equity
Incentive Plan. Under the terms of this Plan the Company issued 1,256,667 shares
of the Company’s stock, valued at $1,583,400, for services rendered during the
period from October 2, 2006 through February 28, 2007.
  Pursuant
to a share exchange agreement, the Company issued 238,095 shares of newly issued
shares of Common Stock to the former shareholders of Shenzhen Speedy Dragon
Enterprises Limited. The shares were valued at $1,000,000, which was the fair
value of the shares at the date of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  On April
10, 2007 the Company consummated the acquisition of a 100% interest in Shenzhen
Speedy Dragon Enterprises Limited ("SSD") for a cash and stock transaction
valued at approximately US$4 million in aggregate. This amount is included in
the cost of net assets and goodwill purchased.
  The stock
consideration consisted of 238,095 newly issued shares of the Registrant’s
common stock, which were given to SSD’s sole Shareholder immediately before the
completion of the Share Exchange Transaction. The cash consideration consisted
of $3,000,000 in cash and payable no later than the first anniversary of the
Merger Transaction. The obligation to pay the cash consideration is evidenced by
interest-free promissory notes between the Registrant and the SSD
Shareholder.
  SSD is
engaged in the business of air freight forwarding. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of SSD.
  The
acquisition accounted for as a purchase business combination and the results of
operations from the acquisition date have been included in the Company's
consolidated financial statements in accordance with ASC810. The allocation of
the purchase price is as follows:
  Cash
      acquired
                        
                        $
                        17,800Loans
      receivable
                        
                        
                        90,096Loans
      shareholder
                        
                        
                        251,184Property
      Plant & Equipment
                        
                        
                        22,995Goodwill
                        
                        
                        3,630,539Total
      assets acquired
                        
                        
                        4,012,614Liabilities
      assumedAccounts
      & Income Taxes payable
                        
                        
                        3,588Other
      payable
                        
                        
                        9,026Total
                        
                        $
                        4,000,000
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $3,630,359 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 805.
  23
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
7 – COMMON STOCK
(CONTINUED)
  Prior to
the acquisition, Shenzhen Speedy Dragon Enterprises Limited prepared its
financial statements under accounting principles generally accepted in the
United States of America. Pursuant to a termination agreement dated June
12, 2009 between the Company and Shenzhen Speedy Dragon Enterprises Limited (see
Note 2 Discontinued Operations), the Company transferred back its equity
interest in Shenzhen Speedy Dragon Enterprises Limited on or before June 30,
2009 and the 238,095 shares of the Company’s common stock were returned from the
sole shareholder of Shenzhen Speedy Dragon Enterprises Limited to the Company.
The returned shares were canceled as of June 30, 2009.
  Pursuant
to a share exchange agreement, the Company issued 50,588 shares of newly issued
shares of Common Stock to the former shareholders of Xian Golden Net Travel
Serve Services, Inc. The shares were valued at $258,000, which was the fair
value of the shares at the date the of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  On August
6, 2007 the Company consummated the acquisition of a 100% interest in Xian
Golden Net Travel Serve Services, Inc. ("XGN") for a cash and stock transaction
valued at approximately US$1.8 million in aggregate. This amount is included in
the cost of net assets and goodwill purchased.
  The stock
consideration consisted of 50,588 newly issued shares of the Registrant’s common
stock, which were given to XGN’s Shareholders immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$1,542,000 in cash and payable no later than the first anniversary of the Merger
Transaction. The obligation to pay the cash consideration is evidenced by an
interest-free promissory note between the Registrant and the XGN’s
Shareholders.
  XGN 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 shareholders of XGN.
  The
acquisition 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:
  Cash
      acquired
                      
                      $
                      45,356Accounts
      Receivable
                      
                      
                      142,462Loans
      to Shareholder
                      
                      
                      1,075,504Property
      Plant & Equipment
                      
                      
                      773Goodwill
                      
                      
                      764,895Total
      assets acquired
                      
                      
                      2,028,990Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      131,875Other
      payable
                      
                      
                      97,115Total
                      
                      $
                      1,800,000
  24
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
7 – COMMON STOCK
(CONTINUED)
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $764,895 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 805.
  Prior to
the acquisition, Xian Golden Net Travel Serve Services, Inc. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  Pursuant
to a share exchange agreement, the Company issued 200,000 shares of newly issued
shares of Common Stock to the former shareholders of Shanghai Lanbao Travel
Services Co., Ltd. The shares were valued at $1,092,000, which was the fair
value of the shares at the date of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  On August
8, 2007, the Company consummated the acquisition of a 100% interest in Shanghai
Lanbao Travel Services Co., Ltd. ("SLB") for a cash and stock transaction valued
at approximately US$3.92 million in aggregate. This amount is included in the
cost of net assets and goodwill purchased.
  The stock
consideration consisted of 200,000 newly issued shares of the Registrant’s
common stock immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $2,828,000 in cash and payable
no later than the first anniversary of the Merger Transaction. The obligation to
pay the cash consideration is evidenced by interest-free promissory notes
between the Registrant and each of the SLB Shareholders.
  SLB is
engaged in the business of real time booking of travel related products via the
internet. The purchase price was determined based on arms' length negotiations
between Universal Travel Group and the shareholders of SLB.
  The
acquisition 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 SFAS 94. The allocation of
the purchase price is as follows:
  Cash
      acquired
                      
                      $
                      28,510Accounts
      Receivable
                      
                      
                      1,265,352Loans
      to shareholders
                      
                      
                      178,665Property
      Plant & Equipment
                      
                      
                      9,376Goodwill
                      
                      
                      3,081,799Total
      assets acquired
                      
                      
                      4,563,702Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      566,809Other
      payable
                      
                      
                      76,893Total
                      
                      $
                      3,920,000
  25
  UNIVERSAL TRAVEL
GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $3,081,799 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 825.
  Prior to
the acquisition, Shanghai Lanbao Travel Services Co., Ltd. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  Pursuant
to a share exchange agreement, the Company issued 374,321 shares of newly issued
shares of Common Stock and a promissory note to the former shareholders of
Foshan Overseas International Travel Service Co., Ltd. The shares were valued at
$3,346,500, which was the fair value of the shares at the date of exchange
agreement. This amount is included in the cost of net assets and goodwill
purchased.
  On
September 20, 2007, the Company consummated the acquisition of a 100% interest
in Foshan Overseas International Travel Service Co., Ltd. ("FOI") for a cash and
stock transaction valued at approximately US$6.5 million in aggregate. This
amount is included in the cost of net assets and goodwill
purchased.
  The stock
consideration consisted of 374,329 newly issued shares of the Registrant’s
common stock, immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $3,153,500 due immediately
before the completion of the Share Exchange Transaction and payable no later
than the first anniversary of the Merger Transaction. The obligation to pay the
cash consideration is evidenced by two interest-free promissory notes between
the Registrant and each of the FOI Shareholders.
  FOI is
engaged in the business of domestic and international travel inquiries as well
as corporate travel, offering specialized packages that include national and
international air ticket booking, hotel reservations, conference center
reservations and rental cars. The purchase price was determined based on arms'
length negotiations between Universal Travel Group and the shareholders of FOI.
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:
  Cash
      acquired
                      
                      $
                      423,292Accounts
      Receivable
                      
                      
                      2,204,094Loans
      Shareholders
                      
                      
                      686,936Trade
      Deposits
                      
                      
                      513,317Prepaid
      Expenses
                      
                      
                      3,285Property
      Plant & Equipment
                      
                      
                      42,244Goodwill
                      
                      
                      6,049,576Total
      assets acquired
                      
                      
                      9,922,744Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      3,126,718Other
      payable
                      
