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, 2010




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

Incorporation or organization
(I.R.S. Employer

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     o No


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


 ̈ Yes      o No





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, 2010 was approximately $ 69,812,746.08 (9,919,522 shares of common stock)  based upon the closing price of the common stock as quoted by NYSE 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 June 7, 2011, there are presently 19,898,235 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.
Business

3Item 1A.
Risk Factors

18Item 1B.
Unresolved Staff Comments

24Item 2.
Properties

24Item 3.
Legal Proceedings

25Item 4.
(Removed and Reserved)PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

26Item 6.
Selected Financial Data

29Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

29Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

42Item 8
Financial Statements and Supplementary Data

42Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

43Item 9A.
Controls and Procedures

44Item 9B.
Other Information

45PART IIIItem 10.
Directors, Executive Officers and Corporate Governance

46Item 11.
Executive Compensation

51Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

53Item 13.
Certain Relationships and Related Transactions and Director Independence

56Item 14.
Principal Accountant Fees and Services

56PART IVItem 15.
Exhibits, Financial Statement Schedules

58





2





PART I




Item 1.   Business.





History and Organization





Universal Travel Group (the “Company”) was 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. 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.





2007 Acquisitions





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.





3





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 him, the original sole shareholder of SSD before our acquisition in 2007. As a result of the termination agreement, SSD was spun off from our business.





Current PRC laws and regulations impose substantial restrictions on foreign ownership of the air-ticketing, travel agency, advertising and value-added telecommunications businesses in the PRC. According to the Rules on Cognizance of Qualification for Civil Aviation Transporting Marketing Agencies (2006) and relevant foreign investment regulations regarding civil aviation business, a foreign investor currently cannot own 100% of an air- ticketing agency in the PRC, except for Hong Kong and Macau aviation marketing agencies. In addition, foreign-invested air-ticketing agencies are not permitted to sell airline tickets for domestic flights in the PRC.





We, through YZL, entered into share escrow agreements with Shenzhen Yuzhixing Aviation Service Co., Ltd. (“YZX”), a PRC domestic company funded by YZL and two PRC individuals (collectively, the “XGN Nominees”) to hold 100% of the equity interest in Xi'an Golden Net Travel Serve Service Company Limited ("XGN"), a PRC travel company which we acquired on August 6, 2007 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.





The significant details of the share escrow agreements are outlined below:


·
YZL and Universal Travel Group funded the start-up activities and incorporation of XGN and related subsidiaries, through cash or common stock issuance;


·
YZL entrusted the XGN Nominees as the name holders only of YZL equity interest in  XGN;


·
The XGN Nominees shall neither participate in the management of operation nor shareholder meeting decisions of XGN;


·
YZL, as the actual fund provider of XGN, will enjoy all shareholder rights and profit sharing;


·
YZL, is entitled to all profits and is required to absorb all losses of XGN and its subsidiaries;


·
The XGN Nominees are not responsible for losses nor to benefit from any income of   XGN;


·
YZL will cover any capital infusion requirements of XGN and related subsidiaries; and


·
If XGN were to dissolve, YZL will enjoy the right to allocate and divide assets.





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.





4





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. It served more than 120,000 people with packaged tours and conferences in 2009.





2008 Expansion





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.




As in the case of the acquisition of XGN described above and for the same legal reasons, YZL entered into share escrow agreements with three domestic residents, including Jing Xie, our present Chief Financial Officer to hold 100% of the equity interest of STA as nominees of YZL.  The terms of the share escrow agreements relating to the STA Nominees are similar to those as described above for the YZL Nominees.




2009 Expansion




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.





On June 15, 2010, we entered into an underwriting agreement (the "Underwriting Agreement") with Brean Murray, Carret & Co., LLC, as representative of the underwriters (the "Representative"), related to a public offering of 2,857,143 shares of the Company's common stock at a price of $7.00 per share less a 5% underwriting commission. Under the terms of the Underwriting Agreement, we granted the Representative an option, exercisable for 30 days, to purchase up to an additional 428,572 shares of common stock to cover over-allotments, if any. The offering was made pursuant to an effective registration statements on Form S-3, as amended and supplemented (Registration Statement No. 333-161139) filed with the Securities and Exchange Commission. On June 21, 2010, we closed the common stock offering announced on June 16, 2010. In the transaction, we issued 2,857,143 shares of common stock at $7.00 per share for an aggregate amount of $20 million.





With the completion of the raise, we then sought to seek out acquisition targets that would both complement our strategic growth and service products.





Acquisitions in 2010





On March 26, 2010, the Company through its VIE structure and strategy executed an acquisition agreement to acquire all the equity interest of Huangshan Holiday Travel Service Company (“Huangshan Holiday”) with shareholders of Huangshan Holiday. Pursuant to the acquisition agreement, the purchase consideration was RMB 20 million, which was payable as follows: (i) 20% of the purchase consideration was to be paid in shares of restricted common stock of the Company with a per stock price of $ 9.47, being the average closing price of the Company’s shares for the 15 days prior to the date of execution of the Agreement and amounting to 61,847 shares of restricted common stock; (ii) 40% or RMB 8 million (approximately $1.17 million) to be paid within 10 days of the announcement of the acquisition; (iii) 20% or RMB 4 million (approximately, $588,235) within 10 days of completion of the share exchange formalities with the local business authorities and (iv) the remaining  20% of the purchase consideration within 10 days of the formal close of the acquisition transaction. The shareholders of Huangshan Holiday agreed to continue their service at Huangshan Holiday for the next five fiscal years and to accomplish certain projected financial goals.  In the event that they or Huangshan Holiday breach the acquisition agreement, Shenzhen Universal Travel Agency Co. Ltd shall be entitled to terminate the acquisition agreement and receive a full refund of the purchase consideration and up to $1 million in damages.




5




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.




On March 29, 2010, our subsidiary, the Company through its VIE structure and strategy executed an acquisition agreement (the “Tianyuan Agreement”) to acquire all the equity interest of Hebei Tianyuan International Travel Agency Co., Ltd  (“Tianyuan”) with shareholders of Tianyuan and another acquisition agreement  (the “Yulongkang Agreement”) to acquire all the equity interest in Zhengzhou Yulongkang Travel Agency Co., Ltd with shareholders of Yulongkang.





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.





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.





Pursuant to the Tianyuan Agreement, the purchase consideration was RMB 30 million (approximately $4.4 million), which was payable as follows: (i) 20% of the purchase consideration was to be paid in shares of restricted common stock of the Company with a per stock price of $ 9.42, being the average closing price of the Company’s shares for the 15 days prior to the date of execution of the Agreement and amounting to 93,282 shares of restricted common stock; (ii) 40% or RMB 12 million (approximately $1.76 million) within 10 days of the announcement of the acquisition; (iii) 20% or RMB 6 million (approximately, $882,353) within 10 days of completion of the share exchange formalities with the local business authorities and (iv) the remaining  20% of the purchase consideration within 10 days of the formal close of the acquisition transaction.





The shareholders of Tianyuan agreed to continue their service at Tianyuan for the next five fiscal years and to accomplish certain projected financial goals.  In the event that they or Tianyuan breach the Agreement, Shenzhen Universal Travel Agency Co. Ltd shall be entitled to terminate the Tianyuan Agreement and receive a full refund of the purchase consideration and up to $1 million in damages.





6





Pursuant to the Yulongkang Agreement, the purchase consideration was RMB 39 million as previously stipulated in our letter of intent, which was payable as follows: (i) 10% of the purchase consideration was to be paid in shares of restricted common stock of the Company with a per stock price of $ 9.42, being the average closing price of the Company’s shares for the 15 days prior to the date of execution of the Agreement and amounting to 60,633 shares of restricted common stock; (ii) 45% or RMB 17.55 million (approximately $2.58  million) within 10 days of the announcement of the acquisition; (iii) 25% or RMB 9.75 million (approximately, $1.4 million) within 10 days of completion of the share exchange formalities with the local business authorities and (iv) the remaining  20% of the purchase consideration within 10 days of the formal close of the acquisition transaction.





The shareholders of Yulongkang also agreed to continue their service at Yulongkang for the next five fiscal years and to accomplish certain projected financial goals.  In the event that they or Yulongkang breach the Agreement, Shenzhen Universal Travel Agency Co. Ltd shall be entitled to terminate the Agreement and receive a full refund of the purchase consideration and up to $1 million in damages.





On June 28, 2010, our subsidiary, the Company through its VIE structure and strategy executed an acquisition agreement (the “Kunming Agreement”) to acquire all the equity interest of Kunming Business Travel Agency Co., Ltd. ("Kunming Business Travel") with shareholders of Kunming Business Travel Tianyuan and another acquisition agreement (the “Shanxi Agreement”) to acquire all the equity interest in Shanxi Jinyang Travel Agency Co., Ltd. ("Shanxi Jinyang") with shareholders of Shanxi Jinyang..





Kunming Business Travel was founded in 1993 in Kunming, Yunnan Province and is the premier golf travel service agency in its region. Kunming Business Travel has partnerships with seven golf clubs and provides services, including reservations, event planning, hosting business trips and golf competitions. Kunming Business Travel is the only professional golf travel service provider in the Yunnan Province.





Shanxi Jinyang was founded in 1988 in Taiyuan, Shanxi Province and is one of the largest travel agencies in Shanxi Province in terms of tourist volume and revenues. Shanxi Jinyang provides comprehensive travel services and has good business relationships with travel destinations, hotels, and air ticketing agencies.




Pursuant to the Kunming Agreement, the purchase consideration was payable as follows:  (i) 10% of the purchase consideration was to be paid in shares of restricted common stock of the Company with a per stock price of $7.20, being the average closing price of the Company’s shares for the 15 days prior to the date of execution of the Agreement and amounting to 79,487 shares of restricted common stock within 90 days after the announcement of acquisition and to be circulated five years later ; (ii) 45 % or RMB 17.55  million (approximately $2.58  million) within 10 days of the signing of the agreement; (iii) 45% or RMB 17.55 million (approximately, $2.58  million) within 10 days of completion of the share exchange formalities with the local business authorities.





The shareholders of Kunming Business Travel agreed to continue their service at Kunming Business Travel for the next five fiscal years and to accomplish certain projected financial goals.  In the event that they or Kunming Business Travel breach the Agreement, Shenzhen Universal Travel Agency Co. Ltd shall be entitled to terminate the Agreement and receive a full refund of the purchase consideration and up to $1 million in damages.





Pursuant to the Shanxi Agreement, the purchase consideration was payable as follows: (i) 10% of the purchase consideration was to be paid in shares of restricted common stock of the Company with a per stock price of $ 7.20, being the average closing price of the Company’s shares for the 15 days prior to the date of execution of the Agreement and amounting to 31,387 shares of restricted common stock within 90 days after the announcement of acquisition and to be circulated five years later ; (ii) 45% or RMB 6.93  million (approximately $1.02 million) within 10 days of the signing of the agreement; (iii) 45% or RMB 6.93 million (approximately, $1.02 million) within 10 days of completion of the share exchange formalities with the local business authorities.





The shareholders of Shanxi Jinyang agreed to continue their service at Shanxi Jinyang for the next five fiscal years and to accomplish certain projected financial goals.  In the event that they or Shanxi Jinyang breach the Agreement, Shenzhen Universal Travel Agency Co. Ltd shall be entitled to terminate the Agreement and receive a full refund of the purchase consideration and up to $1 million in damages.





The Company refers to collectively here within and throughout this annual report, all wholly owned subsidiaries and variable interest entities as subsidiaries.





7





The issuance of shares of common stock pursuant to the abovementioned agreements was exempt from registration in reliance upon Regulation S and Section 4(2) of the Securities Act of 1933, as amended.  Shareholders of Huangshan Holiday, Tianyuan, Yulongkang, Kunming Business Travel and Shanxi Jinyang are non-U.S. persons, as defined in Rule 902(k) of Regulation S, In addition, our shares were issued 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 the they were knowledgeable and experienced in finance and business matters and thus they are able to evaluate the risks and merits of acquiring our securities; (2) they had advised us that they were able to bear the economic risk of purchasing our common stock; (3) we had provided them 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.





Corporate Structure




The following diagram illustrates our corporate structure.

















Disposition of TRIPEASY Kiosks





On September 9, 2010, our subsidiary, Shenzhen Yuzhilu Aviation Service Co. Ltd. executed a purchase and sale agreement to sell all of our 1,523 TRIPEASY kiosks to Shenzhen Xunbao E-Commerce Co., Ltd. for a total of RMB 40,301,417.73, or approximately $5.93 million.   Pursuant to the agreement, although we shall no longer operate or retain ownership rights to the kiosks, we will continue to have exclusive air ticketing, hotel reservation and package tour travel product sales rights in all TRIPEASY kiosks for a two-year period from the closing date of the agreement.





8





Pursuant to the agreement, the purchase price was to be paid in three installments: (i) RMB10,000,000 shall be paid by September 14, 2010, (ii) RMB15,000,000 shall be paid by October 9, 2010, and the remaining portion of the purchase price shall be paid on or prior to the earlier of December 9, 2010, or within 5 days of our completion of making certain developments to the interface and functionality of the kiosks. The first and second installments were paid in full before December 31, 2010 and the third installment was paid in full on February 24, 2011.





International Travel License





On December 24, 2010, we obtained the International Travel License issued by the National Travel Authority, granting us the right to operate and offer global package tours in mainland People’s Republic of China. In the past, we had only been able to offer such packages through agencies which possess this license. There are over 20,000 travel agencies in the PRC, of which only approximately 1,300 travel agencies have this International Travel License.





Franchises





In order to leverage on our International Travel License, we have decided to franchise our license to local travel agencies.  Recently, we granted our franchise to eight local travel agencies in Shenyang, Dalian and Qingdao. They have converted their business model, adopted our franchise operating scheme, and updated their local business registration to run this franchise officially. As of present date, we have had no revenues from our franchises but expect to generate revenues from them soon.





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 (Shanghai Lanbao Travel Service Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve Service Co., Ltd., Foshan Overseas International Travel Service Co., Ltd., Universal Travel International Travel Agency Co. Ltd, (formerly Shenzhen Universal Travel Agency Co., Ltd.), Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd.). We previously provided air cargo agency services through Shenzhen Speedy Dragon Enterprise Limited, which we spun off in June 2009. SSD has been accounted for under discontinued operations.





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 TRIPEASY Travel Service Kiosks (the “Kiosks”), self-service terminals owned by Shenzhen Xunbao E-commerce Co. Ltd., 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.





Our air-ticketing business is affected by the conditions 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:





9





·
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, as we anticipated, increased the demand for travel.





Hotel reservations





We are, through our subsidiary 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).  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.





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.





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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.





On July 13, 2010, we announced a partnership with Agoda, a subsidiary of Priceline.com, to strengthen our hotel reservation business segment. Under the partnership, we offer our customers access to Agoda’s international network of hotels. Through the updated cnutg.com website, travelers will be able to enjoy special Agoda promotions and instant confirmation at tens of thousands of hotels worldwide. However, as our business has largely been focused on domestic travel for Chinese residents, this partnership has not been productive during the year.





Packaged Tours





We are, through our subsidiaries, FOI, XGN, STA, HHT, HTY, ZTY, KBT and SJT, 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 that 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.





On December 24, 2010, we obtained the International Travel License issued by the National Travel Authority, granting us the right to operate and offer global package tours in mainland People’s Republic of China. In the past, we had only been able to offer such packages through agencies which possess this license. There are over 20,000 travel agencies in the PRC, of which only approximately 1,300 travel agencies have this International Travel License.





Reward Program and Gift Vouchers





We established a reward program for our air-ticketing and hotel reservations customers.





Our individual customers earn one point for each RMB they spend on air tickets or hotel reservations and can redeem gifts or vouchers when they have accumulated sufficient points.





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Our corporate customers receive a cashback reward ranging from 0.5%-2% on on sales. This percentage varies according to sales volume and is written in agreements with our corporate customers. We account for these rewards as expenses.





We do not allocate any position of the revenue generating activities to the points earned and accrue for the cost of the point reward when the points are redeemed. We do not sell points separately and may discontinue this program or change the terms without any liability.





In 2010, FOI sold gift vouchers to customers and recorded these as customer advances. Customers can redeem them for package tours in FOI only. As of December 31, 2010, the balance of customer advances for gift vouchers was $28,427. FOI does not plan to issue more vouchers of such kind, and the vouchers will expire by the end of 2011.





Insurance





We presently have directors and officers insurance with Navigators Insurance Company.  The policy is for a term of one year commencing June 23, 2010 to June 23, 2011 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:





Trademark

Class

RegistrantUTG

16, 39, 42, 43

Shenzhen Yu Zhi Lu Aviation Service Company Limited宇之路*

39, 43

Shenzhen Yu Zhi Lu Aviation Service Company Limited旅程天下*

18,35,39,42,43

Shenzhen Yu Zhi Lu Aviation Service Company Limited





*宇之路 is the Chinese name of Yuzhilu and 旅程天下 is the Chinese name of Universal Travel Group.





We, through our subsidiary, XGN, have the “古都之旅” (the Chinese name of “Tour to Ancient Capital”) 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 18 covers leather, bag, backpack, travel accessories (leather), umbrella, climbing tools, harness, home tools (leather) and leather ropes.





Class 35 covers advertisement, advertising planning, business conference organizing, agency for import/export, agency marketing, human resources consulting, business site removal, systematic development for computer and database information, accounting, sales of self-service machines.





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.





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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 two years:





Year


Visitors


Number of visitors multiplied by

the number of days comprising the tour2009



212,460


807,3002010



410,000


1,260,000





Air-ticketing





Below is a breakdown of the number of air tickets sold for the past two years:





Year

Number of Tickets2009

2,360,0002010

2,960,000





Hotel Reservations





Below is a breakdown of the number of hotel room nights booked through us for the past two years:





Year

Number of Room Nights2009

2,349,0002010

2,966,000





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.





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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 two 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.




Subsidiary

Amount (RMB)/ (US$)Foshan Overseas International Travel Service Co., Ltd.

38,313/$5,652Shenzhen Yu Zhi Lu Aviation Service Company Limited

822,900/ $ 121,394 (Media Advertisement expenses)

240,000 / $35,405  (Internet Advertisement)

316,039/$46,622(Advertisements)Shanghai Lanbao Travel Service Company Limited

29,360/ $4,331 (Advertisements)

408,000/ $60,188 (Internet advertisements)Chongqing Universal Travel E-Commerce Co., Ltd

2,270/ $335 (Advertisements)Shenzhen Universal Travel  Agency Co., Ltd

374,441/ $55,237 (Advertisements)Huangshan Holiday Travel Service Co., Ltd.

74,800/$11,035 (Advertisements)Zhengzhou Yulongkang Travel Agency Co., Ltd.

81,486/$12,021 (Advertisements)Kunming Business Travel Service Co., Ltd.

136,000/$20,063 (Advertisements)




We anticipate that our sales and marketing expenses for fiscal year 2011 will increase proportionally with our sales volume.





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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 be buffered by our other lines of businesses; and





·
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.





Our Future Goals and Expansion Plans





We will integrate our acquisitions made in 2010, which have been largely involved in the packaged tour business, by installing our air-ticketing and hotel reservation systems to their local offices, and providing them with training so that they may establish new sources of revenue on air-ticketing and hotel reservations.





We will further utilize our international travel license and expand our geographic service coverage by establishing more franchise offices, instead of making more acquisitions with cash and/or stock, as our franchise model has been well accepted in the industry and it will not create significant dilution to our existing shareholders. We will set up call centers in some of our franchise offices where we observe have more customer inquiries on air-ticketing and hotel reservations.





We will also further integrate our offline businesses with our online platform, including, but not limited to improving our website surfing speed and layouts, enriching our travel product content, and strengthening our English website development as our website is increasingly accessed by foreign travelers.




Employees





At the current time, including our officers, we have approximately 771 full-time employees, including 60 administrative employees, 75 marketing employees, 320 employees working at our three call centers and approximately 316 employees working at our nine packaged tour office. We did not include the salesperson whose salary based on commissions as our employee. 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.





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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);





•
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.





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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;





•
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.





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The tax rates of our various subsidiaries in 2010 were all 25% except for YZL, the tax rate of which was 22%. For 2011, these rates will remain 25% except for YZL, the tax rate of which will become 24%.




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;


·
“Domestic Travel Agency” awarded by the China Travel Bureau to XGN; and


·
International Travel License issued by the National Travel Authority.





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.





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.





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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.





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.





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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.





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.





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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.





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.





21





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.





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.





22





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.





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





In 1982, the National People’s 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 People’s 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 People’s 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 People’s 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.





23





Risks Related to the Company's Corporate Structure





The People's Republic of China ("PRC") laws and regulations governing our business and the validity of certain contractual arrangements are uncertain. If we are found to be in violation, we could be subject to sanctions which could result in significant disruptions to our opertions and/or our ability to generate revenues.





There are substantial uncertainties regarding the interpretation and application of Chinese laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with our vendors and customers. We are considered a foreign person or foreign enterprise under Chinese law.  These laws and regulations are relatively new and may be subject to change, and their official interpretation and enforcement may involve substantial uncertainty.  The effectiveness of newly enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance by foreign investors. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.





The Chinese government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.  In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies.  We cannot predict the effect of the interpretation of existing or new Chinese laws or regulations on our business.  We cannot assure our shareholders that our current ownership and operating structure would not be found in violation of any current or future Chinese laws or regulations.  As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services.  Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.





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.





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 August 2014. The monthly rent payable for these offices is $12,931.





In addition to the above principal offices, we also have a call center located at Shennan Road, Hualian Center Room –305-308, Shenzhen, People's Republic of China. The offices contain approximately 356 square meters of usable space and are subject to a month by month lease. The monthly rent payable for these offices is $4,115.





24





In addition to our headquarters, YZL and STA maintain offices at the locations in Shenzhen which require aggregate monthly payments of $21,760.




FOI maintains 6 offices around the Guangzhou area which require aggregate monthly payments of $2,066;




XGN maintains 3 offices in Xi’an which require aggregate monthly payments of $1,217;




SLB maintains its main office in Shanghai and makes aggregate monthly payments of $6,020;





CTE maintains offices of approximately 1,194 square meters, and makes aggregate monthly payments of $4,615.





HHT maintains its main office of approximately 264 square meters in Huangshan and makes aggregate monthly payment of $439.





HTY maintains its main office of approximately 299 square meters in Shijiazhuang and makes aggregate monthly payment of $1,572.





ZYT  maintains its main office of approximately 136 square meters in Zhengzhou and makes aggregate monthly payment of $1,534.





KBT maintains its main office of approximately 135 square meters in Kunming and makes aggregate monthly payment of $1,513.





SJT maintains its main office of approximately 150 square meters in Taiyuan and makes aggregate monthly payment of $1,815.




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





Item 3.    Legal Proceedings.





On May 20, 2011, the plaintiff Alex Lob commenced this derivative action in the First Judicial District Court of the State of Nevada in and for Carson City against Universal Travel Group (the “Company”), and  Jiangping Jiang, Jing Xie, Huijie Gao, Jiduan Yuan, Lizong Wang, Wenbin An, Lawrence Lee, Yizhao Zhang and Liquan Wang, officers and directors of the Company.  In the complaint, plaintiff purports to assert derivative claims against the individual defendants for alleged breaches of fiduciary duties, waste of corporate assets and unjust enrichment based upon alleged conduct of the individual defendants which damaged  the Company’s reputation, goodwill and standing in the business community.  The complaint also alleges that such conduct may result in liability for violations of federal law. The complaint seeks, among other relief, the amount of damages sustained by the Company as a result of the Defendants’ breach of fiduciary duties, waste of corporate assets and unjust enrichment and plaintiff’s counsel’s, accountant’s and experts’ fees.  The Company’s time to answer or move with respect to the complaint has not yet expired.  The Company believes that the complaint has no merit and intends to vigorously defend the lawsuit.


25





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. All share information presented within this annual report and related consolidated financial statements are presented taking into effect the one-for-three reverse stock split.





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 Bid2009 First Quarter

$
0.59


$
2.952009 Second Quarter

$
2.01


$
12.602009 Third Quarter

$
8.62


$
17.202009 Fourth Quarter

$
8.91


$
16.502010 First Quarter

$
8.42


$
11.302010 Second Quarter

$
5.82


$
10.152010 Third Quarter

$
3.25


$
6.992010 Fourth Quarter

$
4.05


$
7.20





Holders of Securities





As of June 7, 2011, there were approximately 94 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.





26





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.





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. As of December 31, 2010, there are outstanding options to purchase 22,222 shares of common stock pursuant to this grant.





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. All options to purchase 33,333 shares of common stock has been exercised in cashless in 2009.





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 ratably, (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 ratably 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 ratably.   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.





27





As we had met the acceleration provision (i) and (ii), in prior years therefore 1,466,666 options were vested, and 733,334 options vested in 2010 as we have met provision (iii). At December 31, 2010 1,466,666 options from the Plan were outstanding.





On September 1, 2009, the Company issued, to the newly appointed CFO and Board member 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. On August 17, 2010, upon resignation, 70,000 options were forfeited.





On September 1, 2009, the Company issued, to the newly appointed director 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.








In December 2010, we adopted the Universal Travel Group 2010 Incentive Stock Plan. On December 2, 2010, we issued options to purchase 50,000 shares of common stock to our Chief Executive Officer, Ms. Jiangping Jiang at an exercise price of $6.67.  We also issued options to purchase an additional 950,000 shares of common stock on the same date to various employees and directors at an exercise price of $6.06.  The term of each option is for 10 years.  The options vest in two equal installments, the first being on the date of grant and the second on the first anniversary of grant.





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


plans and arrangements .





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


2,466,666


$
4.69



0Equity compensation plans not approved by security holders


67,222


$
9.18



0Total


2,533,888


$
4.81



0





Purchases of Equity Securities by the Company and Affiliated Purchasers





During the fourth quarter of our fiscal year ended December 31, 2010, 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





There were no sales of unregistered securities during the fiscal year ended December 31, 2010 other than those transactions previously reported to the SEC on the Company’s current reports on Form 8-K.





28




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.
 
 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.
 
 Name of Entities

Place of Incorporation

Expiration date


Ownership
PercentageUniversal Travel Group

Nevada, USA


-



100
%Full Power Enterprise Global Limited – BVI

British Virginia Islands


-



100
%Shenzhen Yuzhilu Aviation Service Co., Ltd.

China


1998.3.9-2018.3.9



100
%Xian Golden Net Travel Serve Services

China


2001.8.1-2016.9.4


100
% VIEShanghai Lanbao Travel Service Co., Ltd.

China


2002.5.29-2015.4.28



100
%Foshan Overseas International Travel Service Co., Ltd.

China

Infinite Term



100
%Chongqing Universal Travel E-Commerce Co., Ltd.

China

Infinite Term



100
%Universal Travel International Travel Agency Co., Ltd. (former named:Shenzhen Universal Travel Agency Co., Ltd.)

China

Infinite Term


100
% VIEHebei Tianyuan Travel Agency Co., Ltd.

China


1999.10.8-2019.10.7



100
%Huangshan Holiday Travel Service Co., Ltd.

China

Infinite Term



100
%Zhengzhou Yulongkang Travel Agency Co., Ltd.

China


2000.11.1-2020.11.1



100
%Kunming Business Travel Service Co., Ltd.

China


2001.10.8-2011.10.8



100
%Shanxi Jinyang Travel Agency Co., Ltd.

China


2005.5.19-2015.5.18



100
%
 
 In 2007 and 2009, YZL entered into certain shareholding agreements with various related PRC residents and Shenzhen Yuzhixing Aviation Service, Co. Limited (“YZX”) (“Party B”) to hold YZL shares of ownership of Xian Golden Net Travel Serve Services ("XGN") and Shenzhen Universal Travel Agency Co., Ltd. ("STA").The significant details of the agreements and other important information, among others, are outlined below:
 
 Universal Travel Group funded the startup activities and incorporation of XGN and STA and related subsidiaries, through cash or common stock issuance;
 YZL entrusted Party B as the name holder only of YZL equity interest in XGN and STA;
 Party B shall neither participate in the management of operation nor shareholder meeting decisions of YZX, XGN or STA;
 YZL, as the actual fund provider of XGN and STA, will enjoy all shareholder rights and profit sharing;
 YZL, is entitled to all profits and is required to absorb all losses of XGN and STA and its subsidiaries;
 Party B is not responsible for losses nor to benefit from any income of XGN and/or STA;
 YZL will cover any capital infusion requirements of XGN and STA and related subsidiaries; and
 If XGN and/or STA were to dissolve, YZL will enjoy the right to allocate and divide assets.
  29
  Based on these contractual arrangements, management believes that XGN and STA and related subsidiaries should be considered “Variable Interest Entities” (“VIE”) under ASC 810 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, because the equity holders in XGN and STA no longer have the characteristics of a controlling financial interest, and the Company, through YZL, is the primary beneficiary of  XGN and STA and its operations. Accordingly, management believes that XGN and STA should be consolidated under ASC 810.
 
 Universal Travel Group and YZL are responsible to fund any capital share shortfalls for XGN and STA and its subsidiaries. In addition, Universal Travel Group funded through cash and common stock the acquisitions as discussed in Note 2.
 
 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, the type of 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.  On September 9, 2010, we sold all of 1,523 Kiosks to Shenzhen Xunbao E-commerce Co. Ltd. with a slight gain. The strategy of sales of Kiosks was to minimize our capital expenditures and related expenses. We still have the full right to use these kiosks after the sales for two years according to the agreement.
 
 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.For the year ended December 31, 2009, Speedy Dragon Enterprise Limited was accounted for as discontinued operation and was not included in our segment report and MD&A analysis.
 
 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.
 
 In 2010, we acquired a total of five companies for stock and cash through our VIE structure and strategy, namely Huangshan Holiday Travel Service Company (“Huangshan Holiday”),  Hebei Tianyuan International Travel Agency Co., Ltd  (“Tianyuan”), Zhengzhou Yulongkang Travel Agency Co., Ltd (“Zhengzhou Yulongkang”), Kunming Business Travel Agency Co., Ltd. ("Kunming Business Travel") and Shanxi Jinyang Travel Agency Co., Ltd. ("Shanxi Jinyang").
  30
  In order to finance the abovementioned acquisitions and our working capital, on December 10, 2009, we entered into a definitive subscription agreement 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.
 
 On June 15, 2010, we entered into an underwriting agreement (the "Underwriting Agreement") with Brean Murray, Carret & Co., LLC, as representative of the underwriters (the "Representative"), related to a public offering of 2,857,143 shares of the Company's common stock at a price of $7.00 per share less a 5% underwriting commission. Under the terms of the Underwriting Agreement, we granted the Representative an option, exercisable for 30 days, to purchase up to an additional 428,572 shares of common stock to cover over-allotments, if any. The offering was made pursuant to an effective registration statement on Form S-3, as amended and supplemented (Registration Statement No. 333-161139) filed with the Securities and Exchange Commission. On June 21, 2010, we closed the common stock offering announced on June 16, 2010. In the transaction, we issued 2,857,143 shares of common stock at $7.00 per share for an aggregate amount of $20 million. 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.
 
 On September 9, 2010, our subsidiary, Shenzhen Yuzhilu Aviation Service Co. Ltd. executed a purchase and sale agreement to sell all of our 1,523 TRIPEASY kiosks to Shenzhen Xunbao E-Commerce Co., Ltd. for a total of RMB 40,301,417.73, or approximately $5.93 million.   Pursuant to the agreement, although we shall no longer operate or retain ownership rights to the kiosks, we will continue to have exclusive air ticketing, hotel reservation and package tour travel product sales rights in all TRIPEASY kiosks for a two-year period from the closing date of the agreement.
 
 On December 24, 2010, we, through our subsidiary, Shenzhen Universal Travel Agency Co., Ltd., obtained the International Travel License issued by the National Travel Authority, granting us the right to operate and offer global package tours in mainland People’s Republic of China and our subsidiary changed name to Universal Travel International Travel Agency Co., Ltd. to reflect the upgrade. In the past, we had only been able to offer such packages through agencies which possess this license. There are over 20,000 travel agencies in the PRC, of which only approximately 1,300 travel agencies have this International Travel License.
 
 Our strategy is to further utilize our international travel license, and expand our geographic service coverage by establishing more franchise offices and set up call centers in some of these franchisee offices where there is customer demand for air-ticketing and hotel reservation services. We also plan to integrate our offline businesses with our online platform.
 
 We aim to be the foremost leading online travel services provider in the People’s Republic of China, especially in the air ticketing, hotel reservation and packaged tour service sectors.
 
 RESULTS OF OPERATIONS
 
 FISCAL YEAR ENDED DECEMBER 31, 2010 AND 2009
  The following table presents certain consolidated statement of operations information derived from the consolidated statements of income for the fiscal year ended December 31, 2010 and 2009 respectively.
  Because the Company had spun off its Speedy Dragon Enterprise Limited subsidiary and exited the air cargo business in the second quarter of 2009, all numbers attributable to continuing operations in the following discussion do not include the operating results of Speedy Dragon Enterprise Limited for the first and second quarters of 2009 and its historical results.  Such had been reclassified as discontinued operations.
  31
  For The Year EndedDecember 31,


Increase/2010


2009


(Decrease)


PercentageRevenues

$
153,318,946


$
95,802,474


$
57,516,472



60.04
%Cost of services


112,222,421



66,632,818



45,589,603



68.42
%Gross profit


41,096,525



29,169,656



11,926,869



40.89
%Selling, general and administrative expenses


(11,790,250
)


(5,001,109
)


(6,789,141
)


135.75
%Gain/(Loss) on disposal of fixed assets


65,853



(1,594
)


67,447



-4231.30
%Income from operations


29,372,128



24,166,953



5,205,175



21.54
%Other expenses


(28,183
)


(76,422
)


48,239



-63.12
%Gain/(Loss) on change in fair value of derivative liabilities


1,004,390



(6,832,186
)


7,836,576



-114.70
%Interest income


143,102



58,124



84,978



146.20
%Income before income taxes –continuing operations


30,491,437



17,316,469



13,174,968



76.08
%Provision for income taxes


8,452,043



5,978,948



2,473,095



41.36
%Income from continuing operations

$
22,039,394


$
11,337,521


$
10,701,873



94.39
%Income from discontinued operations

$
-


$
177,975


$
(177,975
)


-100.00
%Loss on disposition of discontinued operations


-



(770,595
)


770,595



-100.00
%Loss from discontinued operation

$
-


$
(592,620
)

$
592,620



-100.00
%Net Income

$
22,039,394


$
10,744,901


$
11,294,493



105.11
%
  For the year ended December 31, 2010:
  Revenue

Air


(%) of


Hotel


(%) of


Packaged


(%) ofSegment

Ticketing


sector


Reservation


sector


Tours


sector


Total(YZL &
CTE)





(SLB)





(All others)Revenue

$
24,189,452



15.78
%

$
14,303,080



9.33
%

$
114,826,414



74.89
%

$
153,318,946Cost of services

$
8,838,496



7.88
%

$
4,659,667



4.15
%

$
98,724,258



87.97
%

$
112,222,421Gross profit

$
15,350,956



37.35
%

$
9,643,413



23.47
%

$
16,102,156



39.18
%

$
41,096,525Gross margin


63.46
%






67.42
%






14.02
%






26.80
%Segment effect in gross margin (*)


10.01
%






6.29
%






10.50
%






26.80
%
  32
  For the year ended December 31, 2009:
  Revenue

Air


(%) of


Hotel


(%) of


Packaged


(%) ofSegment

Ticketing


sector


Reservation


sector


Tours


sector


Total(YZL &
CTE)





(SLB)





(All others)Revenue

$
16,634,872



17.36
%

$
12,340,395



12.88
%

$
66,827,207



69.76
%

$
95,802,474Cost of services

$
4,561,236



6.85
%

$
3,638,908



5.46
%

$
58,432,674



87.69
%

$
66,632,818Gross profit

$
12,073,636



41.39
%

$
8,701,487



29.83
%

$
8,394,533



28.78
%

$
29,169,656Gross margin


72.58
%






70.51
%






12.56
%






30.45
%Segment effect in gross margin (*)