                      
                      296,026Total
                      
                      $
                      6,500,000
  26
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $6,049,576 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 805.
  Prior to
the acquisition, Foshan Overseas International Travel Service Co., Ltd. prepared
its financial statements under accounting principles generally accepted in the
United States of America.
  On August
28, 2008, Universal Travel Group (the “Company”) entered into a Securities
Purchase Agreement with Access America Fund, LP, Chinamerica Fund LP, Pope
Investments II LLC, Heller Capital Investments, LLC, CGM as C/F Ronald I. Heller
IRA, Investment Hunter, LLC, MARed Investments, High Capital Funding, LLC, and
Merrill Lynch, Pierce, Fenner & Smith, FBO Beau L. Johnson (collectively,
the “Buyers”) to sell to the Buyers 1,529,569 shares of common stock, par value
$0.001 of the Company (“Common Stock”) and warrants to purchase 764,785 shares
of Common Stock for an aggregate purchase price of $7,112,500 (the “Financing”).
(See footnote 2, derivative liability)
  On
December 15, 2009, the Company closed a Subscription Agreements with certain
investors to sell to them an aggregate of 2,222,222 shares of common stock of
the Company, par value $0.001 (the “Shares”) for a purchase price of $9.00 per
share and an aggregate purchase consideration of $19,999,998. In connection with
the subscription the company paid fees and other costs pertaining to the
agreement totaling $1,049,749. Net proceeds of the transaction were
$18,950,249.  The offer and sale of the Shares were made pursuant to an
effective Registration Statement on Form S-3 (Registration No. 333- 161139)
initially filed with the Securities and Exchange Commission on August 7, 2009
and amended on November 2, 2009. The Registration Statement was declared 
effective on November 5, 2009.
  Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION
  On
February 4, 2008, under the terms of an equity financing commitment, the company
issued 74,074 shares of common stock at the closing price of $ 8.10 per
share.  The proceeds of $599,994 were paid directly to the shareholders of
Foshan Overseas International Travel Service Co, for amount due them under Note
obligation of the company.
  On May 7,
2007, the Company issued, to a newly appointed Board member, an option grant to
purchase 33,333 shares of common stock at the closing price at $ 5.85 per share.
The exercisable period is two years from issuance. On June 23, 2008, upon
resignation, Board member has forfeited all options.
  On
September 6, 2007, the Company issued, to a newly appointed Board member, an
option grant to purchase 33,333 shares of common stock at the closing price at $
8.55 per share. The options are exercisable until June 1, 2017. On June 23,
2008, upon resignation, Board member has forfeited 22,222 options.
  On
December 7, 2007, the Company issued, to another newly appointed Board member,
an option grant to purchase 33,333 shares of common stock at the closing price
of $ 11.25 per share. The options are exercisable until November 1,
2017.
  Stock
options— the option holder has no voting or dividend rights. The company records
the expense of the stock options over the related vesting period. The options
were valued using the Black-Scholes option-pricing model at the model at
the date of grant stock option pricing. On May 28, 2008, upon resignation, Board
member has forfeited 22,222 options.
  27
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
  On June
24, 2008, the Company issued, to another newly appointed Board member, an option
grant to purchase 33,333 shares of common stock at the closing price of $ 4.56
per share. The options are exercisable until July 1, 2018. Stock options— the
option holder has no voting or dividend rights. The company records the expense
of the stock options over the related vesting period. The options were valued
using the Black-Scholes option-pricing model at the model at the date of grant
stock option pricing.
  On
January 20, 2009, pursuant to the Securities Purchase agreement entered into on
August 28, the Company enacted the Universal Travel Group 2009 Incentive Stock
Option Plan entitles the grant of up to 2,200,000 shares of common stock of
Universal Travel Group, par value $0.001 to certain employees of the Company
either as stock or stock options, and the subsequent exercise of any stock
options.  The options are exercisable until January 19, 2019, with a
vesting period of six years. Average purchase price for the options is $3.73 per
share. The options were valued using the Black-Scholes option-pricing
model at the date of grant stock option pricing.  The total fair
market value at grant date is $5,483,865. On July 23, 2009 3,300 were exercised
at $2.90.
  On
September 1, 2009, the Company issued, to another newly appointed Board member,
an option grant to purchase 10,000 shares of common stock at the closing price
of $ 8.82 per share. The options are exercisable until August 2019. Stock
options— the option holder has no voting or dividend rights. The company records
the expense of the stock options over the related vesting period. The options
were valued using the Black-Scholes option-pricing model at the model at the
date of grant stock option pricing.
  On
September 1, 2009, the Company issued, to the newly appointed CFO an option
grant to purchase 105,000 shares of common stock at the closing price of $ 8.82
per share. The options are exercisable until August 2019. Stock options— the
option holder has no voting or dividend rights. The company records the expense
of the stock options over the related vesting period. The options were valued
using the Black-Scholes option-pricing model at the model at the date of grant
stock option pricing.
  Expected
volatility is based on the historical volatility of the Company’s stock price.
The expected term represents the estimated average period of time that the
options remain outstanding. No dividend payouts were assumed, as the Company has
no plans to declare dividends during the expected term of the stock options. The
risk-free rate of return reflects the weighted average interest rate offered for
zero coupon treasury bonds over the expected term of the options. Based upon
this calculation and pursuant to, ASC 718, the Company recorded a service period
expense of $11,544,409 for the year ending December 31, 2009. During 2009,
766,667 employee options were exercised, under cashless exercise provision. The
company issued 576,372 shares of common stock.
  AggregateExercise
                      
                      
                      Remaining
                      
                      
                      IntrinsicTotal
                      
                      
                      Price
                      
                      
                      Life
                      
                      
                      ValueOutstanding,
      December 31, 2008
                      
                      
                      55,555
                      
                      
                      $
                      4.56-11.25
                      
                      
                      7.69-8.75yrs
                      
                      
                      
                      -Granted
      in 2009
                      
                      
                      2,200,000
                      
                      
                      $
                      2.70-3.84
                      
                      
                      9.31yrs
                      
                      
                      
                      -Granted
      in 2009
                      
                      
                      115,000
                      
                      
                      $
                      8.82
                      
                      
                      9.92yrsExercised
      in 2009
                      
                      
                      (3,300
                      )
                      
                      $
                      -
                      
                      
                      -
                      
                      
                      
                      -Cashless
      exercise in 2009
                      
                      
                      (766,667
                      )
                      
                      $Outstanding,
      December 31, 2009
                      
                      
                      1,600,588
                      
                      
                      $
                      -
                      
                      
                      -
                      
                      
                      
                      -
  28
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
  Pursuant
to the Securities Purchase Agreement entered into On August 28, 2008, the
Company issued warrants to purchase 764,786 shares of Common Stock. The unit
purchase price was $4.65per Common Share and a
related Warrant for the purchase of one-half a Common Share, times the number of
Common Shares purchased. Market Value of the Company’s stock on August 28, 2008
was $4.05. Each warrant has an Exercise Price of $8.13 and a term of 5 years
from the date of issuance.  The Company measured and recognized an
aggregate of $2,091,738 of the proceeds to additional paid in capital upon
issuance of these warrants. The terms of the warrants provide for an adjustment
to the exercise price of these warrants if the company closes on the sale or
issuance of common stock at a price which is less than the exercise price then
in effect for these warrants. Upon the Company’s adoption of EITF No. 07-05
on January 1, 2009, the Company determined that the warrants did not
qualify for a scope exception under SFAS No. 133 as they were determined to
not be indexed to the Company’s stock as prescribed by EITF
No. 07-05.  On January 1, 2009, the warrants were reclassified from
equity to derivative liability for the  relative fair market value and
marked to market (see Note 2 Derivative Liability).  On August 20, 2009
322,580 warrants valued at $3,398,135 as of that date, were exercised under the
cashless exercise provisions of the warrants. The Company issued 132,251 shares
of common stock. On October 15, 2009, 215,054 warrants valued at $2,888,495 as
of that date were exercised under the cashless exercise provision of the
warrants. The company issued 103,318 shares of common stock.
  Note
9 - OTHER
COMPREHENSIVE INCOME
  Balances
of related after-tax components comprising accumulated other comprehensive
income, included in stockholders equity, as of December 31, 2009 and 2008
are as follows:
  Foreign Currency
                        Translation
                        Adjustment
                      
                      
                      Accumulated Other
                        Comprehensive
                        IncomeBalance
      December 31, 2007
                      
                      $
                      545,164
                      
                      
                      $
                      545,164Changes
      for year ended December 31, 2008
                      
                      
                      975,002
                      
                      
                      
                      975,002Balance
      December 31, 2008
                      
                      
                      1,520,166
                      
                      
                      
                      1,520,166Changes
      for year ended December 31, 2009
                      
                      
                      124,967
                      
                      
                      
                      124,967Balance
      at December 31, 2009
                      
                      $
                      1,645,133
                      
                      
                      $
                      1,645,133
  Note
10 - CURRENT
VULNERABILITY DUE TO CERTAIN RISK FACTORS
  The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
  Note
11 – MAJOR CUSTOMERS
AND CREDIT RISK
  The
Company derives a portion of its income from various Airlines. Most revenue is
cleared through IATA, a centralized reporting platform.
  29
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
 