12.60
%






9.08
%






8.76
%






30.45
%
  (*) "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.
  Revenue
  Our air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd. Our packaged tours segment relates to the remaining eight operating subsidiaries: Foshan International Travel Service Co., Ltd, Xi’an Golden Net Travel Serve Service Company Limited, Shenzhen Universal Travel Agency Co. Ltd, Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd, Zhengzhou Yulongkang Travel Agency Co., Ltd, Shanxi Jinyang Travel Agency Co., Ltd and Kunming Business Travel Agency Co., Ltd. Operations of each segment are exclusive to the operations of the associated subsidiary company.
  Revenues for the year ended December 31, 2010 were $153,318,946, compared to $95,802,474 for the same period 2009, an increase of $57,516,472, or approximately 60.0497%. The contributions from the five newly acquired subsidiaries were $31,806,319, or 20.75% of our total revenues for the fiscal year. We expect the revenue contributions from the five newly acquired subsidiaries will grow at 20% or higher as they are required by acquisition agreements, and they are likely to benefit from larger foundation and integration with Air-ticketing and Hotel reservation segments. Excluding the contributions from the five newly acquired subsidiaries, revenues for the year ended December 31, 2010 were $121,512,627, compared to $95,802,474 for the same period 2009, an increase of $25,710,153 or approximately 26.84%.
  The acquisition of the five subsidiaries this year was primarily due to our efforts to expand our businesses, especially the packaged tour business, along with the strong demand for travel demand as a result of the recovery of Chinese economy, and the continuing effect of the Chinese government’s stimulus package, benefiting the whole industry.  The high growth rate is also helped by the comparatively lower numbers in the last year, when the tourism industry was adversely affected by H1N1, and increased value of RMB. We continue to see success in cross marketing and selling our travel related products across our business segments and increased brand awareness from online and offline sales.
  Revenues from air-ticketing segment were $24,189,452 for the year ended December 31, 2010 compared to $16,634,872 for the same period last year, an increase of $7,554,580, or approximately 45.41%. This increase is generally driven by increase in air-ticket sales volume, approximately 25% more tickets were sold compared to the same fiscal period last year, air-ticket prices were approximately 20% higher than the same fiscal period last year, and increased revenue from Chongqing Travel World E-Business Co., Ltd. as it gained more local market share over a year’s establishment. We attribute the higher air ticket sales to booming tourism, general inflation in Chinese economy, as well as the downgraded competition among airlines. As China’s economy continues to grow, we believe that our growth in air-ticketing is sustainable in the foreseeable future.
  33
  Revenues from the hotel reservations segment were $14,303,080 for the year ended December 31, 2010 compared to $12,340,395 for the same period in 2009, an increase of $1,962,685, or approximately 15.90%. We did not buy any hotel inventory during the period of the Shanghai World Expo in the third quarter, and therefore the growth in this segment is not as high as our other segments. Our hotel reservation revenue started to catch up with air-ticketing growth in the 4th quarter as the Shanghai World Expo ended and hotel supply and demand resume normal trends. Moreover, as more and more hotels are being built or renovated over the year, the general occupancy rate remains low, and therefore, we enjoyed constant favorable commission rate as the competitions among hotels increased. As China’s economy continues to grow, we believe that our hotel segment will continue to grow in the foreseeable future.
  Revenues from our packaged tour segment were $114,826,414for the year ended December 31, 2010, compared to $66,827,207 for the same period in 2009, an increase of $47,999,207, or approximately 71.83%. Excluding the effect on revenue from the five newly acquired subsidiaries, which was $31,806,319, our revenues from this segment were $83,020,095 for the year ended December 31, 2010, compared to $66,827,207, for the same period in 2009, an increase of $16,192,888, or approximately 24.23%. We serviced approximately 452,700 more customer days organically compared to the same period last year. This increase is a result of the growth of Chinese economy, increased revenue from Universal Travel International Travel Agency Co., Ltd (formerly, Shenzhen Universal Travel Agency Co., Ltd), as it gains more local market share over a year’s establishment and our efforts in attracting more corporate clients as a result of an increase in our brand awareness, increases and more customer referrals as our satisfaction rate remains high, and no customer complaint since establishment.
  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.   Commission rates vary and are paid to these sales agents after we are paid our commissions by the hotels. 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. We do not offer any volume rebates but enjoy volume rebates from our vendors, calculated based on the vendors’ own internal rebate policy. We do not record receivables for these rebates, and we only record them as a reduction of cost when received.
  Costs of services for the year ended December 31, 2010 were $112,222,421compared to $66,632,818 for the same period in 2009, an increase of $45,589,603, or approximately 68.42%. The comparatively higher costs of services resulted from packaged tours making up a greater percentage of our total revenue and their corresponding higher cost of services. Excluding the effect of the costs of services of the five newly acquired subsidiaries, which is $27,087,986, costs of services for the year ended December 31, 2010 were $85,134,435, compared to $66,632,818, for the same period 2009, an increase of $18,501,617, or approximately 27.77%. Although the air ticket price, as a component of cost of services, increased 18% in general, it did not affect our air ticketing segment cost, as we booked our air ticketing revenue in a commission net basis, and we were able to integrate with wider geographic covered local subsidiaries as a result of acquisitions to create synergy to tightly control our packaged tour segment cost. The increase is in tandem with the increase of revenue.
  34
  Costs of services from air-ticketing were $8,838,496 for the year ended December 31, 2010, compared to $4,561,236 for the same period last year, an increase of $4,277,260, or approximately 93.77%. This increase is associated with the higher booking volumes, higher salaries expenses along with increased numbers of employees and increased cost of depreciation of Tripeasy kiosks in this segment.
  Costs of services from hotel-reservation were $4,659,667 for the year ended December 31, 2010, compared to $3,638,908 for the same period last year, an increase of $1,020,759, or approximately 28.05%. The increase is associated with the increase in commission split to retail agencies for promoting our business and reclassification of cost of salary and rent.  We do not anticipate increases in commission splits.
  Costs of services from packaged-tour were $98,724,258for the year ended December 31, 2010, compared to $58,432,674 for the same period last year, an increase of $40,291,584 or approximately 68.95%. The increase is in tandem with the increase of revenue. Excluding the effect of the costs of services for the five newly acquired subsidiaries, which was $27,087,986, our costs of services from this segment were $71,636,272 for the year ended December 31, 2010 compared to $58,432,674  for the same period in 2009, an increase of $13,203,598, or approximately 22.60%. The increase is also in tandem with the increase of revenue.
  A detailed breakdown of cost of services by subsidiary is set forth below:
  35
  Shenzhen Yuzhilu Aviation Service Co., Ltd. (YZL)

2010


2009Franchise system cost sharing

$
22,473


$
17,901Commission


5,545,382



2,709,135Staff salaries


602,648



536,076Telecommunication expenses


216,524



158,744Rental expenses & Utilities


496,700



427,771Depreciation and amortization


118,311



490,510Subtotal

$
7,002,038


$
4,340,137Shanghai Lanbao Travel Service Co., Ltd. (SLB)Staff salaries and Staff welfare

$
131,847


$
75,799Rental expenses & Utilities


53,107



50,490Telecommunication  expenses


23,410



9,029Depreciation and amortization


1,563



3,698Franchise commission paid


4,449,740



3,499,892Subtotal

$
4,659,667


$
3,638,908Chongqing Universal Travel E-Commerce Co., Ltd. (CTE)Opening fee

$
-


$
69,813Depreciation


123,404



96,868Rental


-



24,261Utilities


-



1,549Website


-



3,001Maintenance


-



559Payroll


-



25,048Package Tours


1,713,054



-Subtotal

$
1,836,458


$
221,099Foshan International Travel Service Co., Ltd. (FOI)Depreciation and amortization

$
-


$
11,949Cost of Services (Package Tours)


38,844,280



36,634,916Subtotal

$
38,844,280


$
36,646,865Xian Golden Net Travel Serve Services  (XGN)Depreciation and amortization

$
-


$
830Cost of Services (Package Tours)


24,643,428



19,097,510Subtotal

$
24,643,428


$
19,098,340Shenzhen Universal Travel Agency Co. Ltd. (STA)Depreciation and amortization

$
-


$
79Cost of Services (Package Tours)


8,148,564



2,687,390Subtotal

$
8,148,564


$
2,687,469Huangshan Holiday Travel Agency Co., Ltd. (HHT)Staff salaries and Staff welfare


60,483Franchise system cost sharing


291,193Depreciation and amortization


6,697Cost of Services (Package Tours)


2,211,889Subtotal

$
2,570,262Hebei Tianyuan International Travel Agency Co., Ltd. (HTT)Cost of Services (Package Tours)


6,407,283Subtotal

$
6,407,283Zhengzhou Yulongkang Travel Agency Co., Ltd. (ZYT)Cost of Services (Package Tours)


8,896,346Subtotal

$
8,896,346Kunming Business Travel Agency Co., Ltd. (KBT)Cost of Services (Package Tours)


5,614,688Subtotal

$
5,614,688Shanxi Jinyang Travel Agency Co., Ltd. (SJT)Cost of Services (Package Tours)


3,599,407Subtotal

$
3,599,407Total

$
112,222,421


$
66,632,818
  36
  Gross Profit
  Gross profit for the year ended December 31, 2010 was $41,096,525 compared to $29,169,656, for the same period 2009, an increase of $11,926,869, or approximately 40.90%. The increase in gross profit is due to the growth in revenue and control of cost as explained above. The growth in both our domestic air-ticketing business and hotel reservations business is a result of synergies from our packaged tour operations.
  Gross profit in our air-ticketing segment was $15,350,956 for the year ended December 31, 2010, compared to $12,073,636 for the same period last year, an increase of $3,277,320, or approximately 27.14%. Gross profit margin for the year ended December 31, 2010 was 63.46%, slightly lower than 72.58% for the same period 2009. This decrease is a result of increased depreciation costs of our tripeasy kiosks, but as we sold all our kiosks in September 2010, we anticipate that our margin in the air-ticketing segment will improve in the foreseeable future.
  Gross profit in our hotel reservation segment was $9,643,413 for the year ended December 31, 2010 compared to $8,701,487 for the same period last year, an increase of $941,926, or approximately 10.82%. Gross profit margin in this segment for the year ended December 31, 2010 was 64.85%, compared to 66.70% for the same period 2009, a slight decrease of 1.85%. The decreased gross profit margin is mostly due to the  reclassification of the costs associated. Our hotel reservation segment gross margin has been stable after the reclassification between cost and expense in 2009, and we expect our margin to improve after the one-time event, namely the Shanghai World Expo and as our sales volume increases.
  Gross profit in our packaged tour segment was $16,102,156 for the year ended December 31, 2010 compared to $8,394,533 for the same period last year, an increase of $7,707,623, or approximately 91.82%. Gross profit margin in this segment for the year ended December 30, 2010 was 14.02% compared to 12.56% for the same period in 2009, an increase of 1.46%.  The stability in gross margin for this segment was mainly attributable to improved profit margins from our five newly acquired subsidiaries into this segment. We believe that our strong local networks contacts and network established through are subsidiaries are critical in our nationwide expansion strategy.
  Our air-ticketing and hotel reservations have much higher gross margin than our packaged tour business primarily as our revenues from air-ticketing and hotel reservation are the commission we generated. 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, while costs of services for the packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours, that all together are much substantial variable and fixed overheads.
  Consolidated gross margin for the year ended December 31, 2010 came in at 26.80%, a 3.64% decrease from the 30.45% in the same period last year. The lower gross margin is mainly due to our increased weight of our lower margin packaged tours segment in our revenue mix. Due to the difference in revenues recognition, our packaged tour segment has lower gross margin. During the year ended December 31, 2010, revenues generated from packaged tours grew at a much higher rate than revenues generated from air ticketing and hotel reservation segments as a result of acquisitions of five packaged tour travel agencies, leading to lower overall gross margin. However, management believes the packaged tour segment is critical to the substantial growth of air ticketing and hotel reservation segments in the long run, and overall gross margin is expected to improve as integration among segments and as our strategy increases focus on online development.
  37
  Selling, General and Administrative Expenses
  Major selling, general, and administrative expenses for the fiscal year ended December 31, 2010 and 2009 are as follows:
  For the year endedDecember 31,


Increase/2010


2009


(Decrease)


PercentageSalary and commission


1,653,184



564,077



1,089,107



193.08
%Marketing


356,021



191,230



164,791



86.17
%Rent


351,992



289,320



62,672



21.66
%Depreciation and amortization


1,101,755



185,870



915,885



492.76
%Professional fees


1,174,053



472,900



701,153



148.27
%Stock-based compensation


4,901,222



1,154,408



3,746,814



324.57
%Other general and administrative expenses


2,252,023



2,143,304



108,719



5.07
%Total

$
11,790,250


$
5,001,109



6,789,141



135.75
%
  Selling, general and administrative expenses totaled $11,790,250 for year ended December 31, 2010 compared to $5,001,109 for the same period last year, an increase of $6,784,141, or approximately 135.75%.
  Selling, general and administrative expenses were approximately 7.69% of revenue for the year ended December 31, 2010 as compared to 5.22% for the same period last year. General increase in selling, general and administrative expenses are in connection with the growth in business operations during the year ended December 31, 2010, as compared to the same period of last year. During the fiscal year of 2010, we incurred extra professional fees, amortization expenses of identified intangible assets, stock based compensation for all 2009 incentive stock option plan,  and consolidation expenses for the aforesaid mergers and acquisitions. To promote our businesses, especially the packaged tour programs, we spent $376,496 on advertisements in the fiscal year of 2010, while we did not incur so much for the same period last year. In the second half of 2009, we established two subsidiaries, Chongqing Universal Travel E-Business Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd., which changed to Universal Travel International Travel Agency Co., Ltd. after granted international travel license. Depreciation and amortization expenses of these two newly established companies have been taken into account since the third quarter of 2009. The doubling of salary expense and commission is due to the increased split on commissions to large retail agencies and an increase in the number of new hires including employees from our five new acquisitions. Average salary is approximately 2,000 RMB/month for first-line employees, and commission paid per marketing employee is approximately 2,500 RMB/month base on their performance.
  Other Income (Expenses)
  Gain on change in fair value of derivative liability for the year ended December 31, 2010 was $1,004,390 compared to a loss of $6,832,186 for the same period last year. The Company adopted Derivative and Hedging, ASC 815-40 effective January 1, 2009. The warrants issued in connection with the “Securities Purchase Agreement” dated August 28, 2008 were reclassified from equity to derivative liability and marked to market.  Therefore, the Company recorded a gain on change in fair value of derivative liability of $1,004,390 on December 31, 2010 to mark to market for the decrease in fair value of the warrants from January 1, 2010 to December 31, 2010.
  38
  Net Income
  Net income was $22,039,394, or 14.37% of revenues for the year ended December 31, 2010, compared to $10,744,901, or 11.22% of revenues for the same period last year, an increase of $11,294,493, or 105.11%. The increase in net income is mostly due to our efforts to expand our business, our merger and acquisition strategy, as well as the non-cash gain on change in fair value of derivative liability and the effect of the discontinued operation.
  LIQUIDITY AND CAPITAL RESOURCES
  The variation of exchange rate from RMB to USD will impact our net income, the analysis from the table below presented the impact in our net income.
  Exchange rate


Exchange
rate


Exchange
rateDecember 31, 2010


increase 1%


decrease 1%Average rate


6.7788



6.8465



6.7110Net income

$
22,039,394


$
21,771,417


$
22,313,524Increase/(Decrease)





$
(267,977
)

$
274,130Percentage






-1.22
%


1.24
%
  Cash for operations and liquidity needs are funded primarily through cash flows from operations and equity raise. Cash and cash equivalents were $39,618,988 as of December 31, 2010. Current assets and current liabilities as of December 31, 2010 were $110,750,276 and $10,439,126, respectively, yielding working capital of $100,311,150. We believe that the funds available to us from operations and equity raise are adequate to meet our operating needs for the next twelve months. For the year ended December 31, 2010, net cash provided by operating activities was approximately $13,025,930, which resulted primarily from our operations and effective management of cash flow.
  Capital expenditure
  Total capital expenditure for year ended December 31, 2010 was $3,125,147 to purchase fixed assets, primarily machinery and equipment, such as TRIPEASY kiosks. On September 9, 2010, all of our 1,523 TRIPEASY kiosks were sold for a total of $5,698,488.  Management may consider substantial increase in decoration and equipment or other supporting machinery expenditures as we start our franchise model and to support the fast development and expansion of our business.
  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. To satisfy these capital needs due to our broad expansion in PRC, we may incur additional capital expenditures.
  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. In December 15, 2009, we closed Subscription Agreements with certain investors to sell to them an aggregate of 2,222,222 shares of common stocks for net proceeds of $18.9 million. We also closed another common stock public offering transaction on June 16, 2010. In this transaction we issued 2,857,143 shares of common stocks for net proceeds of $18.8 million.
  39
  Unless otherwise indicated in a prospectus supplement, we intend to use the net proceeds from the sale of the securities under the S-3 registration for general corporate purposes, including expanding our products, and for general working capital purposes.  We may also use a portion of the net proceeds to acquire or invest in businesses and products that are complementary to our own, although we have no current plans, commitments or agreements with respect to any acquisitions as of the date of the S-3 registration.
  Off Balance Sheet Arrangements
  We have never entered into any off-balance sheet financing arrangements except leases and have never established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.
  Critical Accounting Policies, Estimates and Judgments
  This discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.  The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures.  On an on-going basis, we evaluate our estimates, including those related to inventories, revenue recognition, and accounts receivable, asset impairment and warrant derivative liability.  We base our estimates on historical experience and on various other market-specific assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results, however, may differ significantly from these estimates.
  We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements:
  Revenue Recognition and Accounts Receivable
 
 The Company follows the provisions of SAB 104, “Revenue Recognition in Financial Statements”, for revenue recognition. Under SAB 104, four conditions must be met before revenue can be recognized: (i) there is persuasive evidence that an arrangement exists, (ii) delivery has occurred or service has been rendered, (iii) the price is fixed or determinable, and (iv) collection is reasonably assured.  The Company provides for an allowance for doubtful account based history and experience considering economic and industry trends. At December 31, 2010 and 2009, allowance for doubtful accounts was approximately $944,134 and $414,927, respectively.  The Company does not have any off-Balance Sheet exposure related to its customers.
  Warrant Derivative Liability
 
 The Company issued warrants in connection with the sale of common stock in 2008.  The Company analyzed the accounting treatment and classification of the warrants and summarized the effects and conclusions. The Company accounts for the warrants pursuant to FASB ASC Topic 815. The Company originally accounted for the warrants as equity; however, as noted in the footnote 2 to the consolidated financial statements, management subsequently determined such warrants should have been classified as a liability. As a result, the previously issued consolidated financial statements have been restated.
  40
  Impairment analysis for long-lived assets and intangible assets
 
 The Company’s long-lived assets and other assets (consisting of property and equipment and purchased intangible assets) are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, “Property, Plant, and Equipment”, and FASB ASC Topic 205 “Presentation of Financial Statements”.  The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.  Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset.  If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value.  Impairment evaluations involve management’s estimates on asset useful lives and future cash flows.  Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions.  Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through December 31, 2010, the Company had not experienced impairment losses on its long-lived assets.
  Management has discussed the development and selection of these critical accounting policies with the Board of Directors and the Board has reviewed the disclosures presented above relating to them.
  41





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




Not Applicable.




Item 8. Financial Statements and Supplementary Data.




42


UNIVERSAL TRAVEL GROUP
 
 CONSOLIDATED FINANCIAL STATEMENTS
 
 DECEMBER 31, 2010
  Certified Public Accountants & Business Consultants | 280 Kenneth Drive, Suite 100 | Rochester, NY 14623 | 585.427.8900 | EFPRotenberg.com
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the 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, 2010, and the consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for the year ended December 31, 2010. Universal Travel Group’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
 
 We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal  control over financial reporting. Accordingly, we express no such opinion. An audit also includes 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Travel Group as of December 31, 2010, and the results of its operations and its cash flows for the year ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
 /s/ EFP Rotenberg, LLP
 
 EFP Rotenberg, LLP
 Rochester, New York
 June 6, 2011
 F-1
  TABLE OF CONTENTS
 
 Reports of Independent Registered Public Accounting Firms
F-1Consolidated Balance Sheets
F-3Consolidated Statements of Income
F-4Consolidated Statements of Changes in Stockholders' Equity
F-5Consolidated Statements of Cash Flows
F-6Notes to the Consolidated Financial Statements
F-7-F-38
  F-2
  UNIVERSAL TRAVEL GROUP
 CONSOLIDATED BALANCE SHEETS
 
 December 31,


December 31,2010


2009ASSETSCash and cash equivalents



$
39,618,988


$
36,574,741Restricted Cash

Note 2


307,027



102,681Accounts receivable, net

Note 2


38,658,011



17,321,174Other receivables and deposits, net




780,400



257,907Trade deposit

Note 3


8,173,426



9,775,735Advances

Note 3


-



440,063Prepayments




1,216,857



216,727Short term investments, at cost

Note 5


19,681,308



-Note receivable

Note 6


2,314,259



1,711,392Acquisition Deposits




-



4,077,921Total Current Assets




110,750,276



70,478,341Property & equipment, net




1,692,595



4,992,677Intangible assets, net




3,110,882



339,240Goodwill

Note 2


24,508,909



9,896,270Total Noncurrent Assets




29,312,386



15,228,187Total Assets



$
140,062,662


$
85,706,528LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable and accrued expenses



$
5,045,674


$
2,615,730Customer deposits




2,203,487



2,000,117Income tax payable




3,189,965



1,654,475Total Current Liabilities




10,439,126



6,270,322Warrants - derivative liability

Note 10


810,929



1,815,319Deferred tax liability

Note 7


477,397



-Long-term income tax payable

Note 7


30,804



-Total  Liabilities




11,758,256



8,085,641Stockholders' EquityCommon stock, $.001 par value, 70,000,000 shares authorized, 19,898,235 and 16,714,457 issued and outstanding at December 31,  2010 and 2009, respectively

Note 9


19,898



16,714Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 31, 2010 and 2009, respectively.

Note 9


-



-Additional paid in capital




64,171,555



37,671,645Statutory reserve




1,062,741



372,144Retained earnings




59,624,186



37,915,251Accumulated other comprehensive income

Note 11


3,426,026



1,645,133Total Stockholders' Equity




128,304,406



77,620,887Total Liabilities and Stockholders' Equity



$
140,062,662


$
85,706,528
 
 The accompanying notes are an integral part of these consolidated financial statements.
  F-3
  UNIVERSAL TRAVEL GROUP
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 FOR THE YEARS ENDED DECEMBER 31,
 
 2010


2009RevenuesAir ticketing, net

$
24,189,452


$
16,634,872Hotel reservation, net


14,303,080



12,340,395Packaged tours, gross


114,826,414



66,827,207153,318,946



95,802,474Cost of servicesAir ticketing, net


8,838,496



4,561,236Hotel reservation, net


4,659,667



3,638,908Packaged tours, gross


98,724,258



58,432,674112,222,421



66,632,818Gross Profit


41,096,525



29,169,656Selling, general and administrative expenses


(11,790,250
)


(5,001,109
)Gain/(Loss) on disposal of fixed assets


65,853



(1,594
)Income from operations


29,372,128



24,166,953Other income (expense)Other expense


(28,183
)


(76,422
)Gain/(Loss) on change of fair value of derivative liabilities


1,004,390



(6,832,186
)Interest income


143,102



58,124Total other income (expense)


1,119,309



(6,850,484
)Income before income taxes–continuing operations


30,491,437



17,316,469Provision for income taxes


8,452,043



5,978,948Income from continuing operations

$
22,039,394


$
11,337,521Income from discontinued operations

$
-


$
177,975Loss on disposition of discontinued operations


-



(770,595
)Loss from discontinued operation

$
-


$
(592,620
)Net Income

$
22,039,394


$
10,744,901Comprehensive IncomeNet income

$
22,039,394


$
10,744,901Foreign currency translation adjustments


1,780,893



124,967Total Comprehensive income

$
23,820,287


$
10,869,868Income per common share from continuing operationsBasic

$
1.19


$
0 .80Diluted

$
1.14


$
0 .74Loss per common share from discontinued operationsBasic

$
-


$
(0.04
)Diluted

$
-


$
(0.04
)Net income per common shareBasic

$
1.19


$
0.76Diluted

$
1.14


$
0.70Weighted average common shares outstandingBasic


18,493,832



14,121,542Diluted


19,387,818



15,318,460
 
 The accompanying notes are an integral part of these consolidated financial statements.
  F-4
  UNIVERSAL TRAVEL GROUP
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 
 AccumulatedAdditional








Other


TotalCommon Stock


Paid In


Statutory


Retained


Comprehensive


Stockholders’Shares


Amount


Capital


Reserve


Earnings


Income


EquityBalance December 31, 2008


13,873,969



13,873



15,861,116



372,144



26,633,573



1,520,166



44,400,872Cumulative effect of a change in accounting principle-adoption of EITF 07-05 effective January 1, 2009


-



-



(2,091,738
)


-



536,777



-



(1,554,961
)Stock 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


235,569



236



6,571,594



-



-



-



6,571,830Options cashless exercised


576,372



577



(577
)














-Options cash exercised


3,300



3



9,567



-



-



-



9,570Stock issued for cash net of offering costs


2,222,222



2,222



18,948,027



-



-



-



18,950,249Income for the year ended December 31, 2009


-



-



-



-



10,744,901



-



10,744,901Foreign currency translation adjustments


-



-



-



-



-



124,967



124,967Balance December 31, 2009


16,714,457



16,714



37,671,645



372,144



37,915,251



1,645,133



77,620,887Stock based compensation


-



-



4,901,222



-



-



-



4,901,222Stock issued for acquisitions


326,635



327



2,833,491



360,138



-



-



3,193,956Transfer to statutory reserves














330,459



(330,459
)






-Stock issued for cash net of offering costs


2,857,143



2,857



18,765,197



-



-



-



18,768,054Income for the year ended December 31, 2010


-



-



-



-



22,039,394



-



22,039,394Foreign currency translation adjustments


-



-



-



-



-



1,780,893



1,780,893Balance December 31, 2010


19,898,235


$
19,898


$
64,171,555


$
1,062,741


$
59,624,186


$
3,426,026


$
128,304,406
 
 The accompanying notes are an integral part of these consolidated financial statements.
  F-5
  UNIVERSAL TRAVEL GROUP
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31,
 
 2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet income

$
22,039,394


$
10,744,901Add:Net loss from discontinued operations


-



592,620Income from operations


22,039,394



11,337,521Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


1,557,483



813,272Provision for doubtful accounts


474,443



204,788Stock based compensation


4,901,222



1,154,409(Gain)/Loss on change in fair value of derivative liabilities


(1,004,390
)


6,832,186(Gain)Loss on sales of fixed assets


(65,853
)


1,594(Increase) / decrease in assets:Restricted cash


(196,201
)


(102,495
)Accounts receivable


(20,491,520
)


(8,523,007
)Other receivable


514,636



(195,360
)Advances


442,559



(1,595
)Prepayments


(471,352
)


95,682Trade deposits


1,867,318



(3,204,571
)Escrow deposits


-



762,800Increase / (decrease) in current liabilities:Accounts payable and accrued expenses


1,754,490



924,041Customer deposits


121,133



960,175Income tax payable


1,086,884



(76,771
)Deferred tax liabilities


465,639



-Long-term tax payable


30,045



-Net cash provided by continuing operations


13,025,930



10,982,669Net cash provided by discontinued operations


-



435,259Net cash provided by operating activities


13,025,930



11,417,928CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property & equipment


(3,125,147
)


(5,300,678
)Purchase of  intangibles


(51,359
)


(296,264
)(Increase)/Decrease in short term investments


(19,196,588
)


-(Increase)/Decrease in notes receivable


(536,163
)


1,062,019Proceeds from sale of fixed assets


5,698,488



-Acquisition deposits


4,101,052



(4,077,921
)Cash paid for acquisition – net of cash acquired


(15,782,799
)


-Net cash (used in) continuing operations


(28,892,516
)


(8,612,844
)Net cash (used in) discontinued operations


-



(1,035,125
)Net cash (used in) investing activities


(28,892,516
)


(9,647,969
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds of equity financing


18,768,054



18,950,249Proceeds from warrants exercise


-



9,570Net cash provided by financing activities


18,768,054



18,959,819Effect of exchange rate changes on cash and cash equivalents


142,779



124,781Net change in cash and cash equivalents


3,044,247



20,854,559Cash and cash equivalents, beginning balance


36,574,741



15,720,182Cash and cash equivalents, ending balance

$
39,618,988



36,574,741SUPPLEMENTAL DISCLOSURES:Cash paid during the period for:Interest payments

$
-



-Income taxes

$
6,916,553



6,055,719Other non-cash transactionsNet assets sold of discontinued operations

$
-



1,659,292Goodwill attributable to sold discontinued operations


-



3,630,539Note received on disposition


-



(2,773,411
)Fair value of treasury stock received


-



(2,780,950
)Loss on disposition


-



(770,595
)Net cash of discontinued operations

$
-



(1,035,125
)Purchased goodwill

$
(14,612,639
)


-Purchased intangible assets


(3,236,376
)


-Fair value of assets purchased less cash acquired


(767,602
)


-Acquisition financed with stock issuance


2,833,818



-Acquisition paid for with cash - net of cash acquired

$
(15,782,799
)


-
  The accompanying notes are an integral part of these consolidated financial statements.
  F-6
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 Note 1 - ORGANIZATION
 
 Universal Travel Group was incorporated on January 28, 2004 under the laws of the State of Nevada. Full Power Enterprise Global Limited – BVI was incorporated under the laws of the British Virginia Islands. Shenzhen Yuzhilu Aviation Service Co., Ltd. was incorporated on March 9, 1998 under the laws of the Peoples Republic of China (PRC)., Shenzhen Speedy Dragon Enterprises Limited was incorporated in August of 2002 under the laws of PRC, Xian Golden Net Travel Serve Services was incorporated on July 25, 2001 under the laws of PRC, Shanghai Lanbao Travel Service Co., Ltd. was established in 2002 under the laws of Shanghai China. Foshan Overseas International Travel Service Co., Ltd. was incorporated in 1990 under the laws of PRC, Chongqing Universal Travel E-Commerce Co., Ltd. and Universal Travel International Travel Agency Co., Ltd. (former named Shenzhen Universal Travel Agency Co., Ltd.) were both incorporated in 2009 under the laws of PRC, Hebei Tianyuan Travel Agency Co., Ltd. was incorporated in April 1999 under the laws of PRC, Huangshan Holiday Travel Service Co., Ltd. was incorporated in April 1999 under the laws of PRC, Zhengzhou Yulongkang Travel Agency Co., Ltd. was incorporated in 2000 under the laws of PRC,  Kunming Business Travel Service Co., Ltd. was incorporated in 1993 under the laws of PRC, Shanxi Jinyang Travel Agency Co., Ltd. was incorporated in 1988 under the laws of PRC. Collectively these corporations are referred to herein as the Company. And Universal Travel Group owns 100% of the equity interest in Full Power Enterprise Global Limited, a wholly owned foreign entity incorporated under the laws of the British Virginia Islands. Full Power Enterprise Global Limited owns 100% of the equity interest in Shenzhen Yuzhilu Aviation Service Co., Ltd., a wholly owned foreign entity incorporated under the laws of the Peoples Republic of China ("PRC" or "China"). Universal Travel Group and Full Power Enterprise Global Limited do not conduct any substantive operations of their own. Instead, all operations of the consolidated company is through its subsidiary, Shenzhen Yuzhilu Aviation Service Co., Ltd. ("YZL") and various variable interest entities. Collectively, related to herein as subsidiaries.
 
 In 2007 and 2009, YZL entered into certain share holding agreements with various related PRC residents and Shenzhen Yuzhixing Aviation Service, Co. Limited (“YZX”) (“Party B”) to hold YZL shares of ownership of Xian Golden Net Travel Serve Services ("XGN") and Shenzhen Universal Travel Agency Co., Ltd. ("STA").The significant details of the agreements and other important information, among others, are outlined below:
 
 Universal Travel Group funded the start up activities and incorporation of XGN and STA and related subsidiaries, through cash or common stock issuance;
 YZL entrusted Party B as the name holder only of YZL equity interest in XGN and STA;
 Party B shall neither participate in the management of operation nor shareholder meeting decisions of YZX, XGN or STA;
 YZL, as the actual fund provider of XGN and STA, will enjoy all shareholder rights and profit sharing;
 YZL, is entitled to all profits and is required to absorb all losses of XGN and STA and its subsidiaries;
 Party B is not responsible for losses nor to benefit from any income of XGN and/or STA;
 YZL will cover any capital infusion requirements of XGN and STA and related subsidiaries; and
 If XGN and/or STA were to dissolve, YZL will enjoy the right to allocate and divide assets.
 
 Based on these contractual arrangements, management believes that XGN and STA and related subsidiaries should be considered “Variable Interest Entity” (“VIE”) under ASC 810 “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”, because the equity holders in XGN and STA no longer have the characteristics of a controlling financial interest, and the Company, through YZL, is the primary beneficiary of  XGN and STA and its operations. Accordingly, management believes that XGN and STA should be consolidated under ASC 810.
 
 Universal Travel Group and YZL are responsible to fund any capital share shortfalls for XGN and STA and its subsidiaries. In addition, Universal Travel Group funded through cash and common stock the acquisitions as discussed in Note 2.
 
 On June 12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited. Accordingly, the Company had accounted for Shenzhen Speedy Dragon Enterprise Limited as a discontinued operation.
  F-7
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 1 - ORGANIZATION (CONTINUED)
 
 The Company, through its subsidiaries and VIEs, engaged in the travel business, including airline ticketing, hotel reservation services, and packaged tours planning and tours guide services primarily in the PRC.
 
 
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis of Presentation
 
 These accompanying financial statements present the Company's results of operations, financial position and cash flows on a consolidated basis. The consolidated financial statements include Universal Travel Group and its wholly-owned subsidiaries and its subsidiaries owned through share holding agreements with Chinese residents, significant intercompany transactions and accounts have been eliminated in consolidation. Our policy is to consolidate all subsidiaries in which we hold a greater than 50% voting interest or otherwise control its operating activities and financial interest.
 
 The Company operates in three segments in accordance with accounting guidance FASB ASC Topic 280, "Segment Reporting." Our Chief Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280.
 
 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.
  F-8
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Acquisitions
 
 In 2010, the Company had 5 acquisitions to fit the its geographic expansion strategy, and in all and every acquisition, the Company negotiated in arm's length with acquisition target and got Board approval before closing.
 
 On June 28, 2010, the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Kunming Business Travel Agency Co., Ltd.  ("KBT") for a cash and stock transaction valued at approximately US$5.7 million in aggregate.
 
 The stock consideration consisted of 79,487 newly issued shares of the company's common stock, which were given to KBT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,163,625. The shares were valued at $572,243, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.
 
 KBT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of KBT, and approved by board of directors.
 
 The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC810. The allocation of the purchase price is as follows:
 
 Cash acquired

$
814,097Other assets


441,494Property Plant & Equipment


80,121Identifiable Intangibles


892,898Goodwill


3,977,608Total assets acquired


6,206,218Liabilities assumedAccounts & Income Taxes payable


174,732Deferred Tax Liability


223,224Other payable


72,394Total

$
5,735,868
 
 The excess of purchase price over tangible assets acquired and liabilities assumed was $4,870,506 of which $3,977,608 was recorded as goodwill.  At the time of the acquisition $892,898 of identifiable intangible assets and related deferred tax liability of $223,224 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.
 
 Prior to the acquisition, Kunming Business Travel Agency Co., Ltd. prepared its financial statements under accounting principles generally accepted in the United States of America.
 
 On June 28, 2010, the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Shanxi Jinyang Travel Agency Co., Ltd. ("SJT") for a cash and stock transaction valued at approximately US$2.3 million in aggregate.
  F-9
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Acquisitions (Continued)
 
 The stock consideration consisted of 31,387 newly issued shares of the company's common stock, which were given to SJT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $2,038,946. The shares were valued at $225,986, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.
 Acquisitions (Continued)
 
 SJT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of SJT, and approved by board of directors.
 
 The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC810. The allocation of the purchase price is as follows:
 
 Cash acquired

$
7,258Other assets


534,373Property Plant & Equipment


20,339Identifiable Intangibles


361,124Goodwill


1,609,816Total assets acquired


2,532,910Liabilities assumedAccounts & Income Taxes payable


78,574Deferred Tax Liability


90,281Other payable


99,123Total

$
2,264,932
 
 The excess of purchase price over tangible assets acquired and liabilities assumed was $1,970,940 of which $1,609,816 was recorded as goodwill.  At the time of the acquisition $361,124 of identifiable intangible assets and related deferred tax liability of $90,281 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.
 