 Note
12 – ESCROW
DEPOSITS
  Pursuant
to the Securities Purchase Agreement entered into on August 28, 2008, the
Company agreed that it will deposit $500,000 of the proceeds in escrow to pay
the fees and expenses in connection with a public relations and investor
relations campaign. The Company also agreed that it engage a Chief Financial
Officer who shall be fluent in English and Mandarin, who understands and has a
working knowledge of United States generally accepted accounting principles, who
has had significant responsibility for the preparation and filing of quarterly,
annual and current reports with the SEC and who has experience working with or
in United States capital market participants.
  As of
December 31, 2009 $337,200 has been prepaid out of this escrow account in
connection with the public and investor relations campaign for services covering
a one year period. This prepayment is being amortized accordingly. Remaining
balance was released to the Company during the year  ended December 31,
2009.
  The
Company agreed that it would deposit $600,000 of the proceeds in escrow under
the Escrow Agreement, to be released only upon the dual signatures of the Chief
Executive Officer of the Company and the representative of the Buyers designated
in the Escrow Agreement following the engagement of a Chief Financial Officer.
During the year ended December 31. 2009, $600,000 was released from escrow to
the Company.
  Note
13 -   SEGMENT
INFORMATION
  Upon the
disposition of Shenzhen Speedy Dragon Enterprises Limited pursuant to a
termination agreement dated June 12, 2009, the Company currently operates and
prepares accounting and other financial reports separately to management for six
major business organizations (Shenzhen Yuzhilu Aviation Service Co., Ltd.,
Shanghai Lanbao Travel Service Co., Ltd., Foshan International Travel Service
Co., Ltd.,  Xian Golden Net Travel Serve Services, Chongqing Travel World
E-Business Co., Ltd., and Shenzhen Travel World Travel Agency Co., Ltd.).
Pursuant to SFAS 131 they disclose segments on a single entity basis, which in
their case is the legal entity. Our air-ticketing segment relates to the segment
reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel
World E-Business Co., Ltd., hotel reservation segment relates to Shanghai Lanbao
Travel Service Co., Ltd, packaged tours segment relates to Foshan International
Travel Service Co., Ltd and Xi’an Golden Net Travel Serve Service Company
Limited, and Shenzhen Travel World Travel Agency Co., Ltd. Management
monitors these segments regularly to make decisions about resources to be
allocated to the segment and assess its performance.
  30
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
13 -   SEGMENT INFORMATION
(CONTINUED)
  The
following tables’ present summarized information by segment:
  Air
                      Ticketing
                    
                    
                    Hotel
                      Reservation
                    
                    
                    Package
                      Tours
                    
                    
                    Other
                    
                    
                    TotalYear
      Ended December 31, 2009Sales,
      net
                    
                    $
                    17,509,195
                    
                    
                    $
                    13,044,815
                    
                    
                    $
                    67,321,542
                    
                    
                    $
                    -
                    
                    
                    $
                    97,875,552Cost
      of sales
                    
                    $
                    2,726,424
                    
                    
                    $
                    4,343,328
                    
                    
                    $
                    58,432,674
                    
                    
                    $
                    -
                    
                    
                    $
                    65,502,426Gross
      profit
                    
                    $
                    14,782,771
                    
                    
                    $
                    8,701,487
                    
                    
                    $
                    8,888,868
                    
                    
                    $
                    -
                    
                    
                    $
                    32,373,126Income
      from operations
                    
                    $
                    10354,596
                    
                    
                    $
                    8,435,273
                    
                    
                    $
                    7,772,637
                    
                    
                    $
                    (2,393,958
                    )
                    
                    $
                    24,168,547Depreciation
      & Amortization
                    
                    $
                    793,981
                    
                    
                    $
                    4,156
                    
                    
                    $
                    15,135
                    
                    
                    $
                    -
                    
                    
                    $
                    813,272Asset
      Expenditures
                    
                    $
                    5,384,851
                    
                    
                    $
                    -
                    
                    
                    $
                    1,101
                    
                    
                    $
                    -
                    
                    
                    $
                    5,385,952Total
      assets
                    
                    $
                    59,244,855
                    
                    
                    $
                    4,796,028
                    
                    
                    $
                    17,821,561
                    
                    
                    $
                    3,844,084
                    
                    
                    $
                    85,706,528Year
      Ended December 31, 2008Sales,
      net
                    
                    $
                    12,333,527
                    
                    
                    $
                    8,340,519
                    
                    
                    $
                    45,147,792
                    
                    
                    $
                    -
                    
                    
                    $
                    65,821,838Cost
      of sales
                    
                    $
                    1,166,155
                    
                    
                    $
                    3,209,777
                    
                    
                    $
                    38,936,894
                    
                    
                    $
                    -
                    
                    
                    $
                    43,312,826Gross
      profit
                    
                    $
                    11,167,372
                    
                    
                    $
                    5,130,742
                    
                    
                    $
                    6,210,898
                    
                    
                    $
                    -
                    
                    
                    $
                    22,509,012Income
      from operations
                    
                    $
                    7,839,219
                    
                    
                    $
                    5,032,193
                    
                    
                    $
                    5,510,614
                    
                    
                    $
                    (464,917
                    )
                    
                    $
                    17,917,109Depreciation
      & Amortization
                    
                    $
                    43,391
                    
                    
                    $
                    4,405
                    
                    
                    $
                    13,941
                    
                    
                    $
                    -
                    
                    
                    $
                    61,737Asset
      Expenditures
                    
                    $
                    184,415
                    
                    
                    $
                    -
                    
                    
                    $
                    8,021
                    
                    
                    $
                    -
                    
                    
                    $
                    192,436Total
      assets
                    
                    $
                    24,303,306
                    
                    
                    $
                    7,402,560
                    
                    
                    $
                    10,143,194
                    
                    
                    $
                    7,576,620
                    
                    
                    $
                    49,426,680Year
      Ended December 31, 2007Sales,
      net
                    
                    $
                    16,760,039
                    
                    
                    $
                    2,383,129
                    
                    
                    $
                    13,412,412
                    
                    
                    $
                    -
                    
                    
                    $
                    32,555,580Cost
      of sales
                    
                    $
                    8,048,074
                    
                    
                    $
                    1,014,577
                    
                    
                    $
                    11,548,126
                    
                    
                    $
                    -
                    
                    
                    $
                    20,610,777Gross
      profit
                    
                    $
                    8,711,965
                    
                    
                    $
                    1,368,552
                    
                    
                    $
                    1,864,286
                    
                    
                    $
                    -
                    
                    
                    $
                    11,944,803Income
      from operations
                    
                    $
                    7,170,695
                    
                    
                    $
                    1,396,557
                    
                    
                    $
                    1,582,597
                    
                    
                    $
                    (945,903
                    )
                    
                    $
                    9,203,946Depreciation
      & Amortization
                    
                    $
                    65,161
                    
                    
                    $
                    4,363
                    
                    
                    $
                    12,550
                    
                    
                    $
                    -
                    
                    
                    $
                    82,074Asset
      Expenditures
                    
                    $
                    26,376
                    
                    
                    $
                    2,513
                    
                    
                    $
                    4,304
                    
                    
                    $
                    -
                    
                    
                    $
                    33,193Total
      assets
                    
                    $
                    17,797,460
                    
                    
                    $
                    2,597,624
                    
                    
                    $
                    6,549,078
                    
                    
                    $
                    2,980,737
                    
                    
                    $
                    29,924,899
  31
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2009
 (AUDITED)
  Note
14 -   SUBSEQUENT
EVENTS
  On December 17, 2009, the company announced that it has
entered into a Letter of Intent to acquire Huangshan Holiday Travel Service
Company (“Huangshan Holiday”) for RMB 20 million (approximately $2.9 million),
80% of which shall be paid in cash and 20% in shares of common stock of the
Company. The purchase consideration may be subject to adjustment after
completion of due diligence on Huangshan Holiday by the Company. The Company has already
deposited $1,173,502 toward the completion of this agreement, which is in
acquisition deposits on the balance sheet as of December 31,
2009.
  On
January 19, 2010, the company announced that it has entered into a Letter of
Intent to acquire Hebei Tianyuan Travel Agency (“Tianyuan”) for RMB 29 million
(approximately $4.2 million), 80% of which shall be paid in cash and 20% of the
consideration in shares of the Company’s common stock. The purchase
consideration may be subject to adjustment after completion of acquisition audit
on Tianyuan by the Company. The Company has already
deposited $1,466,878 toward the completion of this agreement, which is in
acquisition deposits on the balance sheet as of December 31,
2009.
  On
January 26, 2010, the company announced that it has entered into a Letter of
Intent to acquire Zhengzhou Yulongkang Travel Service Company (“Zhengzhou
Yulongkang”) for RMB 39 million (approximately $5.7 million), 90% of which to be
paid in cash and 10% of the purchase consideration in shares of the Company’s
common stock. The purchase consideration may be subject to adjustment after the
completion of acquisition audit on Zhengzhou Yulongkang by the Company. The Company has already
deposited $1,437,541 toward the completion of this agreement, which is in
acquisition deposits on the balance sheet as of December 31,
2009.
  32




Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.