 Prior to the acquisition, Shanxi Jinyang Travel Agency Co., Ltd. prepared its financial statements under accounting principles generally accepted in the United States of America.
 
 On March 29, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Zhengzhou Yulongkang Travel agency Co. Ltd ("ZYT") for a cash and stock transaction valued at approximately US$5.7 million in aggregate.
 
 The stock consideration consisted of 60,633 newly issued shares of the Company’s common stock, which were given to ZYT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $5,141,764. The shares were valued at $571,172, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.
 
 ZYT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of ZYT.
  F-10
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Acquisitions (Continued)
 
 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

$
1,513,636Accounts receivable


29,154Other assets


11,779Property Plant & Equipment


29,019Identifiable Intangibles


805,626Goodwill


3,812,004Total assets acquired


6,201,218Liabilities assumedAccounts & Income Taxes payable


230,107Deferred Tax Liability


201,406Other payable


56,769Total

$
5,712,936
 
 The excess of purchase price over tangible assets acquired and liabilities assumed was $4,617,630 of which $3,812,004 was recorded as goodwill.  At the time of the acquisition $805,626 of identifiable intangible assets and related deferred tax liability of $201,406 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.
 
 Prior to the acquisition, Zhengzhou Yulongkang Travel agency Co. Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.
 
 On March 26, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Huangshan Holiday Travel Service Co., Ltd ("HHT") for a cash and stock transaction valued at approximately US$2.9 million in aggregate.
 
 The stock consideration consisted of 61,846 newly issued shares of the company’s common stock, which were given to HHTs Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $2,343,824. The shares were valued at $585,691, which was the average fair value of the shares 15 days prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.
 
 HHT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of  HHT, and approved by board of directors.
 
 The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC 810. The allocation of the purchase price is as follows:
  F-11
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Acquisitions (Continued)
 
 Cash acquired

$
340,174Accounts receivable


21,450Other assets


452,193Property Plant & Equipment


69,682Identifiable Intangibles


479,870Goodwill


1,892,511Total assets acquired


3,255,880Liabilities assumedAccounts & Income Taxes payable


176,863Deferred Tax Liability


119,968Other payable


29,534Total

$
2,929,515
 
 The excess of purchase price over tangible assets acquired and liabilities assumed was $2,372,381 of which $1,892,511 was recorded as goodwill.  At the time of the acquisition $479,870 of identifiable intangible assets and related deferred tax liability of $119,968 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.
 
 Prior to the acquisition, Huangshan Holiday Travel Service Co., Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.
 
 On March 29, 2010 the Company through its VIE structure and strategy consummated the acquisition of a 100% interest in Hebei Tianyuan Travel Agency Co., Ltd ("HTT") for a cash and stock transaction valued at approximately US$4.4 million in aggregate.
 
 The stock consideration consisted of 93,282 newly issued shares of the company’s common stock, which were given to HTT’s Shareholder immediately before the completion of the Share Exchange Transaction. The cash consideration consisted of $3,519,736. The shares were valued at $878,726, which was the average fair value of the shares prior to the date of the exchange agreement. This amount is included in the cost of net assets, identified intangible assets, and goodwill purchased.
 
 HTT is engaged in the business of Chinese domestic tourism. The purchase price was determined based on arms' length negotiations between Universal Travel Group and the shareholder of HTT, and approved by board of directors.
 
 The acquisition had been accounted for as a purchase business combination and the results of operations from the acquisition date have been included in the Company's consolidated financial statements in accordance with ASC 810. The allocation of the purchase price is as follows:
  F-12
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Acquisitions (Continued)
 
 Cash acquired

$
532,349Accounts receivable


120,152Other assets


208,771Property Plant & Equipment


49,637Identifiable Intangibles


696,858Goodwill


3,320,700Total assets acquired


4,928,467Liabilities assumedAccounts & Income Taxes payable


232,188Deferred Tax Liability


174,215Other payable


123,602Total

$
4,398,462
 
 The excess of purchase price over tangible assets acquired and liabilities assumed was $4,017,558 of which $3,320,700 was recorded as goodwill.  At the time of the acquisition $696,858 of identifiable intangible assets and related deferred tax liability of $174,215 existed under the contractual legal or the reparability criterion as required under ASC 805 and ASC 740, respectively.
 
 Prior to the acquisition, Hebei Tianyuan Travel Agency Co., Ltd prepared its financial statements under accounting principles generally accepted in the United States of America.
 
 Discontinued Operations
 
 On June 12, 2009, the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited (“Speedy Dragon”). The Company had acquired all the equity interest in Speedy Dragon on or about April 10, 2007 in exchange for 238,095 (post-reverse split) shares of the Company’s common stock and an interest-free promissory note in the principal amount of $3,000,000 payable no later than April 10, 2008.  Pursuant to the termination agreement, the Company transferred back the equity interest in Speedy Dragon on or before June 30, 2009 and that the 238,095 (post-reverse split) shares of the Company’s common stock were returned to the Company and canceled as of June 30, 2009.  In addition, the sole shareholder of Speedy Dragon was also required to return to the Company an aggregate of $2,773,411, in cash, within one year of the completion of all the formalities of the termination agreement. The cash to be returned to the Company included a declared dividend in the amount of $2,260,981 to be paid to the Company. The full amount were paid in several payments below:
 
 Payment Date09/01/09

$
599,12710/01/09


154,02211/01/09


154,02212/01/09


154,02201/01/10


153,82602/02/10


153,82603/03/10


153,82606/04/10


516,11507/05/10


734,625Total Payment

$
2,773,411
  F-13
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Discontinued Operations (Continued)
 
 The loss on disposal of Shenzhen Speedy Dragon Enterprises Ltd was as following:
 
 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 conform with current year’s presentation of the discontinued operations. The following table summarized the operating result of the discontinued operations for the year ended December 31, 2010 and 2009, respectively:
 
 December 31,


December 31,2010


2009Sales

$
-


$
3,631,545Cost of sales


-



(3,218,140
)Gross profit


-



413,405Operating expenses


-



(190,989
)Income from discontinued operation before income tax


-



222,416Income tax


-



(44,441
)Net Income from discontinued operations

$
-


$
177,975
 
 Translation Adjustment
 
 As of December 31, 2010 and 2009, the accounts of Universal Travel Group were maintained, and its financial statements were expressed, in Chinese Yuan Renminbi (CNY). Such financial statements were translated into U.S. Dollars (USD) in accordance with the Foreign Currency Matters Topic of the FASB Accounting Standards Codification (“ASC 830”) with the CNY as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders equity are translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with the Comprehensive Income Topic of the FASB Accounting Standard Codification (“ASC 830”). Transaction gains and losses are reflected in the income statement and such differences may be material to the financial statements.
 
 Use of Estimates
 
 The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and such differences maybe material to the financial statements. The more significant estimates and assumptions made by management include among others, consolidation of VIE's, allowance for doubtful accounts, long-lived asset impairment, useful lives and residual values of fixed assets, stock based compensation, valuation of warrant derivative liability, purchase price allocation of fair market value of assets and liabilities acquired and deferred income taxes. The current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
  F-14
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 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 and Variable Interest Entities Shenzhen Yuzhilu Aviation Service Co., Ltd., Shenzhen Speedy Dragon Enterprises Limited, Shanghai Lanbao Travel Service Co., Ltd., Xian Golden Net Travel Serve Services, Ltd., Foshan Overseas International Travel Service Co. Ltd., Chongqing Universal Travel E-Commerce Co., Ltd., Shenzhen Universal Travel  Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Kunming Business Travel Service Co., Ltd., Shanxi Jinyang Travel Agency Co., Ltd., and Full Power Enterprise Global Limited collectively referred to herein as the Company.  On June 12, 2009 the Company entered into a termination agreement with Shenzhen Speedy Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen Speedy Dragon Enterprise Limited as a discontinued operation. The consolidated financial statements reflect the operating results and balance sheet items of the discontinued operations separately from continuing operations. All material inter-company accounts, transactions and profits have been eliminated in consolidation.
 
 Risks and Uncertainties
 
 The Company's operation is located in the PRC. There can be no assurance that the Company will be able to successfully continue the operation and failure to do so would have a material adverse effect on the Company's financial position, results of operations and cash flows. Also, the success of the Company's operations is subject to numerous contingencies, some of which are beyond management's control. These contingencies include general economic conditions, competition, governmental and political conditions, and changes in regulations. Among other risks, the Company's operations will be subject to risk of restrictions on transfer of funds, domestic and international customs, changing taxation policies, foreign exchange restrictions, and political and governmental regulations.
 
 Contingencies
 
 Certain conditions may exist as of the date the financial statements are issued. These conditions may result in a future loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
 
 If the assessment of a contingency indicates that it is probable given the current economic environment that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
 
 As  of December 31, 2010, the Company is not involved in any material legal dispute, other than those which occur in the normal operations of a business.
  F-15
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of December 31, 2010 and 2009, our cash and cash equivalents consisted primarily of prime institutional money market funds with no maturities limit as well as bank account balances. Given the current economic environment and the financial conditions of the banking industry there is risk that deposits may not be readily available or covered by such insurance, The Company has had no loss on excess cash in domestic or foreign banks in past years. As of December 31, 2010, cash on hand and cash in bank are $554,344 and $39,064,644 respectively. All cash held in PRC financial institutions  is not protected by Federal Deposit Insurance Corporation (FDIC)  or any similar insurance.
 
 Restricted Cash
 
 Restricted cash of $307,027 and $102,681 as of December 31, 2010 and 2009, respectively, consists of cash deposited in bank required and hold by Providence Travel Bureaus.
 
 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 $944,134 and $414,927 as of December 31, 2010 and 2009, respectively. The Company does not have any off balance sheet exposure related to its customers.
 
 Balance as of


Balance as ofAllowance for doubtful receivables

December 31, 2010


December 31, 2009Air ticketing

$
273,139



161,789Hotel reservation


70,398



86,655Packaged tours


600,597



166,483Total

$
944,134


$
414,927
 
 Fair Value of Financial Instruments
 
 The Company applies the provisions of accounting guidance, FASB Topic ASC 820 that requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2010, the fair value of cash and cash equivalents, short-term investments, accounts receivable, other receivables, note receivables, accounts payable, and accrued expenses approximated carrying value due to the short maturity of the instruments, or are based on quoted market prices or interest rates which fluctuate with market rates except for related party debt or receivables for which it is not practicable to estimate fair value.
  F-16
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Fair Value Measurements
 
 Effective January 1, 2009, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. Various inputs are considered when determining the fair value of the Company’s derivative liability. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.
 · Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
 · Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
 · Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
 
 The Company’s adoption of FASB ASC Topic 825 did not have a material impact on the Company’s consolidated financial statements. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.
 
 The following are the major categories of assets and liabilities measured at fair value on a recurring basis during the year ended December 31, 2010 and 2009, using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3).
 
 Level 1:


Level 2:


Level 3:


TotalDescription

Quoted Prices in

Active Markets for

Identical Assets


Significant

Other

Observable

Inputs


Significant

Unobservable

Inputs


December 31,

2010Derivative Liability - Warrants

$
-


$
810,929


$
-


$
810,929Total

$
-


$
810,929


$
-


$
810,929
 
 Level 1:


Level 2:


Level 3:


TotalDescription

Quoted Prices in

Active Markets for

Identical Assets


Significant

Other

Observable

Inputs


Significant

Unobservable

Inputs


December 31,

2009Derivative Liability - Warrants

$
-


$
1,815,319


$
-


$
1,815,319Total

$
-


$
1,815,319


$
-


$
1,815,319
 
 The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
  F-17
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Property & Equipment
 
 Property and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
  Transportation equipment

5 yearsOffice equipment

5 yearsLeasehold Improvements

5 – 10 years or the shorter of the lease term
 
 As of  December 31, 2010 and 2009, Property & Equipment of consist of the following:
 
 December 31, 2010


December 31, 2009Transportation equipment

$
591,671


$
150,232Furniture and  equipment


635,540



4,170,197Leasehold improvements


1,465,384



1,385,4812,692,595



5,705,910Accumulated depreciation


(1,000,000
)


(713,233
)$
1,692,595


$
4,992,677
 
 Management has no plans to substantially increase equipment or other supporting machinery expenditures.
 
 Depreciation expense for the year ended December 31, 2010 and 2009 was $1,041,390 and $548,913, respectively, of which $243,278 and $494,022 was included as part of cost of services for year ended December 31, 2010 and 2009, respectively. However, the depreciation expenses for the year ended December 31, 2010 included those of disposed furniture and equipments on September 9, 2010.
 
 Sales of equipment
 
 On September 9, 2010, our subsidiary, Shenzhen Yuzhilu Aviation Service Co. sold all of its 1,523 TRIPEASY kiosks to Shenzhen Xunbao E-Commerce Co., Ltd. for a total proceed of $5,698,488.  The original cost of the 1,523 TRIPEASY Kiosk was $6,650,592, excluding the accumulated depreciation of $1,017,957, resulting in a gain of $65,853. Shenzhen Xunbao E-Commerce Co. paid the full amount by three payments below:
 
 Payment Date

AmountSeptember  10, 2010

$
1,492,961November 8, 2010


1,891,268February 24, 2011


2,314,259Total Payment

$
5,698,488
 
 The third payment $2.3 million was recorded in note receivable in the accompanying Consolidated Balance Sheet at December 31, 2010 and paid in full in February 2011.
  F-18
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Goodwill
  Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired.  In accordance with the Intangibles, Goodwill and other topic of the FASB Accounting Standard Codification (“ASC 350”), indefinite-life identifiable intangible assets and goodwill are not amortized. Under the provisions of ASC 350, we are required to perform an annual impairment test of our goodwill. Goodwill impairment is determined using a two-step process.  The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit, which we define as our business segments, with its net book value or carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.  If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.  The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.  The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit including any unrecognized intangible assets as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase  price paid to acquire the reporting unit. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Based on its review, the Company believes that, as of December 31, 2010 and 2009 there were no significant impairments of its goodwill. However, there can be no assurances that demand for the Company's services will continue, which could result in an impairment of goodwill in the future
 
 As of December 31, 2010 and 2009, Goodwill consists of the following:
 
 December 31,

2010


December

31, 2009Shanghai 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



764,895Zhengzhou Yulongkang Agency Co., Ltd.


3,812,004



-Hebei Taiyuan Travel Agency Co., Ltd.


3,320,700



-Huangshan Holiday Travel Service Co., Ltd


1,892,511



-Kunming Business Travel Service Co., Ltd.


3,977,608



-Shanxi Jinyang Travel Agency Co., Ltd.


1,609,816



-$
24,508,909


$
9,896,270
 
 During the fourth quarter, management adjusted the original amount recorded for goodwill related to the 2010 acquisitions. The adjustment totaled $809,094 and was related to recognition of deferred tax assets or liabilities being recorded during the fourth quarter in connection with business acquisitions in accordance with ASC Topic 805 and ASC Topic 740.
  F-19
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Long-Lived Assets
  The Company applies the provisions of FASB Accounting Standard Codification (“ASC 360”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December 31, 2010 and 2009 there were no significant impairments of its long-lived assets. However, there can be no assurances that demand for the Company's services will continue, which could result in an impairment of long-lived assets in the future.
 
 Derivative Liability-Warrants
  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.
 
 On August 10, 2009, the Company entered into an Agreement to Amend Warrants with the Investors to amend the warrants sold to the Investors on August 28, 2008.  Section 7d of the warrants was amended to (i) limit the instances in which a dilutive issuance will cause an adjustment to the exercise price of the Investor warrants and (ii) eliminate the provision that correspondingly increased the number of shares underlying the Investor warrants in the event of a dilutive issuance that causes an adjustment to the exercise price.
 
 Upon the Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (“ASC 815”) on January 1, 2009, the Company determined that the warrants did not qualify for a scope exception under ASC 815 as they were determined to not be indexed to the Company’s stock as prescribed by ASC 815.  On January 1, 2009, the warrants, under ASC 815, were reclassified from equity to derivative liability at its fair market value of $2,091,738 and marked to market.  The values of the warrants were decreased by $536,777 from the warrants issuance date to the adoption date of ASC 815 on January 1, 2009.  As of January 1, 2009, the cumulative effect in adopting ASC 815 was a reduction to additional paid in capital of $2,091,738 to reclassify the warrants from equity to derivative liability and an increase in retained earnings of $536,777 as a cumulative effect of a change in accounting principle to reflect the change in the value of the warrants between their issuance date and January 1, 2009.  For the year ended December 31, 2010, the Company recorded a gain on change in fair value of derivative liability of $761,338, to mark to market for the decrease in fair value of the warrants during the year ended December 31, 2010.   Under ASC 815, the warrants will be carried at fair value and adjusted at each reporting period. As of December 31, 2010 and 2009, there were warrants outstanding to purchase 227,151 shares of common stock related to the derivative liabilities - warrants (see Note 10).
  The Company determined the fair value of the reset provisions at January 1, 2009 was $1,470,199 as the initial fair value at the adoption date of EITF No. 07-05.  The fair value originally was determined using the Black-Scholes Option Pricing model based on the following assumptions:  dividend yield: 0%; volatility:129%, risk free rate: 1.72%, expected term: 4.65 years.
  The Company determined the fair value of the reset provisions at December 31, 2010 was $810,929. The Company changed its method of valuation of such instrument on December 31, 2010 from the Black-Scholes Option Pricing model to the Binomial Model, as it was determined by management to provide a more reflective fair market value of the instrument. The fair value was determined using the Binomial Model based on the following assumptions: dividend yield: -0-%; volatility: 109%, risk free rate: 2.01%, expected term: 2.66years.
  F-20
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Revenue Recognition
  The Company’s revenue recognition policies are in compliance with FASB Accounting Standards Codification Topic on Revenue Recognition (“ASC 605” and SAB 104). Revenue is recognized at the date the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.
  Effective June 12, 2009, the Company had three types of revenue stream from its three 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.) .
 
 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.
 
 Hotel reservation services
  The Company receives commissions from travel suppliers for hotel room reservations through its transaction and service platform. The Company does not charge customers differently from the prices provided by hotel suppliers.  The Company has no discretion on the hotel room prices or the applicable commission rates as they are dictated by the hotel suppliers.  Commissions from hotel reservation services rendered are recognized after hotel customers have completed their stay at the applicable hotel and upon confirmation of pending payment of the commissions by the hotel. The Company presents revenues from such transactions on a net basis in the statements of income as the Company, generally, does not assume inventory risks and has no obligations for cancelled hotel reservations.
  Packaged-tour
  The Company receives fees from providing domestic and cross-border travel tour services.  The Company contracts with traffic service providers, accommodation providers and leisure service providers to purchase air tickets, train and coach tickets, accommodation and leisure or entertainment packages in bulk and then resell them to its customers with a mark-up.  Fees generated from packaged-tours are recognized on a gross basis in the statements of income, when the tour is completed, as the Company, generally, undertakes the majority of the business risk.  The Company is the primary obligor to pay the service providers upon rendering of those services.  In addition, the Company acts as principal related to the packaged-tour services rendered.  Generally, the Company does not issue refunds to its customers unless cancellation is due to its and or the service provider’s non-delivery of services. Historically, refunds and cancellations do not have a material impact on the Company’s consolidated financial statements in any accounting period.
  Historically, the Company has experienced minimum and or immaterial returns and or cancellation from its lines of businesses, which amount if any, would have no material impact on its consolidated financial statements.  Accordingly, no allowance has been provided for in the periods presented.
  F-21
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Cost of Services
  Costs of services for air tickets cover mainly commission paid to retail agencies, rent, salaried related to sales persons, and telecommunication expenses.  Costs of services for hotel reservations cover mainly commissions paid to the sales agents for selling hotel rooms in the Company’s system. Costs of services for the cargo agency business mainly included the costs of warehousing and delivery charges.  Costs of services for packaged tours include meals, transportation (airline tickets, train tickets and car rental), lodging, airport transfers, tickets to local attractions and tours. 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 year ended December 31, 2010 and 2009, such expenses amounted $6,156,222 and $2,393,958, respectively.
 
 Reward program and Gift Vouchers
 
 UTA establishes a reward program in air-ticketing and hotel reservations. For individual customers, they gain one point for each RMB they spend on air tickets or hotel reservations. Customers can redeem gifts or vouchers when they have accumulated certain level of points according to the program.
 
 For corporate customers, The Company rewards 0.5%-2% of the sales amount to them. This figure varies according to sales volumes and company strategies and is documented within the agreements with corporate customers. Those rewards are accounted for expenses.
 
 The Company doesn't allocate any portion of the revenue generating activities to the point earned and accrues for the cost of the point reward when the point in redeemed. The Company doesn't sell points separately and may discontinued this program or change the terms without any liabilities to the Company. Cost to date has been insignificant.
 
 In 2010, FOI sold Gift Vouchers to customers and recorded as customer advances. Customers can redeem them for package tours in FOI only. As of December 31, 2010, the balance of customer advances of Gift Vouchers was $28,427.
 
 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. Advertising costs amounted to $372,283 and $317,254 for the years ended December 31, 2010 and 2009, respectively.
  Income Taxes
  The Company is subject to income taxes in the U.S. and China. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,”we provide for the recognition of deferred tax assets if realization of such assets is more likely than not.
  F-22
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Income Taxes (Continued)
 
 Taxation on profits earned in China has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in China in which the Company operates after taking into effect the benefits from any special tax credits or “tax holidays” allowed in the country of operations.
 
 The Company accounts for income tax under the provisions of FASB ASC Topic 740,“Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not 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.
 
 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 definitive lived intangible assets consist primarily of map of hotels and scenic spots used for marketing purposes, CRM systems software, accounting software. These definitive lived intangible assets are being amortized over their useful lives. Expenditures of $51,359 and $296,264 were capitalized for the year ended December 31, 2010 and 2009, respectively, and will be amortized over a 5 year life. The Company recorded amortization expenses for definitive lived intangible assets of $93,338 and $264,359 for the year ended December 31, 2010 and 2009, respectively.
 
 In conjunction the acquisitions during the year ended December 31, 2010, the Company capitalized $3,236,376 of identifiable intangible assets, which are being amortized over 5 years. The identifiable intangible assets consist primarily of reputation of companies' name and customers database, The Company recorded amortization expenses for identifiable intangible assets of $422,755 for the year ended December 31, 2010.
 
 The Company will record approximately $738,010, $738,010, $725,679, $665,705, and $224,799 for all intangible assets over the next five years, respectively.
  Concentration of Credit Risk
  Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable, note receivables, 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.
  F-23
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Net Income (Loss) Per Share
 
 The Company accounts for net income (loss) per share EPS in accordance with FASB Accounting Standards Codification Topic on Earning Per Share (“ASC 260”), which requires presentation of basic and diluted EPS on the face of the statement of income for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.  Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period.  It excludes the dilutive effects of potentially issuable common shares such as those related to the Company’s warrants and stock options (calculated using the treasury stock method).  Diluted net income (loss) per share is calculated by including potentially dilutive share issuances in the denominator.
  The following table sets forth the computation of basic and diluted earnings per share of common stock:
 
 Year ended December 31,2010


2009Basic earnings per share from continuing operationsNumerator:Income from continuing operations used in computing basic earnings per share

$
22,039,394


$
11,337,521Income from continuing operations applicable to common shareholders

$
22,039,394


$
11,337,521Denominator:Weighted average common shares outstanding


18,493,832



14,121,542Basic earnings per share from continuing operations

$
1.19


$
0.80Diluted earnings per share from continuing operations:Numerator:Income from continuing operations used in computing basic earnings per share

$
22,039,394


$
11,337,521Income from continuing operations applicable to common shareholders

$
22,039,394


$
11,337,521Denominator:Weighted average common shares outstanding


18,493,832



14,121,542Weighted average effect of dilutive securities:Stock options and warrants


893,986



1,196,918Shares used in computing diluted net income  per share


19,387,818



15,318,460Diluted earnings per share from continuing operations

$
1.14


$
0.74
  F-24
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Net Income (Loss) Per Share (Continued)
 
 Year ended December 31,2010


2009Basic earnings (losses) from discontinuing operations per share:Numerator:Income (loss) from discontinuing operations  used in computing basic earnings per share

$
-


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

$
-


$
(592,620
)Denominator:Weighted average common shares outstanding


18,493,832



14,121,542Basic (loss) per share from discontinuing operations

$
-


$
(0.04
)Diluted earnings (losses) per share from discontinuing operations:Numerator:Income (loss) from discontinuing operations used in computing diluted earnings (losses) per share

$
-


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

$
-


$
(592,620
)Denominator:Weighted average common shares outstanding


18,493,832



14,121,542Weighted average effect of dilutive securities:Stock options and  warrants


893,986



1,196,918Shares used in computing diluted net income (loss) per share


19,387,818



15,318,460Diluted (loss) per share from discontinuing operations

$
-


$
(0.04
)Total net income per common shareBasic

$
1.19


$
0.76Diluted

$
1.14


$
0.70
 F-25
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Stock Based Compensation
  For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505,“Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical Company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. The Company changed its method of valuation of stock compensation on December 31, 2010 from the Black-Scholes Option Pricing model to the Binomial Model, as it was determined by management to provide a more reflective fair market value of the stock compensation. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Binomial model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statement of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
  Related parties
  Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.
  Recent Accounting Pronouncements
  In December 2010, the FASB issued ASU No. 2010-28—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.  This update provides amendments to Accounting Standards Codification (“ASC”) Topic 350—Intangibles, Goodwill and Other that requires an entity to perform Step 2 impairment test even if a reporting unit has zero or negative carrying amount.  Step 1 tests whether the carrying amount of a reporting unit exceeds its fair value. Previously reporting units with zero or negative carrying value passed Step 1 because the fair value was generally greater than zero. Step 2 requires impairment testing and impairment valuation be calculated in between annual tests if an event or circumstances indicate that it is more likely than not that goodwill has been impaired.  ASU No. 2010-28 is effective beginning January 1, 2011. As a result of this standard, goodwill impairments may be reported sooner than under current practice. We do not expect ASU No. 2010-28 to have a material impact on our consolidated financial statements.
 
 In July 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-20, Receivables – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses ("ASU No. 2010-20"). ASU No. 2010-20 will require a company to provide more information about the credit quality of its financing receivables in the disclosures to the financial statements, including aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on both how a company develops its allowance for credit losses and it manages its credit exposure. ASU No. 2010-20 is effective for interim and annual reporting periods after December 15, 2010. The adoption of ASU 2010-20 is not expected to have a material effect on our financial statements.
 
 In May, 2010, the FASB issued ASU 2010-19 ̧ "Foreign Currency" (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates (SEC Update). The purpose of this Update is to codify the SEC Staff Announcement made at the March 18, 2010 meeting of the FASB Emerging Issues Task Force (EITF) by the SEC Observer to the EITF. The Staff Announcement provides the SEC staff’s view on certain foreign currency issues related to investments in Venezuela. The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations, or cash flows of the Company.
  F-26
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Recent Accounting Pronouncements (Continued)
 In April 2010, the FASB issued Accounting Standards Update, 2010-17, Revenue Recognition—Milestone Method (Topic 605): “Milestone Method of Revenue Recognition—a consensus of the FASB Emerging Issues Task Force.”  This is an update regarding the milestone method of revenue recognition. The scope of this update is limited to arrangements that include milestones relating to research or development deliverables. The update specifies criteria that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The criteria apply to milestones in arrangements within the scope of this update regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The update will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. This update is not expected to have a material impact on the Company’s financial statements.
 
 In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades ,” which addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades.  Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition.  Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification.  The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings.  The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU No. 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations.
 
 In March, 2010, the FASB issued Accounting Standards Update, 2010-11, Derivatives and Hedging (Topic 815): “Scope Exception Related to Embedded Credit Derivatives.”  This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. This update also has transition provisions, which permit entities to make a special one-time election to apply the fair value option to any investment in a beneficial interest in securitized financial assets, regardless of whether such investments contain embedded derivative features. This update is effective on the first day of the first fiscal quarter beginning after June 15, 2010. The adoption of this update did not have a material impact on the Company’s financial statements
 
 In January 2010, the FASB issued Accounting Standards Update, 2010-06, Fair Value Measurements and Disclosures (Topic 820): “Improving Disclosures about Fair Value Measurements.”  This update provides guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as currently required. This update also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and, in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this update did not have a significant impact on the Company’s financial statements.
  F-27
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 In December 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-17, which requires a qualitative approach for determining the primary beneficiary of a variable interest entity and replaces the quantitative evaluation previously set forth under FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities.” This approach is focused on identifying the reporting entity that has the ability to direct the activities of a variable interest entity that most significantly affects the entity’s economic performance and has the obligation to absorb the entity’s losses or has the right to receive benefits from the entity. ASU No. 2009-17, among other things, requires enhanced disclosures about a reporting entity’s involvement in variable interest entities. The guidance under ASU No. 2009-17 became effective for the first annual period beginning after November 15, 2009, and interim periods within that first annual period. The Company adopted the pronouncement on January 1, 2010 resulting in no impact to the Company’s consolidated balance sheets, statements of income and cash flows.
 
 Note 3 –TRADE DEPOSITS AND ADVANCES
  Trade deposits represents amount held by Airlines and related agencies. As these deposits are required to be maintained on an annual basis and the terms of related agreements are one year with renewal options that are not guaranteed, management has included such deposits and advances as current assets.  As of  December 31, 2010 and 2009,  the Company had paid $8,173,426 and $9,775,735 as trade deposits respectively.
  The following summaries the Company’s deposits outstanding by each of its subsidiaries and the nature and purpose of each deposit as of December 31, 2010 and 2009:
  December 31,


December 31,2010


2009Shenzhen Yuzhilu Aviation Service Co., Ltd:Deposit for tripeasy kiosks. All 1,532 tripeasy kiosks have been sold to Shenzhen Xunbao E-commerce Co. on September 9, 2010 with a slight gain.

$
-


$
1,465,592Deposit for central ticket system. This was a credit based for obtaining air tickets from third party before any payments, and the full amounts are returnable.


3,932



-Deposit for government according to regulation.


34,786



-Deposit for airlines. This was a credit based for issuing air-tickets, and the full amount is returnable if the company discontinues air-ticket business.


680,601



2,811,004Deposit for Financial System Software


-



16,898Deposit for air-ports. This was a deposit for admittance to do marketing in air-ports, and is deductible against monthly rental obligation to air-ports


20,872



8,508Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.


3,380,322



1,100,158Subtotal


4,120,513



5,402,160Huangshan Holiday Travel Agency Co., Ltd.:Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide return from tour and provide supporting evidence.


907



-Subtotal


907



-Foshan Overseas International Travel Service Co. Ltd.:Deposit paid to tour companies.  This was a credit based for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies.


307,977



-Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.


161,832



969,261Advance payment to tour guides for expenses during leading the tour. This will be transferred to costs when the tour guide return from tour and provide supporting evidence.


-



243,342Subtotal


469,809



1,212,603Xian Golden Net Travel Serve Services, Ltd.:Deposit for Tour companies. This was a credit based for co-operate travel agencies, and is deductible against tour payments, the balance is returnable when cease doing business with these agencies


461,296



425,396Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.


136,120



-Deposit for transportations. This was a credit based for coo-operate transportation suppliers, and is deductible against transportation payments, the balance is returnable when cwase doing business with these agencies.


-



132,019Subtotal


597,416



557,415Chongqing Travel World E-Business Co., Ltd.Deposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.


2,984,781



2,587,279Subtotal


2,984,781



2,587,279Shenzhen Universal TravelDeposit for agencies. This was a credit based for the company to issue other ticket agencies' special fare air-ticket, and the full amount is returnable if the company discontinues its business with other agencies.


-



16,278Subtotal


-



16,278Total

$
8,173,426


$
9,775,735
 
 The Company cancelled a co-operation agreement with an unrelated company, to assist that company in their business development by participating in that business operation and providing working capital funding and the unrelated company returned all advances. As of December 31, 2010 and 2009 the Company has advanced this company $0 and $440,063, respectively, and such amount is included in advances in the accompanying Consolidated Balance Sheets.
  F-28
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Note 4 - COMPENSATED ABSENCES
 
 Regulation 45 of local PRC labor law entitles employees to annual vacation leave after 1 year of service. In general all leave must be utilized annually, with proper notification. Any unutilized leave is cancelled.
  Note 5 – SHORT-TERM INVESTMENT
 
 As of December 31, 2010, the Company has invested $19,681,308 into HappyFund of China Construction Bank with interest rate 1.89%, 2.1%, and 2.22%.
 
 Note 6 – NOTES RECEIVABLE
 
 As of December 31, 2010 and 2009, Notes receivable had balance of $2,314,259 and $1,711,392, respectively.
  As of December 31, 2010, amount of $2.3 million was due from Shenzhen Xunbao E-Commerce Co., Ltd. for purchasing 1,523 TRIPEASY Kiosks, which was paid in full in February 24, 2011.
  As of December 31, 2009, amount of $1.7 million was due from Shenzhen Speedy dragon - a discontinued operation. The amount has been paid in full.
  Note 7 - INCOME TAXES
 
 The components of income before income taxes from continuing operations consisted of the following:
 
 2010


2009US$


US$Income (loss) subject to domestic income taxes only


-



-Income (loss) subject to foreign income taxes only


30,491,438



17,316,46930,491,438



17,316,469
 
 The Company is subject to U.S. federal and state income taxes.  The Company’s subsidiaries incorporated in the PRC are subject to enterprise income taxes.  The provision for income taxes from continuing operations consisted of the following:
 2010


2009US$


US$Current:Federal


-



-State


-



-PRC


8,783,740



5,978,9488,783,740



5,978,948Deferred:Federal


-



-State


-



-PRC


(331,697
)


-Total provision for income taxes


8,452,043



5,978,948
  F-29
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Note 7 - INCOME TAXES (CONTINUED)
 
 The provision for income taxes is attributable to:
  2010


2009Continuing Operations


8,452,043



5,978,948Discontinued Operations


-



44,441Total provision for income taxes


8,452,043



6,023,389
  The following presents the aggregate dollar and per share effects of the Company’s tax holidays:
  The aggregate dollar effect of tax holiday
  2010


2009Aggregate dollar effect of tax holiday


(355,941
)


(473,502
)Per share effect—basic

$
0.02


$
0.03Per share effect—diluted

$
0.02


$
0.03
 
 The following is a reconciliation of the difference between the actual provision for income taxes and the provision computed by applying the federal statutory rate on income from continuing operations before income taxes:
  2010


2009Tax at federal statutory rate


7,622,859



4,329,117Permanent differences


968,010



1,649,831Loss not benefited


312,275



-Prior year true-ups


(133,948
)


-Others


30,804



-Tax holiday


(355,941
)


-Foreign tax rate differential


7,984



-8,452,043



5,978,948
  Deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes are comprised of the following:
  F-30
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Note 7 - INCOME TAXES (CONTINUED)
 
 2010


2009US$


US$DTA:PRC Deferred assets - others


226,008



-PRC Deferred assets - NOL


-



-Total Deferred assets


226,008



-DTL:Purchase accounting


(703,405
)


-Total Gross DTA (DTL)


(477,397
)


-Valuation allowance


-



-Net WW deferred assets(laities)


(477,397
)


-
  On March 16, 2007, the PRC National People’s Congress passed the PRC Enterprise Income Tax Law (“New EIT Law”) which became effective on January 1, 2008.  The New EIT Law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. The New EIT Law provides a five-year transition period from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday.  On December 26, 2007, the PRC State Council issued the Notice of the State Council Concerning Implementation of Transitional Rules for Enterprise Income Tax Incentives (“Circular 39”).  Based on Circular 39, certain specifically listed categories of enterprises which enjoyed a preferential tax rate are eligible for a graduated rate increase to 25% over the 5-year period beginning from January 1, 2008.
 
 Undistributed earnings of the Company’s PRC subsidiaries amounted to approximately $84 million as of December 31, 2010.  Those earnings are considered to be permanently reinvested and accordingly, no deferred tax expense is recorded for U.S. federal and state income tax or applicable withholding taxes.  The PRC tax authorities have clarified that dividend distributions made out of pre-January 1, 2008 retained earnings will not be subject to withholding taxes.
 
 A reconciliation of the January 1, 2009  through December 31, 2010 amount of unrecognized tax benefits excluding interest and penalties ("Gross UTB") is as follows:
  F-31
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
  Note 7 - INCOME TAXES (CONTINUED)
 
 Gross UTBBeginning balance at January 1, 2009

$
-Increase in unrecorded tax benefits taken in current year


-Ending balance at December 31, 2009

$
-Increase (Decrease) in unrecorded tax benefits taken in current year

$
30,804Ending balance at December 31, 2010

$
30,804
 
 The Company and its subsidiaries are subject to taxation in the U.S. and the PRC. Our U.S. federal and state income tax returns are generally not subject to examination by the tax authorities for tax years before 2006. With a few exceptions, the tax years 2006-2010 remain open to examination by tax authorities in the PRC.
 