None.




Item
9A. Controls and Procedures.




Evaluation
of Disclosure Controls and Procedures





The
Company maintains a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by the Company in the reports filed
under the Securities Exchange Act, is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
Disclosure controls are also designed with the objective of ensuring that this
information is accumulated and communicated to the Company's management,
including the Company's chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.




Pursuant
to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation
with the participation of the Company’s management, including Jiangping Jiang,
the Company’s chief executive officer, and Yizhao Zhang, the Company’s chief
financial officer, of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
fiscal year ended December 31, 2009. Based upon that evaluation, the Company’s
chief executive officer and chief financial officer concluded that the Company’s
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that the Company files or
submits under the Exchange Act, is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. Our chief
executive officer and chief financial officer also concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports required to be filed or submitted under the Exchange
Act is accumulated and communicated to the our management, including our chief
executive officer and chief financial officer, to allow timely decisions
regarding required disclosure.





Management’s
Report on Internal Control over Financial Reporting





The
Company’s management is responsible for establishing and maintaining adequate
internal control over our financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act.   The Company’s management is
also required to assess and report on the effectiveness of the Company’s
internal control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 (“Section 404”).    Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of the Company’s  financial reporting for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes policies and procedures that: (i)
pertain to maintaining records that in reasonable detail accurately and fairly
reflect the Company’s transactions; (ii) provide reasonable assurance that
transactions are recorded as necessary for preparation of the Company’s
financial statements and that receipts and expenditures of company assets are
made in accordance with management authorization; and (iii) provide reasonable
assurance that unauthorized acquisition, use or disposition of company assets
that could have a material effect on our financial statements would be prevented
or detected on a timely basis.


39





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies and procedures may deteriorate.





The
Company’s management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control—Integrated
Framework. This evaluation was conducted by Jiangping Jiang, the
Company’s chief executive officer, and Yizhao Zhang, the Company’s chief
financial officer. Based on its assessment, the Company’s management believes
that, as of December 31, 2009, the Company’s internal control over financial
reporting is not effective for the following reasons:





a.
            1.The
      Company’s policy documentation of all controls identified during its
      assessment and remediation process was
  incomplete.





b.
            2.
      Lack of technical accounting expertise among financial staff regarding US
      GAAP and the requirements of the PCAOB, and regarding preparation of
      financial statements.





We plan
to take the following steps to remediate the significant deficiencies in
internal control over financial reporting that are identified
above.





a.
            1.
      Complete internal control documentation of all controls identified during
      the Company’s assessment and remediation
process





b.
            2.
      Provide training to accounting staff on U.S.
  GAAP.





Our
independent registered public accounting firm, Acquavella, Chiarelli, Shuster,
Berkower & Co., LLP, who also audited our consolidated financial statements,
independently assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009, as stated in their report which is included
in this Annual Report on Form 10-K.





Changes
in Internal Control over Financial Reporting





No
changes in the Company's internal control over financial reporting have come to
management's attention during the Company's last fiscal quarter that have
materially affected, or are likely to materially affect, the Company's internal
control over financial reporting.





Limitations
on Controls





Management
does not expect that the Company's disclosure controls and procedures or the
Company's internal control over financial reporting will prevent or detect all
error and fraud. Any control system, no matter how well designed and operated,
is based upon certain assumptions and can provide only reasonable, not absolute,
assurance that its objectives will be met. Further, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
Company have been detected.  The Company's disclosure controls and
procedures are designed to provide reasonable assurance of achieving their
objectives and the Company's chief executive officer and chief financial officer
have concluded that the Company's disclosure controls and procedures are
effective at that reasonable assurance level.




Item
9B. Other Information.




None.


40


PART
III




Item
10. Directors, Executive Officers and Corporate Governance.




The
following are our officers and directors as of the date of this prospectus. All
our officers and directors, except for Lawrence Lee, are residents of the PRC
and, therefore, it may be difficult for investors to effect service of process
within the U.S. upon them or to enforce judgments against them obtained from the
U.S. courts.




The following table sets forth certain
information concerning our directors and executive officers:




Directors and Executive
      Officers
              
              Position/Title
              
              AgeJiangping
      Jiang
              
              Chief
      Executive Officer, Chairman
              
              48Yizhao
      Zhang
              
              Chief
      Financial Officer
              
              40Jing
      Xie
              
              Secretary
      and a director
              
              28Hujie
      Gao
              
              Vice
      President of Corporate Finance and a director
              
              29Jiduan
      Yuan
              
              Director
              
              65Lizong
      Wang
              
              Director
              
              45Liquan
      Wang
              
              Director
              
              38Lawrence
      Lee
              
              Director
              
              45




The
following is a summary of the biographical information of our directors and
officers:




Jiangping Jiang, 48, has been
serving as our Chairwoman and Chief Executive Officer since July 12, 2006. Prior
to founding the Yu Zhi Lu Aviation Service Company, in 1998, Jiangping Jiang
held positions in the airline industry and in government. From 1991 to 1998, she
was the manager of Shenzhen International Airlines Agency. From 1982-1991, she
served as a member of the Chongqing municipal government planning committee.
From 1979 to 1982, she was employed by Chengdu airport.





Yizhao Zhang, 40, was
appointed to serve as our chief financial officer on August 17, 2009. He joined
us as our independent director and audit chairman on June 24, 2008. Mr. Zhang
has over 13 years of experience in accounting and internal control, corporate
finance, and portfolio management.  Previously, Mr. Zhang held senior
positions in Energoup Holdings Corporation(OTC BB:ENHD), Shengtai
Pharmaceutical Inc. (OTC BB:SGTI), Chinawe Asset Management Corporation (OTC BB:
CHWE),  and China Natural Resources Incorporation (NASDAQ CM: CHNR).
He is also an independent non-executive director of China Green Agriculture Inc.
(NYSE: CGA), China Education Alliance, Inc. (NYSE: CEU) and Kaisa
Holdings Group (HK: 1638), respectively. Previously Mr. Zhang had
experiences in portfolio management and asset trading in Guangdong South
Financial Services Corporation from 1993 to 1999.He is a certified public
accountant of the state of Delaware, and a member of the American Institute of
Certified Public Accountants (AICPA). Mr. Zhang graduated with a bachelor’s
degree in economics from Fudan University, Shanghai in 1992 and received an MBA
degree with financial analysis and accounting concentrations from the State
University of New York at Buffalo in 2003.





Jing Xie, 28, has been serving
as our director and Secretary since December 29, 2006.  From March
2005 to December 29, 2006, he served as a Deputy General Manager of Shenzhen Yu
Zhi Lu Aviation Service Company Limited. Mr. Xie has a Doctor of Business
Administration from People's University of China; and he graduated from
Economics & Business Faculty, University of Sydney, located in Sydney,
Australia, with a Bachelor of Commerce degree, major in Accounting and
E-Commerce in 2005. Mr.Xie is also a member of Association of Credited Chartered
Accountants.


41





Hujie Gao, 29, has been our
Vice President of Corporate Finance since 2005. From 2002 – 2005, he was a
Senior General Accountant for Hubei Da Xin Accounting firm.  Mr. Gao
is experienced in many different industries, having audited several Chinese
public companies, including Shandong Yanfa Industry, Lu Neng Tai Shan Group, and
etc.   Mr. Gao has a Bachelor of Economics from Wuhan
University.





Jiduan Yuan, 65, is a
postgraduate, senior economist and an expert with the China Civil Aviation. From
1965 to 1992 Mr. Yuan worked in the Guangzhou Civil Aviation Management Bureau,
holding the positions of Transportation Service Director and Vice Chief
Economist. From 1992 to 1999 he worked in the South Center Aviation Management
Bureau, where his positions included Enterprise Management Director, Communist
Committeeman and Vice President.





Lizong Wang, 45,  is
an experienced strategic consultant with over 10 years of experience as an
independent director for numerous companies, whose expertise encompasses
leadership and advisory services to business and political organizations.
Currently, he serves as an independent director of the Rui De Feng Agrochemical
Company, Ltd. and 3NOD Co., Ltd., the first KOSDAQ Chinese company. Since 2001,
he has also been serving as Secretary General of Guangdong High Tech Industry
Chamber of Commerce, Deputy Secretary General of Guangdong Private Enterprise
Cultural Association, and Deputy Secretary General of Shenzhen Tax
Administration. In these positions, his responsibilities include providing
information, financial consulting, fundraising techniques, and investment
services to more than 6,000 members.





Liquan Wang, 38, has an MBA,
is a Certified Public Accountant and Senior Partner of Shenzhen Hongxin CPA. Mr.
Wang is an expert in General Financial Administration and building of complete
and cost effective internal control systems. He has extensive executive
experience in corporate strategy, budgeting and tax administration. From August
1994 to January 1999 he served as an accountant and vice head of the financial
department at Liaoning Industrial Manufacture Projecting Co., Ltd. (Shanghai
Stock Exchange: 600758). From February 1999 to April 2004 he served as financial
manager of Shenzhen Guisu Enterprise Development Co., Ltd. (Shanghai Stock
Exchange: 600722). From May 2004 to date Mr. Wang has been a Partner of Shenzhen
Hongxin CPA.





Lawrence Lee, 45, was
appointed as our independent director and new audit chair on August 17, 2009.
Mr. Lee is currently the managing director of the Boardroom Advisors Company
Limited, a financial advisory firm. Mr. Lee served as chief financial officer of
Synutra International, Inc. a NASDAQ-listed company, from October 1, 2007
to November 15, 2009. From August 1, 2004 to September 30, 2007, Mr.
Lee was vice president and chief financial officer of Kasen International
Holdings Limited, a public company listed on the Hong Kong Stock Exchange. Prior
to that, Mr. Lee served as chief financial officer at Eagle Brand Holdings
Limited, a company listed on the Singapore Stock Exchange. Mr. Lee’s
experience also includes serving as a financial controller at the Korean
division of Exel Plc, and serving as a senior auditor at Waste Management Inc.’s
international department in London. Mr. Lee is an fellow member of the
Association of Chartered Certified Accountants (ACCA). Mr. Lee received a
bachelor’s degree in management and engineering from Beijing Institute of
Technology, a master’s degree in economics from Renmin University of China, and
a master’s degree in accounting and finance from the London School of
Economics.





The
directors will serve until our next annual meeting, or until their successors
are duly elected and qualified. The officers serve at the pleasure of the
Board.




Save as
otherwise reported above, none of our directors hold directorships in other
reporting companies.




There are
no family relationships among our directors or officers.





To our
knowledge, during the last ten years, none of our directors and executive
officers (including those of our subsidiaries) has:


42





●
            Had a bankruptcy petition filed
      by or against any business of which such person was a general partner or
      executive officer either at the time of the bankruptcy or within two years
      prior to that time.





●
            Been convicted in a criminal
      proceeding or been subject to a pending criminal proceeding, excluding
      traffic violations and other minor
  offenses.





●
            Been subject to any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining,
      barring, suspending or otherwise limiting his involvement in any type of
      business, securities or banking
  activities.





●
              Been
      found by a court of competent jurisdiction (in a civil action), the SEC,
      or the Commodities Futures Trading Commission to have violated a federal
      or state securities or commodities law, and the judgment has not been
      reversed, suspended or
vacated.





●
            Been
      the subject to, or a party to, any sanction or order, not subsequently
      reverse, suspended or vacated, of any self-regulatory organization, any
      registered entity, or any equivalent exchange, association, entity or
      organization that has disciplinary authority over its members or persons
      associated with a member.





Audit
Committee and Audit Committee Financial Expert





Our board
of directors established an audit committee in May 2007. The audit committee is
responsible for (i) recommending independent accountants to the Board, (ii)
reviewing our financial statements with management and the independent
accountants, (iii) making an appraisal of our audit effort and the effectiveness
of our financial policies and practices and (iv) consulting with management and
our independent accountants with regard to the adequacy of internal accounting
controls.    Our audit committee members are Lawrence Lee,
Jiduan Yuan and Liquan Wang.





Our board
of directors has determined that it has an "audit committee financial expert" as
defined by Item 401(h) of Regulation S-K as promulgated by the Securities and
Exchange Commission. Our audit committee financial expert is Lawrence Lee. The
directors who serve on the audit committee are "independent" directors based on
the definition of independence in the listing standards of the National
Association of Securities Dealers. Our Board of Directors has adopted a written
charter for the Audit Committee. The Charter is available on our website at
http://cnutg.ir.stockpr.com/governance-documents.





Compensation
Committee





Our board
of directors established a compensation committee in June 2008.





The
compensation committee of the board of directors is responsible for (i)
determining the general compensation policies, (ii) establishing compensation
plans, (iii) determining senior management compensation and (iv) administering
our stock option plans. The members of the compensation committee currently are
Jiduan Yuan, Lizong Wang and Liquan Wang with Liquan Wang as its chairman. The
members of our compensation committee or their affiliates did not provide
additional service to the Company or its affiliates in an amount in excess of
$120,000 during the Company’s fiscal year ended December 31, 2009.





Our board
of directors has adopted a written compensation committee
charter.  The charter is available on our website at
http://cnutg.ir.stockpr.com/governance-documents. The directors who serve on the
compensation committee are "independent" directors based on the definition of
independence in the listing standards of the National Association of Securities
Dealers.


43


Nominating
Committee





Our board of directors established a
nominating committee in June 2008.





The
purpose of the nominating committee of the board of directors is to assist the
board of directors in identifying and recruiting qualified individuals to become
board members and select director nominees to be presented for board and/or
stockholder approval. The nominating committee will be involved evaluating the
desirability of and recommending to the board any changes in the size and
composition of the board, evaluation of and successor planning for the chief
executive officer and other executive officers.  The qualifications of
any candidate for director will be subject to the same extensive general and
specific criteria applicable to director candidates generally. The members of
the nominating committee currently are Lizong Wang, Jiduan Yang and Liquan Wang
and Lizong Wang is the chairman of the nominating committee.





The
directors who serve on the nominating committee are "independent" directors
based on the definition of independence in the listing standards of the National
Association of Securities Dealers. The nominating committee has a written
charter. The charter is available on our website at
http://cnutg.ir.stockpr.com/governance-documents. The nominating committee will
consider qualified director candidates recommended by stockholders if such
recommendations for director are submitted in writing to our Secretary at
Universal Travel Group, 5th Floor, South Block, Building 11, Shenzhen Software
Park, Zhongke 2nd Road, Nanshan District, Shenzhen, People’s Republic of China
518000, provided such recommendation has been made in accordance with the
relevant by-laws.





At this
time, no additional specific procedures to propose a candidate for consideration
by the nominating committee, nor any minimum criteria for consideration of a
proposed nomination to the board, have been adopted.





Code
of Ethics




We have
adopted a code of ethics to apply to our principal executive officer, principal
financial officer, principal accounting officer and controller, or persons
performing similar functions. The Code of Ethics is currently available on our
website.





The board
and its committees held the following number of meetings during the fiscal year
of 2009:




Board
      of Directors
                
                
                2Audit
      Committee
                
                
                2Compensation
      Committee
                
                
                3Nominating
      Committee
                
                
                3





The
meetings include meetings that were held by means of a conference telephone
call, but do not include actions taken by unanimous written
consent.





Each
director attended at least 75% of the total number of meetings of the board and
those committees on which he served during the year.





Our
non-management directors did not meet in executive session during
2009.





Board
Leadership Structure and Role in Risk Oversight





Jiangping
Jiang is our chairwoman and chief executive officer. Lawrence Lee, the chairman
of audit committee, is our Lead independent director. The board’s role in
the risk oversight of the Company includes, among other things:





•
            appointing,
      retaining and overseeing the work of the independent auditors, including
      resolving disagreements between the management and the independent
      auditors relating to financial
reporting;


44





•
            approving
      all auditing and non-auditing services permitted to be performed by the
      independent auditors;





•
            reviewing
      annually the independence and quality control procedures of the
      independent auditors;





•
            reviewing
      and approving all proposed related party
  transactions;





•
            discussing
      the annual audited financial statements with the
    management;





•
            meeting
      separately with the independent auditors to discuss critical accounting
      policies, management letters, recommendations on internal controls, the
      auditor’s engagement letter and independence letter and other material
      written communications between the independent auditors and the
      management.





Compliance
with Section 16(a) of Exchange Act





Section
16(a) of the Exchange Act requires our executive officers and directors and
persons who own more than 10% of a registered class of our equity securities to
file with the SEC initial statements of beneficial ownership, reports of changes
in ownership and annual reports concerning their ownership of our common stock
and other equity securities, on Form 3, 4 and 5 respectively. Executive
officers, directors and greater than 10% shareholders are required by the SEC
regulations to furnish our company with copies of all Section 16(a) reports they
file.





Based
solely on our review of the copies of such reports received by us and on written
representations by our officers and directors regarding their compliance with
the applicable reporting requirements under Section 16(a) of the Exchange Act,
we believe that, with respect to the fiscal year ended December 31, 2009, our
officers and directors, and all of the persons known to us to own more than 10%
of our common stock, filed all required reports on a timely basis except
Jiangping Jiang was late in filing a Form 4, Jing Xie was late in filing a Form
3, Liquan Wang was late in filing a Form 3, Jiduan Yuan was late in filing a
Form 3, Lizong Wang was late in filing a Form 3, and Lawrence Lee was late in
filing a Form 3.