 For U.S. federal income tax purposes, the Company has net operating loss, or NOL carry forwards of approximately $2.3 million and $2.3 million, at December 31, 2010 and 2009, respectively. The 2010 net operating loss carry forwards will expire after 20 years beginning 2027 and the 2009 net operating loss carry forwards will expire after 20 years beginning 2027, if not utilized.  The company also has approximately $0 and $78K of net operating loss carry forwards for PRC enterprise income tax purposes, at December 31, 2010 and 2009, respectively.
 
 Note 8 – COMMITMENTS
  The Company leases various office facilities from one year to six years periods under monthly payments. Rental expense for leases consisted of $934,774 and $634,792, for year ended December 31, 2010 and 2009, respectively. The Company has future minimum lease obligations as of December 31, 2010 as follows:
 
 2011

$
489,5372012


378,6362013


258,4992014


117,3002015


4,537There after


13,612Total

$
1,262,121
 
 Note 9 – COMMON AND PREFERRED STOCK
  During the first two quarters of 2010, the Company issued 326,635 shares its common stock valued at $2,833,818 for five acquisitions of 100% of interest in Kunming Business Travel Agency Co., Ltd.  ("KBT"), Shanxi Jinyang Travel Agency Co., Ltd. ("SJT"), Zhengzhou Yulongkang Travel agency Co. Ltd ("ZYT"), Huangshan Holiday Travel Service Co., Ltd ("HHT"), and Hebei Tianyuan Travel Agency Co., Ltd ("HTT"). (See Note 2 )
  F-32
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 9 – COMMON AND PREFERRED STOCK (CONTINUED)
 
 On June 21, 2010, the Company closed an underwriting agreement with Brean Murrary, Carret & Co., LLC and Rodman & Renshaw LLC as representative of the underwriters, related to a public offering of 2,857,143 shares of the common stock, par value $0.001 (the “shares”) for a purchase price of $7.00 per share and an aggregate purchase consideration of $20,000,001. In connection with the subscription the company paid 5% underwriting commission, fees and other costs pertaining to the agreement totaling $1,231,947. Net proceeds of the transaction were $18,768,054. 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.
 
 On August 28, 2008, 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 Note 2 and 10)
  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.
 
 We may issue up to 5,000,000 shares of our preferred stock, par value $0.001 per share, from time to time in one or more series, including up to 2,000,000 shares of Series A preferred stock, 2,000,000 shares of Series B preferred stock, and 1,000,000 shares of Series C preferred stock. As of the date of this annual  report, no shares of our preferred stock were outstanding.
 
 Under our amended and restated articles of incorporation, we may issue up to (i) 2,000,000 shares of Series A preferred stock, which shall have voting rights and shall carry a voting weight equal to ten shares of common stock, and each share of which may be converted into 10 shares of common stock, (ii) 2,000,000 sharers of Series B preferred stock, which shall have voting rights and shall carry a voting weight equal to 2 shares of common stock, and each shares of which may to converted into 2 shares of common stock, and (iii) 1,000,000 shares of Series C preferred stock. Subject to the foregoing, our amended and restated articles of incorporation authorizes our Board of Directors to issue preferred stock from time to time with such designations, preferences, conversion or other rights, voting powers, restrictions, dividends or limitations as to dividends or other distributions, qualifications or terms or conditions of redemption as shall be determined by the Board of Directors for each class or series of stock subject to the provisions of our amended and restated articles of incorporation. Preferred stock is available for possible future financings or acquisitions and for general corporate purposes without further authorization of stockholders unless such authorization is required by applicable law, the rules of the New York Stock  Exchange or other securities exchange or market on which our stock is then listed or admitted to trading.
 
 Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, under some circumstances, have the effect of delaying, deferring or preventing a change in control of Universal Travel Group.
  F-33
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 10 – STOCK WARRANTS, OPTIONS, AND COMPENSATION
 
 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 which 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. On January 20, 2009, the Company granted options to purchase 2,200,000 shares of common stock. The options are exercisable until January 19, 2019, with a vesting period of six years. However, in  the event, the Company reports an after tax Net Income of $14,000,000, $18,000,000, and $22,000,000 in its Annual Report on Form 10-K filed with the SEC for its fiscal year 2008, 2009, and 2010, respectively,  then options to purchase one-third of the shares that Annual Report for each year. 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. As we had met the acceleration provision in 2008 and 2009, in prior years 1,466,666 options were vested, and 733,334 options vested in 2010 as we have meet the acceleration provision in 2010. At December 31, 2010 1,466,666 options from the Plan were outstanding. Average purchase price for the options is $3.74 per share. The options were valued using the Black-Scholes option-pricing model on the date of grant. The Company changed its method of valuation of the options on December 31, 2010 from the Black-Scholes Option Pricing model to the Binomial Model, as it was determined by management to provide a more reflective fair market value of the options. However, there was not any difference between the two methods. The total fair market value at grant date is $5,479,222 based on the following assumptions:  dividend yield: 0%; volatility:127.94%, risk free rate: 2.35%, expected term: 10 years. At the December 31, 2010, options to purchase 1,466,666 shares of common stock are outstanding.
 
 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. 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 date of grant. The Company changed its method of valuation of options on December 31, 2010 from the Black-Scholes Option Pricing model to the Binomial Model, as it was determined by management to provide a more reflective fair market value of the options. However, there was not any difference between the two methods. The total fair market value at grant date is $84,153 based on the following assumptions:  dividend yield: 0%; volatility:121.62%, risk free rate: 3.38%, expected term: 10 years. All options remain outstanding at December 31, 2010.
 
 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 date of grant. The Company changed its method of valuation of options on December 31, 2010 from the Black-Scholes Option Pricing model to the Binomial Model, as it was determined by management to provide a more reflective fair market value of the options. However, there was not any difference between the two methods. The total fair market value at grant date is $883,605 based on the following assumptions:  dividend yield: 0%; volatility:121.62%, risk free rate: 3.38%, expected term: 10 years. On August 17, 2010, upon resignation, Board member has forfeited options to purchase 70,000 shares common stock. As of December 31, 2010, options to purchase 35,000 shares of common stock are outstanding pursuant to this grant.
 
 On December 3, 2010, pursuant to the Securities Purchase agreement entered into on October 15, the Company enacted the Universal Travel Group 2010 Incentive Stock Option Plan which entitles the grant of up to 1,000,000 shares of common stock of Universal Travel Group, par value $0.001 to certain employees of the Company either as stock or stock options.  On December 3, 2010, the Company granted options to purchase 1,000,000 shares of common stock. The options are exercisable until December 2, 2020, with a vesting period of two years. Average purchase price for the options is $6.09 per share. The options were valued using the Binomial model on the date of grant.  The total fair market value at grant date is $5,777,756 based on the following assumptions:  dividend yield: 0%; volatility:110.11%, risk free rate: 2.95%, expected term: 10 years. All options remain outstanding at December 31, 2010.
  F-34
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 10 – STOCK WARRANTS, OPTIONS, AND COMPENSATION (CONTINUED)
 
 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. For the year ended December 31, 2010, the forfeiture rate is 3.38%.
 
 Total


Exercise

Price


Remaining Life


Aggregate

Intrinsic

ValueOutstanding, December 31, 2008


55,555



4.56-11.25


7.69-8.75 yrsGranted in 2009


2,200,000



2.70-3.84


9.31 yrs



-Granted in 2009


115,000



8.82


9.92 yrs



-Cash exercise in 2009


(3,300
)


-


-



-Cashless exercise in 2009


(763,367
)


-


-



-Outstanding, December 31, 2009


1,603,888


$
2.70 - 11.25


7.42 -8.67 yrs



-Forfeited in 2010


(70,000
)


-


-



-Granted in 2010


1,000,000


$
6.06 - 6.67


9.92 yrs



-Outstanding, December 31, 2010


2,533,888Exercisable


1,533,888
 
 Based upon this calculation and pursuant to ASC 718, the Company recorded a service period expense of $4,901,222 and $1,154,409 for year ended December 31, 2010 and 2009, respectively. The remaining stock based compensation to be recognized is $5,777,756 and it will be recognized in the next five years.
 
 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 then fair market value and marked to market (see Note 2 Derivative Liability).  On August 20, 2009 322,580 warrants valued at $3,598,571 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. As of December 31, 2010 and 2009, warrants to purchase 227,151 shares of common stock were outstanding. (See Note 2)
  F-35
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 11 - OTHER COMPREHENSIVE INCOME
 
 Balances of related after-tax components comprising accumulated other comprehensive income, included in stockholders equity, as of December 31, 2010 and 2009 are as follows:
 
 Foreign Currency

Translation

Adjustment


Accumulated Other

Comprehensive

IncomeBalance December 31, 2008

$
1,520,166


$
1,520,166Changes for year ended December 31, 2009


124,967



124,967Balance December 31, 2009


1,645,133



1,645,133Changes for year ended December 31, 2010


1,780,893



1,780,893Balance at December 31, 2010

$
3,426,026


$
3,426,026
 
 Note 12 - 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 13 – MAJOR CUSTOMERS AND CREDIT RISK
  The Company derives a portion of its income from various Airlines and agencies. Most revenue is cleared through International Air Transport Association (IATA), a centralized reporting platform for air ticketing.
  Note 14 -   SEGMENT INFORMATION
  Pursuant to ASC 280 we disclose segments on a single entity basis, which in our case is the legal entity. The Company operates as three reportable segments. Substantially all of the Company’s revenues and long-lived assets are in Peoples Republic of China.
  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 eleven 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., Shenzhen Universal Travel Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd.).
 
 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., Xian Golden Net Travel Serve Service Company Ltd., Shenzhen Universal Travel Agency Co., Ltd., Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd.. Management monitors these segments regularly to make decisions about resources to be allocated to the segment and assess its performance.
  F-36
  UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 14 -SEGMENT INFORMATION (CONTINUED)
 
 The following tables present summarized information by segment:
 
 Air


Hotel


Packaged


Other


TotalTicketing


Reservation


ToursYear Ended December 31, 2010Revenue, net

$
24,189,452


$
14,303,080


$
114,826,414


$
-


$
153,318,946Cost of services

$
8,838,496


$
4,659,667


$
98,724,258


$
-


$
112,222,421Gross profit

$
15,350,956


$
9,643,413


$
16,102,156


$
-


$
41,096,525Income from operations

$
11,961,321


$
9,442,864


$
14,124,449


$
(6,156,506
)

$
29,372,128Income tax expenses

$
2,447,721


$
2,218,511


$
2,551,213


$
(300,892
)


6,916,553Depreciation & Amortization

$
1,471,608


$
2,991


$
82,885


$
-


$
1,557,483Asset expenditures

$
6,063,370


$
49,674


$
299,837


$
-


$
6,412,882Goodwill

$
-


$
3,081,799


$
21,427,110


$
-


$
24,508,909Total assets

$
96,171,631


$
4,589,662


$
33,610,825


$
5,690,544


$
140,062,662Year Ended December 31, 2009Revenue, net

$
16,634,872


$
12,340,395


$
66,827,207


$
-


$
95,802,474Cost of services

$
4,561,236


$
3,638,908


$
58,432,674


$
-


$
66,632,818Gross profit

$
12,073,636


$
8,701,487


$
8,394,533


$
-


$
29,169,656Income from operations

$
10,353,002


$
8,435,273


$
7,772,637


$
(2,393,959
)

$
24,166,953Income tax expenses

$
1,799,111


$
2,143,310


$
2,113,298


$



$
6,055,719Depreciation & Amortization

$
793,981


$
4,156


$
15,135


$
-


$
813,272Asset expenditures

$
5,384,851


$
-


$
1,101


$
-


$
5,385,952Goodwill

$
-


$
3,081,799


$
6,814,471


$
-


$
9,896,270Total assets

$
59,244,855


$
4,796,028


$
17,821,561


$
3,844,084


$
85,706,528
 
 Note 15 -   SUBSEQUENT EVENTS
  On March 4, 2010, the company announced that it has entered into letters of intent to acquire Tianjin Hongxun Aviation Agency Co., Ltd. (“Tianjin Hongxun”) and Shandong Century Aviation Development Co., Ltd. (“Shandong Century”). As of December 31, 2010, the intentions to acquire the two travel agency businesses in China were expired.
 
 According to the Company's incentive stock option agreement on January 20, 2009, after its Annual Report, which has an after tax Net Income of $22,000,000, on Form 10-K filed with the SEC for its fiscal year 2010, then options to purchase 2,200,000 shares of Common Stock in the aggregate under the Plan shall vest and become immediately exercisable and each grantee of such options shall be entitled to exercise his/her options ratably.
 
 On April 12, 2011, UTA stock has suspended for trading when UTA was unable to file its Annual Report on Form 10-K by April 15, 2011 as a result of Windes & McClaughry Accountancy Corporation resignation on April 9, 2011.
  F-37
 
 UNIVERSAL TRAVEL GROUP
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2010
 
 Note 15 -   SUBSEQUENT EVENTS (CONTINUED)
 
 On May 20, 2011, the plaintiff Alex Lob commenced this derivative action in the First Judicial District Court of the State of Nevada in and for Carson City against Universal travel Group (the “Company”), and Jiangping Jiang, Jing Xie, Huijie Gao, Jiduan Yuan, Lizong Wang, Wenbin An, Lawrence Lee, Yizhao Zhang and Liquan Wang, officers and directors of teh Company. In the complaint, plaintiff purports to assert derivative claims against the individual defendants for alleged breaches of fiduciary duties, waste of corporate assets and unjust enrichment based upon alleged conduct of the individual defedants which damaged the Company’s reputation, goodwill and standing in the business community. The complaint also alleges that such conduct may result in liability for violations of federal law. The complaint seeks, among other relief, the amount of damages sustained by the Company as a result of the Defendants’ breach of fiduciary duties, waste of corporate assets and unjust enrichment and plaintiff’s counsel’s, accountant’s and experts’ fees. The Company’s time to answer or move with respect to the complaint has not yet expired. The Company believes that teh complaint has no merit and intends to vigorously defend the lawsuit.
  As of December 31, 2010, the Company has evaluated subsequent events for potential recognition and disclosure through the date of the financial statement issuance.
  F-38




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




As previously reported on our current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on September 1, 2010 (the “Report”), on September 1, 2010, we dismissed our old independent registered public accounting firm, Acqavella, Chiarelli, Shuster, Berkower & Co., LLP (“ACSB”), and on the same day, appointed Goldman Kurland Mohidin (“GKM”) as our new independent registered public accounting firm.




The reports of ACSB on our financial statements for each of the past two fiscal years contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. The decision to continue with GKM as our independent accountants was approved by the Audit Committee of our Board of Directors on September 1, 2010.





During our two most recent fiscal years and through the date of the Report, we have had no disagreements with ACSB on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of ACSB, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.





During our two most recent fiscal years and through the date of the Report, there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.





We provided ACSB with a copy of the Report before its filing with the SEC. We requested that ACSB provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from ACSB stating that it agrees with the above statements.  A copy of this letter was filed as an exhibit to the Report.





Our Audit Committee of our Board of Directors approved the appointment of Goldman Kurland Mohidin as our new independent registered public accounting firm effective as of September 1, 2010. During our two most recent fiscal years and through the date of our engagement, we did not consult with GKM regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)).





Prior to engaging GKM, GKM did not provide our Company with either written or oral advice that was an important factor considered by our Company in reaching a decision to continue the appointment of GKM as our new independent registered public accounting firm.


43


On September 29, 2010, we received a letter dated September 28, 2010 from GKM, informing us that they had resigned as our independent registered public accounting firm effective with the commencement of business on September 27, 2010.  No reason was given as to the cause for their resignation.





GKM was only recently appointed as our independent registered public accounting firm on September 1, 2010, and had not yet commenced providing any accounting services to us.  Accordingly, GKM had not provided any opinions, qualification or modification to our financial statements for each of the past two fiscal years nor do we have any disagreements with GKM on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of GKM, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.





During our two most recent fiscal years and through the date of the Report, there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.





We provided GKM with a copy of this disclosure before its filing with the SEC. We requested that GKM provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from GKM stating that it agrees with the above statements.  A copy of this letter is filed as an exhibit to our Current Report on Form 8-K dated October 5, 2011.





Our Audit Committee of our Board of Directors approved the appointment of Windes & McClaughry Accountancy Corporation ("Windes") as our new independent registered public accounting firm effective as of September 30, 2010 and Windes has agreed to act as our new independent registered public accounting firm. During our two most recent fiscal years and through the date of our engagement, we did not consult with Windes regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)).





Prior to engaging Windes, Windes did not provide our Company with either written or oral advice that was an important factor considered by our Company in reaching a decision to continue the appointment of Windes as our new independent registered public accounting firm.




On April 10, 2011, the Company received notification that its principal independent accountants, Windes had resigned its engagement with the Company effective April 9, 2011. Windes’ resignation as the Company’s principal independent accountant was accepted by the Audit Committee on April 11, 2011.
 
 The following reportable disagreements occurred within the period from Windes’ engagement through the date of its resignation, which if not resolved to the satisfaction of Windes, would have caused it to make a reference to the subject matter of the disagreements in connection with its report.
 
 Windes had informed the Company in its resignation letter that it was no longer able to complete the audit process. Windes stated this was due in part to Management and/or the Audit Committee being non-responsive, unwilling or reluctant to proceed in good faith and imposing scope limitations on Windes’ audit procedures.
 
 Windes also stated that Windes had lost confidence in the Board of Directors’ and the Audit Committee’s commitment to sound corporate governance and reliable financial reporting.
 
 Prior to its resignation, Windes raised the following issues (some of which may be considered to be disagreements) encountered during the audit, including issues related to the authenticity of confirmations, a loss of confidence in confirmation procedures carried out under circumstances which Windes believed to be suspicious; issues concerning the lack of evidence of certain tour package contracts and related cash payments.
 
 As a result, Windes had requested authority to perform additional audit procedures and the above issues to be addressed by an independent Audit Committee investigation. Windes stated in its resignation letter that, in its view, the Company was not willing to proceed in good faith with the course of action requested by Windes.  Windes also stated in its resignation letter that in its opinion, Windes believed that certain statements made by Management and the Audit Committee, between March 29, 2011 and its resignation letter, impaired its independence as it related to the Company.
 