Item
11. Executive Compensation.




The
following table sets forth information with respect to the compensation of each
of the named executive officers for services provided in all capacities to the
Company and its subsidiaries in the fiscal years ended


December
31, 2009 and 2008 in their capacity as such officers.  Ms. Jiang who
is also the Chairwoman and director of the Company receives  no
additional compensation for her services in her capacity as director. No other
executive officer or former executive officer received more than $100,000 in
compensation in the fiscal years reported below.





Name and
                                    Principal
                                    Position
                                  
                                  Fiscal
                                    Year
                                  
                                  Salary ($)
                                  
                                  
                                  Bonus ($)
                                  
                                  
                                  Stock
                                    Awards
                                    ($)
                                  
                                  
                                  Option
                                    Awards
                                    ($)
                                  
                                  
                                  Non-equity
                                    Incentive Plan
                                    Compensation
                                    ($)
                                  
                                  
                                  Change in
                                    Pension
                                    Value and
                                    Nonqualified
                                    Deferred
                                    Compensation
                                    Earnings ($)
                                  
                                  
                                  All Other
                                    Compensation
                                    ($)
                                  
                                  
                                  Total ($)Jiangping
      Jiang
                                  
                                  2009
                                  
                                  $
                                  9,230
                                  
                                  
                                  $
                                  1,411
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  796,048
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  806,689Chief
      Executive Officer
                                  
                                  2008
                                  
                                  $
                                  9,230
                                  
                                  
                                  $
                                  1,411
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  10,641(principal
      executive officer)Hujie
      Gao
                                  
                                  2009
                                  
                                  $
                                  5,384
                                  
                                  
                                  $
                                  461
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  1,321
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  7,166Vice
      President of Corporate Finance (1)
                                  
                                  2008
                                  
                                  $
                                  5,384
                                  
                                  
                                  $
                                  461
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  5,845Jing
      Xie
                                  
                                  2009
                                  
                                  $
                                  11,034
                                  
                                  
                                  $
                                  849
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  3,961
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  15,844Secretary
      and a director (principal financial officer) (1)(2)
                                  
                                  2008
                                  
                                  $
                                  11,034
                                  
                                  
                                  $
                                  849
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  11,883Yizhao
      Zhang
                                  
                                  2009
                                  
                                  $
                                  56,000
                                  
                                  
                                  $
                                  0
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  172,201
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  228,201Chief
      Financial Officer (principal financial officer)(2)
                                  
                                  2008
                                  
                                  $
                                  14,000
                                  
                                  
                                  $
                                  0
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  38,594
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  52,594


45





(1)
            Mr.
      Jing Xie assumed the position of Chief Financial Officer with effect from
      February 17, 2009.


(2)
            On
      August 17, 2009, Jing Xie resigned as our Chief Financial Officer. On the
      same date, our Board of Director appointed Yizhao Zhang to serve as our
      Chief Financial Officer with immediate
effect.





Outstanding
Equity Awards at 2009 Fiscal Year End





In
January 2009, we adopted the Universal Travel Group 2009 Incentive Stock
Plan.  On January 20, 2009, we issued options to purchases 2,000,000
shares of common stock to our Chief Executive Officer, Ms. Jiangping Jiang at an
exercise price of $3.84.  The remaining options to purchase 200,000
shares of common stock were issued on the same date to various employees at an
exercise price of $2.70.  The term of each option was for 10
years.  The options vest in six annual equal installments. As part of
this equity incentive plan, the Company registered with the SEC 2,200,000 shares
of its common stock, at a proposed maximum offering price of $2.67 per share.
None of these equity awards were outstanding and no other equity awards were
issued as of the fiscal year ended December 31, 2009.




Employment
Agreements




Mr.
Zhang’s compensation as our Chief Financial Officer is set forth in an
employment agreement between Mr. Zhang and us dated August 17,
2009.  Under that agreement, Mr. Zhang  will receive an
annual salary of $80,000 and an option to purchase 105,000 shares of common
stock of Company at an exercise price equivalent to the closing price per share
of common stock on the date of the grant, which option shall vest in one-third
installments over three years.  As an additional incentive to Mr.
Zhang, we have agreed that all his options to purchase 100,000 pre-reverse
split shares of the Company (33,334 post reverse split) granted to him as
compensation for being a director of the Company shall become immediately
exerciseable provided always that he shall still serve in the position of Chief
Financial Officer of the Company at the time of exercise of this option. Either
party may terminate the employment by giving no less than 30 days’
notice.  Mr. Zhang shall also be entitled to medical, health and
dental insurance.





Our
former Chief Financial Officer, Mr. Jing Xie’s appointment as our Chief
Financial Officer is set forth in an employment agreement between Mr. Xie and us
dated February 17, 2009.  Under that agreement, Mr. Xie was to
receive compensation consisting of the following: (i) an annual salary of
$30,000, (ii) eligibility to receive bonus compensation and stock options or
other equity-based incentives as the discretion of the compensation committee of
the Board of Directors, and (iii) medical and dental insurance, (iv)social
insurance.





Apart
from the abovementioned, there are no current employment agreements between the
Company and its executive officers. Our executive officers have agreed to work
without remuneration until such time as we receive sufficient revenues necessary
to provide proper salaries to the officer and compensate the director for
participation.


46





Compensation
Discussion and Analysis





We strive
to provide our named executive officers (as defined in Item 402 of Regulation
S-K) with a competitive base salary that is in line with their roles and
responsibilities when compared to peer companies of comparable size in similar
locations.





It is not
uncommon for PRC private companies in the PRC to have base salaries as the sole
form of compensation. The base salary level is established and reviewed based on
the level of responsibilities, the experience and tenure of the individual and
the current and potential contributions of the individual. The base salary is
compared to the list of similar positions within comparable peer companies and
consideration is given to the executive’s relative experience in his or her
position.  Base salaries are reviewed periodically and at the time of
promotion or other changes in responsibilities.





We plan
to implement a more comprehensive compensation program, which takes into account
other elements of compensation, including, without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. We expect that this compensation program will be comparable to
the programs of our peer companies and aimed to retain and attract talented
individuals.





Director
Compensation





On January 20, 2009, Mr. Jiduan Yuan
and Mr. Lizong Wang were each granted options to purchase 33,333 shares of our
common stock and Mr Liquan Wang was granted options to purchase 10,000 shares of
our common stock under the Universal Travel Group 2009 Incentive Stock
Plan.  The options have an exercise price of $2.70 and a term of 10
years. The options vest in six annual equal installments.  However, in
the event (i) the Company reports an after tax Net Income of $14,000,000 
in its Annual Report on Form 10-K filed with the SEC for its fiscal year 2008,
then options to purchase one-third of the shares granted shall vest and become
immediately exercisable and each grantee of such options shall be entitled to
exercise his/her options rateably, (ii)  the Company reports an after tax
Net Income of $18,000,000  in its Annual Report on Form 10-K filed with the
SEC for its fiscal year 2009, then options to purchase another one-third of the
shares  granted shall vest and become immediately exercisable and each
grantee of such options shall be entitled to exercise his/her options rateably
and (iii) the Company reports an after tax Net Income of $22,000,000  in
its Annual Report on Form 10-K filed with the SEC for its fiscal year 2010, then
options to purchase another one-third of the shares granted shall vest and
become immediately exercisable and each grantee of such options shall be
entitled to exercise his options rateably.





On August
17, 2009, Mr. Yizhao Zhang resigned as our director. Mr. Yizhao Zhang’s
compensation as director of the Company is set forth in an appointment letter
with the Company dated June 24, 2008, pursuant to which he was paid a monthly
fee of $2,000. He had also been granted options to purchase a total of 33,333
shares of common stock of the Company, par value $0.001 at $4.56 per share.
Options to purchase 11,111 shares may be exercised immediately, options to
purchase an additional 11,111 shares may be exercised commencing July 1, 2009,
and options to purchase the remaining 11,111 shares may be exercised commencing
July 1, 2010, provided that in the case of the options to vest in 2009 and 2010
Mr. Zhang was still a director of or otherwise engaged by the Company. The
options may be exercised until July 1, 2018.





On August
17, 2009, Mr. Lawrence Lee was appointed as our director. Mr. Lawrence Lee’s
compensation as director of the Company is set forth in an appointment letter
with the Company dated August 17, 2009. He will be paid a monthly fee of $2,000.
He will also be granted an option to purchase 10,000 shares of common stock of
Company at an exercise price equivalent to the closing price per share of common
stock on the date of the grant. Such option shall be exercisable one year from
the date of grant and may be exercised until August 2019, provided that Mr. Lee
was still a director of or otherwise engaged by the Company.





The
following table sets forth a summary of compensation paid to our directors in
their capacity as directors during the fiscal year ended December 31,
2009:


47





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder


Matters.




The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities by (i) any person or group owning more than
5% of any class of voting securities, (ii) each director, (iii) our chief
executive officer  and (iv) all executive officers and directors as a
group as of  March 2, 2010.





Title of Class
                                            
                                            Name and Address of
                                              Beneficial Owner
                                            
                                            Amount and Nature of
                                              Beneficial Ownership
                                              (1)
                                            
                                            
                                            Percentage of Common
                                              Stock (1)Owner
      of More than 5% of ClassCommon
      Stock
                                            
                                            FMR
      LLC
                                              82 Devonshire
      Street, Boston, Massachusetts 02109
                                            
                                            
                                            2,244,117
                                            (2)
                                            
                                            
                                            13.43
                                            %Directors
      and Executive OfficersCommon
      Stock
                                            
                                            Jiangping
      Jiang
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            4,498,246
                                            (3)
                                            
                                            
                                            26.91
                                            %Common
      Stock
                                            
                                            Yizhao
      Zhang
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            23,334
                                            (4)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Jing
      Xie
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            5,482
                                            (5)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Hujie
      Gao
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            1,541
                                            (6)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Jiduan
      Yuan
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            9,137
                                            (7)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Lizong
      Wang
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            9,137
                                            (8)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Liquan
      Wang
                                              
                                              5th
      Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road,
      Nanshan District, Shenzhen, People’s Republic of China
    518000
                                            
                                            
                                            2,741
                                            (9)
                                            
                                            
                                            *Common
      Stock
                                            
                                            Lawrence
      Lee
                                              9784
      Athletic Way
                                              Gaithersburg,
      MD20878
                                            
                                            
                                            0
                                            (10)
                                            
                                            
                                            *Officers
      and Directors as a group
                                            
                                            
                                            4,550,818
                                            
                                            
                                            
                                            27.23
                                            %


48


*Represents
less than 1%




(1) In
determining beneficial ownership of our common stock as of a given date, the
number of shares shown includes shares of common stock which may be acquired on
exercise of warrants or options or conversion of convertible securities within
60 days of that date. In determining the percent of common stock owned by a
person or entity on February 24, 2010, (a) the numerator is the number of shares
of the class beneficially owned by such person or entity, including shares which
may be acquired within 60 days on exercise of warrants or options and conversion
of convertible securities, and (b) the denominator is the sum of (i) the total
shares of common stock outstanding on February 24, 2010 (16,714,457), and (ii)
the total number of shares that the beneficial owner may acquire upon conversion
of the preferred and on exercise of the warrants and options. Unless otherwise
stated, each beneficial owner has sole power to vote and dispose of its
shares.





(2) With
respect to information relating to FMR LLC, the Company has relied on
information supplied by such entity and Edward C. Johnson 3d on an amended
Schedule 13G filed with the SEC on February 16, 2010. According to such amended
Schedule 13G, FMR LLC and Edward C. Johnson 3d may be deemed to beneficially own
2,244,117 shares of the Company’s common stock, each with the sole power to
dispose or to direct the disposition of 2,244,117 shares of the Company’s common
stock and sole power to vote or to direct the vote of 843,409 shares of the
Company’s common stock. FMR LLC
may be deemed to beneficially own such shares of the Company’s common stock
through FMR LLC’s subsidiaries and affiliated entities that serve as investment
advisors and/or investment managers to various investment companies or
institutional accounts. Members
of the family of Edward C. Johnson 3d, the Chairman of FMR LLC, are the
predominant owners of FMR LLC.





(3) The
shares reflected as beneficially owned by Jiangping Jiang represents (i)
4,000,000 shares of common stock held by Jiangping Jiang and (ii) 498,246 shares
of common stock acquired upon her cashless exercise of certain options.
Jiangping Jiang was issued an option to purchase the 2,000,000 shares of the
Company’s common stock pursuant to the Company's 2009 Incentive Stock Plan and
the Incentive Stock Option Agreement dated as of January 20, 2009. The option
shall become exercisable during the term of the Jiangping Jiang's employment in
six (6) equal annual installments of 333,333 shares each (save for the last
installment of 333,335 Shares), the first installment to be exercisable on the
first anniversary of the date of this option, with additional installments
becoming exercisable on each of the successive periods following the initial
vesting date; provided, however, that this vesting schedule shall be subject to
the acceleration provisions described  in footnote 11 below. On
October 15, 2009, Jiangping Jiang received 498,246 shares of common stock upon
the cashless exercise of her option to purchase 666,666 shares of common
stock.





(4) On
October 15, 2009, Yizhao Zhang received 23,334 shares of common stock upon
cashless exercise of his options to purchase 33,334 shares granted to him as
compensation for being a director of the Company. Following the exercise, Yizhao
Zhang continues to hold an option to purchase 105,000 shares of common stock
granted to him as chief financial officer at an exercise price of $8.82, which
option shall vest in one-third installments over three years.





(5)Jing
Xie was issued an option to purchase the 20,000 shares of the Company’s common
stock pursuant to the Company's 2009 Incentive Stock Plan and the Incentive
Stock Option Agreement dated as of January 20, 2009. The option shall become
exercisable during the term of the Jing Xie’s employment in six (6) equal annual
installments of 3,333 shares each (save for the last installment of 3,335
Shares), the first installment to be exercisable on the first anniversary of the
date of this option, with additional installments becoming exercisable on each
of the successive periods following the initial vesting date; provided, however,
that this vesting schedule shall be subject to the acceleration provisions
described  in footnote 11 below. On October 15, 2009, Jing Xie
received 5,482 shares of common stock upon the cashless exercise of her option
to purchase 6,666 shares of common stock.





(6)Hujie
Gao was issued an option to purchase the 10,000 shares of the Company’s common
stock pursuant to the Company's 2009 Incentive Stock Plan and the Incentive
Stock Option Agreement dated as of January 20, 2009. The option shall become
exercisable during the term of the Hujie Gao’s employment in six (6) equal
annual installments of 1,666 shares each (save for the last installment of 1,670
Shares), the first installment to be exercisable on the first anniversary of the
date of this option, with additional installments becoming exercisable on each
of the successive periods following the initial vesting date; provided, however,
that this vesting schedule shall be subject to the acceleration provisions
described  in footnote 11 below. On October 15, 2009, Hujie Gao
received 2,741 shares of common stock upon the cashless exercise of his option
to purchase 3,333 shares of common stock.


49





(7)Jiduan
Yuan was issued an option to purchase the 33,333 shares of the Company’s common
stock pursuant to the Company's 2009 Incentive Stock Plan and the Incentive
Stock Option Agreement dated as of January 20, 2009. The option shall become
exercisable during the term of the Jiduan Yuan's employment in six (6) equal
annual installments of 5,555 shares each (save for the last installment of 5,558
Shares), the first installment to be exercisable on the first anniversary of the
date of this option, with additional installments becoming exercisable on each
of the successive periods following the initial vesting date; provided, however,
that this vesting schedule shall be subject to the acceleration provisions
described  in footnote 11 below. On October 15, 2009, Jiduan Yuan
received 9,137 shares of common stock upon the cashless exercise of his option
to purchase 11,111 shares of common stock.





(8)Lizong
Wang was issued an option to purchase the 33,333 shares of the Company’s common
stock pursuant to the Company's 2009 Incentive Stock Plan and the Incentive
Stock Option Agreement dated as of January 20, 2009. The option shall become
exercisable during the term of the Lizong Wang’s employment in six (6) equal
annual installments of 5,555 shares each (save for the last installment of 5,558
Shares), the first installment to be exercisable on the first anniversary of the
date of this option, with additional installments becoming exercisable on each
of the successive periods following the initial vesting date; provided, however,
that this vesting schedule shall be subject to the acceleration provisions
described  in footnote 11 below. On October 15, 2009, Lizong Wang
received 9,137 shares of common stock upon the cashless exercise of his option
to purchase 11,111 shares of common stock.





(9)Liquan
Wang was issued an option to purchase the 10,000 shares of the Company’s common
stock pursuant to the Company's 2009 Incentive Stock Plan and the Incentive
Stock Option Agreement dated as of January 20, 2009. The option shall become
exercisable during the term of the Liquan Wang’s employment in six (6) equal
annual installments of 1,666 shares each (save for the last installment of 1,670
Shares), the first installment to be exercisable on the first anniversary of the
date of this option, with additional installments becoming exercisable on each
of the successive periods following the initial vesting date; provided, however,
that this vesting schedule shall be subject to the acceleration provisions
described  in footnote 11 below. On October 15, 2009, Liquan Wang
received 2,741 shares of common stock upon the cashless exercise of his option
to purchase 3,333 shares of common stock.