 We disagree with Windes’ reasons for resignation, in particular Management and/or the Audit Committee’s purported unwillingness or reluctance and/or non-responsiveness to proceed in good faith and imposition of scope limitations on Windes’ audit procedures, the Company’s purported unwillingness to proceed in good faith with courses of action requested by Windes and Management and the Audit Committee’s purported impairment of Windes’ independence in relation to the Company a result of certain statement made by them.
 
 We believe that we have acted responsively, prudently and in good faith to address the numerous issues raised by Windes during the entire audit process. Windes disagrees. Management, the Audit Committee and Windes attempted to resolve these disagreements to no avail.
 
 The Company has authorized Windes to respond fully to the inquiries of its successor accountant regarding the subject matter of each of such disagreements.
 
 Windes has not provided any opinions, qualification or modification to our financial statements for each of the past two fiscal years. The Company does not have, as otherwise disclosed above, any other disagreements or reportable events as described under Item 304(a)(1) of Regulations S-K.
 
 We provided Windes with a copy of this disclosure before its filing with the SEC. We requested that Windes provide us with a letter addressed to the SEC stating whether or not it agrees with the above statements, and we received a letter from Windes stating that it agrees with the above statements.  A copy of this letter is filed as an exhibit to this report.
 
 New Independent Accountants
 
 Our Audit Committee of our Board of Directors approved the appointment of EFP Rotenberg & Co., LLP (“Rotenberg”) as our new independent registered public accounting firm effective as of April 12, 2011 and Rotenberg has agreed, subject to the Company clearing their client acceptance procedures, to act as our new independent registered public accounting firm. During our two most recent fiscal years and through the date of our engagement, we did not consult with Rotenberg regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)).
 
 Prior to engaging Rotenberg, Rotenberg did not provide our Company with either written or oral advice that was an important factor considered by our Company in reaching a decision to continue the appointment of Rotenberg as our new independent registered public accounting firm.




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.








44





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.





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, 2010. 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 Jing Xie, the Company’s chief financial officer. Based on its assessment, the Company’s management believes that, as of December 31, 2010, the Company’s internal control over financial reporting contains material weaknesses because of: (1) an inconsistency between the acquisition dates of our five new subsidiaries per the Company's 8-K filings and the reported periods of profit and loss statements included in the consolidated financial statements of the Company; and (2) a deficient assessment of accelerated performance conditions related to the Company's 2009 Incentive Stock Plan. Management has since resolved to obtain additional training in U.S. GAAP guidance in acquisitions and our Incentive Stock Plan to remediate our material weakness.





This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. The management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permanently exempt smaller reporting companies.





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 year 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.


45


PART III




Item 10. Directors, Executive Officers and Corporate Governance.




The following are our officers and directors. All our officers and directors,  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

49Jing Xie

Chief Financial Officer, Secretary and a director

29Huijie Gao

Vice President of Corporate Finance and a director

30Jiduan Yuan

Director

66Lizong Wang

Director

46Lawrence Lee

Director

46Wenbin An

Director

71




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




Jiangping Jiang, 49, 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.





Jing Xie, 29, has been serving as our director and Secretary since December 29, 2006.  Mr. Xie served briefly as our Chief Financial Officer from February 13, 2009 to August 17, 2009. 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.  When our ex-Chief Financial Officer, Yizhao Zhang resigned on August 16, 2010, we appointed Mr. Xie as our interim Chief Financial Officer with effect from August 17, 2010.





Huijie Gao, 30, 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, 66, 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.


46


Lizong Wang, 46,  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.





Lawrence Lee, 46, 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 a 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.





Wenbin An, 71, served as a diplomat for the PRC before retiring in 2002. He was deputy consul general in the PRC Consulate in Los Angeles from 1987 to 1994. In 1995, after returning to Beijing, Mr. An served as the Ministry of Foreign Affairs’ Chief Protocol for several years. During this time, Mr. An organized many high-profile events, including the Fourth World Conference on Women in Beijing in 2005, and the celebration of the handover of Hong Kong in 1997. Mr. An has accompanied PRC leaders on visits to more than thirty foreign countries. Mr. An graduated from Zhongshan University in Guangzhou where he majored in English language. Since retirement, Mr. An has served as a business consultant to several PRC companies




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:





·
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.


47


·
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 Lizong 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 Wenbin An with Jiduan Yuan 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, 2010.





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.





Nominating Committee





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


48





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 Wenbin An and Wenbin An 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 2010:





Board of Directors
10Audit Committee
12Compensation Committee
3Nominating Committee
2





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 2010.





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;





•
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;


49


•
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, 2010, 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 Wenbin An was late in filing a Form 3,  and Lawrence Lee was late in filing a Form 4.





Conflicts of Interest





Certain potential conflicts of interest are inherent in the relationships between our officers and directors and us.





From time to time, one or more of our affiliates may form or hold an ownership interest in and/or manage other businesses both related and unrelated to the type of business that we own and operate.  These persons expect to continue to form, hold an ownership interest in and/or manage additional other businesses which may compete with our business with respect to operations, including financing and marketing, management time and services and potential customers. These activities may give rise to conflicts between or among the interests of us and other businesses with which our affiliates are associated.  Our affiliates are in no way prohibited from undertaking such activities, and neither us nor our shareholders will have any right to require participation in such other activities.





Further, because we intend to transact business with some of our officers, directors and affiliates, as well as with firms in which some of our officers, directors or affiliates have a material interest, potential conflicts may arise between the respective interests of us and these related persons or entities.  We believe that such transactions will be effected on terms at least as favorable to us as those available from unrelated third parties.





With respect to transactions involving real or apparent conflicts of interest, we have adopted policies and procedures which require that: (i) the fact of the relationship or interest giving rise to the potential conflict be disclosed or known to the directors who authorize or approve the transaction prior to such authorization or approval, (ii) the transaction be approved by a majority of our disinterested outside directors, and (iii) the transaction be fair and reasonable to us at the time it is authorized or approved by our directors.





Our policies and procedures regarding transactions involving potential conflicts of interest are not in writing.  We understand that it will be difficult to enforce our policies and procedures and will rely and trust our officers and directors to follow our policies and procedures.  We will implement our policies and procedures by requiring the officer or director who is not in compliance with our policies and procedures to remove himself and the other officers and directors will decide how to implement the policies and procedures, accordingly.


50


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, 2010 and 2009 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

2010

$
29,849



-



—


$
840,253



—



—



—


$
870,102Chief Executive Officer

2009

$
9,230


$
1,411



—


$
796,048



—



—



—


$
806,689(principal executive officer)Huijie Gao

2010

$
18,180



-



—


$
10,828



—



—



—


$
29,008Vice President of Corporate Finance (1)

2009

$
5,384


$
461



—


$
1,321



—



—



—


$
7,166Jing Xie

2010

$
29,750



-



—


$
19,440



—



—



—


$
49,190Secretary and a director (principal financial officer) (1)(2)

2009

$
11,034


$
849



—


$
3,961



—



—



—


$
15,844Yizhao Zhang

2010

$
41,290



-






$
231,247














$
272,537Chief Financial Officer (principal financial officer)(2)

2009

$
56,000



-






$
172,201














$
228,201





(1)
Mr. Jing Xie assumed the position of Chief Financial Officer with effect from August 17, 2010 after our former Chief Financial Officer, Yizhao Zhang resigned on August 16, 2010.


(2)
On August 16, 2010, Yizhao Zhang resigned as our Chief Financial Officer.





Outstanding Equity Awards at 2010 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. There are currently 1,466,666 equity awards outstanding under the Universal Travel Group 2009 Incentive Stock Plan.


51


In December 2010, we adopted the Universal Travel Group 2010 Incentive Stock Plan. On December 2, 2010, we issued options to purchase 50,000 shares of common stock to our Chief Executive Officer, Ms. Jiangping Jiang at an exercise price of $6.67.  We also issued options to purchase an additional 950,000 shares of common stock on the same date to various employees and directors at an exercise price of $6.06.  The term of each option is for 10 years.  The options vest in two equal installments, the first being on the date of grant and the second on the first anniversary of grant.





There are presently 1,000,000 equity awards outstanding under the Universal Travel Group 2010 Incentive Stock Plan as of December 31, 2010.





Employment Agreements





Our 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.





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 December 2, 2010, Mr. Wenbin An was granted an option to purchase 10,000 shares of our common stock, Mr. Huijie Gao was granted an option to purchase 30,000 shares of our common stock, Mr. Lawrence Lee was granted an option to purchase 50,000 shares of our common stock under the Universal Travel Group 2010 Incentive Stock Plan.  The options have an exercise price of $6.06 per share during the term of the optionee’s directorship and vest in two (2) equal annual installments, the first installment to be exercisable on the date of the grant, with the remaining installment becoming exercisable on the first anniversary following the date of grant. The options have a term of 10 years and may be exercised on a cashless basis.


52


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. 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, 2010:




Name
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

($)
Total ($)Jiduan Yuan
2010
-
-
--
$13,929
--
--
--
$13,929Lizong Wang
2010
-
-
--
$13,929
--
--
--
$13,929Lawrence Lee
2010
$24,000
-
--
$95,236
--
--
--
$119,236Wenbin An
2010
$4,000
-
-
$2,217
-
-
-
$6,217








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  June 7, 2011.





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

George Valente

44456 N. El Macero

Davis, CA  95618-1063


2,124,400
(2)


10.68
%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


5,856,580
(3)


27.55
%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


83,665
(5)


*Common Stock

Huijie Gao



5th Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road, Nanshan District, Shenzhen, People’s Republic of China 518000


24,408
(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


31,359
(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


31,359
(8)


*Common Stock

Wenbin An



5th Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road, Nanshan District, Shenzhen, People’s Republic of China 518000


5,000
(9)


*Common Stock

Lawrence Lee

9784 Athletic Way

Gaithersburg, MD20878


35,000
(10)


*Officers and Directors as a group


6,067,371



30.49
%


*Represents less than 1%


53


(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 June 7, 2011, (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 June 7, 2011 (19,898,235), 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) According to a Schedule 13G/A filed with the SEC on January 19, 2011 by George Valente, George Valente beneficially owns 2,124,400  shares of the Company’s common stock, with sole power to dispose or to direct the disposition of 2,124,400 shares of the Company’s common stock and sole power to vote or to direct the vote of 2,124,400 shares of the Company’s common stock.





(3) The shares reflected as beneficially owned by Jiangping Jiang represents (i) 4,000,000 shares of common stock held by Jiangping Jiang (ii) 498,246 shares of common stock acquired upon her cashless exercise of certain options and (iii) 1,358,334 shares of common stock held by Jiangping Jiang issuable upon the exercise of options that are currently exerciseable or exerciseable within 60 days. Jiangping Jiang was issued an option to purchase 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 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.  On December 2, 2010,Jiangping Jiang was issued an option to purchase 50,000 shares of common stock at an exercise price of $6.67 pursuant to the Company's 2010 Incentive Stock Plan and the Incentive Stock Option Agreement dated as of December 2, 2010. The option shall vest in two (2) equal annual installments of 25,000 shares each, the first installment to be exercisable on the date of grant, with the remaining installment becoming exercisable on the first anniversary following the date of grant. The option may be exercised on a cashless basis.


54


(5) Jing Xie was issued an option to purchase 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 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 December 2, 2010,Jing Xie was issued an option to purchase 50,000 shares of common stock at an exercise price of $6.06 pursuant to the Company's 2010 Incentive Stock Plan and the Incentive Stock Option Agreement dated as of December 2, 2010. The option shall vest in two (2) equal annual installments of 25,000 shares each, the first installment to be exercisable on the date of grant, with the remaining installment becoming exercisable on the first anniversary following the date of grant. The option may be exercised on a cashless basis. This figure represents(i) 38,334 shares of common stock held by Jing Xie upon the exercise of options that are currently exercisable or exercisable within 60 days, (ii) on October 15, 2009, Jing Xie received 5,482 shares of common stock upon the cashless exercise of his option to purchase 6,666 shares of common stock and (iii) on December 8, 2010, he acquired 39,850 shares of our common stock.





(6) Huijie Gao was issued an option to purchase 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 Huijie 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 December 2, 2010, Huijie Gao was issued an option to purchase 30,000 shares of common stock at an exercise price of $6.06 pursuant to the Company's 2010 Incentive Stock Plan and the Incentive Stock Option Agreement dated as of December 2, 2010. The option shall vest in two (2) equal annual installments of 15,000 shares each, the first installment to be exercisable on the date of grant, with the remaining installment becoming exercisable on the first anniversary following the date of grant.This figure represents (i) 21,667 shares of common stock held by Huijie Gao upon the exercise of options that are currently exercisable or exercisable within 60 days, and (ii) on October 15, 2009, Huijie Gao received 2,741 shares of common stock upon the cashless exercise of his option to purchase 3,333 shares of common stock.





(7) Jiduan Yuan was issued an option to purchase 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 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. This figure represents (i) 22,222 shares of common stock held by Jiduan Yuan upon the exercise of options that are currently exercisable or exercisable within 60 days, and (ii) 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.


55


(8) Lizong Wang was issued an option to purchase 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 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. This figure represents (i) 22,222 shares of common stock held by Lizong Wang upon the exercise of options that are currently exercisable or exercisable within 60 days, and (ii) 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) On October 11, 2010, Wenbin An was appointed our director. In connection with the appointment, as part of compensation for services, he shall receive certain options to purchase common stock of the Company. Pursuant to the 2010 Incentive Stock Plan and the Nonstatutory Stock Option Agreement dated as of December 2, 2010, he was granted an option to purchase 10,000 shares of the Company's common stock at a price of $6.06 per share. The option shall become exercisable during the term of his directorship in two (2) equal annual installments of 5,000 shares each, the first installment to be exercisable on the date of grant, with the remaining installment becoming exercisable on the first anniversary following such grant. The option may be exercised on a cashless basis.




(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. On December 2, 2010, Mr. Lee was issued an option to purchase 50,000 shares of common stock at an exercise price of $6.06 pursuant to the Company's 2010 Incentive Stock Plan and the Incentive Stock Option Agreement dated as of December 2, 2010. The option shall vest in two (2) equal annual installments of 25,000 shares each, the first installment to be exercisable on the date of grant, with the remaining installment becoming exercisable on the first anniversary following the date of grant. This figure represents 35,000 shares of common stock held by Lawrence Lee upon the exercise of options that are currently exercisable or exercisable within 60 days.





(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 2010 or proposed transaction which may materially affect the Company.





Director Independence





Our directors Wenbin An, 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.


56


On September 1, 2010, we dismissed ACSB and appointed Goldman Kurland Mohidin (“GKM”) as our new independent registered public accounting firm.





On September 29, 2010, we received a letter dated September 28, 2010 from GKM, informing us that they had resigned as our independent registered public accounting firm effective with the commencement of business on September 27, 2010.  Because GKM was only appointed as our independent registered public accounting firm on September 1, 2010, and had not yet commenced providing any accounting services to us, we did not pay GKM any fees.  On the same date, we appointed Windes & McClaughry Accountancy Corporation ("Windes") as our new independent registered public accounting firm effective as of September 30, 2010. Windes resigned as our independent registered public accounting firm on April 9, 2011 and on April 14, 2011, we appointed EFP Rotenberg & Co, LLP  (EFPR) to replace it 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 Windes 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 2009 and 2010, the aggregate fees which we paid to or were billed by Morgenstern, ACSB, Windes and EFPR (“TPC”) for professional services were as follows:





Fiscal year ended December 31,2009


2009


2010


2010


2010Morgenstern


ACSB


ACSB


Windes


EFPRAudit fees

$
0


$
120,000






$
240,000


$
350,000Audit-related fees

$
56,000


$
28,000


$
68,000Tax fees

$
0


$
7,000


$
3,500All other fees





$
0


$
140,000






$
37,500




57




PART IV





Item 15. Exhibits, Financial Statement Schedules.




Exhibit

Footnote

Exhibit No.

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(19)

4.2

Universal Travel Group 2010 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, 2009.10.8

Form of Franchise Agreement(14)

10.9

Acquisition Agreement dated June 28, 2010 between Kunming Business Travel Agency Co., Ltd., Liao Wei, Liao Qing, Wu Ling, Liu Hong and Shenzhen Universal Travel Agency Co. Ltd.(15)

10.10

Acquisition Agreement dated June 28, 2010 between Shanxi Jinyang Travel Agency Co., Ltd, Yan Chengrong, Yan Hongxia  and Shenzhen Universal Travel Agency Co. Ltd.(16)

10.11

Acquisition Agreement dated March 29, 2010 between Sun Qingdong, Wang Liyun,  Hebei Tianyuan International Travel Agency Co., Ltd. and Shenzhen Universal Travel Agency Co. Ltd.(17)

10.12

Acquisition Agreement dated March 29, 2010 between Jin Yan, Li Yan, Zhengzhou Yulongkang Travel Agency Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd.(18)

10.13

Acquisition Agreement dated March 26, 2010 between Yang Jing, Wang Zhong, Huangshan Holiday Travel Service Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd.21.1

List of Subsidiaries23.1

Consent of Independent Registered Public Accounting Firm31.1

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.
  58
  (5)
Incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 23, 2006.
 (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.
 (14)
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 30, 2010.
 (15)
Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 30, 2010.
 (16)
Incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 29, 2010.
 (17)
Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 29, 2010.
 (18)
Incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 26, 2010.


(19)
Incorporated herein by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 15, 2010.


59


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: June 7, 2011By:
/s/Jing XieJing XieChief Financial Officer (principal accounting and financial officer)Date: June 7, 2011





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

June 7, 2011By: Jiangping JiangChief Executive Officer and Director(principal executive officer)/s/Jing Xie

June 7, 2011By:  Jing XieChief Financial Officer (principal accounting and

financial officer)/s/Jing Xie

June 7, 2011By: Jing XieSecretary and a director/s/Huijie Gao

June 7, 2011By: Huijie GaoVice President of Corporate Finance and a director/s/Wenbin An

June 7, 2011By: Wenbin AnDirector/s/Jiduan Yuan

June 7, 2011By: Jiduan YuanDirector/s/Lizong Wang

June 7, 2011By: Lizong WangDirector/s/Lawrence Lee

June 7, 2011By: Lawrence LeeDirector


60