(10)On
August 17, 2009, Lawrence Lee was appointed a director of the Company. Pursuant
to an appointment letter between the Company and Lawrence Lee, on September 1,
2009, Lawrence Lee was granted an option to purchase 10,000 shares of common
stock at an exercise price equivalent to the closing price per share of common
stock on the date of the grant, which option shall be exercisable one year from
the date of grant.





(11) The
terms of exercise for the options issued on January 20, 2009 are subject to the
following acceleration provisions: in the event (i) the Company reports an after
tax Net Income (as that term is defined in Securities Purchase Agreement dated
August 29, 2008, entered into by and among the Company and certain investors, of
$14,000,000 in its Annual Report on Form 10-K for its fiscal year 2008, then one
third of the shares underlying the option shall vest and become immediately
exercisable, (ii) the Company reports an after tax Net Income of $18,000,000 for
its fiscal year 2009, then another one third of the shares underlying the option
shall vest and become immediately exercisable and (iii) the Company reports an
after tax Net Income of $22,000,000 for its fiscal year 2010, then the remainder
of the shares underlying the option shall vest and become immediately
exercisable.





Item 13. Certain Relationships and
Related Transactions, and Director Independence.




Except
for the ownership of our securities, none of the directors, executive officers,
holders of more than five percent of the Company’s outstanding common stock, or
any member of the immediate family of any such person have, to our knowledge,
had a material interest, direct or indirect, in any transaction occurred in the
fiscal year of 2009 or proposed transaction which may materially affect the
Company.


50


Director
Independence





Our directors Liquan Wang, Jiduan Yuan,
Lizong Wang, and Lawrence Lee qualify as independent directors under the NYSE
corporate governance rules.





Item
14. Principal Accounting Fees and Services.




On June
30, 2009, our prior independent registered public accounting firm, Morgenstern,
Svoboda & Baer CPA (“Morgenstern”) resigned and on the same day, we
appointed Acqavella, Chiarelli, Shuster, Berkower & Co., LLP (“ACSB”) as our
new independent registered public accounting firm.





Our Audit
Committee annually reviews the audit and permissible non-audit services
performed by our principal accounting firm and reviews and approves the fees
charged by our principal accounting firm. Our Audit Committee has considered the
role of Morgenstern, Svoboda, & Baer in providing tax and audit services and
other permissible non-audit services to us and has concluded that the provision
of such services, if any, was compatible with the maintenance of such firm's
independence in the conduct of its auditing functions.





During
fiscal years 2008 and 2009, the aggregate fees which we paid to or were billed
by Morgenstern and ACSB for professional services were as follows:





Fiscal
      year ended December 31,2008
                  
                  
                  2009
                  
                  
                  2009Morgenstern
                  
                  
                  Morgenstern
                  
                  
                  ACSBAudit
      fees
                  
                  $
                  161,000
                  
                  
                  $
                  0
                  
                  
                  $
                  120,000Audit-related
      fees
                  
                  $
                  0
                  
                  
                  $
                  56,000
                  
                  
                  $
                  28,000Tax
      fees
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  7,000All
      other fees
                  
                  $
                  0
                  
                  
                  $
                  0
                  
                  
                  $
                  0


51


PART
IV




Item
15. Exhibits, Financial Statement Schedules.




Exhibit
                    Footnote
                  
                  ExhibitNo.
                  
                  Description(1)
                  
                  2.1
                  
                  Agreement
      and Plan of Merger between TAM of Henderson, Inc. and the
      Company.(2)
                  
                  3.1
                  
                  Articles
      of Incorporation(3)
                  
                  3.2
                  
                  By-laws(4)
                  
                  3.3
                  
                  Articles
      of Merger between TAM of Henderson, Inc. and Company(5)
                  
                  3.4
                  
                  Amended
      and Restated Articles of Incorporation, changing our name from Tam of
      Henderson, Inc. to Universal Travel Group(6)
                  
                  4.1
                  
                  Universal
      Travel Group 2009 Incentive Stock Plan(7)
                  
                  10.1
                  
                  Termination
      Agreement between Xiangsheng Song, Shenzhen Speedy Dragon Enterprise
      Limited and Universal Travel Group dated June 12, 2009.(8)
                  
                  10.2
                  
                  Waiver
      Agreement dated July 20, 2009 between Company and its investors under that
      certain Securities Purchase Agreement dated August 28,
    2008.(9)
                  
                  10.3
                  
                  Make
      Good Securities Escrow Supplement Agreement dated August 10, 2009 between
      Company and its investors under that certain Securities Purchase Agreement
      dated August 28, 2008.(10)
                  
                  10.4
                  
                  Agreement
      to Amend Warrants dated August 10, 2009 between Company and its investors
      under that certain Securities Purchase Agreement dated August 28,
      2008.(11)
                  
                  10.5
                  
                  Form
      of Subscription Agreement between Company and its investors dated December
      10, 2009.(12)
                  
                  10.6
                  
                  Form
      of Subscription Agreement between Company and its investors dated December
      10, 2009.(13)
                  
                  10.7
                  
                  Placement
      Agent Agreement between Company and Brean Murray, Carret & Co., LLC
      dated December 10, 2009.21.1
                  
                  List
      of Subsidiaries31.1
                  
                  Certification
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                  
                  Certification
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                  
                  Certification
      of the Principal Executive Officer pursuant to U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                  
                  Certification
      of the Principal Financial Officer pursuant to U.S.C. Section 1350 as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002





(1)
            Incorporated
      herein by reference to Exhibit 2.1 to the Company’s Current Report on Form
      8-K filed on March 20, 2006.





(2)
            Incorporated
      herein by reference to Exhibit 3.1 to the Company’s Registration Statement
      on Form 10SB12G filed on September 6,
2005.





(3)
            Incorporated
      herein by reference to Exhibit 3.2 to the Company’s Registration Statement
      on Form 10SB12G filed on September 6,
2005.





(4)
            Incorporated
      herein by reference to Exhibit 3.3 to the Company’s Current Report on Form
      8-K filed on March 27, 2006.





(5)
            Incorporated
      herein by reference to Exhibit 3.1 to the Company’s Current Report on Form
      8-K filed on August 23, 2006.


52





(6)
            Incorporated
      herein by reference to Exhibit 4.1 to the Company’s Registration Statement
      on Form S-8 (No. 333-156804) declared effective on January 20,
      2009.





(7)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed on June 17, 2009.





(8)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed on July 21, 2009.





(9)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed on August 10, 2009.





(10)
            Incorporated
      herein by reference to Exhibit 10.2 to the Company’s Current Report on
      Form 8-K filed on August 10, 2009.





(11)
            Incorporated
      herein by reference to Exhibit 10.1 to the Company’s Current Report on
      Form 8-K filed on December 16,
2009.





(12)
            Incorporated
      herein by reference to Exhibit 10.2 to the Company’s Current Report on
      Form 8-K filed on December 16,
2009.





(13)
            Incorporated
      herein by reference to Exhibit 10.3 to the Company’s Current Report on
      Form 8-K filed on December 16,
2009.


53


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





UNIVERSAL
      TRAVEL GROUPBy:
                                  /s/Jiangping JiangJiangping
      JiangChief
      Executive Officer (principal executive officer)Date:By:
                                  /s/Yizhao ZhangYizhao
      ZhangChief
      Financial Officer (principal accounting and financial
    officer)Date:





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.





Name and Title
                                
                                Date/s/Jiangping
      Jiang
                                
                                March
      5, 2010By:
      Jiangping JiangChief
      Executive Officer and Director(principal
      executive officer)/s/Yizhao
      Zhang
                                
                                March
      5, 2010By:  Yizhao
      ZhangChief
      Financial Officer (principal accounting and
                                  financial
      officer)/s/Jing
      Xie
                                
                                March
      5, 2010By:
      Jing XieSecretary
      and a director/s/Hujie
      Gao
                                
                                March
      5, 2010By:
      Hujie GaoVice
      President of Corporate Finance and a director/s/Liquan
      Wang
                                
                                March
      5, 2010By:
      Liquan WangDirector/s/Jiduan
      Yuan
                                
                                March
      5, 2010By:
      Jiduan YuanDirector


54





/s/Lizong
      Wang
                  
                  March
      5, 2010By:
      Lizong WangDirector/s/Lawrence
      Lee
                  
                  March
      5, 2010By:
      Lawrence LeeDirector


55